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39



B. w'ith the goods." Fraud will vitiate
any transaction, though the principal do
not jiersonally take any {)art in the fraud,
if his agent do ; for the jirincipal is civilly
responsible for the acts of his agent within
the scope of his emjiloyment. Doe v.
Martin, 4 T. K. 39. So, in Udell v.
Atherton, 7 H. & N. 172, it was held bv
Pollock, C. B. and Wilde, B., Martin and
Bramwell, BB., dissenting, that a prin-
cipal is liable, in an action of deceit, for
the false and fraudulent representations of
his agent, as to the quality and value of
an article, whereby a person has 'been in-
duced to purchase it for more than its
worth, notwithstanding that the principal
neither authorized nor knew of the fraudu-
lent conduct of his agent. The plaintiff
having paid for the article, in an action
against the princijjal for the fraud the
plaintiff was nonsuited ; so the opinion of
Martin and Bramwell, BB., prevailed.
The rule was admitted all around in this
case to be that wherever an agent, within
the scope of his authority, makes a fraudu-
lent misrepresentation, his principal is li-
able. But the difficulty which arose in
the case was in applying the rule, and the
prevailing opinion really rested upon the
fact that the agent was really a special and
not a general agent, and tliat the fraud
was that of the agent and not of the prin-
ciital. This is considered by the court in
Barwick v. English Joint-Stock Bank, L.
R. 2 Ex. 259, 265, where it is said : " If
there be fraud in tlie manager, then arises
the question, whether it was such a fraud
as the bank, his employer.s, would be an-
sweralile for. With respect to that, we
conceive we are in no respect overruling
the opinions of my Brothers Martin and
Bramwell, in Udell v. Atherton, 7 H. &
N. 172, the case most relied upon for the
purpose of establishing the proposition that
the jiiincipal is not answerable for the
fraud of his agent. Upon looking at that
case, it seems pretty clear that the division
of opinion which took place in the Court
of Exchequer arose, not so much upon the
question whether the principal is answer-
able for the act of an agent in the course
of his business, — a question which was
settled as early as Lord Holt's time, — but
in applying that principle to the peculiar
facts of the case ; the act which was relied
upon there as constituting a liability in
the sellers having been an act adopted by
them under peculiar circumstances, and
the author of that act not being their
general agent in business, as the manager
of a bank is." See further, Cornfoot v.
Fowke, 6 M. & W. 373 ; Wilson v. Fuller,



610 COMMENTARIES TDN SALES. [BOOK II.

out a government contract, refused to continue to do so unless
he had a better guarantee. The defendants' manager thereupon
gave him a written guarantee to the effect that the customer's
check on the bank in plaintiff's favor, in payment for the oats
supplied, should be paid, on receipt of the government money,
in priority to any other payment, " except to this bank." J. D.
was then indebted to the bank to the amount of .£12,000, but
this fact was not known to the plaintiff, nor was it communi-
cated to him by the manager. The plaintiff thereupon supplied
the oats to the value of £1227 , the government money, amount-
ing to £2676, was received by J. D., and paid into the bank ; but
J. D.'s check for the price of oats, drawn on the bank in favor
of the plaintiff, was dishonored by the defendants, who claimed
to retain the whole sum of £2676, in payment of J. D.'s debt
to them. The plaintiff having brought an action for false repre-
sentation, and for money had and received, on the trial of the
cause before Martin, B., a nonsuit was directed on the ground
that there was no evidence to go to the jury in support of the
plaintiff's case. But, on exceptions, the court held, that, on
the facts, the jury might justly come to the conclusion that the
manager knew and intended that the guarantee should be un-
availing; that he procured for his employers, the bank, the gov-
ernment check, by keeping back from the plaintiff the state of
J. D.'s account, and that he intended to do so ; from which the
jury would conclude that there was such a fraud in the man-
ager as the plaintiff complained of , second^ that this was such
a fraud in the manager as the bank, his employers, would be
answerable for ; and, thirds that the description of such fraud as
the fraud of the bank was proper.^ A venire de novo was accord-
ingly ordered.

