Reynolds v. Witte
| Decision Date | 07 January 1880 |
| Docket Number | CASE 791. |
| Citation | 13 S.C. 5 |
| Parties | REYNOLDS v. WITTE. |
| Court | South Carolina Supreme Court |
1. Where money of a principal was lent by his agents and the notes of the borrower were secured by a deposit of negotiable collaterals which were fraudulently misappropriated by the agents, the principal is responsible for their value.
2. A principal is civilly responsible for the fraudulent act of his agent, where the act is done in the course of the agency and by virtue of the authority as agent.
3. The borrower having offered to pay the notes at their maturity the principal is liable for the market value of the collaterals at that date.
Before KERSHAW, J., Charleston, November, 1878.
This was a controversy without action between Mark Reynolds and C O. White. The facts agreed upon state neither more nor less than is sufficient for a proper understanding of the case. They are as follows:
FACTS.-1. The plaintiff is a planter, residing on his plantation in Sumter county, and the defendant 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 the words and figures following:
" $1000.
CHARLESTON, S. C., December 3d, 1874.
" Twelve months after date, I promise to pay to Dr. M. Reynolds, or order, one thousand dollars, with interest at the rate of ten per cent. per annum, I having deposited against this note two bonds of the city of Memphis, guaranteed by the Memphis and Charleston railroad, for $1000 each.
Against payment of this note I have delivered to Messrs. J. M. Caldwell & Sons, his agents, the following bonds as collateral security: three bonds city of Savannah, six per cent., $500 each; two bonds city of Memphis, six per cent., guaranteed by Memphis and Charleston railroad, $1000 each; two bonds city of Savannah, seven per cent., one $500 and one $1000. All of which I authorize him, or his agents, James M. Caldwell & Sons, to sell in case of non-payment of this my note at maturity.
4. The defendant, when the loan was first made and the first notes were given, delivered to J. M. Caldwell & Sons the bonds specified 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 & Sons during the life of J. M. Caldwell, the senior partner; and after his death continued in possession of his 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 refuses payment unless the plaintiff will contemporaneously 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 liable 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 beginning of this suit, or at the rendition of the judgment?
This case is submitted to me upon an agreed statement of facts under the provisions of Section 389 of the code of procedure.
The case of Scott, Williams & Co. v. Crews , 2 S. C. 533, recognizes the doctrine laid down in all the authorities, that the plaintiff in this case is chargeable on the pledge of the securities of the defendant only as the bailee of a pledge, and in this species of bailment all that can be required of the bailee is ordinary care and diligence. " A pledge," says the court
The law does not require that the pledgee should retain custody of the pledge. He may deliver it to a stranger for safe keeping. Story on Bail. , § 324; Tally v. Freedman's Sav. Bank , 93 U. S. 325.
In the exercise of the diligence required of the bailee in this case, the employment of an agent in the care of the property was necessary. The securities pledged were coupon bonds payable to bearer, the title to which passes by delivery. It would have been negligence on the part of Dr. Reynolds to have kept them in the country house where he resides, and where they would have been exposed to risk of loss from robbery or destruction by fire. The agreed statements of facts show that it was in the contemplation of all the parties to this transaction that the securities should remain in the hands of Caldwell & Sons. They had been in the custody of that firm, with the knowledge of the defendant and without objection on his part, from the year 1869, when the loan was first made, down to the last renewal of the notes in 1875-a period of over five years.
When the employment of an agent in the care of the property is necessary, the principal will not be liable for loss, if he exercises due care in the choice of an agent. 2 Parsons on Cont. 110.
In this case, negligence on the part of the plaintiff has not been alleged. On the contrary, it is conceded that up to the time when the misappropriation of these securities was discovered, the character of the agents employed by the plaintiff had been unexceptionable.
The sole question in this case is whether the plaintiff is liable for the willful misappropriation of the defendant's securities by his agents, in the absence of all fault on his part. The law seems to be well settled, that while the principal is liable for the negligence of his servant, he is not liable for the criminal acts willfully committed by him, such acts not being within the scope of his authority. Story on Bail. , §§ 87, 407; Foster v. Essex Bank , 17 Mass. 479; Gibblin v. McMullin , 2 Priv. Council 338.
I am, therefore, of opinion, that under the statement of facts, as agreed upon and submitted to me, the plaintiff is not liable for the loss of the defendant's collaterals.
It is, therefore, ordered that judgment be entered against the defendant in the sum of $9156.17, with costs, and that the plaintiff have execution therefor.
The defendant appealed to the Supreme Court from this decision of the Circuit judge.
Messrs. Simonton & Barker , for appellant.
The Circuit judge has overlooked the peculiar phraseology of the note of May 23d, 1875- against the surrender , & c. Here the obligation to pay is dependent upon the surrender of the bonds.
The precise question presented in this case has never been decided, so far as we can find. In Scott & Co v. Crews , 2 S. C. 522, the act was not committed by the agents of the depositor. In Foster v. Essex Bank , 17 Mass. 479, the bailment was gratuitous, the subject matter never entered into the business of the bank, and was not under the control of the officer who stole it. So, also, in Scott v. Bank , 72 Penna. 471. See Bank v. Boyd , 44 Md. 47,(22 Am. R. 40), and the comments on Foster v. Essex Bank in Morse on Banking 65. The Circuit decision puts the plaintiff in the position of a bailee, and holding him to the responsibility of a bailee for ordinary care, excuses him. He is not responsible, because, contrary to reasonable expectation, his agent proved to be a fraud. What is ordinary care in a bailee will depend on the...
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