[HOUSE OF LORDS.]

AND

Principal and Agent - Authority - Liability of Principal for Fraud of Agent.

A principal is liable for the fraud of his agent acting within the scope of his authority, whether the fraud is committed for the benefit of the principal or for the benefit of the agent.

Barwick v. English Joint Stock Bank (1867) L. R. 2 Ex. 259, is not an authority for the proposition that a principal is not liable for the fraud of his agent unless committed for the benefit of the principal.

Dicta of Lord Bowen, when Bowen L.J., in British Mutual Banking Co. v. Charnwood Forest Ry. Co. (1887) 18 Q. B. D. 714, at p. 718, and of Lord Davey in Ruben v. Great Fingall Consolidated [1906] A. C. 439, at p. 445, overruled.

A widow, who owned two cottages and a sum of money secured on a mortgage, being dissatisfied with the income derived therefrom, consulted a firm of solicitors and saw their managing clerk, who conducted the conveyancing business of the firm without supervision. Acting as the representative of the firm he induced her to give him instructions to sell the cottages and to call in the mortgage money, and for that purpose to give him her deeds (for which he gave a receipt in the firm's name); and also to sign two documents, which were neither read over nor explained to her, and which she believed she had to sign in order to effect the sale of the cottages. These documents were in fact a conveyance to him of the cottages and a transfer to him of the mortgage. He then dishonestly disposed of the property for his own benefit:-

Held, that the firm were responsible for the fraud committed by their representative in the course of his employment.

Decision of the Court of Appeal [1911] 2 K. B. 489, reversed.

APPEAL from an order of the Court of Appeal reversing a judgment of Scrutton J. (1)

The appellant, who was a widow, owned two freehold cottages at Ellesmere Port, which she had purchased in 1909 for 540l., and a sum of 450l. advanced to one Rushworth on a mortgage of a house in Hartingdon Road, Liverpool.

The respondents were a firm of Liverpool solicitors of old standing

(1) [1911] 2 K. B. 489.

and high repute, but the business was in fact carried on by Frederick Smith (hereinafter referred to as the respondent) alone in the name of the firm.

The respondent's firm had acted as solicitors to the vendor on the sale of the Ellesmere Port property and the appellant had become acquainted with the firm in the course of this transaction.

On January 11, 1910, the appellant, being dissatisfied with the income derived from this property, called at the office of the respondent's firm for the purpose of consulting them on the matter. At the office she saw one Sandles, who was the respondent's conveyancing manager and managing clerk. Sandles conducted the conveyancing work of the firm without supervision. He had authority to arrange and negotiate sales of real property and to carry them out, and also to receive deeds for safe custody. The respondent's time was largely taken up in attending to his public duties as an alderman of the city of Liverpool, and in his absence Sandles was left in charge of the office. Sandles was unknown to the appellant, who believed him to be a member of the respondent's firm. At this interview the appellant discussed with him both the Ellesmere Port property and the Liverpool mortgage. He said that she was not getting enough for her money and asked her to call again and bring with her the deeds relating to the Ellesmere Port property and to the mortgage.

On January 12 the appellant again called at the respondent's office, bringing the deeds with her, and had another interview with Sandles. Acting on his advice she instructed him to sell the cottages and call in the mortgage money. The reinvestment of the money was then discussed, and Sandles suggested that the money should be invested in certain companies in which he was interested and which he told her would produce 10 per cent., but nothing was settled as to that. The appellant left her deeds with Sandles, who gave a receipt for them in his own name. In the course of this interview Sandles left the room, taking the deeds with him. After an interval of twenty minutes he returned with a clerk and produced two documents which he asked the appellant to sign. These documents were not read over to the appellant and were not explained to her. She signed them without reading them,

believing that they were something she had to sign before the sale could be proceeded with. These documents were in fact a conveyance by the appellant to Sandles of the Ellesmere Port property at the price of 540l. and a transfer by her to him of the mortgage on the Liverpool property in consideration of the sum of 450l.

On the following day, January 13, Sandles mortgaged the Ellesmere Port property to the Union Credit Bank to secure a loan to himself of 378l. and interest, expressed in the mortgage as 550l., and he also gave notice to Rushworth of the transfer to him of the mortgage on the Liverpool property and called in the mortgage money.

On January 14 the appellant, who had been advised by a friend that she ought to get a receipt for the deeds in the name of the firm, wrote to Sandles cancelling her instructions to sell the cottages and to call in the mortgage.

On January 17 the appellant again saw Sandles at the office and told him she had changed her mind as to the investment of her property and proposed to buy Corporation stock. Sandles told her that that was not solicitors' work and she should consult a stockbroker. He also told her that he had already called in the mortgage money and advised her to leave her deeds with him. Pointing to a pile of deed boxes in the office he said "They will be quite safe with us." The appellant then told him not to proceed with the sale of the Ellesmere Port property and asked for a receipt in the firm's name for her deeds. Sandles gave her a receipt for both sets of deeds, dated January 17, 1910, which he signed "Grace, Smith & Co. C. W. S."

On March 12 Sandles wrote to the appellant enclosing a cheque for interest on the Liverpool mortgage which he said Rushworth had sent him and stating that the mortgage would be paid off in April. Rushworth did not in fact pay off the mortgage, but on April 5 Sandles transferred the mortgage to one Littler and received from him 450l., which he applied in paying a private debt of his own. On April 28 Sandles called on the appellant and told her that the mortgage money would be paid the following week, and he gave her a cheque of his own for 450l. dated May 3. This cheque was not presented and it would not

have been honoured. About the end of April the fraud by which Sandles had deprived the appellant of her property was discovered by the respondent. On May 2, at an interview which the appellant had with the respondent at his office, the respondent told her that he had required Sandles to repay the money which he owed the Union Credit Bank on the mortgage of the Ellesmere Port property, and that Sandles had promised to send him 450l. but had only sent 250l., and he offered to lend her 200l. in order to recover the deeds from the bank. The appellant then went with the respondent to the bank, and the deeds were handed over to the respondent on payment of 450l., which comprised the 250l. received from Sandles and 200l. lent by the respondent. The deeds were retained by the respondent.

