Page images

were these : The plaintiff required a guaranty of the responsibility of one J. D., which the defendants' manager gave, to the effect that the checks of J. D. should be paid, on receipt of certain money (from the government) from J. D., “ in priority to any other payment, except to this bank.” J. D. was at the time of the guaranty largely indebted to the bank, which fact was not. communicated to the plaintiff ; and the defendants declined to honor the check of J. D., though drawn after he had received and deposited the money referred to. The plaintiff now brought an action against the bank for the false representations of the manager; and it was held that there was evidence to go to the

jury that the manager knew and intended that the guaranty should be unavailing, and fraudulently concealed from the plaintiff the fact of the indebtedness of J. D. to the bank. It was also held that the defendants would be liable for such fraud in their manager.

This, it will be noticed, was not the case of a representation of fact in which the defendants were not interested, since, by the manager's fraud, they obtained and appropriated to themselves a deposit of money in favor of their debtor; and this is the turningpoint of the case, as appears from the opinion of the court. “It was contended on behalf of the bank,” said Mr. Justice Willes, in delivering the judgment, “ that inasmuch as the guaranty contains a stipulation that the plaintiff's debt should be paid subsequently to the debt of the bank, which was to have priority, there was no fraud. We are unable to adopt that conclusion. I speak sparingly, because we desire not to anticipate the judgment which the constitutional tribunal, the jury, may pass. But they might, upon these facts, justly come to the conclusion that the manager knew and intended that the guarantee should be unavailing; that he procured for his employers, the bank, the government check, by keeping back from the plaintiff the state of Davis's (J. D.'s) account, and that he intended to do so. If the jury took that view of the facts, they would conclude that there was such a fraud in the manager as the plaintiff complained of.”

Again, after commenting upon Udell v. Atherton 1 (in which he said that the court were divided rather upon the proper application of the law to the facts than upon the principle involved), the learned justice proceeded to'say: “ With respect to the

17 Hurl. & N. 172.

question whether a principal is answerable for the act of his agent in the course of his master's business, and for his master's benefit, no sensible distinction can be drawn between the case of fraud and any other wrong. The general rule is, that the master is answerable for every such wrong of the servant or agent as is committed in the course of the service, and for the master's benefit, though no express command or privity of the master is proved ;” citing Laugher v. Pointer.1

The nature of the action is still more clearly shown in a subsequent part of the opinion in this case. It had been objected that the count in fraud should not have described the fraud of the manager as that of the bank; to meet which objection a count for money had and received had been included in the declaration. The court replied : “ I need not go into the question whether it be necessary to resort to the count in case for fraud, or whether, under the circumstances, money having been actually procured for and paid into the bank which ought to have got into the plaintiff's hands, the count for money had and received is not applicable to the case,” — thus indicating that the action was, in substance, an action for money received to the plaintiff's use.2

The case in the House of Lords, above referred to (Western Bank v. Addie), was a Scotch suit, to rescind a contract for the purchase of shares, and for restitution in integrum (i.e., to the party's position before the contract), or, alternatively, for damages for the false representations of the defendants' manager. There being no direct fraud on the part of the bank itself, it was held that the action could not be maintained ; and the determination as to the alternative claim for redress was not affected by the fact that the plaintiff was a member of the company, and had been for a long time. Nor would it have been an answer to this suit of redress, as the Lord Chancellor stated, that a recovery might prejudice those who had innocently acquired their shares, after the plaintiff had acquired his. The ground of decision was that the fraud of the manager alone, though committed in the course of his business, could not be made the ground of a liability in tort on the part of the defendants. This conclusion was reached upon a review of all the important cases, and with a view, as the report states (p. 151), of laying down the proper rule of law. The case is therefore of great importance and authority.

15 Barn. & C. 547, 554. 2 See Clarke v. Dickson, El., B. & E. 148.

The Lord Chancellor said that the sound distinction to be drawn from the authorities was this : “Where a person has been drawn into a contract to purchase shares belonging to a company by fraudulent misrepresentations of the directors, and the directors, in the name of the company, seek to enforce that contract, or the person who has been deceived institutes a suit against the company to rescind the contract on the ground of fraud, the misrepresentations are imputable to the company; and the purchaser cannot be held to his contract, because a company cannot retain any benefit which they have obtained through the fraud of their agents. But if the person who has been induced to purchase shares by the fraud of the directors, instead of seeking to set aside the contract, prefers to bring an action for damages for the deceit, such an action cannot be maintained against the company, but only against the directors personally.”

