Irving Browne Isaac Grant Thompson.

The American reports: containing all decisions of general ..., Volume 36 online

. (page 76 of 123)
Online LibraryIrving Browne Isaac Grant ThompsonThe American reports: containing all decisions of general ..., Volume 36 → online text (page 76 of 123)
Font size
QR-code for this ebook


We do not regard the diagram as important. It is upon the back
of the application, and was not signed by the insured. It is true
there is a line printed in small type just below the signature of the
applicant: ^^ Make a digram of the premises on the other side of this
sheet" Such diagram was made. If it was intended to make this
a diagram of surrounding property for the space of one hundred
and fifty feet, it would have been only fair to have said so in the
directions.

We 066 no error in this record.

Judgment affirmed.



Digitized by



Google



O^SES



INTHB



SUPREME COURT



SOUTH CAROLINA.



Reynolds v. Wittb.

as s. c. 6.)

Agenty — Hahility of principal for agenfs fraud — meatwre ofdamagei,

Wliere an agent fraudulently misappropriates negotiable collaterals deposited
with him on a loan of the principal's moneys, the principal is answerable
for their value ; and the borrower offering to pay the loan at maturity, the
measure of damages is the value of the collaterals at that time.

AGREED case as follows : Facts. 1. The plaintiff is a planter,
residing on his plantation in Sumter county, and the defend-
ant resides in Charleston county.

2. The plaintiff having as his factors and agents in the city of
Charleston the firm of J. M. Caldwell & Sons, sent to them in the
year 1869, certain sums of money to be invested by them for him.

3. J. M. Caldwell & Sons, acting as agents for the plaintiff^ lent
this money to defendant, and took from him notes with collateral
security.

The notes were renewed from time to time. The last were in tht
words and figures following:

'^ $1,000. Charleston, S. 0., December 3, 1874.

'^Twelve months after date, I promise to pay to Dr. M. Reynold^



Digitized by



Google



NOVEMBER TERM, 1879. 679

Reynolds v. Witte.

or order, one thousand dollars, with interest at the rate of ten per
cent per annum, I haying deposited against this note two bonds of
the city of Memphis, guaranteed by the Memphis and Charleston
raih'oad, for $1,000 each.

"Nos. 1283, 1054.

*' (Signed,) Chas. 0. WrrrB."

Charleston, S. C, May 20, 1875.

'* Twelve months after date, I promise to pay to Dr. M. Reynolds,
or his order, three thousand dollars for value received, and interest
at the rate of eight per cent per annum, payable quarterly.

" Against payment of this note I have delivered to Messrs. J. M.
Caldwell & Sons, his agents, the following bonds as collateral secu-
rity: three bonds city of Savannah, six per cent, WOO each ; two
bonds city of Memphis, six per cent, guaranteed by Memphis and
Charleston Raih'oad, $1,000 each ; two bonds city of Savannah, seven
per cent, one $500 and one $1,000. All of which I authorize him,
or his agents, James M. Caldwell & Sons, to sell in case of non-pay*
ment of this my note at maturity.

** (Signed,) Cha8. 0. Wittb."

" Charleston, S. C, May 23, 1875.

" Twelve months after date, I promise to pay to the order of
Messrs. James M. Caldwell & Sons, against the surrender of $4,000
city of Savannah bonds delivered by me as collateral security, three
thousand dollars, and interest at the rate of eight per centum per
annum, payable quarterly, for value received.

*^ $3,000.

« (Signed,) Chas. 0. Witte."

4. The defendant, when the loan was first made and the first
notes were given, delivered to J. M. Caldwell & Sons the bonds spe-
cified in the notes above copied.

5. The bonds were coupon bonds not yet due, and payable to
bearer.

6. Defendant paid the interest regularly on the notes to J. M.
Caldwell & Sons, and when he desired to collect the coupons on the
pledged bonds, obtained the coupons from J. M. Caldwell & Sons
for that purpose.

7. The bonds remained in the possession of J. M. Caldwell &
Bona daring the life of J. M. Caldwell, the senior partner; <^^'d



Digitized by



Google



080 SOUTH CAROLINA,

Reynolds v. Witte.

after his death continaed in possession of liis son and son-in-law,
who continued the business in the same firm name, and remained
the agents of plaintiff, collecting the interest on these notes.

8. Defendant became desirous of paying his notes, and offered to
do so at maturity, whereupon it was discovered that J. M. Caldwell
& Sons had, sometime previous thereto, fraudulently pledged the
said bonds, and raised money on them. The bonds will not pay
the debt for which they are pledged. J. M. Caldwell & Sons are
bankrupt.

