160
, FEDERAL REPORTER,.
voL 51. 'D. DUN
CITY NAT. 1.
BANK OF
et ale
Oourt, S. D. New York. July 16,1892.) PRINCIPAL AND AGENT-FRAUDULENT REPRESENTATIONS OF AGENT.
2. SAME-MERCANTILE AGHNC1'..
Defendants, constituting a mercantile agency, agreed tofurnish plaintiff. through its subagents, information concerning the mercantile standing and credit of merchants;, dlltendants not to be responsible for the negliJ;l'ence of its agents in procuring information, and not guaraQtyingthe thereof. Held, where defendants' agent, in repiy to their call, knowingly false. information ing thestanQing of a. merchant with intent.to mislead plalDtlff and benefit said merchant, &lld plaintiff sustained .loss .thereby, that defendants were liable, tho agent's action being within'the scope of his authority, aild for alfd upon the busi· . ness of the defendants.
At Law. Action by the City National Bank of Birmingham, Ala., against Robert G. Dun and others. Judgment for plaintiff. Defendants move for a new trial. Denied. Lorenzo Semple, for plaintiff. Wm. W. MacFarland, for defendants. SHIPMAN, Circuit Judge. This is a motion by the defendants for a new trial of an action at· law to recover damages incurred by the plaintiffs by reason of the fraud committed by the defendants' agent, acting as such, and in the course of his agency. The complaint was in the nature of an action for deceit, and treated the fraud of the agent as that of the principals, who were in fact ignorant of it. The defendants constitute a "mercantile agency" in the city of New York. The plaintiff is a bank in Alabamawbich became a subscriber to the said agency, under· a written contract of which the following are the material portions: j'Memorandum of the agreement betweenR,' G. Dun & Co., proprietors of the mercantile agency; on. the one part, and the undersigned, subscribers to the said agency, on the other part, viz.: The said proprietors are to comm unicate to us, on request, for our use in our business, as,an aid to us in detercredit, such information as they may possess mining the propriety of concerning the mercantile standing and credit of me;rchants. traders, manufacturers, etc., throughout the United States and in: the dominion of Canada. It is agreed that such information has mainly been, and shall mainly be, ob· tained and communicated by. servants, clerks, attomeys, and employes, appointed as our subagents, in our behalf, by the said R. G. Dun & Co. The said information to be communicated by the said R. G. Dun.,& Co., in accordance with the following rules and stipulations, with which we, subscribers to the agency as aforesaid, agree to complY to wit: * * * (2) The said R. G. Dun & Co. shall ridt be responsible for any loss caused by the neglect of any of the said servants, attorneys, clerks, and employes in procuring, collecting, and communicating the said information, and the actual verity or correctness of the said information is in no manner guarantied by the said R. G. Dun & Co. The action of the said agency being of necessity almost entirely confidential in all its departments and details, the said R. G. Dun &;
CITY NAT. BANK 11. DUN.
161
Co. shall never, under any circumstances, be required by the subscriber to disclose the name of any suchserv"nt, clerk, attorney, or employe, or any. fact whatever concerning him or her, or concerning the means or sources by or from which any information so possessed or communicated was obtained." The plaintiff, having been solicited to discount the acceptances of W. A. Kitts, of Oswego, N. Y., applied to the defendant for information in .regard to his mercantile standing and responsibility. The defendants and their Oswego agent knew that this information was asked for for the use and benefit of the subscriber in its business, viz., that of aiding the inqqirer to determine the propriety of giving credit. In reply to the defendants' call upon their Oswego agent for such information, he sent them a written statement, which they furnished to the plaintiff, upon the strength of which, and in reliance thereon, it gave Kitts credit and discounted his acceptances, which were not paid, and the amount of which the bank lost. The court charged the jury as follows: "For any loss occasioned by the neglect of these employes in seeking and obtaining accurate information, Dun & Co. are not responsible. For losses occasioned by the indolence or carelessness of the employe, which causes the information' to be inaccurate, Dun & Co. are not liable. Neither do they guaranty the actual truth or correctness of the information. But, notwithstanding thattlJese employes are the subagents of the persons who seek the information, they are also employed by, and are paid by and are legally, as well as in popular language, the agents of, Dun & Co. For losses occasioiled by the willful fraud, and not. by