Saratoga Inv. Co. v. Kern ( 1915 )

Mr. Justice Harris

delivered the opinion of the court.

1. The principal assignments of error relate to the giving of certain instructions. The jury was instructed :

“That the mere fact that C. W. Kern and Lucina Kern took title to said property and executed a mortgage for $3,500 against it and thereafter executed a warranty deed to the defendant Paul W. Custer and took back a separate agreement to the effect that Paul W. Custer would protect them against the said mortgage, that the said acts, of themselves, do not constitute fraud, conspiracy or confederacy as against the plaintiff herein. The mere fact that they transferred this and gave a mortgage, that in itself is not sufficient; they must go further and show a conspiracy to either defraud plaintiff, or conceal this mortgage on the property from the plaintiff company.”

The complaint charged fraud, and the defendant C. W. Kern was accused of being one of the actors in the conspiracy to damage plaintiff. “Fraud is a question of fact, but it need not be shown by positive evidence, as this can seldom be done. It is generally proved by circumstantial evidence, and may be established by inference, like any other disputed fact”: Williams v. North, Pacific Lum. Co., 42 Or. 153-160 (70 Pac. 387, 390). One of the chief purposes of the trial was to ascertain whether fraud tainted the execution of the instruments referred to in the quoted instruction, and the inquiry necessitated the determination of a question of fact which the jury alone was authorized to decide. The law neither raised nor declined to draw an inference from the transactions alluded to by the court, and it was error to advise the jury of the effect of particular acts which, because of the nature of the controversy, constituted the cynosural facts, when there was evidence in the case which could rightfully be considered in the same relation: Stanley v. Smith, 15 Or. 505 (16 Pac. 174); Patterson v. Hayden, 17 Or. 238 (21 Pac. 129, 11 Am. St. Rep. 822, 3 L. R. A. 529); Crossen v. Oliver, 41 Or. 505 (69 Pac. 308); Kellogg v. Ford, 70 Or. 213 (139 Pac. 751); Delovage v. Old Oregon Creamery Co., post, p. 430 (147 Pac. 392).

2, 3. The main question presented by the appeal hangs around the next assignment of error. The jury was told that knowledge acquired by an agent while transacting the business of his principal operates constructively as notice to the principal, but that such notice has no application when the agent acts for himself, in his own interest, and adversely to that of his principal; that although the company would ordinarily be charged with whatever notice or knowledge Custer had if he was president and manager and in full charge of the affairs of the Saratoga Investment Company, nevertheless if he so dealt with his company that he had an interest adverse to the corporation, then his knowledge would not be notice to the company, and if C. W. Kern dealt with Custer in such manner that the former knew, or by the exercise of reasonable diligence could have known, that Custer was dealing for himself and not as the agent of the .company; and thereafter the court charged the jury as follows:

“You are instructed that if you find from the evidence that the defendant Paul W. Custer was the president of the plaintiff corporation, and as such president attended to practically all of its affairs and was the moving spirit of said corporation, and that in all of the dealings of the defendant C. W. Kern with said Paul W. Custer lie was acting in his capacity as president of the said corporation, the plaintiff corporation thereby acquired notice of all the acts and things done by said Paul W. Custer in the transaction of the purchase of said land by, through, and from the defendant C. W. Kern, and that in that event the plaintiff cannot complain of the acts of its president, and you should find in favor of the defendant C. W. Kern. In other words, if you find that Custer was acting as president, not in his individual capacity— that he was buying for the company in his official capacity — then you cannot find against Kern. If he was acting personally for himself, then it would charge the defendant Kern; if acting as president, and representative of the company, it would not charge the defendant Kern.”

While a charge to a jury should always be considered as a whole and never viewed hypercritically, still the quoted instruction as given may easily have misled the jury to believe that if Custer acted as the agent of the corporation, such circumstance alone and of itself would have warranted a verdict for the defendant Kern. The triers of the facts were unqualifiedly advised to find for Kern if Custer, in his dealings with the former acted as president of the corporation. If Kern agreed with Custer to accomplish the fraud charged in the complaint, then Kern would be liable regardless of whether Custer acted for himself or as the agent ,of the corporation. The doctrine of notice in all its phases, when applied to a principal who has been represented by an agent in a transaction with another, is designed to protect the innocent and not shield a wrongdoer; and the instruction should have been so qualified as adequately to inform the jury that if Kern conspired to defraud the plaintiff, then, in such event, the agency of Custer would be of no avail: Mechem on Agency (2 ed.), § 1826; 2 C. J. 871.

