Reider v. Arthur Andersen, LLP
In Reider v. Arthur Andersen, LLP, 47 Conn. Supp. 202, 209-10, 784 A.2d 464, 470 (2001), the liquidator claimed that the agents' conduct was designed exclusively to loot from the principal insurance company for their own personal financial gain. Monies due the principal for the policies it sold instead were directed to a corporate affiliate that the agents also controlled. From there, the agents were able to withdraw the money for their own private purposes, which were of no benefit to the principal. The court considered the principal to be the victim of the agents' alleged fraud.
The court stated that the principal was propped up artificially without sufficient assets so it could continue to attract new business and obtain new credit, the proceeds of which were collected by the agents. The court held that the principal could not be charged with fraud in connection with the acts of the agents since the interests of the agents were always adverse to the principal. Reider, 47 Conn. Supp. at 211-12, 784 A.2d at 470-71.
The Reider court noted three exceptions to rebut the general rule presuming that knowledge of the agent is imputed to the principal. The first exception is where the scope of the duty of the agent to report to the principal is strictly limited. Reider, 47 Conn. Supp. at 210, 784 A.2d at 470. The second and third exceptions involve the adverse-interest rule and fraudulent conduct committed by the agent.
Nevertheless, "when an agent, by his self-serving conduct, so abandons his principal's interests as to act adversely to those interests, or worse, to act in fraud of his principal, it can fairly be said 'that pro tanto, the agency really ceases.' " Reider, 47 Conn. Supp. at 210, 784 A.2d at 470, quoting Resnik, 100 Conn. at 910, 122 A. at 43.
Once the agency ceases, "'the principal is not bound by the acts or declarations of the agent unless it be proved that he had at the time actual notice of them, or having received notice of them, failed to disavow what was assumed to be said and done in his behalf.'" Reider, 47 Conn. Supp. at 210-11, 784 A.2d at 470, quoting Resnik, 100 Conn. At 43-44, 122 A. at 910. Consequently, a party who knowingly receives and retains a benefit from a transaction that is tainted from fraud cannot later claim that benefit and disavow knowledge of the fraud. Conversely, a party who receives no benefit from the transaction cannot be charged with knowledge of the fraud. Reider, 47 Conn. Supp. at 210, 784 A.2d at 470.
Reider v. Arthur Andersen, LLP, 47 Conn. Supp. 202, 209-10, 784 A.2d 464, 470 (2001), explains the logic of the adverse interest exception:
"The general rule is based on the presumption that an agent will be loyal to his principal, and thus will faithfully report to the principal whatever he learns 'while acting for his principal and in reference to a matter in the course of his agency.' The principal is thus charged with his agent's knowledge because it is presumed that the principal will actually receive and have the benefit of the agent's knowledge contemporaneously with the agent's actions. The 'adverse interest exception' suspends the operation of the general rule when 'the circumstances are such as to raise a clear presumption that the agent will not perform his duty,' and thus that the principal will not in fact receive and have the benefit of the agent's knowledge." Reider, 47 Conn. Supp. at 209-10, 784 A.2d at 470.