the mere carelessness or ignorance, of the agents, in committing information known by them to be untrue, and with intent to mislead the inquirer, the defendants are liable, if the plaintiffs, having placed reliance upon the fraudulent misrepresentations, gave credit in consequence of such fraud, and were lured thereby to their pecuniary loss and damage. In this case, the business of the firm of R. G. Dun & Co. was to furnish information to subscribers who had employed them for that purpose for a pecuniary consideration. If in the discharge of t.he duties of an employe, and in undertaking to furnish information in reply to an inqUirer, and acting in the business of the agency, Mr. Burchard knowingly gave false information· with intent to deceive the inquirer. the defendant is liable, although Burchard's private inducement to commit the fraud was desire to help Kitts. The questions of fact in any contested case become at least three in number:. (1) Were the statements untrue at the time they were made? (2) were they known by the agent to be untrue at the time, and did he then act fraUdulently with intent to mislead the inquirer? for that he knew that the information was sought for the purpose of aiding the inquirer to determine the propriety of giVing credit to the person inquired about is palpable; and (3) did. the plaintiff, relying upon the truth of the information, give credit upon the faith of the untrue representations, and thereby incur a loss?" The jury found for the plaintiff. There was no question of fact in regard to the scope of the agent's authority, and the information was communicated to the defendants by the agent in the regular and usual course of his agency business. The defendant's argument upon the motion for a new trial was directed to two propositions, the first of which is that an innocent principal is not liable in an action of deceit for the fraudulent representations of an agent, although the principal, in ignorance of the fraud, receives and retains the fruits of it. It is not dev.51F.no.5-11
162r. to enforce the cdntract, 'the'deceived 'person 'institut6s' a suit the' pUtllb1e to the' princiPtt1, it. is fnequitablEi tllllt neshotild retain" the 'btit'iHs 'claimed that an action' of. deceihJannot lie in favor hlj'Uredpa'tty againsnlrt:innocent 'priIicipal. , It must be languilgeOf the text' ,write,rs, the dicta ;of tlieeariy 4ecisioriS 'of '. the, high authority in,' this.,codhtrrw'ere' hl' the '>principle' that a principal is' civilly lil1ble i fdrtJie, 'of his iigebtw!iichwas' committed in" thec<#itS6'b'f 'arill a'$'a 'part ment;':add' tiis though in fact the principal'did' not"arithorize,Hi'e practiceo! 'StIch 'an Ag. §§ 139, 132; l.fl6kev; Stearns,''1'Metc. (Mass;) 560; Hotailing, 1 Hill, 317; White v. Sawyer; 1:6 Gray ,586; 'Bennett v. Jud8on, 21 N. Y. 238; Hern v. Nwho1Jl; 1 Slilk:289; 'Wilsonv. Puller, 3 Q. :S. e$f '0im,.84,v;]{u,th,' &W.l,l51j 'Mann, 2 Exch.
the
nied'Wat, 'if suit iB,
or
:tbe
for
, by the English ciases, and a consideredlnodern callaAn New Jersey, have deQie!l that an action ,of deceit would lie against an innocent principal; and ,the cases or Udell v;' !iurl.: Bank v. Addie, L. R,l H. L. Se. 146; cited. ,An examinaof. that the old doctrine'was not denied thatthe priQqipll.l is R;t tbetime, act-; ingwithis the, scope' of his author.ity 8;lld for the ,principal, makes, a f'taudulent misrepresentation which ,influences and is acted upon by the Naintifftoibi/(inNry;. bl;ttthat 'the cases turned ttpon the question. tqEi 'agent'was,'undcir tbecircumstances in each case', ofting witpin)hespopeqf,his al,1tnority. ,Udell v. Atherton was tried at ni8i w,hononsuited the A commission merchant sold for, thednnocentdefendant to the, plaintiff a log of soundness ofwhioh the commission merchant fraudulently represented, 'kno'wing'th(fulitrtithfulness of his assertion. The a,Ppella,te court W\lS' eqMlli divided, twOjudgesholding that the defendlllltwas inasmuqQ.; retained the fruits df the fraud,and two judges:h(j»)qipg that be was not liable. It is apparent from the opinion of'lihatwo {MARTIN land BRAM:W:ELL} who were in favor of the defendahhhat'the case depended in:tbeir minds upon the fact, ",-hich theydEiertled ·to' have'existed,thatthe selling agent was not in fact authorizecbto 'make, the represeritation, and,that his situation before thebuy.er or th.ll public' was not such as to bring representation hernade withinthe:r$cope oLhis autbority.BaronMA!R'rIN said tersely: Wfhe ttue rule is thpt,wherev8r,:anagentacting within the scope of his ,authority makes a ftaudulent misrepresentation, hiS principal is liable. ", . The caSe: 43 :Ni Lll.w, 288, also. turned upon the. agents:were'withoutauthority to make represelltations,and the manifest 'scope of 'their authority in i
"
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"'.
