#### FIDELITY NAT. BANK OF BATON ROUGE, v. CENTRAL MANUFACTURERS MUT. INS. CO.

No. 3297.

Court of Appeal of Louisiana. First Circuit.

Nov. 22, 1950.

Huckabay, Seale & Kelton, Baton Rouge, for appellant.

Breazeale, Sachse & Wilson-, Durrett & Hardin, and Weber & Weber, all of Baton Rouge, for appellee.

DORÉ, Judge.

The plaintiff is a banking corporation-organized under the laws of the United States, with its domicile, and doing business, in the City of Baton Rouge. The defendant is a fire insurance company organized under the laws of the State of Ohio,, having its domicile in Van Wert, Ohio, but authorized to do, and doing business, in the State of Louisiana, with John B. Galloway, doing business as Mutual Insurance Agency, in the City of Baton Rouge, as its. duly authorized agent. The insurance company supplied Galloway with the necessary forms and he had the agent’s usual and customary authority to issue policies on behalf of the company and to collect the premiums for such policies.

Quite frequently it was necessary or desirable for the assured to borrow a portion of the premium. The bank engaged in loaning money to individual assureds to pay the company the balance of the premium which the assured did not care or was unable to pay upon delivery of the policy. In such cases, the premiums were financed pursuant to a printed form or agreement supplied by the bank to the assured and the insurance agent, in this case, to Galloway. In the form or agreement, the assured acknowledged that he had received the described policy; that the bank had paid the premium on 'his behalf; and the assured agreed to repay the bank according to a schedule set forth in the form or agree*669ment. To secure his undertaking, the assured assigned to the hank all sums that might 'become due to him as return premium. The assured further agreed that if he failed to make the instalment payments, the bank was authorized to cause the policy to be cancelled and to notify the insurance company, or its agents, of such cancellation so that the return premium should become available to the bank. Attached to the form or agreement was an agent’s certificate to the effect that the policy or policies listed on the reverse side of the form or agreement were bona fide policies issued in good faith, that they were in full force and effect, and that endorsement giving notice of the financing agreement had been put on each copy of the policy or policies listed. The agent acknowledged notice of the assignment of the said policies to the bank, agreed to immediately cancel the policy or policies and assist it in obtaining the return (unearned) premiums in the event the assured failed to meet his obligation to the bank.

In this suit, the plaintiff bank seeks to recover from the defendant insurance company, the sum of $1,728.20, with interest at the rate of 4% per annum on $444.45 thereof from May 8, 1949, on $439.30 thereof from March 11, 1949, on $533.34 from February 10, 1949, and on $311.11 from May 31, 1949, until paid and costs on the following allegations:

(a)That the said Galloway certified to the plaintiff bank that he had issued Policy No. OC315047 of said defendant company to one David T. Caldwell on May 8, 1948 at a premium of $592.59, and on May 10, 1948,- the said Caldwell executed a document addressed to it (a form or agreement heretofore described), which it accepted upon the said Galloway’s certificate, and pursuant to which, it advanced funds for the payment of said premium; that it promptly notified said insurance company of the assignment by letter dated May 18, 1948, which notice of assignment was acknowledged by the said insurance company ; that on May 8, 1949, it sought to exercise its rights under the assignment aforesaid by proper notice to the defendant, at which time the return premium due on said policy amounted to $444.45, but that defendant refused to make said payment.

(b) 1 That Galloway certified to it that he had issued Policy No. OC315011 of said company to one Owen PI. Strickland on March 11, 1948, at a premium of $585.75, and on March 13, 1948, said Strickland executed one of the forms or agreements heretofore described, and which it accepted upon Galloway’s certificate and pursuant to which it advanced funds for the payment of said premium; that on March 22, 1948, it promptly notified the said insurance company of the assignment, which notice of assignment was duly acknowledged by the said insurance company; that on March 11, 1949, it sought to exercise its rights under the assignment by proper notice to said defendant, at which time the return (unearned) premium due on the policy amounted to $439.30, but that defendant has refused to make said payment.

(c) That Galloway certified to it that he had issued Policy No. OC315010 of said defendant company to one D. V. Kelly on February 10, 1948, at a premium of $711.-12, and oh February 11, 1948, said Kelly executed one of the forms or agreements heretofore described, which it accepted upon said Galloway’s certificate and pursuant to which it advanced funds for the payment of said premium; that on February 17, 1948, it promptly notified defendant of the assignment, which notice of assignment was duly acknowledged by said defendant; that on February 10, 1949, it sought to exercise its rights under said assignment by proper notice to said defendant, at which time the return (unearned) premium due on said policy amounted to $533.34, but to no avail.

