2 Gushing V. Rice, 46 Me. 303; Perkins c. Evans, 61 Iowa, 35; White

V. Owen, 12 Vt. 361.

* Boston V. Simmons, 150 Mass. 401; Mayor i*. Lever, 1891, 1 Q. B.

168.

224 PRINCirAL AND TIIIKD l^VUTY.

against the tliird person, since the agent is guilty of two

wrongs : first, for his l)reach of trust as agent ; and second,

for the consuniniated consj)iracy with the third person to

injure the })hiintiff.^ If a contract has hcen made where the

agent was in collusion with the third jjci'son, the i)rinci{)al

may repudiate it- and recover damages either in tort or

assumpsit.^ So where the third person knows that the agent

Is committing a fraud on his princii)al, he becomes a party to

the fraud by contracting witli such knowledge, and the con-

tract may be avoided by the principal/*

В§ 176. luterference with agency.

The third person is liable to the principal for unlawfully

Interfering with the agent or the agency. He is liable if he

unlawfully injures the agent, and thereby renders him unfit

to perform the duties of the agency;^ or if he unlawfully

Interferes with the agent in the performance of the duties of

the agency.*^ He is also, liable for unlawfully inducing the

agent to break his contract of employment with the principal,^

though some cases hold that he is liable only where he has

used unlawful means, as force, threats, or fraud.^ Whether

the act of the third person in inducing the breach can ever be

justified, and if so on what grounds, seems not to be decided.

The doctrine has become much broader in its application than

inducing breach of contracts of employment, and extends to

breach of contract generally.'* Whctlior there is any remedy

1 Mayor v. Lever, supra ; Keator v. St. John, 42 Fed. Rep. 585.

^ Smith V. Sorby, 3 Q. R. D. 552 n.; Panama, &c. Co. v. India Rubber

Co., L. R. 10 Ch. App. 515; Miller v. R. R. Co., 83 Ala. 274.

3 City of Findlay v. Pertz, 60 Fed. Rep. 427; Gluspie r. Keator, 56

Fed. Rep. 203.

* Hegenmyer v. Mark.s, 37 IMinn. 6.

6 Ames r. Union Ry. Co., 117 Mass. 541; Daniel v. Swearengen, 6 S.

C. 297 ; po.В«f, В§ 296.

6 St. Johnsbury, &o. R. Co. v. Hunt, 55 Vt. 570.

в– ? Lumley v. Gye, 2 El. & Bl. 216; Walker v. Cronin, 107 Mass. 555;

Haskins v. Royster, 70 N. C. 601. Bigelow on Torts (7th ed.), §§ 216, 247.

8 Rourlier v. Macauley, 91 Ky. 135.

В» See Temperton v. Rus.scll, 1893, 1 Q. B. 715; Angle v. Chicago, &c.

Ry., 151 U. S. 1 ; post, В§ 298.

LIABILITY OF THIRD PARTY. 225

for inducing by persuasion the termination of a contract

terminable at will, is in dispute.^

If the principal brings an action for the loss of the services

of his agent occasioned by a negligent injury at the hands of

a third party, it seems that the contributory negligence of the

agent would be a bar to his recovery, though the principal is

personally free from blame.^

4. Trust Obligations.

В§ 177. Constructive trusts.

Constructive trusts arise where one person has obtained

money or property which does not equitably belong to him

and which does equitably belong to another. Although the

one so obtaining the property of another has never expressly

or impliedly undertaken to hold it as trustee, yet equity

fastens upon him the character of a trustee and compels

him to account to the beneficial owner as such.-^ The trust

so " constructed " by equity is analogous to the contract " con-

structed " by the common, law in cases of quasi-contract.

В§ 173. Following trust funds.

If an agent has come into the possession of property or

funds which are impressed with a trust in favor of his

principal, the principal may follow such property or funds,

or the proceeds of such property, so long as they can be

identified, or until they reach the hands of a bona fide pur-

chaser for value.* And if they become so commingled with

the property or funds of the agent that identification is im-

possible, the entire mass will be subject to a charge in favor

of the principal to the amount of the trust fund.'^

1 Ante, § 159; post. §§ 298-290.

2 Chicago, B. & Q. R. r. Honey, 63 Fed. Rep. 39.

^ 2 Pomeroy's Eq. Jurisp. В§ 1047.

4 Roca V. Byrne, 145 N. Y. 182; Peak v. Ellicott, 30 Ivans. 156; Van

Alen y. Am. Nat. Bk., 52 N. Y. 1 ; Nat. Bk. v. Ins. Co., 104 U. S. 54;

:McLeod V. Evans, 66 Wis. 401; Knatclibull v. Ilallett. L. R. 13 Ch. Div.

696.

5 Peak V. Ellicott, 30 Kans. 156; Frith i--. Cartland, 34 L. J. Ch. 301;

Broadbent v. Barlow, 3 DeG. F. & J. 570.

15

226 Pl'JNCII'AL AND THIRD PARTY.

In accordance with (his ixcneral doctrine, it is lield that

if a third person obtains from an agent tlie property of the

principal nnder cii-cumstanccs which give the third i)erson

no equitahle claim to it, equity will fasten upon the property

a trust for the benefit of the principal, and '■'• will follow the

fund through any number of transmutations and preserve

it for the owner as long as it can be identified," ^ or until

it passes into the hands of a bona fide purchaser for value.

