"Where the ground upon which the judgment was ordered, viz. the absence of any legal sanction to the act enjoined, has since been removed, by authorizing the doing of the act, this will present a prima facie case for the application of the rule."

The judgment of dismissal in the instant case remanded plaintiff to the State Industrial Commission for such relief as he might be entitled to. The commission made an award in his favor, and he has received since this award some $1,100. Under this award, he is entitled to approximately $2,500, in biweekly payments. The State Industrial Commission was without authority to herein determine the subject-matter of plaintiff's claim. Their adjudication is a nullity, and will be so declared at the instance of any party affected thereby. Matter of Doey v. Howland Co., supra. The insurance carrier is subject to the control of the insurance department, and cannot disburse its funds in payment of a void judgment. It is safe to assume that nothing more will be paid on that award, even though the plaintiff in this action were willing to accept it. If this judgment may not be opened, we have the anomaly of plaintiff's judgment being rendered null because based upon void statute, and the judgment against him, based upon the same statute, held to be binding and unimpeachable.

[3] The whole power of the court to relieve from judgment taken through mistake, inadvertence, surprise, or excusable neglect is not limited by section 724, of Code Civ. Proc., but, in the exercise of its control over its judgments, it may open them upon the application of any one for sufficient reason in the furtherance of justice. Ladd v. Stevenson, supra. It is a power exercised continuously and grows out of the control it has over its own records and judgments and the actions pending therein. There are so many occasions for its exercise that it should not be curtailed. Whether the power shall be exercised in any case rests in its discretion, with the exercise of which this court will not ordinarily interfere. The power must not be arbitrarily exercised, so as to deprive a party of a valuable right secured, but when the facts. exist, showing that the ends of justice may require its exercise, the Supreme Court must deal with its own records. Weston v. Citizens' National Bank, 88 App. Div. 337, 84 N. Y. Supp. 743. It is our boast that the common law is elastic enough to fit itself to new conditions and to progress pari passu with advancing civilization and our evergrowing humanitarianism. Drobner v. Peters, 184 N. Y. Supp. 337.

The solemnity of a judgment is upheld mainly upon the ground of its conclusiveness and that the successful party has earned and is entitled to his repose. In the instant case, that feature is eliminated for the judgment of dismissal is not a bar to the bringing of a new action (Code Civ. Proc. § 1209; Peterson v. Ocean El. Co., 214 N. Y. 43, 108 N. E. 199), and a court declining to entertain jurisdiction of an action leaves the parties where it found them.

The circumstances under which this application is made are most. unusual. It seems to me this court has the power in its discretion to vacate the judgment and restore the case to the calendar in furtherance of justice.

Motion granted.

(184 N.Y.S.)

(193 App. Div. 197)

ROCKY RIVER DEVELOPMENT CO. v. GERMAN-AMERICAN BREWING CO.

(Supreme Court, Appellate Division, Fourth Department. July 6, 1920.) 1. Corporations 428 (1) -Knowledge of agent ordinarily imputed to company, with exception.

Ordinarily knowledge on the part of an agent of a corporation imputes knowledge to the corporation because of the agent's duty of disclosure, except where the agent is engaged in transactions for his own benefit, hostile to the corporation, or for the benefit of some other person in a manner detrimental to the corporation, when the presumption of disclosure does not follow.

2. Corporations

401-Liable for funds of other company used to reduce mutual officer's overdrafts. Defendant corporation, whose president used funds of plaintiff corporation, of which he was treasurer, to reduce his overdrafts on the books of defendant corporation, held liable to plaintiff corporation for the amounts, with interest; the checks of plaintiff corporation, drawn by its treasurer, defendant's president, being sufficient to indicate the true situation that plaintiff corporation was not paying its own debts.

3. Corporations 426 (10)-Estopped to disclaim fraud of officer while retaining benefit.

Defendant corporation, whose notes held by a bank were paid by its president, plaintiff corporation's treasurer, with a draft purchased by the officer by a check drawn in the name of plaintiff on its account, held liable to plaintiff corporation on the theory that it had benefited by the fraudulent transaction of the mutual officer, and therefore could not disclaim the fraud and theft whereby he procured such unreturned benefit for it.

Action by the Rocky River Development Company against the German-American Brewing Company. Verdict in part directed for plaintiff, and both parties except; the exceptions, with motions for new trial, being ordered heard in the appellate division in the first instance. Defendant's exceptions overruled, its motion for new trial denied, and judgment directed for plaintiff, plaintiff's exceptions sustained, and its motion for new trial, respecting the item for which recovery was denied it, granted.

