The action is brought to recover the sum of $24,906.25, paid by the plaintiffs to the defendants as an action for money had and received. To intelligently present the question, it is important that the relation of the parties to each 'other and to one Valentine, out of whose transactions the controversy arose, should be stated.
It seems that Valentine was a dealer in bonds, stocks and other securities. He had been in the employ of the defendant, but about ■ four months before July 28, 1908, he had been engaged by the plaintiffs to bring in stock business, and in June plaintiffs had paid him a salary of fifty dollars a week, Valentine, however, retained his outside bond business, and during the time that he had been in the employ of the plaintiffs he had carried on transactions in bonds and other unlisted securities on his own account, sometimes clearing purchases and sales of such securities through tile plaintiffs, and sometimes through other houses engaged in that business. The plaintiffs’ firm was what is known as a stock exchange house, that is, connected with the Hew York Stock Exchange. Prior to this time the defendant had promoted a company called the “Yankee Fuel Company.” This company made a bond issue,of $1,500,000, and at this time about $1,000,000 of these bonds was unsold. On July 28, 1908, Valentine went to the defendants’ place of business and ■ made an offer for $25,000 of Yankee Fuel bonds at ninety cents on the dollar. Valentine had before that sold these bonds to his customers and had purchased them from the defendants. The method seems to have been, when Valentine sold the bonds, he obtained a net price from the defendants, when the defendants would bill the bonds to the purchaser, or the 'brokers who acted for the purchaser, at the price that he was to receive for them, and the defendants would pay him the difference between the net price at which Valentine purchased them and the price at which they had *615been billed to the purchaser. The defendants accepted this offer of Valentine’s. Valentine then requested the defendants to deliver the bonds to the plaintiffs who would pay for them. Valentine then went to Mr. Chinn, one of the plaintiffs, and said to him that he had put through a $25,000 bond deal. Shortly afterwards the bonds were received from the defendants at the plaintiffs’ place of business, when Chinn gave orders not to pay for them until lie could see Valentine about them. Valentine subsequently came in, when Chinn said to him that there were twenty-five Yankee Fuel bonds from Shepard & Co. and asked where his money was. Valentine said, “ Why, that is all right, Mr. Chinn; I have sold those bonds to a Mr. Spingarn, of Spingarn Brothers; lie is an uptown milliner, he owns the building he is in; I have sold him over 200,000 bonds in the past two or three years; in fact, I have sold him 280,000 to be accurate; ” that there was no use of holding Shepard up for the payment of these bonds, because a certified check would be down there within an hour for those bonds from Mr. Spingarn. Whereupon Mr. Chinn told his cashier to pay for the bonds. The plaintiffs’ check was then drawn and was delivered to the defendants’ messenger. This check was delivered about twenty minutes of eleven o’clock in the morning and Valentine stated that he had some arrangement with Mr. Spingarn to send the check down. The Spingarn check not having been received during the day, the plaintiffs tried to communicate with Mr. Spingarn, but were unsuccessful until the following morning when it was ascertained-that Spingarn had never purchased these bonds from them and knew nothing about the transaction. The messenger who delivered these bonds testified that he delivered them to Valentine personally at the plaintiffs’ place of business and received the plaintiffs’ check for them from Valentine. The defendants immediately proceeded to have the check certified and it was at once deposited and paid through the Clearing House on the same day. As soon as the plaintiffs had ascertained that Spingarn had not purchased these bonds, on the morning of the twenty-ninth one of the plaintiffs went to the defendants’ place of business and saw the manager in charge. He told the manager that this $25,000 worth of bonds that Valentine had sold for the defendants to Spingarn could not be delivered and demanded back the .money. *616• The manager said that the company had been advised that the bonds had been sold and that a-- draft was on its way, to which the plaintiffs’ representative - replied, “ then cancel the draft,” and the plaintiffs would have nothing to do with the bonds, when the defendants’ manager said that lie would see what he could do about it. Subsequently, on the same day, the déf en dan ts ^offered -to repurchase -the bonds at fifty cents on the dollar'. The plaintiffs tendered the bonds to the defendants and demanded, the money, but it was refused, and this action,was brought. -