It is not necessary that the trustee should be guilty of an

intent to defraud the principal ; he may intend no moral

wrong, yet if he comes into the possession of the property

with notice of the principal's rights, or as a volunteer not

taking for value, he is declared to hold in trust for the prin-

cipal.^ It is only where the superior equity of a bona fide

purchaser for value intervenes, or where the doctrine of

estoppel can be invoked, that the right of the principal to

pursue the trust fund is cut off.^ It is under the application

of this doctrine that banks are not allowed a banker's lien or

right of set-off against funds deposited by the agent where

the bank knows that the funds l)elong to the principal ; * that

attaching creditors of the agent are not allowed to reach the

fund so deposited ;^ and that a donee of the fund, or of prop-

erty purchased with it, is declared to l)o a trustee for the

lienefit of the jjrincipal.'' So also neither the assignee in bank-

ruptcy of an agent, nor the creditors of the agent, can claim, as

against the principal, any money or property entrusted by the

princi])al to the agent.''

In order that the right to follow the fund should exist it

is necessary that it be a fund to which title was in the prin-

cipal before the diversion. Where an agent fraudulently

1 Farmers', &c. Bank r. King, 57 Pa. St. 202.

2 2 Pomeroy's Eq. Jurisp. В§ 1048.

8 Anfe, §§ 169-171.

* National Bank v. Tns. Co., 104 U. S. 54; Baker v. New York N. B.,

100 N. Y. 31 ; Union, &c. Bk. v. Gillespie, 137 U. S. 411.

^ Farmers', &c. Bk. v. King, supra.

* Riehl c. Evansville F'oundry Ass'n, 10 1 Ind. 70.

'' Scott V. Surman, Willea, 400; Taylor v. Plunier, 3 M. & S. 562; Ex

pane Cooke, 4 Ch. Div. 123; Harris v. Truman, 9 Q. B. D. 264.

LTAIilLTTY OF THIRD PARTY. 227

took commissions from third persons and then invested the

fund so received, it was held that the principal could not

follow the fund into the investments, since it was not a fund

previously helonging to him, but a debt due him from the

agent for which an action for money had and received was

an appropriate remedy.^ It is further necessary that the

fiduciary relationship of principal and agent should be estab-

lished. If the relation is any other, as vendor and vendee,

the fund is that of the independent operator and cannot be

followed.^

В§ 179. Legal remedies for diversion of trust fund.

The doctrine of following trust funds is a peculiarly equit-

able one, and it has been held that the only remedy in such

cases is in equity .^ But owing to the peculiarities of the

history of equity jurisdiction in some of the States, legal

remedies based on equitable principles are available.* In

such jurisdictions actions for money had and received may

be maintained by the principal against third parties into

whose hands the fund has passed. And if the principal's

money has been converted to the use of the third party, it

may be followed until it reaches the hands of a bona fide

holder for value, and recovered in an action as for money

had and received.^

1 Lister v. Stubbs, L. R. 45 Ch. Div. 1.

2 Ex parte White, L. R. 6 Ch. App. 397; ante, В§ 3.

8 Xational Bank v. Ins. Co., 104 U. S. 54.

4 Frazier v. Erie Bank, 8 Watts & Serg. (Pa.) 18; Shaffer y. Mont,

gomery, 05 Pa. St. 329; Frue v. Loring, 120 Mass. 507.

6 Keener on Quasi-Cont., pp. 183-188.

PART IV.

LEGAL EFFECT OF THE RELATION AS BETWEEN THE

AGENT AND THIRD PARTIES.

В§ 180. Introduction.

We must once more, and for the last time, shift our point

of vicsv. We have now to consider the mutual rights and

obligations that may spring up between the agent and the

third party in consequence of the manner in which the agent

conducts himself toward the third party or the third party

toward the agent. Obviously it is not the purpose of the

agent or the third party to create obligations as between

themselves, and yet through carelessness, ignorance, mistake,

or fraud this may result. We will consider the subject

under two heads: (1) mutual rights and obligations arising

from contract; (2) mutual rights and obligations arising

from tort.

LIABILITY IN CONTRACT. 229

CHAPTER XV.

CONTRACT RELATIONS BETWEEN AGENT AND THIRD PARTY.

В§ 181. Questions to be considered.

Where an agent outers into a contract on behalf of his

principal, he may bind the principal, or himself, or both,

or neither; but different rules govern the liability of pub-

lic agents. Where an agent has money equitably belonging

to a third person but which he assumes to hold for his princi-

pal, he may be liable to the third person in quasi-contract.

On the other hand, an agent who is under obligations to the

third party may have rights commensurate with his obli-

gations. This chapter deals therefore with the following

topics : —

1. Where the principal alone is bound by the contract.

2. Where the agent alone is bound by the contract.

3. Where both principal and agent are bound by the

contract.

4. Where neither principal nor agent is bound by the

contract.

5. Special rules applicable to public agents as to liability

upon contract.

6. Liability of agent in quasi-contract.

T. Liability of the third person to the agent upon the

contract.

1. Where the Principal alone is hound.

В§ 182. Authorized contract.

Where the agent acts within the apparent scope of his

authority for a disclosed principal, and contracts in the

name of that principal, the latter alone is bound by the

230 AGENT AND THIRD PARTY.

contract.^ So where a principal, with full knowledge of the

facts, ratifies an unauthorized contract made in his name and

on his behalf, the principal alone is bound by the contract.^

Whether a written contract is made in the name of the

principal, or in the name of the agent, is a matter of

construction.^

Whether a verbal contract was made in tlie name of the

principal, and on his behalf, is a question of fact for the

jury>