4. The errors already pointed out are such as to require a new trial, and on that account some notice should he taken of another feature of the case which was productive of much debate between counsel. The defendant argues that Custer was intrusted with the general management of the affairs of the company, and for all practical purposes was the corporation, that he was the sole representative of the company, and that therefore notice to him was notice to the corporation, even though Custer acted adversely to his principal or perpetrated an independent fraud upon it. The plaintiff asserts that the general rule, making notice to the agent notice to the principal, has its exceptions, one of which exists where the agent has an adverse interest, and another where he seeks to work a fraud upon the principal. The plaintiff insists that there are no qualifications or limitations placed upon the recognized exceptions to the general rule, and that therefore notice is not imputed to the corporation where the agent of such principal has an adverse interest, even though acting as the sole representative of the corporation. The rule of imputed notice, when considered with relation to the facts connected with the instant case, naturally presents itself in two aspects: (a) As applied to the business directly transacted between Custer and Kern; and (b) as applied to the delivery and acceptance of the deed from Custer to the Saratoga Investment Company. All the courts do not predicate the doctrine of constructive notice, in cases of agency, upon the same theory. In some jurisdictions the rule is made to depend upon' the-theory of identification whereby the agent is deemed to be the alter ego of the principal; and in this, as perhaps in the majority of jurisdictions, the same conclusion is reached by declaring that the agent is presu'med to have performed his duty by communicating his knowledge tp the principal: Dight v. Chapman, 44 Or. 265 (75 Pac. 585, 65 L. R. A. 793). Stated in broad terms the general rule is that:

“Notice to an officer or agent of a corporation, in due course of his employment, and in respect to a matter, within the scope of his authority, or apparent authority, concerning affairs of such character that it becomes his duty to communicate the information to it, is notice to the corporation, whether he imparts to it such information or not”: Dillard v. Olalla Min. Co., 52 Or. 132 (94 Pac. 966, 96 Pac. 678); Wood v. Rayburn, 18 Or. 18 (22 Pac. 521); Rayburn v. Davisson, 22 Or. 246 (29 Pac. 738); Hoffman v. Habighorst, 49 Or. 386 (89 Pac. 952, 91 Pac. 20); Pennoyer v. Willis, 26 Or. 1 (36 Pac. 568, 46 Am. St. Rep. 594).

There is a marked divergence of judicial opinion upon the question of whether or not the previously acquired knowledge of the agent is imputable to the principal. In conformity with the present English rule and in harmony with the weight of judicial utterance, this court, spealdng through Mr. Justice Burnett, in Oliver v. Grande Ronde Grain Co., 72 Or. 46 (142 Pac. 541), has approved the language founds in The Distilled Spirits, 11 Wall. 356 (20 L. Ed. 167), l and reading thus:

“The doctrine now sec-ms to be established that if the 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, his principal is affected thereby. If he acquire the knowledge when he effects the purchase, no question can arise as to his having it at that time; if he acquired it previous to the purchase, the presumption that he still retains it, and has it present to his mind, will depend on the lapse of time and other circumstances. Knowledge communicated to the principal himself he is hound to recollect, hut he is not hound by knowledge communicated to his agent, unless it is nresent to the agent’s mind at the timé of effecting the purchase. Clear and satisfactory proof that it was so present seems to be the only restriction required by the English rule as now understood.”

See, also, Farmers’ Bank v. Saling, 33 Or. 394 (54 Pac. 190); Wood v. Rayburn, 18 Or. 3, 18 (22 Pac. 521); Rayburn v. Davisson, 22 Or. 242, 246 (29 Pac. 738); Pennoyer v. Willis, 26 Or. 1, 8 (36 Pac. 568, 46 Am. St. Rep. 594). The exceptions making the rule of imputed notice unavailable are: (a) Where it is the duty of the agent not to disclose, as in the case of privileged communication; and (b) where the agent’s relations to the subject matter are so adverse as to practically destroy the relationship, as when the agent is acting in his own interest and adversely to that of his principal, or is secretly engaged in attempting to accomplish a fraud which would be defeated by a disclosure to his principal: 2 Mechem on Agency (2 ed.), § 1813; 2 C. J. 869; Dight v. Chapman, 44 Or. 265 (75 Pac. 585, 65 L. R. A. 793).

A situation may be presented in a business transaction for a corporation, however, where the second exception mentioned may be nullified, thereby restoring the general rule in its entirety and with unimpaired vigor. If the officer of a corporation, although acting for himself or a third person, is at the same timé the sole representative of such principal, and with full authority as such officer he alone transacts for the corporation some business, then the knowledge of the agent is imputed to the principal: Weber v. Richardson, 76' Or. 286 (147 Pac. 522); McKenney v. Ells-worth, 165 Cal. 326 (132 Pac. 75). Many authorities are collected and classified in a note to Brookhouse v. Union Publishing Co., as reported in 2 L. R. A. (N. S.) 993. Professor Meeliem sustains the rule by applying the doctrine of ratification, and says:

“The ,real ground upon which this situation rests is believed to be that already stated, namely, that where the agent is the sole representative of the corporation, the corporation cannot claim anything except through him, and that therefore if it claims through him, after notice of the facts, it must accept his agency with its attendant notice”: 2 Mechem on Agency (2 ed.), § 1825.

The judgment is reversed and the cause remanded for a new trial. Reversed and Remanded.

Mr. Chief Justice Moore, Mr. Justice Burnett and Mr. Justice Benson concur.