Nat'l Shawmut Bank of Boston v. Fid. Mut. Life Ins. Co.

• Decision Date: 18 April 1945
• Citation: 61 N.E.2d 18,318 Mass. 142
• Parties: NATIONAL SHAWMUT BANK OF BOSTON v. FIDELITY MUT. LIFE INS. CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

318 Mass. 142

61 N.E.2d 18

NATIONAL SHAWMUT BANK OF BOSTON

v.FIDELITY MUT. LIFE INS. CO.

Supreme Judicial Court of Massachusetts, Suffolk.

April 18, 1945.

Report from Superior Court, Suffolk County; R. H. Beaudreau, Judge.

Action by the National Shawmut Bank of Boston against the Fidelity Mutual Life Insurance Company to recover a sum of money. The judge made no decision, but reported the case.

Judgment for plaintiff in accordance with opinion.

Before FIELD, C. J., and LUMMUS, QUA, and SPALDING, JJ.

R. G. Dodge and H. S. Davis, both of Boston, for plaintiff.

F. H. Nash and B. Aldrich, both of Boston, for defendant.

LUMMUS, Justice.

In this case we must decide which of the innocent parties must bear a loss caused by the forgery and fraud of one Meissel, an insurance broker in the city of New York. The facts appear in a case stated. The judge made no decision, but reported the case under G.L.(Ter.Ed.) c. 231, § 111.

One Schneierson held life insurance policies on his own life in the defendant company and in five other life insurance companies. Evidently Meissel had the custody of the policies or at least access to them. On July 15, 1942, Meissel sent to the defendant the policy issued by it, together with an application for a loan of $2,520 upon the security of the policy, and a policy loan agreement, both purporting to be signed by Schneierson. In fact the signatures had been forged by Meissel. On July 17, 1942, the loan was completed, and the defendant in Philadelphia sent through its New York office to Meissel in New York its check on a Philadelphia bank for $2,520 payable to Schneierson. Instead of delivering the check to Schneierson, Meissel forged Schneierson's name by way of indorsement on the check, collected it, and kept the proceeds.

By a similar forgery Meissel obtained a check for a similar policy loan in the name of Schneierson from each of the five other companies already mentioned, upon the security of a policy owned by Schneierson which had been issued by the lending company, forged Schneierson's name by way of indorsement upon the check, and collected and kept the proceeds. The aggregate of the loans so negotiated and of the checks so obtained from the defendant and the other five companies was about $25,000. In March, 1943, Meissel formed a desire to replace the several loans from the six insurance companies by a single loan at a lower rate of interest.

Acting ostensibly on behalf of Schneierson, Meissel engaged Faber and Company, a reputable firm of note brokers in the city of New York, which had often dealt with the plaintiff, to replace the loans with a single loan. Faber & Company offered the plaintiff an opportunity to lend Schneierson $25,500 on the security of his policies in the defendant and the other five insurance companies already mentioned. After some negotiation, the plaintiff received from Faber & Company an application for such a loan purporting to bear the signature of Schneierson, which really was forged by Meissel. Meissel had furnished Faber & Company with $2,000, which Faber & Company transmitted to the plaintiff by check in connection with that application. The application contained the following: ‘From the proceeds of my loan plus the accompanying check in the amount of $2,000, kindly pay to the insurance companies an amount sufficient, as stated by them, to liquidate any outstanding indebtedness against these policies and account to me for any balance.’

The plaintiff received from Faber & Company a promissory note for $25,500, and also an assignment as collateral security therefor of the policy issued by the defendant to Schneierson. Both purported to be signed by Schneierson, but the signatures were forged by Meissel. By similar transactions the plaintiff received similar assignments, likewise forged, as collateral security for the same note, of the policies issued by the five other insurance companies already mentioned.

The plaintiff, having on hand the $2,000 plus $25,114.66, the net proceeds of the note after discounting it, paid to the defendant on April 2, 1943, the sum of $2,627.69 (the amount claimed by the defendant to be due), in discharge of the defendant's prior supposed lien upon the policy. The defendant cancelled its claim upon the policy, and sent the policy and its original loan agreement to the plaintiff. The plaintiff paid to the other five insurance companies in the aggregate the sum of $24,289.70 which was the amount of their loans, taken together, The plaintiff had a balance remaining of $197.27, which it paid by its check payable to Schneierson. Meissel obtained that check, forged an indorsement purporting to be that of Schneierson upon it, and collected and kept the proceeds.

It was not until about November 24, 1943, that either the plaintiff or the defendant discovered Meissel's forgeries and frauds. Until that time both parties had faith in the signatures that purported to be those of Schneierson. Both acted in good faith and without negligence.

