Opinion
36933.
DECIDED JANUARY 24, 1958. ADHERED TO ON REHEARING FEBRUARY 20, 1958.
Action on notes. Bibb Civil Court. Before Judge Butler. September 21, 1957.
Frank C. Jones, Jones, Sparks, Benton Cork, for plaintiff in error.
Smith, Field, Doremus Ringel, Alex W. Smith, as amicus curiae.
William C. Turpin, Maurice C. Thomas, contra.
Premiums on insurance policies must be paid in money or its equivalent. For an agent of an insurance company to accept notes or other media of payment, without the consent of the insurance company represented, is fraud and against public policy.
DECIDED JANUARY 24, 1958 — ADHERED TO ON REHEARING FEBRUARY 20, 1958.
On April 2, 1957, the Citizens Southern National Bank, hereinafter called the plaintiff, filed an action against Willie Johnson, hereinafter called the defendant, in the Civil Court of Bibb County. The petition alleged that the defendant is indebted to the plaintiff in the sum of $274, plus interest from September 28, 1956, at eight percent upon four certain promissory notes, all dated September 28, 1956, and maturing on January 25, 1957, March 25, 1957, April 25, 1957, and May 25, 1957; that a copy of the last of said notes is attached and by reference made a part of the petition, the other three notes being identical except as to the date of maturity, and in that the name of the company and the policy number appear only on the last note; that default was made in the payment of the notes due on January 25th and March 25th so that the holder has declared the entire indebtedness due as provided in said notes; that said notes were payable to the order of Morgan Morgan Insurance Agency and were duly transferred and assigned to the plaintiff by indorsement prior to the maturity of said notes so that the plaintiff is the bona fide holder for value of said notes, and that said notes are long past due and no part thereof has been paid.
On May 13, 1957, the defendant filed an answer, admitting the execution of the four promissory notes described in the petition; admitting that the copy of the last note attached to the petition was a true and correct copy, admitting that the four notes sued upon had not been paid, and admitting that payment had been demanded by or in behalf of the plaintiff. The defendant denied, however, that he was indebted to the plaintiff in any amount, and further alleged:
"6. Further answering, defendant shows that on or about September 28, 1956, he applied to Morgan Morgan Insurance Agency for a policy of public liability and property damage insurance covering certain vehicles owned by him. The said Morgan Morgan Insurance Agency, as broker or agent for Canal Insurance Company of Greenville, South Carolina, did cause the said Canal Insurance Company to issue its policy No. 319621 in the name of `Willie Johnson and Celton Pitts', effective on September 30, 1956, for a period of one year. The total premium for said policy of insurance was $730.80. Defendant made a down payment thereon of $182.70, leaving a balance owing of $548.10. At the instance of the said Morgan Morgan Insurance Agency, the defendant executed a total of eight notes in the approximate amount of $68.50 each and payable at intervals of approximately one month, beginning on or about October 25, 1956.
"7. Defendant is advised and believes that said notes were thereupon transferred and assigned by the said Morgan Morgan Insurance Agency to plaintiff. Defendant has paid four of said notes, totaling $274, to plaintiff.
"8. Unknown to defendant, the relation between Morgan Morgan Insurance Agency and Canal Insurance Company was this: The balance of $548.10 owed on this policy was reflected on the books of Canal Insurance Company simply as an open account against its said agent or broker; this was to be paid, according to custom, in nine monthly instalments of $60.90 each, beginning October 25, 1956; only three of these payments, totaling $182.70, were actually made by the said Morgan Morgan Insurance Agency to the said Canal Insurance Company; Canal Insurance Company had no knowledge whatsoever that its agent or broker was obtaining notes from defendant or from any other insured, and had no knowledge that any such notes were being transferred or assigned to plaintiff, and the said Canal Insurance Company would not have given its consent or agreement to any such scheme.
"9. Because the said Morgan Morgan Insurance Agency failed to pay to Canal Insurance Company the monthly instalments due on January 25, 1956 and thereafter, Canal Insurance Company canceled said policy of insurance effective as of March 23, 1957. No coverage has been afforded to defendant under said policy since that date. Defendant has received no return of premium on said policy.
