Knobeeoch v. Germania Sa

CourtUnited States State Supreme Court of South Carolina
Writing for the CourtJONES
Citation27 S.E. 962,50 S.C. 259
PartiesKNOBEEOCH et al. v. GERMANIA SAV. BANK et al.
Decision Date21 August 1897

Banks and Banking—Fraud by Agent—KNOwLedge—Trial, —Instructions.

1. A bank is presumed to know what its president knows only while he acts within the scope of his agency, and hence it is not imputable with knowledge of his fraudulent intent in drawing a fund from the bank in his private capacity as trustee of the fund, with intent to misappropriate it.

2. It is not error to refuse to give an ambiguous charge to the jury.

3. The modification of an erroneous request to charge, which frees it from some faults, is not reversible error as against the party preferring the request, even though the charge as modified is not faultless.

4. A conclusion of law in a charge to a jury, based on facts not at issue, is irrelevant, and its correctness is not open to inquiry on appeal.

5. An instruction "that knowledge of the agent of a corporation or other principal, while engaged in a fraud for his own benefit, cannot be imputed to such corporation or other principal, " may be modified by the addition of the clause,

unless also the corporation or principal is benefited by the fraud, " to recognize the qualification that the principal must not in any way participate in the fraud.

6. The rule that a principal is imputable with the knowledge of his agent, acting within the scope of his agency, is based on the presumption that the agent fulfills his duty in communicating relevant matter to the principal. Hence the rule is inapplicable where the agent meditates fraud which would be defeated by disclosure to the principal.

Appeal from common pleas circuit court of Charleston county; W. C. Benet, Judge.

Separate actions by Jacob Knobeloch, trustee, and others, against the Germania Savings Bank and others. Prom decree for defendant bank, plaintiffs appeal. Affirmed.

That portion of the charge of the lower court referred to in the opinion is as follows, to wit:

