Sandford v. Handy — 23 Wend. 260

Majority

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*Sandford vs. Handy.

Headnote

An agent employed for a special purpose, e. g. to obtain subscriptions to a project, of forming a joint stock company in relation to lands, may use the ordinary means of accomplishing the object of his appointment: such as representing the location and quality of the lands, and the like; and if he make false representations, inducing purchasers to enter into contracts, the principal is affected by such representations, the same as if made by himself. If the manner of doing the act, be prescribed in writing, and that known to the person dealt with, and the agent exceed his authority, the principal is not bound.

A vendor of land is not liable for an expression of opinion of its value ; but he is for a false representation as to its location, if the purchaser have not an opportunity at the time of seeing the land. So also he is liable for a misrepresentation as to the cost of the land.

Proof of false representations made as inducementsto the entering into El contract, is admissible;

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suck proof does not conflict with the rule, that evidence varying the terms or conditions of a contract shall not he received.

Where the owner of lands issues proposals for the establishment of a joint stoch company, in the purchase and sale'of his lands, estimating the value thereof at $115,000, proposing to divide that sum into 23 shares, each subscriber to become interested in the purchase to the extent of the number of shares set opposite to his name — whether an individual who has subscribed for only one share is liable to pay the amount of his subscription, unless the whole number of shares be taken up, quere.^[1]

This was an action of covenant, tried at the Oswego circuit, in June, 1839.. It was brought upon certain articles drawn up for the formation of a joint stock company, in reference to certain real estate. The articles bear date on the 1st of July, 1836, and are in these words: “Whereas, Lewis H. Sandford, of Skaneateles, in the county of Onondaga, and state of New-York, is seized in fee and possessed of the several tracts, pieces and parcels of land, situate in the village of Oswego, in the county of Oswego, and state aforesaid, set forth and described in the schedule here- [ *261 ] unto annexed ; the title to the *whole of which land is now vested in the said Lewis, except as otherwise stated in the said schedule. And whereas the said Lewis H. Sandford has proposed and agreed to divide the said lands into twenty-three shares, of five thousand dollars each, estimating the value of the same in the aggregate, free and clear from all incumbrances, at one hundred and fifteen thousand dollars ; and to sell the said property at that price, to such persons as shall subscribe for said shares, reserving to himself the right of subscribing two shares of the' said property. And whereas, the undersigned have severally, each for himself, and not jointly, agreed to become interested in the purchase of the said property at the said price, to the extent of the number of shares set opposite to their respective names. Now, with a view, among other things, of regulating the terms and manner of payment for the said property, the manner in which the title thereof is to be taken, held, and disposed of, and of defining the respective rights and duties of the said Lewis, and of the subscribers in regard to the said property, it is hereby declared to be mutually understood, stipulated and agreed upon, by and between the said Lewis and the subscribers, in manner following, viz. First. The terms of payment for the said property shall be as follows: Ten per cent to be paid on the first day of September next, with interest; fifteen per cent to be paid on the first day of November next, with interest; twenty per cent on the first day of April nex£, with interest. The three above payments to be provided for in the notes of the respective subscribers, payable as above. The balance, fifty-five per cent, to be secured by the several bonds of the subscribers, payable to the said Lewis, with interest on the first day of April in each year on the whole balance due, in instalments, as follows, viz. Twenty ppr

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cent on the first day of April, 1838 ; twenty per cent on the first day of April, 1839 ; ten per cent on the first day of April, 1840 ; and five per cent on the first day of April, 1841. The condition of the respective bonds shall refer to this instrument, and be subject to the provisions herein contained ; and the said bonds are to be delivered to the trustee hereinafter named, to be held by him as security for the discharge by *the [ *262 ] said -Lewis of the incumbrances on the said premises, as herein stipulated by him. Second. The title of the said property shall be conveyed to Edward Sandford, of the city of New-York, to be held in trust for the benefit of the subscribers, according to the amount of their several and respective interests therein, and subject to the agreements concerning the same, contained in this instrument. Third. The notes, payable as above, on the first day of November and April next, shall be delivered to the said Lewis as soon as the conveyances of the said property (or two-thirds thereof in value,) shall be made to the said Edward Sandford, trustee as aforesaid, in regular and due form of law. Fourth. The said property shall be managed, sold, and conveyed, at such time, in such manner, and for such prices as the majority of the subscribers shall direct, each share being entitled to a vote. Fifth. The said Lewis agrees that he will act as agent in the management and disposition of the said property, without compensation, except for professional services, and for necessary disbursements. He further agrees, that out of the monies to be received- by him for the said property, he will pay off and discharge all the incumbrances thereon. Sixth. In case the said Lewis shall not discharge the said incumbrances, or any part of the same, on request of the said trustee, as he has above stipulated, then the said incumbrances, or such part of the same as is not thus discharged, shall be paid out of the first sales of the said property which shall be made, and the subscribers shall be entitled to have credited on their several bonds, the rateable part and proportion of all such sum or sums of money as the said trustee shall so pay out of the proceeds of said sales on that account, which the parties in interest would have been entitled to, and ought and would have received of the said trustee, in respect of their respective shares and interests in the trust premises, if the said sum or sums so applied by him the trustee, to the discharge of the said incumbrances, had been paid by the said Lewis, and not by the said trustee, which credit shall be indorsed by the said trustee on the said several bonds; and when so indorsed shall be deemed and held as a discharge of so much of the *principal of. [ *263 ] the said bonds, and the several obligees shall only be held liable for the balance due thereon respectively, after the said indorsement shall have been made thereon as aforesaid. Seventh. The interest of the respective subscribers shall be held and retained by the said trustee, as a security for the said Lewis, for the payment of the said several notes and bonds, (subject as to the said bonds to the provisions of the last preceding article,) .and no subscriber or his heirs, representatives or assigns, shall be entitled to

