Beacon Lamp Co. v. Travellers' Ins. Co.

• Decision Date: 07 November 1900
• Citation: 61 N.J.B. 59,47 A. 579
• Parties: BEACON LAMP CO. et al. v. TRAVELLERS' INS. CO. et al.
• Court: New Jersey Court of Chancery

47 A. 579

61 N.J.B. 59

BEACON LAMP CO. et al.

v. TRAVELLERS' INS. CO. et al.

Court of Chancery of New Jersey.

Nov. 7, 1900.

Bill by the Beacon Lamp Company and Aaron Moses, its trustee in bankruptcy, against the Travellers' Insurance Company and another. The defendant insurance company demurs to the bill and to the answer by way of cross bill of its co-defendant, Mary Bardzik. Demurrers overruled.

Freeman Woodbridge, for complainants. Alan H. Strong, for defendant.

Mary Bardzik. Charles C. Black and George Holmes, for Travellers' Ins. Co.

PITNEY, V. C. The complainant and its trustee in bankruptcy claim to occupy the position of a surety for the defendant insurance company, which they claim occupies the position of principal debtor to the defendant Mary Bardzik. The object of the original bill is to enforce the payment by the insurance company to the other defendant, Bardzik, of the debt so due in exoneration of the bankrupt's assets. The cross bill of Miss Bardzik is aimed at the insurance company, and is based, not upon any privity of contract between her and the insurance company, but upon the fact that she has a demand by judgment against the complainant, against which demand complainant is indemnified by the Insurance company; and she claims that out of these facts arises an equity on her part to demand payment directly from the insurance company. The prayers of the original bill and of the cross bill are substantially the same. The right of the complainant, if it occupies the position of surety for the insurance company, to enforce such a demand by a suit in chancery, framed as is this, seems to be well settled. Chancellor Kent, speaking of the right of a surety against the principal, in King v. Baldwin, 2 Johns. Ch. 554, says on page 560: "The surety is entitled to pay the debt when it becomes due, and sue the principal debtor; or he may call upon the creditor, by the aid of this court, to enforce his demand against the principal." Chancellor Green, in Irick v. Black, 17 N. J. Eq., at page 195, says: "As soon as the debt has become payable, he [the surety] may file a bill to compel payment by the principal, in order that the surety may be relieved from responsibility." Mr. Justice Depue, speaking for the court of errors and appeals, in Railroad Co. v. Little, 41 N. J. Eq. 519, 7 Atl. 356 (at page 529, 41 N. J. Eq., page 361, 7 Atl.), says: "In equity the surety's remedy is not necessarily confined, as at law, to obtaining indemnity after payment of the debt. Under special circumstances, where his equitable right to have the debt paid by the principal, or out of the latter's property, can be enforced without injury or prejudice to the creditor's rights, he may compel the creditor to resort to securities in his hands, or under his control, the property of the principal, in satisfaction of the debt, before coming upon the surety; as, for instance, where the creditor is fully indemnified, and will be subjected to no delay, and exposed to no risk of loss, if he is compelled to resort first to the property of the principal." And this right, he says, on the same page, does not depend upon or require any contract for support, but results from the relation of surety and principal, independent of contract, and is founded upon the principle of natural justice of placing the charge where in equity it belongs. And see Herron v. Mullen, 56 N. J. Eq. 839, 42 Atl. 1016, in the court of errors and appeals; Wooldridge v. Norris, L. R. 6 Eq. 410, where several English authorities are collected; Nisbet v. Smith, 2 Brown, Ch. *579, and cases cited in note; Champion v. Brown, 6 Johns. Ch. 398, at page 405; 1 Story, Eq. § 730; Mitf. Eq. PI. p. 148. And see the principal American cases collected in the American notes to Dering v. Earl of Winchelsea, 1 White & T. Lead. Cas. Eq. p. *114, and Brandt, Sur. §§ 191, 192, 204-206. The principle upon which these authorities rest is that it is inequitable to compel a surety to first pay the money to the creditor as a prerequisite to a remedy against the principal. The proceeding is, in effect, a suit by the surety against the principal to compel him to pay his debt to the creditor; and the objections to the suit have generally been raised by a creditor who happens to be unwilling to enforce his claim against the principal. But where it appears, as here, that there is no contest between the surety and the debtor, but both desire the payment of the debt, the right to proceed seems to be unquestioned. In fact, it seems to have been held by Chancellor Kent in Champion v. Brown, supra, that they were properly joined as complainants in that case. It is equally well settled that a creditor has a right of subrogation to any choses in action or other property which the surety has received from the principal to indemnify him, and included in that category is any covenant which the debtor has given the surety to pay the debt. The leading case in New Jersey is Klapworth v. Dressier, 13 N. J. Eq. 62 (the headnote of this case states the doctrine erroneously in saying that the grantee becomes the surety for the grantor. The opinion says the grantor becomes the surety for the grantee. See bottom p. 63), followed by a line of cases whose citation is not necessary. The whole subject was thoroughly discussed by Mr. Justice Gray in Keller v. Ashford, 133 U. S. 610, 10 Sup. Ct 494, 33 L. Ed. 667, where, after citing with approval Klapworth v. Dressier, and commenting on many other cases, he says: "In short, if one person agrees with another to be primarily liable for a debt due from that other to a third person, so that, as between the parties to the agreement, the first is the principal and the second the surety, the creditor of such surety is entitled, in equity, to be substituted in his place for the purpose of compelling such principal to pay the debt."