OITY'NAT. BANK
v.nuN;
168
so ,doing; The.case of Addie v., Bank was; in brief, as follows: Addie bOllghtof the bank 135 shares ofits stock, induced thereto by false and ftaudulant ahnualstatements of its directors to the, shareholders, and by the fraud 'of the manager,who falsely caused all agent of the bank to' represent to Addie that a purchase would be a good investment. The bank became insolvent,went into liquidation, and Addie presented his claim against the, bank to recover the dalnages arising from the fraud. It is true that there are dicta ofthejudges who gave the chief opinions in the housl:' of lords, wmch assert the,doctrine of the present defendants, and which, not taken in connection with the facts of the caRe or with other portions of the opinions, justify the reliance which is placed upon them by the defendants' counsel; but an examination of the whole case shows that one of the decisive facts upon which it hinged was the lack of implied authority in the directors to make representationsupon which a sale could be based. This sufficiently appears from Lord CHELMSFORD'S statement of ,the true ground upon which a corporation can be held liable for the statements of its directors. It will thus be seen that the cases upon which reliance is placed show nothing more thana disposition on the part of English' judges to demand that, when an innocent principal is made liable, it shall clearly appear that the fraudulent agent was not acting outside the known scope and power of 'his agency. But the question was re-examined, in the light of the Addie C.ase, in Mackay v. Bank,L. R:. 5 P. C. 394,-a case in which no doubts of the extent of the agency existed,-and it was held, without hesitation, that "in an action of deceit, whether against a person or a company,the fraud of the agent may be treated, for the purposes of pleading, as the fraud of the princi pal," and the language of LOrd WILLES in Barwick v. Bank, L. R. 2 Exch. 259, is apprbved: "The master. is answerable for every such [fralldnlent]wrong of his servant or agent as is committed in the course of his service and for tile master's benefit, though no express command or priVity of the master be provell." i ' The defendants' second point is that they are not liable, because the motive which induced the agent to commit the fraud was a desire to benefit Kitts,and that an l'innocentprincipal is not liable where the agent made the fraudulent representations which the injury, oot£or the employer, but for his own interest and to serve his private ends." This form of statement is another manifestation of the strictness with which Some of the English courts require that the agent must be acting for the principal and within the scope of his authority in making the representations, and, if he is committing the fraud for his individual ends, he cannot be considered, under their decisions, as acting for the principal,' although his statements related to matters about which he was authorized to give anl:lwers. Whether the salDe coneluBion would be reached by the courts of this country is II point which I do not intend to CloDsider. The facts in the case of Mut. Banking Co. v. ()harnwool, ForestRy:. Co., L. R. 18 Q. B. H4, which the defendants cite, clearly illustrate the nature of the cases to which the proposition
164.
DI)ERAL REPORTER,
vol. 51.
applies. .Oustomers of the plaintiffs applied to them for a loan on the security ,of transfers of the debenture stock of the defendant company. The plaintiffs' manager asked the defendant's secretary, who said that the tmnsfets i\'!!ere valid and the stock existed. The plaintiffs made the advances. 'Xheseoretary and one Maddison had fraudulently issued certificates for debenture stock, and these transfers Telated to a part of this overissue. Plaintiffs lost their security. The false statements were made in theuinterest of the secretary and Maddison. The court held that the secretary w:as·held outas a person to answer such questions as were put to him on.behalf ofor for his employes, but when, in answering inquiries put by third persons, he made statements in his own interest or,:to: assist ,his.friend, and not on the bank's account, he was not aclling for the defendants. But it must be clearly understood, as is laid down by Lol'd ESRER in the same case, that the language of the books, which speaks of 'acts or representations of the agent "in the interest oftheprincipal" or ",for the benefit of the principal," is not limited to acts which result in the pecuniary benefit of the principal. This language is "equivalent to saying that he must act" for "the principal, since, if there is authority to do the act, it does not ,matter if the principal is benefited by it." .The circumstances·ofthis case show that the Oswego agent was plainly acting within the scope or his authority and for his principal. The plaintiff, one ,of the customers of the defendants and a subscriber to their "mercanHle agency," asked the defendants for information which, for a money consideration, they had undertaken to furnish. The defendants wrote ,to their agent for this information. He fraudulently furnished them with false statements, which they sent to the pw,intiff to be aqted upon. 'The agent's action was most plainly within the scope of his authority, and for and upon the business of the defendants. The private motive which induced him to defraud is immaterial. The two queSltionswhich have been considered constitute the vital ones in tbe case. There ate otherS which, if they resulted favorably to the defendants, would i!imply send the case back for a new trial,-a resultwhich, as the ,defendants' able counsel admitted, would, be valueless to them if their legal liability in this form of action was established, -and therefore' were merely stated upon the brief. There were several exceptions upon the trial to the admissibility of testimony contained in the depositions. The depositions on both sides were taken upon the theory that the individual opinion of the witness in regard to Kitts' was admissible. This whole clasB of testimony was endeavored to be ruled out upon..the trial. The questions that were admitted and Were excepted to related to the known financial standing oLKitta in the community, rather than to the indi. vidual opinion of thElwittiess as to his proper status· . ,The defendants among ,other requests asked for the usual charge that the bdr.den'()f pt'odf Was upon' the plaintiff. Tbe court intended to comply with· the. ordinary: ct'lstom, and charge acoordingly, but the matter escaped his memory. Tbe judge's attention was' not called to the omis-
DODGB . fl.