No imputation was cast upon the honour of the respondent. In these circumstances the appellant commenced an action against the respondent's firm for delivery up of the deeds of the Ellesmere Port property and for payment of the 450l. advanced on the Liverpool mortgage. The appellant by her statement of claim alleged that she instructed the respondents as her solicitors to sell her Ellesmere Port property and to call in the money advanced on the Liverpool mortgage; that for the purpose of enabling the respondents to effect the said sale and calling in she delivered to the respondents her deeds relating to those properties; that the respondents had not sold the Ellesmere Port property and had refused to return her deeds. She also alleged that the respondents had called in and received the 450l. lent on mortgage. The respondents by their defence denied that the appellant had ever instructed them as her solicitors, and they pleaded alternatively that the appellant had conveyed the Ellesmere Port property and transferred the mortgage to Sandles, and that they had paid off the mortgage granted by Sandles to the Union Credit Bank, and had become entitled to the said freehold property and to the possession of the deeds relating thereto; and that as to the mortgage money the appellant had ceased to have any interest in it when the mortgage was transferred by Sandles to Littler. The appellant in her reply denied having executed the indentures of conveyance and transfer to Sandles, and alleged alternatively that she was induced to execute the said indentures

by the fraud of Sandles acting in the course of his employment and within the scope of his authority as managing clerk of the respondents, and that he fraudulently stated to the appellant that her execution of the said indentures was necessary and usual to enable the respondents to sell the Ellesmere Port property and to call in the mortgage money.

The action was tried at Liverpool before Scrutton J. and a special jury.

The learned judge left certain questions to the jury which together with their answers thereto were as follows:

(1.) In receiving the deeds and taking instructions to sell the property and call in the mortgage debt did Sandles profess to act in his private capacity or as conveyancing manager to Grace, Smith & Co.? - He professed to act as conveyancing manager to Grace, Smith & Co.

(2.) If he professed to act as conveyancing manager to Grace, Smith & Co., was he in reality acting on his own behalf and for his own benefit? - He acted in reality on his own behalf and for his own benefit.

(3.) In receiving the deeds of the property and the mortgage did he act (a) in the course of his business as conveyancing manager? - Yes. (b) For his master's benefit? - No.

(4.) In taking a transfer of the Ellesmere Port property and pledging it did he act (a) in the course of his services as managing clerk? - No. (b) For his master's benefit? - No.

(5.) In taking a transfer of the mortgage to himself did Sandles act (a) in the course of his business as managing clerk? - No. (b) For his master's benefit? - No.

(6.) In calling in the mortgage debt and transferring it did he act (a) in the course of his master's business? - Yes. (b) For his master's benefit? - No.

The jury added to their findings the following rider:- "The jury are of opinion that throughout the whole history of the transaction Mrs. Lloyd believed she was dealing with Messrs. Grace, Smith & Co."

It was agreed between the parties at the trial that any supplementary fin lings of fact which it became necessary to decide should be made by the judge. In accordance with this

agreement, Scrutton J. found as facts that it was within the scope of Sandles' employment to advise clients who came to the firm to sell property as to the best legal way to do it and the necessary documents to execute; that the appellant did rely on the representations of Sandles, professing to act on behalf of the firm, that the documents in question were necessary to facilitate and carry out the sale of the land to her; that she did not know she was signing conveyances to Sandles outside the scope of his authority, and that she was justified in relying on the representations of Sandles without reading and trying to understand the documents tendered to her, but that she knew she was signing something affecting her estate.

On these facts Scrutton J. gave judgment for the appellant for the return of the deeds of the Ellesmere Port property and for the sum of 450l. in respect of the claim relating to the mortgage. In the opinion of the learned judge, where a servant acted within his apparent authority but for his own benefit the master was liable for his acts whether in contract or tort. As he read the rule of law laid down by Willes J. in Barwick v. English Joint Stock Bank (1) it did not mean that, in order to make the master liable, it was essential that the servant, though acting in the apparent course of his employment, should act for his master's benefit, and he dissented from the dictum of Lord Davey in Ruben v. Great Fingall Consolidated. (2) With regard to the answer of the jury to question 6 (a) he held that there was no evidence to support it, and he accordingly disregarded that answer.

The Court of Appeal (Farwell and Kennedy L.JJ., Vaughan Williams L.J. dissenting) reversed this decision and ordered that judgment should be entered for the defendants (the respondents).

1912. Feb. 27, 29. Tobin, K.C., and J. A. Johnston, for the appellant. The principal is liable, whether the action be founded on contract or tort, for the act of his agent done within the scope of his authority, and whether the act be careful or negligent, honest or fraudulent.

This is established as regards contracts by Bryant, Powis &

(1) L. R. 2 Ex. 259, at p. 265.

(2) [1906] A. C. 439, at pp. 445, 446.

Bryant, Ld. v. Quebec Bank (1) and Hambro v. Burnand(2), and as regards torts by Thompson v. Bell (3), Swire v. Francis(4), and Trott v. National Discount Co. (5) Bowstead on Agency, 4th ed., p. 264, art. 80, sums up the appellant's argument. Willes J. in Barwick v. English Joint Stock Bank (6) does not say that a principal will not be liable for an act done by his agent within the scope of his authority, unless the act is done for the benefit of his principal. The sole question is whether the act is within the scope of the agent's authority. The appellant's deeds having got lawfully into the possession of the solicitors, the fraud of their agent in stealing them is no answer to the action. Further, the documents which the appellant was induced to sign, not knowing what they were, are not her deeds.

Greer, K.C., and Cuthbert Smith, for the respondents. This is a claim for the return of goods bailed and alternatively for false representation. As regards the first claim, where goods are deposited with a person for safe custody, he is not liable if his servant afterwards converts the goods to his own use: Cheshire v. Bailey (7); Jobson v. Palmer(8); Giblin v. McMullen.(9) There is no authority for the proposition that a solicitor receiving the deeds of a client for safe custody is under any greater liability than a banker, who in the last cited case was held to be not responsible. His only duty is that of an ordinary bailee. As regards the second claim, where a tort - whether it be false representation, trespass, conversion, or any other wrongful act - is committed by a servant, the master is not responsible if the object in committing the tort is the servant's own benefit and not the benefit of the master: Barwick v. English Joint Stock Bank (6); British Mutual Banking Co. v. Charnwood Forest Ry. Co. (10); Thorne v. Heard (11); Ruben v. Great Fingall Consolidated(12); Sanderson v. Collins. (13)

(1) [1893] A. C. 170.

