Case Name: HENRY v. ALLEN
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1894-04-12
Citations: 28 N.Y.S. 242
Docket Number: 
Parties: HENRY v. ALLEN.
Judges: 
Reporter: West's New York Supplement
Volume: 28
Pages: 242–253

Head Matter:
(77 Hun, 49.)
HENRY v. ALLEN.
(Supreme Court, General Term, Fifth Department.
April 12, 1894.)
Principal and Agent—Implied Notice op Agent’s Acts.
Plaintiff put money in the hands of one M.i as his agent, to deposit it in defendant’s bank, and send to plaintiff, for each deposit, either his individual check, or defendant’s check indorsed by him. M. deposited the money in his own name, and induced defendant to issue checks payable to him, by representing that he was plaintiff’s partner, that the money was his share of the business, and that he desired the checks only as memoranda to be used in settling with plaintiff, after which he would return them. M. indorsed the checks and sent them to plaintiff, who received them supposing that they represented deposits made according to the agreement. Afterwards, M. appropriated to his own use the money so deposited by him. -Held, that plaintiff was chargeable with knowledge of the acts of M., and could not recover from defendants on such checks. Bradley, J., dissenting.
Appeal from judgment on report of referee.
Action by Hiram F. Henry against Norman M. Allen. From a judgment dismissing the complaint on the merits, plaintiff appeals. Affirmed.
Argued before DWIGHT, P. J., and LEWIS, HAIGHT, and BRADLEY, JJ.
Sherman S. Rogers, for appellant.
William H. Henderson, for respondent.

Opinion:
HAIGHT, J.
This action was originally commenced against Norman M. Allen and Hoyt M. Allen as copartners engaged in the business of banking at Dayton, N. Y., under the firm name of Norman M. Allen & Son, but since this appeal was taken Hoyt M. Allen died. The action was brought to recover the sum of |27,999, being the amount of 33 instruments in writing, each of which was in the following form, omitting dates and amounts:
"8- Dayton, N. Y.,-, 188-,
"Norman M. Allen & Son, Bankers.
"Pay to the order of F. Monson,- dollars.
"N. M. Allen & Son."
The plaintiff" resided in the village of Gowanda, distant about four miles from the residence of the defendants, but had no personal acquaintance with either. One Forbes Monson, the person named as payee in the instruments sued upon, also resided in the village of Gowanda, with whom the plaintiff was intimately acquainted. On the 12th day of March, 1886, the plaintiff was the owner of three certificates of deposit issued by the Bank of Go wanda, one of which was for $1,163.54, and the other two for $1,000 each. Chiefly through the representations of Monson, he had become suspicious of the solvency of the bank, and decided to withdraw his money therefrom. He accordingly entered into an arrangement with Monson by which he was to deliver to him his three certificates of deposit for the purpose of having him withdraw the money from time to time,' in such manner as not to create a suspicion on the part of the officers of the bank of his purpose, or of where the same was to be placed, and to deposit the same with Norman M. Allen & Son. It was further arranged that from time to time thereafter he should send or deliver to Monson the money that he" might be able to save from Ms business as showman while upon the road; and that Monson, acting for and on his behalf, should take it to the defendants' bank, and there deposit it, and, as the referee has found, to send or deliver to him for each deposit so made either his individual check or the check of the defendants indorsed by Monson for the amount of each deposit; that Monson should have charge of that branch of his business, and of making deposits with the defendants, and of negotiating with them in reference thereto, and of looking after the same, and, when the amount so deposited should aggregate the sum of $5,000, a loan to the defendant Norman M. Allen should be made therefor upon a bond secured by a mortgage upon real estate. As a part of such arrangement it was agreed that Mon-son should pay him 6 per cent, interest on all sums delivered to him for deposit. Pursuant to this arrangement he delivered to Monson the three certificates of deposit, and from time to time thereafter, up to the 4th day of March, 1889, sent by letter and delivered to Monson various sums of money for deposit with the defendants, amounting in the aggregate to $27,999, which sums he charged to Monson as the same were remitted to him from time to time. On the 12th day of March, 1886, Monson opened an account with the defendants in their bank by making a deposit to his own credit therein of a part of the proceeds of one of the certificates of deposit delivered to him by the plaintiff, and from time to time thereafter made other deposits to his own credit of the various sums that he received from the plaintiff. In making such deposits he procured from the defendants the 33 instruments upon which this action is founded, each instrument being filled out with the date and the amount of the deposit In order to procure the same, he stated and represented to the defendants that the money was his own; that he was a copartner of the plaintiff Henry in his business, and that the money had been received by him as