The rule is established that money paid to an agent by mistake may not be recovered from him if, before learning of the mistake, he pays it over to his principal.2 That this is thought to rest upon the ground of an irrevocable change of position by the agent is indicated by the existence of a correlative rule that payment over to his principal after notice of the plaintiff's claim for its return is no defense.3 But if the that the agent who has dealt as a principal cannot claim " that in paying the money over to a party, who in fact sustained the relation of principal to him, he had paid the money to the person to whom the plaintiff intended to pay it at the time when he made the payment to the defendant." 1 But the defendant can claim that he actually received the money as a mere agent, that he paid it over to the person to whom he was in duty bound to pay it, and that if he is compelled to pay again to the plaintiff the hardship will be just as great as in the case of an agent who deals as such. Professor Costigan suggests that the exception rests upon an implied warranty by the agent that he is and will remain a principal, and a consequent estoppel to set up a payment over.2 But he concedes that the courts have not expressly stated that there is a warranty of principalship, and no cases have been found in which an action for the breach of such a warranty has been maintained. The agent, it is true, may be sued on the contract which he has made; but that his obligation is solely upon the contract itself and as a party thereto, and not upon an implied warranty of principalship, is evidenced by the fact that a judgment against the undisclosed principal, though unsatisfied, leaves no remedy against the agent.3
1 See also Lawrence v. American Nat. Bank, 1873, 54 N. Y. 432, 436, (The defendant had discharged sureties but was nevertheless required to make restitution. The court said that the defendant could avoid its discharge of sureties on the ground of mistake and resort to them for so much as it was compelled to pay the plaintiff. "Hence it is not clear that the defendant will suffer any damage on account of plaintiff's mistake.").
2 Holland v. Russell, 1861, 1 Best & Sm. 424, aff. 4 Best & Sm. 14; Shand v. Grant, 1863, 15 C. B. N. S. 324; Hooper v. Robinson, 1878, 98 U. S. 528; Yarborough v. Wise, 1843, 5 Ala. 292; Maher v. Millers, 1878, 61 Ga. 556; 34 Am. Rep. 104; Granger v. Hathaway, 1869, 17 Mich. 500. See Martin v. Allen, 1907,125 Mo. App. 636; 103 S. W. 138.
3 Buller v. Harrison, 1777, Cowp. 565; Griffith v. Johnson's Admr., 1837, 2 Harr. (Del.) 177; Law v. Nunn, 1847, 3 Ga. 90, 93; McDonald agent's defense is really that of irrevocable change of position, why should he not be required to prove not only a payment over to his principal, but his inability, because of the principal's insolvency or for some other reason, to obtain reimbursement? A better reason for denying relief against the agent would seem to be that since a payment to an agent is in legal contemplation a payment to his principal, it is the principal and not the agent who benefits by the mistake. And if this be true, the agent certainly does no wrong in putting his principal into possession of the money even after the receipt of notice that a claim for restitution, equitable in its nature, has been made.
As a logical consequence of the distinction made by the courts between payment over before notice and payment over after notice, it is held that the mere act of crediting the amount received upon the principal account, before notice, will not protect the agent, for the account may easily be corrected,1 but the crediting of the amount to the principal, followed by a settlement of accounts between the principal and agent, before notice, is a defense, for such a settlement is equivalent to payment.2
To the rule that payment over by an agent before notice of the mistake is a defense, the case of a defendant agent who purports to deal as principal is said to constitute an exception.3 The reason for this exception is said by Professor Keener to be v. Napier, 1853, 14 Ga. 89, 96; Garland v. Salem Bank, 1812, 9 Mass. 408; 6 Am. Dec. 86; Jefts v. York, 1852, 10 Cush. (Mass.) 392, 396; O'Connor v. Clopton, 1882, 60 Miss. 349; Hearsey v. Pruyn, 1810, 7 Johns. (N. Y.) 179. See Elliott v. Swartwout, 1836, 10 Pet. (U. S.) 137, 154; Mowatt v. McLelan, 1828, 1 Wend. (N. Y.) 173.
1 Buller v. Harrison, 1777, Cowp. 565; Cox v. Prentice, 1815, 3 Maule & Sel. 344; Kerrison v. Glyn, Mills, Currie & Co., 1909, 26 T. L. R. 37; Deisch v. Wooten-Agee Co., 1910, 95 Ark. 279; 129 S. W. 819; LaFarge v. Kneeland, 1827, 7 Cow. (N. Y.) 455.
2 Holland v. Russell, 1861, 1 Best & Sm. 424, 434, aff. 1863, 4 Best & Sm. 14; Mowatt v. McLelan, 1828, 1 Wend. (N. Y.) 173.
3Newall v. Tomlinson, 1871, L. R. 6 C. P. 405; United States v. Pinover, 1880, 3 Fed. 305; Smith v. Kelley, 1880, 43 Mich. 390; 5 N. W. 437; Canal Bank v. Bank of Albany, 1841, 1 Hill (N. Y.) 287; Merchants' Bank v. Mclntyre, 1849, 2 Sandf. (N. Y. Superior Ct.) 431.