Tagg v. Bowman , 108 Pa. 273 ( 1885 )

Mr. Justice Sterrett

delivered the opinion of the court, February 9th, 1885.

When this case was here on former writ of error the principles springing from the relation that existed between plaintiff and defendant, as principal and agent, were clearly stated in the opinion of this court, delivered by the present Chief Justice, wherein it is said, inter alia: “ By accepting the letter of attorney the defendant assumed the obligation and assented to the terms imposed on him. It thereby became Ms duty to collect the rents and pay over the same to the several persons in the order therein specified. His right to retain any portion thereof, or to apply it to the debt due himself was expressly limited to the interest on the latter. His power to collect was coupled with the specific trust prescribed in the same instrument. Having received the money under authority of the plaintiff for a specific purpose, he cannot apply it to the payment 'of a previous indebtedness. It cannot be thus diverted from its legitimate purpose: ” 3 Out., 376.

A proper application of these principles to the facts wMch the plaintiff’s testimony, on the last trial, tended strongly to establish, not,only required the submission of the case to the jury, but would have justified them in finding in favor of plaintiff for so much of the rent received by defendant-as was not applied by Mm in accordance with the terms of the letter of attorney under which' it was collected, with interest from date of suit.

It was practically conceded that from November 4th, 1878, to April 4th, 1879, inclusive, defendant collected $700, which by the express terms of the power of attorney he was bound to apply to payment of the following items in their order: 1st. Taxes and.water rent on the demised premises; 2d. Interest on. mortgage, $6,000, in favor of the Philadelphia Savings Fund Society; 3d. Interest and dues on mortgage, $2,500, held by the St. Andrews Building Association, and lastly, to interest on his own mortgage of $4,666.66. Without the consent of plaintiff, he had no right to apply a cent of it in any other way. The money collected by virtue of the power of attorney belonged to plaintiff, and, as it came into defendant’s hands from time to time, it was impressed with a trust in favor of plaintiff wMch required its application to the specified objects in their order. So long as there was anything due and payable on account of either of the three preferred objects he had no right to appropriate any of the money to the interest on his own mortgage. If he did it was a manifest breach of the trust under which it was received.

The testimony tended to prove not only that the sums due- and payable on the tlmee preferred classes of liabilities, specified in the power of attorney, exceeded the amount collected by defendant, but also that there was very little if any interest due him on his mortgage at .the time this suit was commenced. The interest on the latter to that date, May 29th, 1879, appears to have been $653.33, on account of which he had received $139.99 from plaintiff, and collected on testatum fi. fa. to Montgomery County $511, making in all $650.99. These and other subjects of inquiry, suggested by the testimony, were clearly for the consideration of the jury, and, if they had been permitted to pass upon the same, they might and probably would have found that defendant neglected and refused to apply the money received by him to the .objects specified in the power of attorney, and that he did so without any justification or excuse other than a desire and determination, on his part, to appropriate it to his own use. If these -facts had been found by the jury the plaintiff, under our former ruling, would have been entitled to recover, and defendant should have been denied the right of set off. It was never intended that our defalcation Act should be used as the means of rewarding perfidious conduct. Public policy forbids that its. provisions should be invoked for any such purpose.

Defalcation is a legal right, secured to a defendant who has demands against a plaintiff due in the same right, and payable when suit was commenced; but it may be waived by contract express or implied. • An agreement to waive the right, if founded on a good consideration, is undoubtedly binding. The receipt of money by one person from another, to be applied to a specific purpose, implies an agreement, on the part of the former, not to apply it to any other use, and of course not to bis own by pleading a set-off: Smuller v. The Union Canal Company, 1 Wr., 68; Bank v. Macalester, 9 Barr, 475; Ardesco Oil Co. v. North American Oil and Mining Co., 16 P. F. S. 375, 380. In Simpson v. Pinkerton, 10 W. N. C. 423, we held that an attorney at law or in fact employed to collect a claim, when he has received the money, has no right to set off an antecedent debt or claim of his own against his constituent, without first showing that the latter agreed he might retain his demand out of the money. It was also ruled, in Middletown and Harrisburg Turnpike Eoad v. Watson, 1 Bawle 330, that an agent of the company, who had received money to its use, could not in a suit against Mm set off debts of the company which he had paid without showing he had authority to pay them. It is there said.- “ As. long as the agent acts within the scope of Ms authority, and no longer, he is protected. It was the duty of Watson to collect and pay over the funds as they came into his hands. It was for the company to direct the application of the money, when in the treasury or under their control, to the discharge of their debts, the repair of the road, or whatever purposes they might suppose most beneficial to the corporation. This they have been prevented from doing by an assumption of power by their agent and a misapplication of tbe funds of the company. If such a breach of trust should be permitted it would, in practice, lead to great abuses by introducing a scene of speculation and fraud the most disastrous, and of the most secret and dangerous nature. A principal may give a special authority to his agent to settle and liquidate his debts; but previous to the introduction of such a defence to a suit brought for money had and received as agent, the special authority should be shown.” Other cases, bearing on the subject, might be cited, but it is unnecessary. The principle underlying all of them is, that an agent or' attorney who, by virtue of special authority, has received money cannot, when sued by his principal, set off a debt due to himself in a matter not arising out of Iris agency. By accepting the special trust he waives the general right of set-off. Moreover, the debts, not being due in the same right or capacity, lack that mutuality which is essential to the right of set-off.

The fact that the demised premises were sold by the sheriff about a month before this suit was brought has no bearing in favor of the position assumed by defendant. If he had applied the rent collected, as he was in duty bound to do, the incumbrances on the property, at the time of the sheriff’s sale, would have been reduced to that extent. Whether they were discharged by the sheriff’s sale or not is immaterial to tins issue. They were neither paid nor reduced by defendant. The money he received in special trust to be applied to their reduction, except the small sum of 119.55, was wrongfully retained by Mm and. is still in his possession, to the detriment of plaintiff.

It follows from what has been said that the learned judge erred in entering judgment of nonsuit.

Judgment reversed and a procedendo awarded.