At the end of the plaintiffs’ case the defendants moved --to dismiss the complaint, which was denied. The' motion was'renewed at the end of the whole case, which was again denied, and' to that the defendants excepted. . The court submitted to the- jury two questions : First, whether the plaintiffs purchased the bonds from the defendants, and, second, whether it was-under any material mistake of fact that the plaintiffs were induced to make the payment in question ; that before the plaintiff's could recover they must show that the payment was made in consequence of a material mistake of fact; finally instructing the jury that “ If you find that in the transaction in question the plaintiffs were acting in the matter to make a clearance and had not bought the bonds from the defendants, and. that in paying the check for $2é,906.25 plaintiffs acted under a mistake of fact, namely, in the belief that the bonds had been bought by Spingarn, and that arrangements had been made under which Spingarn had arranged to send a certified check for. the same to.the plaintiffs,, and that in fact Spingarn had not bought the bonds and had not made such arrangements, and that defendants, had" not changed their position. * * * to their prejudice at thé time-they received notice of the mistake, then the plaintiffs are entitled to recover; and to which I add otherwise, and if you find .to the contrary, the plaintiffs- cannot recover in this action against the defendants.” To this charge the defendants excepted. The jury found a verdict for the plaintiffs for the full amount claimed^ and -from that verdict the defendants appealed. .
The transaction which resulted, in the defendants procuring from the plaintiffs this check of nearly $25,000 was based upon the sale of these bonds by the defendants to Valentine. Valentine had been in the habit of making such transactions' with the defendants, *617and in the original transaction there was no mention of the plaintiffs’ name, the transaction being solely between the defendants and Valentine, and the price at which Valentine bought these bonds was ninety cents on the dollar. After that sale had been made the defendants were asked to bill the bonds to the plaintiffs at ninety-eight cents on the dollar. In pursuance of that request the bonds were sent to the plaintiffs’ place of business and there delivered to Valentine, and the defendants’ representative received from Valentine the plaintiffs’ check for the amount. This check having been collected on the same day, the ^defendants paid to Valentine, the difference between the amount at which the bonds had been billed to the plaintiffs and the amount at which. Valentine had purchased the bonds. I think that the transaction on its face was a sale of the bonds to Valentine and not to the plaintiffs, and the testimony is not at all disputed that Valentine had no authority to purchase these bonds on account of the plaintiffs, and no authority to bind the plaintiffs by a transaction of this character. The fact that the bonds were billed to the plaintiffs at a different price from that at which Valentine had purchased them, and that Valentine received himself the difference between the price at which the bonds were billed to the plaintiffs and the price at which the bonds were sold was itself notice to the defendants that the transaction was with Valentine personally 'and not with the plaintiffs; and from this it follows that the defendants had notice of the fact that Valentine was carrying out this transaction on his own account. The jury have found upon undisputed evidence that the plaintiffs were induced to pay their money to the defendants upon the false representation of Valentine that he had effected a sale of the bonds to Mr. Spingarn, and that Mr. Spingarn had agreed that a certified check would be presented for the bonds within an hour. The delivery of the‘plaintiffs’ check to Valentine, therefore, was based solely upon this mistake of fact, caused by the misrepresentation of Valentine that the bonds had been sold to Spingarn, and that the check would be there within an hour. The plaintiffs’ transaction was with Valentine. It could not be disputed for a moment but that upon the plaintiffs’ discovering the fraud which induced the defendants to act, they could have repudiated the transaction with Valentine, and if Valentine had the plaintiffs’ money in his possession the plaintiffs could *618have recovered it back. Valentine having received "the plaintiffs’ check turned it over to the defendants to carry out this purchase of the bonds from the defendants, and the defendants, therefore, have received from Valentine the plaintiffs’ money which Valentine had procured by. these misrepresentations and a mistake of fact on-the plaintiffs’ part induced by such misrepresentations. . Assuming that the defendants acted, in good faith, and that so far as they acted upon the situation as it appeared to them oh this twenty-eighth day of July, the day that the money was delivered, they would be protected, it seeing to me that-, they were, not entitled to hold the ■plaintiffs’ inoney as. against the plaintiffs’ demand if nothing had happened to impose any liability upon the defendants, or if their position had not been. changed before notice of the mistake was given and a demand made to cancel the transaction ; but it is not pretended that the defendants had changed their position before the morning of the twenty-ninth day of July, when they were notified of the mistake and the demand for the .repayment of the money." They still held the. plaintiffs’ money in their possession, and all that-the defendants claimed was. that they had notified the corporation ’ that the bonds-had been sold, but that no money had been paid to the corporation, and no obligation, so far as appears, assumed by it in consequence of the sale. It seems to me that a case is made out for a recovery for money had' and received based upon- the money ' having been paid to the defendants upon a mistake of fact.indueed by the misrepresentation of Valentine who was ati independent purchaser of the bonds from the defendants.
