Court Opinion

ID: 6674197
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:14:33.064676+00
Date Added: 2024-06-11T16:00:38.975858
License: Public Domain

The opinion of the court was delivered by
McGowan, A. J.
This case was submitted on Circuit upon an agreed statement of facts, under the provisions of Section 389 of the code of procedure, which is a part of the record aud need not be re-stated here. The statement submitted contains copies of' the -notes sued on, a description of the bonds pledged by the defendant as collateral security for his notes, as well as the value of said bonds at three different periods of time — at the maturity of the notes, at the time when the suit was brought and at the-rendition of the judgment. Under the circumstances stated, two questions are submitted for the judgment of the court:
First. Is the plaintiff liable for the value of the collateralsgiven to secure the payment of said notes ?
Second.'If this be decided in the affirmative, at what date should their valuation be made — at the maturity of the notes, the beginning of the suit, or the rendition of the judgment?
The Circuit judge decided the first question in the negative, which disposed also of the second, and gave judgment for the plaintiff for the whole amount of his notes, principal and interest, exonerating him from all accountability for the loss of' defendant’s collaterals by the fraudulent appropriation of his agents. The defendant alleges error in that judgment and appeals to this conrt.
The three notes of plaintiff upon which judgment has been rendered are not identical in form, and it is insisted that the same principles of law as to the proposed set-off of the collaterals may not apply to all of them. Two of the notes are made payable to the plaintiff, Reynolds, and the other to “the order of Messrs. James M. Caldwell & Sons,” styled agents of Reynolds. Each of the notes in its terms differs somewhat from the *14others; but it is manifest that the intention in all was the same— to pledge the bonds described as collateral security for the notes respectively, and, from the view taken by the court, it is unnecessary to consider the particulars in which they differ from each other.
The bonds were coupon bonds, payable to bearer. The title was transferable by mere delivery, and when Caldwell & Sons, having legal possession, transferred them to innocent bona fide holders, they were gone beyond the reach of either Eeynolds or Witte; so far as the true owner is concerned, and for all the purposes of this case, they were destroyed by the fraudulent act of Caldwell & Sons. Gourdin v. Reid, 6 Rich. 497; Carmichael v. Buck, 10 Rich. 337; State Bank v. Cox, 11 Rich. Eq. 344; McNeil v. Tenth National Bank, 46 N. Y. 325; Swan v. North British Australian Company, 7 Hurlst. & Nor. 603.
Caldwell & Sons are now bankrupt, and the question is upon whom the loss of the collaterals must fall — upon Witte, who owned them and pledged them to Eeynolds to secure his debt to him, or upon Eeynolds, whose agents fraudulently appropriated them. The case presents an example of double agency. As to the col-laterals, Eeynolds was the agent of Witte of that class known as bailee, and Caldwell & Sons were the agents, factors, of Eeynolds. The question of the liability of Eeynolds to Witte must be determined either by his own acts or those of his agents for which he is properly responsible. The judgment below exonerates Eeynolds from all responsibility in the first place, upon the ground that he did no act himself which should charge him with the loss of the bonds; that, as bailee of a pledge, his only duty was to take proper care of the property pledged, which he claims to have done; that in the transaction of the business, and the proper care of the bonds, it was necessary to appoint an agent, and, having selected agents, then of good character, and entrusted the bonds to them, he was in no way liable for their subsequent acts; that the one act of appointing agents of good character at that time was the discharge of his whole duty in the matter. The facts submitted do not show that this was one of those cases in which the agency of a third party was so necessary that the principal must be excused from all responsibility for the acts of *15the agent after his appointment, provided only he used proper nare in the appointment. The transaction was simply one of lending money — taking notes therefor and collaterals to secure them. That might have been done by Reynolds in person as well as by his agents. Nor is it perceived that agents were ■necessary for the safe keeping of the collaterals. That does not appear to have been the purpose of Reynolds. The result has shown that in all probability they would have been as safe in Sumter county in the possession of Reynolds as in the city of Charleston in the possession of Caldwell & Sons. The agency was not necessary, but simply convenient.
There is nothing to distinguish this from the ordinary case where one, for convenience, employs another to act as his agent in a particular business, or to exempt Reynolds and Caldwell & Sons from the principles which ordinarily attach to the relation of principal and agent. ' Of all these principles there is not one more important than that which makes the act of the agent, within the scope of his authority, the act of the principal — “ qui Jadt per alium, jadt per se. j Caldwell & Sons were the agents of Reynolds, and they misappropriated, and thereby, for the purpose of this case, destroyed the collaterals of Witte. Is Reynolds liable for that act? If Reynolds himself had done the act there can be no doubt that he would have been liable to Witte. Then what is his responsibility when not done by himself, but by his agents ? Must the result to Witte be different for the reason that Reynolds chose to perform his part of the business through agents selected by himself? If Caldwell & Sons as the agents of Reynolds had lost these collaterals by negligence merely, if they had left their safe unlocked and in consequence the bonds had been stolen, it is conceded that. Reynolds would have been liable; but it is insisted that he should not be held liable for the loss occasioned by their “ criminal act willfully ■committed.”
The Circuit judge says: “ The only question in the case is whether the plaintiff is liable for the willful misappropriation of the defendant’s securities by his agent in the absence of all fault on his part. The law seems to be well settled that whilst the principal is liable for the negligence of his agent, he is not liable *16for the criminal acts willfully committed by him — such acts not being within the scope of bis agency.”
It may be true that, generally, the principal is not liable criminally for the acts of his agent done without his authority, nor civilly to third persons with whom he has no privity for his willful trespasses.
