Mutual Life Insurance Company of New York v. Herron

• Decision Date: 18 November 1901
• Citation: 30 So. 691,79 Miss. 381
• Court: Mississippi Supreme Court
• Parties: MUTUAL LIFE INSURANCE COMPANY OF NEW YORK v. RICHMOND D. HERRON

30 So. 691

79 Miss. 381

MUTUAL LIFE INSURANCE COMPANY OF NEW YORK v. RICHMOND D. HERRON

Supreme Court of Mississippi

November 18, 1901

October 1901

FROM the chancery court of first district, Hinds county. HON HENRY C. CONN, Chancellor.

Herron the appellee, was complainant in the court below; the insurance company, the appellant, was defendant there. The suit was an attachment in chancery. The court below decreed in favor of complainant, and the defendant insurance company appealed to the supreme court. The facts were as follows: An insurance solicitor, one Bradfield, appointed by Willcox, the general agent of the appellant for the state of Alabama, and one Leach, Bradfield's assistant, interviewed Matthew Clay, who resided in Noxubee county, this state, and Clay expressed a willingness to make application to appellant for a $ 10,000 life insurance policy on his life. Clay, however did not have the money ($ 322) with which to pay the first premium, but applied to Herron, and an arrangement was made between them, to which the solicitor assented, by which Herron was to advance the money, and the application was to be made to the company for a policy, of which seven-tenths was to be payable, on the death of Clay, to Herron, and the balance to Clay's children. Herron paid the $ 322 to Bradfield, the solicitor, and Clay's application was framed as had been agreed. Upon the payment of the money, the solicitor issued what is called in insurance parlance a "binding receipt" for said sum. It acknowledged the receipt of the money and, among other stipulations, provided that in case the application should be rejected the money would be returned upon surrender of the receipt. The receipt was to Matthew Clay, and of course the conditional obligation to return the money was to him; but there was indorsed at the foot of the instrument an acceptance in these words: "I accept the provisions of the above receipt," signed by Herron. Clay was made a defendant to the suit, and answered disclaiming all interest, and admitting Herron's right to the receipt. Bradfield, having so collected the first premium, did not send the application to his principal as one that had been paid upon in advance. This he should have done, and he should have sent the money along with the application. He did, however, send in the application as one upon which nothing had been paid in advance. The application was forwarded by Willcox to the company at New York in the same way, as one upon which nothing had been paid. Willcox was without knowledge of the payment, and acted in good faith upon the idea that payment had not been made.

Several weeks after Willcox had forwarded the application to the home office, he incidentally learned of the payment, when he promptly demanded, by letter, of Bradfield (who lived at a distance from him) that he pay the money to him, as he should have done when the application was sent to him. Willcox did not then learn of Herron's connection with the affair, and supposed the payment had been made by Clay. This demand was by letter, and it was repeated several times before any answer was received from the solicitor. In the meantime the company rejected the application for insurance, and Bradfield informed Willcox that he would at once refund the money to Clay, the appellant, Willcox being yet ignorant of Herron's connection with the matter. Shortly thereafter the solicitor informed Willcox that he had arranged the matter with the appellant, and Willcox regarded the transaction as closed until March, 1898, seven months after the issuance of the binding receipt, when he received a letter from an attorney representing Herron, demanding payment. In the meantime Willcox claimed to have made several settlements with Bradfield, and paid him money (how much does not appear) which he would not have paid had he been advised of the failure to return the money mentioned in the receipt, upon which this suit is based. The company itself had no knowledge of the affair, save only as Willcox's information charged it with notice. After the rejection of the application for insurance, Bradfield and Leach had an interview with Clay and Herron, and notified them of the rejection of the application. This was the whole of it so far as Clay was concerned. In respect to the interview with Herron, Bradfield and Leach executed and delivered, and Herron accepted from them, their promissory note for $ 322, the amount of the premium, due sixty days from its date, bearing eight per centum per annum interest. After accepting the note, Herron remained quiet during the sixty days until the note matured, and, when it was not paid on demand, he granted Bradfield and Leach a further extension of thirty days, and, during this further time, he did not give the insurance company or Willcox knowledge of the dereliction of Bradfield and Leach, and it was during this ninety days, the period of Herron's silence, that Willcox claims to have made settlements with Bradfield. At the end of the ninety days Herron, or his attorneys, began corresponding with the officers of the appellant, demanding payment. Herron testified that, when Bradfield and Leach came to see him, after the rejection of the application for insurance, they told him that they had spent the money and wanted him to wait until they could get it up before presenting the matter to the company; that, if he applied to the company then, it would get them into trouble, and they asked, as a personal favor, that the matter be held up for a while, to give them a chance to refund the money to him themselves, and that, thereupon, he took their note at sixty days, and afterwards extended the time for its payment for thirty days additional, but did not agree, nor did he intend, to release the company. Bradfield and Leach were and are insolvent.

