The complaint states facts sufficient to support an action against the defendant, based on its liability as the bailee of the plaintiff's fourteen bonds, and also an action based on the liability of the defendant arising from its reception of the property of the plaintiff (being the proceeds of said bonds), which property the defendant cannot rightfully, equitably, and in good conscience hold. These grounds of action are properly stated by setting forth, in consecutive paragraphs, the facts pertinent to the transaction out of which the plaintiff's true cause of action arose. Craft Refrigerating Machine Co. v.Quinnipiac Brewing Co., 63 Conn. 551, 562, 29 A. 76;Knapp v. Walker, 73 Conn. 459, 461, 47 A. 655.
Upon the facts found it is manifest that the defendant did not become the bailee of the plaintiff's bonds. The plaintiff's agent, Francis P. Sherwood, placed the bonds in the defendant's safe for his own personal accommodation, with knowledge of a standing rule in the bank that the bank would not act as a custodian for the safekeeping of negotiable securities, and that any such securities left in the bank's safe were at the risk of the owner. While the bonds remained in the defendant's safe subject to the sole control of Francis P. Sherwood, they were in the possession of the plaintiff's agent and of the plaintiff. When, on April 21st, 1903, the bonds were taken from the safe by Oliver T. Sherwood, with the intent to appropriate them to his own use, they were taken from the possession of the plaintiff, and the act was not the act of the bank or of an agent of the bank, but was a theft by Oliver T. Sherwood.
The defendant is not liable to the plaintiff for this theft by a third party. If in fact the failure of the directors to discover that their cashier had become a dishonest man, liable to steal property within his reach, and their failure to remove him from his office were due to a negligent performance of their duties as directors, that negligence would not make the defendant liable to the plaintiff as bailee of the plaintiff's bonds.
In respect to the other ground of action, the finding *Page 101 shows the following facts: The defendant bank kept a portion of its money on deposit with the National Park Bank. On April 21st the defendant's money so on deposit was increased by the addition thereto of $6,000. This money had been that day fraudulently obtained by Sherwood (acting in his individual capacity) through his theft of the plaintiff's bonds and the transfer of those bonds to an innocent third party, as detailed in the finding. The $6,000 so fraudulently obtained by Sherwood, acting in his individual capacity as thief of the plaintiff's bonds, was immediately received by Sherwood, acting in his capacity as the defendant's cashier, and added to and mingled with the money of the defendant. This money so added to the defendant's money on April 21st passed, on May 19th (unless previously used by the defendant in the usual course of business), into the hands of the receiver, and has been used by him; this fact is necessarily established by the finding, by which it appears that the defendant failed to prove any use subsequent to April 21st of its money on deposit, not in the usual course of its business. On or before August 18th the defendant and its receiver learned of Sherwood's fraud in obtaining the money so added to its funds on April 21st, and of the plaintiff's interest therein. No consideration for the $6,000, of which the defendant thus received the benefit, ever moved from the defendant to the plaintiff, or to any one, unless the deposit is to be regarded as a payment by Sherwood of a debt due from him to the defendant.
We think that under these circumstances the defendant cannot hold this money, the product of Sherwood's fraud upon the plaintiff, against the plaintiff's demand, without violating a moral duty the defendant owes the plaintiff. Had Sherwood, instead of stealing the plaintiff's negotiable bonds of the amount and value of $7,000, stolen current money belonging to the plaintiff of the same amount and value, and under similar circumstances received as cashier and added to the defendant's money on deposit $6,000 of this stolen money, the defendant would be under a similar *Page 102 moral duty to pay the plaintiff this money. In both cases the duty rests upon the same universal law of ethics. In both cases the money is the product of a fraud, commencing with a theft from the plaintiff, by which the plaintiff has been deprived of, and the defendant has (without giving any compensation) received the benefit of, $6,000. The fact that in the former case the fraud is more indirect and complicated than in the latter does not alter the nature or lessen the force of the duty resting upon the plaintiff.