- It is claimed by the defendants that this action cannot be maintained upon the ground that the mistake was solely a mistake of the plaintiffs and that the defendants, not being guilty of any fraud and knowing nothing of the plaintiffs^ mistake, are entitled to hold the plaintiffs’ -money. ' I do not think this position is sound-. The defendants actually received the check representing this money from Valentine to carry out the contract that they had made- with Valentine. As between the plaintiffs and Valentine there was a mutual mistake of-fact, or a mistake on the plaintiffs’ part,and fraud on Valentine’s part, such as" to justify a rescission of "the.transaction" and a recovery from Valentine of." the money that -he received; As between the plaintiffs and the defendants, the defend*619ants can claim no better title to the money than Valentine from whom the defendants received it; and it is clear from the evidence that the method of obtaining payment of the bonds was that agreed to between Valentine and the defendants for their own purposes and to carry out the transaction as between themselves. The-plaintiffs had no possible interest in the transaction and merely allowed themselves to be used so that Valentine could cany out his purchase of the bonds. They were induced to part with their money by the misrepresentations of Valentine, and I think it would be a violation of the principles upon which this action for money had and received was based to allow the person who had acquired the money from Valentine to retain it. He had no title to it or right to hold it as against the true owner of the money who was entitled to it. The action for money had and received, although an action at law, is based upon equitable- principles, that where a person has received money which in equity and good conscience he is not justified in retaining, an action at law will lie to recover it back. While a person receiving money under such circumstances is entitled to be protected against any obligations that he has incurred or actual payments made based upon its receipt before notice of the facts which make it inequitable for the receiver to hold it, lie is bound to repay it to the true owner when he still retains it in his possession when notified of the facts which make it inequitable for him to retain it. A line of cases relied on by the appellant of which Justh v. Nat. Bank of Commonwealth (56 N. T. 478) is an example, do not apply. That decision and the cases that follow it are based upon the rule that in the absence of trust or agency “ it is only tó the extent of the interest remaining in the party committing the fraud that money can be followed as against an innocent party having a lawful title founded upon consideration; and that, if it has been paid in the ordinary course of business, either upon a new consideration or for an existing debt, the right of the party to follow the money is gone.” It seems to me that the distinction between those cases and this is that the defendants and Valentine, for their own purposes, adopted this method of carrying out the transactions between them. By Valentine’s fraud the plaintiffs were induced to give Valentine a check for the bonds which, as a part of the transaction, were turned over to the defendants. Here the whole transaction itself was permeated by *620Valentine’s fraud, and although the defendants had no knowledge of it, they were chargeable as between themselves and the plaintiffs with the fraud by which Valentine induced the plaintiffs to take part in the transaction.. In Lawrence v. Am. Nat. Bank (54 N. Y. 432) the plaintiffs made up a statement of their accounts with Post which showed that a balance was due him exceeding $10,000 and this sum was paid to the defendant as his assignee. When they made this statement by mistake they omitted to charge-Post with $5,000 which they had loaned him, and hence they overpaid the defendant the amount of this sum with interest. This mistake was unknown to them, and Was manifestly unknown to the defendant ; but it was held that the mistake furnished a good ground of recovery. ' It was there stated: “ It is the -fact that one by mistake unintentionally pays money to another to which the latter is not entitled from the former, which gives the right of action, and the fact that the mistake occurs through negligence does not give the payee, any - better or the payer any worse title to the money.”
It follows that the judgment was right and should be affirmed.
McLaughlin and Clabke, JJ., concurred; Houghton and Scott, JJ., dissented. j