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for themselves, is not imputable to the corporation, is merely another way of stating the adverse interest rule.

The notice or knowledge which is to be imputed to the principal is ordinarily that of extrinsic facts relating to the subject-matter of the agency as distinguished from the fact that the agent in acting has violated his duty or done an unauthorized act. This would seem to follow from the rule that notice is not imputed where the agent acts adversely to the corporation.

§ 2244. Reasons for exception. The reason most commonly given and relied upon for this exception to the rule is "that there is, from the circumstances, a presumption that the agent will not perform his duty. Another reason which has been suggested is that inasmuch as the pretended agent is, by the hypothesis, really acting on his own account, he does not receive the notice as agent and while acting within the scope of his authority. Another, which

is very similar, is that inasmuch as he is really acting in pursuance of a fraudulent design and committing an independent fraud, his whole act, including the notice, is beyond the scope of his employment

*

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held to rest upon the presumption that
the agent will communicate such
knowledge to his principal. Mani-
festly no such presumption can exist
where the agent is engaged in a trans-
action beyond his authority and in
which he is interested adversely to
his principal or in a scheme to de-
fraud his principal.
* An ex-
ception is recognized to the rule where
the principal is in fact represented in
the whole transaction solely by the
party as agent. Herein plaintiff was
not represented by Black in the mat-
ter of the loan to the investment com-
pany, since he dealt with respond-
ent through its board of directors, its
security committee and attorney. Re-
spondent would not, therefore, be
charged with constructive knowledge
of Black's misapplication of the fund.
But if the presumption existed it
would be a disputable presumption,
and the court has found, on sufficient
evidence, that the plaintiff had no
knowledge of these things. The doc-
trine manifestly cannot be applied to

the extent and end claimed by appel-
lant. The contention resolves itself
to this: That the principal, if he
has knowledge of the exercise by the
agent of certain powers, is bound by
the act of the agent, and he must be
held to have such knowledge from the
fact that the agent knows of it him-
self. Such doctrine, of course, could
not be maintained, as it would place
it within the power of an agent to
bind the principal to any course of
conduct however foreign or obnoxious
to the authority actually conferred.''
Palo Alto Mut. Building & Loan Ass'n
v. First Nat. Bank of Palo Alto,
Cal. App. -, 164 Pac. 1124.
642 Mechem, Agency (2nd Ed.),
§ 1842.

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"Sanford executed the note himself; and in undertaking, without authority, to impose an obligation on the company, he occupied a position adverse to it. He was not acting in its interest. Sanford Cattle Co. v. Williams, 18 Colo. App. 378, 71 Pac. 889.

and therefore neither the act nor the knowledge relating to it, as matter of law, can be imputed to his principal." These reasons, as stated by Professor Mechem, are analyzed at great length by him in his valuable work on the law of agency,65 and he reaches the conclusion that the true basis of the rule is that, "under the circumstances, there was really no agency, and not upon the ground that the law presumes that the agent will violate his duty. It should be confined, therefore, to the cases which really fall within the reason; and notice should be imputed wherever there is agency or ratification." 66

§ 2245. When interests of officer or agent are deemed adverse. This rule does not apply, however, where the interests of the corporation and of its officer or agent are in reality not adverse.67 Ordinarily there is no presumption that an officer is acting adversely to the corporation and in his own interests, where there is nothing to show that he is appropriating for himself business legitimately belonging to his corporation.68 In regard to this matter, it was said by Justice McKenna in a recent decision of the Supreme Court of the United States that "undoubtedly a corporation is, in law, a person or entity entirely distinct from its stockholders and officers. It may have interest distinct from theirs. Their interests, it may be conceived, may be adverse to its interest, and hence has arisen against the presumption that their knowledge is its knowledge, the counter presumption that, in transactions with it, when their interest is adverse, their knowledge will not be attributed to it. But while this presumption should be enforced to protect the corporation, it should not be carried so far as to enable the corporation to become a means of fraud or a means to evade its responsibilities. A growing tendency is therefore exhibited in the courts to look beyond the corporate form to the purpose of it,

65 2 Mechem, Agency (2nd Ed.), §§ 1816-1825.