9. The former firm of J. M. Caldwell & Sons bore an excellent
reputation; up to the time of the discovery of this transaction the
character of the new firm was good.

At the date of the maturity of the notes the bonds were worth,
say, city of Savannah bonds, eighty-five cents; Memphis city bonds,
thirty cents.

When the suit was commenced they were worth, city of Savannah
bonds, sixty-five cents ; Memphis city bonds, thirty cents.

At the present time they are worth, city of Savannah bonds,
fifty-nine cents; Memphis city bonds, thirty-six and a half cents.

10. The notes being past due, the plaintiff demanded payment
from the defendant

11. The defendant I'efuses payment unless the plaintiff will con-
temporaneously therewith deliver to him the bonds which were left
as collateral security for the notes, or account to him for their
value.

Questions. — I. Under these circumstances, is the plaintiff lia-
ble to the defendant for the value of the collaterals given to secure
the payment of said notes ?

II. If this be answered in the affirmative, at what date should
this valuation be made; at the maturing of the notes, or at the be-
ginning of this suit, or at the rendition of the judgment? The
plaintiff had judgment below.

Simonton & Barlcer, for $ippellant.

8. Lordy for respondent. The plaintiff and defendant stood to
each other in the relation of pledgor and pledgee. The general
property remains in the bailor; only a special property passes to
the bailee. Non-payment of debt, when due, does not of itself
work a forfeiture. 12 Johns. 147; 4 Den. 227; 2 Cai. Cas. 200.



Digitized by



Google



NOVEMBER TERM, 1879. 681

Reynolds v. Wltte.

This rule applies to. negotiable securities as well as to any other
kind of property.

The pledgee impliedly stipulates that he will take ordinary care
of the things pledged. He is not bound for the exactest care and
diligence required of a borrower, and he is liable for a greater de-
gi-ee of care than the law exacts of a depo8itai*y without reward.
Edw. on Bail., § 234. He is not liable for loss by fire or theft, if
kept with ordinary diligence. 2 Kent Com. 580, 581; 2 Ld.
Raym. 909; 58 Me. 275; 34 Md. 235; 62 Penn. St 47; Edw. on
Bail. 236; 2 Barb- 326 ; 9 Wend. 268. These principles are recog-
nized and applied in 2 S. C. 522.

It is now a well-established rule that masters are responsible for
injuries done by the negligence of their servants, while acting
within the scope of their employment, but never for injuries will-
fully committed, where they have other purposes than executing
their master's orders ; unless the masters were guilty of negligence
in appointing the servants or in the particular act. Story on
Agency, § 456; Story on Bail., § 402; 1 Esp. 315; 1 East, 106; 17
Mass. 479; L. R., 2 P. C. 317; 99 Mass. 605; 10 Ohio St. 110; 70
Penn. St. 119. The only difference here is, that it was not a
gratuitous bailment, but that is unimportant, since the question is
as to the liability of the principal in the absence of all negligence,
on his part, for the fraud of his agent The master is only liable
for the willful act of his servant, where the servant acts in ignor-
ance of facts (Edw. on Bail., § 391), and where there has been sub-
sequent ratification. 13 M. & W. 834; Cro. Eliz. 824; 2 N. Y.
479; IBI. Com. 429.

McGowAN, A. J. This case was submitted on Circuit upon an
agreed statement of facts, under the provisions of section 389 of
the Code of Procedure, which is a part of the record and need not
be re-stated here. The statement submitted contains copies of the
notes sued on, a description of the bonds pledged by the defendant
2is collateral security for his notes, as well as the value of said bonds
at three different periods of time — at the maturity of the notes,
at the time when the suit was brought and at the rendition of the
judgment Under the circumstances stated, two questions are
submitted for the judgment of the court:

JFHrsi. Is the plaintiff liable for the value of the collaterals
given to secure the payment of said notes?
Vol. XXXVI — 86



Digitized by



Google



682 SOUTH CAROLINA,

Rjyuolds V. Wiite.

Second If this be decided in theaffirmativcyat what date should
their valuation be made — at the maturity of the notes, the begin-
ning of the suit, or the rendition of the judgment?

