Societe des Mines D'Argent et Fonderies v. Mackintosh

Boreman, J.: The plaintiff (appellant) sued the defendant (respondent) upon a promissory note as maker. Upon the trial, judgment was rendered for the defendant. The plaintiff moved for a new trial, which, being overruled, he appealed to this court from both the judgment and from the order overruling the motion for a new trial. The facts of the case are substantially as follows: The plaintiff had since 1879 been engaged in mining in Utah. It was represented in the territory by F. Medhurst and C. B. Oohen. Medhurst was the manager of its financial affairs, under the style of “Commercial Director.” Oohen was the general manager of the mines. The defendant, prior to and during that time, had been engaged in the business of sampling ores, with office at Salt Lake City. The plaintiff had its ores sampled by the defendant. The accounts for sampling were made, out in the name of the company, and the checks given for money to pay such accounts were usually signed, “F. Medhurst, “Commercial Director,” or “F. Medhurst, Qom. Dir-” The financial business of the company was transacted in the name of “F. Medhurst, Commercial Director.” ' This manner of transacting the business of the company was known to the defendant. On the 3d of February, 1882, Medhurst asked the defendant to execute to him his promissory note for $7,000, as a matter of accommodation to him (Medhurst). The note was, as the defendant understood, to be used as an asset in the transfer of the plaintiff’s mining property here in Utah, in connection with some indefinite deal in regard to the Hecla mine in Montana. It was a personal accommodation to Medhurst, to enable him, in the transaction, to present apparently correct accounts. Medhurst promised the defendant that the note should not be negotiated, but should be held only as such asset. The note which Medhurst presented, under — 573 — this arrangement, for the defendant’s signature, was made payable to “F. Medhurst, Commercial Director.” At the same time, in return for the defendant’s action, Medhurst executed and delivered to the defendant his note for the same amount, and payable at the same date, and signed “F. Medhurst, Com.” Medhurst, also, at the same time, wrote and delivered to the defendant a letter, stating that the note which the defendant had made was a personal obligation to himself, not for value, but in exchange for a note of like amount, term, and interest, given to defendant by Medhurst, and therein promising not to discount or otherwise use the note. This letter was signed, “F. Medhurst.” At the same time, and as part of the same transaction, the defendant received, indorsed and handed back to Med-húrst a check in the usual form, on McOornick & Co., bankers, for $1,500. The deposits of the plaintiff were kept at that bank under the name of “F. Medhurst, Commercial Director,” and the check was signed, “F. Medhurst, Com. Dir.” In addition to the ore-sampling checks referred to, the plaintiffs check-books show two other checks of prior date, the one for $4,500, and the other for $1,700, to have been’drawn in favor of the defendant. The one for $4,500 was shown to the defendant, and he recognized his signature, but did not remember the circumstance of giving it. He had no recollection of the $1,700 check. Medhurst handed the $7,000 note of the defendant to the company’s book-keeper, telling him that it was not to be negotiated; that it was a personal matter, and he himself would attend to it. That was the last time, so far as the evidence discloses, that Medhurst saw the note. The book-keeper placed it in the company’s safe, among company papers. Some private papers, also, of Medhurst were in the safe. Some time after this Med-hurst disappeared, and thereafter the company took possession of the safe and contents. This note of $7,000 sued on was found, among other papers, in the safe, and the plaintiff had it presented to the defendant for payment, and payment demanded. Payment was refused; the defendant claiming that it was a personal affair between Medhurst and himself, and without money consideration, — 574 — but given merely for the accommodation of Medburst. Tbe company then brought this action. Judgment was given, in the court below, for the defendant, and thereupon the plaintiff appealed to this court. The first question for our consideration is as to who is the payee of the $7,000 note sued on. The plaintiff claims to be the payee, and the defendant claims that Medburst individually is the payee. Upon the face of the note, it is made payable to “F. Medhurst, Commercial Director.” The courts have sometimes held that, in such a case, an action may be maintained’in the name of either the agent or the principal. If the transaction was known to be with the principal, but through the agent, it would be especially proper that the suit be in the name of the principal. But if the agent were acting apparently on’his own behalf or responsibility, or as holding the property in trust, having-given full security to his principal, as in case of a guardian who has given bond for the property intrusted to him, an action in the name of the agent would be proper, and the affix of the word “guardian” might be treated as descripbio personen. The true rule evidently is that recognized by the supreme court of the United States in the case of Bank v. Bank, 5 Wheat., 326, namely, that where, on the face of the paper, circumstances appear from which