interests." 34 For instance, where the cashier of a bank acquires knowledge when he is not acting for the bank nor in the course of his employment, but while engaged in committing an independent fraudulent act upon his own account, knowledge of facts relating to that act which, if communicated, would have prevented the consummation of the fraud, are not imputable to the bank.35 One reason for this exception, if it may be so called, is that "where an agent, though ostensibly acting in the business of the principal, is really committing a fraud, for his own benefit, he is acting outside of the scope of his agency, and it would therefore be most unjust to charge the principal with knowledge of it." 36 Whatever the reason may be, the exception is well established.37 And in Massachusetts, it is held that this rule as to fraud applies although the corporate officer or agent was the only officer acting for his corporation, where he was engaged in perpetrating a fraud on the corporation for his own benefit.38 This rule has been applied to misapplication by the treasurer of a company of guardianship funds.39 On the same theory, the knowledge of the cashier of a bank of the forgery by him of part of the collateral attached to a note discounted by his bank is not imputed to the bank, where it was to his interest to conceal such knowledge in order to carry out his fraudulent scheme.40 So, under the rule that a corporation is not chargeable with notice of fraudulent acts by an officer which he naturally would not disclose to it, it is held that a bank is not chargeable with knowledge of fraud of its president in pledging retired bonds of another with the bank for his own personal account.41 And knowledge of the president of a corporation of his own fraud is not imputable to the corporation where it was to his interest to conceal such knowledge from the corporation.42 34 American Surety Co. 1. Pauly, 170 U. S. 133, 159, 42 L. Ed. 977. 35 Smith v. Wallace Nat Bank, 27 Idaho 441, 150 Pac. 21. 36 Thomson-Houston Elec. Co. V. Capitol Elec. Co., 65 Fed. 341, 343. This reasoning is approved in Bank of Overton v. Thompson, 118 Fed. 798. 37 Allen v. South Boston R. Co., 150 Mass. 200, 5 L. R. A. 716, 15 Am. St. Rep. 185, 22 N. E. 917. 38 Indian Head Nat. Bank v. Clark, 166 Mass. 27, 43 N. E. 912. IV Priv. Corp.-9 39 Brookhouse v. Union Pub. Co., 73 N. H. 368, 2 L. R. A. (N. S.) 993, 111 Am. St. Rep. 623, 6 Ann. Cas. 675, 62 Atl. 219. 40 Harriman Nat. Bank v. Seldomridge, 240 Fed. 111. 41 Real Estate Trust Co. of Philadelphia v. Washington, A. & Mt. V. Ry. Co., 191 Fed. 566. 42 American Nat. Bank v. Miller, 229 U. S. 517, 521, 57 L. Ed. 1310; In re United States Hair Co., 239 Fed. 703. However, in Ohio, the Supreme Court has attempted to differentiate a single fraudulent act of a corporate officer or agent from a series of fraudulent acts running over a long period of time, and has held that where the cashier, who was also general manager and practically ran the business without any control by the directors, and the vice president, by their fraudulent acts, made the bank insolvent, and they knew it was insolvent, their knowledge is attributable to the bank where the condition had existed for a long time.43 In this connection, it is necessary to keep in mind that knowledge is imputed where the corporation takes the benefit of the fraud and ratifies the act, and that the rule does not apply where the fraud is perpetrated upon third persons for his own benefit although acting in an official capacity.45 § 2251.- Qualification of exception where interested officer or agent is sole representative of corporation to whom notice is sought to be imputed. The exception does not apply when the transaction on behalf of the corporation, to which notice is sought to be imputed, is intrusted "solely" to the officer or agent having the knowledge.46 The authorities recognize a marked distinction, says Presiding Jus 43 Orme v. Baker, 74 Ohio St. 337, 113 Am. St. Rep. 968, 78 N. E. 439. 44 See 2254, infra. 45 See § 2253, infra. 46 United States. Niblack v. Cosler, 80 Fed. 596. California. Witter v. McCarthy, 111 Cal. XVII, 43 Pac. 969. Iowa. Anderson v. Kinley, 90 Iowa 554, 58 N. W. 909. Massachusetts. Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 9 Am. St. Rep. 698, 17 N. E. 496. See Innerarity v. Merchants' Nat. Bank, 139 Mass. 332, 52 Am. Rep. 710, 1 N. E. 282. But see Indian Head Nat. Bank v. Clark, 166 Mass. 27, 43 N. E. 912, where knowledge of cashier's fraud on his bank for his own benefit was imputed to the corporation although in a transaction where he was the only one representing the bank. Missouri. Berry v. Rood, 168 Mo. 316, 67 S. W. 644; Withers v. Lafayette County Bank, 67 Mo. App. 115, 125; Steam Stone-Cutter Co. v. Myers, 64 Mo. App. 527. Oregon. Saratoga Inv. Co. v. Kern, 76 Ore. 243, 148 Pac. 1125. Rhode Island. Cook v. American Tubing & Webbing Co., 28 R. I. 41, 75, 9 L. R. A. (N. S.) 193, 65 Atl. 641. Tennessee. Smith v. Mercantile Bank, 132 Tenn. 147, 177 S. W. 72. Texas. Smith v. Boatman Sav. Bank, 1 Tex. Civ. App. 115, 20 S. W. 1119. Virginia Barksdale v. Finney, 14 Gratt. 338. This qualification to the rule of the effect of adverse interest does not apply where the officer whose knowledge is sought to be imputed to the corporation did not act for the corporation in the transaction. "By all well-considered authority the rule is now applied only to cases where the officer, whose knowledge is sought to be imputed to the corporation, acts for the corporation in the particular transaction; in other words, where the tice Corson of South Dakota, "between cases where a cashier not only acts for himself, but also as such cashier, and cases where the person, though cashier, acts for himself only, or for a firm of which he is a member, and the corporation is represented in the transaction by other officers. In the latter cases the knowledge of the cashier is not imputed to the bank." 47 The reason for this qualification was stated in a federal decision as follows: "If Cornish was the sole representative of the bank in the transaction with himself, there was no one from whom information could have been concealed, or to whom it could have been communicated. If he was the sole representative of each party, each must have had equal knowledge. As the representative of the bank, his knowledge was not affected by his private interests, however much his conduct may have been. He necessarily knew as much in one capacity as he did in the other." 48 It will not be presumed, however, that the officer occupying a dual relation dealt with himself alone in making a contract between himself, or a firm or company which he represents, and the corporation.49 Moreover, the fact that the officer dealing with his own corporation was one of the officials authorized to issue the stock which constituted the main consideration does not affect his relation to the transaction itself.50 This qualification of the exception has been criticised or rejected, however, in some jurisdictions; 51 and in many of the decisions cor officer of the corporation conducts both sides of the particular transaction [citing cases]. The rule does not apply where the officer does not act for the corporation, and is connected with the transaction only in an adversary capacity, or as the agent for the party dealing with the corporation.' First Nat. Bank of Gilbert v. Bailey, 127 Minn. 296, 149. N. W. 469. Where one person is president of both a borrowing and a lending corporation, and the president represents both corporations in the making of a lean from the one corporation to the other, the knowledge of the president of the fact that the capital stock of the borrowing corporation has been paid up by the acceptance of property at an exaggerated value will be deemed to affect the lending corporation. Berry v. Rood, 168 Mo. 316, 67 S. W. 644. 47 National Bank of Commerce of Pierre v. Feeney, 9 S. D. 550, 46 L. R. A. 732, 70 N. W. 874. 48 First Nat. Bank of Blaine v. Blake, 60 Fed. 78. But Professor Mechem 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, Agency (2nd Ed.), § 1825. 49 Taylor v. Felder, 3 Ga. App. 287, 59 S. E. 844. 50 Roberts v. W. H. Hughes Co., 86 Vt. 76, 83 Atl. 807. 51 First Nat. Bank of Nephi v. Foote, 12 Utah 157, 168, 169, 42 Pac. porations have been held chargeable with the knowledge of interested officers although they were the only representatives of the corporation, without any reference to this qualification of the exception.52 In West Virginia, where the president of a bank discounted notes of a corporation of which, he was also president, it was held that his knowledge that the indorser sued thereon by the bank was an accommodation indorser and signed conditionally, was not imputable to the bank, notwithstanding the president of the bank alone passed on the discount. In that case the court said: "It is submitted that the evidence shows that the board of directors did not pass the discount of the notes, but that the same was done by Fowler alone. That cannot alter the case. They could have overthrown his act. Though Fowler took the paper from himself into the bank, it