NEWBURYPORT v. FIDELITY INSURANCE CO

Bills and Notes. Municipal Corporations. Agency. Insurance, Life. Contract, Implied. Interest.

One who receives the check of a city in payment of an individual debt of its city treasurer has notice on the face of the transaction that in the absence of express authority the check is invalid, and this is so irrespective of the existence of an ordinance prohibiting such an act.

In an action by a city against a life insurance company for money had and received by the defendant in successive annual payments of premiums, upon an individual life insurance policy of the treasurer of the city, made with checks of the city drawn by the treasurer, if it appears that the checks were made payable to the cashier of the defendant, who received them knowing that the insured was the treasurer of the city and indorsed and deposited them to the credit of the defendant in the ordinary course of business, this shows actual knowledge by the cashier that the checks were invalid, and is the knowledge of the defendant, whose alleged right to hold the payments is based on the ratification of its cashier's acts, so that the provision of R.L.c. 73, § 73, that the holder of a negotiable instrument to be chargeable with notice of a defect in the title of the person negotiating it must have had actual knowledge of such infirmity, does not help the defendant.

In an action by a city against a life insurance company for money had and received by the defendant in successive annual payments of premiums, upon an individual life insurance policy of the treasurer of the city, made with checks of the city drawn by the treasurer, the transaction showing that the defendant had actual knowledge that the checks were invalid, if it appears that the wrongful payments were a part of an extensive scheme of embezzlement carried on successfully by the city treasurer for six years, the failure of the auditing officers of the plaintiff to detect the embezzlement, even if they were negligent, is no defense to the action.

In an action by a city against a life insurance company, to recover the amount of premiums paid annually in six successive years on an individual life insurance policy of the city treasurer by checks of the city wrongfully drawn by the treasurer and payable to the defendant, it is no defense that the defendant is a mutual company and that before the action was brought it in good faith distributed the money received as premiums among its policy holders, and has on hand no money received from the plaintiff.

In an action by a city against a life insurance company, to recover the amount of premiums paid annually in successive years on an individual life insurance policy of the city treasurer by checks wrongfully drawn by the treasurer and payable by the defendant, where the receipt of the checks by the defendant shows actual notice of their invalidity, evidence offered by the defendant as bearing upon the question of constructive notice properly is excluded as immaterial.

In an action by a city against a life insurance company, to recover the amount of premiums paid annually in successive years on an individual life insurance policy of the city treasurer by checks wrongfully drawn by the treasurer and payable to the defendant, where the receipt of the checks by the defendant shows actual notice of their invalidity, it is no defense to the action "that if the defendant should attempt to inquire into all checks which are received by it from the holders of policies for the payment of premiums, which are not issued in the name of the insured, it could not carry on its business, as such inquiry was a practical impossibility," and evidence offered to prove the truth of such a statement should be excluded.

In an action by a city against a life insurance company to recover the amount of premiums paid annually for six successive years on an individual life insurance policy of the city treasurer by checks of the city wrongfully drawn by the treasurer and payable to the defendant, the plaintiff on proving such knowingly wrongful receipts of its money shows a duty on the part of the defendant to return the amount of each payment as soon as made and without a demand by the plaintiff, and the plaintiff is entitled to interest from the date of each payment.

HAMMOND, J.

The checks were on their face the checks of the plaintiff, a municipal corporation. Carpenter v. Farnsworth, 106 Mass. 561. The defendant therefore must be held to have known this; and it knew further that they were delivered to the defendant in payment of the individual debt of the treasurer. In short, the defendant knew that it was receiving in payment of the individual debt of the treasurer checks of the municipal corporation, and therefore that upon the face of the transaction the treasurer was using the funds of the city to pay his own debt. No citation of authorities is needed in support of the proposition that in the absence of proof of authority on the part of the treasurer such a check is invalid. The payee is charged with notice of a possible want of authority on the part of the agent or officer to bind the principal, and cannot recover upon the check or retain the proceeds without showing that the execution of the paper was duly authorized. And this would be so irrespective of the question whether or not there was an ordinance prohibiting such an act. If there had been no such ordinance the principle would have been applicable. Prima facie and on its face the check is issued without authority.

Although it was not made payable to the defendant, yet it was received by a duly authorized agent of the defendant, in payment of a debt due to it, and the proceeds were duly credited to its account; and its right to hold the proceeds is based only upon the ratification of the act of its agent. Under these circumstances the knowledge of its agent is the knowledge of the defendant, and no help for the defendant is found in R.L.c. 73, § 73. There is nothing in Fillebrown v. Hayward, 190 Mass. 472, relied upon by the defendant, which is inconsistent with this view of the law. Not to mention other material distinctions between that case and this, it is to be remembered that here we are dealing with the acts of a treasurer of a city, who under our law has no authority as such to issue commercial paper. Abbott v. North Andover, 145 Mass. 484. Compare also Merchants' National Bank v. Citizens' Gas Light Co. 159 Mass. 505.

There does not appear to have been any ratification on the part of the plaintiff. The facts were not known. The negligence of the auditing officers of the plaintiff, if any there was, is not available as a defense to the defendant.

It is strongly argued by the defendant that before this action was brought it had distributed the money among its policy holders, so that it has now no fund on hand to meet this demand. But the answer is that it took the money with full knowledge of the very infirmity in its title upon which the plaintiff bases the right to recover. It must be held to have paid over at its own risk. In law it held the money for the plaintiff, and it cannot relieve itself from responsibility by a division of it among its policy holders.

From the above considerations it follows that as to all the requests for rulings, so far as they respect the question of liability, no error appears in the action of the trial court.

The defendant excepted to the exclusion of certain evidence offered by it. The first offer was properly excluded. The evidence was offered as bearing upon the question of constructive notice. But it could not affect the question of actual notice in this case and was immaterial. The exception arising upon the second offer was waived.

As to the third offer, which was to prove that "if the defendant should attempt to inquire into all checks which are received by it from the holder of policies for the payment of premiums which are not issued in the name of the assured, it could not carry on its business, as such inquiry was a practical impossibility," the answer would seem to be that, if the defendant cannot carry on its business under the general laws of the land without risk, it had better conclude, not that the law is to be changed for its particular benefit, but that it must either assume the risks or stop the business.

The subject contained in the fourth offer has been covered, and no further comment need be made on it. The judge properly excluded all the evidence contained in the four offers.

There remains the question of interest. The defendant received the money of the plaintiff in payment of the individual debt of the treasurer. It knew this. Such a reception of the money was a fraud upon the plaintiff. The money was wrongfully received, and with notice of the defect in the title. It was the duty of the defendant to return it where it belonged, and that without a demand by the plaintiff. Under these circumstances interest should be charged from the time when the money was received. Dodge v. Perkins, 9 Pick. 368, and cases there cited. Atlantic National Bank v. Harris, 118 Mass. 147. Wood v. Robbins, 11 Mass. 504. Gale v. Chase National Bank, 104 Fed. Rep. 214. Reynolds Elevator Co. v. Merchants National Bank, 55 App. Div. (N.Y.) 1. Rogers v. Betterton, 93 Tenn. 630.

Exceptions overruled.