(d) That the said Galloway certified to it that he had issued Policy No. OC316310 of said defendant company to Sam Coving-ton on May 31, 1948, at a premium of $414,-81, and on June 1, 1948, said Covington executed one of its forms or agreements, which it accepted upon said Galloway’s certificate and pursuant to which it advanced funds for the payment of said premium; that on June 10, 1948, it promptly notified defendant company of its assignment, *670which notice of assignment was duly acknowledged by said defendant; that on May 31, 1949, it sought to exercise its rights under said assignment by proper notice to said defendant, at which time the return (unearned) premium due, on said policy amounted to $311.11, but the said defendant has refused to make said payment.

It alleges that the said defendant takes the position that the said four policies wer.e never issued, that the finance contracts above set forth were fraudulently issued by its agent and hence, • denies the alleged obligation.

It further alleges that having advanced its money on the strength of defendant’s agent’s certifications, and having given the defendant’s acknowledgment of each such notice as if the transactions'were entirely regular and bona fide and allowing it to.rely upon such acknowledgment for many months, the defendant is now estopped to assert that the policies were not issued, even if that be the fact.

The defendant filed exceptions of no right and no cause of action, which exceptions, by consent of counsel, were referred to the merits. The answer of the defendant is in the nature of a general denial, save and except that it admits having received the notifications of assignment, and its refusal to comply with plaintiff’s demands, averring that there was no obliga- . tion, moral nor legal to comply with plaintiff’s demands for the reason that the alleged policies for which refunds were demanded were never issued. It further averred that Galloway was not acting within the scope of his employment in executing the several certificates relied upon by .plaintiff. In the alternative, defendant avers that in the event it be cast, then it requests judgment in its favor and against the said Galloway and David J. Caldwell, ■in solido, Galloway and Owen H. Strickland, in solido, Galloway and D. V. Kelly, in solido, and Galloway and Sam Coving-ton, in solido, for whatever sum it may be cast, as primary parties and obligors by virtue of the finance contracts, the basis of the suit. It further avers that these parties are necessary parties to this- proceeding and calls them in warranty.

Sam Covington interposed exceptions of no right and of no cause of action as against the call in warranty. John B. Galloway, David J. Caldwell, Owen H. Strickland and D. V. Kelly, each interposed exceptions of misjoinder of parties defendant and of no cause or right of action as against the call in warranty. The exceptions' of no right or of no cause -of action on behalf of Galloway, Covington, Caldwell, Strickland and Kelly were sustained and the calls in warranty were dismissed.

On the trial of the merits, there was judgment for the plaintiff and against the defendant as prayed for. Defendant has appealed from both judgments.

In this Court, defendant has filed exceptions of no cause and of no right of action, and in addition,.it has filed a plea of prescription of one year.

At this moment, we deem it proper to state that while defendant appealed from the judgment dismissing the several calls in warranty, yet neither in oral argument nor in brief, does it set out or point to any error committed by the trial judge in sustaining the exceptions of no' right or of no cause of action. We consider the appeal as abandoned and see no necessity of discussing the merits or demerits of the judgment dismissing the call in warranty.

As to the exceptions of no cause and of no right of action filed in this Court by defendant, we find no merit in them in that taking the allegations as proven, the plaintiff has clearly set forth a cause and á right of action. The exceptions go to the merit of the case and will be so treated.

On Plea of Prescription.

It is the contention of defendant that the action of plaintiff is based on an offense or quasi-offense and that since the acts complained of occurred on May 10, March 11, February' 10 and May 31, 1948, and this suit was not filed until October 8, 1949, more than one year after the happening of each occurrence, the action is prescribed *671by the prescription of one year, Civil Code Article 3536.

Admitting for mere sake of argument, that the action is 'based on fraud, a quasi-offense, and that Article 3536 applies, yet the record shows that the plaintiff did not, nor did the defendant, discover that the fraud, that is, the lack of issuing the policies by Galloway, had been practiced on it until January 5, 1949. Furthermore, it was not until February, March, May and June, 1949, that defendant refused payment. The plea of prescription is manifestly untenable under these facts, for it is now well established, in a case af this kind, that the prescriptive period begins to ran from the day the fraud is discovered. The suit was filed on October 8, 1949, well within the year.

On the Merits.

The record discloses that John B. Galloway, doing business as Mutual Insurance Agency, was the duly authorized agent of defendant at the City of Baton Rouge. In such capacity, he had the right to, and did, issue many policies of insurance, and he had the right to, and did, collect and receive the premiums due thereon in behalf of defendant.