3 Q. B. 68 ; Murray v. Mann, 2 Ex. 538 ; by a sheriff against an execution creditor,
Wilde V. Gibson, 1 H. L. Cas. 605 ; Brady on a bond of indemnity for seizing goods
V. Todd, 9 C. B. n. s. 592; Fenn v. under a,/?. /a., defendant pleaded that the
Harrison, 3 T. R. 760 ; Croft v. Alison, bond was obtained from defendant, by

4 B. & Aid. 590 ; Ewhank v. Nutting, 7 plaintiff and others in collusion with him,
C. B. 797 ; Hamilton v. Watson, 12 CI. & l>y fraud and misrepresentation. It was
F. 109 ; Lee v. Jones, 17 C. B. N. s. 503 ; hidd that the defendant supported this
Goff V. Great Northern Ry. Co., 3 E. & E. plea by proof that the sherifTs officer, who
672 ; Roe v. Birkenhead Ry. Co., 7 Ex. executed the process, obtained the bond
36 ; Barry r. Midluid Ry. Co., Ir. L. by fraud and misrepresentation, although
Rep. 1 C. L. 130 ; Huzzey v. Field, 2 C. the ])laintiff did not appear to have been
AI. & R. 432, 440 ; Pickering v. Dowson, personally cognizant of any part of the
4 Taunt. 779 ; Haycraft v. Creasy, 2 East, transaction. See, also, to the same effect,
92; Polhill v. Walter, 3 B. & Ad. 114; Woodgate v. KnatchbuU, 2 T. R. 148;
Levy V. Langridge, 4 M. & W. 337 ; SturmV v. Smith. 11 East, 25 ; Fitzherbert
Moens v. Havwoith, 10 M. & W. 147 ; v. ]Mather, 1 T. R. *12 ; Doe v. Martin, 4
Evans v. Collins, 5 Q. B. 804, 820 ; Pas- T. R. 39 ; Laicock's Case, Nov, 90 ; San-
ley V. Freeman, 3 T. R. 51. derson v. Baker, 2 W. Bl. -8152 ; Smart v.

1 This was so held in Raphael v. Good- Hutton, 2 N. & JI. 426 ; North v. ililes,
man, 8 A. & E. 565, where to an action 1 Camp. 389.



PART VIII.] AGENCY. 611

A company formed to work a mine was compelled from want
of funds to cease working ; money was then advanced to them by
some of the directors, and among them Barnctt and Baldwin.
Afterwards at a general meeting of the company, held in order,
among other things, to provide for the existing deficit and for
working expenses, the directors were authorized to issue deben-
tures on such terms and for such amounts as they in their discre-
tion might think fit. The directors accordingly authorized the
secretary to employ a firm of brokers to place the debentures.
The brokers prepared and issued a prospectus, bearing the names
of Bell and others as directors, and containing statements as to
the condition and prospects of the company, on the faith of which
the plaintiff and others purchased debentures. The money thus
raised was paid to the company's bankers, and part of it was ap-
plied by the directors on behalf of the company to repay the ad-
vances made by Barrett and Baldwin. The debentures having
become worthless, the plaintiff brought an action for damages
against Bell and others in respect of the statements in the pro-
spectus, some of which were alleged to be fraudulent. The jury
found that the prospectus contained statements of fact which
were false to the knowledge of the brokers, and by which the
plaintiff was induced to part with his money ; that none of the
false statements were made by Bell personally or by his authority ;
that the brokers had authority to issue a prospectus, but no au-
thority to include in it statements which were fraudulent ; and
that Bell derived no benefit from the money raised by the deben-
tures. Held, by Cockburn, C. J., Bramwell, and Brett, L. JJ.,
(Cotton, L. J., dissenting), affirming the judgment of the Exche-
quer Division, that the defendant Bell was not liable. By Cock-
burn, C. J., and Brett, L. J., on the ground that though a party
as director, to the receipt of money, the defendant. Bell, M^as not
aware of the falsehood of the statements contained in the pro-
spectus, and derived no personal benefit from the receipt of the
money. By Bramwell, L. J., that the defendant. Bell, had been
guilty of no moral fraud, and not being the principal of the brok-
ers, could not be held to have impliedly undertaken for the ab-
sence of fraud in them in issuing the prospectus. Cotton, L. J.,
held, in dissenting from the other judges, that the defendant, Bell,
wa» liable in an action to the plaintiff, for it was his duty as di-
rector to ascertain whether the statements in the prospectus were
true or false.^

1 "Weir V. Barnett, 3 Ex. Div. 2-38. BB. ), whose decision was sustained in
The judges in the Exchequer Division respect to Bell by the Court of Appeal,
(Kelly, C. B., Pollock and Huddleston, held unanimously that the brokers were



612



COMMENTARIES ON SALES.



[book II.