his share of the profits in the business; and that, he desired the instruments solety for his own accommodation, and as a memorandum only, to be used by him in his settlement with the plaintiff, after which he would return the same to the defendants; and that they should not be transferred or delivered to any person or persons; and that neither of them should have any legality as commercial paper, and that neither should be a valid or binding obligation on the part of the defendants, or either of them. The referee has found that these representations were made with a fraudulent intent and purpose, to induce . the defendants to execute and deliver to him the instruments in question, and that the defendants, relying upon such statements and representations, believing them to be true, were induced to make, and did make, and deliver to Monson from time to time, the instruments in question, neither of which was charged up to him or his account; that he paid nothing therefor, and that each and every of them was and is entirely without consideration. It further appears that, shortly after the receiving of each of such instruments, Monson wrote upon the back thereof to pay to the order of the plaintiff, and signed his name thereto, and either mailed or delivered the same to the plaintiff, who received each instrument believing • that Monson had deposited his money according to the terms of their arrangement, and had procured each of the papers in consideration of such deposit. The plaintiff retained the instruments, and did not present them to the defendants for payment until the 12th day of February, 1891, when they were all presented together for payment by the plaintiff's attorney. In June, 1886, Monson paid to the plaintiff the interest on all moneys delivered " to him, up to July 1, 1886, at the rate of 6 per cent., and continued to pay such interest quarterly upon all moneys received by him, up to January, 1890. The defendants had no knowledge or information of the agreement existing between the plaintiff and Mon-son, or that the plaintiff had, or claimed to have, any interest in the money so deposited, or that their said instruments had ever been delivered to the plaintiff, until February, 1891. In the mean time Monson had checked out all of the money deposited by him to his credit with the defendants, and on the 9th day of February, 1891, absconded.
Some criticism has been made upon the findings. It is said that the plaintiff never agreed to accept the individual check of Monson. For the first money derived by Monson upon one of the certificates of deposit delivered to him by the defendants he mailed to the plaintiff his individual check, inclosed in a letter, in which he appears to have apologized for not procuring it to be certified, pleading as an excuse that he had forgotten to do so. To this the plaintiff replied, saying: "There is no earthly need of your having your check certified. Why, what an idea! I don't want your checks at all." Thereafter Monson appears to have procured the defendants' checks payable to his order, which he indorsed over to the plaintiff. The plaintiff testified that, in his conversation with Mon-son, Monson wanted to know of him if 2T. M. Allen's check would be security; that he told him he would make inquiries, and subsequently told him that he would take FT. M. Allen & Son's /checks, provided he would indorse them; and that they began the business with that understanding. It is therefore apparent that the plaintiff did not agree to take the individual check of Monson, but that the understanding was that he should take the check of the defendants, indorsed by Monson. It appears that Monson paid plaintiff the interest, the referee finds, down to January 1, 1890. That is the last date of payment shown by the receipts, but it is claimed by the appellant that it appears from the letters written by the plaintiff to Monson that the interest was paid down nearly to the time that Monson absconded. Under the view taken by us, this variance is unimportant. The plaintiff knew that Monson was paying the interest upon his deposits. He testified that he supposed that Monson in some way obtained the interest from Allen. But his letters leave this question in some doubt, for he had the defendants' check for each deposit in his possession, and these checks contained no promise to pay interest. In several of his letters to Mon-son he speaks of the interest, and expresses some doubt as to whether he ought to take interest from him. In his letter from Bangor, under date of "10/3/87," he says:
"Just received yours Qtli, mentioning payment to Leonard, $172.50, to my credit, same being interest on my deposits, as understood. I feel rather sheepish in this interest matter, but I presume, as long as you are bound to do it, I shall have to accept it. Inclosed find my receipt for the same. With every appreciation, .believe me, truly, Henry."
And again, from Perth Amboy, October 5th (the year not given), he writes:
"I don't feel right to take interest from you on money that is actually a bother to you. I don't want your friendship to extend to such matters."
We shall, however, assume for the purposes of this review that the plaintiff supposed that Monson had procured the interest which he paid him from Allen & Son.
