Case Name: M. D. WELLS, H. J. McFARLAND, and B. R. WELLS, Partners, Trading as Wells & Co., Attaching Creditors of A. Simon, Mortgagor, Abraham Simon and Sarah Simon, Mortgagors, v. SARAH McMAHON, Mortgagee
Court: Washington Supreme Court
Jurisdiction: Washington
Decision Date: 1888-02-02
Citations: 3 Wash. Terr. 532
Docket Number: 
Parties: M. D. WELLS, H. J. McFARLAND, and B. R. WELLS, Partners, Trading as Wells & Co., Attaching Creditors of A. Simon, Mortgagor, Abraham Simon and Sarah Simon, Mortgagors, v. SARAH McMAHON, Mortgagee.
Judges: 
Reporter: Washington Territory Reports
Volume: 3
Pages: 532–539

Head Matter:
[Decided February 2, 1888.]
M. D. WELLS, H. J. McFARLAND, and B. R. WELLS, Partners, Trading as Wells & Co., Attaching Creditors of A. Simon, Mortgagor, Abraham Simon and Sarah Simon, Mortgagors, v. SARAH McMAHON, Mortgagee.
Fbaudulent Oonvezanoe — Agenoz—Knowledge oe Agent Binding on Pbinoipal — Mobtgage.—Knowledge by the attorney of a mortgagee who makes the loan, at the time of taking the mortgage, that'it was given by the mortgagor to hinder and defraud his creditors, or knowledge of facts which would have disclosed the intent, if ordinary diligence had been used, will render the mortgage void as to the creditors, though the mortgagee was ignorant of any such purpose, and the agent was innocent of any intent to conspire in the fraud. Allzn, J., dissenting.
Appeal from the District Court holding terms at Tacoma. Second District.
Sarah McMahon, mortgagee, sued Simon and Simon, the mortgagors, to foreclose her mortgage given to secure a note made by the mortgagors to the mortgagee. M. D. Wells & Co. were joined as defendants, and claiming as attaching creditors an interest adverse to plaintiff in the mortgaged property. The mortgagors filed separate answers, each attacking the validity of the mortgage on account of fraudulent representations alleged to have been made by the agent of the mortgagee. M. D. Wells & Co., attaching creditors, in their answer, alleged among other things, in substance, that said mortgage was fraudulently executed by the mortgagors, by the procurement of plaintiff’s agent and attorney, to enable the mortgagors to fraudulently conceal the property from their creditors, and to hinder, delay, and defeat the collection of their debts, and that the mortgage was given for a much larger amount than that advanced for or on account of plaintiff; and that said agent and attorney had full knowledge and notice of the claims and rights of the attaching creditors, when the mortgage debt was created, and procured the mortgage to be executed to defeat their claims. The plaintiff, in reply, denied all material allegations in the several answers. Several other issues were formed, tried, and decided in the court below which are not material to the points decided by the Supreme Court. The only finding of fact in the District Court on the question of fraud was as follows:
“That said mortgage was negotiated and taken by the plaintiff by and through her said agent and attorney, in good faith, and without any intent or design on the part of the plaintiff or her agent to hinder, delay, or defraud any creditor or creditors of said Abraham and Sarah Simon (the mortgagors) or either of them, and there is no evidence to show that any creditor of said Abraham Simon was defrauded.”
Plaintiff had judgment, from which the mortgagors and the attaching creditors appealed.
Mr. Elwood Evans, and Mr. W. A. Reynolds, for the Appellants M. D. Wells & Co.