The Circuit judge decided the first question in the negative,
which disiwscd also of the second, and gave judgment for the
plaintiff for the whole amount of his notes, principal and interest,
exonerating him from all accountability for the loss of defendant's
collaterals by the fraudulent appropriation of his agents. The
defendant alleges error in that judgment and appeals to this courL

The three notes of plaintiff upon which judgment has been
rendered are not identical in form, and it is insisted that the same
principles of law as to the proposed set-off of the collaterals may
not apply to all of them. Two of the notes are made payable to
the plaintiff, Reynolds, and the other to ** the order of Messrs.
James M. Caldwell & Sons,*' styled agents of Reynolds. Each of
the notes in its terms differs somewhat from the others; but it is
manifest that the intention in all was the same — to pledge the
bonds described as collateral security for the notes respectively,
and from the view taken by the court, it is unnecessary to consider
the particulars in which they differ from each other.

The bonds were coupon bonds, payable to bearer. The title was
transferable by mere delivery, and when Caldwell & Sons, having
legal possession, transferred them to innocent bonajide holders,
they were gone beyond the 'reach of either Reynolds or Witte; so
far as the true owner is concerned, and for all the purposes of this
case, they were destroyed by the fraudulent act of Caldwell & Sons.
Gourdin v. Commander, 6 Rich. 497; Camiichael v. Bu^ck, 10 id. 337;
State Bank v. Cox, 11 Rich. Eq. 344; McNeil v. Tenth National
Bank, 46 N. Y. 325; s. c, 7 Am. Rep. 341; Swan v. North British
Australasian Company , 7 H. & N. 603.

Caldwell & Sons are now bankrupt, and the question is upon
whom the loss of the collaterals must fall — upon Witte, who
owned them and pledged them to Reynolds to secure his debt io
him, or upon Reynolds, whose agents fraudulently appropriated
them. The case presents an example of double agency. As to the
collaterals, Reynolds was the agent of Witte of that class known
as bailee, and Caldwell & Sons were the agents, factors, of Rey-
nolds. The question of the liability of Reynolds to Witte must
be determined either by his own acts or those of his agents for
which he is properly responsible. The judgment below exonerates



Digitized by



Google



XOVEMBER TERM, 1879. 683

Reynolds v. Witle.

Reynolds from all re8ponsi*?ility in the tirstplace, upon the ground
that he did no act himseli «vhich should charge him with the loss
of the bonds; that as bailee of a pledge, his only duty was to take
proper care of the property pledged, which he claims to have done;
that in the transaction of the business and the proper care of the
bonds, it was necessary to appoint an agent, and having- selected
agents, then of good character, and intrusted the bonds to them,
he was in no way liable for their subsequent acts; that the one act
of appointing agents of good character at that time was the dis-
charge of his whole duty in the matter. The facts submitted do
not show that this was one of those cases in which the agency of a
third party was so necessary that the principal must be excused
from all responsibility for the acts of the agent after his appoint-
ment, provided only he used proper care in the appointment The
transaction was simply one of lending money — taking notes there-
for and collaterals to secure them. That might have been done by
Reynolds in person as well as by his agents. Nor is it perceived
that agents were necessary for the safe-keeping of the collaterals.
That does not appear to have been the purpose of Reynolds. The
result has shown that in all probability they would have been as
safe in Sumter county in the possession of Reynolds as in the city
of Charleston in the possession of Caldwell & Sons. The agency
was not necessary, but simply convenient.

There is nothing to distinguish this from the ordinary case
where one, for convenience, employs another to act as his agent in
a particular business, or to exempt Reynolds and Caldwell & Sons
from the principles which ordinarily attach to the relation of prin-
cipal and agent. Of all these principles there is not one more
important than that which makes the act of the agent, within the
scope of his authority, the act of the principal-^" g^wt/o^rt per
alium, facit per m." Caldwell & Sons were the agents of Reynolds,
and they misappropriated, and thereby, for the purpose of this case,
destroyed the collaterals of Witte. Is Reynolds liable for that act?
If Reynolds himself had done the act there can be no doubt that
he would have been liable to Witte. Then what is his responsi-
bility when not done by himself, but by his agents? Must the
result to Witte be different for the reason that Reynolds chose to
perform his part of the business through agents selected by him-
self? If Caldwell & Sons as the agents of Reynolds had lost these
collaterals by negligence merely, if they had left their safe unlocked



Digitized by



Google



684 SOUTH CAROLINA,

Reynolds v. Witte.

and in consequence the bonds had been stolen, it is conceded that
Reynolds would have been liable; but it is insisted that he should
not be held liable for the loss occasioned by their '^criminal act
willfully committed."