(2) [1904] 2 K. B. 10.

(3) (1854) 10 Ex. 10; 23 L. J. (Ex.) 321.

(4) (1877) 3 App. Cas. 106.

(5) (1900) 17 Times L. R. 37.

(6) L. R. 2 Ex. 259, at p. 265.

(7) [1905] 1 K. B. 237.

(8) [1893] 1 Ch. 71.

(9) (1868) L. R. 2 P. C. 317.

(10) 18 Q. B. D. 714.

(11) [1894] 1 Ch. 599, at p. 615; affirmed [1895] A. C. 495.

(12) [1906] A. C. 439, at pp. 445, 446.

(13) [1904] 1 K. B. 628, at p. 632.

[The EARL OF HALSBURY referred to Limpus v. London General Omnibus Co. (1)]

Where an agent has authority to contract and the contract is made, the motive of the agent in making the contract is immaterial, and the principal is liable, for the reasons stated by Mathew L.J. in Hambro v. Burnand (2), but that is not so in the case of a tort, and the moment that an agent commits a voluntary wrongful act for his own benefit he ceases to be acting within the scope of his authority.

Further, this was not solicitors' business. The terms proposed by Sandles as to reinvestment were Sandles' business, and the property was to be sold and the mortgage money called in merely to enable Sandles to put the money into his own companies. Up to the point when Sandles gave the receipt for the deeds in the firm's name he had done nothing to induce the appellant to believe that he was acting on behalf of the respondents. So long as findings 4 and 5 stand judgment cannot be entered for the appellant.

J. A. Johnston in reply. The rule laid down by Willes J. in Barwick v. English Joint Stock Bank (3) has been misunderstood by Lord Davey in Ruben v. Great Fingall Consolidated (4), and his dictum was not necessary for the decision of the case, because the act there was clearly not within the scope of the agent's authority. The same remark applies to the dictum of Bowen L.J. in British Mutual Banking Co. v. Charnwood Forest Ry. Co. (5) There is no foundation for the distinction between contract and tort for this purpose. The principle of the liability is agency, and if the act done is within the scope of the agent's authority the nature of the act is immaterial. [He also referred to Rhodes v. Moules. (6)]

The House took time for consideration.

March 28. EARL LOREBURN L.C. moved that the order appealed from be reversed and the judgment of Scrutton J.

(1) (1862) 1 H. & C. 526.

(2) [1904] 2 K. B. 10, at p. 25.

(3) L. R. 2 Ex. 259, at p. 265.

(4) [1906] A. C. 439, at p. 445.

(5) 18 Q. B. D. 714, at p. 718.

(6) [1895] 1 Ch. 236.

restored, and intimated that the reasons for their Lordships' decision would be given at a later date when all the members of the House who were present at the hearing of the argument would be able to attend and express their opinions.

July 19. Their Lordships now gave their reasons for this decision.

EARL LOREBURN. My Lords, the facts of this case, except in immaterial points, are quite clear and undisputed.

The appellant, Mrs. Lloyd, had bought some property, and thus had come to know of the defendant, a solicitor. She had doubts about having got her money's worth, and went to the defendant's office to inquire. When there she saw one Sandles, the defendant's managing clerk, and was induced by him to give him instructions to sell or realize this property, and for that purpose to give him the deeds and to sign two documents which she neither read nor knew the tenor of, but which put into Sandles' possession her interest therein. She gave him the deeds as the defendant's representative. Having got them and the signed documents, he dishonestly disposed of this lady's property and pocketed the proceeds. That is the whole story as it is now either found or admitted because it was incontestable.

It is clear to my mind, upon these simple facts, that the jury ought to have been directed, if they believed them, to find for the plaintiff. The managing clerk was authorized to receive deeds and carry through sales and conveyances, and to give notices on the defendant's behalf. He was instructed by the plaintiff, as the representative of the defendant's firm, - and she so treated him throughout - to realize her property. He took advantage of the opportunity so afforded him as the defendant's representative to get her to sign away all that she possessed and put the proceeds into his own pocket. In my opinion there is an end of the case. It was a breach by the defendant's agent of a contract made by him as defendant's agent to apply diligence and honesty in carrying through a business within his delegated powers and entrusted to him in that capacity. It was also a tortious act committed by the clerk in conducting business which

he had a right to conduct honestly, and was instructed to conduct, on behalf of his principal.

At the hearing the learned judge, no doubt with a view to avoid the risk of a new trial in so small a case, appears to have been prevailed upon to put no less than six questions, with subdivisions making in all ten questions, to the jury. Some of them were quite immaterial. Others were framed in order to raise a point of law supposed to be affirmed by Willes J. in the case of Barwick v. English Joint Stock Bank (1), in a passage which admitted of more than one meaning. The meaning of the answers depends upon how the jury understood the questions, and we were not told how they were explained to the jury. That Sandles committed this fraud in order to steal the money for himself is obvious, and any jury must so find. That he did it in the sense in which Willes J. means the word "benefit" is not true upon the admitted facts. Willes J. cannot have meant that the principal is absolved whenever his agent intended to appropriate for himself the proceeds of his fraud. Nearly every rogue intends to do that.

I have only to say, as to the authority of Barwick v. English Joint Stock Bank (2), that I entirely agree in the opinion about to be delivered by Lord Macnaghten. If the agent commits the fraud purporting to act in the course of business such as he was authorized, or held out as authorized, to transact on account of his principal, then the latter may be held liable for it. And if the whole judgment of Willes J. be looked at instead of one sentence alone, he does not say otherwise.

