Bethune v. Neilson — 2 Cai. 139

Majority

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Bethune and Smith against Neilson and Bunker.

Headnote

If an assured be indebted to his broker, and give him a policy to effect an adjustment, which he does, and he thereon debits the insurer with the amount, and carries the same to the credit of the assured, it is not payment to him, unless he assent.

This was an action to recover the amount of an adjustment on a policy of insurance. The instrument was thus endorsed : “ Adjusted a loss of ninety-eight per cent, payable in 30 days, which the brokers are requested to charge to our respective accounts, and cancel this policy.

“ New York, 2d January, 1802.”

On the trial, one Gordon, the broker who effected the policy, testified that the adjustment was in the usual form. That in New York, the customary mode of transacting business with insurance brokers is as follows: The broker receives tbe premium, and is in all cases debtor to the underwriter for its amount, wbicb is considered as due, after three months, when the broker is liable to be called upon by the underwritten for payment of any losses that have happened. These he settles if he has money in hand, (which is generally the case,) but notwithstanding the adjustment, the assured would not be entitled tp call upon the broker for the loss until the expiration of the thirty days, nor would the broker consider himself then liable to pay unless he had money of the underwriter’s in hand. Between the broker and underwriter the entry of an adjustment *to the debit of the latter, and carried to the credit of an assured, would, according to the conception of the witness, be conclusive on the insurer; and if the broker, at the time of making the entry has money of the underwriter in hand, the broker would be considered bound to pay at the end of thirty days. But though this is the case, yet if the broker held a note due from the assured, the witness did not imagine the assured could have used the credit given by the adjustment or entry by way of set-off ; had it, however, instead of a note, been an agreement in practice, then the witness thought the set-off would be admitted. The brokers receive from the underwriters a commission of five per cent, upon the premiums, and also a commission from the underwritten Upon adjustments. But when there have been doubts of the solvency of the broker, there have been frequent instances of the assured’s adjusting and collecting the loss due on his own policy. With this routine the plaintiffs were acquainted, as they formerly had been insurance brokers.

It was further in evidence, that the plaintiffs delivered to Munro, the deceased partner of Gordon, the policy in question, for the purpose of procuring an adjustment, which he accomplished on the day, and in the words before set forth. That on the 6th January, Munro & Gordon charged the defendants, and credited the plaintiffs, with the amount of the loss. That at this time, more than the loss thus ad

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justed was due to Munro & Gordon, by tbe plaintiffs, who nevertheless were under responsibilities for them. That on the 9th of January, Munro & Gordon failed, and on the 11th, the plaintiffs called on the insolvents for their policy, and afterwards became liable on their responsibilities, and so were at the time of action brought to an amount beyond the sum in question That the defendants were, at the date of the adjustment, and still are, creditors of the bankrupts for a sum exceeding the amount of the loss. It was further testified by Gordon, that he supposed the plaintiffs informed of the adjustment at the time when made, but did not know that they were acquainted with the entry in the broker’s books.

Upon these facts, a verdict was taken for the plaintiffs, for the amount of the adjustment and interest, subject to *the opinion of the court, whether it should stand, or judgment be entered for the defendants.

In the case, the following paper was a part, and referred to in argument.

.New York, April 20th, 1800.

We the subscribers, underwriters in the city of New York, do agree to abide by, and conform to, the following rules for transacting business with the insurance brokers, from the 1st of May next ensuing.

1. All losses shall be paid in thirty d'ays after a proof thereof is made and presented, of which proof the underwriter shall be the sole judge, so far as concerns the settlement with the broker.

2.. The broker who rnay be indebted to the underwriter, at the time proof of loss is admitted, shall strike the balance due from him, ninety days prior thereto, which balance shall go towards the payment of the loss adjusted, and the residue, or full sum when no account shall exist, shall be paid by the underwriter, in a note at 30 days.

3. The account with the brokers shall be settled and balanced half yearly, viz. on the first day of May, and the

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first day of November; and the underwriter shall have a right to demand the balance due to him. in a note payable in ninety days, subject only to a deduction of two per cent.

4. All balances which shall be left on the first of May, by the underwriters, in the hands of the brokers, shall be applied to the payment of any loss that may afterwards accrue agreeably and consonant to rule 2.

Hamilton, for the plaintiffs.