The plaintiffs instructed a broker to re-insure an overdue ship.
"Whilst acting for the plaintiffs, the broker received information



really not the agents of the directors, but
ot the company, the directors being inter-
vening agents ; that the repayment of the
moneys to Barnett and Baldwin, though
in some sense consequent upon, had no
necessary connection witli, the fraudu-
lent statements in the prospectus ; that
Barnett and Baldwin were ifot the prin-
cipals of the brokers, so as to bring the
former within the rule tliat a principal
is answerable where he has received a
benefit from the fraud of an agent within
the scope of his authority, and, therefore,
that the plaintiffs could not recover in
their action against any of the defendants,
among whom were Barnett and Baldwin.
Ibid. 3 Ex. Div. 32. The appeal to the
Court of Appeal, was only in respect to
the defendant Bell. The judges of the
Court of Appeal, as to the question of the
liability of the company, were of opinion
with the court below that the company
would have been liable for the fraud. And
had the appeal been as to the judgment
in favor of Barnett and Baldwin, Cock-
burn, C. J., and Brett, L. J., with Cotton,
L. J., would have reversed the judgment
of the Exchequer Division with respect to
them. Cockburn, C. J., in delivering the
judgment of himself and Brett, L. J., on
these two jioints, .said: "The Court of
Exchequer Division gave judgment in
favor of the defendants, on the ground
that the brokers, in issuing the prospec-
tus, had acted as the agents not of the
defendants, but of the company ; that the
directors had been merely the officers and
agents of the company in carrying into
effect the resolution of the company that
debentures should be issued ; and in doing
what was necessary for that purpose, inter
alia in directing that a prospectus should
be prepared and published, had been in
no sense principals; conse(|uently that the
rule, that a [irincipal who derives benefit
from a fraud committed by his agent m
the course of his employment becomes
liable to a party injured by the fraud, has
here no apjilication, though upon the au-
thoritv of Barwick v. English Joint Stock
Bank'(L. R. 2 Ex. 259) the fraud in ques-
tion would have made the company liable
had the action been brought against them.
I concur in the view that the defendants,
in whac they did, were acting as the agents
of the com[)any, and not as principals, and
therefore that they would not be liable,
generally speaking, for misrepresentations
made without their authority by persons
employed by them on behalf of the com-
pany, and who in such employment were
acting, not as their agents, but as the



agents of the company. But the court
below appear to have overlooked a cir-
cumstance which, as it seems to me,
makes all the difference ; namely, that,
with the exception of the defendant Bell,
all the defendants, though not parties to
the issuing of the prosjiectus as fraudu-
lently framed, yet, knowing that it had
been issued, and with the knowledge of
its fraudulent character which their per-
fect acquaintance with the affairs of the
company must have given them, not only
allowed the plaintiff and others to ad-
vance their money on the faith of the
false representations contained in it, and
by receiving the money became parties to
the fraud, but, on their own authority,
applied a considerable portion of the
money so received to the discharge of
their own pecuniary claims on the com-
pany, — claims which the company had no
other means whatever of satisfying. Even
the defendant Barnett, who left England
in August, 1873, and did not return till
1874, and who was ignorant of all that
was done in the interval, inclusive even
of the fact of the payment of the amount
due to him from the company, the money
having been paid to his agents in his ab-
sence, having retained the money when
the facts came to his knowledge, stands
on the same footing with the rest. Now,
I take it to be undoubted law that, if an
agent, in the course of his employment,
commits a fraud npon another party,
whereby damage ensues to the latter, he
will be liable to the party wronged, though
his principal would be so likewise. The
case of Henderson v. Laeon (L. R. 5 E<|.
249) proceeded on this j)rinci])le. And in
Cullen V. Thompson's Trustees (4 ilacq.
424), Lord Westbury says: 'All persons
concerned in the commis.sion of a fraud
are to be treated as principals. No party
can be permitted to excuse himself on the
ground that he acted as the agent or ser-
vant of anotlier.' A fortiori, this would
be so where the agent himself derives
benefit from the fraud. The present case
differs, it is true, in this, that here the
defendants, being the agents of the com-
pany, employed sub-agents to publish the
prospectus, but were no parties to the
fraudulent statements contained ih it,
such statements having been published
by the sub-agents without their authority
or knowledge. But haviiig, with the ex-
ception of the defendant Bell, become
aware of those statemen-^s, and being
also aware of their falsehood, they were
parties to the issuing of the debentures,
and applied a considerable portion of the



PART VIII.]



AGENCY.