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any part of the proceeds of any sale or sales, whether money or securities, until the amount agreed to he paid to the said Lends for the said property shall be fully received by him, or until the incumbrances on the property shall be first satisfied and discharged, and the balance of the said purchase money paid to the said Lewis, according to the above provisions in regard thereto.”

The articles bear date on the first day of July, 1836, and are executed under the hands and seals of the plaintiff, of the defendant and sixteen other persons. The defendant subscribed for one share, and the other parties to the articles except the plaintiff, subscribed for eighteen shares, and opposite the name-of the plaintiff no shares were set. Attached to the articles is a schedule of the various tracts of land referred to.

In the term of May, 1838, this suit was commenced. The plaintiff declared that on the first day of July, 1836, at, &c. by certain articles of agreement then and there made between him and the defendant, sealed with their respective seals, after reciting, &c. (setting forth the recitals contained in the articles) it was agreed, &c. (setting forth the agreements contained in the articles, down to and including the third general stipulation.) The plaintiff then avers, that on the day of the date of the articles, the defendant signed and sealed the articles and set one share opposite to his name ; and that he the plaintiff duly conveyed the property specified in the schedule to Edward Sandford, part on the eighth day of August, 1836, and the residue on the first day of October in the same year. By way of breach he alleges that the defendant did not execute and deliver [ *264 ] to the trustee his *bond for the balance of fifty-five per cent, for his share of the property, and that he has not paid the twenty per cent, due on the first day of April, 1838, nor the interest due from him on that day.

The defendant pleaded non est factum, and subjoined to his plea a notice that on the trial of the cause he would prove, that at the time of entering into the articles of agreement, the plaintiff, by himself or his agent, fraudulently and deceitfully represented amongst other things, to the persons who became share holders in the association, that the lands specified in the schedule were to be put into the association at the original cost price, which he alleged to be $115,000, whereas the cost of the lands to the plaintiff was only about $80,000 ; that he represented the lands to be of great value, whereas they were of very little value.

On the trial of the cause the signatures of the plaintiff and defendant to the articles of agreement were proved, and that the balance due the plaintiff was $3183,12. The plaintiff having rented, the defendant moved for a nonsuit on the ground that the plaintiff had not proved the allegations contained in his declaration. The motion for a nonsuit was denied. The defendant offered to prove, amongst other things, that the signatures of him

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self and others to the articles of association were procured by false and fraudulent representations made by Edward Sandford, as to the cost of the property and the location and value thereof, and that the property had'not cost the plaintiff (Lewis H. Sandford) more than $80,000 or $85,000 : which evidence was objected to by the plaintiff and excluded by the circuit judge, on the .ground that it shewed Edward Sandford only a special agent to obtain signatures to articles of association containing explicit terms and conditions; and that the plaintiff therefore could not be affected by any unauthorized representations of his agent: to which decision the defendant excepted. The jury, under the direction of the judge found a verdict for the plaintiff for the sum claimed by him. The defendant on a bill of exceptions moved for a new trial.