The plaintiff has received and retains money which, for all practical purposes as affecting the defendant's duty, was stolen from the plaintiff and immediately given by the thief to the defendant. It is plain, too plain for argument, that in equity and good conscience the defendant ought to pay over to the plaintiff the money thus obtained and used. The doctrine that one who holds money which he ought in equity and good conscience to pay over to another is subject to a legal duty to make such payment, is firmly established. 3 Black. Comm. 162; Northrop v. Graves,19 Conn. 548, 555.
It further appears in the finding that prior to April 21st the defendant's cashier, Sherwood, had been engaged in appropriating its funds to his personal uses, and especially on the preceding April 3d had so appropriated the sum of $6,000 to his own use as administrator on the estate of Burr Perry, which sum was never repaid, unless repaid by said transfer of the money so fraudulently obtained on April 21st. The defendant urges in argument, that if the deposit by Sherwood of this money on April 21st is to be regarded as a payment by him to the bank of his indebtedness for the same amount embezzled by him on April 3d, yet the defendant incurred no liability to the plaintiff through its acceptance of that payment, because Sherwood's knowledge of his own fraud could not be imputed to the defendant merely because he was its cashier, and, as Sherwood was the only officer of the bank having knowledge of the transaction, the defendant had no actual notice *Page 103 of the fraud. It is true that a corporation which accepts in good faith from its debtor the payment of his debt to it, is not chargeable with the debtor's knowledge that the money paid was fraudulently obtained by him in an independent transaction with a third party, even though the debtor is an agent of the corporation in matters unconnected with the fraud; but it is also true that it is chargeable with the knowledge of its agent when that knowledge comes to its agent (acting as its representative without its actual knowledge, though within the general scope of his authority) in the act of accepting on its behalf a benefit which it knowingly retains.
In the present case, treating the deposit as a personal payment made by Sherwood of his debt to the bank, then Sherwood, cashier, representing the defendant in a matter within the general scope of his authority, accepted on behalf of the defendant the money he had so fraudulently obtained, in satisfaction of a debt due from Sherwood, thief, to the defendant, and as cashier placed that money with the funds of the defendant, who has since retained it. If the defendant disclaims the acceptance by Sherwood, cashier, on its behalf, of this payment as unauthorized, then it necessarily disclaims any acceptance, innocent or not, of money paid it in discharge of a debt due from Sherwood, thief, and is in that case bound in equity and good conscience to pay over to the plaintiff money thus obtained and retained by it. On the other hand, if the defendant, by retaining and using the money thus placed in its treasury, affirms the act of Sherwood, cashier, in accepting on its behalf the payment of a debt due to it, then it necessarily assumes the knowledge with which its agent on its behalf did the act thus adopted as its own.
When an agent, acting in excess of his authority and without the knowledge of his principal, accepts on his principal's behalf money belonging to and fraudulently obtained from another with knowledge of the fraud, that principal, in treating this money as his own and retaining it as against the true owner, cannot claim as his own the *Page 104 act by which the money was accepted, without also admitting as his own the knowledge with which that act was done. He cannot receive the benefit of the fraud and reject the resulting duty. This rule is the outcome of an unquestionable rule of ethics, it expresses a truism fundamental to jurisprudence, which the courts must apply as occasion may arise. Bank of New Milford v. New Milford,36 Conn. 93, 101; Atlantic Bank v. Merchants Bank, 10 Gray 532; Atlantic Cotton Mills v. Indian OrchardMills, 147 Mass. 268, 272, 17 N.E. 496; People's Bank v.National Bank, 101 U.S. 181, 183; Aldrich v. ChemicalNational Bank, 176 id. 618, 633, 20 Sup. Ct. Rep. 498.
The defendant's counsel, however, seems to rely upon the claim that the defendant, as a matter of law, received no benefit from the fraud, because its cashier, by making false entries in its books, as detailed in the finding, attempted to conceal the embezzlement for his benefit as administrator on the estate of Burr Perry, of $6,000 of the defendant's funds on deposit April 3d, and to conceal his reimbursement of the defendant for the money so embezzled with the money obtained through his theft on April 21st; so that the books, thus fraudulently manipulated, appear to be consistent with the theory that Sherwood had on April 21st placed to the credit of the defendant $6,000, and immediately thereafter had withdrawn the same for his own use and benefit.
