Manufacturers Casualty Insurance Company v. Martin-Lebreton Insurance Agency

242 F.2d 951

• Court: Court of Appeals for the Fifth Circuit
• Decided: June 14, 1957
• Docket: 16367_1
• Status: Published

Opinions

HUTCHESON, Chief Judge.

Appealing from a summary judgment dismissing, for the reasons stated in the opinion,¹ its action to recover damages for loss caused by the unauthorized act of the agent in executing a building performance bond, plaintiff is here insisting that the judgment should be reversed because the case was not one for summary judgment but for trial, and because, if the ease was one for summary judgment, 'the judgment should have been for plaintiff.

The facts ² insofar as shown, are simple. The law is equally so.

The district judge, stating: “The defendant agency admits that the bond was executed without authority. It argues that, in the state of the relationship between the parties, at the very least the insurer owed it a duty to disavow its action immediately if the insurer intended to do so, in order that the agency could seek another bond to substitute, for the one in suit.”; held that the. defendant was right because, where an agent exceeds its authority, the principal must, to hold him accountable, immediately upon notice repudiate the agent’s action. Otherwise, the principal is deemed to have ratified his agent’s act, and “where, as here, repudiation by the principal may be unavailing as to third parties and the agent is sought to be held personally accountable, there still arises the duty immediately to notify the agent of disavowal so that he may protect himself if he can.”

Proceeding, then, on the motion for summary judgment, to treat the case as though it presented no issue of fact, the court found that the agent had acted in good faith, that the insurer had not acted promptly enough to disavow the agent’s authority to act, and that, through its inaction, it had prejudiced the position of its agent and was, therefore, estopped to make any claim over against the agent for the loss on its bond.

We cannot agree with these views. The law is well settled: that an agent owes to his principal the obligation of high fidelity; that he may not proceed without, or beyond, his authority, particularly where he has been forbidden to- act; and that, if so proceeding, his actions cause loss to the principal, the agent is fully accountable to the principal therefor.

"* * * An elementary factor in the principal-agent relationship is control. As stated in I Restatement, Agency, § 14, p. 47: ‘A principal has the right to control the conduct of the agent with respect to matters entrusted to him.’ ” Ledbetter v. Farmers Bank & Trust Co., 4 Cir., 142 F.2d 147, at page 150.

This court has had occasion many times to deal with suits against agents for failure to obey instructions. In Blackshear Mfg. Co. v. Umatilla Fruit Co., 5 Cir., 48 F.2d 174, 175, a suit for negligence and bad faith of a salesman in extending credit, this court, holding that the evidence was sufficient to take the question to the jury, declared:

“The law exacts of every agent and employee diligence, good faith, and obedience to instructions in the execution of his agency or employment, and holds him liable for failures therein that occasion damage.”

In Eagle Indemnity Co. v. Cherry, 5 Cir., 182 F.2d 298, 289, the court declared :

“It is fundamental law that an agent bears a fiduciary relationship to his principal, and owes him the duty of good faith and loyalty. 2 Am.Jur., 202, Sections 251, 261, and 268. By virtue of this relationship, no agent is entitled to take any unfair advantage that his position may offer him to profit, at his employer’s expense, beyond the agreed compensation for his services.”

In Palmer v. Chamberlin, 5 Cir., 191 F.2d 532, 538, 27 A.L.R.2d 416, this court again declared:

“Likewise, ‘An agent is a fiduciary with respect to the matters within the scope of his agency.’ 2 Am. Juris Agency, Sec. 252.”

Finally, in Canada Steamship Lines v. Inland Waterways Corp., 5 Cir., 166 F.2d 57, 59, a suit brought in Louisiana by a principal against his agent for damages for failure to follow his instructions, this court, holding the agent liable, discussed fully the principles controlling in suits between principal and agent of the kind presented here. There, stating:

“The general principles of the law of agency as they apply here, are not in confusion. They may be found set down in Am.Jur., ‘Agency’, Secs. 251-278. They leave in no doubt that where, as here, an agent has been given general instructions to clear a shipment, which instructions could be carried out in the interest of the principal without incurring duty, if the agent, without returning for more specific instructions, assumes to take a course in carrying the instructions out which subjects the shipment to duty, the agent, and not the principal, must bear the loss.”

we gave full application to these principles.