613



material to the risk, but did not communicate it to them, and the
plaintiffs effected a re-insurance for <£800, through the broker's
London agents. Afterwards tlie plaintiffs effected a re-insurance
for .£700, lost or not lost, through another broker. The ship had
in fact been lost some days before the plaintiffs tried to re-insure,
but neither the plaintiffs nor the last-named broker knew it, and
both he and the plaintiffs acted throughout in good faith. The
House of Lords held,i reversing the judgment of the Court of
A])peal, and restoring the judgment of Day, J., that the knowl-
edge of the first broker was not the knowledge of the plaintiffs,
and that the plaintiffs were entitled to recover upon the policy
for £700.2



proceeds to the satisfaction of their own
claims on the company. Now, I ajjpre-
hend that where an agent employs a sub-
agent, and the latter, in the course of his
employment, is guilty of fraud or misrep-
resentation, and the agent, with knowl-
edge of the fraud, derives a material
benefit from it, the case becomes analo-
gous to that of a principal who profits by
the fraud of his agent, the principle being
that he who profits by the fraud of one
who is acting by his authority, though
committed without his authority, adopts
the act of the agent, and becomes respon-
sible to the party who has been imposed
upon, and has sustained damage by rea-
son of it. If, therefore, the case of the
defendant Bell, with which alone we have
to deal, as it is only against the decision
of the court below in his favor that the
present appeal has been biought, had
been undistinguishable from that of the
other defendants, 1 should not have felt
warranted in affirming the decision. But
his case differs from that of the other de-
fendants in two most important particu-
lars. First, that though party to the
receipt of the plaintiffs money, he does
not appear to have been at that time ac-
quainted with the real state of the com-
pany's affairs, and thus aware of the false-
hood of the statements contained in the
prospectus ; secondly, that none of the
money actually came into his pocket."
Weir V. Bell, 3 Ex. Div. at p. 247 et scq.
See Swift i-. Winterbotham, L. R. 8 Q. B.
244; Swift v. Jewsbury, L. R. 9 Q. B.
312 ; Western Bank of Scotland v. Addie,
L. R. 1 Sc. & D. 145; Mackay v. Com-
mercial Bank of New Brunswick, L. R.
5 P. C. 412 ; Reese hiver Silver Mining
Co. V. Smith, L. R. 4 H. L. 79 ; Bayley
V. Manchester, &c. Ry. Co., L. R. 7 C. P.
415 ; Directors, &c. of Central Ry. Co. v.
Kisch, L. R. 2 H. L. 113 ; Henderson v.
Lacon, L. R. 5 Eq. 249, 261; Land Credit
Co. of Ireland v. Fermoy, L. R. 5 Ch.
763 ; Sands v. Child, 3 Lev, 351; Bennett



V. Bayes, 5 H. & N. 391 ; Cullen v. Thomp-
son, 4 Macq. 424 ; Mersey Docks Co. v.
Gibbs, L. R. 1 H. L. 127; Wilde v. Gib-
son, 1 H. L, Cas. 615; New Brunswick &
Canada Ry. Co. v. Connybeare, 9 H. L.
Cas. 711; National Exchange Co. v. Drew,
2 Macq. 124; Davidson v. TuUoch, 3 Macq.
783 ; Brady v. Tod, 9 C. B. n. s. 592 ;
Peek V. Gurney, L. R. 6 H. L. 392; Ew-
bank v. Nutting, 7 C. B. 797.

1 Blackburn y. Vigors, 12 App. Cas. 531.

2 The following principles, as far as
they relate to the duty of the agent to
conmiunicate all the facts of which lie pos-
sesses knowledge to the same extent as
the princijjal would be bound to commu-
nicate knowledge which he himself pos-
sesses, to the other contracting party, is
as apiilicable to the contract of sale as to
the contract of insurance. " I can quite
understand," said Lord Halsbury, L. C.
(Blackburn v. Vigors, 12 Ajip. Cas. 536),
" that when a man comes for an insurance
upon his ship he may be expected to know
both the then condition and the history
of the ship he .seeks to insure. If he
takes means not to know, so as to be able
to make contracts of insurance without
the responsibility of knowledge, this is
fraud. But even without fraud, such as
I think this would be, the owner of the
ship cannot escape the necessity of being
acquainted with his ship and its history,
because he has committed to others — his
captain, or his general agent for the
management of his shipping business —
the knowledge which the underwriter has
a right to assume the owner possesses
when he conies to insure his ship. With
respect to agency so limited,! I am not
disposed to ditler with the proposition laid
down by Cockburn, C. J., in Proudfoot
V. Montefiore, L. R. 2 Q. B. 511, 521. A
part of the proposition is 'that the insurer
is entitled to assume as the basis of the
contract between him and the assured that
the latter will communicate to him every
material fact of which the assured has, or



614



COMMENTARIES ON SALES.



[book II.



