1919.] Statement of case. [225 N. Y.] 3. Where a principal, in ignorance of his agent's wholly collateral fraud, retains what appears to be the legitimate proceeds of a transaction, that is not enough to bind him as by a ratification. If a principal authorizes his agent to make a sale and the agent, on his own responsibility, aids a buyer in embezzling the purchase money or in swindling some one out of it, the mere receipt and retention. of the money by the principal in ignorance of such wrongful acts may not bind him to repay the proceeds of the theft. 4. The plaintiffs are a law firm practicing in a city in which the defendants, stockbrokers, have a branch office in charge of an agent as manager. A junior member of this law firm opened an account in defendants' branch office and speculated on margins, losing money belonging to the plaintiffs and their clients. He confessed to the senior member of his firm and his peculations were made good. After that the senior member of plaintiffs' firm interviewed the manager of the defendants' branch office and told him that they were considering retaining the junior partner in their firm but would not if he continued to speculate in defendants' office, and asked defendants' agent to let them know if the junior partner came back to do any more trading, which defendants' manager promised to do. Thereafter the manager not only failed to inform the plaintiffs that the junior partner was trading in defendants' office but effectively aided him in concealing the fact, and on one occasion positively assured the senior partner of plaintiffs that the junior partner had not resumed trading. Plaintiffs sue to recover from defendants the loss that they have sustained by the junior partner's defalcations. Upon examination of the record it appears that there is no evidence that defendants authorized their agent to make false representations to plaintiffs or that he was held out as having such authority, or that it was within the scope of his employment, and there is no evidence that, by subsequent words or conduct, the defendants ratified his acts. 5. The bounds of legal liability are the reasonable and probable consequences of a breach of duty. If the broken false promise of a stockbroker's agent to give a law firm notice if a member of such firm, previously dishonest through stock speculation, resumes trading with the branch office where he lost the money he embezzled may be regarded as the act of the principals, the principals are not liable when the proximate cause of future stealings by such partner from the firm clients is the subsequent negligence of the law firm in failing to exercise reasonable care to prevent further defaleations. Deyo v. Hudson, 174 App. Div. 746, reversed. (Argued February 3, 1919; decided February 25, 1919.) [225 N. Y.] Points of counsel. [Feb., APPEAL from a judgment, entered December 6, 1916, upon an order of the Appellate Division of the Supreme Court in the third judicial department, reversing a judgment in favor of defendants entered upon a dismissal of the complaint by the court at a Trial Term after certain questions had been specially submitted to the jury and directing judgment in favor of plaintiffs on the answers thereto. The nature of the action and the facts, so far as material, are stated in the opinion. Nathan L. Miller and John Godfrey Saxe for appellants. Carver's thefts were the proximate cause of plaintiffs' liability to its clients. (Lowery v. Western Union Tel. Co., 60 N. Y. 198; Laidlaw v. Sage, 158 N. Y. 73; Hall v. N. Y. Telephone Co., 214 N. Y. 49; Jex v. Straus, 122 N. Y. 293; Hoffman v. King, 160 N. Y. 618; Ryan v. N. Y. C. R. R. Co., 35 N. Y. 209.) The plaintiffs were a contributing cause of their own losses in their deliberate action in failing to disclose Carver's embezzlements to Mitchell or the defendants. (Dezell v. Odell, 3 Hill, 215; Armour v. Michigan Central R. R. Co., 65 N. Y. 111; Royce v. Watrous, 73 N. Y. 597; Trustees v. Smith, 118 N. Y. 634; Mattes v. Frankel, 157 N. Y. 603; Howe Machine Co. v. Farrington, 82 N. Y. 121; U. S. Life Insurance Co. v. Salmon, 157 N. Y. 682; 91 Hun, 535; Damon v. Surety Co., 161 App. Div. 875; Bank of Monongahela Valley v. Weston, 159 N. Y. 201; Albany City Savings Inst. v. Burdick, 87 N. Y. 40; Wilcox v. Am. Tel. Co., 176 N. Y. 115.) The plaintiffs, as a matter of law, had no right to rely on anything Mitchell said; and there is no legal evidence that they did so rely. (Kinkead's Law of Torts, § 725; Cowen v. Simpson, 1 Espinasse, 290; Starr v. Bennett, 5 Hill, 303; Dambmann v. Schulting, 75 N. Y. 55; Zagarino v. Kurzrok, 135 App. Div. 763; Creamer v. Peshkin, 81 Misc. Rep. 167; Sanborn v. Lefferts, 58 N. Y. 179; Auspacher v. Pfeiffer, 13 1919.] Points of counsel. [225 N. Y.] N. Y. Supp. 418; Martin v. Clark, 19 App. Div. 496.) Mitchell was not guilty of actionable deceit; nor are defendants responsible for his actions in dealing with a stranger. (Reed v. Clark C. G. Co., 47 Hun, 410; Gallager v. Brunel, 6 Cow. 346; Gray v. Palmer, 2 Robt. 500; 41 N. Y. 620; Lexow v. Julian, 21 Hun, 577; 86 N. Y. 638; Taylor v. Commercial Bank, 174 N. Y. 181; 175 N. Y. 464; 68 App. Div. 458; Wilson v. Meyer, 154 App. Div. 300, 302; Field v. Seibert Bearing Co., 179 App. Div. 780; Dambmann v. Shulting, 