Argued before KRUSE, P. J., and LAMBERT, DE ANGELIS, HUBBS, and CLARK, JJ.

J. A. Magoffin, of Buffalo, for appellant-respondent.
James O. Moore, of Buffalo, for respondent-appellant.

LAMBERT, J. The plaintiff and defendant are, respectively, domestic corporations with their principal places of business in the city of Buffalo, N. Y. During the times involved in this controversy one John F. Nagle was the treasurer of the plaintiff and the president of the defendant, and the business of the plaintiff was transacted at the business office of the defendant. Since 1915 Nagle, as president of the defendant, completely dominated its affairs and had unquestioned control of the finances. Following the custom of his immediate predecessor in office, he made personal use of the funds of the defendant from For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

time to time. In each instance he charged the same to himself upon the records of the defendant corporation.

On May 9, 1917, Nagle, without any right or authority, drew a check in the name of the plaintiff, upon its account in the Bank of Buffalo, to the order of New York draft. A draft was issued to him on the Chemical National Bank of New York City, and was by him taken to the Citizens' Commercial Bank of Buffalo, N. Y., and delivered to the bank. Immediately thereafter he delivered to the Citizens' Commercial Bank, a check of the defendant for $25,000, and in return for the said draft and check, the bank delivered to him as paid and canceled, two certain notes of the defendant in the sum of $25,000 each, and which notes were at that time valid and outstanding obligations of the defendant. The canceled and paid notes were by Nagle returned to the office of the defendant and placed in its files, and he took credit upon his account with the defendant, for the amount of the New York draft.

On July 27, 1917, Nagle likewise drew a check in the name of the plaintiff, upon its funds on deposit in the Bank of Buffalo, for $10,000, which was payable by its terms to the defendant, and he delivered that check to one Reeb, a bookkeeper and acting treasurer of the defendant, who deposited it to the defendant's credit in the Bank of Buffalo. On August 3, 1917, Nagle drew a like check in the plaintiff's name upon its funds in the Bank of Buffalo for the sum of $15,000, likewise payable to the defendant, and this was by Nagle also delivered to Reeb, and by him deposited to the defendant's credit. On August 31, 1917, Nagle again drew plaintiff's check for $10,000 on the Bank of Buffalo, to the order of the defendant, and delivered the same to Reeb, who deposited the same to the defendant's credit in the Bank of Buffalo.

Nagle credited his indebtedness to the defendant, upon the records, by the amount of these several checks. Reeb testifies that he knew from the beginning that these checks, so drawn, were not given in payment or liquidation of any indebtedness owing by plaintiff to the defendant, and that he knew that Nagle's purpose was to reduce his overdrafts upon the records of the defendant company. These checks were all drawn without any authority from or knowledge by any other officer of the plaintiff, and were, so far as the plaintiff was concerned, drawn and cashed by the bank without its authority or consent.

This action is brought by the plaintiff against the defendant to recover the amount represented by these transactions, upon the theory that the circumstances involved were such as to charge the defendant with knowledge that Nagle was misappropriating its funds. Upon the trial, both parties moved for the direction of a verdict. The trial court thereupon directed a verdict for the plaintiff, for the sum of $38,790, representing an aggregate of the three several checks, with interest, and directed a verdict of no cause of action respecting the $25,000 transaction of May 9, 1917. The respective parties excepted to the appropriate provisions of such decision, and each made a motion for a new trial, and the exceptions so taken, together with the motions for a new trial, were ordered heard in this court in the first instance.

As to the direction of the verdict upon the July 27th, August 3d, and August 31st items, involving respectively the sums of $10,000, $15,000,

(184 N.Y.S.)

and $10,000, there is not, as it seems to me, serious question but that the direction of the court was legally justified. Even without the admissions of Reeb, as to his knowledge, the transactions upon their face indicated the unlawful diversion of funds, sufficiently at least to put the defendant to efficacious inquiry respecting the truth of the transaction and the resulting misappropriation, within the authority of Henry v. Allen, 151 N. Y. 1, 45 N. E. 355, 36 L. R. A. 658, Benedict v. Arnoux, 154 N. Y. 715, 49 N. E. 326, and Carlisle v. Norris, 215 N. Y. 400, 109 N. E. 564, Ann. Cas. 1917A, 429.

