Schwind v. Boyce , 94 Md. 510 ( 1902 )

The appellant, who was complainant below, charges in his bill that a certain Charles Delaney subscribed for twenty shares of the capital stock of the Schwind Quarry Company of the par value of one hundred dollars per share; that being unable to make payment he borrowed the money from the Calverton Building Association, for the repayment of which the appellant became his surety; that in order to protect the complainant and save him harmless, Delaney pledged the certificate of said shares to the complainant, and the same were deposited in the safe of the quarry company "for the purpose of turning it over to the control, keeping and possession of the complainant." That Delaney, who had been made Secretary of the quarry company, made default in his payments to the building association whereby the complainant's obligation on account of his suretyship became absolute, for the sum of $600 due to the association; and in addition thereto the said Delaney on account of money paid by him for Delaney to the association for maturing instalments was indebted to him in the sum of $248.65. That Delaney was dismissed from the service of the quarry company and when he was about to leave the service of the company, he abstracted from its safe, without the knowledge and consent of the appellant, the certificate of the stock, and "in order to wipe out the equities existing between the complainant and himself, he has recently transferred" it to the appellee Boyce; that Boyce if he had not actual notice "of the equities which then attached to the stock," had such notice as "put him upon inquiry in regard thereto." That Boyce is not a bona fide holder of said stock and that Delaney has still an interest therein and that Delaney is financially irresponsible. On final hearing the Court dismissed the bill and the complainant appealed.

The controlling questions in the case are, 1st, did the appellant have a lien on the stock and 2nd, if he had, did Boyce have actual or constructive notice of it?

As to the first question. Mr. Schwind testifies that he agreed to go his security to the building association, and that to secure him Delaney was to leave his certificate in the stock book until the association was repaid or until the stock was paid for. He further testified that there never was a delivery of the stock to Delaney. This testimony is in harmony with all the facts connected with the transactions of the parties. Mr. Schwind was the owner of the quarry. He proposed to form a corporation and put the business under its control. He desired that Delaney should be the owner of a portion of its stock. Delaney did subscribe for twenty shares, for which he agreed to pay Schwind two thousand dollars. To enable him to do this, Schwind assisted him with the association. He first became his surety to the association for one thousand dollars, which Delaney subsequently paid. For the residue Delaney gave his note to Schwind, and later on made another loan from the association to effect which Schwind aided him, by "hypothecating for him again." When it is borne in mind that Delaney was financially irresponsible, it is not reasonable to believe that Schwind, as a reasonably prudent business man, would voluntarily put himself in a position where he might be subjected to considerable loss, without providing some means whereby he could be protected. He claims he did so by securing the pledge of the stock and that it was on that account that the certificate was not to be delivered until he had been made safe. In fact it was not delivered, and Delaney never obtained the possession of it, until he abstracted it from the company's safe, after he had been discharged from its service, without Schwind's knowledge or consent. Delaney himself makes no statement with reference to the formation of the quarry company, or as to how Schwind became his surety. He was asked if anything was said to Schwind after he had left the employment of the company "as to his having a lien" on the stock and his reply was, "he never made a claim of a lien on my stock at all to me. All I have seen about a lien was when this paper was filed. He never mentioned a word in reference to a lien to me." All the details of the transaction as testified to by Schwind goes without denial from Delaney. Being without substantial contradiction and harmonizing as it does with what we regard as the probabilities of the matter, we must accept the statement he makes, and that being so are constrained to hold that the stock was pledged as set forth in the bill. It appears from the proof that to secure the two thousand dollars, Delaney incurred a liability to the association of $2,080. Of this has been paid $1,514.51, leaving still due the sum of $565.49 for which Schwind is still liable as surety. The stock is pledged to secure the payment of this sum, as well as interest due to Schwind, and whatever sum he has to pay for Delaney to the association on account of fines and maturing installments.

