Foley v. Smith

ERROR to the Circuit Court for the Eastern District of Louisiana.

Mrs. Smith, the appellee, having sold to McHatton a plantation in the parish of East Baton Rouge, received from him notes for $70,000 of the purchase-money, secured by a mortgage on the property sold. One of these notes for the sum of $15,000 was placed by Mrs. Smith before due in the Bank of Kentucky for collection, and that bank forwarded it for the same purpose to the Citizens' Bank of New Orleans. The note was indorsed in blank by Mrs. Smith and by the Bank of Kentucky. Not being paid at maturity, it was duly protested, and in this condition remained in the Citizens' Bank for over seven months, when one McKnight, who had been acting as the agent of the Bank of Kentucky at New Orleans, took the note from the Citizens' Bank, and sold and delivered it for full value to Foley & Co. McKnight was supposed to have acted under a power of attorney from the Bank of Kentucky, which was not produced. He transferred the note by a public notarial act in writing, by which he professed to assign the note to Foley & Co., with all rights, remedies and mortgages to which the said Bank of Kentucky was or might be entitled as holder of the note, but without warranty on the part of said bank, except as to the existence of the debt represented by the notes.

When the other notes, falling due after the one above mentioned, had matured and were unpaid, Mrs. Smith instituted proceedings under the law of Louisiana to foreclose her mortgage; and under these proceedings the land was sold, and she became the purchaser. The sale did not bring enough to satisfy the remaining notes in her hands.

Foley & Co. intervened in these proceedings, and asked that the amount of the note which they held might first be paid to them out of the proceeds of the property sold. The court below dismissed their claim.

Mr. Miles Taylor, for Foley & Co., plaintiffs in error:

Mrs. Smith, by her own act, authorized and enabled the Bank of Kentucky to act as the owner of the note, without disclosing the fact that it was an agent; and in point of fact F. & Co. dealt with the bank in the character of a principal, and without having any reason whatever to suppose that it was not so in reality. Mrs. Smith is therefore liable, upon the principle, that of two innocent parties, the one shall suffer who, by his agent, causes the injury, and will in all such cases receive the least harm.

Mr. Durant, contra.

Mr. Justice MILLER delivered the opinion of the court.