Court Opinion

ID: 3239240
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:12:57.802301+00
Date Added: 2024-06-11T13:40:15.392935
License: Public Domain

The doctrine is thoroughly established, and it has been repeatedly held in this state, that where a person who desires to borrow money applies to an attorney or a money broker to procure a loan for him, and pays or agrees to pay such attorney or broker anything for his services, this constitutes the attorney or broker quoad hoc the agent of the borrower, and not of the lender, though it be a part of the business of the attorney or broker to lend money, and he has, on other occasions, lent moneys of the lender, and so, even where the lender has placed his money in the hands of the broker to be so lent. American Mortgage Co. v. King, 105 Ala. 358, 16 So. 889; Edinburgh, etc., Co. v. Peoples, 102 Ala. 241, 14 So. 656; Ginn v. New England, etc., Co., 92 Ala. 135, 8 So. 388; Allen v. McCullough, 99 Ala. 612, 12 So. 810; George v. New England, etc., Co., 109 Ala. 548, 20 So. 331; Land Mortgage, etc., Co. v. Preston, 119 Ala. 290, 24 So. 707.
A well-established exception to the general rule that a principal is chargeable with constructive notice of facts known to the agent, or of which he has notice, is that if the agent in the particular matter is then in fact acting for himself, and intends to perpetrate a fraud on the principal, or on other persons, for his own benefit, and the communication of the fact to be imputed would necessarily prevent the consummation of the fraud intended, then the principal is not chargeable with constructive notice. Frenkel v. Hudson, 82 Ala. 158, 2 So. 758, 60 Am. Rep. 736; Reid v. Bank, 70 Ala. 199; Innerarity v. Bank, 139 Mass. 332, 1 N.E. 282, 52 Am. Rep. 710; Dillaway v. Butler, 135 Mass. 479; Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 17 N.E. 496, 9 Am. St. Rep. 698; Allen v. South Boston R. R. Co., 150 Mass. 200, 22 N.E. 917, 15 Am. St. Rep. 185. In the last-cited case the reason for the rule is thus stated:
"There is an exception to this rule when the agent is engaged in committing an independent fraudulent act on his own account, and the facts to be imputed relate to this fraudulent act. It is sometimes said that it cannot be presumed that an agent will communicate to his principal acts of fraud which he has committed on his own account in transacting the business of his principal, and that the doctrine of imputed knowledge rests upon a presumption that an agent will communicate to his principal whatever he knows concerning the business he is engaged in transacting as agent. It may be doubted whether the rule and the exception rest on any such reasons. It has been suggested that the true reason for the exception is that an independent fraud, committed by an agent on his own account, is beyond the scope of his employment, and therefore knowledge of it, as matter of law, cannot be imputed to the principal, and the principal cannot be held responsible for it. On this view, such a fraud bears some analogy to a tort willfully committed by a servant for his own purposes, and not as a means of performing the business intrusted to him by his master. Whatever the reason may be, the exception is well established."
The case nearest in point and the best reasoned case is from the Georgia court; the opinion being written by Justice Lamar, late of the Supreme Court of the United States. The headnotes well state the decision, which is as follows:
"1. Where an agent is guilty of an independent fraud for his own benefit, and to communicate the same would prevent the accomplishment of his fraudulent design, the principal is not charged with notice of such misconduct.
"2. A. could read and write, but was inexperienced in business. B. had been her attorney, and she owed him $50. At his request, and to enable him to raise the money, A. agreed to give a note therefor. The agent fraudulently made a note for $500, instead of $50, and procured her to sign it. The note was made payable to X., who had money to lend and who was a client of B. The money was advanced on the note to B., but none was paid over by him to A. Held, that the lender was not charged with notice of the agent's fraud." Pursley v. Stahley,122 Ga. 362, 50 S.E. 139.
This decision was approved by Mr. Mechem in his work on Agency. See volume 2, § 1838, and notes.
A lender can never be chargeable with notice of the fraud, or with the fraud, of one with whom he agrees to lend money to a third party, under the facts and circumstances shown by this record. The law as to commercial paper in such cases must control and fix liability; there is no question of agency. The lender being guilty of no fault or negligence in the making or delivering of the check, he cannot be held liable if the bank pays it to a person not entitled to receive it.
While I concur in the opinion of the Chief Justice, I do not concede that the relation of principal and agent existed, and am of the opinion that the decision should be rested on this ground.
Mr. Justice SAYRE concurs in this opinion.