Upon certificates by Galloway, doing business as Mutual Insurance Agency, that policies were issued, were in full force and effect and that the endorsement giving notice of financing agreement with plaintiff had been put on each copy of the policies involved, the plaintiff advanced funds for the payment of premiums, which said funds would be deposited to the credit of the said Galloway, and assignments of said policies obtained. Notice of such assignments were immediately given to the named assured and to the defendant, who- was also requested to acknowledge the notice of the assignment on a copy of the notice attached. In each instance, the defendant executed and returned to plaintiff the copy endorsed “Central Manufacturers Mutual Insurance Co. by O. A. Mayer”. It is not disputed that Mr. Mayer -had full authority to sign and acknowledge the receipt of the notice of assignment.

The record further shows that plaintiff financed some sixty to seventy contracts for the premiums on policies of defendant and experienced no difficulty in obtaining refunds (unearned premiums) whenever a policy was cancelled except with the four contracts which form the basis of this suit. Relative to those four contracts, the evidence shows that the procedure outlined above was fully adhered to and the funds derived therefrom were all deposited to the credit of Galloway. It was not until January 5, 1949, that defendant undertook to furnish a list of policies issued by Galloway to the plaintiff, and it is then that it was ascertained the four contested policies were not listed, presumably not having been issued by Galloway.

It is the contention of the defendant that the policies listed in the finance contracts in question are non-existent and defendant cannot therefore be held liable, while it is plaintiff's contention that under the facts of this case the defendant is now estopped to assert that these policies were not issued even if that be the fact.

In plaintiff’s brief, we find a resume of the law and good reasons to sustain plaintiff’s position, and we quote:

> “The Restatement of the Law oif Agency prepared by the American Law Institute reads as follows:

> “ ‘261. A principal who puts an agent in a position that enables the agent, while apparently acting within his authority, to commit a fraud upon third persons is subject to liability to such third persons for the fraud.

> “ ‘Comment a.: Liability is based upon the fact that the agent’s position facilitates the consummation of the fraud, in that from the point of view of the third person the transaction seems regular on its face and the agent appears to be acting in the ordinary course of the business confided to him.

> “ ‘262. A person who otherwise would be liable to another for the misrepresentations of one apparently acting for him, under the rule stated in #261, is not relieved from liability by the fact that the *672apparent agent acts entirely for his own purposes, unless the other has notice of this.

> “ ‘Comment a.: A person relying upon the appearance of agency knows that the apparent agent is not authorized to act except for the benefit of the principal. This is something, however, which he normally cannot ascertain and something therefore which it is rational to require the principal, rather than the other party, to risk.’

> “See - also 29 American Jurisprudence, 634:

> “ ‘833. In an action on a contract of insurance, the insurance company is generally considered estopped to deny liability on any matter arising out of the fraud, misconduct or negligence of an agent of the company. If either party must suffer from an insurance agent’s' mistake, it must be tire insurance company, his principal.’

> “Although the general rule is that ‘the attorney cannot go beyond the limits of the procuration’ (Article 3010 R.C.C.), it has -been decided long since that,

> “ ‘he who accredits another by employing him, must abide by effects of that credit, and will be bound by contracts made with innocent third persons in the seeming course of that employment, and on the faith of that credit, whether the employer intended to authorize him or not, since where one or two innocent persons must suffer by the fraud of a third, he who enabled that third person to commit the fraud should be the sufferer’. Smith’s Mercantile Law, page 158, cited and applied in Honold v. Meyer, 36 La.Ann. 585, 589.

> “Applying this just legal philosophy to an insurance case, Judge Janvier in Wuertz v. Life & Casualty Insurance Company of Tennessee, 1929, 10 La.App. 70, 120 So. 72, had this to say:

> “ ‘Plaintiff sues for the return of $517.80 paid to defendant through Victor’- G. Fox, who, according to plaintiff, was an agent of defendant for the solicitation of insurance and for the receiving of premiums therqfor. The policy for which the amount mentioned was paid was never issued. Defendant refuses to return the money, claiming that Fox was not its agent and had neither actual nor apparent authority to *receive*payments for it. * * *

> “ ‘That Fox originally was fully authorized to receive payments for defendant is conclusively shown by the fact that he was given printed application forms of receipt. The receipt for the first payment was on one of these and was signed by Fox. •as agent for the Company.

> “ ‘Since the defendant put into Fox’s hands its printed receipts it cannot now be heard to say that Fox had no authority to issue those receipts. As between the Company and Fox, he may be liable to the Company for exceeding its actual -authority but as between the Company and the plaintiff the fact that it put into Fox’ hands documents which gave him apparent authority to receive payments for the Company is sufficient to render it liable for the return of such sums as were wrongfully collected.

> “ ‘The premiums were paid to one apparently having authority to receive them, and it was the action of the Company which gave him this apparent authority.’