The Circuit judge says: "The only question in the case is
whether the plaintiff is liable for the willful misappropriation of
the defendant's securities by his agent in the absence of all fault
on his part The law seems to be well settled that whilst the prin-
cipal is liable for the negligence of his agent, ho is not liable for
the criminal acts willfully committed by him — such acts not being
within the scope of his agency."

It may be true that generally the principal is not liable crimin-
ally for the acts of his agent done without his authority, nor civilly
to third persons with whom he has no privity for his willful tres-
passes.

This is not a criminal but a civil claim to charge Reynolds with
the value of the collateral appropriated by Caldwell & Sons. It is
difiQcult to understand upon what ground the principal should be
held liable for the negligence of his agent and not for his fraud,
where the act is done or omitted to be done te the very property as
to which the agency exists and in the course of the agency. Fraud
by which the property is lost is generally considered one of the
forms of gross negligence. What is the proper understanding
of the phrase "within the scope of the agency?" Does "the
scope " include negligence and exclude fraud ? It cannot properly
be restricted to what the parties intended in the creation of the
agency, for that would also exclude negligence, as no agent is ap-
pointed for the purpose of being negligent, any more than for the
purpose of acting fraudulently. The question cannot be deter-
mined by the authority intended to be conferred by the principal.
We must distinguish between the authority to commit a fraudulent
act and the authority to transact the business in the course of
which the fraudulent act was committed. Tested by reference to
the intention of the principal, neither negligence nor fraud is
within "the scope of the agency;" but tested by the connection of
the act with the property and business of the agency, fraud in
taking the very property is as much "within the scope of the
agency" as negligence in allowing others to take it The proper
inquiry is, whether the act was done in the course of the agency
and by virtue of the authority as agent. If it was, then the prin-



Digitized by



Google



NOVEMBER TERM, 1879. 685



Rejruolds v. Witte.



cipal is responsible, whether the act was merely negligent or
fraudulent Here the fraudulent act was the appropriation of the
very property of the agency — without which agency they would
not have had possession of the property and could not have done
the act

We have not had our attention directed to any decided case pre-
cisely in pointy nor have we been able to find one, but the principles
announced by eminent judges and elementary writers fully cover
the point

In the case of Scott v. Crews, 2 S. C. 522, the defendant, Crews,
borrowed money from the plaintiffs, bankers, gave them notes for
the money, and secured them by pledging as collateral bills of the
bank of the State. These bills were not fraudulently appropriated
by the bank^ but were taken from its vaults by robbery. The
question was simply one of negligence as bailees, and upon that
issue the plaintiffs were held not liable.

The case of Foster v. Essex Bank, 17 Mass. 479, comes much nearer
the precise point involved here. A special deposit of $50,000 of
gold was made, which was stolen by the cashier and the chief clerk
of the bank. The corporation was exonerated from responsibility,
upon the grounds that it was a gratuitous deposit without compen-
sation, but for safe-keeping merely, and the theft was not the act
of the corporation, but the unauthorized act of the cashier and
clerk, outside of their business as officers, and therefore as mere
strangers. The whole case shows that if the corporation, through
its proper officers and as its own act, had fraudulently appropriated
the money, the court would have held them liable. Chief Justice
Parker, in delivering the judgment of the court, states the princi-
ple as well as its qualifications. He says: '^ It was contended by
one of the counsel for the plaintiff, as a proposition universally true,
that the principal is civilly answerable for all frauds done by his
agents ; and is supported in the use of this language by a doctrine
of Lord Kenyon, in the case of Doe v. Martin; and cJso by Lord
Ellenborouoh in 1 Camp. 127, and yet it must strike the mind
of every man of sense that this universal proposition will admit of,
and indeed, upon principles of common sense^ actually requires
qualifications. No one will suppose, if ray servant commits afrand
relative to a subject that does not concern his duty to me, that I
shall be civilly answerable for such fraud. If I sendhim to market
and he steps into ii shop and steals, or upon false pretenses cheats



Digitized by



Google



686 SOUTH CAROLINA,

Reynolds v. Witt^

the shop-keoper of his goods, I think that all mankind would agree
that I am not answerable for the goods he may thus unlawfully ac-
fiuiro. The proposition can be true only when the agent or ser-
vant is, while committir.;; the fraud, acting in the business of his
principal or master."