S. P. Staples & D. Cady, for the defendant.

S. Stevens & J. A. Spencer, for the plaintiff.

*By the Court, The counsel for the defend- [ *265 ] ant, in opening the defence, among other grounds, stated that he should prove that the signature of his client, as well as others to the articles declared upon, were procured by fraudulent and false representations as to the cost of the property, and the location and value thereof; and also in respect to the individuals who had signed or agreed to sign, and their interests therein. In the course of the trial, he offered proof of the. several matters stated in his opening ; and that the false representations were made by- the agent of the plaintiff, who procured several signatures, and among others that of the defendant. This was objected to, and excluded by the learned judge," on the ground that the evidence shewed E. S. a special agent only, authorized to obtain signatures to a written proposition of sale, containing explicit terms and conditions, and that the representations, if made, could not affect the plaintiff. Unless this position can be maintained as a sound principle of law in respect to limited agencies for a special purpose, the defendant, I think, is entitled to a new trial; though several other grounds are now taken in support of the verdict, even if this decision be erroneous. They will be noticed hereafter.

We may remark that the proof proposed did not go to vary the terms or conditions of the contract, which seems to be implied in the reasons assigned at the trial for the rejection, but to show that the defendant was induced to enter into it as drawn, in consequence of the, fraudulent representations of the agent in respect to the subject matter — the property sold, and which was material in forming an estimate of its value. The legal effect of the representations we will examine hereafter; for the present, we assume they were sufficient to go to the jury on the point of fraud ; and the question is, whether they were competent to affect the plaintiff in that aspect of the case.

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The distinction between a general and special agent has often been the subject of discussion in adjudged cases, and by elementary writers ; but it is not particularly important here, as this is conceded to be a case of special agency. Our inquiry is more especially directed to ascertain the [ *266 ] *extent of the principal’s responsibility in cases of this character ; or rather, confining it more particularly to the, point before us, to what extent and under what circumstances will the principal be held responsible for the representations and declarations of the agent.

Mr. Justice Story, in his recent valuable commentaries on the subject,^. 126, lays down the general rule, and which is as applicable to special as to general agents, that “ where the acts of the agent will bind the principal, there his representations, declarations and' admissions respecting the subject matter, will also bind him, if made at the same time, and constituting part of the res gestee.” He further observes, that “ for most practical purposes, a party dealing with an agent, who is acting within the scope of his authority and employment, is to be considered as dealing with the principal himself. If ibis the case of a contract, it is the contract of the principal. If the agent, at the time of the contract, makes any representation, declaration or admission touching the subject matter of the contract, it is the representation, declaration or admission of the principal.” These principles are fully borne out by the several authorities referred to — are founded in good sense, and with a just conception of the commercial and other business transactions of life from which they have been derived.

It is insisted, however, that the very limited and special character of the agency in question forms an exception, and several cases are relied on. 1 Salk. 95. 2 id. 442. 3 T. R. 757. 15 East, 400, 408. 2 Johns. R. 48. 7 id. 390. Where a person is engaged in a particular department of business, and is employed to do an act within his line, with special restrictions, there the general powers, derivable from the nature of his ordinary employment, will control the limitation ; he will be held to possess such in the particular instance, as his ordinary occupation fairly imports to the public. But in the absence of any such complication of general power, the limitation will control. Thus, in the case of a factor or servant of a horse dealer in the habit of making sales, if the factor or servant should be specially instructed in a given instance, the instructions would not be binding if [ *267 ] *in conflict with the general authority derivable from their occupations. But if a person who had no such general character should be employed to do a particular act, such as sell a lot of goods, horse, &c. and in respect to which his power is specially limited, there if he exceed the linr itations, his principal will not be bound. The reasons for this distinction are obvious and sound, and need not be repeated ; and if the case falls within it, the decision at the circuit should be sustained.

One ground for the qualification of the authority undoubtedly exists,

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Nothing is to be implied from the general or ordinary pursuits of the agent. But the difficulty lies in annexing the restriction contended for, to the authority. The agent here had power to procure the subscription to the contract of sale : and in the absence of special instructions to the contrary, at least, does not this imply the right to use the ordinary means and inducements to accomplish the end ? Must not the plaintiff have expected that the agent would speak of the property, its situation, quality, &c. ? This is laid down as a general principle, and upon reason and authority, is applicable to both special and general agents. 4 T. R. 177. 5 Esp. R. 72. Ross on Vendors, 156. 2 Camp. 555. Smith’s Merc. Law, 61. Story’s Comm. on Agency, 60 and 70.

The case of Nixon v. Hyserott, 5 Johns. R. 58, is supposed to hold a contrary doctrine. But there the power was necessarily in writing, and subject to the inspection of the party : this he is presumed to have known, and no good reason exists for binding the principal beyond the scope of it — if the party neglect to call for the power, and judge for himself, it is his own fault.