ern
OJ' KJD(PHIB.
165
lion, but the exception was a general one. A decision is not placed upon the ground that the exception was general, because it may be said there the court permitted such an exception. Whatever may be the proper consequences of this omission upon a writ of error, it is of no importance in this CMe upon a motion for a new trial, for the omission resulted in no injury to the defendants. The only question in dispute was that of fraud, and the affirmative testimony in regard to this point was abundant and perfectly Convincing. The deposition of Kitts left no doubt of the· untruthfulness of the agent's assertions, and 16sti" mony of the agent in his own favor, though he was carefully led by the defendants' counsel, had no weight with those who heard it. A charge in regard to the burden of proof, in this case, would have beeD a mere formality. The motion for a new trial is denied.
DODGE t1. CITY OF MEMPHIS.
(Ctrcwtt Oourt, E. D. Missouri., N. D. May It, 1891.) HmnOIPAL CORPORATIONS-ULTRA VIREs-NEGOTIAllLB BONDI.
Where;a1;own, in pursuance of statutory authority, sUbscribes for stock in a ran. way company, but, without such authority, issues negotiable bonds in payment therefor, such bonds are absolutely void, and no suit can be maintained on them on the theory that they are valid as nonnegotiable instruments.
At Law. Action by James B. Dodge against the city of Memphis, Mo., on certain municipal bonds. Heard on demurrer to the plea. Overruled. Felix T. Hughes, for plaintiff. The contract of subscription in the case at bar was valid, and expresslyau. thorized, and the bonds were not wholly void, but valid, except as to their commercial quality, in which case the contract will be enforced in so far as is valid, and the provision in the contract of subscription to pay in bonds be beld, in effect, a contract to pay in money at the time and under the ditions imposed in the order of sUbscription. Gelpcke v. Dubuque, 1 Wall. 222; autbor's views, subdivision 6, 125, (4th Ed.) Dill. Mun. Corp.; Mayor v. Ray, 19 Wall. 468; .Hitchcock v. Galveston, 96 U. S. 350; Little Rock v. Merchants' Nat. Bank, 98 U. S. 308; Wall v. Monroe 0o., 103 U. S. 78; Olaiborne 00. v. Brooks, III U. S. 400,4 Sup. Ct. Rep. 489; Wells v. Supervisors, 102 U. S. 625; Norton v. Dyersburg, 127 U. S. 160,8 Sup. Ct. Rep. 1111; Hill v. Oity of Memphis, 134 U. 8.198,10 Sup. Ct. Rep. 562; Gause v. Oity ofOlarksville, 5 Dill. 177; Babcock v. Goodrich, 47 Cal.488; State Board v. Oitizens' St. Ry., 47 Ind. 407; Allegheny City v. McOlmkan, 14 Pa.St. 81; Maher v. Ohicago, 38 Ill. 266; Oneida Bank v. Ontario Bank, 21 N. Y. 490; Argenti v. Oity of San Francisco, 16 Cal. 256; Bank v. North, 4 Johns. Ch. 370; Ketcham v. Oity of Buffalo, 14 N. Y. 356; Evansville, etc., R. 00. v. Oity of EtJansville, 15 Ind. 395; Mullarky v. Oedar Falls, 19 Iowa, 21; Sheffield School Tp. v. Andress, 56 Ind. 102; opinion by Mr. Justice STORY in Bank v. Patterson, 7 Cranch, 305; Knapp v. Mayor, 39 N. J. Law, 394. The promise to give bonds in payment was, at furthest, only ultra vires, and, in such case, though specific performance of an engagement to do a thing