On March 2, 1944, the plaintiff demanded from the defendant repayment of the sum of $2,627.69 which the plaintiff had paid in discharge of the prior supposed lien of the defendant upon Schneierson's policy in the defendant company.

It is fairly to be inferred from the case stated that Schneierson, who in truth borrowed nothing and received none of the proceeds of the loans, has received back his policies or is entitled to receive them. The liability to the defendant of the bank that in July, 1942, paid to Meissel the check of the defendant for $2,520 payable to Schneierson upon an indorsement forged by Meissel is not before us. Jordan Marsh Co. v. National Shawmut Bank, 201 Mass. 397, 405, 87 N.E. 740, 22 L.R.A.,N.S., 250. United Security Life Ins. & Trust Co. v. Central National Bank, 185 Pa. 586, 40 A. 97.

The plaintiff cannot recover on the theory of an implied warranty by the defendant of the genuineness of its lien upon the policy. By analogy to a sale of chattels, an assignor of a chose in action has been held to warrant by implication the genuineness of his claim. Williston, Contracts (Rev.Ed.1936) §§ 445, 1162, 1162A; Am.Law Inst. Restatement: Restitution, §§ 15-24. Compare Sears v. Leland, 145 Mass. 277, 14 N.E. 111. But in the present case the defendant was not a vendor or an assignor. Its title, whether good or bad, never passed to the plaintiff. It never even made a demand upon the plaintiff for payment. It merely suffered the plaintiff to pay off what both believed to be a valid prior lien, which the plaintiff desired to discharge for its own purposes. Ketchum v. Stevens, President of Bank of Commerce, 19 N.Y. 499;Appenzellar v. McCall, 150 Misc. 897, 270 N.Y.S. 748.

The case must be approached from the standpoint of unjust enrichment. The basic principle is stated in Am.Law Inst. Restatement: Restitution, § 1, in these words: ‘A person who has been unjustly enriched at the expense of another is required to make restitution to the other.’ See also Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 272, 273, 17 N.E. 496,9 Am.St.Rep. 698;Hill v. Wiley, 295 Mass. 396, 400, 3 N.E.2d 1015;Jones v. Swift, 300 Mass. 177, 185, 15 N.E.2d 274;General Exchange Ins. Corporation v. Driscoll, 315 Mass. 360, 365, 52 N.E.2d 970. That statement of principle does not carry us far, for the word ‘unjustly’ remains to be defined or explained. In comment c to that section it is said, ‘Even where a person has received a benefit from another, he is liable to pay therefor only if the circumstances of its receipt or retention are such that, as between the two persons, it is unjust for him to retain it.’ A common instance in which restitution is ordered is where money is paid under a mistake of fact, commonly as in the present case under a mutual mistake of fact. In Town of Brookline v. Crane Construction Co., 285 Mass. 558, 562, 189 N.E. 795, 796, this court said, ‘It has been held that ordinarily where payments were made under a mutual mistake of fact and no negligence is shown in not discovering the error before the payments are made an action will lie for their recovery.’ In this case the payment was made to the defendant because both parties were mistaken in thinking that the defendant held a valid prior lien upon the policy, and negligence is expressly negatived by the case stated.

In Williston, Contracts (Rev.Ed.1936), § 1574, which lays down a somewhat similar rule, it is said: ‘But if, in spite of even a mutual mistake, and a failure of the exact consideration expected, it nevertheless seems to the court that the defendant has such moral right to what he received as to make recovery inequitable, it will be denied. Where A, under a mistaken belief in his liability to B, on direction of the latter pays C a claim which C has against B, A cannot recover the payment from C. If the payment was voluntarily and intentionally paid by A to C to satisfy the latter's claim against B, and C had a genuine claim against B, it seems clear that no recovery should be allowed. C is a purchaser of the money for value and in good faith,’ it being assumed that taking money in payment of an antecedent debt is a taking for value. See also Am.Law Inst. Restatement: Restitution, § 14, to the effect that restitution will not be ordered against an innocent defendant who has given value for the benefit received. See also Jones v. Swift, 300 Mass. 177, 185, 15 N.E.2d 274. In Ketchum v. Stevens, President of Bank of Commerce, 19 N.Y. 499, a swindler had borrowed from the defendant bank on the security of corporate stock. The plaintiff, at the request of the swindler, paid the defendnat off, and by order of the swindler obtained the stock from the defendant. The stock turned out to be spurious and invalid. It was held that the plaintiff could not recover from the defendant. In Merchants' Ins. Co. v. Abbott, 131 Mass. 397, the plaintiff insurers were not liable for a loss because, unknown to them, Abbott,...