Virginia-Carolina Joint Stock Land Bank v. Liles

Clarkson, J. The question involved, as contended by defendants: “Is there sufficient evidence to show that Matthews was acting as agent of the plaintiff in the receipt and disbursement of the proceeds of the loan made to Liles ?” We think not, under the facts and circumstances of this case. From the evidence, plaintiff bank knew nothing about the prior lien on the land given by defendants to the Federal Land Bank, of Columbia. The defendants (through E. W. Liles) in their application to plaintiff *417 bank for the loan, stated that there were no liens on the land. He represented, warranted and guaranteed the truth of the statement that there were no liens on the land. In the deed of trust defendants gave to plaintiff, the warranty was to the effect that there were no liens and encumbrances on the land. Plaintiff, with no knowledge of the Federal Land Bank lien on the property, sent a check, on 26 February, 1926, payable to the order of E. A. Matthews, attorney, and E. W. Liles, borrower, for the loan, $4,513.25. E. W. Liles endorsed this check and turned it over to Matthews, who kept a fee of $75.00 out of it, to which Liles made no objection, and Matthews turned over to him $540 in cash, the balance Matthews kept to be applied on the lien of the Federal Land Bank of Columbia, S. C. Matthews never paid the Federal Land Bank of Columbia, and has absconded. On whom must the loss fall ? Under the facts and circumstances of this case, we think on the defendants. Tbe defendants are sui juris, and it is a great hardship on them, but we cannot break into well-settled principles of law in bard cases. If we did, we would have no orderly system, and law would be a “rope of sand.” Tbe cheek was payable to the order of E. W. Liles, borrower, as well as E. A. Matthews, attorney. True, it was sent to Matthews, but be could not collect the money until Liles endorsed the check. Liles knew that be and the other defendants bad given a lien'on the land; the plaintiff knew nothing of the lien. Liles bad even represented, warranted and guaranteed to plaintiff that there were no liens on the land. It was Liles’ duty to have seen that the money sent by check to bis and Matthews’ order, was applied on the lien, but instead of doing this be endorsed the check and gave it to Matthews, and by so doing turned the money over and trusted Matthews, as bis agent, to pay the lien, which plaintiff bad not done by a check payable alone to Matthews. Liles trusted Matthews and made him bis agent to perform an act that plaintiff knew nothing about, and Liles knew all about. We think the well-settled principle of law applies, as stated in the following cases: In Lickbarrow v. Mason, 2 T. R., 63, at p. 70, Ashhurst, J., says: “Where-ever one of two innocent persons must suffer by the acts'of a third, be who has enabled such third person to occasion the loss must sustain it.” It is well said by Lord (C. J.) Holt in Hern v. Nichols, 1 Salk., 289: “For seeing somebody must be a loser by this deceit, it is more reason that be that employs and puts a trust and confidence in the deceiver should be a loser than a stranger.” In County of Macon v. Shores, 97 U. S., 272, 279: “Where a loss is to be suffered through the misconduct of an agent, it should be borne by those who put it in bis power to do the wrong, rather than by a stranger.” In O’Connor v. Clark, 170 Pa., 318, 321, 29 L. R. A., 607, “Where one of two innocent persons must *418 suffer loss by reason of tbe fraud or deceit of another, the loss should fall upon him by whose act or omission the wrongdoer has been enabled to commit the fraud.” In Bartlett v. First National Bank, 247 Ill., 490, 498, “Where one of two innocent parties must suffer loss by reason of the wrongful acts of a third party, the rule is almost universal that the party who has made it possible, by reason of his negligence, for the third party to commit the wrong must stand the loss.” See note in Mechero, on Agency (2 ed.), Vol. 1, page 531. In R. R. v. Kitchen, 91 N. C., at p. 44, the principle is thus stated by Ashe, J., and has been time and time again reiterated in this jurisdiction: “Where one of two persons must suffer loss by the fraud or misconduct of a third person, he who first reposes the confidence, or by his negligent conduct made it possible for the loss to occur, must bear the loss.” S. ex rel. Barnes v. Lewis, 73 N. C., 138; Vass v. Riddick, 89 N. C., 6; R. R. v. Barnes, 104 N. C., 25; Ellison v. Sexton, 105 N. C., 356; Medlin v. Buford, 115 N. C., 260; Havens v. Bank of Tarboro, 132 N. C., 214; Bank v. Oil Co., 150 N. C., 718; Campbell v. Huffines, 151 N. C., 262; Wynn v. Grant, 166 N. C., 39; Stelges v. Simmons, 170 N. C., 44; Bank v. Dew, 175 N. C., 79; Mann v. Mann, 176 N. C., at p. 363; Fain Grocery Co. v. Early & Daniels Co., 181 N. C., 459. See Atlantic Life Insurance Co. v. Rowland (C. C. A., 4th Circuit), 22 Fed. (2d), 126 (1927); Kirkpatrick and Howard v. Warden, 118 Va., 382, 87 S. E., 561 (1916). An interesting discussion of this subject, which is termed “The dilemma of choosing between two innocent persons,” may be found in Mechem on Agency (2d ed.), Vol. 1, p. 532 et seq., and Vol. 2, p. 1552. We do not think it necessary to discuss the two classes of agents general or particular or special and analyze the evidence. We think the principle stated above applies. * Defendant Liles was negligent, and there was a lack of due care on his part, in trusting Matthews, the attorney, and defendants must bear the loss. Plaintiff took no chance and made the check payable to the order of both. The letter saying “our attorney” does not affect the case. Defendants had the opportunity of protecting themselves, and failed to do so, by the check being made payable to the order of both. From the position here taken, the .evidence of the declaration of Matthews was incompetent. No error.