"10. Plaintiff had actual or constructive notice of all the facts set forth herein.
"11. By reason of the above facts there has been a partial failure of consideration and defendant is not indebted either to Morgan Morgan Insurance Agency or to the plaintiff in any amount whatsoever.
"12. Defendant further avers that plaintiff is not a holder in due course of the instruments sued on and, in addition, that said instruments are non-negotiable. Plaintiff is a mere assignee or transferree of said notes."
The plaintiff filed general and special demurrers to the defendant's answer, contending that the answer set forth no defense to the suit and should be stricken. The defendant filed an amendment to his answer as follows:
"13. In procuring an application for insurance from defendant and in thereafter issuing the above described policy to him the said Morgan Morgan Insurance Agency was purporting to act solely as an agent or broker for Canal Insurance Company (hereinafter referred to as Canal). Morgan Morgan Insurance Agency was not an insurer and did not at any time act or purport to act as such. Defendant executed the notes sued on at the instance of Morgan Morgan Insurance Agency believing that Morgan Morgan Insurance Agency was authorized by Canal to accept said notes in payment of the premium balance.
"14. To the contrary, Morgan Morgan Insurance Agency had not been authorized to take notes payable to itself for the premium or any part thereof and Canal was totally unaware that this practice was being followed. As hereinabove set forth Canal did not receive from Morgan Morgan Insurance Agency the proceeds of said notes after they were transferred to plaintiff and Morgan Morgan Insurance Agency never at any time informed Canal either that notes had been taken or thereafter transferred and never rendered to Canal any accounting thereof.
"15. Plaintiff, by and through its vice-president, Ralph Eubanks, knew at the time the notes herein sued on were transferred to it that Morgan Morgan Insurance Agency was not an insurer, that said notes were for the balance due as premium on an insurance policy to be issued by Canal, and that Canal and not Morgan Morgan Insurance Agency was entitled to receive this balance, less commission due Morgan Morgan Insurance Agency. The plaintiff also knew or should have known at said time that Morgan Morgan Insurance Agency had no authority from Canal to take notes with Morgan Morgan Insurance Agency as payee and no authority to transfer these to plaintiff and that the money or credit plaintiff advanced to Morgan Morgan Insurance Agency when said notes were transferred was not the property of Morgan Morgan Insurance Agency.
"16. The normal banking practice and generally accepted method of financing insurance premiums, as plaintiff well knew at said time, was for a bank to notify the insurer and to receive an acknowledgment and confirmation from the insurer before advancing any funds to the insured or to the insurer's agent. This was the practice generally followed by plaintiff itself at said time.
"17. Plaintiff had for many years financed for Morgan Morgan Insurance Agency the `Conditional Acceptance Premium Notes,' such as the ones herein sued on. Plaintiff would never notify any insurance company involved and plaintiff would rarely have any contact with any maker, most of said payments being by mail. If a maker defaulted in the payment of any note plaintiff would simply notify Morgan Morgan Insurance Agency thereof and Morgan Morgan Insurance Agency would make this good. Plaintiff never at any time attempted to collect an overdue payment from a maker but dealt with and looked solely to Morgan Morgan Insurance Agency.
"18. Under the circumstances above set forth plaintiff was under a duty either to notify Canal Insurance Company prior to discounting said notes or otherwise to inquire into Morgan Morgan Insurance Agency's authority. Plaintiff had knowledge of such facts as to give it reasonable ground to believe that Morgan Morgan Insurance Agency was converting the proceeds of notes being discounted and was not accounting therefore to Canal and plaintiff acted at its peril in making payment direct to Morgan Morgan Insurance Agency under these circumstances. J. E. Morgan, the sole owner of Morgan Morgan Insurance Agency, was insolvent at the time these notes were transferred and this was known or should have been known by plaintiff.
"19. By reason of the facts and circumstances set forth above plaintiff is not a holder in due course of the notes sued on but is a mere assignee or transferee of and stands in the place of Morgan Morgan Insurance Agency, and because of the failure of consideration herein set forth is not entitled to recover from defendant."