EARL OF HALSBURY. My Lords, I, in common, I believe, with all your Lordships, think that this appeal must be allowed and that judgment must be entered for the plaintiff, and but for what appears to me a singular misapprehension I should not have thought it necessary to add anything to Scrutton J.'s very careful and very accurate judgment; but I think the judgment in Barwick v. English Joint Stock Bank (2), in the Exchequer Chamber, has been misunderstood, and as it is certainly a

(1) L. R. 2 Ex. 259, at p. 265.

(2) L. R. 2 Ex. 259.

judgment of very high authority it is desirable to examine it carefully and to see what it really did decide.

It was a decision of the Exchequer Chamber delivered by Willes J., the Court consisting of Blackburn, Keating, Mellor, Montague Smith, and Lush JJ., as well as the learned judge who probably, though not certainly, wrote the judgment, and with whom all the judges concurred - a judgment, therefore, of the very highest authority, and one which I think it would be impossible to suppose we are saying anything to shake.

The actual decision of the Court was that Martin B. was wrong in nonsuiting the plaintiff and there must be a new trial, and I think one source of the misapprehension to which I have referred is the care with which the learned judges avoided deciding or assuming how the question was to be decided by the jury in the trial which was then ordered.

So far from giving any authority for the proposition in favour of which it is quoted, the Court went out of its way to disclaim there being any doubt about the rule that the principal is answerable for the act of his agent in the course of his master's business, and the words added, "and for his benefit," obviously mean that it is something in the master's business; and the judgment in question says that that question was settled as early as Lord Holt's time, a tolerably strong indication that the judges thought there was not much doubt about what the law is now.

Sir John Holt, the authority who for more than twenty years presided over the Court of King's Bench with the confidence of all parties at a somewhat stormy point of our history, and who has been described as a perfect master of the common law, speaks in the case cited by Willes J. (Hern v. Nichols (1)) with no uncertain voice upon the subject, confirmed and adopted by such a Court as I have described after more than two centuries. The case was this: An action on the case for deceit was brought by one Hern against a merchant named Nichols. The reporter seems to have had some difficulty in making out what the particular kind of silk in question was, for he has left its description blank, but enough of the pleadings is given to indicate very clearly what the complaint was, and in effect, it was alleged

(1) (Undated, c. 1700) 1 Salk. 289.

that one kind of silk was represented to be sold as such, and another and an inferior sort of silk was supplied.

Upon trial, says the report, not guilty pleaded, it appeared there was no actual deceit by the defendant, but it was his factor beyond sea, and the doubt was whether this should charge the merchant; and Holt C.J. was of opinion that the merchant was accountable for the deceit of his factor, though not criminaliter, yet civiliter, "for seeing somebody must be a loser by this deceit, it is more reason that he that employs and puts a trust and confidence in the deceiver should be a loser than a stranger."

I should be very sorry to see a principle which appears to me of so great value shaken by any authority. No treatise on agency that I have ever come across has thrown any doubt on it, and it would be strange indeed if it should be shaken by the decision in Barwick v. English Joint Stock Bank (1), since that case appears to me a strong authority confirming and strengthening the accuracy of the principle.

LORD MACNAGHTEN. My Lords, in the office of Grace, Smith & Co., a firm of solicitors in Liverpool of long standing and good repute, the appellant, Emily Lloyd, a widow woman in humble circumstances, was robbed of her property. It was not much, just a mortgage for 450l. bequeathed to her by her late husband, and two freehold cottages at Ellesmere Port which she bought herself without legal assistance for 540l. after her husband's death. But it was all she had; and after the order of the Court of Appeal reversing a decision in her favour pronounced by Scrutton J., who tried the case with a special jury, she was compelled to appeal to this House as a pauper.

At the date of the transaction which gave rise to this litigation, Mr. Frederick Smith was the sole member of the firm of Grace, Smith & Co. He was a gentleman "devoted," as he says, "to public work," meaning by that, I suppose, that his proper business as a solicitor was a matter of secondary consideration with him. There is no imputation or reflection on

(1) L. R. 2 Ex. 259.

the honour of the firm or on the honesty or honour of Mr. Frederick Smith. The fraud of which Mrs. Lloyd complained was committed by his accredited representative, a clerk in the office, one Sandles, in the course of the business which Mrs. Lloyd had put into the hands of the firm, and which was undoubtedly a solicitor's legitimate business.

Mrs. Lloyd thought Sandles was a member of the firm. He was really conveyancing manager and managing clerk. He conducted the conveyancing business of the firm without supervision. Mr. Smith admits that Sandles was "practically second in command." But in his own department he was in supreme command. He represented the firm to all intents and purposes just as much as if he had been a partner. Mr. Smith says that he never gave away his own authority. In proof of this statement or in connection with it Mr. Smith adds, "I was supposed to be told by Sandles." What he was told or supposed to be told does not appear from the learned judge's notes.

The fraud was committed in January, 1910. It was not discovered until the following April, when Mr. Smith dismissed Sandles for some irregularity, and Mrs. Lloyd's deeds, for which she held a receipt in the name of the firm, were not to be found.

The story of the fraud is this: On January 11, 1910, Mrs. Lloyd called at the office of Grace, Smith & Co. It was her second visit on the business about which she wanted the firm's advice. She had called in the preceding November to make some inquiries about her property. And once before that, when the purchase of the Ellesmere Port cottages was completed, she had been to the office to get her deeds from Grace, Smith & Co., who were the vendor's solicitors. That was all she knew of the firm. On January 11, 1910, she saw Sandles. She was dissatisfied with the return she got from her property. Sandles advised her to call in the mortgage and to sell the Ellesmere Port property. He asked her to come the next day and bring her deeds with her. On the 12th she brought her deeds, and gave the instructions which Sandles had suggested. After some conversation Sandles left the room, taking the deeds with him. He returned in about twenty minutes with one of the clerks and put before her two

documents, which he told her to sign. He did not tell her what they were. She did not read them. She signed both without demur or question, believing them, she says, to be something she "had to sign before the houses were sold." It turned out that one was a transfer of the mortgage to Sandles himself, expressed to be in consideration of 450l. paid to Mrs. Lloyd. The other was an absolute conveyance to Sandles of the Ellesmere Port property with a receipt for purchase-money in the body of the deed. At the same time he gave her a receipt for her deeds in his own name. She shewed the receipt to a friend, who said it was in an odd form and that she ought to have a receipt in the name of the firm. On the 14th she wrote to say she had changed her mind and wished to cancel her instructions. She went back to the office on the 17th and asked for a receipt for her deeds in the name of the firm. Sandles gave her at once the receipt she asked for.

