Exchange Bank v. Nebraska Underwriters Insurance

Duffie, C. Action by the plaintiff on three policies of insurance issued by the defendant. Judgment for the plaintiff, and defendant appeals. The facts are practically undisputed. One Frank 'Langloss was the owner of a restaurant in the town of Wilcox, and procured two of the policies in question upon his stock and fixtures. He sold his business to Long & Jackson, and assigned to them the two policies. Long & Jackson took out a third policy upon the stock and fixtures, and after-wards sold the business to Hall & Hartley, to whom the three policies were transferred. One Charles W. Lam-born, residing at Wilcox, was a recording agent for the defendant company, and issued these three policies and approved the several transfers made. When Hall & Hartley purchased the restaurant, they borrowed $667.95 from the plaintiff bank and executed a bill of sale upon all the property covered by the insurance as security therefor. This was about the middle of May, 1906. The insured property was destroyed by fire July 18,1906. It is alleged in the plaintiff’s petition that the three policies of insurance were verbally assigned to the bank as additional security for the loan made at the date of said loan. Lam-born, the agent of defendant company, was also assistant cashier of the plaintiff bank, and it quite clearly appears that the policies were left either in his possession or in the possession of the bank from the time of their issue. About the 20th of July one Lynde, an adjuster for the defendant, visited Wilcox for the purpose of securing information concerning the loss, and called upon Lamborn, who, as — 112 — before stated, was assistant cashier of the bank. Lamborn produced the policies for Lynde’s inspection, and among them Lynde discovered the bill of sale. Each of the policies contained conditions making it void “if the interest of the insured be other than unconditional and sole ownership, or if the subject of insurance be personal property, and be or become incumbered by a chattel mortgage, or if any change other than by the death of the insured takes place in the interest, title or possession of the subject of insurance, whether by legal process of judgment, or by voluntary act of insured, or otherwise, or if the property above mentioned (meaning the property insured) be or shall be thereafter mortgaged or otherwise incumbered.” On discovering that Hall & Hartley had executed a bill of sale covering the insured property to the bank by way of security, Lynde informed Lamborn- and the insured that its effect was to Amid the policies, and he took no further steps in the matter until lie had prepared a writing and secured the signature of Hall & Hartley to the effect that any steps which he might then take should be regarded as an effort to ascertain the amount of the loss and report the same to his company, and that his action was without reference to any other question or matter of difference within the terms and conditions of the several policies. On the 2d of August, 1906, Lynde returned to Wilcox, and proof of loss was made in the name of Hall & Hartley and verified before Lamborn as notary public. The proof of loss does not disclose any interest claimed by the bank in the policies. Lynde at all times, as he claims, denied any liability on the part of the company, but offered to pay Hall & Hartley $200 in settlement of their claim, telling them that he would prefer to give them this amount rather than undergo the expense of a suit, which be estimated Avould cost them about the same sum. Not being able to effect a settlement during the day, Lynde went to the hotel and retired about 8 P. M., as he wished to take an early train in the morning, and about 9 o’clock Hall & Hartley called upon — 113 — him and proposed to settle for $250, which proposition was accepted and the amount paid by a draft drawn by Lynde upon his company. This amount was paid by Lynde without any knowledge, as he asserts, that the bank claimed any interest in the policies, although the evidence is somewhat conflicting upon that point. He knew that the policies were in possession of the bank, but Hartley testified that they were there for the purpose of settlement, and Lynde says he understood that they were left at the bank for that purpose. Lamborn does not in terms deny this, but on his direct examination says: “Well, he (Lynde) asked me as agent what I knew about the loss, and I told him I had the policies there, and Hall & Hartley owed the bank money, and we had a bill of sale which had never been recorded; that it was a personal matter, and stated the case as fully and completely as I knew.” On his cross-examination he said: “I told Mr. Lynde that Hall & Hartley had left the policies there with me for settlement. Q. You didn’t tell him at any time that the policies were assigned after the fire? A. Yes; no written assignment; just a verbal agreement between Hall & Hartley. Q. I understood you to say on direct examination that the policies were left there for adjustment by you. Now, which will you have it? A. Well, I