66 2 Mechem, Agency (2nd Ed.), § 1822.

Reason for rule in Alabama, that agent is in law identified with principal, see Hall & Brown Woodworking Mach. Co. v. Haley Furniture & Manufacturing Co., 174 Ala. 190, 197, 56

So. 726.

67 White Plains Coal Co. v. Teague, 163 Ky. 110, 173 S. W. 360; Miner v. Husted, 191 Mich. 25, 157 N. W. 442. Where a cashier had knowledge that

notes executed to the bank were usurious, and shortly after their execution a new bank with half or more of the stockholders and directors of the old bank and with the same cashier, was organized and said notes were indorsed over to the new bank, the knowledge of the cashier of the indorser bank is imputable to the indorsee bank. First State Bank of Keota v. Bridges, 39 Okla. 355, 135 Pac. 378.

68 Brite v. Penny, 157 N. C. 110, 72 S. E. 964.

and to the officers who are identified with that purpose;" and it was held that knowledge on the part of the president of a corporation of fraud in a homestead entry, the land being conveyed by the patentee to the president and by him as one of the incorporators to the corporation, was imputable to the corporation, where he and his partner incorporated their business with himself as president and his partner as secretary, and they owned a large majority of the stock and had the entire management and control of the corporation, since in such case the interest of the corporators and the corporation were identical and not adverse.69 Likewise, if the persons conveying property to a corporation are the sole owners of the capital stock of the corporation as well as of the property conveyed, there can be no adverse interest, so as to prevent their knowledge being imputable to the corporation.70 On the other hand, the fact that the officer whose knowledge is sought to be imputed owned practically all the stock and was the general manager of another company which had borrowed money from the first corporation, makes the loan in his own interest and opposed to the interests of the lending company, so as to make his knowledge of preferential payments by the borrowing bankrupt company not imputable to the lending company."1

One acting for himself is, of course, acting adversely, where dealing with the corporation; 72 and it follows that if the president or any other official of a corporation deals with the corporation at arm's length, the same as any other individual representing himself alone, and does not act as the representative of the corporation, his knowl edge is not imputable to it.78 There is not necessarily any adverse interest so as to prevent notice to directors of one corporation constituting notice to another corporation having the same directors.74

Where a bank president, knowing that certain securities belonged to a fraternal insurance company, accepted them as collateral for a loan to an individual as such, his knowledge, including that of the fact that the individual had no authority to pledge them, is imputable to the bank notwithstanding he had a standing arrangement with the brokers who sold the securities to divide commissions on all business

69 J. J. McCaskill Co. v. United States, 216 U. S. 504, 54 L. Ed. 590. 70 In re V. & M. Lumber Co., Inc., 182 Fed. 231, 236.

71 High v. Opalite Tile Co., 184 Fed.

450.

72 Metcalf v. Draper, 98 Ill. App.

73 People's Bank of Talbotton v. Exchange Bank, 116 Ga. 820, 94 Am. St. Rep. 144, 43 S. E. 269.

74 First Nat. Bank of Louisville v. Chowning Elec. Co., 142 Ky. 624, 134 S. W. 1156.

399.

brought by him, since "this was a collateral and incidental contract, which in no way prejudiced the bank, or was any reason for concealing from it the fraud practiced on" the insurance company in a transaction which the president was making for the bank entirely within the scope of his authority as president.75

