Mahr v. Norwich Union Fire Insurance Society — 40 N.Y. St. Rep. 218

Majority

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John C. Mahr et al., Resp’ts, v. The Norwich Union Fire Insurance Society et al., Appl’ts.^[1]

(Court of Appeals, Second Dimson,

Filed October 6, 1891.)

Headnote

1. Insurance (fere)—Partees—Rights of pledgee of policy—Assignee of policy should be made party.

Where there are conflicting claimants to the same obligation, each insisting upon it as exclusively liis own, all should be made parties before the question of title is determined by a court of equity in favor of either against the one from whom the obligation is due.

3. Same.

Defendant issued its policy to B. on his stock of goods in Iowa. B. sent the policy to plaintiffs in New York as collateral security to a loan made to him by them, but did not assign it in writing. The property was destroyed by fire, and B. afterwards assigned the policy to one Kelly.

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Held, that in this action by plaintiffs upon the policy Kelly was a necessary party, and the court erred in rendering a judgment restraining the payment of the loss to B. or Kelly, and ordering the company “to pay to the plaintiffs such moneys as shall he found to he payable under and by virtue of ” said policy of insurance.

Appeal from a judgment of the general term of the supreme court in the first judicial department, affirming a judgment entered upon the decision of the court at special term.

Action by the plaintiffs, claiming to be the equitable owners of a policy of fire insurance, to restrain the insurer from paying the amount of a loss to the insured, or to his alleged assignee.

On the 21st of April, 1886, the Norwich Union Fire Insurance Society, a corporation organized under the laws of Great Britain, with agencies in New York, Iowa and other states, issued the policy in question to one Bartlett on his stock of goods at Muscatine, Iowa. The policy was countersigned by the agent of the company at that place. Three days later Bartlett, who resided at Muscatine, sent the policy by mail to the plaintiffs, who resided in the city of New York, as collateral security to a loan of $2,000, concurrently made to him by them. The policy, as written, was payable to Bartlett only and it was never assigned to the plaintiffs. July 3, 1886, the property insured was destroyed by fire, and on the 16th of August following Bartlett made an absolute assignment of the policy to one Kelly, of Muscatine aforesaid.

This action was commenced against the insurance company and Bartlett by the due service of process in this state upon the former, August 12, 1886, and on the latter about one month later. The company answered, alleging, among other defenses, a defect of parties defendant in that said Kelly, although a necessary party to the action, had not been joined. March 12, 1887, Kelly commenced an action at law in a court of the state of Iowa to recover from the insurance company the sum of $2,000, the amount of the policy, with interest from July 3, 1886. March 15, 1887, on motion of the company, an order was made by the supreme court of this state in this action requiring said Kelly to be made a defendant therein,' and that he be brought into court by a supplemental summons.

A supplemental summons and complaint were issued accordingly, and the ■ same were served on Kelly in the state of Iowa pursuant to an order of publication based upon an affidavit alleging that “ the defendant S. G% Kelly claims to have property in the state of New York, to wit: an interest in the insurance policy ” in question. No service was made upon Kelly within this state and he did not appear in the action. The insurance company, by its answer to the supplemental complaint, pleaded the pendency of the action in the Iowa court; that Kelly was a necessary party and that the supreme court had by its order directed that he be brought in as a party defendant, and demanded judgment that the complaint be dismissed “ unless said S. Gr. Kelly be brought in so as to be bound by any judgment herein.”

These facts appeared upon the trial of this action, where Kelly’s default was noted, and were, in substance, found by the trial

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judge, who also found that Kelly had no interest in the policy “ superior to that of the plaintiffs, * * * and that the alleged assignment * * * by the defendant Bartlett to said S. Gr. Kelly of the date August 16, 1886, * * * was void, and in

no wise affected the prior interest obtained by the plaintiffs in said policy on or about the 24th day of April, 1886.”

Judgment was directed restraining the insurance company from paying any money under said policy to Bartlett or Kelly, and although there was neither allegation nor evidence of any proof of loss as required by the terms of said policy, the defendant company was ordered “ to pay to the plaintiffs such moneys as shall be found to be payable under and by virtue of ” said policy of insurance.

