Pennoyer v. Willis

Opinion by Mr. Justice Bean. The contention for the defendant is that the evidence offered and excluded tended to show that Moore was such an agent of the plaintiffs as that his knowledge at the time the loan was made of the existence of the Marks & Company mortgage was notice to the plaintiffs, and, as a consequence, they were not misled by his certificate, but had knowledge through their agent of the existence of the outstanding incumbrance before they parted with the money. — 8 — It must be conceded that, in order to recover in this action, plaintiffs must show, not only that defendant’s certificate was false, but that, relying thereon, and without knowledge of its falsity, they were induced to and did part with the money. If, before the loan was consummated and the money paid over to Roberts, they had knowledge of the Marks & Company mortgage, either directly or through some authorized agent, and, notwithstanding such knowledge, parted with the money, they cannot hold the defendant liable for the loss, although his certificate may have been false. It becomes important, therefore, to consider whether the evidence excluded tended to show that Moore’s relation to the plaintiffs was such that they would be chargeable with the knowledge he possessed at the time he consummated the loan and paid over the money, of the Marks & Company mortgage. It is a familiar and well settled rule that, as to third parties, notice to an agent while acting within the scope of his authority is notice to the principal. But it is equally as well settled that such notice, in order to bind the principal, must relate to the business or transaction in reference to which the agent is authorized to act for and on behalf of his principal, and to matters over which his authority extends: Story on Agency, §118; Mechem on Agency, §718. If it relates to a matter over which the agent has no authority, and concerning which he is not authorized to act for his principal, although he may be an agent for other purposes, it will not affect the principal or be binding on him: Congar v. Railway Company, 24 Wis. 157; Roach v. Karr, 18 Kan. 529. This .rule is generally said to be based upon the theory that it is the duty of the agent to communicate to his principal the knowledge possessed by him relating to the subject matter of his agency, and material to his principal’s protection. Such notice, in order to bind the principal, must, therefore, come to an agent who has authority — 9 — to act or deal in reference to those matters which the knowledge or notice affects, and which, upon grounds of public policy, it is presumed he has communicated to his principal. Now, in view of the rules of the board prescribing the duties of the defendant and of Moore, it is clear that Moore was not such an agent at the time defendant’s certificate was made, as that notice to him of the Marks & Company mortgage would operate to relieve the defendant from liability for the negligent or unfaithful discharge of his duty. Moore was a mere custodian of the fund, holding it subject to the order of the board, with no power or authority to determine whether or not a loan should be made, or to contract one, or to pass upon the title or sufficiency of the security offered, nor was he an agent to whom the board looked for information on these subjects, and such matters were not within the scope of his employment. The power to loan the school fund, and determine the sufficiency of the security offered, was by law vested solely in the plaintiffs, and they alone assumed to exercise such power. It was for them to determine in all cases whether or not a loan should be made. As a matter of convenience to the board and to the public, Moore, as county treasurer, was made a depositary of a portion of the school funds, and the custodian of the notes and mortgages taken for loans thereof in his county, and authorized to receive payments thereon and pay over to borrowers the amount applied for when directed by the board. The defendant’s duties were of an entirely different character, requiring in their proper discharge the special knowledge incident to his profession as an attorney, which the treasurer was not expected to have. He was appointed for the purpose of ascertaining and reporting the state and condition of the title of land, and in assuming to — 10 — discharge that duty established the relation of principal and ageut, or attorney and client, between him and his principal. His representations to the plaintiffs, therefore, were decisive of the status of the Roberts’ property, so far as they were concerned, and they had a legal right to rely and act upon them in ordering the loan made, and for any neglect or misrepresentations in the performance of his duty in the premises whereby an injury resulted he is responsible. To him alone they looked for information as to the status of the property, and not to any statements or representations of Moore. Nor was Moore under any legal or moral obligation at that time to report to them the condition of the title; his duties and those of the defendent were separate and distinct in relation to their common principal, and each was responsible for the faithful discharge of the particular duties imposed upon him by his employment, and we are aware of no rule of law which can relieve the defendent from liability by showing that at the time he knowingly made an incorrect statement or report to his principal he informed some other agent of the same principal, who had no authority to deal with reference to the subject matter of the report, that such statement was not true. And, besides, the rule that the principal is chargeable with what the agent knows is for the benefit of third persons, and is founded upon the theory that the agent is at liberty and is presumed to have communicated such knowledge to the principal, or, if he has not, still, the principal having entrusted 