Armed with the two deeds, executed by Mrs. Lloyd and witnessed by one of the clerks of the firm, Sandles promptly called in the mortgage, transferred it, and disposed of the proceeds in payment of a debt of his own. The conveyance of the Ellesmere Port property he pledged with a bank to which he was indebted.

At the trial the learned judge put a series of questions to the jury. In answer to the first question the jury stated that "in receiving the deeds and taking instructions to sell the property and call in the mortgage debt Sandles professed to act as conveyancing manager to Messrs. Grace, Smith & Co." The other questions were framed to meet a view of the meaning and effect of the well-known decision in Barwick v. English Joint Stock Bank (1) which no doubt has obtained currency of late but which, I think, is erroneous. The answers to these questions are not of much assistance in deciding the real question at issue. Then the jury added a rider that they were of opinion that "throughout the whole history of the transaction Mrs. Lloyd believed she was dealing with Messrs. Grace, Smith & Co."

It was agreed by the parties that any supplementary finding of fact which it became necessary to decide should be made by

(1) L. R. 2 Ex. 259.

the learned judge. Under that agreement the learned judge, as he says, "found as facts that it was within the scope of Sandles' employment to advise clients who came to the firm to sell property as to the best legal way to do it and the necessary documents to execute; that the client did rely on the representations of Sandles professing to act on behalf of the firm that the documents in question were necessary to facilitate and carry out the sale of the land for her; that she did not know that she was signing conveyances to Sandles outside the scope of his employment, and that she was justified in relying on the representation of Sandles without reading and trying to understand the documents tendered to her." That seems to me to be a clear finding that the fraud was committed in the course of Sandles' employment and not beyond the scope of his agency.

The learned judge thereupon, after consideration, gave judgment for the plaintiff. His decision was reversed by the Court of Appeal (Vaughan Williams L.J. dissenting).

The first line of defence set up by Mr. Smith was that Mrs. Lloyd was not a client of the firm at all, but a personal friend of Sandles, and that the transaction was a private deal between Mrs. Lloyd and Sandles. It is enough to say that there is no foundation for this defence. It was negatived by the jury in their answer to the first question and in the rider which they added to their special verdict. Sandles, no doubt, was playing a double game. To Mrs. Lloyd he was Grace, Smith & Co.; to the clerks in the office Mrs. Lloyd's visits were the private visits of a personal friend.

The other line of defence, which found favour with the Court of Appeal, requires more consideration. It was rested on the fact that the fraud was committed, not for the benefit of the firm, but for the benefit of Sandles himself. It was contended that Barwick's Case (1) is an authority for the proposition that a principal is not liable for the fraud of his agent unless the fraud is committed for the benefit of the principal.

Barwick v. English Joint Stock Bank (1) is no doubt a case of the highest authority. It was decided in the Exchequer Chamber, and the judgment was delivered by Willes J. But I agree with

(1) L. R. 2 Ex. 259.

my noble and learned friend Lord Halsbury that the case has been misunderstood in late years, and that it does not decide any such proposition as that for which it was cited in the Court of Appeal. It decided two things. It decided that the learned trial judge was wrong in nonsuiting the plaintiff. It also decided that if on a new trial the jury should come to the conclusion that the agent of the bank had in fact committed the fraud, which in the pleadings was charged as the fraud of the bank, then the principal, though innocent, having received the proceeds of the fraud, must be held liable to the party defrauded. And I think it follows from the decision, and the ground on which it is based, that in the opinion of the Court a principal must be liable for the fraud of his agent committed in the course of his agent's employment and not beyond the scope of his agency, whether the fraud be committed for the principal's benefit or not.

Now it must be remembered that in 1867, when Barwick's Case (1) was decided, there was some difference of judicial opinion on the question whether an innocent principal was liable for the fraud of his agent, even when he had received the benefit of the fraud. In Barwick's Case (1) the agent committed the alleged fraud, if he did commit it, for the benefit of his principals. It may be that he was indirectly acting for his own benefit. He may have wished to recommend himself to his principals, by astuteness and zeal in their service, or he may have intended to make amends for over-confidence in an impecunious customer; but the direct pecuniary benefit was the benefit of the principals. It must also be remembered that in the then recent case of Udell v. Atherton (2), by an equal division of the members of the Court, an innocent principal succeeded in retaining the benefit of a fraud committed by his agent. Possibly that case in some measure turned, as Cornfoot v. Fowke (3) is said to have turned, on a question of pleading, but certainly one learned judge who was in favour of the defendant, though he held strongly that an innocent principal was not liable in an action of deceit for the fraud of his agent, even though he had profited by it, expressed an opinion that there was no form of action in which liability

(1) L. R. 2 Ex. 259.

(2) (1861) 7 H. & N. 172.

(3) (1840) 6 M. & W. 358.

for vicarious fraud could be established against an innocent principal.

It was, I think, in reference to the facts of the particular case under review, where the fraud, if committed, must have been committed for the benefit of the principal, that Willes J. expressed himself in the language which has been misunderstood. What Willes J. said was this: "The general rule is, that the master is answerable for every such wrong of the servant or agent as is committed in the course of the service and for the master's benefit, though no express command or privity of the master be proved." To that statement of the law no objection of any sort can be taken. But it is a very different proposition to say that the master is not answerable for the wrong of the servant or agent, committed in the course of the service, if it be not committed for the master's benefit. Willes J. does not, I think, say anything of the kind. In a sentence immediately preceding the sentence I have quoted, he observes that the question whether the principal is answerable for the act of an agent was settled as early as Lord Holt's time - a general observation not confined to the case where the principal is a gainer by the fraud.