This claim seems to us to be without foundation. The real facts are shown by the acts of Sherwood in drawing the cashier's checks on April 3d, by the payment of which on the following day the funds of the bank were actually depleted to the extent of $6,000, and in making the deposit on April 21st, by which the funds of the bank were actually increased through the reception of $6,000 obtained as aforesaid. These facts are in no way altered by the fraudulent manipulation of the defendant's books, and their legal effect cannot be modified by any intention or purpose which may have been entertained by Sherwood, in embezzling the money of the bank for the payment of his own *Page 105 debt to the Perry estate, to so conduct the operation that the eventual loss should fall upon the plaintiff rather than the defendant. It is a sufficient answer to the defendant's claim to call attention to the fact, which is a necessary inference from all the facts found, that on April 21st Sherwood increased the funds of the defendant on deposit with the National Park Bank by the addition to those funds of $6,000, product of the bonds stolen that day from the plaintiff, and that Sherwood did not thereafter check out this money to pay his debt to the Perry estate, but this addition to the defendant's funds remained subject to the defendant's control, and unless used by the defendant in the course of its business passed to its receiver on May 19th, and was used by him in settling the affairs of the defendant.
The transaction, substantially as detailed, might well have been conducted by two persons instead of by one person acting in two different capacities. In that case Sherwood, cashier, without special authority from the bank, would receive and deposit to the bank's credit $6,000 paid him by one he knew made the payment to conceal the payor's embezzlement from the bank to that amount, with money practically stolen from the plaintiff. It would not be claimed that in such case the defendant could, after knowledge of the fraud, in equity or good conscience retain its product. But the moral duty of the defendant is the same, whether it receives the product of the fraud through the acts of two persons or of one person acting in two capacities.
The personal identity of the agent of the bank who accepts for it the product of a theft, with the embezzler of its funds who commits that theft in order to cover his embezzlement, does not affect, unless to emphasize, the essential equity. A practical rule for determining, in this and similar cases, the essential equity, that is, for testing the moral duty consequent to such a situation, has been well stated by the Massachusetts Supreme Court. "If the treasurer of a corporation is a defaulter, and his defalcation *Page 106 is as yet unknown and unsuspected, and he steals money from a third person and places it with the funds of the corporation in order to conceal and make good his defalcation, and the corporation uses the money as its own, no other officer knowing any of the facts, the corporation does not thereby acquire a good title to the money, as against the true owner, but the latter may maintain an action against the corporation to recover back the same."Atlantic Cotton Mills v. Indian Orchard Mills,147 Mass. 268, 276, 17 N.E. 496. The rule was applied in that case to a situation very similar to the one in this case, and was sanctioned and applied to somewhat similar situations inDitty v. Dominion National Bank, 75 F. 769, andAldrich v. Chemical National Bank, 176 U.S. 618, 633,634, 20 Sup. Ct. Rep. 498.
The plaintiff's right of recovery depends upon the money in question being, as between the town and the defendants, in equity and good conscience the money of the town. If for any reason the money is not now in good conscience the money of the town, as between the town and the defendants, the town cannot recover. Goddard v. Seymour,30 Conn. 394, 401.
The defendant urges that the real defendants are now the creditors of the bank represented by the receiver, and that as between them and the plaintiff the equitable right of the creditors should prevail against that of the plaintiff. The creditors are not in fact or in theory defendants in this case, and have no right, legal or equitable, to funds in the hands of the receiver which the receiver, as representing the bank, cannot lawfully retain. He cannot lawfully retain and appropriate to the use of the bank or its creditors money which in equity and good conscience belongs to the plaintiff.
Interest by way of damages for detention of the money should be computed from August 18th, 1903, the date of the plaintiff's demand. Selleck v. French, 1 Conn. 32, 33;Northrop v. Graves, 19 id. 548, 561.
The Superior Court is advised to render judgment that *Page 107 the plaintiff recover $6,000 damages, with interest on that sum from August 18th, 1903, and his costs.
Costs in this court will be taxed in favor of the plaintiff.
In this opinion the other judges concurred.