In Story on Bailments, it is said: ''But good faith alone is not
sufficient. If there is any loss occasioned by their negligence or
mistake or inadvertence, which might fairly have been guarded
against by ordinary diligence, they will be held responsible there-
for; and a fortiori, they will be held responsible when they are guilty
of any misfeasance.''

In Smith's Mercantile Law it is said: ''The principal has been
thought to be responsible, not merely for the negligence, but for
the deliberate fraud of his agent committed in the execution of hia
employment, though without the principal's authority, as for
instance, by selling false jewels for true ones," The reason given
for this by Lord Chief Justice Holt, appears a sensible one. "See-
ing," says he, " that some one must be loser by the deceit, it is
more reasonable that he who employs and confides in the deceiver,
should be the loser than a stranger. Such certainly was the opin-
ion of the Boman lawyers.''

The principle is well stated in Story on Agency, section 452: "It
is a general doctrine of law, that although the principal is not or-
dinarily liable (for he sometimes is) in a criminal suit for the acts
or misdeeds of his agent, unless indeed, he has authorized or co-
operated in them, yet he is held liable to third persons in a civil
suit for the frauds, deceits, concealments, misrepresentations, neg-
ligences and other malfeasances, misfeasances and omissions of duty
of his agent, in the course of his employment, although the princi-
pal did not authorize or justify or participate in, or indeed know
of such misconduct, or even if he forbade the acts or disapproved of
them. In all such cases the rule applies, respondeat superior; and
it is founded upon public policy and convenience, for in no other
way could there be any safety to third persons in their dealings,
either directly with the principal or indirectly with him, through
the instrumentality of agents. In every such case the principal
holds out his agent as competent and fit to be trusted, and thereby
in efFect, he warrants his fidelity and good conduct in all matters
within the scope of the agency."

1. The first question submitted is decided in the affirmative.



Digitized by



Google



NOVEMBER TERM, 1879. 687



McGmth V. Barnes.



2. As to the second question, it is adjudged that the yaluation of
the collaterals be made at the time of the maturity of the notes sued
on. At that time the defendant offered to pay the notes and take
up liis collaterals, and upon his non-delivery of the collaterals upon
demand, the obligation of Reynolds became fixed.

The judgment below is reversed, and a new trial ordered.

Judgmnit rfrcrsnl.



WiLLARD, 0. J., and McIver, J., concurred.



McGrath v. BAR^^>



(13 S. C. 888.)



Executor — lifibUUy on fwte for tettaior's debt ^^ parol etfidence to add condition

to note.

An executor gave his official promissory note for his testator's debt, due " for
medical service rendered most of wliicli during last illness.'* At the
time, the claim was barred by the statute of limitations. Held, that the
executor was individually liable, and that parol evidence was incompetent
• to show, that the note was not to be paid unless the claim against the estate
was allowed by the probate court.

ACTION on a promissory note. The opinion states the case*
The defendant had judgment below.

/. W. Harrison and A. T. Broyles^ for appellants.

S. McOowan, contra.

WiLLARD, C. J. The action was upon the following promissoiy
note :

'* $273.30. Anderson, S. C, January 26/A, 1875.

" One day after date, I promise, as the executor of the estate of
C. V. Barnes, to pay H. H. Scudday, or bearer, the sum of two hun-
dred and seventy-three 30-100 dollars, due by said estate to H. II.
Scudday for medical servioe rendered, most of which during last
illness.

(Signed) « Jas- T. Barnes, Executor r



Digitized by



Google



G88 SOUTH CABOLINA,

McOratli v. Baraes.

Evidence, was admitted, subject to objection, tending to show
that the note was given in pursuance of an agreement that the
payment of the note should be conditional upon the allowance by
the ordinary of the claim made against the estate by the payee of
the note. The objection urged was that the admission of this
testimony violated the rule that written instruments cannot be
varied by oral testimony.

It appears to be well settled in this State, that in an action on a
promissory note between parties affected by the rights and equities
existing between the original parties to the note, where the note
does not state the consideration upon which it was given, or where
only a general consideration is stated, such as value received, it is
competent to prove in defense that the note was given as part of an
agreement by which tlio payment was to be conditional instead of
absolute, and such agreement, when it appears to have been the
consideration of such note, may be resisted to show cither partial
or entire failure of consideration on which the note was made.

That promissory notes and other obligations for the payment of
money absolutely are frequently given upon considerations of an
expectant character, as upon contracts, calling for acts to be per-



Online LibraryIrving Browne Isaac Grant ThompsonThe American reports: containing all decisions of general ..., Volume 36 → online text (page 76 of 123)