"We come now to the second question: Did the said bank, at the time the said money was drawn out, have notice that the said Jacob Small was drawing the same with the intent and for the purpose of misappropriating and converting the same to his own use? I may say here that if you find 'No' in answer to the first question, —which would mean that the plaintiff had failed to show or prove the fraudulent intent of Small, —there would then be no need to consider the second question; but if your finding on the first question of fact should be 'Yes, '—meaning thereby that the plaintiff had satisfied you by the greater weight of the testimony of Small's fraudulent intent, —then you will proceed to consider and decide the second question. As the burden of the first question was the intent and purpose, so the burden of the second question Is the notice to the bank, —notice of the fraudulent intent and purpose of Small. In other words, did the bank know, or have reasonable ground for knowing, that Small intended and purposed to misappropriate and convert the money to his own use? If it did not actually or constructively know that such was his intent and purpose, was the act of Small committed under such circumstances as should reasonably have put the bank on inquiry; and would such inquiry, If pursued, have reasonably led to such information as would have made it the duty of the bank to have prevented the drawing out of the money by Small? You have heard a great deal of Interesting and instructive discussion about the law of notice, and about the law of principal and agent, showing how and to what extent the knowledge of an agent is to be imputed to his principal so as to affect him with notice. This was intended to show how and to what extent the knowledge of Jacob Small, as an officer of the bank, —its president and director, —was to be imputed to his principal, the corporation, the bank of which he was president and director, the Germania Savings Bank of Charleston, South Carolina, and thus to ascertain how far if at all the bank was to be held liable for the acts of Jacob Small, Its officer. I shall endeavor to outline now as plainly and in as few words as possible the law on this issue, which law you will apply to the testimony you have heard. A bank is a corporation, ana as such it Is an intangible body, and can act and be acted upon only by means of agents or officers. Whatever Its agent or officer does within the scope of his agency or official duty, is the act of the bank, and the bank is bound by It, and is responsible for the consequences of that act. You will remark, however, that the act—the overt act—of an officer or agent will bind the bank, but only such an act as iswithin his province as agent, and within the lines of his duty as such officer. If it is the duty of an officer of the bank to cash checks or discount bills, any cashing or discounting of a bill by such officer when acting for the bank, or ostensibly acting for the bank, will bind the bank, without any special authorization, because such act would be within the scope of his agency or official duty. But, if such officer should dabble in land or cotton speculation, even though ostensibly acting for the bank, the bank would not be bound by such act of his unless the bank had given him special authority so to act, because such business is not within the scope of his official duty or of his agency. Under the law of notice, not only is the bank bound by and held liable for the acts of its agent done in the line of his duty as such, but the bank is held chargeable with the knowledge of its agent or officer when he is acting for the bank and representing the bank in any transaction. This is only an application of the maxim of the law, and is grounded on the presumption that an agent or officer will communicate to his principal or to the corporation any knowledge he may possess which may affect the transaction in which he is representing his principal or the corporation. It is his duty so to do, and the law presumes that he will do his duty; and this is the law, no matter whether the knowledge is obtained in the course of his official duties or as a private individual, if he be acting for the corporation officially or as its agent in a matter of business for the corporation. But to this rule of law, as to all rules, there are some exceptions. Thus, where an agent or officer could not communicate his knowledge without a breach of official confidence, —as, for instance, should that agent be an attorney at law, and as such had obtained from his client confidential communications, —it is not to be presumed that he would communicate such information. Under the law he cannot. So, also, where an agent or officer is about to commit a fraud, it is not to be presumed that he will divulge the guilty fact to his principal or to his colleagues. In such cases of fraud the general presumption that the agent will communicate his knowledge to his principal is displaced by the stronger special presumption that he will not do what would effectually defeat his purpose. But this counter presumption will not avail where an agent or officer acting or ostensibly acting in behalf of his principal or corporation commits a fraud upon a third person, and not upon his principal or corporation. In such case the principal or corporation will be held chargeable with the guilty knowledge of the agent or officer; that is to say, if he is acting in behalf of the corporation, and representing It in the transaction. For example, should a bank president, acting officially, and representing the bank in the transaction, commit a breach of trust, or perpetrate a fraud upon a third person, the knowledge of that officer that his act is fraudulent and his purpose is fraudulent and a breach of trust will be imputed to the bank, and the bank would be properly considered a party to the fraud, and held liable to the injured person for his loss. But the rule is different when the agent or officer is dealing with the bank or corporation in the particular transaction in his own behalf, and not as such agent or officer. When acting independently on his own behalf, even though an officer of the bank, his position is hostile to the bank or corporation. He stands in the attitude of a stranger who is dealing at arm's length with the bank or corporation. Hence this other exception to the general rule: that when an agent or officer is acting for himself, and not for his bank or corporation, in transacting business with the bank or corporation in the same way that any other person might do, the law will not impute to the bank or corporation any knowledge of his relating to the matter in hand. In such case the agent's interest is opposed to the bank or corporation, and the presumption will be, not that he will communicate his knowledge, but that he Will conceal it. I shall now take up the requests to charge submitted by the plaintiff and defendant, and before I get through with them, either affirming or modifying or rejecting the requests, I shall have given you, I trust, enough law to guide you in discussing the questions of fact before you.

"Plaintiffs' Requests to Charge.

" '(1) The question of imputing to a bank a fraud committed by its agent in the discharge of his duty as an officer of the bank is to be passed upon by the jury.' That is the law. It is a question for the jury, but the jury ought to decide the question upon the testimony in the case, and under such principles of law as it is the duty of the court to lay down for their guidance.

" '(2) The duty of a president of a bank of general supervision is more general than that of any other member of the board of directors.' This is a statement of what is generally the case, and as a general statement it is the law.

" '(3) If a party dealing with an executor has at the time reasonable ground for believing that he intends misapplying the money, or is in the very transaction applying it to his own...

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