1919.] Opinion, per POUND, J. [225 N. Y.] employed by their agent Mitchell to retain Carver as a customer. First, did they authorize his misrepresentations by antecedent words or conduct? Were such misrepresentations within the scope of his employment? Mitchell's general instructions were just to get the money" without any instructions to ascertain where it came from. His duty was to conceal rather than disclose the names of customers. He had no authority from his firm to reveal them to the inquisitive. Doubtless he would have subjected himself to censure had he done SO. His legal duty did not require him to warn those who might be benefited by the knowledge that a partner, clerk or relative was losing heavily. Whatever moral obligation might exist, mere silence was not actionable. He was authorized to go to extremes and did - apart from the promise to Deyo - go to extremes in keeping from the knowledge of plaintiffs the facts that might lead to the closing of a profitable account. He was aided by his principals in keeping promises of secrecy made by him to Carver. That he was authorized in this connection to lie to the business and family connections of the patrons of his branch office is an inference without support in the evidence. The evidence reveals no such custom. The law implies none. His general authority to retain customers and conceal customers; his duty to retain them and keep confidential their dealings, did not imply authority to make false representations to Deyo that he would disclose to him any future operations on the part of Carver. He was not held out as having such authority. Such representations were not reasonably or necessarily incidental to what he was authorized to do. Deyo was chargeable with notice of the nature and extent of Mitchell's powers. He knew that Mitchell had no interest in the reputation of the law firm. He was bound to know the rule that requires one in dealing with an agent to ascertain the limits of his authority. Defend [225 N. Y.] Opinion, per POUND, J. [Feb., ants had no knowledge that such representations had been made. They were not made in defendants' name. Plaintiffs, having relied upon them without inquiry, may not transfer their loss to defendants without showing that defendants have assumed responsibility therefor. Secondly, did defendants, by their subsequent words and conduct, ratify the acts of their agent? It is urged that they have retained their commissions and have thereby taken advantage of a collateral fraud perpetrated without their authority and never knowingly assented to by them; perpetrated not for the purpose of making a sale but merely for the purpose of preventing outside interference with a customer and that they are thus made answerable for the remotest consequences of the fraud. The rule which makes the receipt and retention of the fruits of an agent's fraud involve an innocent principal in liability on account of it (Krumm v. Beach, 96 N. Y. 398) is not unqualified. It has been said that such a ruling applied to collateral contracts would be subversive of well-settled legal principles, and would open the door to illimitable frauds by brokers, factors, attorneys and others, clothed with limited powers and occupying strictly fiduciary relations. (Smith v. Tracy, 36 N. Y. 79, 85; Baldwin v. Burrows, 47 N. Y. 199.) A principal, in ignorance of the agent's 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, wholly 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. (Wheeler v. Northwestern Sleigh Co., 39 Fed. Rep. 347, 351; Foote v. Cotting, 195 Mass. 55, 61; 15 L. R. A. [N. S.] 693.) We would be carrying remedial liability beyond the logic of any reported case if we charged 1919.] Opinion, per POUND, J. [225 N. Y.] the defendants with responsibility for Mitchell's false promise. The peculiar doctrines of agency are not to be extended beyond the limitations of common sense. The distinction is not, however, always readily recognized and expressed between frauds of the agent which bind the principal and those which do not. "A party dealing with an agent is bound to inquire as to the extent of his authority; but he cannot always protect himself against his frauds." (Baldwin v. Burrows, supra, p. 215.) The rule is often broadly stated that where one of two innocent parties must suffer for the fraud of a third, he who furnishes to the third party the means by which he perpetrates the fraud and receives the benefit of it must bear the loss. If, on the facts of the whole case, the conduct of the defendants toward Mitchell shows by fair inference that the act of the agent in making the promise to Deyo with the preconceived purpose of breaking it was their act either by antecedent authorization or by ratification, and that defendants are, therefore, chargeable therewith on the axiom of agency, qui facit per alium, facit per se, the question still remains whether Mitchell's false