The question as to the meaning and effect of the ruling of Willes J. may, I think, be best ascertained by reference to a few cases in which some of the learned judges who took part in the decision in Barwick's Case (1) delivered opinions.

Of the judges who were concerned in Barwick's Case (1), none were more eminent than Montague Smith J. and Blackburn J. They were second only - if they were second - to Willes J. himself. And their views at least are on record.

The first important case in which the ruling in Barwick's Case (1) was discussed was the case of Mackay v. Commercial Bank of New Brunswick. (2) In that case the Judicial Committee reaffirmed the ruling of Willes J. There the fraud was committed for the benefit of the principal. But it was argued by Mr. Benjamin, Q.C., that the appellants in the Privy Council would be entitled to retain the verdict if they had sustained damage from the fraudulent representation of an agent, made

(1) L. R. 2 Ex. 259.

(2) (1874) L. R. 5 P. C. 394.

within the scope of his authority, even though the principal had not profited thereby. The judgment was delivered by Sir Montague Smith. He observed (1) that their Lordships regarded it as "settled law that a principal is answerable where he has received a benefit from the fraud of his agent, acting within the scope of his authority." He discussed at some length what meaning was to be attached to the expression "the scope of the agent's authority." "There are," says Sir Montague Smith, "some cases to be found apparently at variance as to the interpretation and the adaptation to circumstances of this doctrine .... it may be generally assumed that, in mercantile transactions, principals do not authorize their agents to act wrongfully, and consequently frauds are beyond 'the scope of the agent's authority' in the narrowest sense of which the expression admits. But so narrow a sense would have the effect of enabling principals largely to avail themselves of the frauds of their agents, without suffering losses or incurring liabilities on account of them, and would be opposed as much to justice as to authority. A wider construction has been put upon the words. Principals have been held liable for frauds when it has not been proved that they authorized the particular fraud complained of or gave a general authority to commit frauds: at the same time, it is not easy to define with precision the extent to which this liability has been carried." Then Sir Montague Smith says "The best definition of it .... is to be found in the case of Barwick v. English Joint Stock Bank" (2), and he quotes the words of Willes J., who, after enumerating instances where the principle had been applied, proceeded as follows: "In all these cases it may be said, as it was said here, that the master had not authorized the act. It is true he has not authorized the particular act, but he has put the agent in his place to do that class of acts, and he must be answerable for the manner in which that agent has conducted himself in doing the business which it was the act of his master to place him in."

At the conclusion of the judgment, in reference to Mr. Benjamin's argument, his Lordship expresses himself as

(1) L. R. 5 P. C. at p. 410.

(2) L. R. 2 Ex. 259.

follows (1): "It is not necessary to determine whether or not the plaintiffs could have retained their verdict if they had proved only that they had sustained damage from the fraudulent representation of an agent of the defendants made within the scope of his authority, without proof of the defendants having profited thereby."

It is difficult to imagine that Sir Montague Smith would have expressed himself in this manner if he had supposed that the question which he reserves had been already determined in the case of Barwick v. English Joint Stock Bank. (2)

Mackay v. Commercial Bank of New Brunswick (3) was decided in 1874; it was followed in 1877 by Swire v. Francis (4), a case also in the Privy Council. That was a case in which the principal was held liable for the fraud of his agent, though it was committed for the benefit of the agent himself and not for the benefit of the principal. The judgment was delivered by Sir Robert Collier, but Sir Montague Smith was a party to the judgment.

The only other case with which I will venture to trouble your Lordships is the case of Houldsworth v. City of Glasgow Bank (5), decided in 1880. In that case Barwick v. English Joint Stock Bank (2), Mackay v. Commercial Bank of New Brunswick(3), and Swire v. Francis (4) are referred to at some length, both by Lord Selborne and by Lord Blackburn. Lord Selborne observes, as has been observed in other cases, that the principle on which those cases were decided was a principle not of the law of torts, or of fraud or deceit, but of the law of agency. "The decisions in all these cases proceeded," he said, "not on the ground of any imputation of vicarious fraud to the principal, but because, (as it was well put by Mr. Justice Willes in Barwick's Case (2)) 'with respect to the question whether a principal is answerable for the act of his agent in the course of his master's business, no sensible distinction can be drawn between the case of fraud and the case of any other wrong.'"

Here I must ask your Lordships' particular attention to the

(1) L. R. 5 P. C. at p. 416.

(2) L. R. 2 Ex. 259.

(3) L. R. 5 P. C. 394.

(4) 3 App. Cas. 106.

(5) (1880) 5 App. Cas. 317.

fact that in the passage which Lord Selborne quotes from the judgment of Willes J. as explaining the true ground of decision in Swire v. Francis (1), as well as in Barwick's Case(2) and in Mackay v. Commercial Bank of New Brunswick (3), the words "and for his master's benefit" are omitted. In the original they follow the words "in the course of his master's business." Unfortunately in the report in 5 Appeal Cases, though the passage is printed as a quotation with inverted commas, the omission is not denoted in the usual way by asterisks. And it seems to have escaped observation. But it is most significant. No one who calls to mind Lord Selborne's extreme accuracy in such matters can doubt that the omission was intentional. If the words omitted had been left standing, the passage would not have been applicable to Swire v. Francis. (1) In Barwick's Case (2) the words are appropriate. In a general statement of the law they are out of place. That this was Lord Selborne's own opinion is evident. On the words as occurring in Barwick's Case (2) Lord Selborne makes no comment. When he comes across the same expression in Lord Cranworth's judgment in Addie's Case (4) he gives a note of warning. There it is made part of a general proposition. And Lord Selborne says that the words "may perhaps require some enlargement or explanation." That is quite enough to shew that Lord Selborne was not prepared to accept them as an integral part of the proposition which he considered the true ground of decision in Barwick's Case (2) and the two cases which followed it, without some qualification.

Lord Blackburn's view of the judgment in Barwick's Case (2) requires no explanation. It is clear enough. After referring to Barwick's Case (2) he expresses himself as follows(5): "I may here observe that one point there decided was that, in the old forms of English pleading, the fraud of the agent was described as the fraud of the principal, though innocent. This no doubt was a very technical question"; and then come these important words: "The substantial point decided was, as I think, that an

(1) 3 App. Cas. 106.

