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Loeb v. Firemen's Insurance

79 N.Y.S. 510 Court N.Y. App. Div. Decision date 1903-01-09 English

Delivered by INGRAHAM, J.

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LOEB v. FIREMEN’S INS. CO.
(Supreme Court, Appellate Division, First Department.
January 9, 1903.)

Headnote

1. Fire Insurance—Change in Insured Firm—Preservation of Firm Name— Violation of Statute—Defense.
Laws 1833, c. 281, § 1, as amended by Laws 1886, c. 262, punishes any person transacting business in the name of a partner not interested in the firm, and enacts that when the designation “and company”. is used it shall represent an actual partner. The firm of A. & Co. effected fire insurance, the policy insuring the firm as then or as it might thereafter be constituted. Afterwards the junior partner withdrew, and A. continued the business, using the original designation, in violation of the statute. ffeld1-, that as, to constitute a defense, the false designation must have ■ been used in the particular transaction in issue, the company was liable for a loss.
Appeal from special term, New York county.
Action by Adolph Loeb against the Firemen’s Insurance Company. From an interlocutory judgment ( 77 N. Y. Supp. 106 ) sustaining a demurrer to the second defense set up in the answer, defendant appeals. Affirmed.
Argued before VAN BRUNT, P. J., and HATCH, McLAUGH-LIN, O’BRIEN, and INGRAHAM, JJ.
Donald McLean, for appellant.
Albert W. Venino, for respondent.

The action is brought to recover upon a policy of fire insurance whereby the defendant insured “Adolph Loeb & Co., as now or as the firm may be hereafter constituted, for the term of one year from the 6th day of June, 1901, at noon, to the 6th day of June, 1902, at noon, against all direct loss or damage by fire” of the property described to an amount not exceeding $1,000. The complaint alleges that on the 6th day of August, 1901, while the policy of insurance was in force, the property insured to the extent of $1,497.55 was,destroyed by fire; that at the time of the insurance of the said policy until the dissolution of the copartnership between the plaintiffs the insured had an interest in the property insured as

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sole owners thereof, “and since the said dissolution until the said fire, hereinafter mentioned, the said plaintiff had an interest in the property insured as sole owner thereof.” The policy, which is annexed to the complaint, contains a provision that the entire policy shall be void “if any change, other than by the death of an insured, take place in the interest, title, or possession of the subject of insurance (except change of occupants without increase of hazard), whether by legal process or judgment, or by voluntary act of the insured, or otherwise, or if this policy be assigned before a loss”; and that, “whenever in this policy the word ‘insured’ occurs, it shall be held to include the legal representative of the insured.” As a separate defense the answer alleges that when the policy was issued the firm of Adolph Loeb & Co. consisted of Adolph Loeb and Leon Platky; that “in or about the latter part of July, 1901, in pursuance of an agreement for the dissolution of the said copartnership of Adolph Loeb & Co., Leon Platky, one of the partners, duly assigned and transferred all his right, title, and interest in and to said firm and all its assets, including the policy of insurance hereinafter mentioned, to the plaintiff, Adolph Loeb, and that the said Adolph Loeb thereupon became the owner of the said business and all its assets, including the policy of insurance hereinafter referred to”; that on August 6, 1901, the fire took place in the premises of 407 West Broadway, in the city of New York, in which “certain goods then in the possession of and belonging to and used by the said alleged firm of Adolph Loeb & Co., and which at the said time was composed only of Adolph Loeb, and no other partner or partners who were represented by the words ‘& Co.,’ ” were destroyed or damaged. The clause in the policy that it “shall be void if any change other than by the death of an insured take place in the interest, title, or possession of the subject of insurance” is then set out, and it is alleged that the agreement for the dissolution of the copartnership was made without the knowledge or consent of the defendant, and that by reason of the dissolution of the said copartnership of Adolph Loeb & Co. and the transfer and assignment to said Adolph Loeb, the plaintiff herein, of the property, assets, and business of the said copartnership and of the said policy of insurance in or about the month of July, 1901, there was no legal firm of Adolph Loeb & Co., and after the dissolution of the original firm of Adolph Loeb & Co. the terms of the policy mentioned in the complaint herein did not apply to any of the goods, properties, assets, or business of the said firm of Adolph Loeb & Co., by reason of its carrying on and transacting business illegally and contrary to the law and statutes of the state of New York, and the policy of insurance herein then and there immediately terminated, became null and void; the policy applying by its terms and conditions only to a firm the successor of the original firm of Adolph Loeb & Co., which should be legally constituted and carrying on its business not contrary to the laws of the state of New York, but with full compliance therewith. To this defense the plaintiff demurred, and the demurrer was sustained.