The question is, whether there has been a payment of the loss adjusted. Thn there cannot have been. The utmost that can be shown hi, that the broker made a discount from what the assured owed him. But discount is no payment; and as payment here was, by the words of the adjustment, not to be made till 30 days, it is, perhaps, not consistent with good faith that it should be urged ; for prior to that period the broker was not at liberty to pay. Before that time the plaintiffs revoked the authority given to the broker, who is the mutual agent of both parties, and this they might have done according to the usual practice in cases of insolvency. Where a person is a kind of middle man, or an agent in *some degree from necessity, his acts cannot operate to the injury of either party.

By adverting to the subsidiary facts stated in the agreement, made a part of the case, it will appear, that though in fact there might have been a debt due from the broker to the defendants, when the adjustment was settled, still it does not appear to have been such a debt as would constitute money in the broker’s hands.

For this purpose, it must have been a balance-accrued and struck three months previous to the 2d January, 1802, even then the broker was not bound to pay till 30 days after. The entry in the broker’s books was a. mere mode of his keeping accounts ; for it appears from Gordon’s testimony, it did not give the assured any right of set-off against a note in the hands of the brokers. There is no

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case exactly like this in the books, but from Marshall, 203, it appears the English practice is like ours. If there is no superior legal right in the defendants, they ought not to prevail; for though the event must, from the bankruptcy of the brokers, throw a loss on some one, the equity of the plaintiffs' is equal to that of the defendants.

Harison and Pendleton, contra.

This question must be decided, not on cases, but on the principles of cases, and will rest on the course of proceedings, and the intention of the parties. The plaintiffs had been insurance brokers, and apprized of the mode of doing business between persons of that description. "With this knowledge the policy is put in the hands of Munro & Gordon to adjust and collect. At the time when it was made, the brokers must have had money in their hands belonging to the defendants, on a balance struck according to the agreement, for had it not been on such a balance, due 90 days before, the underwriter, according to the words of the contract with the brokers, would have given his note at 30 days. This shows the brokers were considered as the paymasters of the plaintiffs, for they knew of the adjustment, and, had they looked to the underwriter, would have asked for his note. The assured knew they, owed money to the broker, and the transaction bespeaks their consent that the loss should go to their credit. The equity of the parties, it would seem, is not equal; the entry of the debit being, aceord-ing *to Gordon, conclusive on the underwriter, and the .credit not binding on the underwritten. This looks like a sympathy for the friendly liabilities of the plaintiffs, become certain to be incurred only after the bankruptcy of Munro & Gordon, till when, the policy and adjustment remained quietly in their hands. Though the assured might not have been able to enforce payment till the end of 30 days, yet, as the brokers had money of the defendants in hand, there was nothing to prevent his paying, and the plaintiffs’ receiving. The credit passed to the

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insured is a proof of their consent that- it should beso; there is no evidence that they did not know it, and the presumption is strong that they did. The delivery of the policy to the brokers was an authority to adjust, and though this authority was revocable at first, it ceased to be so when a third person had acted upon the strength of it, and paid money over as the defendants have done; for they are concluded by the entry in the broker’s books. The charge of commissions to each party, evinces the transaction consummated by an actual payment from one man, carried to •the credit of another. Even at the end of thirty days after the adjustment, the plaintiffs are not said not to have been indebted to the brokers. Besides, the policy was to be cancelled.

IlamiUon, in reply.

The general acquaintance with the brokers’ mode of doing business, does not affect the plaintiffs with knowledge of this particular transaction. He could not have known there was money in the broker’s hands on a balance struck ninety days before. It is not even plain that the'adjustment was communicated, still less that the entry to his credit was known, for it was not given till the sixth, whereas the adjustment was on the second, so that notice of the adjustment could not be notice of the crediting. The endorsement only led the assured to imagine himself secure of his money at the end of thirty days. Till then, therefore, the act was not consummated, the policy liable to be taken back, and the power to receive the loss necessarily revoked. The argument from not demanding the note is begging the question, for it supposes a knowledge of the credit given. Till the-end of thirty days, the broker had no right over the defendants’ funds, and therefore *no appropriation before that period could legally be made. The entry, therefore, must have been conditional, and before its completion, the policy ■was withdrawn. Cancelling it was only for the purpose of giving an action on the adjustment. When that is made,

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the old contract on the instrument dies, and a new one arises. Though even then it might' be retained for any lien, as that would attach on the adjustment growing out of the insurance.