With this preliminary statement of the rules of equity governing the question, let us see how far the facts admitted by the demurrers bring the present case within them. The lamp company, complainant, being engaged in carrying on a factory, purchased from the insurance company, defendant, a policy of insurance, by which it agreed to indemnify the lamp company, for the term mentioned, against loss from common-law or statutory liability for damages on account of bodily Injury accidentally suffered by any employé caused by the negligence of the assured, to the extent of not more than $5,000 incurred and suffered by one individual, and subject to certain enumerated conditions and exceptions not necessary here to be stated, except the fifteenth, which provides that "no action shall lie against the company, as respects any loss under this policy, unless it shall be brought by the assured himself to reimburse him for loss actually sustained, and paid by him in satisfaction of a judgment after trial of the issue." During the life of this policy Miss Bardzik was employed by the lamp company in its factory, and suffered personal Injury under such circumstances as to render the lamp company liable to her for damages, and upon a recovery by her against the lamp company to render the insurance company liable to indemnify the lamp company to the extent of not more than $5,000. This is admitted by counsel of the Insurance company. Miss Bardzik brought suit against the lamp company, the defense of which was conducted by the insurance company, and resulted in a verdict for $6,000. The facts show, and it is admitted by the counsel of the insurance company, that, if the lamp company had paid Miss Bardzik this judgment, a cause of action at common law would have arisen at once in its favor against the insurance company. What actually occurred was this: On the day that judgment was entered, and before execution was levied, the lamp company was thrown into bankruptcy on the petition of one of its creditors, and enjoined from paying Miss Bardzik, and she was enjoined from enforcing her judgment against it. The complainant Moses was duly appointed trustee in bankruptcy. This state of facts seems to me to clearly place the three parties to this suit in the relation towards each other which the complainant and Miss Bardzik claim that they occupy. As between Miss Bardzik and the lamp company, and without regard to the policy of insurance, the lamp company is the debtor and Miss Bardzik is the creditor; and they bear the same relation to each other that the owner of land who has given a bond and mortgage does to the holder of the mortgage. But when we introduce the element of the policy of insurance given by the insurance company, the situation of the parties is, in equity, changed, precisely as it is in the case where the giver of a bond and mortgage conveys the land, and the grantee assumes the payment of the bond and mortgage as a part of the consideration money. At once, in such a case, in the view of a court of equity, as between the grantor and grantee of the land, the grantee becomes the principal debtor to the holder of the bond and...