[1] In reaching this conclusion as to these items, it is not necessary to distinguish upon any theory of implied knowledge. It is true that ordinarily knowledge upon the part of an agent of a corporation imputes knowledge to the corporation, because of the duty of the agent to disclose information he possesses, pertinent to his agency. It is equally true that this rule has its exceptions in those instances where the agent is engaged in transactions for his own benefit and hostile to the benefit of his principal, or the benefit of some other person in a manner detrimental to his principal, and then the presumption of disclosure does not follow. Crooks v. Nat. Bank, 72 App. Div. 331, 76 N. Y. Supp. 92, 495; Carlisle v. Norris, supra.

As to these three items we do not have to refine as to the probability of Nagle having made any disclosure. The instruments themselves are sufficient to indicate the situation, and coupled with that circumstance are the admissions of Reeb, the acting treasurer of the defendant, of actual knowledge. A consultation with the records of the defendant would have disclosed that these checks were not given in payment of any indebtedness from the plaintiff to the defendant, and that they were used to apparently liquidate a debt of Nagle to the defendant. [2] In my judgment, the exception taken to the direction of a verdict as to these three several items should be overruled. The direction as to the $25,000 transaction of May 9th involves a premise of fact, unlike the situation respecting the three several items mentioned. In this instance, the negotiable instrument adopted by Nagle as a means of appropriating the plaintiff's money for the benefit of the defendant was used by him to procure a New York draft. The draft gave no indication that the plaintiff was in any wise involved in the transaction. The moneys, when paid, were not paid into the office of the defendant, but were paid to the Citizens' Commercial Bank, in liquidation of an obligation of the defendant. Obviously there was nothing in this transaction, in and of itself, indicating actual knowledge upon the part of the defendant or any of its officers, except its president, Nagle. In this situation the trial court concluded it was not an instance falling within the rule of constructive knowledge, for the reason that Nagle was at that time engaged in a scheme for his personal benefit; that it could not be said that any presumption could arise that he made disclosure of his fraudulent actions to the defendant. The trial court was of the opinion that there was no basis for the presumption that the defendant had actual or constructive notice, or notice putting it upon inquiry, respecting this transaction, and hence the plaintiff was not entitled to a judgment therefor.

[3] Upon the theory then urged as a basis of recovery, I think the court was right. There is, however, another line of cases well established, which in my judgment is applicable to the facts involved in the theft of the $25,000 by Nagle, the benefit of which the defendant had. The doctrine of these cases precludes a principal from denying knowledge possessed by its agent, where the transaction involved, has worked out to his material benefit. It is said that such a principal, even though ignorant and innocent, cannot receive the benefits of such a fraudulent transaction without adopting, as an incident thereto, the means used by the agent to produce the result. In this instance the defendant did benefit from this transaction. Its valid obligation of $25,000 was paid through a transaction which amounted to nothing less than a larceny. It cannot now, in my judgment, disclaim the fraud and theft by which Nagle procured this benefit for it and retain it. In concluding to retain it, it ratifies and adopts all of the methods he used to secure that benefit, irrespective of whether or not it had any knowledge or information upon the subject.

The leading case announcing this doctrine is Taylor v. Commercial Bank, 174 N. Y. 181, 66 N. E. 726, 62 L. R. A. 783, 95 Am. St. Rep. 564. The doctrine of this case is reaffirmed, as sound in morals, in the late case of Bloomquist v. Farson, 222 N. Y. 375, 118 N. E. 855. The principle decided in these cases, as it seems to me, is clearly applicable to the facts involved in the $25,000 item. It appears that Nagle, the chief executive officer of the defendant, by virtue of his position and relations with the plaintiff, misappropriated $25,000, and applied it for the benefit of the defendant in the payment of its note. It would be most unjust and inequitable to tolerate the retention of that benefit by the defendant, without requiring it to assume full responsibility for Nagle's act in securing it. Whether the defendant did or did not know, at the time of the transaction, the circumstances under which the money was obtained, seems to me of little consequence. Eventually it did know, and, knowing, chose to assume the right to retain the results of the transaction. The plainest doctrine of estoppel seems applicable. It follows that the defendant's exceptions should be overruled, its motion for a new trial denied, and judgment directed for the plaintiff in the sum of $38,790, with interest; that the plaintiff's exceptions should be sustained, and its motion for a new trial respecting the $25,000 item granted. All concur.