David Welch, for resp’ts; William Allen Butler, for defendant Company, appl’t.

Upon the argument of this appeal the learned counsel for the plaintiffs, with great fairness, admitted that the supreme court never acquired jurisdiction over Kelly, the alleged assignee of the insurance policy that is the subject of this action. The main question left for decision is whether Kelly was a necessary party, as the defendant company alleged in its answers and urged upon the trial. It is not claimed that he should have been joined as a plaintiff, but his presence as a defendant is insisted upon as essential to “ the complete determination or set-, tlement ” of the questions involved. The Code of Civil Procedure provides that “ the court may determine the controversy, as between the parties before it, where it can do so without prejudice to the rights of others, or by saving their rights; but when a complete determination of the controversy cannot be had without the presence of other parties, the court must direct them to be brought in.” Code Civ. Pro., § 452.

While the statute does not in terms prohibit the court from determining the controversy unless all the necessary parties are brought in, that is impliedly commanded and is the established practice in all equitable actions. Peyser v. Wendt, 87 N. Y, 322 ; Sherman v. Parish, 53 id., 483; Webster v. Bond, 9 Hun, 437 ; Shaver v. Brainard, 29 Barb., 25 ; Sturtevant v. Caldwell, 4 Bosw., 628 ; Van Epps v. Van Deusen, 4 Paige, 64.

It is not enough for the court to direct that the necessary parties be brought in, but it should refuse to proceed to.a determination of the controversy so as to affect their rights until they are in fact brought in. Peyser v. Wendt, supra; Sherman v. Parish, supra; Powell v Finch, 5 Duer, 666 .

The plaintiffs did not appeal from the order of the court requiring Kelly to be brought in, and as long as it remained in force it was an adjudication establishing as the practice if not the law of the case that Kelly was a necessary party. Riggs v. Pursell, 74 N. Y., 370 .

Moreover, the object of this action was to establish the equitable title of the plaintiffs to the policy and to prevent the company from paying the proceeds to any one except themselves. The proceeds, however, were also claimed by Kelly, who not only held

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the legal title to the policy, but had actually commenced an action upon it against the company in another state. Clearly the company should not be required to pay the entire amount of the policy both to the plaintiffs and to Kelly, or, without fault on its part, to be placed in a position where it would run any reasonable risk of being compelled to make a double payment But how is such a result to be prevented when an action at law, brought by -the legal owner to compel the company to. pay the amount of the policy to him, is pending in one state, and an action in equity by the equitable owner to prevent such payment is pending in another state, unless all interested persons are parties to the latter ? Could the court of equity safely proceed to judgment against the company unless the legal owner was before it as a party ? If it should enjoin the company from making payment to anyone except the equitable owner, it could not prevent the legal owner from prosecuting his action to collection in the other jurisdiction. It could not enjoin a person over whom it had no jurisdiction, nor make any decree affecting his rights.

The general rule in equity requires that all persons interested in the subject of the action should be made parties, in order to prevent a multiplicity of suits and secure a final determination of their rights. Osterhoudt v. Superisors, 98 N. Y., 239 ; Derham v. Lee, 87 id., 599.

There is an essential difference between the practice at law and in equity in determining who are proper and necessary parties. Story in his work on Equity Pleadings, § 72, says that two general principles control courts of equity in this respect: 1. That the rights of no man shall be finally decided unless he, himself, is present, or at least has had a full opportunity to appear and vindicate his rights. 2. That when a decision is made upon any particular subject matter, the rights of all persons whose interests are immediately connected with that decision, and affected by it, shall be provided for as far as they reasonably may be. The learned author adds: “ It is the constant aim of courts of equity to do complete justice by deciding upon and settling the rights ■of all persons interested in the subject matter of the suit, so that the performance of the decree of the court may be perfectly safe to those who are compelled to obey it, and also that future litigation may be prevented.” As Lord Hardwicke once said, all persons ought to be made parties who are necessary to make the determination complete and to quiet the question. Poore v. Clark, 2 Atk., 515. Not only all persons whose rights may be affected by the judgment should be brought into .court, but all whose presence is essential to the protection of any party to the action. Gray v. Schenck, 4 N. Y., 460 ; Russell v. Clark, 7 Cranch, 69 , 98; Piequet v. Swan, 5 Mason, 561; Fell v. Brown, 2 Brown Ch. Cas., 276.