(2) L. R. 2 Ex. 259.

(3) L. R. 5 P. C. 394.

(4) (1867) L. R. 1 H. L. Sc. 145.

(5) 5 App. Cas at p. 339.

innocent principal was civilly responsible for the fraud of his authorized agent, acting within his authority, to the same extent as if it was his own fraud."

That, my Lords, I think is the true principle. It is, I think, a mistake to qualify it by saying that it only applies when the principal has profited by the fraud. I think, too, that the expressions "acting within his authority," "acting in the course of his employment," and the expression "acting within the scope of his agency" (which Story uses) as applied to an agent, speaking broadly, mean one and the same thing. What is meant by those expressions is not easy to define with exactitude. To the circumstances of a particular case one may be more appropriate than the other. Whichever expression is used it must be construed liberally, and probably, as Sir Montague Smith observed, the explanation given by Willes J. is the best that can be given.

In the case of Udell v. Atherton (1) Wilde B., afterwards Lord Penzance, in his admirable judgment makes the following observation: "It is said that a man who is himself innocent cannot be sued for a deceit in which he took no part, and this whether the deceit was by his agent or a stranger. To this, as a general proposition, I agree. All deceits and frauds practised by persons who stand in the relation of agents, general or particular, do not fall upon their principals. For, unless the fraud itself falls within the actual or the implied authority of the agent, it is not necessarily the fraud of the principal." In the same case, in a passage which was approved apparently by the Court in Mackay v. Commercial Bank of New Brunswick (2), Martin B.(3) stated the question to be, "Was his" (the agent's) "situation such as to bring the representation he made within the scope of his authority?" In those passages the true principle is, I think, to be found.

The principle as stated by Lord Blackburn is in accordance with the opinion expressed by Story J. I venture to quote Story's opinion, not only because it is the considered opinion of a most distinguished lawyer, but also because it is cited apparently with approval in the Court of Queen's Bench, consisting of

(1) 7 H. & N. 172, at p. 180.

(2) L. R. 5 P. C. 394.

(3) 7 H. & N. at p. 198.

Cockburn C.J., Blackburn, Mellor, and Lush JJ., by Blackburn J. himself in a case which occurred in the interval between the date of Barwick's Case (1) and the decision in Houldsworth v. City of Glasgow Bank. (2) The passage in the judgment of Blackburn J. as reported in McGowan & Co. v. Dyer (3) is as follows: "In Story on Agency, the learned author states, in s. 452, the general rule that the principal is liable to third persons in a civil suit 'for the frauds, deceits, concealments, misrepresentations, torts, negligences, and other malfeasances or misfeasances, and omissions of duty of his agent in the course of his employment, although the principal did not authorise, or justify, or participate in, or indeed know of such misconduct, or even if he forbade the acts, or disapproved of them.' He then proceeds, in s. 456: 'But although the principal is thus liable for the torts and negligences of his agent, yet we are to understand the doctrine with its just limitations, that the tort or negligence occurs in the course of the agency. For the principal is not liable for the torts or negligences of his agent in any matters beyond the scope of the agency, unless he has expressly |authorised them to be done, or he has subsequently adopted them for his own use and benefit.'"

I may observe in passing that although Lord Bramwell held strongly the view that for the fraud of an agent committed for the principal's benefit the principal is not answerable, either in an action of deceit or in any other form of action, yet he seems to think that it follows (as indeed it must follow logically) that if liable in that case the principal must be liable in all cases. For he suggests in Weir v. Bell (4) that instead of imputing vicarious fraud to the principal such cases as Barwick v. English Joint Stock Bank (1) might be decided on the ground that "every person who authorises another to act for him in the making of any contract, undertakes for the absence of fraud in that person in the execution of the authority given, as much as he undertakes for its absence in himself when he makes the contract."

With the most profound respect for Lord Bowen and Lord Davey, I cannot think that the opinions expressed by Lord Bowen

(1) L. R. 2 Ex. 259.

(2) 5 App. Cas. 317.

(3) (1873) L. R. 8 Q. B. 141, at p. 145.

(4) (1878) 3 Ex. D. 238, at p. 245.

in British Mutual Banking Co. v. Charnwood Forest Ry. Co. (1) and by Lord Davey in Ruben v. Great Fingall Consolidated (2), in reference to the question under discussion, can be supported either on principle or on authority. In neither case were the opinions so expressed necessary for the decision, and I dissent most respectfully from both.

The only difference in my opinion between the case where the principal receives the benefit of the fraud, and the case where he does not, is that in the latter case the principal is liable for the wrong done to the person defrauded by his agent acting within the scope of his agency; in the former case he is liable on that ground and also on the ground that by taking the benefit he has adopted the act of his agent; he cannot approbate and reprobate.

So much for the case as it stands upon the authorities. But putting aside the authorities altogether, I must say that it would be absolutely shocking to my mind if Mr. Smith were not held liable for the fraud of his agent in the present case. When Mrs. Lloyd put herself in the hands of the firm how was she to know what the exact position of Sandles was? Mr. Smith carries on business under a style or firm which implies that unnamed persons are, or may be, included in its members. Sandles speaks and acts as if he were one of the firm. He points to the deed boxes in the room and tells her that her deeds are quite safe in "our" hands. Naturally enough she signs the documents he puts before her without trying to understand what they were. Who is to suffer for this man's fraud? The person who relied on Mr. Smith's accredited representative, or Mr. Smith, who put this rogue in his own place and clothed him with his own authority? If Sandles had been a partner in fact, Mr. Smith would have been liable for the fraud of Sandles as his agent. It is a hardship to be liable for the fraud of your partner. But that is the law under the Partnership Act. It is less a hardship for a principal to be held liable for the fraud of his agent or confidential servant. You can hardly ask your partner for a guarantee of his honesty; but there are such things as fidelity policies. You can insure the honesty of the person you employ in a confidential situation

(1) 18 Q. B. D. 714, at p. 718.

