
    M. Jacoby & Company, Limited, App’lt, v. George D. Payson et al., as Executors, etc., Resp’ts.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed March 15, 1895.)
    
    Principal and agent—Liability of third person to principal.
    Where an agent, who is authorized to collect money due to his principal, indorses over to a third person, in payment of his individual debt, a check payable to the principal, and receives' from such third person the difference between the amount of the check and the amount of the debt, the latter is chargeable with knowledge that the agent is not acting within his authority and is liable to the principal for the full amount of the check received by him.
    Appeal from a judgment, entered on a verdict in favor of defendants, and from an order denying a motion for a new trial, made on the minutes.
    This action was brought to recover damages for the alleged conversion of the following check :
    “No. 230. New York, Nov. 20th, 1890
    “ Bank of America: Pay to the order of M. Jacoby & Co. forty-six hundred and thirty-nine 27||100 dollars.
    The H. B. Claflin Company,
    “$4,639.27. By D. N. Force.
    “[Indorsed :] M. Jacoby & Co., E. J. Dennison.
    “[Stamped on face:] 8. 21 Nov., 1890.
    “[Stamped on left-hand margin :] C. The Bank of America. Certified. Payable only through N. Y. clearing house.”
    The plaintiff is a foreign corporation, existing under the laws of the United Kingdom of Great Britain and Ireland, and having its chief place of business at Nottingham, England, and is engaged in the manufacture and sale of lace curtains. - August 1, 1883, the plaintiff and H. L. Fesler & Co. of New York, entered into a contract by which the latter were appointed for three years the plaintiff’s sole agents in the United States and Canada for the sale of the goods manufactured by the corporation. The contract contains, among others, the following provisions: “ Messrs. Jacoby & Co. will not pay any commission for goods sold by them to the following houses: * * * [Wight & Co. is not one of the excepted firms.] Excepting 'the above-named firms, a commission of five per cent, on the net amount of all sales made in sterling on our goods to be paid by Messrs. M. Jacoby & Co. to Messrs. H. L. Fesler & Co. * * * A monthly statement to be rendered by Messrs. M. Jacoby & Co. of all sales, and a fly-sheet copy of each invoice to be sent to Messrs. H. L. Fesler & Co.” By a subsequent contract, extending the one originally made, it was provided : “ Messrs. Fesler & Co. to advance the freight, duty, and other incidental expenses, adding same to the sterling prices, which they will so calculate to return Messrs. M. Jacoby & Co., Limited, the net amount in sterling, sending a-c sales showing the transactions in detail. Remittances to be made by Messrs. Fesler & Co. in accordance with the terms stated by them in the original orders.” In November, 1890, Wight & Co. of the city of New York, were indebted to the plaintiff in a considerable sum, and in that month they became embarrassed and unable to pay their debts in full. November 8,1890, H. L. Fesler & Co. cabled the plaintiff as follows:
    “ Have private information. Wight & Co. failing very soon Shall I act? “ Fesler.”
    The plaintiff replied by cable:
    “ Nottingham, Nov. 8, 1890.
    “ Fesler & Co.: Act promptly, Wight & Co. Can you obtain goods ? Remittances required. Will write you full particulars. Will power of attorney be required ? Reply immediately by code addition.”
    On the same day, Fesler replied by cable as follows:
    “Impossible to determine without knowing the amount. Power of attorney will not be required. . Fesler.”
    The plaintiff replied :
    “Nov. 11, 1890.
    “ Fesler, New York : 1,087 pounds. Have omitted the interest in the account, "$5,768.82.”
    Thereupon a suit to recover the amount was begun at the instigation of H. L. Fesler & Co.
    On the 11th of November, 1890, the plaintiff executed and delivered the following power of attorney to Fritz Reinhold, of Nottingham, England.
    “To All to Whom These Presents Shall Come, We, John Henry Jacoby and Arthur Joynes Butler, Directors of M. Jacoby & Co., Limited, Nottingham, England, Lace Manufacturers and Merchants, Greeting: Whereas, we, the aforesaid John Henry Jacoby and Arthur Joynes Butler, having reason to believe that several firms in New York, in the United States of America, are not in a position to meet their indebtedness to the firm of M. Jacoby & Co., Limited, desire to give a general power of attorney to Fritz Reinhold to act for them in such manner as he, in his discretion, may think the circumstances of each case may require; and to adjust any claims or differences in account that may arise with these New York firms: Now, these presents witness that the said John Henry Jacoby and Arthur Joynes Butler do hereby make, ordain, constitute, and appoint Fritz Reinhold, of Nottingham, in the United Kingdom of Great Britain and Ireland, their true and lawful attorney and agent for them, and in their name or otherwise, and on their behalf, to ask, demand, receive, and recover all and every sum or sums of money whatsoever that are or is now due and owing to the said company, of and on our behalf to investigate, adjust, settle, and to compromise all accounts, debts, claims, disputes, and matters which are, shall, or may subsist or arise, and also, if necessary, to commence and prosecute and defend all actions, suits, claims, demands, and proceedings touching the premises, and in any way connected therewith, and also to receive and give effectual receipts and discharges for all sums of money, claims, or demands by the said company, and to prove and receive dividends, and to give receipts for the proceeds arising from all, also to give effectual receipts in full discharge of all claims, and generally to do, perform, and execute all and every such act and acts, duty and duties, in and about the premises, as he, the said Fritz Reinhold, shall think proper, as fully and as effectually, to all intents and purposes whatsoever, as the said John Henry Jacoby and Arthur Joynes Butler might or could do if personally present, and also to substitute and appoint any person or persons to act under or in the place of the said Fritz Rein hold in all or any of .the matters aforesaid, and every such substitution at pleasure to revoke; the said John Henry Jacoby and Arthur Joynes Butler hereby agreeing to ratify and confirm whatsoever the said Fritz Beinhold or his substitute or substitutes shah lawfully do, or cause to be done, in or about the premises by virtue of these presents. In witness whereof, the said John Henry Jacoby and Arthur Joynes Butler have hereunto set their hands and seals, and also affixed the common seal of the said company, the 11th day of November, in the year of our Lord 1890.
    “For M. Jacoby & Co., Ltd.,'
    “ John Henry Jacoby, Director.
    “For M. Jacoby & Co., Ltd.,
    “ Arthur Joynes Butler, Director.
    “Signed, sealed, and delivered in the presence of:
    “ Geo. Richards.
    “ J. H. Warner.”
    On the 19th of November, 1890, Fritz Beinhold arrived in New York, bringing with him his power of attorney. On the next day he indorsed the following substitution on the power which he delivered to H. L. Fesler:
    “ I herewith transfer this power of attorney to Mr. H. L. Fester, of 464 Broome street, New York. Fritz Beinhold.
    “Nov. 20th, 1890.
    “[Seal of M. Jacoby & Co., Limited.]”
    