don’t remember of saying adjustment any more than settlement. Settlement is what they were left there for. Q. Now, that is what you told Mr, Lynde, is it? A. Yes, sir. Q. And this conversation occurred after the fire? A. Yes, sir.” It is conceded that the defendant company had no actual notice of the bill of sale made by Hall & Hartley to the bank until after the fire, and the principal dispute arises upon the effect that should be given to the knowledge of Lamborn, the agent of the defendant company, and who, at the same time, was the assistant cashier of the bank. The plaintiff asserts that knowledge of the agent, who, it is conceded, was present when the bill of — 114 — sale was made, and had knowledge of all the facts, is notice to the defendant company; while the defendant asserts with equal vigor that knowledge of Lamborn cannot be imputed to the company, as his interest as an employee and officer of the bank was adverse to the interest of the defendant company. As a general rule the knowledge of an agent is imputed to his principal. In Kennedy v. Green, 3 Myl. & K. (Eng.) *699, Lord Brougham gave as a reason for the rule “that policy, and the safety of the public, forbids a person to deny knowledge while he is so dealing as to keep himself ignorant, * * * and yet all the while let his agent know, and himself, perhaps, profit by that knowledge.” The same reason, framed in different language, is given by Church, C. J., in National Life Ins., Co. v. Minch, 53 N. Y. 144: “The rule which charges the principal with what the agent knows is for the protection of innocent third persons.” Like most other legal rules, this one has its exceptions, and one of the exceptions is that a corporation is not chargeable with the knowledge nor bound by the acts of one of its officers in a matter in which he acts in behalf of his own interest, and deals with the corporation as a private individual, and in no way representing it in the transaction. Koehler v. Dodge, 31 Neb. 328; Buffalo County Nat. Bank v. Sharpe, 40 Neb. 123. Another exception to the rule is recognized in Houghton & Co. v. Todd,, 58 Neb. 360, where it is said: “The rule whereby an agent’s knowledge is imputed to his principal is subject to an exception in the case.of an agent who is engaged in an independent fraudulent scheme without the scope of the agency.” We think it may be regarded as well established that where an agent’s duty to his principal is opposed to or even remotely conflicts with his own interest, or the interest of another party for whom he acts, the law will not permit him to act, nor will it hold his acts or his knowledge gained in such transaction obligatory upon his principal. That the execution of the bill of sale rendered void — 115 — policies conditioned as are those in question was held in Farmers & Merchants Ins. Co. v. Jensen, 56 Neb. 285, and in Home Fire Ins. Co. v. Collins, 61 Neb. 198. To the same effect are Johansen v. Home Fire Ins. Co., 54 Neb. 548, and Seal v. Farmers & Merchants Ins. Co., 59 Neb. 253. In this condition of the case it is evident that unless the knowledge of Lamborn may be imputed to the company, and a waiver of the conditions of the policies implied from such knowledge, then the plaintiff’s action must fail. The bank must be charged with knowledge of the conditions of the policies prohibiting a transfer of title of the property insured. It knew that in accepting the bill of sale the policies were made void, unless the company was notified and consented thereto. It was the duty of the bank to inform the company that it was about to take this security and to obtain its assent. To keep ‘secret the proceeding and to attempt to collect the policies would be a fraud upon the company. A like duty was cast upon Lamborn, the agent of the company, but it appears that the adverse interest cast upon him as an officer of the bank kept him silent, and that same adverse interest creates an exception in the application, of the general rule of law imputing knowledge and notice of the agent to his principal. We do not wish to be understood as charging either the bank or Lamborn with, a scheme to defraud the insurance company. At the time of taking this bill of sale it is proba*ble that no thought of the consequences arose in the minds of the officers acting for the bank, and yet it was a moral fraud upon the company to take security upon property insured, without the consent of the defendant company first obtained. The result is that, under the circumstances, the knowledge of Lamborn cannot, under all the authorities, be imputed to the defendant company, as his position as an officer of the bank rendered his interest in the transaction adverse to the insurance company. We recommend a reversal of the judgment and remand — 116 — ing the cause for further proceedings not inconsistent with this opinion. Epperson, Good and Calkins, CC., concur. By the Court: For the reasons stated in the foregoing opinion, the judgment of the district court is reversed and the cause remanded for further proceedings not inconsistent with this opinion. Reversed.