Lord Cranworth, who delivered the only other opinion concerning the principle involved, stated the doctrine in the same way. " An attentive consideration of the cases,” said he, “has convinced me that the true principle is that these corporate bodies, through whose agents so large a portion of the business of the country is now carried on, may be made responsible for the frauds of those agents to the extent to which the companies have profited from these frauds; but that they cannot be sued as wrong-doers, by imputing to them the misconduct of those whom they have employed. A person defrauded by directors, if the subsequent acts and dealings of the parties have been such as to leave him no remedy but an action for the fraud [as where, by delay, the rights of innocent persons have intervened], must seek his remedy against the directors personally.

It would seem that such a decision, coming from the court of final resort, should have put to rest all further doubt. But the question has very lately arisen again in the Queen's Bench; and that court has (except upon the suggestion, infra) apparently declined to follow the rule declared by the House of Lords.

The case professes to have been decided upon the authority of Barwick v. English Joint-Stock Bank, supra. But that case does not support it. The action was for a false and fraudulent representation, jointly against the agent who had made it and against the principal. And the latter was held equally liable. (The case has

1 Swift v. Winterbotham, Law R. 8 Q. B. 244, decided in 1873.

been referred to as authority for another point, ante, p. 639.) The false statement consisted in an affirmation of the solvency of Sir William Russell. The matter was indifferent to the defendants. The representation was not made for the purpose of obtaining a benefit for the banking company; nor does it appear that any advantage was derived from it. The case is therefore unlike Barwick v. English Joint-Stock Bank, and opposed to the ground taken in that case, as well as in conflict with the decisions of the Court of Chancery and the House or "Lords; unless the fact that the court held that the communication complained of (which was in writing) was in reality the representation of the banking company, affords a distinction. The inquiry was made concerning a customer of the defendants; and the reply was signed, “J. B. Goddard, Manager.” And the court say, "We think it clear, therefore, that the communications were in fact, and were intended to be, communications between the banks.” The fact inquired of was peculiarly within the knowledge of the defendants; and upon the ruling that the signature of the manager was, in fact, the signature of the bank, the case would not, perhaps, be inconsistent with Western Bank v. Addie. But this ruling as to the manager's signature was decided, on appeal to the Exchequer Chamber, to be wrong; and the case was reversed.

Lord Coleridge, C. J., who delivered the principal opinion, said that this decision did not conflict with Barwick v. English Joint-Stock Bank, “because,” he observed, “ there can be no doubt that a different set of principles altogether applies where an agent of a corporation, or a joint-stock company, at any rate, in carrying on its business, does something of which the company takes advantage, or profits, or may profit, and it turns out that the act of the agent is fraudulent."

The latest case, decided within six weeks of the present writing, was determined in the Privy Council. Mackay v. Commercial Bank. There the defendants had derived a benefit from the fraudulent misrepresentation of their manager, made within the general scope of his authority; and upon this precise ground the defendants were held liable. The court declined to give any opinion as to the rule where no advantage had been derived by the principal.

1 30 Law Times, N. 8. 31, sub nom. Swift v. Jewesbury.
2 30 Law Times, n. s. 180.

We find, then, no English case in which a principal has been held liable in tort for the unauthorized and fraudulent representations of his agent alone, except where he has derived a benefit from them. And even where an advantage has been obtained, it is questionable, as we have suggested, if this form of action be proper. The action, where the benefit is pecuniary, is in substance an action for money had and received ; and if the suit be in tort, it can only be allowable, it would seem, so far as it conforms, in the amount of damages recoverable, to the proper form of action. See Mackay v. Commercial Bank, supra, where, to an objection that an action for money had and received might lie in such cases, the court say, that, granting that, the question to be tried would be in substance the same, and add, what perhaps has been the real justification of these cases, that the time has passed when much importance is to be attached to mere forms of action. In other words, the plaintiff, being entitled to a remedy of some kind, will not be put to the expense of being sent to the technically proper action. It may be observed, also, that, by taking the benefit of the agent's fraud, the principal adopts it; and he may, therefore, be liable in an act for deceit, perhaps, in the same way that he would have been had he at first authorized the misrepresentation of a fact peculiarly within his means of knowledge.

We conceive, therefore, that the ground taken in Hern v. Nichols for supporting actions of this kind — the trust and confidence reposed in the agent- is not sustained by the later English authorities, the proper ground for such cases being the fact that the principal has received a benefit, as he had there, from the fraud of his agent; and that, if this be not the case, the principal can only be liable when he has authorized, or ratified, or joined in, the false statement.

If this be true, it follows that the doctrine of Jeffrey v. Bigelow and of White v. Sawyer, referred to near the beginning of this article, extending the damages beyond the amount of the benefit received by the principal, is not sound. It is difficult to deny, however, that the rule in these cases would be correct if an action of deceit were the proper form of suit in such cases.

Aside from the authorities, it is not easy to understand the cases which suggest (where the representation is made in a transaction not for the principal) that the defendant's liability arises from his putting a trust and confidence in the agent, or,

act for a 1cipal adolat, by takin,

« PreviousContinue »