The burden is on the plaintiff to secure the presence of all such persons and it is his misfortune if he is unable to do so.

When there are conflicting claimants to the same obligation, each insisting upon it as exclusively his own, all should be made parties before the question of title is determined by a court of

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equity in favor of either against the one from whom the obligation is due. Otherwise payment or performance may be exacted as many times as there are separate claimants. It follows that the title to a chose in action, such as the policy in question, cannot be settled unless all those who claim any interest therein, whether legal or equitable, are joined as parties, plaintiff or defendant. As it is conceded that Kelly, although nominally, is-not really a party to the action, he has not had his day in court,, and the decree in favor of the plaintiff, being void as to him on that account, is powerless to affect his rights, or to afford protection to the defendant company in obeying its command. The-absence of jurisdiction over a party is the absence of power to render judgment against that party. While the court assumed to-pronounce judgment against Kelly, and to restrain him from receiving the money due upon the policy, and from suing for its recovery, its action in that regard was coram non judice and void as to him. It could not exercise judicial power over one who-was not subject to its jurisdiction, nor compel him to obey a decree that was rendered without due process of law. W hile its command to the company not to pay Kelly could be enforced by punishment for disobedience, its command to Kelly not to sue the company could not be enforced by punishment or otherwise, because it was made without authority. Hence Kelly could compel the company to do what the judgment prohibited it from doing. Aside from the question of power to proceed without jurisdiction over Kelly, such a judgment is unreasonable, and hence inequitable. A court of equity should not restrain a party from doing an act, when it has no power to protect that party from being compelled by another court of competent jurisdiction to do the act thus prohibited. A forcible illustration of this appears in a case recently reported, which lacks no element of complete analogy, as it was the judgment of the court of last resort in Iowa, in the action brought by Kelly against the defendant company, and set forth in its answer in this action. Kelly v. Norwich Union Fire Insurance Co., 47 Horthwestern Rep., 986; 79 Iowa, 452 .

While the judgment in that case is not before us as evidence, the reported decision therein is just as valuable to illustrate what might reasonably be expected to take place, as if it were officially known to us as a record of what had taken place. The learned court, in affirming a recovery by Kelly upon the policy in question for its whole amount, said : “The record of the Hew York court was rightly rejected, for the reason that, as against Kelly,, the party claiming in this case to hold the policy and all rights under it, the decree and proceedings are void, for the reason that he was not served with process subjecting him to the jurisdiction of the Hew York court. Kelly was served with process in this' state, and did not appear in the case. The Hew York court failed to acquire jurisdiction of his person by service of process in this state. The judgment, therefore, as to him, is void.”

We regard the case cited as a practical demonstration that Kelly is a necessary party to this action, and that a court of equity

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should not have proceeded to judgment against the company without first acquiring jurisdiction over him. If this were an action at law brought by the plaintiffs to recover upon the policy, a different question would be presented, involving a conflict between the courts of Hew York and Iowa. As it is an action in equity, however, it is not necessary for us to now consider that subject.

Having in view our form of government, the comity due from the courts of one state to those of another, and the necessity for freedom of commercial transactions between citizens of different states, such questions should not be hastily entertained, but should be avoided when the rights of parties can be satisfactorily determined upon other grounds. Story on Conflict of Laws, § 9.

We think that further argument is not required to show that Kelly was a necessary party to this action, and that the trial court erred in rendering the judgment appealed from without first ac-quiring jurisdiction over him.

The judgment should, therefore, be reversed and a new trial .granted, with costs to abide event.

All concur.