A mortgagee is bound by the knowledge of an agent of the mortgagor’s fraudulent intent; as also by the participation by said agent in the mortgagor’s fraud. The notice to agent is notice to the principal, if the agent comes to the knowledge while he is acting for the principal. (Bigelow on Fraud, 361, 362; The Distilled Spirits, 11 Wall. 356; U. S. Bank v. Davis, 2 Hill, 451-465; Wade on Notice, 31-33; Bierce et al v. Red Bluff Hotel Co. et al., 31 Cal. 161; Allen v. McCalla, 25 Iowa, 454, 96 Am. Dec. 56; Haven v. Snow, 14 Pick. 33.) Appellee’s agent, while managing her business before and at the time of negotiating in her behalf for the note and mortgage from the Simons, had acquired the knowledge of Abraham Simon’s insolvency; from such knowledge he denounces said Simon as dishonest. That knowledge of the agent is the knowledge of Sarah McMahon, the principal, and she is chargeable with the fraud of her agent. (Am. and Eng. Encyclopedia of Law, vol. 1, title “ Agency,” pp. 417, 418; Bump on Fraudulent Conveyances, pp. 199-206; Story on Agency, 6th ed., secs. 451, 452; Sandford v. Handy, 23 Wend. 260; Lee v. The Village of Sandy Hill, 40 N. Y. 448; Griswold v. Haven, 25 N. Y. 595, 82 Am. Dec. 380.)
Mr. Thomas Oarroll, and Mr. James Ashton, for the Appellee.
Counsel contended that the appellee personally had no knowledge of the matters and affairs between her agent and the mortgagors, nor of those between the mortgagors and the attaching creditors, nor of those between the latter and her agent; all of which were foreign to her loan and mortgage, and were never assented to by her expressly or impliedly, and of which she never had any knowledge. That the above authorities cited by the appellant, to the effect that the knowledge of the agent was the knowledge of the principal, and that, therefore, she was liable, were founded upon facts and circumstances entirely different from the ease at bar.

Opinion:
Mr. Justice Turner
delivered the opinion of the court.
The question in this case is whether the mortgage for $700, given by Abraham Simon and Eachel Simon, his wife, to the appellee, is void as against creditors of the said Abraham Simon, because made with intent to hinder, delay, or defraud creditors, of which intent the appellee had notice.
The appellee, in loaning the money to Simon which said mortgage secured, acted by and through her agent at Tacoma, and, consequently, was bound by notice which came to him.
The only finding of the trial court on the question of fraud was as follows:
"That said mortgage was negotiated and taken by this plaintiff by and through her said agent and 'attorney, in good faith, and without any intent or design on the part of plaintiff or her said agent to hinder, delay, or defraud any creditor or creditors of the said Abraham and Sarah Simon, or either of them, and there is no evidence tending to show that any creditor of said Abraham Simon was defrauded."
This finding did not respond fully to the issues made, and it ignored vital facts proven, which required different conclusions of law from those reached. The answer charged the agent of the appellee with actively conspiring with Abraham Simon to defraud his creditors, and particularly to defraud the appellant.
The evidence did not sustain this charge, but the answer called for a finding on the question whether it was any part of Simon's purpose, in negotiating the $700 loan, to hinder, delay, or defraud his creditors; and whether the agent of the appellee had such knowledge or means of knowledge of that intent as, under the principles of law applicable to such cases, would postpone his principal's mortgage to the lien of the appellant's attachment.
Findings ought to have been made upon these questions, and upon both ought to have been against the appellee.
After reading the testimony carefully we are of the opinion that one purpose of Simon in borrowing the money from the appellee, and securing the same by mortgage, was to make it difficult for his creditors to reach his property, by incumbering the same, and by getting as much of it into cash as possible, and putting the latter into his pocket. We are also of opinion that the agent of the appellee was made acquainted with facts during the negotiations for the loan sufficient to enable him to know the intent of Simon in the matter, if he had followed the disclosures up with the diligence which the law exacts of one dealing with a failing creditor. He was doubtless impressed with his duty to his principal to make advantageous loans for her, and lost sight, if he ever knew, of the obligations which the law imposed upon him in the interest of the general creditors of the man with whom he was dealing. However innocent he may have been, • and we impute to him no wrong whatever, the law charges him with all that he might have known concerning Simon's purpose by the use of ordinary diligence, and the law imputes to his principal all that he knew or ought to have known.
Assuming, then, the fraudulent intent of Simon in the premises, and the knowledge of that intent by the agent of the appellee, there is no room for controversy as to the law of the case. The mortgage made by Simon to the appelleewas fraudulent and void as against the creditors of Simon.
The judgment of the lower court ought to be vacated, and. judgment should be entered here granting the relief prayed by appellants in their answer, to wit: that the lien of appellee's mortgage be declared inferior to the lien of their attachment, and it is so ordered.
Jones, C. J., concurred.