It is also claimed that the referee erred in finding that the defendants had no knowledge that the money deposited with them by Monson belonged to the plaintiff. It is claimed that Henry wrote a letter to Allen & Son about the time that Monson commenced depositing the money with them, in which he stated, in substance, that Monson had influenced him to withdraw his funds 'from the Bank of Gowanda, and to place them in the defendants' bank; that Monson was a great friend of his, and very enthusiastic over his success, but wanted the matter to be strictly a business matter. He, however, kept no copy of the letter; could not tell at what place he wrote it; his correspondence was very voluminous; and that he could not be certain as to the exact contents of the letter. N. M. Allen testified that he remembered receiving a letter from the plaintiff; that he wTas unable to find it among his files; that he thought he had passed it over to Monson; that he could not recall the contents of the letter further than that it conveyed to him no idea that the plaintiff had withdrawn any money from the Bank of Gowanda to be deposited with them through Monson. The referee appears to have believed the defendant's testimony, and where there is a conflict between two interested parties it is our usual practice to follow the findings. We must therefore treat the instruments in suit as memorandum checks issued by the defendants to Monson without consideration, and in his hands creating no liability against the defendants. They could only become liable thereon by a transfer of the checks by Monson to a purchaser in good faith for value in the regular course of business, without notice of the arrangement under which they were issued. Is the plaintiff such a holder? It is not shown that he had actual knowledge of the facts under which they were issued, but it is found as a fact that he had constituted Monson his agent, to take his money and deposit it with the defendants, and this we do not understand to be controverted. By delivering his money to Monson he invested him with the indicia of title, and thus enabled him to induce the defendants to believe that the money belonged to him. As we have seen, he took the money to the defendants, represented it to be his, deposited it with them, had credit given to himself in his individual account, and subsequently with-, drew it upon his own checks. Were it not for the checks, it would not be claimed that the defendants, after the repayment of the money so deposited by Monson, to him, were liable to the plaintiff. Their liability is sought to be established through the memorandum checks, but, as we have seen, they were induced to believe that the money belonged to Monson, and were induced by him, at the time of making the several deposits, to issue to him the memorandum checks in question under the representation that they would be kept by him, and not delivered to any other person. Monson exceeded his authority as agent of the plaintiff, and, as found, intended to defraud the defendants. He did not deposit the money in the name of his principal, as he was expected to do. He procured the checks upon the representation stated, and did not disclose that fact to the plaintiff; but he was authorized to take the money to the defendants, to deposit it, to procure their checks therefor, to indorse the same, and to return them to the plaintiff. The plaintiff ought to have known that Monson was depositing the money with the defendants in his own name from the fact that the checks issued therefor were issued to him, and payable to his order. This fact should have caused him to make inquiry, but he appears not to have done so, but to have rested under the belief that his agent had properly performed his duty. The rule, as we understand it, is that the principal is chargeable with the knowledge possessed by his agent, and the manner in which he transacts the business placed in his charge; and, as applied to the facts of this case, the plaintiff must be charged with notice of the facts under which Monson procured the memorandum checks to be delivered to him by the defendants.
Story on Agency, at section 140, says:
"Upon a similar ground, notice of facts to an agent is constructive notice thereof to the principal himself, where it arises from, or is at the time connected with, the subject-matter of his agency; for, upon general principles of public policy, it is presumed that the agent has communicated such facts to the principal; and, if he has not, still, the principal having intrusted the agent with the particular business, the other party has a right to deem his acts and knowledge obligatory upon the principal, otherwise the neglect of the agent, whether designed or undesigned, might operate most injuriously to the rights and interests of such party."
And again, at section 419, he says:
"This doctrine applies, a fortiori, to every case where the agent does not contract in his own name, but solely in the name of his principal; for in such a case the principal is not only the contracting party, but he is the sole contracting party exclusive of the agent, and is alone competent to sue or enforce any other remedy thereon. In all cases of this sort, however, the principal, while he is entitled to all the advantages and benefits of the contract of his agent, must take them with all the attendant burdens, and subject to all the attendant advantages, counterclaims, and defenses of the other contracting party. Thus, if the contract of the agent is impeachable on account of the fraud, imposition, misrepresentation, or other misconduct of the agent, the principal is affected with all the consequences thereof, and cannot avail himself of his own innocence to support what would otherwise be an unfounded or defective title. So, if the agent has sold goods in his own name, no other person being known as principal, and the agent agrees at the time of the sale that the vendee may set off against the price a debt due to him by the agent, that set-off will be as good against a suit brought by the principal as it would be if the suit was brought by the agent for the price."
And again, at section 420, he says:
"Neither will it make any difference in such cases that the principal at the time of entering into the contract is known or unsuspected; nor that a third person has dealt with the agent, supposing him to be the sole principal. The only effect of the last consideration is that the principal will not be permitted to intercept the rights of such third person in regard to the agent, for he must take the contract, subject to all equities, in the same way as if the agent were the sole principal. Thus, for example, if the agent is the only known or supposed principal, the person dealing with him will be entitled to the same right of set-off as if the agent were the true and only principal. But, subject to these rights, and those of the agent himself, the principal may generally sue upon such a contract, in the same manner as if he had personally made it."