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 not, might operate most injuriously to the rights and interests of such party. But it is difficult to preceive what application the rule can have, when the understanding between an agent and such party is that the knowledge of the agent is not — 11 — to be communicated to the principal but to be withheld from him. It is but a fair inference from this record, that it was not intended or expected that Moore should inform the board of the Marks & Company mortgage, nor was the information imparted to him for that purpose, but only that he might withhold the money until the mortgage should be satisfied of record, in case the loan should be ordered by the plaintiffs. It is clear, therefore, that defendent cannot exonerate himself from liability upon his said certificate by showing that at the time he made it he informed Moore of the true status of the property, unless Moore was afterward entrusted by the board with the duty of examining the title to the land offered as security, subsequent to defendant’s certificate, and during the performance of which he had in mind or remembered the information previously given him by the defendant. The law provides that the school fund shall be loaned only on’ unincumbered property to applicants having a title thereto free from defects, and the board is only authorized to make a loan on real property so circumstanced. It was therefore its duty to ascertain that, the title was in such condition at the time the loan was made and the money paid over, some three month’s after the date of defendant’s certificate, but if it neglected to do so such neglect would, of course, not.relieve the defendant from liability upon his certificate. In approving the application and ordering the loan it had a right to rely and act upon defend ant’s certificate as decisive of the status of the property at the time it was made, and if, relying thereon, it simply ordered and directed Moore, who, under its rules, was a mere custodian of the fund, to pay over the money to Roberts, and by reason of defendant’s incorrect certificate it was lost, defendant would be liable, although Moore may have known of the outstanding incumbrance. Moore’s duties, as prescribed by the rules of — 12 — the board, were those of a mere custodian or depositary-holding the fund subject to the order or direction of the board, and, if he assumed to negotiate a loan, prepared notes and mortgages, or examined titles without any other authority from the board, he was acting without the scope of his employment, and no knowledge concerning the title of land offered as security which he might acquire in so doing would be binding upon the board. But if the board returned the Roberts’ application to him, and entrusted him with the duty of ascertaining that no change had oc curred in the title subsequent to defendant’s certificate, he became not only a mere custodian of the fund, but an agent for the purpose of seeing that the title was in the condition required by law at the time the loan was consummated, and invested with the discretion of withholding the money in case knowledge should come to him of any defect in the security offered. He would not be expected or required to examine the condition of the title prior to the date of defendant’s certificate, but if, after the receipt of the order to make the loan, and before paying over the money, knowledge of an outstanding incumbrance was present in his mind, however acquired, it would, under such circumstances, be knowledge possessed by him within the scope of his employment, and with which his principal would be chargeable, whether acquired prior to the commencement of his agency or during the continuance thereof: Mechem on Agency, §721; The Distilled Spirits, 78 U. S., (11 Wall.) 351. And if, notwithstanding such knowledge, he paid over the money to Roberts, the defendent is entitled to avail himself of Moore’s negligence as a defence, because in such case the proximate cause of the loss would be the negligent performance of a duty by another agent, and not his false certificate. Whether Moore was such an agent, or the mere custodian of the fund, as prescribed in the rules, was, under the — 13 — pleadings, a question for the jury, and could not be taken from them if there was any evidence, however slight, tending to support defendant’s contention. The evidence offered and excluded tended to show that the board furnished Moore with blank applications for loans, and blank notes and mortgages; that all applications were received by him, and that at his request defendant examined the title and certified to the value of the land; that the applications were made to Moore and forwarded to the board at Salem for its approval, and that it was the custom of the board to return all applications to him without any special instructions, with an order endorsed thereon directing the loan to be made; that he examined the record to see that no transfers had been made or liens acquired subsequent to defendant’s certificate; prepared the necessary notes and mortgages, attended to the recording of the same, and paid over the money; endorsed all applications for loans, and signed his reports to the board as “local agent,” and continued to act as an agent of the board after he h°d ceased to be county treasurer; in fact, was the only person through whom the board received applications for loans or with whom it had any communication whatever concerning loans of money in that county. This evidence was competent, it seems to us, as testimony tending to show that when the board returned the Roberts’ application to Moore, it entrusted him with the duty of ascertaining that the title was in the condition required by law before paying the money over, and should have been admitted and the question of his agency submitted to the jury, under proper instruction, by the court. The judgment must therefore be reversed and a new trial ordered. Reversed.