Home Ins Co v. Dick

• Decision Date: 05 May 1930
• Docket Number: No. 232,232
• Citation: 50 S.Ct. 338,74 A.L.R. 701,74 L.Ed. 926,281 U.S. 397
• Parties: HOME INS. CO. et al. v. DICK et al
• Court: U.S. Supreme Court

281 U.S. 397

50 S.Ct. 338

74 L.Ed. 926

HOME INS. CO. et al.

v DICK et al.

No. 232.

Argued Feb. 27, 1930.

Decided May 5, 1930.

[Argument of Counsel from pages 397-399 intentionally omitted]

Messrs. David Rumsey and Mark W. Maclay, both of New

York City, for appellants.

Messrs. John Neethe and H. C. Hughes, both of Galveston, Tex., for appellees.

[Argument of Counsel from pages 400-401 intentionally omitted] Mr. Justice BRANDEIS delivered the opinion of the Court.

Dick, a citizen of Texas, brought this action in a court of that state against Compania General Anglo-Mexicana de Seguros S. A., a Mexican corporation, to recover on a policy of fire insurance for the total loss of a tug. Jurisdiction was asserted in rem through garnishment, by ancillary writs issued against the Home Insurance Company and Franklin Fire Insurance Company, which reinsured, by contracts with the Mexican corporation, parts of the risk which it had assumed. The garnishees are New York corporations. Upon them, service was effected by serving their local agents in Texas appointed pursuant to Texas statutes, which require the appointment of local agents by foreign corporations seeking permits to do business within the state.

The controversy here is wholly between Dick and the garnishees. The defendant has never been admitted to do business in Texas; has not done any business there; and has not authorized any one to receive service of process or enter an appearance for it in this cause. It was cited by publication, in accordance with a Texas statute; attorneys were appointed for it by the trial court; and they filed on its behalf an answer which denied liability. But there is no contention that thereby jurisdiction in personam over it was acquired. Dick's claim is that, since the obligation of a reinsurer to pay the original insurer arises upon the happening of the loss, and is not conditional upon prior payment of the loss by the insurer, Allemannia Fire Insurance Co. v. Firemen's Insurance Co., 209 U. S. 326, 28 S. Ct. 544, 52 L. Ed. 815, 14 Ann. Cas. 948; Hicks v. Poe, 269 U. S. 118, 46 S. Ct. 29, 70 L. Ed. 187, the New York companies are indebted to the Mexican company, and these debts are subject to garnishment in a proceeding against the latter quasi in rem, even though it is not suable in personam. The garnishees concede that inability to sue the Mexican corporation in Texas, in personam, is not material, if a cause of action against it existed at the time of garnishment and there was within the state a res belonging to it. But they deny the existence of the cause of action or of the res.

Their defense rests upon the following facts: This suit was not commenced till more than one year after the date of the loss. The policy provided: 'It is understood and agreed that no judicial suit or demand shall be entered before any tribunal for the collection of any claim under this policy, unless such suits or demands are filed within one year counted as from the date on which such damage occurs.' This provision was in accord with the Mexican law to which the policy was expressly made subject.¹ It was issued by the Mexican company in Mexico to one Bonner, of Tampico, Mexico, and was there duly assigned to Dick prior to the loss. It covered the vessel only in certain Mexican waters. The premium was paid in Mexico; and the loss was 'payable in the City of Mexico in current funds of the United States of Mexico, or their equivalent elsewhere.'² At the time the policy was is- sued, when it was assigned to him, and until after the loss, Dick actually resided in Mexico, although his permanent residence was in Texas. The contracts of reinsurance were effected by correspondence between the Mexican company in Mexico and the New York companies in New York. Nothing thereunder was to be done, or was in fact done, in Texas.

In the trial court, the garnishees contended that, since the insurance contract was made and was to be performed in Mexico, and the one-year provision was valid by its laws, Dick's failure to sue within one year after accrual of the alleged cause of action was a complete defense to the suit on the policy; that this failure also relieved the garnishees of any obligation as reinsurers, the same defense being open to them, New York State Marine Ins. Co. v. Protection Ins. Co., 1 Story, 458, 460, Fed. Cas. No. 10,216; and that they, consequently, owed no debt to the Mexican company subject to garnishment.³ To this defense Dick demurred, on the ground that article 5545 of the Texas Revised Civil Statutes (1925) provides: 'No person, firm, corporation, association or combination of whatsoever kind shall enter into any stipulation, contract, or agree- ment, by reason whereof the time in which to sue thereon is limited to a shorter period than two years. And no stipulation, contract, or agreement for any such shorter limitation in which to sue shall ever be valid in this State.'