In a recent case decided by the Supreme Court of the United States, a depositor in a bank, and indebted to it on paper which would shortly mature, was in fact insolvent, and while in that condition he gave to another bank of which he was president a check on account of a debt due by him to it, and the check was sent by the last-named bank to the first-named bank on which it was drawn, but was not credited to the payee bank until an hour or so after a petition in bankruptcy had been filed against the maker. In an action involving the amount of the check, the question arose as to whether the payee bank was chargeable with knowledge of its president's insolvency. Justice Lamar said: "If Plant [the president], within the scope of his office, had knowledge of a fact which it was his duty to declare, and not to his interest to conceal, then his knowledge is to be treated as that of the bank. For he is then presumed to have done what he ought to have done, and to have actually given the information to his principal. But if the fact of his own insolvency and of his personal indebtedness to the Nashville bank were matters which it was to his interest to conceal, the law does not by a fiction charge the Macon bank, of which he was president, with notice of facts which the agent not only did not disclose, but which he was interested in concealing. It was to his personal interest to conceal any fact which would prevent the Macon bank from receiving paper in satisfaction of a debt which had been unlawfully contracted by reason of his official position." 76

Notice to the active manager of a company is not notice to the company of the existence of the agency from conduct of the corpora, tion or arising out of estoppel, since "his interests in this respect were adverse to the company, for they would amount to an appointment of himself as agent without the knowledge of his associates." 77 The adverse interest must have existed at the time knowledge was acquired or notice given and not have accrued subsequently.78

75 Ballard v. Audubon Nat. Bank, 222 Fed. 57.

76 American Nat. Bank v. Miller, 229 U. S. 517, 521, 57 L. Ed. 1310, aff'g 185 Fed. 338.

77 Schlessinger v. Forest Products

Co., 78 N. J. L. 637, 30 L. R. A. (N. S.) 347, 138 Am. St. Rep. 627, 76 Atl. 1024.

78 First Nat. Bank of Louisville v. Chowning Elec. Co., 142 Ky. 624, 134 S. W. 1156.

§ 2246. Joint interest as distinguished from adverse interest. However, knowledge of the manager of a corporation, although he was personally interested in the transaction in which it was acquired, is to be imputed to the corporation where he was the sole manager and the sole stockholder but one, and where in the particular transaction he acted both for himself and for his company with the agent of another company.79

§ 2247.- Illustrations and applications of exception. As well said by an eminent author, in many of the cases this rule as to adverse interest "seems to have been applied quite arbitrarily and without much consideration of the reasons involved." 80 It is often applied to officers of banks.81 This rule preventing knowledge of or notice to a corporate officer or agent being imputed to the corporation where the officer or agent and the corporation are adversely interested in the particular transaction involved, is most frequently illustrated in case of banking operations, especially the discounting or purchase of negotiable paper in which the officer or agent is interested. It has repeatedly been held that the knowledge of the officer of a banking institution, obtained in a capacity other than as its representative, of the infirmity or invalidity of paper acquired by such banking institution, through an instrumentality in which such officer is interested adversely to the interest of the bank, will not be imputed to the bank.82 In other words, where an officer of a bank or other corporation sells and transfers a note to it, or procures the discount of

79"In short, he as an individual and as manager co-operated in doing an act for their joint interest. As to this particular act or transaction they became as one person, and the knowledge of the one must be imputed to the other." Lea v. Iron Belt Mercantile Co., 147 Ala. 421, 8 L. R. A. (N. S.) 279, 119 Am. St. Rep. 93, 42 So. 415.

80 2 Mechem, Agency (2nd Ed.), § 1815.

81 Bank of Hartford v. McDonald, 107 Ark. 232, 154 S. W. 512.

82 Levy & Cohn Mule Co. v. Kauffman, 114 Fed. 170; Davis v. Boone County Deposit Bank, 25 Ky. L. Rep. 2078, 80 S. W. 161; Corcoran v. Snow Cattle Co., 151 Mass. 74, 23 N. E. 727;

Rusmissell v. White Oak Stave Co.,

W. Va., 92 S. E. 672. “But there is an exception to this rule in respect to an officer or member of a board of directors of a corporation who has acquired knowledge outside of his official duties, which it is to his personal interest to conceal from his corporation. When such is the case, his knowledge will not be ascribed to the corporation of which he is an officer. This exception is especially applicable in the case of an officer of a bank who has a personal interest to be served in having paper discounted by it." City Bank of Wheeling v. Bryan, 72 W. Va. 29, 78 S. E. 400.

Rule applies to discount of notes by

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