> “Article 3010 of our Civil Code quoted *in*part above adds that even where the agent does a thing exceeding his power it may become binding upon the principal if he ratifies the action.

> “ ‘An insurance company may be estop-ped by its conduct to deny the agency or authority of one purporting to act for it, and it may ratify the acts of such person and be found thereby.

> “ ‘An insurance company will be estop-ped to deny that a certain person is its agent or possesses the authority he assumes to exercise, where it knowingly causes or permits him so to act as to justify a third person of ordinarily careful and prudent business habits to believe that he is the company’s agent or possesses the authority exercised. All the elements of estoppel, however, must be present; the insured must have been misled by the company, not by the agent, the authority must have been actually apparent to the one dealing with the agent, and he must have dealt with the agent in reliance on his apparent authority in good faith and in the exercise *673of reasonable prudence.’ (44 C.J.S. [Insurance, § 147, p.] 810: Ratification and Estoppel.)

> “All of the necessary elements of estop-pel are present. The acknowledgment of the notice by the company misled our Bank into believing that its security was valid. The company could not deny that its agent had more than apparent authority to issue a policy and certify to its existence and collect the premium therefor; the agent had actual authority to do so. No one could deny that the Bank’s notification of the assignment to the insurance company was the exercise of reasonable prudence. No one will dispute that our Bank acted in good faith.

> “Another element essential to the plea of estoppel is that of injury. See French Market Ice Mfg. Co. of New Orleans, Limited, v. Dalton, 1930 [15 La.App. 115] (130 So. 122):

> “ ‘The first and fundamental principle of the law on the subject of estoppel by matters in pais is that the language or conduct of the party estopped was acted on by the party urging the estoppel, and that the party, thereby so induced to act, will suffer injury if the other party is permitted to' controvert his act, or deny what he has held out to him to be true.’

> “Certainly if the Bank had once been advised that it was relying upon nonexistent security, no further loans would have been made on policies of this company supposed to have been issued by this agent. Even with respect to the first of such fraudulent transactions, the Bank was injured by the improper action of the company. By analogy, see the following:

> “ ‘If the depositor was guilty of negligence in not discovering and giving notice of the fraud of his clerk, then the bank was thereby prejudiced, because it was prevented from taking steps, by the arrest of the criminal, or by an attachment of his property or other form of proceeding to compel restitution. It is not necessary that it should be made to appear by evidence that benefit would certainly have accrued to. the. bank from an attempt to secure payment from the criminal. * * * As the right to seek and compel restoration from the person committing the forgeries was, in itself, a valuable one, it is sufficient if it appears that the bank by reason of the negligence of the depositor, was prevented from'promptly, and it may'be effectually, exercising it.’ Leather Mfg’rs’ Banks v. Morgan, 117 U.S. 108, 6 S.Ct. 657, 29 L. Ed. 811; cited and applied in The Wilson Sewing Machine Company v. Southern Express Company, 42 La.Ann. 593, 7 So. 710.

> “After acknowledgment of notice by the company, any subsequent silence with respect thereto meant nothing if it did not mean that the company was willing to have our bank believe that it actually-had the security described in the contracts.

> “ ‘It is well settled that, when a person has done or said something with intent to influence the dealings of another, and the other has acted upon the faith of it, the former ought, not to be permitted to change it to the injury of the latter.’ (Bradford-Kennedy Co. v. Brown, 152 La. 29, 38, 92 So. 723.)”

The defendant relies on the case of First Trust & Deposit Company v. Middlessex Mutual Fire Insurance Co., 259 App.Div. 80, 18 N.Y.S.2d 936, a decision of the Supreme Court, Appellate Division, Fourth Department of New York, one of the Appellate Courts of New York, but not the Court of last resort, wherein it was held that an insurance company was not liable for return premiums on the cancelation of fictitious policies fraudulently executed by its agents where such agent was clothed with authority to issue said policies. In our opinion, that case is inapposite to the case at bar, in that, in that case, the plaintiff, in making the loans in question on fictitious papers, at all times dealt directly with the insurance agent and never with the insured, and never directly with the insurance company, while in the case at bar, the plaintiff promptly notified the defendant of each transaction and not only notified the defendant of the loan and assignment, but requested- and obtained acknowledgment in writing by said defendant of the receipt of the notice of assignment. However, admitting for the mere sake of argument, *674that the case be analogous to the case at bar, then we choose not to follow it in that our case should be decided in accordance with our law and not that of New York.

We are therefore of the opinion that defendant is estopped from denying that the policies were in fact issued. Such was the conclusion of the trial judge.

For these reasons, the judgment appealed from is affirmed.