      ■ On the 20th of November, Mr. Fesler called on Wight & Co., taking with him the power of attorney and the substitution, and on that day effected a settlement of the plaintiff’s claim against the firm, and received the above-mentioned check in payment, and at the same time receipted the bills. H. L. Fesler thereupon indorsed the check “ M. Jacoby & Co.,” and delivered the same to Elisha J. Dennison, defendants’ testator, for the purpose of paying the indebtedness of Fesler to said testator of $1,050, and of receiving a check of Dennison’s for the balance, $3,589.27, payable to the order of H. L. Fesler & Co. The check given by Fesler to Dennison, was paid the next day after it was given, and Dennison’s check to Fesler was duly paid on presentation.
    Upon the trial, requests for direction of verdicts were made; but the court submitted the question to the jury whether or not, in advancing this money, Mr. Dennison, the defendants’ testator, ¿relied upon an apparent authority, and acted in good faith.
    
      John J. Adams, for app’lt; Lawrence Godkin, for resp'ts.
   Van Brunt, P. J.

The submission of this question to the jury "was duly excepted to, and the question presented upon this appeal is whether, upon the conceded facts, there was anything to ,go to the jury upon any such issue. In the determination of this appeal, it is not necessary to pass upon the question as to whether an agent entitled to collect moneys on behalf of his principal has authority to indorse, for purposes of collection, such commercial paper as may come into his possession as such agent. It is undoubtedly the established rule that such agent has no authority to make an indorsement which imposes any liability upon his principal. This seems to have been the rule which pervaded the cases cited in the case of Holtsinger v. Bank, 1 Sweeny, 64. We find in each of the authorities cited to sustain the conclusion of the court that there was a negotiation of bills received by the agent, and indorsed in the name of the principal by the agent, thereby creating an obligation upon the part of the agent to pay in case of a failure upon the part of the makers of the paper to provide for its payment. It has not, however, been authoritatively determined that, where an agent receives commercial paper in the course of the collection which he is authorized to make for his principal, he may not indorse such paper for the purpose of collection, and for the purpose of collection only; it being suggested that such an indorsement is not creating any liability in the name of his principal, but is simply the gathering in of the money which the agent is authorized to receive and remit to his principal. In the case at bar, however, this feature in respect to the indorsement seems to have been absent. Although the question as to Dennison’s good faith was submitted to the jury, and seems to have been resolved in his favor, the conceded facts of the case show that he received this check, belonging to the plaintiffs, indorsed in their name by their agent, for the purpose, at least partially, of paying the agent’s debt to him. He therefore knew at the time that this check was received, bearing this indorsement, that, in paying his individual debts with that check, the agent was not acting in his master’s business. It was apparent that the agent was not acting within his authority. There was nothing in the relations between the principal and the agent which authorized the agent to apply his principal’s money towards the liquidation of his own debt. And, as has already been suggested, when Dennison received this check,, indorsed as it was by the agent, he knew that the agent was violating his authority, because, at best, he only had the right to receive the money for the purpose of transmission to his principal.

It is true that there was some attempt upon the .trial to show that there was some indebtedness from the principal to the agent on account of commission. But no definite evidence in that regard was given. There was no proof that any of this money was due to this agent on account of commission. There was some pretense that some commissions were due, but that certainly is not sufficient to justify an appropriation to his own use of a principal’s money by an agent; and a party who aids an agent in a scheme of that description cannot be said to be acting in good faith. Therefore, as matter of law, it would appear that Dennison did not receive this check in good faith, as he knew that the agent was misapplying at least a portion of the proceeds. This misapplication to the knowledge of the party advancing the money, or rather the balance of the money, necessarily tainted the whole transaction, and charged him with knowledge that the agent, in making the indorsement, was not acting on behalf of his principal. Under such circumstances, it would seem that there was no question for the jury, there being no dispute in regard to the facts, and that Dennison, as matter of law, could not be held to have accepted the check in good faith, relying upon an apparent authority.

The judgment and order should be reversed, and a new trial granted, with costs to the appellant to abide the event.

All concur.  