Under the undisputed facts in this case and the settled law applicable thereto, unless and until the principal, with full knowledge of all the applicable facts, waived the breach of his instructions and adopted the agent’s act, in writing the bond, as its own, the agent became and remained liable to the principal for the damages resulting from its assuming to act to the disadvantage of its principal without authority and in absence of clear proof of facts showing breach of instructions. In short, in the an express and knowing adoption of the agent’s act as its own, or otherwise raising an estoppel against the defendant to assert the admitted breaches of the agent’s obligations as a fiduciary, the matters stands, as it stood in the Canada Steamship Line case, supra, where this court said of an agent:

“Defendant, acting precipitately and unreasonably, and without authority, incurred the duty [here the loss]. It, and not plaintiff, should pay it.”

'The case was not tried and determined on its facts. Instead, it was determined as matter of law and without a trial on the incorrect assumption that, notwithstanding the agent’s admitted and grievous breach of its duty, it could escape the loss and throw it on its principal, upon the mere claim that the principal did, not immediately repudiate the bond. The law is not so written.

The judgment is reversed and the cause is remanded for trial and for further proceedings not inconsistent herewith.

1 . Manufacturers Cas. Ins. Co. v. Martin Lebreton Insurance Agency, 144 F.Supp. 515.

2 . On June 18, 1948, defendant became the agent for complainant under an agency agreement which provided among other things: “The agent shall in no case obligate the company except within the limitations in the instructions issued by the company. * * * Agent agrees to keep and observe with all fidelity to company all instructions by it to agent.”

The agent had no authority to write contract performance bonds or bonds of any sort.

On Jan. 12, 1951, agent, desiring to write bonds for one Geiger, who it advised “has been recommended to us— Dun and Bradstreet have no information on him”, requested, by night letter, wire authorization to execute a bond on a small painting job for $2,780 and temporary authorization to write other bonds for him, pending “your complete investigation”.

On the same day the plaintiff sent a telegram to the defendant reading as follows: “Prefer not to authorize painting bond James H. Geiger without full investigation. Writing”.

On the same date plaintiff wrote to the defendant expressing lack of confidence in Geiger as a credit risk on the basis of inability to find anything about him, and stating, “We do not feel that we should authorize this bond until such time as the completed financial statement is forwarded to us by Mr. Geiger”. It also requested other and full information about him.

Under date of Jan. 23, 1951, plaintiff sent a wire authorizing the $2,780 bond and on the same day this authority was confirmed in a letter to the agent in which insurer wrote, “In regard to the bond of approximately $13,800 for Mr. Geiger [which plaintiff had requested authority to write], we wish to advise that as soon as you know the other bids, we wish that you would let us know immediately and we will see what we can do toward authorizing this bond.”

In the face of this correspondence and plaintiff’s specific refusal to authorize the execution of the bond, the defendant, on Jan. 25, 1951, without any authority to do so, signed the bond, and on Jan. 29, placed the contract and the bond on record in the mortgage office.

Defendant, however, was not advised of the execution until Feb. 3, 1951. The remittance by the agent for premiums written in the month of January was not made until well into March,-the execution report is not dated, the check is dated March 8, and it was deposited on March 13, 1951.

On March 16, the defendant wrote to the claim department of plaintiff, advising that there was evidence of a possible loss under the bond.

On March 21, Mr. Cordell, Vice-President of plaintiff, wrote it expressing surprise that it had executed the bond in violation of its express authority and advising that it would hold the agent liable for any loss sustained.

The insurance company thereafter completed the contract, the agent under a disclaimer of personal liability on the bond cooperating fully with the insurer in completing it.