The trial court sustained Dick's contention and entered judgment against the garnishees. On appeal, both in the Court of Civil Appeals (8 S.W.(2d) 354) and in the Supreme Court of the state (15 S.W.(2d) 1028), the garnishees asserted that, as construed and applied, the Texas statute violated the due process clause of the Fourteenth Amendment and the contract clause. Both courts treated the policy provision as equivalent to a foreign statute of limitation; held that article 5545 related to the remedy available in Texas courts; concluded that it was validly applicable to the case at bar; and affirmed the judgment of the trial court. The garnishees appealed to this Court on the ground that the statute, as construed and applied, violated their rights under the Federal Constitution. Dick moved to dismiss the appeal for want of jurisdiction. Then the garnishees filed, also, a petition for a writ of certiorari. Consideration of the jurisdiction of this Court on the appeal, and of the petition for certiorari, was postponed to the hearing of the case on the merits.

First. Dick contends that this Court lacks jurisdiction of the action, because the errors assigned involve only questions of local law and of conflict of laws. The argument is that, while a provision requiring notice of loss within a fixed period is substantive because it is a condition precedent to the existence of the cause of action, the provision for liability only in case suit is brought within the year is not substantive because it relates only to the remedy after accrual of the cause of action; that, while the validity, interpretation, and performance of the substantive provisions of a contract are determined by the law of the place where it is made and is to be performed, matters which relate only to the remedy are unquestionably governed by the lex fori; and that, even if the Texas court erred in holding the statute applicable to this contract, the error is one of state law or of the interpretation of the contract, and is not reviewable here.

The contention is unsound. There is no dispute as to the meaning of the provision in the policy. It is that the insurer shall not be liable unless suit is brought within one year of the loss. Whether the provision be interpreted as making the commencement of a suit within the year a condition precedent to the existence of a cause of action, or as making failure to sue within the year a breach of a condition subsequent which extinguishes the cause of action, is not of legal significance here.⁴ Nor are we concerned with the question whether the provision is properly described as relating to remedy or to substance. However characterized, it is an express term in the contract of the parties by which the right of the insurer and the correlative obligation of the insurer are defined. If effect is given to the clause, Dick cannot recover from the Mexican corporation, and the garnishees cannot be compelled to pay. If, on the other hand, the statute is applied to the contract, it admittedly abrogates a contractual right and imposes liability, although the parties have agreed that there should be none.

The statute is not simply one of limitation. It does not merely fix the time in which the aid of the Texas courts may be invoked. Nor does it govern only the remedies available in the Texas courts. It deals with the powers and capacities of persons and corporations. It expressly prohibits the making of certain contracts. As construed, it also directs the disregard in Texas of contractual rights and obligations wherever created and assumed; and it commands the enforcement of obligations in excess of those contracted for. Therefore, the objection that, as applied to contracts made and to be performed outside of Texas, the statute violates the Federal Constitution, raises federal questions of substance; and the existence of the federal claim is not disproved by saying that the statute, or the one-year provision in the policy, relates to the remedy and not to the substance.

That the federal questions were not raised in the trial court is immaterial. For the Court of Civil Appeals and the Supreme Court of the State considered the questions as properly raised in the appellate proceedings, and passed on them adversely to the federal claim. Chicago, Rock Island & Pacific Ry. Co. v. Perry, 259 U. S. 548, 551, 42 S. Ct. 524, 66 L. Ed. 1056; Sully v. American National Bank, 178 U. S. 289, 298, 20 S. Ct. 935, 44 L. Ed. 1072. The case is properly here on appeal. The motion to dismiss the appeal is overruled; and the petition for certiorari is therefore denied.

Second. The Texas statute as here construed and applied deprives the garnishees of property without due process of law. A state may, of course, prohibit and declare invalid the making of certain contracts within its borders. Ordinarily, it may prohibit performance within its borders, even of contracts validly made elsewhere, if they are required to be performed within the state and their performance would violate its laws....