Mecliem in his work upon agency, at section 773, says:
"But if the principal would avail himself of the benefits of a contract made by an agent in his own name without disclosing his principal, he must also assume the responsibilities of the contract. He must take the contract as it exists at the time he interposes, and subject to all the rights which the other party then possessed against the agent. In the homely but expressive language of a learned judge, the principal must 'step into the shoes of the agent.' Hence, where a third person, who has entered into a contract with the agent in ignorance of the fact that he was not the real principal, as he assumed to be, is sued upon the contract by the principal, he may avail himself, as against the principal, of every defense, whether it be by common law or statutes, which existed in his favor against the agent at the time the principal first interposed and demanded performance to himself. This right is not affected by the fact that the agent, in thus entering into the contract in his own name without disclosing his principal, acted in contravention of the express direction of his principal."
In the case of Bank v. Davis, 2 Hill, 451, the action was brought to recover the amount of two bills drawn by the defendant. It appears that these bills were transmitted by the drawer to Williams, one of the directors of the bank, for the purpose of having them discounted for the benefit of the former; that Williams put Ms own name upon the paper, and procured it to be discounted for himself, and appropriated the avails. At the time he was one of the five directors of the bank constituting the board of discount His associates had no knowledge of his fraudulent use of the bills. It was held that the bank could not recover. Nelson, G. J., in delivering the opinion of the court, says:
"The general rule is undisputed that notice to the agent is notice to the principal,-if the agent comes to die knowledge of the fact while he is acting for the principal in the corarse of <-be very transaction which becomes the subject of the suit; for upon general principles of policy it must be taken for granted that the principal knows whatever the agent knows. There is no difference between personal and constructive notice, except in respect to the guilt; for, if there were, it would produce great inconvenience, as notice might be avoided in every cause by employing an agent. It is said, however, that Williams was but one of the five empowered by the bank to represent it in this transaction; that the bank is not, therefore, to be held responsible for his individual fraud at the time, nor can it be chargeable with his knowledge of the facts under which the paper in question was discounted; and that such knowledge is chargeable only when the agent has full power to act for the principal in the particular case. It is not to be denied that, if the principal employs several agents to transact jointly a partic-' ular piece of business, he is equally responsible for the conduct of each and all of them, while acting within the limit and scope of their power, as completely so as he would he for the conduct of a single agent upon whom the whole authority had been conferred He cannot shift or avoid this responsibility by the multiplication of his agents. It is also clear that the corresponding responsibility of each of the several joint agents to the principal for the faithful discharge of their duties is as complete and perfect as in the case of a single agency; and any prejudice to the principal arising from fraud, misconduct, or neglect of either of them would afford ground for redress from the party guilty of the wrong. These are general, conceded principles, for which no authority need be cited. One of the grounds for charging the principal with the knowledge possessed by the agent is because the latter is bound to communicate the fact to the former, and is liable for any prejudice that may arise from a neglect in this respect; and hence the law presumes that the principal has actual notice."
In Hyatt v. Clark, 118 N. Y. 563, 569, 23 N. E. 891, it is said by Vann, J., after quoting from Story on Agency:
"In other words, she was chargeable with all the knowledge that her agent had in the transaction of the business he had in charge."
In Adams v. Mills, 60 N. Y. 533, 539, it is said that—
"His notice and knowledge must he regarded as notice to and knowledge of the wife, according to the well-settled principle that a principal is chargeable with all the knowledge the agent possesses in the transaction of the business he has in charge."
See, also, Myers v. Insurance Co., 99 N. Y. 1-11, 1 N. E. 33; Hogan v. Shorb, 24 Wend. 458; Laing v. Butler, 37 Hun, 144, affirmed 108 N. Y. 637, 15 N. E. 442; Greenfield School Dist. v. Greenfield Nat. Bank, 102 Mass. 174; Bank v. King, 57 Pa. St. 202.
The learned referee is of the opinion that the plaintiff could not recover, for the reason that he parted with nothing of value at the time he received the instruments upon which he brings his suit; that he first sent his money to Monson, and charged him therefor' in his book; that some days later Monson returned the checks, and was then given credit therefor; that at that time the plaintiff received and credited the checks on a pre-existing debt against Mon-son; and that, in consequence thereof, the defendants were not precluded from interposing the defense that they had thereto,—citing Clark v. Gallagher, 20 How. Pr. 308; Phoenix Ins. Co. v. Church, 81 N. Y. 218; Potts v. Mayer, 74 N. Y. 594. The referee also appears to have been of the opinion that the long time intervening after the plaintiff received the checks before he presented them to the defendants for payment furnished evidence that the plaintiff did not receive them in the regular course of business; citing Claflin v. Bank, 25 N. Y. 292. We have not deemed it necessary to consider these questions, for, under the view taken by us, the plaintiff is chargeable with knowledge of the agreement of Monson with the defendants, and consequently they may avail themselves of their defense the same as if the action was prosecuted in the name of Monson. The judgment should be affirmed, with costs.
DWIGHT, P. J., and LEWIS, J., concur.