(2) [1906] A. C. 439, at p. 445.

or you can make your confidential agent obtain a fidelity policy.

With all respect to the learned judges of the Court of Appeal, I think the decision appealed from is wrong. I think they are in error as regards the law, and I think they have not taken the correct view of the facts. They look at the execution of the deeds by which Sandles cheated Mrs. Lloyd out of her property as if it were an isolated transaction - as a thing standing by itself; whereas the trick was so cunningly contrived as to seem to the victim of the fraud a mere matter of course - a trifling incident in the business about which the firm was being employed.

In the result I am of opinion that Mr. Frederick Smith was clearly liable for the fraud of his agent.

LORD ATKINSON. My Lords, I have had the pleasure and advantage of reading the elaborate and exhaustive judgment which has just been delivered by my noble and learned friend Lord Macnaghten. I concur in every sentence in it, and it so fully expresses the views I entertain on the points in controversy in the case that I think it entirely unnecessary to read the judgment I had myself prepared. I would only add that I hope the decision of your Lordships' House in this case may be the means of correcting the misconception which has for some time prevailed as to the true ground upon which, and the limits within which, a principal may be held responsible for the frauds of his agent.

LORD SHAW OF DUNFERMLINE. My Lords, the defendants, against whom personally no suggestion of a dishonouring kind is made, plead that they are not responsible in law for the conduct of their servant Sandles, which was nefarious, and that in the transactions in question in this case Sandles acted for his own benefit. Lord Macnaghten has in the opinion just delivered narrated the material facts in the suit, and it is quite unnecessary to resume them. With that opinion I entirely agree.

The case is in one respect the not infrequent one of a situation in which each of two parties has been betrayed or injured by the

fraudulent conduct of a third. I look upon it as a familiar doctrine as well as a safe general rule, and one making for security instead of uncertainty and insecurity in mercantile dealings, that the loss occasioned by the fault of a third person in such circumstances ought to fall upon the one of the two parties who clothed that third person as agent with the authority by which he was enabled to commit the fraud. Nor do I think it doubtful that it would be quite unsound in law if this result could be avoided by an investigation of the private motives - in the direction of his own, as distinguished from his master's, benefit - which animated an agent in entering into a particular transaction within the scope of his employment. The bulk of mercantile dealings are not direct, but are conducted through agents vested with an ostensible authority to act for their employers. When the authority is of a limited kind, the person transacting with such an agent is bound to assure himself that the limits are not exceeded, - a familiar instance of which is the case of bills signed per procuration. But when the authority does ostensibly include within its scope transactions of a particular character, then quoad a third party dealing in good faith with such an agent, the apparent authority is, as is well settled, equivalent to the real authority and binds the principal.

It is not difficult to discover the legal source of much of the language employed in this case and appearing even in the questions put to the jury. It sprang from two sentences in the judgment of Willes J. in Barwick v. English Joint Stock Bank (1), a case in which it is too often forgotten that the bank was in the position of having had and received, and of maintaining its right to retain, money paid to it in consequence of a misrepresentation by its agent. For the purposes of the present question the outstanding fact is the very one which is apt to be forgotten, namely, that the misrepresentation was made, and was admitted to have been made, in the interests of the bank as well as by its agent. These two things were conjoined in fact. This being so, in the course of his judgment, Willes J. used the words "But with respect to the question, whether a principal is answerable for the act of his agent in the course of his master's business, and

(1) L. R. 2 Ex. 259.

for his master's benefit, no sensible distinction can be drawn between the case of fraud and the case of any other wrong. The general rule is, that the master is answerable for every such wrong of the servant or agent as is committed in the course of the service and for the master's benefit, though no express command or privity of the master be proved." The learned judge was not in this language setting up the necessity for a conjunction of these two things, but was dealing with a case in which admittedly the conjunction had occurred. I am aware of the approval given to this language in subsequent cases, as for instance in Ruben v. Great Fingall Consolidated (1) by Lord Davey, and in British Mutual Banking Co. v. Charnwood Forest Ry. Co. (2) by Lord Bowen. If I may respectfully do so, I tender my entire concurrence in the opinion just delivered by my noble and learned friend Lord Macnaghten upon the dicta of Lords Davey and Bowen in these cases. But I do so subject to this - that I cannot bring myself to think that it was ever distinctly meant to be announced or suggested as law that, on the assumption that a person deals with an agent in good faith, and that the conduct of the agent is fully within the scope of his authority, then the principal of that agent is not responsible for the agent's fraud, by reason of the fact that the agent did not mean to benefit his principal by the fraud, but to benefit himself. That, in my opinion, is not the law. On the contrary, the principal is, in such circumstances, legally responsible for his agent's conduct.

I incline to the view that in most, if not all, of the cases cited in argument, it will be found upon investigation that the transaction which was in question was in fact not merely for the agent's own benefit, but a piece of conduct beyond the scope of his employment. It was so in the instances cited. And a late and clear instance of this (much founded on at your Lordships' Bar) is Cheshire v. Bailey. (3)

I refer to the analysis of the decisions in the judgment of Scrutton J., and I add a reference to a somewhat similar analysis in the case of Hambro v. Burnand (4) by the late Lord Collins,

(1) [1906] A. C. 439, at p. 445.

(2) 18 Q. B. D. 714, at p. 718.

(3) [1905] 1 K. B. 237.

(4) [1904] 2 K. B. 10.

then Master of the Rolls. I respectfully give my adhesion, without a further statement on my own part, to the views expressed in these judgments.

In the present case, as I have stated, it has been clearly found that the fraud was committed in the course of, and within the scope of, the duties with which the defendants had entrusted Sandles as their managing clerk. In my opinion, they must in these circumstances stand answerable in law for their agent's misconduct.

I think that the appeal should be allowed and that the action should be disposed of in the same sense as in the judgment of Scrutton J., whose treatment, I desire to add, of the whole case both in law and in fact appears to me to have been correct, and with whose opinion I also respectfully agree.

Solicitor for appellant: Walter C. Broadbridge.

Solicitor for respondents: George Thatcher.