Affirmed.

R. P. Thompson and McWillie & Thompson, for appellant.

Upon Herron's own version of the facts the decree appealed from is erroneous, and the court below should have dismissed the suit. He says that Bradfield and Leach informed him that they had used the money, and that it would place them in a bad attitude with the company if he demanded immediate payment, and asked him, as a personal favor to them, to give them sixty days in which to pay him, and to take their note for the sum. To this Herron assented, and he did accept their note, and remained quiet. Of course, Herron, by implication if not expressly, consented to suppress the fraud of the insurance solicitors. He afterwards extended the time to ninety days, and during the whole time was under obligation to keep quiet, and he did keep quiet. We have, therefore, a case in which a creditor dealing with the agent of his debtor, with full knowledge that the agent has perpetrated a fraud on his principal, used the very money which should have been paid to him, confederating with the unfaithful agent for the express purpose of enabling the agent to suppress his delinquency and keep from the principal knowledge of the default. Surely, when a creditor dealing with an agent of his debtor, with knowledge that he has been unfaithful to his principal, confederates with him to wrong the principal, such creditor places himself on a low moral plane and occupies a poor position to resist the application of rigid rules of law. He comes into court with unclean hands, at least, and in a court of conscience deserves but little commisseration.

The question before us is not one of novation in the ordinary, but is one in an exceptional sense. The law of agency is also involved. Meacham, in his work on Agency, sec. 699, in discussing the liability of an undisclosed principal, has this to say, which is decidedly applicable to this case: "But where the creditor, with knowledge of the principal's liability, sees fit to take the individual note of the agent, without taking, at the time of the transaction, any steps indicative of an intent to hold the principal, this is equivalent to a discharge of the principal as a matter of law. And the case is much stronger where, after the taking of the note and before any claim is made upon the principal, the latter had paid, credited or settled with the agent." Could anything be more directly in point? It does not weaken the application of the rule announced in the above quotation that the author is discussing the law of undisclosed principals. He is treating of the creditor's acts after the creation of a debt, and after knowledge that the party with whom he dealt is an agent of a disclosed principal. In other words, the author is treating of the acts of a creditor whose debt is in existence and who has been informed not only of the existence of a principal, but his identity as well. Again, in 16 Am. & Eng. Enc. L. (1st ed.), 881, we read, "Where a creditor takes the note of an agent, with knowledge of the liability of the principal, the debt is regarded as paid." Mind you, this is the announcement of a general rule, and would seem to cover cases in which the making of the note itself might be regarded as an act of agency. In the case now before the court there can be no pretense that the making of the note was the act of the principal. Its execution and acceptance were well known to both parties to be a departure from the agency and in hostility to the principal.

Could Herron have maintained an action against the insurance company after he accepted the note of Bradfield and Leach and before it matured? His suing the company before the note matured would have violated his obligation to the makers. Would a complainant in a court of conscience be granted relief upon a case his own statement of which showed that his suit involved a violation of his obligation, even to a third party? One thing is certain, if Herron could...