it might reasonably be inferred that it was either a private paper or an official one, the matter being in doubt, extrinsic evidence was proper to remove the doubt. In that case the action was based upon a check dated at “the Mechanics’ Bank of Alexandria, and the body of it read, “Cashier of the Bank of Columbia, pay to the order of P. H. Minor, Esq., ten thousand dollars, and signed “Wm. Patton, Jr.” The Mechanics’ Bank was sued on the check, and in defense set up that it was not the check of the defendant bank, but was the individual check of Patton. Parol evidence showed that Patton was the cashier of the defendant, and that Minor was its teller; that the check used was taken from a book of blank checks kept for use by the cashier in his official capacity; that the cashier, had frequently used the blanks out of that check-book in bis official transactions; that, in using these blanks officially, he signed them — 575 — with tbe words “Cas.” or “Ca.” added to bis name, and that there was no other difference between those checks and the one in question in that action; that, although these checkbooks were intended for the use of the bank, yet the checks were sometimes used for other purposes; that, in the correspondence of the bank, the cashier generally added to his name some words designating his official capacity as cashier, but this was not always done, nor was it deemed indispensible, if from other circumstances the correspondence appeared to be official. The evidence showed that the cashier of the bank upon which it was drawn, considered the check to be the official check of Patton, as did also the cashier of the Branch Bank of the United States, through which it passed. Evidence was likewise introduced, in behalf of the Mechanics’ Bank, to show that Patton, at the time he drew the check, declared that it was his private individual check, that he had funds in the Bank of Columbia to meet it, and that it was passed by him to the Mechanics’ Bank as the individual check of Patton; and, further, that the Mechanics’ Bank paid to Patton the amount of the check. The court, in referring to the character of the evidence introduced to show the check to have been an official and not a private transaction, said: “The evidence resorted to for this purpose was the most obvious and reasonable possible, namely, that this was the appropriate form of an official check; that it was in fact cut out of the official check-book of the bank, and noted on the margin; that the money was drawn in behalf of and applied to the use of the Mechanics’ Bank; and by all the banks, and all the officers of tbe banks, through which it passed, recognized as an official transaction. It is true, it was in evidence that this check was credited to Patton’s own account on the books of his bank; but it was done by bis own order, and with the evidence before his eyes that it was officially drawn.” So, in the case at bar, the fact that the defendant considered the note as private, and not official, and that it was so declared by Medhurst, counted as nothing when all the indicia of official character were given to the note by the defendant and by Medhurst. The note was drawn payable to “E. Medhurst, Commercial — 576 — Director”-- the appropriate form of a note payable to the plaintiff according to the style of carrying on the financial business of the plaintiff in this territory. The money was drawn from the plaintiff on behalf of the defendant, and applied, by his direction, to the private account of Med-hurst. The name of Medhurst, with the words “commercial director,” or some contraction thereof, was recognized by the banks, and officials of the banks, where such name, with the affix, appeared; and the defendant, in addition thereto, had transacted business with the plaintiff frequently under that name and style. We see, therefore, no escape from the conclusion that the plaintiff was the payee of the note. All of 'the facts point that way, except that the defendant, in signing the note, intended to make himself liable to Medhurst personally. But so did Patton in the case referred to; but that did not change the case. The defendant’s own negligence is to blame for not doing what he intended to do. He paid very little attention, if any, to the form of the note. He was trusting to the words of his friend, Medhurst, when, at the very time, Medhurst’s acts were different from his words. He allowed himself at that very moment to be used by Med-hurst to draw money from the company, and place it to the credit of Medhurst, and he allowed that friend to use his name to deceive and defraud the company by presenting a false voucher, when from his own testimony we learn that he knew that Medhurst proposed using the note as a voucher in the transfer of its property in a trade in which Medhurst was in some way interested. The note was given to make Medhurst’s accounts appear correct when they were otherwise; and they were still otherwise when defendant last spoke to Medhurst about the matter, for he was not then ready to return the note to the defendant. We do not consider it important that the defendant did not have in his mind at the time the idea of deceiving the plaintiff. A false front was to be presented to some one; and, although the defendant did not have it in his mind to deceive the plaintiff, he did not inquire to-whom the false front was to be presented, but acted extremely negligently and indifferently in the matter, trusting, no — 577 — doubt, implicitly to the good faith of Medhurst. We do not see how either the defendant or Medhurst could consider the transaction as one p'ersonal to Medhurst, when at that very time the defendant signed a check as a part of the transaction, whereby 81,500 were taken out of the company’s funds in McCorniek’s bank, and transferred to Med-hurst’s private account in Wells, Fargo & Co.’s bank. The defendant does not seem to have looked at the face of the check, but indorsed it blindly, at the request of Medhurst. The whole transaction shows that, although Medhurst told the defendant that the note was a personal matter, Medhurst did not so consider it. He immediately had the company’s book to show the transaction as a company’s affair. He probably intended to save the defendant harmless, and to do so gave him a note for a like amount, and the defendant has it; but it cannot avail against a company from which value has passed for the first note, and in ignorance of the counter-note. The defendant intended that the note he gave was to be acted upon by some one. He saw it acted upon by the company, through its agent, immediately upon its execution, by its parting with its money upon a check indorsed by the defendant. Where such is the case, the party is responsible, and is estopped from denying his liability: Bigelow, Estop., 489, 490; Freeman v. Cooke, 2 Exch., 654. It cannot be said that, because Medhurst was the agent of the plaintiff, therefore the agent’s knowledge was the company’s knowledge, and the plaintiff was bound by his acts in giving the note and letter to the defendant, and in stating to him that the transaction was a private personal affair. Where a party combines with the agent in such a way as to cause the principal to be wronged out of his property or money, the knowledge of the agent is not the knowledge of the principal, nor is the principal bound by the acts of the agent. Insurance Co. v. Minch, 53 N. Y., 144; Bank v. Mott, 39 Barb., 180; Piedmont v. Ewing, 92 U. S., 377. It is a general rule that the principal is bound by the knowledge of his agent, but this rule is based upon the principle of the law that it is the agents duty to communicate to his principal the knowledge which he has respect — 578 — ing the subject-matter of negotiation, and upon tlie presumption that lie will perform his duty; and that is tlie doctrine inculcated by the case of Distilled Spirits, 11 Wall., 356, cited by the defendant. But the rule based upon such a principle of law cannot, in reason, be invoked by one who knows at the time that the agent is violating the rule, and intends to deceive, rather than inform, his principal in regard to the matter. If the company be taken as being informed of the true object of the note, and the company was the one seeking to present a false front, then it was not a personal matter of Medhurst, but it was a transaction with the company, and the company, not having-given value for it, the defendant is liable. We do not think that the case of Bank v. Town of New Milford, 36 Conn., 93, is authority for applying the general rule in a case like the one at bar. In that case it appears that one J. J. Conkling was the cashier of a bank, and at the same time the treasurer of a town. In his capacity of treasurer of the town he made a note as the note of the town — the town authorities being ignorant of the matter; and, in his capacity of cashier, he discounted the note, and put the money in his own pocket. The court said that, if he purposed to pledge the credit of the town, the act was a gross fraud upon the town; and that if he did not so intend, but, instead thereof, intended to restore the money, and take out the note, and let the town know nothing- of the transaction, then there was no meeting- of minds necessary to create a contract that would support the action; that the contract, if any was made, was made by Conkling on behalf of the bank. No other mind than his met the mind of the agent of the town in making the contract. No other mind than his was called to act in the matter. He was agent of the bank, and had full knowledge of the fraud; and that now the bank, if it ratify his contract, and confirm his agency, must accept his knowledge, and be bound by it, precisely as if the loan had been made, and the knowledge had, by the board of directors. In the case at bar the contract was not made in the brain of the agent alone of the company, but by the active co-operation of the defendant himself. It was not, therefore, a fraud on the de — 579 — fendant. Tbe agent Medhurst, bad fnll knowledge of tbe fraud, but tbe active co-operation of tbe defendant enabled bim to commit it, and it would not liave been committed without sucb co-operation. If tbe authorities of tbe town of Milford, other than tbe same person who was tbe bank’s own agent, in tbe case referred to, had joined in tbe fraud, there would have been good reason for bolding tbe town responsible; tbe transaction being in the regular course of business and for value. There is nothing in that case that would militate against tbe doctrine as laid down in Insurance Co. v. Minch, above referred to. As said there, tbe rule was made for tbe protection of innocent third persons, and not to further frauds upon tbe principal. As the case will have to be reversed, a further examination of tbe exceptions and alleged errors is unnecessary. Tbe judgment and order overruling tbe motion for a new trial are reversed, and tbe cause remanded.