promises were a proximate cause; a real, direct and immediate cause, of plaintiffs' misfortune. The existence of a valid right of action does not require that such wrongful conduct should be the sole cause of plaintiffs' loss; it is enough to show that it was an essential cause. But if plaintiffs' own conduct was the primary and substantial cause of their loss; if they had no right to rely exclusively upon the assurance of Mitchell when they might have prevented the loss themselves, they cannot recover. While it has been said that "negligence as a defense in cases of fraud has been in danger of being pushed too far" (Long v. Inhabitants of Athol, 196 Mass. 497, 505); while the courts in such cases teach the lesson of honesty rather than the lesson of care (Albany City Svgs. Instn. v. Burdick, 87 N. Y. 40; Western Mfg. Co. v. Cotton, 126 [225 N. Y.] Opinion, per POUND, J. [Feb., Ky. 749; Schumaker v. Mather, 133 N. Y. 590; Alexander v. Brogley, 63 N. J. L. 307); while, if the fraud is the basis of a mutual agreement, it may well be that the incautious should be protected rather than the wicked and that negligence should not bar relief from a willful fraud, yet these rules should not be extended to make principals responsible for the instrumentalities which their agent employs in their behalf when fraud and carelessness do not meet at the inception of a contract or the consummation of a sale; when negligence follows fraud and is a succeeding and independent rather than a concurrent cause of loss. The first cause of plaintiffs' loss was Carver's dishonesty. That a thief and gambler should reform after one easy lesson on the wickedness of amateur speculation on the stock market with the funds of clients is conceivable; that he may relapse is an existing danger. But his dishonesty alone would not defeat a recovery. (DeLaBere v. Pearson, 1907, 1 K. B. 483; affd., 1908, 1 K. B. 280.) Another efficient cause appears. Carver could not have stolen the money with which he resumed his operations if plaintiffs had not for two years kept him in their firm with unrestricted opportunities to indulge in his weakness. A third cause was the fraud of Mitchell. Mitchell knew that Carver was an unsuccessful gambler, but Deyo did not disclose that he had been a thief, and it is difficult to assume that Mitchell should have foreseen in November, 1910, that the natural result of secrecy as to future dealings would be to make him one. A stock speculator is not necessarily a dishonest person. Mitchell knew, however, as well as any one that stock gamblers are prone to go beyond their means and involve themselves and others in ruin, and that Carver was a ruined gamester. If Mitchell did not have a mind fatally bent on mischief, he at least was recklessly indifferent to the methods which his good customer might employ in obtaining money and we may infer that he was as indifferent in that regard when 1919.] Opinion, per POUND, J. [225 N. Y.] he lied to Deyo as when he took the money that Carver brought to him. A jury might say that his false representations contributed to plaintiffs' loss, but callous as he may have been, he was not its primary author. (Jex v. Straus, 122 N. Y. 293.) From plaintiffs the law exacted the duty of reasonable care after the false representations were made. It was not the natural result of Mitchell's promises that they should take the word of the gambler and defaulter and of the manager of the business that made profits out of all conditions of men, not excluding such as Carver, and use no further care for their own protection. By their easy confidence in Carver whom they knew, rather than in Mitchell who was comparatively a stranger, they facilitated rather than hindered their partner in his illegal operations. They should have been on their guard. They were not insured by Mitchell against loss. They had no reason to take as settled that Carver had become immune by one attack of the mania of speculation or that Mitchell would be governed by any fine sense of honor toward them. It was not as if Carver came to them as a stranger on defendants' recommendation. It was not their money which was jeopardized when they left it in unworthy hands. It was the money of clients to whom they owed a duty of more active vigilance than comes of mere reliance on promises such as these. Deyo know that Mitchell owed his allegiance to a concern with which the highly respected and trusted law firm had no community of interest. Means of knowledge of Carver's speculations were more open to Mitchell than to Deyo. Knowledge of Carver's embezzlements was open entirely to Deyo. The stealing rather than the speculation was the immediate cause of plaintiffs' loss and the wrong of Mitchell became injurious only in consequence of plaintiffs' own subsequent omissions. (Critten v. Chemical Nat. Bank, 171 N. Y. 219.) Plaintiffs' conduct was in a way commendable in the consideration |