The plaintiff filed renewed and additional general and special demurrers to the amended answer, contending that the amended answer set forth no defense at law or in equity and should be stricken. The court sustained the general demurrers to the defendant's answer as amended, striking such answer, but gave the defendant ten days in which to amend. The special demurrers were not passed upon. The defendant did not file another amended answer within the time allowed. the court entered a second order sustaining the plaintiff's general demurrer to the answer and struck the answer. Subsequently, a judgment by default was entered in favor of the plaintiff against the defendant for the full amount for which suit was brought, together with interest and notes.
Error is assigned on the judgment sustaining the general demurrer to the answer and on the judgment of default.
It will be noted that the plaintiff sues on the notes here involved as a bona fide holder for value before maturity. Defendant contends that the plaintiff is not a bona fide holder for value before maturity and, therefore, is not entitled to recover.
The agreement between the defendant (insured and maker) and the Morgan Morgan Insurance Agency (payee and indorser) is set forth in the face of each of the "conditional acceptance premium notes" sued on.
This agreement provides expressly and by necessary implication the following: (a) The notes are "tendered" to the payee, Morgan Morgan Insurance Agency "by the maker or makers under the following agreement"; (b) The maker tenders these notes "in settlement of certain premiums `. . .' covering . . . insurance policy or policies issued to the maker by Morgan, etc."; (c) "If any of these notes are not paid when due . . . Morgan Morgan Insurance Agency reserves the right to declare all unpaid notes due and immediately cancel all policies in connection with which these notes are given in settlement of premiums"; (d) "All unearned premiums by reason of any such cancellation shall be the property of Morgan"; (e) "Failure to pay this note . . . shall at the option of Morgan Morgan Insurance Agency, constitute a request for cancellation on the customary short-rate basis"; (f) Implicit in the foregoing express agreements is the obligation of Morgan Morgan Insurance Agency to pay the full premium or premiums to the Insurance Company or Companies "covering . . . insurance policy or policies issued to the maker by Morgan, etc."
Otherwise, there could never be any unearned premium in the hands of the insurer in the event of a cancellation as contemplated and provided for in the agreement above quoted.
Furthermore, the notes are entitled on their face as being "Conditional Acceptance Premium Notes". This can mean nothing more or less than that the note is acceptable as a premium note, subject to the conditions therein expressed. As such they are non-negotiable and the bank acquires no greater rights in the transfer of the notes to it by Morgan Morgan Insurance Agency than are given to Morgan Morgan Insurance Agency under the notes themselves.
Morgan Morgan Insurance Agency did not pay the premiums to the involved insurance company and there was a failure of consideration and to that extent the bank, as transferee, is not entitled to recover.
Code § 14-201 reads: "An instrument to be negotiable must conform to the following requirements: (1) It must be in writing and signed by the maker or drawer; (2) It must contain an unconditional promise or order to pay a sum certain in money, provided that a promissory note may be made payable in cotton or other articles of value; (3) It must be payable on demand or at a fixed or determinable future time; (4) It must be payable to order or to bearer; and, (5) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty."