must be presumed that the other officials who were disinterested and qualified to act on that paper acquiesced in his action only because they had no notice of the infirmity in the notes. It is not reasonable to think that these disinterested officials would have silently approved his action if they had known what he knew about the paper. To hold that Fowler as president acted alone for the bank and that he had absolute power to bind it for his own private interests or those of a company in which he was privately interested, notwithstanding there were other officials of the bank who naturally would have intervened in its behalf if the knowledge which he possessed had been known to them, would mean no regard for the interests of depositors and stockholders. In the transaction of the discount of the notes, Fowler was acting really not for the bank but for other interests— those of the fuel company. The directors who permitted the paper to remain as the property of the bank acted for it. Fowler's interest was so adverse to the bank that he was disqualified from representing it." 58 In Louisiana, the rule is laid down that the knowledge even of the president of a bank will not be imputed to the corporation in a case where the matter involved is business transacted by the president in his official capacity, on the one side, and as an individual 205. See also Bank of Overton v. Thompson, 118 Fed. 798; Gunster v. Scranton Illuminating, Heat & Power Co., 181 Pa. St. 327, 59 Am. St. Rep. 650, 37 Atl. 550. This exception where the discount is made by the officer himself acting for the bank has been rejected, it seems, in New Jersey. Vulcan Detinning Co. v. American Can Co., 72 N. J. Eq. 387, 12 L. R. A. (N. S.) 102, 52 See, for instance, Findley v. Cowles, 93 Iowa 389, 61 N. W. 998. 53 American Nat. Bank of Bluefield V. Ritz, 70 W. Va. 409, 40 L. R. A. (N. S.) 156, 74 S. E. 679. on the other, and where he transacted it with reference to his own interest and without regard to the interest of the bank.54 In Kansas, it was recently held that knowledge of the cashier of a bank making a loan to a company of which he was the president, that the stock of the borrower was issued at a discount, is not imputable to the bank, although he acted in his official capacity in making the loan, so as to preclude a recovery by the bank against the stockholders to the extent of their unpaid subscriptions; and in so holding the court distinguished cases where a corporation deals with one of its own officers who acts for himself and not for it and said: "It can make no difference in principle whether the officer of a corporation in dealing with it acts solely for himself or as the agent for another company in which he holds stock. In either case his own interests are to some extent opposed to those of the corporation, which he is under a greater or less temptation to sacrifice. The rule of law cannot be made to depend upon the extent of the officer's personal interest, so that it is substantial. In the present case, if the cashier had asked the directors to make the loan, and they had done so on their own judgment, his interest in the oil company was sufficient so that the presumption would be that he did not tell them the stock had been issued at a discount, and his knowledge of the fact would not be imputed to the bank. But the cashier acted for the bank in this very transaction, either alone or in connection with other officers, so that in a sense the bank-that is, its active agent in the transaction-had actual knowledge of the situation, and this phase of the matter involves a different question. * Even if in this case the other officers of the bank took no part in lending the money, it does not follow that their ignorance of the corporation's affairs had no effect upon the transaction. If they had known its condition, they might have interfered and prevented the loan. The interest of the cashier as a stockholder of the oil company, desiring the loan to be made, lay in not disclosing to them any fact tending to impair its credit. The findings affirmatively show that none of them was in fact informed of the stock having been issued at a discount. The failure of the cashier to consult with the officers who should have passed upon the matter would create a situation much the same as though he had submitted it to their decision and withheld this information from from them. We think his knowledge cannot be 54 Seixas v. Citizens' Bank, 38 La. of Baton Rouge, 131 La. 30, Ann. Cas. Ann. 424, followed in Leurey v. Bank 1913 E 1168, 58 So. 1022, |