This policy was, by its terms, to apply to the property owned by the copartnership of Adolph Loeb & Co., notwithstanding any change

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in that firm, so long as the title of the property insured remained the property of the firm of Adolph Loeb & Co. as that firm was then constituted, or as that firm might be thereafter constituted, at any time during the year the policy was to be in force; and this defense is based upon the dissolution of the copartnership prior to the fire, and the transfer of the assets of the corporation to the remaining partner; and that the plaintiff, having carried on and transacted under the firm name of Adolph Loeb & Co. the business before carried on by the insured, in violation of the law, was not a firm within the provisions of this policy. At the time of the fire the plaintiff was the owner of the property and carried on the business as the direct successor of the firm of Adolph Loeb & Co., the insured. At common law a partner who had acquired the rights of his copartners to carry on a business established under a firm name would have the right to carry on that business. Caswell v. Hazard, 121 N. Y. 484 , 24 N. E. 707 , 18 Am. St. Rep. 833 . The statute that is relied upon to modify this rule is chapter 281 of the Laws of 1833, as amended by chapter 262 of the Laws of 1886. As originally r'n-acted, section 1 of chapter 281 of the Laws of 1833 provided that ‘"no person shall hereafter transact business in the name of a partner not interested in his firm, and when the designation ‘and Company’ or ‘& Co.’ is used, it shall represent an actual partner or partners”; and section 2 of the act makes a violation of the statute a misdemeanor. In 1882 section 363 of the Penal Code was passed, which provided that any person who transacts business using the .designation “and Company” or “& Co.,” when no actual partner or partners are represented thereby, is guilty of a misdemeanor. Under the provisions of these two" acts it was held in a series of cases that a violation of either of these statutes was not a defense to an action brought ■ to recover upon an obligation due to the person violating it. In Gay v. Seibold, 97 N. Y. 472 , 49 Am. Rep. 533 , Judge Earl says:
“To violate this statute, the designation ‘and Company’ or ‘& Co.’ must be used in the transaction of some business. The purpose of the statute was obviously to protect persons giving credit to the fictitious firm on the faith of the fictitious designation. It could have no other purpose. It was not needed to protect those who obtained credit from such a firm. Although one may be doing business generally in violation of this statute, a violation thereof may not be predicated of any transaction in which the false designation is not used, and an indictment under the statute cannot be based upon such a transaction.”

Upon this principle it would seem to follow that a person dealing with a copartnership doing business in violation of this, statute could only take advantage of such a violation when the person violating it used the false designation in the particular transaction out of which the controversy arose. These cases arose under the statute as it existed prior to the amendment of 1886, but that amendment did not affect this proposition. It is still only in a case where the person doing business under a firm name makes a contract using a firm name in violation of the statute that such violation is available. The amendment of 1886 added to section 1 of the act of 1833 these words, “But a violation of this statute shall not be a defense in an action or proceeding brought by an assignee for the benefit of creditors,

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or by a receiver of the property, or by an executor or administrator of a person who has violated the same.” The effect of this amendment was to limit the operation of the statute, not to extend it to a case to which it was not before applicable. In Sinnott v. German Bank, 164 N. Y. 386 , 58 N. E. 286 , the statute as amended was considered. There the plaintiff sought to avoid a sale made to a person doing business under a firm name to which the words “Sc Co.” were added, when in fact there was no company; but it was held that this provision, being a penal statute, was to be strictly construed, and, assuming that this violation disabled the person violating it from enforcing the performance of an executory contract, the statute had no application to an executed agreement. In Taylor v. Soap Co., 18 App. Div. 175 , 45 N. Y. Supp. 939 , the Second department held that, where no credit was given, and no reliance was placed upon the false designation, the object of the statute should be considered, and the case was not within its purport or intent. The statute provides a penalty for its violation, and there is nothing to show that it was the intention to impose upon an individual violating its provisions a confiscation of his property, or to prevent him from enforcing obligations of others.

Applying this rule, it seems to me that a violation of this statute by the plaintiff afforded no defense to an action on the policy.. The defendant insured the property of “Adolph Loeb Sc Co., as now or as the firm may be hereafter constituted,” for the term of one year. The change in the firm by the elimination of one partner left the remaining partner as constituting the firm of Adolph Loeb & Co., the owner of the goods insured, and he continued the owner of the goods until the fire. It is not alleged that the withdrawal of one member of the firm in any way increased the risk, and the fact that during a short period the plaintiff carried on the business in violation of the statute could have no possible effect upon the risk or the liability of the defendant under the policy. It was the firm of Adolph Loeb & Co., however constituted, that was insured by the defendant, and at the time of the fire the plaintiff alone was that firm, and sustained the damage that was insured against.

I think, therefore, the judgment appealed from should be affirmed, with costs, with leave to the defendant to amend the answer on payment of costs in this court and in the court below. All concur.

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