The case of Gibson v. Colt and others, 7 Johns. R. 390, is doubtless a much stronger one for the plaintiff: but that was decided upon Fern v. Harrison, 3 T. R. 755, without adverting to the same case when up the second time, 4 T. R. 177, and as said by the late chief justice in Jeffrey v. Bigelow, 13 Wendell, 521, might have been decided the other way. I may add, it ought to have been so decided, standing as it professes to do, upon that case : for the court There held the principals bound, be- [ *268 ] cause the agent was not specially restricted in selling the bill, and therefore there was an implied authority to endorse it. That case, and the whole current of authority, shews that, unless the manner of doing the particular act is prescribed, even the special agent will be deemed clothed with the usual and ordinary means of accomplishing it. See also 6 Cowen, 357.

But it maybe said, that the principal should not be held responsible for misrepresentations, as no authority to deceive and defraud can properly be implied as one of the means. There is undoubtedly much force in this view, and at a very early day it carried with it the judgment of the court. Bro. Abr. Action on the Case, pl. 8. But Lord Holt in Hern v. Nichols, 1 Salk. 289, overruled that decision, and held him liable. This has been the approved law ever since; 3 Atk. 47 ; 1 T. R. 12 ; Ross on Vend. 161 ; Story’s Comm. Agency, 131 ; 13 Wendell, 521 ; 1 Camp. 127 ; Smith’s Mer. Law, 70 ; 1 Strange, 647 ; 4 T. R. 39 ; and the reasons given cannot fail to recommend themselves to the good sense of every man ; “ for seeing somebody must be a loser by the deceit,” he says, “ it is more reason that he that employs and puts a trust and confidence in the deceiver, should be a loser, than a stranger.” See also 1 T. R. 16 ; 2 Stark. Ev. 269 ; Bull. N. P. 31. Indeed, when it was determined, that the principal should be held responsible for the representations of the agent, it necessarily followed that he

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should be for fraudulent representations, because they are made in the course of the execution of his authority ; he is held out as fit to be trusted, and his fidelity and good conduct in the matter, thereby impliedly recommended ; Attorney General v. Siddon, 1 Tyrwh. R. 46-7, Bayley B.; Smith’s Mer. Law, 70 ; Story’s Comm. Agency, 465 ; and where one of two innocent persons must suffer by the fraudulent act of a third, the one who enables such third person to commit the fraud, must bear the loss. But it is said, that the facts proposed to be proved, fell short of making out the fraud, and for that reason were properly rejected. That is true so far as opinion [ *269 ] of value went, but a false representation as to location *might have been material, and might have been made under circumstances and in a way calculated to mislead the defendant, who possibly bad no opportunity at the time to examine personally the premises, and purchased, confiding in the representations of the agent. If so, he had a right to rely on them, and the plaintiff, who is presumed to have known the location, at least until the contrary is shown, must be held responsible for the truth of the account given. It is said, that this ground was not covered by the notice under the plea of non est factum ; but no such objection appears to have been taken, and therefore wm are to consider it waived.

I am also inclined to think that any misrepresentation as to the actual cost of the property, is a material fact, and naturally calculated to mislead the purchaser. In Sisney v. Slbey, 2 Lord Raym. 1119, an action was held to lie, for falsely affirming the rents to be more than they actually were. See 3 T. R. 58; 3 B. & C. 623; 2 Carr. & Payne, 337. The price which an article is bringing in the market, is often a material fact, and a fruadulent representaticn, by a person who has peculiar means of knowledge, has been held to invalidate the contract. Misrepresentation of the cost of an article, stands somewhat on the same footing; it is a material fact, which not only tends to enhance the value, but gives to it a firmness and effect beyond the force of mere opinion. The vendor is not bound to speak on the subject, but if he does, I think he should speak the truth.

The counsel for the defendant objected to the reading of the contract, after proof of the execution, until the signatures of all were proved, which was overruled. This, I think, was correct, and all the proof the issue called for. A question might have been raised when the articles were produced, on the ground of variance, namely, whether upon the true interpretation of the contract, the taking up of the tiventy-three shares were not a condition of the liability of each and every subscriber. The plaintiff is bound to set out the agreement according to its substance and effect, and if he fail to do so, the objection is available under the plea of non est [ *270 ] factum. 11 East, 633. The pleaderhere has *assumed that each subscriber became liable, upon the plaintiff conveying to the trustee. The question, however, came up on the motion for a nonsuit; it is one,

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undoubtedly, of some difficulty, and probably the most important arising out of the contract, and upon which it may ultimately turn. It goes to the liability of all the subscribers; and as the case will again come before us, especially if the point of fraud is found for the plaintiff, and as it involves a considerable amount of property, we will forbear expressing any opinion till we have the benefit of another argument.

New trial granted ; costs to abide event,