The remaining question is did Boyce have actual or constructive knowledge of the lien? It is not claimed that he had actual notice, but it is contended on the part of the appellant that Boyd, who, it is said, was his attorney and agent in the transaction, had full notice, and that Boyce is affected with notice of everything that was within the knowledge of his agent. Boyce himself states in his evidence that Boyd was his agent, "with full authority," that he had given him power to act for him "in buying the stock" and that he had a verbal arrangement with him, that he "was to pay Mr. Boyd for acting as my (his) agent, one-third of what I (he) made on the stock." There is nothing in the testimony to contradict this statement, and the facts as they appear in the record fully warrant the view Mr. Boyce has taken of the matter. Boyd had been counsel for Boyce for six or seven years. The first he heard of the "stock transaction" was from Boyd in December, when Boyd offered to sell it to him. He knew however, then or shortly after and before the purchase was made, that Boyd was not the owner of the stock and that Boyd was merely to effect the purchase from Delaney. Boyce seems to have done absolutely nothing; he made no inquiries about the stock "only through Boyd," he gave Boyd full power to "act for him in the premises" with Delaney, he knew absolutely nothing about it except from Boyd, and he knew nothing of the quarry company; in fact everything was done by Boyd, who agreed to receive as compensation for his services one-third of what was made on the transaction. So thoroughly complete was Boyd's agency, that Boyce during it all was never brought in contact with Delaney and never saw him until they met for the first time at the taking of the testimony in this case. Under these circumstances it would appear idle to say that Boyd was not acting as Boyce's agent. The knowledge of Boyd in reference to Schwind's claim was acquired prior to the transaction in question in this case. He has at least derived it from Schwind's answer in the equity case that was pending between Schwind and Delaney, in which Schwind in his answer to the bill had set forth substantially all the facts in reference to his claim. It cannot be supposed that Boyd could have forgotten or have failed to bear it in mind during his dealings with Boyce, and if such a supposition were possible, the fact that Delaney said to him during the negotiations for the stock, that "if anything came out of these cases or any trouble for Mr. Boyce, he would make it good," make it entirely clear that he had not forgotten it. Under these circumstances the law applicable to the case is clear. In Smith v. Ayer, 101 U.S. 325, cited in Mayor v. Whittington,78 Md. 238, where the question arose as to Ayer's notice of certain claims of another person, and it was shown that the facts respecting them were within the knowledge of his attorney on whose judgment he had relied entirely, the Court said, that "the facts brought to the knowledge of their attorney in his inquiries respecting the note and the authority of Renick to pledge, are considered in law as brought to his knowledge * *. The law considers the principal as affected with notice of all facts, notice of which can be charged to his attorney." In another case,The Distilled Spirits, 11 Wallace, 356, the Supreme Court has made a more complete statement of the doctrine. There, the Court after stating that "in England the doctrine now seems to be established that if an agent at the time of effecting a purchase, has knowledge of any prior lien, trust or fraud affecting the property, no matter when he acquired such knowledge, is affected thereby," proceeds, "the general rule that a principal is bound by the knowledge of his agent, is based on the principle of law that it is the agent's duty to communicate to his principal the knowledge which he has respecting the subject-matter of the negotiation and the presumption that he will perform that duty. When it is not the agent's duty to communicate such knowledge, when it would be unlawful for him to do so, as for example when it has been acquired confidentially as attorney for a former client in a prior transaction, the reason of the rule ceases." After further discussion of the subject, the Court says: "On the whole we think that the rule as finally settled by the English Courts, with the qualification above mentioned, is the true one, and is deduced from the best consideration of the reasons on which it is founded." This view is supported by the decisions in many of the States, and seems to be the better doctrine. The cases will be found collected in 1 Am. Eng.Ency. of Law, 2nd ed., title Agency, p. 1150, to which we now refer. There were cited at the hearing two cases decided by this Court which were supposed to be in conflict with what we have said. But we do not think so. One of them, Mayor v.Whittington (supra), decided that notice to the agent and attorney bound their principal. The words of the Court are, "and he, the principal, is equally bound by notice received by his attorney in the same transaction." But it is not decided whether notice which the attorney had received otherwise than in the same transaction would bind the principal or not. It was not necessary to go farther than it did in that case. The notice chargeable to the principal was such as his agent and attorney had derived from a legal proceeding in which a petition had been filed in his name, but without his actual knowledge that the proceedings showed the particular fact. The same may be said of the other case, Devries v. Shumate, 53 Md. 215. In that the Court said the principal was affected "with all the knowledge acquired by the agent in the course of his employment," a proposition not controverted in this, but not sufficiently broad to embrace the point now being considered.

Here, as we have said, Boyd had full knowledge of Schwind's equity and we cannot avoid the conclusion that he must have borne it in mind during the negotiations for the sale of the stock by Delaney. Boyce testifies that he was not informed of it. We think he should have been, but though he was not, the knowledge Boyd had must be imputed to him, and he now stands in no other or better attitude, than he would have had if he had received actual notice.

The decree below must be reversed and the cause remanded for a new decree in conformity with the principles set forth in this opinion.

Decree reversed with costs to the appellant and remanded.

(Decided January 17th, 1902.)