75 N. Y. 55; American Credit Co. v. Wimphfeimer, 14 App. Div. 498; Zagarino v. Kurzrok, 135 App. Div. 763.) Harvey D. Hinman for respondents. The unanimous decision of the Appellate Division precludes the defendants from raising in this court any question based upon the sufficiency of the evidence to sustain the verdict. (Code Civ. Pro. § 191, subd. 3; Szuchy v. Hillside C. & I. Co., 150 N. Y. 219; People ex rel. Manhattan R. Co. v. Barker, 152 N. Y. 417; Meserole v. Hoyt, 161 N. Y. 59; City of Niagara Falls v. N. Y. C. & H. R. R. R. Co., 168 N. Y. 610; Marden v. Dorthy, 160 N. Y. 39; Reed v. McCord, 160 N. Y. 330; Cronin v. Lord, 161 N. Y. 90; Kennedy v. Mineola H. & F. Traction Co., 178 N. Y. 508; Le Gendre v. Scottish U. & N. Ins. Co., 183 N. Y. 392; Tyndall v. N. Y. C. & H. R. R. R. Co., 213 N. Y. 691.) The retention of Carver by plaintiffs in their firm was the proximate cause of the loss and damage which the plaintiffs sustained and the defendants are liable for such damage because it was through their misrepresentations that Carver was retained in the firm. (Ehrgott v. Mayor, 96 N. Y. 264; M. & S. P. Co. v. Kellogg, 94 U. S. 469; Bird v. St. Paul F. & M. Ins. Co., 224 N. Y. 47; Ehrgott v. Mayor, etc., 96 N. Y. 264, 282; Guille v. Swan, 19 Johns. 381; Gibney v. State, 137 N. Y. 1; Sharon v. Mosher, 17 Barb. 518; Vandenburgh v. [225 N. Y.] Opinion, per POUND, J. [Feb., Truax, 4 Denio, 464.) Mitchell's declaration to Deyo that he would inform Deyo in case Carver came back to trade in defendants' office, was not only a promise, it was a misrepresentation as well. (Ottinger v. Bennett, 144 App. Div. 525.) The plaintiffs had the right to rely on what Mitchell said, and the defendants are responsible for Mitchell's misrepresentations, because Mitchell in making such misrepresentations was acting within the scope of his authority. (Green v. Des Garets, 210 N. Y. 79; Krumm v. Beach, 96 N. Y. 398; Fishkill Savings Inst. v. National Bank, 80 N. Y. 162; N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30.) POUND, J. This is an action to recover damages for deceit. Many of the material facts are in dispute and plaintiffs' version alone is stated. The plaintiffs, with William B. Carver, were law partners in Binghamton. Defendants are stockbrokers. Their principal office is at No. 36 Wall st., New York, but they have branch offices in Binghamton and other cities. Their business is extensive. They have memberships in the New York Stock Exchange and other desirable connections. The law firm looked after estate matters and trust funds and attended to investments for clients. Many securities were intrusted to them on which they collected the interest, received payments of principal and made reinvestments. In August, 1910, Carver confessed to Deyo that he had, since the preceding March, been speculating on margins in the stock market through defendants' Binghamton office and had stolen and lost more than $20,000 of their clients' money. Carver had a high standing in the community and passed as eminently respectable. He then closed his account with defendants and his peculations were made good. Plaintiffs had to decide what to do with him. To drop him from the firm might cause a scandal and their feeling toward him seems to have been sorrow 1919.] Opinion, per POUND, J. [225 N. Y.] rather than indignation. Deyo in this connection, about November 1, 1910, interviewed Mitchell, the manager of defendants' Binghamton office. Mitchell regarded Carver as a good customer, one of a chosen dozen about there, and had in March written to his firm that: "Our new customer, W. B. Carver, will make a good trader and pay big commissions if he gets away right; he expressed great faith in Mr. Hudson's opinion; have looked him up and find that his father left him a lot of money, and that he has a large law practice." Deyo testified that "I said to Mr. Mitchell that 'my junior partner has been speculating here in your office; he has lost every dollar he had; he has stripped himself completely; he has lost what he had over here. As a member of our firm he has to do with a great many trust funds; we are handling a great deal of money and securities for clients, and our clients would not trust us, and very properly, if they understood that any member of our firm, or any man connected with the office was engaged in that line of business; and that Col. Hitchcock and myself are considering the matter of retaining him in the firm; we will not retain him in the firm or permit him to be connected with the office if he engages in that sort of business.' I said to him that Carver had promised that he would not, which was true. I told him that Carver was a valuable man in some ways in the office; that he was a very accurate man and very painstaking man and that he could carn a living there, but I didn't know where he could earn a living elsewhere. And that question was up, that Col. Hitchcock and I were discussing as to whether we should retain him in the firm or not, and said, 'What I want you to do, I want you to let me know if he comes back here to do any more trading on your board.' In speaking about handling trust funds or funds belonging to estates, Mitchell replied, 'Oh, that is all right,' He said 'We never take on a customer on a |