In June, 1857, the defendants, in Indiana, being desirous of
obtaining money, made their acceptances of two blank bills of ex-



in the ordinary course of business ought
to have knowledge.' I tliink tliese last
are the cardinal words, and contemplate
such an agency as I have described above.
1 am unable, however, to see that the
present case is governed by any such prin-
ciple. A broker is employed to effect a
particular insurance. While so employed
he receives material information. He does
not effect the insurance, and he does not
comiiumicate the information. How is it
possible to suggest that the assured could
rely upon the communication to the prin-
cipal of every piece of information ac-
quired by any agent through whom the
assured has unsuccessfully endeavored to
procure an insurance ? I am unable to ac-
cept the criticism by the Master of the
Rolls [in the Court of Appeal], upon the
proposition that the knowledge of the
agent is the knowledge of the principal.
When the person is the agent to know,
his knowledge does Vjind the principal.
Rut in this case I think the agency of the
broker had ceased before the policy sued
upon was effected. The principal himself
and the broker tiirough whom the policy
sued on was effected were both admitted
to be unaciiuainted with any material fact
which was not disclosed. I cannot but
think that the somewhat vague use of the
word ' agent ' leads to confusion. Sovie
agents so far 7-epreserU the principal that
in all respects tlieir acts and intentions and
their knowledge may truly be said to be tits
acts, intentions, and knowledge of tlie prin-
cipal. Other agents may have so limited
and narrow an authority both in fact and
in common understanding of their form of
employment, that it luould be quite inaccu-
rate to say that such an agent's knowledge
or intentions are the knowledge or inten-
tions of his principal ; and whether his
acts are the acts of his principal de-
pends upon the specific authority tie has
received. In Fitzherbert v. Mather, 1 T.
R. 12, the consignor and shipper of the
goods insured was the agent whose knowl-
edge was in question. In Gladstone v.
King, 1 M. & S. 35, the master of the ship
was tlie agent ; and in Proudfoot v. Mon-
tefiore, L. R. 2 Q. B. 511, the agent was
the accepted representative of the princi-
pal, in effect, trading and acting for him in
Smyrna, the owner himself carrying on
business in Manchester. And though the
decision in Ruggles v. General Insurance
Co., 12 Wheat. 408, before the Supreme
Court of the United States, may not be
very satisfactory in what they held under
the circumstances of that case to be the
relation between the captain of the ship



and his owners, the principle upon which
that case was decided was the supposed
termination of the agency between them.
Where the employment of the agent is
such that in respect of the particular mat-
ter in question he really does represent the
principal, the formula that the knowledge
of the agent is his knowledge is, 1 think,
correct ; but it is obvious that that form-
ula can only be applied when tlie words
' agent' and ' principal ' are limited in their
application. To lay down as an abstract
proposition of law, that every agent, no
■matter how limited tlie scope of his agency,
would bind every principal even by his
acts, is obviously, and upon the face of it,
absurd ; and yet it is by the fallacious
use of the word ' agent ' that plausibility
is given to reasoning which requires the
assumption of some such proposition.
What then is the position of the broker
in tliis case, whose knowledge, though
not coninmnicated, is held to be that of
the principal ? He, certainly, is not em-
ployed to ac(iuire such knowledge, nor
can any insurer suppose that he has knowl-
edge in the ordinary course of employment
like the captain of a ship, or tlie owner
himself, as to the condition or history of
the ship. In this particular case the
knowledge was acquired, not because he
was the agent of the assured, but from
the accident that he was general agent for
another person. The reason why, if he
had effected the insurance, his knowledge,
unless he communicated it, would have
been fatal to the policy, is because his
agency was to effect an insurance, and the
authority to make the contrast drew with
it all the necessary powers and responsi-
bilities which are involved in such an
employment ; but he had no general
agency ; he had no other authority than
the authority to make the particular con-
tract, and his authority ended before the
contract sued on was made. When it
was made, no relation between him and the
shipowner existed which made or contin-
ued him an agent for whose knowledge his
former principal was responsible. There
was no material fact known to any agent
which was not disclosed at the point of time
at which the contract was made ; there was
no one possessed of knowledge whose duty
it was to communicate such knowledge."
We entirely concur in the reasoning
in the foregoing, which thoroughly agrees
with the views we express, iiifra (see Vol.
II., Book III., Pnrt 1.), in oifr discussion of
the cases relating to the power of a ship-
master, as agent, to bind the shipowner,
as principal, by the fraudideut signing of



PART VIII.] AGENCY. 615

change, in sets of two parts each, and sent them to their agent,
R,, in Pittsburgh, Pennsylvania. The two sets were left blank
except that they were made in favor of R., and were accepted on
their face by the defendants, who instructed R. to fill up the



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