Almost the entire argument of the plaintiff is that the notes are negotiable because the notes contain, above all other things, a promise to pay a sum in money and all other things expressed in the notes or concerning the notes are, as to the defendant, surplusage and not binding on the defendant. According to our way of seeing the issue, it is immaterial whether or not the words "promise to pay a sum certain in money at a certain time" are in the notes. We might concede that the plaintiff is correct in this regard. However, the controlling question here is whether or not the facts of which the plaintiff had notice, such as the taking of the notes from the defendant and allegations of facts connected thereto (shown throughout the transaction) indicate that the procuring of the notes by Morgan Morgan Insurance Agency and the giving of the notes by the defendant was against public policy. These things the plaintiff knew, according to the pleadings in the case. The alleged facts appear in the pleadings and admitted by demurrer show that Morgan Morgan Insurance Agency represented the Canal Insurance Company of Greenville, South Carolina and without any authority or knowledge of the Canal Insurance Company, Morgan Morgan Insurance Agency proposed to finance the premiums on certain policies for the defendant. This was undertaken and handled in the series of conditional acceptance notes. These notes were sold, transferred and assigned by Morgan Morgan Insurance Agency to the plaintiff. The plaintiff, in purchasing these notes, was fully advised by the notes themselves, as one source, that this financing transaction between Morgan Morgan Insurance Agency was not as agents for the Canal Insurance Company but in Morgan Morgan Insurance Agent's own right, on behalf of an agent of the defendant insured. In Ramspeck v. Pattillo, 104 Ga. 772, 775 ( 30 S.E. 962, 42 L.R.A. 197, 69 Am. St. R. 197) the Supreme Court said: "1. An agent of a fire-insurance company, authorized to contract for insurance in its behalf, can not, without the company's consent, become in his individual character the agent of a property-owner who desires to obtain insurance in that company. . . [p. 775] The law will not permit an agent to assume such conflicting duties, and declares that such contracts are against public policy. `An agent can not make a valid contract where in the same transaction, he acts as agent for both parties.' . . `It is not competent for one to employ an insurance agent to effect an insurance or renewal in the agent's own company. He can not take the agency of one wishing to insure, without the consent of his principal. To be agent for both parties to a contract is to undertake inconsistent duties, and such a mutual agency requires the consent of both principals to the mutuality of the agency.' . . Contracts which are opposed to open, upright, and fair dealing are opposed to public policy. . . He commits a fraud on his principals in undertaking, without their assent or knowledge, to act as their mutual agent, because he conceals from them an essential fact entirely within his own knowledge, which he was bound, in the exercise of good faith, to disclose to them." The Supreme Court in Napier v. Adams, 166 Ga. 403 ( 143 S.E. 566) cites with approval Ramspeck v. Pattillo, supra; Phoenix Insurance Co. v. Hamilton, 110 Ga. 14, 17 ( 35 S.E. 305); Sessions v. Payne, 113 Ga. 955, 956 ( 39 S.E. 325); Manis v. Pruden, 145 Ga. 239 ( 88 S.E. 967); Murphy Hardware Co. v. Rhode Island Insurance Co., 153 Ga. 273 ( 111 S.E. 808); Reserve Loan c. Co. v. Phillips, 156 Ga. 372, 377 ( 119 S.E. 315), and amplifies the illegality of dual agency situations and reiterates that contracts resulting therefrom are against public policy and are fraudulent and void. The decision in Napier v. Adams, supra, was emphatic on this point. Throughout the case the court expressed this principle but we quote only a part regarding this decision on this principle of law: "An agent can not use his best skill and judgment to promote the interest of his employer where he acts for two persons whose interests are essentially adverse. Such a situation places the agent under a temptation to deal unjustly with one or both of his principals. Walker v. Osgood, 98 Mass. 348 (93 Am. D. 168). He thus commits a fraud on his principals in undertaking, without their consent or knowledge, to to act as their mutual agent. . . Such conduct is a palpable fraud upon his principal."
In Hoffman v. John Hancock Mutual Life Insurance Co., 92 U.S. 161 ( 23 L. ed. 539), the United States Supreme Court said: "An agreement between the agent of an insurance company and an applicant for insurance, whereby the former, without authority from the company, accepted, by way of satisfaction of a premium payable in money, articles of personal property, is a fraud upon the company, and no valid contract against it arises therefrom. . . . Life insurance is a cash business. Its disbursements are all in money, and its receipts must necessarily be in the same medium. This is the universal usage and rule of all such companies. . . The exercise of such a power [taking personal property for his commissions on insurance premiums] by the agent was liable to two objections, — it was ultra vires, and it was a fraud as respects the company. Hoffman must have known that neither Goodwin nor Thayer had any authority to enter into such an arrangement, and he was a party to the fraud." This court has cited Hoffman v. John Hancock Mutual Life Insurance Co., supra, in two cases, i.e. New Jersey Insurance Co. of Newark v. Rowell, 33 Ga. App. 552, 554 ( 126 S.E. 892) and American Insurance Co. of Newark v. Seminole County Board of Education, 51 Ga. App. 808 ( 181 S.E. 783). In those cases the court said in substance that premiums must be paid in money or its equivalent.
In view of what we have said hereinabove and authorities therefor, the court erred in sustaining the demurrer to the amended answer.
Judgment reversed. Townsend and Carlisle, JJ., concur.