Hartford Fire Ins. Co. of City of Hartford, Conn., v. Downey
| Decision Date | 04 May 1915 |
| Docket Number | 1268. |
| Citation | 223 F. 707 |
| Parties | HARTFORD FIRE INS. CO. OF CITY OF HARTFORD, CONN., v. DOWNEY. |
| Court | U.S. Court of Appeals — Fourth Circuit |
John W Davis, of Clarksburg, W. Va., and W. Calvin Chestnut, of Baltimore, Md. (Allen B. Noll, of Martinsburg, W. Va., on the brief), for plaintiff in error.
Malcolm Jackson, of Charleston, W. Va., and J. O. Henson, of Martinsburg, W. Va., for defendant in error.
Before PRITCHARD, KNAPP, and WOODS, Circuit Judges.
The defendant in error (plaintiff below) recovered a judgment entered upon the verdict of a jury, in an action upon a fire insurance policy issued to the Stewart Vehicle Company, a West Virginia corporation, which carried on business at Martinsburg, in that state. The assignments of error are based upon exceptions to certain instructions given to the jury by the judge presiding at the trial, and to his refusal of certain instructions requested by the defendant, including the direction of a verdict in its favor. The policy in question is of the New York standard form prescribed also by the laws of West Virginia, and contains the following provision:
'This entire policy shall be void if * * * the subject of insurance be personal property and be or become incumbered by a chattel mortgage.'
The property insured, which consisted of the merchandise in stock of the Vehicle Company, was totally destroyed by fire on the 15th of September, 1912, while the policy was in force; but the insurance company denies liability on the ground that the property had become incumbered with a chattel mortgage. The facts in this regard appear to be these:
At the time of the fire the Vehicle Company was indebted to the Maryland Surety & Trust Company, of Hagerstown, to the amount of approximately $30,000, evidenced by three notes described as follows:
(b) Demand note for $12,000, dated December 30, 1911, for which the Trust Company held no specific security.
(c) Thirty-day note, dated January 13, 1912, for $7,220, secured by invoices or open accounts due the Vehicle Company from its customers, to the amount of about $10,000, which had been assigned to the Trust Company, presumably when the note was discounted, with the agreement that the Vehicle Company should collect the money on these invoices and pay it over to the Trust Company in discharge of the obligation; and this arrangement appears to have been carried out to the extent of payments amounting to about $2,300.
In the transactions involved in this suit the Trust Company was represented by Mr. John M. Lane, its secretary and assistant treasurer, and it is evident that early in the year 1912 Mr. Lane became anxious about the indebtedness of the Vehicle Company and desired to reduce the amount or get additional security for its payment. There is no room for doubt that the Vehicle Company at this time was more or less embarrassed. It may not have been actually insolvent, or its business unpromising; but it was seriously hampered, to say the least, by lack of working capital. Mr. Lane was uneasy, if not apprehensive, about the situation, and sought actively to diminish the risk which this loan involved. He had frequent conferences with the general manager of the Vehicle Company, in which the situation was discussed with the view of reducing the line of discount or otherwise protecting his company.
To meet its financial difficulties and comply with the demand of the Trust Company for additional security, the Vehicle Company, with the full knowledge and approval of Lane, decided upon a bond issue of $50,000, secured by deed of trust on all its real and personal property, which should be used in the first instance to provide the Trust Company with further collateral and then sold to the public from time to time, the proceeds to be applied to the payment of the Trust Company's debt until it was extinguished, and the balance utilized for additional capital. It was further understood that the Vehicle Company should enter into a contract with the Takoma Investment Company of Chicago, as the fiscal or selling agent of the bonds, which were to be placed in the hands of the Trust Company, and that as sales were made to investors the bonds would be forwarded by the Trust Company with sight draft attached, the proceeds to be received by the Trust Company and credited upon its loan until it was fully liquidated.
As the new bonds were to be a first lien on all the property of the Vehicle Company, and so sold to the public, it was, of course, necessary for the Vehicle Company to procure a surrender of the prior issue of bonds, then held by the Trust Company, as above stated, and a release of the trust deed on the real estate by which those bonds were secured. Steps were accordingly taken to carry out this plan, but there was considerable delay in bringing it to consummation; and it was not until the 16th of August that the trust deed was executed and acknowledged. On the 19th of August the officers of the Vehicle Company, namely, Claude Stewart, its vice president and general manager, C. H. Harris, its secretary and treasurer, and William W. Downey, its counsel and the trustee named in the deed of trust, took the papers to Hagerstown. The bonds were delivered to the Trust Company, or at least placed in its possession, and the trust deed left with Mr. Lane for approval by the counsel of his company. It was arranged at the same time that the two notes for $10,000 and $12,000, respectively, which the Trust Company then held, should be replaced by a new note for $22,000. A memorandum was made of the accrued interest on the old notes, amounting to $183.34, which was to be paid by the Vehicle Company, and a demand note for $22,000 drawn up and given to Mr. Harris for execution by that company.
The deed of trust was duly approved by the counsel of the Trust Company, but it was found upon examination that the bonds had not been signed by the officers of the Vehicle Company, although they were properly certified by Downey, the trustee. Thereupon, on the 20th of August, Lane returned the deed of trust to the Vehicle Company, with a letter stating that it would be necessary for the president and secretary of that company to come over and execute the bonds under its corporate seal. Accordingly these officers went to Hagerstown a few days later, where they signed the bonds and affixed the corporate seal. For some reason there was delay on the part of the officers of the Vehicle Company in executing and returning the new note, paying the accrued interest on the old notes, and getting the deed of trust recorded, and they were repeatedly urged by Lane to complete these details of the arrangement. He testifies that he telephoned them a number of times to the effect that he could not understand the delay in recording the deed of trust, or see any reason why the transaction was not concluded. On the 7th of September he wrote the Vehicle Company as follows:
On September 9th the Vehicle Company made the following answer:
To this Lane replied the next day as follows:
This letter appears to have had the desired effect, for the new deed of trust was recorded on the 12th of September, and the record office receipt therefor mailed to and received by Lane prior to the fire, which occurred, as above stated, on the 15th of September, 1912. In this connection it may be mentioned that the total loss was adjusted at $105,849.42, with aggregate insurance of $107,500. Of this amount of insurance $80,500 was on the stock, which was less than its adjusted value. The policy in suit was for $10,000, and covered the stock only, and it is conceded that the defendant, if liable at all, is liable for the full amount of its policy and interest.
When the fire occurred it became apparent to the officers of...
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