delivered the opinion of the court. Tho •insurance brokers having become insolvent, and being indebted both to the plaintiffs and defendants, in a sum exceeding the amount now in question, a dead loss must’be •sustained either by the assured or by the underwriter. Both parties are, therefore, excusable in claiming the benefit of any strict principles of law, applicable to the case, that may operate in their favor. The determination of this question will depend on the relation in which the brokers may be considered as standing towards the respective parties. The agreement between the underwriters and brokers, as to the manner of transacting business, can no way affect the rights of the assured. The underwriters constitute the brokers their agents, to receive premiums; and the brokers agree, at the expiration of three months, to apply such premiums towards the payment of losses for which the underwriters become liable. The underwriters •may, therefore, be considered as looking to the brokers for the premiums. There does not, however, appear to be any general agreement, or understanding, between the brokers and assured, that tlie latter are to look to the former fox losses. Every case must, therefore, depend on its own circumstances. As a general rule, the underwriter, and not the broker, must be considered as debtor for the loss. The manner in which the brokers kept their accounts, was conformable to the agreement between them and the underwriters; hut this ought not to affect third persons. As between the brokers and the detendants, it may be considered as a payment of the loss by the latter to the former, but not as a payment to the assured, without their assent to such arrangement. No such assent appears — no evidence that the plaintiffs knew of the entry made in the broker’s books. But had they known it, we suppose it would not affect their claim against the defendants, unless they directly, *or impliedly, assented to look to the brokers, and not to the underwriters, for the loss. The policy being put into the hands of the brokers, authorized them to make the adjustment, and had it remained in their hands until the expiration of the thirty days, when, according to the terms of the adjustment, the loss was made payable, it might have been considered as an implied authority to receive the money. But the assured took the policy out of the hands of the brokers long before the expiration of the thirty days, and thereby revoked all the authority to receive payment which they might have been presumed to have had. The defendants cannot be presumed to have intended to make payment until the expiration of the thirty days. This entry was made in the broker’s books only four days after the 'adjustment; and so, cannot reasonably be considered, or' imagined, as a payment of this particular demand, but only for the purpose of keeping a general statement of accounts between the brokers and underwriters. We cannot discover any authority given by the plaintiffs to the brokers to receive payment of this loss, or any assent or agreement by the former to look to the latter for payment, and to discharge the underwriters from their liability. The opinion of the court therefore is, that the plaintiffs have judgment.

This is an attempt to recover from the underwriters, after a fair settlement, and what I deem equivalent to a payment by the insurance brokers, merely because the latter have since become insolvent.^[1] The

(a) (a) It lias been ruled that if an insurance broker, living at a distance from his principal, credit him for the amount of a loss on a policy, and receive from him the balance of his account, struck upon the allowance of such credit, the broker cannot, after a lapse of two years, recover from his principal the amount of subscriptions he has, from the subsequent insolvency of the underwriters, been unable to collect. Jameson v. Swainstone, 2 Camp. *145 546, n. So, if the broker himself pay the loss. Edgar v. Bumstead, 1 Camp. 411. where a broker retains a policy in his hands, lie is bound to uso reasonable diligence in procuring payment from the underwriters; if he do not, he is liable, in case of their insolvency. Bousfield v. Creswell, 2 Camp, 545.

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policy was delivered for settlement by tlie plaintiffs tc Munro, one of the brokers who effected it. He tiras became their agent, and a receipt of the money by him would have discharged the underwriters. So, also, his other acts in relation to this business must be binding on'them. The first thing that Munroe does, is to obtain from the underwriters “an adjustment, payable in thirty days, which the brokers were requested to charge to their account, and to cancel the policy.” This was signed by the defendants on the 2d of January 1802. "We have no right to believe the plaintiff’s ignorant of the nature of this ad j ustment. Munro is dead, which renders proof of this fact difficult. But from their having been brokers themselves, and from the relation in which they stood to Mutuo in the transac tion, it is a fair and natural *presumption, that they knew of this adjustment immediately. This knowledge would amount to but little short of a consent on their part to take the brokers as paymasters, if they were in funds, and willing to become so. It is admitted this was the case; for, only four days after, the bzx>-kers charged the defendants, who were their creditors, and credited the plaintiffs, who were their debtors, in their books, with the amount of this loss. This anticipation of payment might have been at the broker’s peril, but the plaintiffs had no right to complain. With this entry it is not certain the plaintiffs were acquainted, but being indebted to the brokers, they could not well object to it; and it is more than probable they were informed of it by the one who is since dead. I have chosen to consider this case without reference to any general agreement between brokers and underwriter’s, because I think there is sufficient evidence that the plaintiffs agreed to look to the broker, with

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out any future recourse on the underwriters, and because having received payment by a credit with the brokers, whose debtors they were, it would be unjust to subject the defendants to any inconvenience on account of the subsequent bankruptcy of those gentlemen. I think, therefore, there should be judgment for the defendants.

Judgment for the plaintiffs.