This is not a criminal but a civil claim to charge Reynolds with the value of the collateral appropriated by Caldwell & Sons. It is difficult to understand upon what ground the principal should be held liable for the negligence of his agent and not for his fraud, where the act is done or omitted to be done to the very property as to which the agency exists and in the course of the agency. Fraud by which the property is lost is generally considered one of the forms of gross negligence. I What is the proper understanding of the phrase “ within the scope of the agency?” Does “the scope” include negligence and exclude fraud ? It cannot properly be restricted to what the parties intended in the creation of the agency, for that would also exclude negligence, as no agent is appointed for the purpose of being negligent, any more than for the purpose of acting fraudulently. The question cannot be determined by the authority intended to be conferred by the principal. We must distinguish between the authority to commit a fraudulent act and the authority to transact the business in the course of which the fraudulent act was committed. Tested by reference to the intention of the principal, neither negligence nor fraud is within “the scope of the agency but tested by the connection of the act with the property and business of the agency, fraud in taking the very property is as much “ within the scope of the agency ” as negligence in allowing others to take it. The proper inquiry is, whether the act was done in the course of the agency and by virtue of the authority as agent. If it was, then the principal is responsible, whether the act was merely negligent or fraudulent. Here the fraudulent act was' the appropriation of the very property of the agency — without which agency they would not have had possession of the property and could not have done the act.j
We have not had our attention directed to any decided case precisely in point, nor have we been able to find one, but the *17principles announced by eminent judges and elementary writers fully cover the point.
In the case of Scott, Williams & Co. v. Joseph Crews, 2 S. C. 522, the defendant, Crews, borrowed money from the plaintiffs, bankers, gave them notes for the money, and secured them by pledging as collateral bills of the bank of the state. These bills were not fraudulently appropriated by the bank, but were taken from its vaults by robbery. The question was simply one of negligence as bailees, and upon that issue the plaintiffs were held not liable.
The case of Foster et al., Executors, v. President and Directors of the Essex Bank, 17 Mass. 478, comes much nearer the precise point involved- here. A special deposit of $50,000 of gold was made, which was stolen by the cashier and the chief clerk of the bank. The corporation was exonerated from responsibility, upon the grounds that it was a gratuitous deposit without compensation, but for safe keeping merely, and the theft was not the act of the corporation, but the unauthorized act of the cashier and clerk, outside of their business as officers, and therefore as mere strangers. The whole case shows that if the corporation^ through its proper officers and as its own act, had fraudulently appropriated the money, the court would have held them liable. Chief Justice Parker, in delivering the judgment of the court, states the principle as well as its qualifications. He says: “ It was contended by one of the counsel for the plaintiff, as a proposition universally true, that the principal is civilly answerable for all frauds done by his agents; and he is supported in the use of this language by a doctrine of Lord Kenyon, in the case of Doe v. Martin ; and also by Lord Ellenborough in 1 Camp. 127, and yet it must strike the mind of every man of sense that this universal proposition will admit of, and, indeed, upon principles of common sense, actually requires qualifications. No one will suppose, if my servant commits a fraud relative to a subject that does not concern his duty to me, that I shall be civilly answerable for such fraud. If I send him to market and he steps into a shop and steals, or, upon false pretences, cheats the shop-keeper of his goods, I think that all mankind would agree that I am not answerable for the goods he may thus unlawfully acquire. The *18proposition can be true only when the agent or servant is, whiter committing the fraud, acting in the business of his principal or master.”
In Story on Bailments, it is said: “ But good faith alone is not sufficient. If there is any loss occasioned by their negligence- or mistake or inadvertence, which might fairly have been guarded against by ordinary diligence, they will be held responsible therefor ; and, a fortiori, they will be held responsible when they are-guilty of any misfeasance.”
In Smith’s Mercantile Law it is said: “The principal has-been thought to be responsible, not merely for the negligence, but for the deliberate fraud of his agent committed in the execution of his employment, though without the principal’s authority,, as, for instance, by selling false jewels for true ones.” The-reason given for this by Lord C. J. Holt, appears a sensible one.. “ Seeing,” says he, “ that some one must be loser by the deceit, it is more reasonable that he who employs and confides in the deceiver, should be the loser than a stranger. Such, certainly, was-the opinion of the Roman lawyers.”
The principle is well stated in Story on Agency, Section 452 : “ It is a general doctrine of law that, although the principal is-not ordinarily liable (for he sometimes is) in a criminal suit for the acts or misdeeds of his agent, unless, indeed, he has authorized or co-operated in them, yet he is held liable to third persons-in a civil suit for the frauds, deceits, concealments, misrepresentations, negligences and other malfeasances, misfeasances and omissions of duty of his agent, in the course of his employment,. although the principal did not authorize or justify or participate in, or indeed know of such misconduct, or even if he forbade the acts or disapproved of them. In all such cases the rule appliesrespondeat superior; and it is founded upon public policy and convenience, for in no other way could there be any safety to third persons in their dealings, either directly with the principal or indirectly with him, through the instrumentality of agents. In every such case the principal holds out his agent as competent and fit to be trusted, and thereby, in effect, he warrants his fidelity and good conduct in all matters within the scope of the agency.”’
' 1. The first question submitted is decided in the affirmative..
*192. As to the second question, it is adjudged that the valuation of the collaterals be made at the time of the maturity of the notes, sued on. At that time the defendant offered to pay the notes and take up his collaterals, and upon his non-delivery of the collaterals upon demand, the obligation of Reynolds became fixed.
The judgment below is reversed and a new trial ordered.
Willard, C. J., and McIver, A. J., concurred.