Conlew, Inc. v. Kaufmann

• Citation: 199 N.E. 767,269 N.Y. 481
• Parties: CONLEW, Inc., v. KAUFMANN et al.
• Decision Date: 14 January 1936
• Court: New York Court of Appeals Court of Appeals

269 N.Y. 481

199 N.E. 767

CONLEW, Inc.,

v.KAUFMANN et al.

Court of Appeals of New York.

Jan. 14, 1936.

Action by Conlew, Inc., against Henry D. Kaufmann, Herman Floersheimer and others. From a judgment of the Appellate Division, First Department (243 App.Div. 761, 278 N.Y.S. 515) affirming a judgment of the Trial Term dismissing plaintiff's complaint, plaintiff appeals.

Judgments reversed, and new trial granted.

Appeal from Supreme Court, Appellate Division, First department.

Leonard G. Bisco and Samuel Chugerman, both of New York City, for appellant.

Joseph M. Baum, of New York City, for respondents.

HUBBS, Judge.

The respondents on or about January 16, 1925, executed and delivered to appellant's assignor a guaranty agreement in the following form:

‘In order to induce the Chatham Phenix National Bank of the City of New York to continue carrying the loans now due to it from Henry D. Kaufmann and Company which are secured in part by an assignment of Policy No. 797305 of the Mutual Benefit Life Insurance Company on the life of Henry D. Kaufmann, and in consideration for such extensions as the Bank may give to Henry D. Kaufmann and Company, the undersigned jointly and severally agree:

‘That the premium upon said policy in the amount of $767.40 per year payable on the 5th day of April of each and every year will be paid when the same becomes due from time to time. In the event that the Chatham Phenix National Bank shall receive any notice that the premium on said policy is in default, the said Bank is hereby authorized to pay said premium at its option and we agree to reimburse it upon demand. * * *’

Kaufmann thereafter desired to procure a loan on the policy, and respondents, on or about April 21, 1932, wrote the appellant's assignor in part as follows: ‘We hereby consent to the loan proposed to be made and agree that this loan shall in no manner affect your rights of recourse against us as indicated by the terms and conditions of the guaranty executed by us under date of January 16, 1925. We also hereby ratify and confirm the said guaranty and agree that all the terms, covenants and conditions thereof are now and shall continue in full force and effect.’

On June 11, 1932, appellant's assignor advised respondents of receipt from the insurer of notice of a premium to become due on July 5, 1932, giving the amount to become due, and concluding thus: ‘Inasmuch as we hold your guarantee of the payment of premiums under this policy, you should take necessary action to be sure that said premiums are paid as due.’

It does not appear that the insurer thereafter gave notice to appellant's assignor of a default in payment of premiums nor that the appellant's assignor after default in payment of the premium due on July 5th had notice, actual or constructive, of such default prior to the expiration on August 5, 1932, of the days of grace allowed by the terms of the policy for the payment of premiums. On the contrary, that appellant's assignor believed that the premium had been paid by the insured or respondents is indicated by the following letter sent to them on August 13, 1932, by appellant's assignor:

‘On June 11th we forwarded you premium notice of the Mutual Benefit Life Insurance Company for payment due July 5th on your Policy #797303 in the amount of $204.47 and to date have not received from you the company's receipt for our inspection.

‘Please forward this receipt to us and we will return it to you when it has served our purpose.’

The premium in question not having been paid, the policy lapsed. The assignee of the policy then had options of which it might avail itself, namely, to take extended insurance for a period of 15 years 114 days in the amount of the face of the policy, $30,000, $11,580 of paid-up insurance, or $1,983.38 as cash surrender value. It took the cash surrender value, credited the amount on Kaufmann's obligations, and assigned its cause of action to appellant, which instituted this action against respondents as guarantors to recover the amount of Kaufmann's remaining indebtedness, being the sum of $15,024.10. At the trial, appellant contended that the amount recoverable was the value of the collateral less the amount realized thereon. As to the value of the collateral, it was appellant's contention that the proper amount was that sum which, invested at 4 per cent., would produce in 20.91 years, the life expectancy of the assured, the sum of $30,000, the face amount of the policy, which sum it proved to be $13,059.

On default, the appellant's assignor had a right to surrender the policy for its cash surrender value. Toplitz v. Bauer, 161 N.Y. 325, 332,55 N.E. 1059;Bailey v. American Deposit & Loan Co., 52 App. Div. 402, 403, 404, 65 N.Y.S. 330.

The agreements under which the obligations of Kaufmann were extended by appellant's assignor contained a provision that, upon ‘non-payment of this note or of any other liabilities' to the appellant's assignor, it might at its option sell the policy at public or private sale without notice.

The trial court dismissed the complaint at the close of appellant's case upon the ground that the guaranty was not a guaranty of collateral, that the agreement cast upon the appellant's assignor the obligation to pay the premium and to proceed against the guarantors to recover the amount of the premium paid, and that appellant was not entitled to any further damage which resulted from the breach of the agreement that the premiums would be paid when due. The judgment has been unanimously affirmed by the Appellate Division. Conlew, Inc., v. Kaufmann, 243 App.Div. 761, 278 N.Y.S. 515.

We interpret the agreement as constituting an obligation on the part of the respondents to prevent a lapsing of the policy through nonpayment of premiums, and as imposing upon them, in the event of a breach of that agreement, liability for such damages as may be found to have resulted therefrom. We do not construe it as imposing upon appellant's assignor, except at its option, an obligation to pay such premium.

The agreement constituted an absolute guaranty of payment. It was an entire contract, and, when respondents breached it, there immediately arose a valid cause of action in favor of appellant's assignor to recover its entire damage caused by such breach. Respondents understood that the agreement was an agreement of guaranty. They so stated in their letter of April 21, 1932, heretofore quoted.

Even if the agreement were to be construed as placing upon appellant's assignor an obligation to pay the premium in case of receipt by it of notice of default, it is clear that, as to the premium in question, no such obligation resulted, for the reason that no notice of default was received by it prior to the lapse of the policy. The notice which it received was not a notice of default, but rather of a premium to become due. Had it paid the premium before the due date, it could not have recovered of respondents the amount paid, as it could not be known that the assured or some one in his behalf would not pay it before the due date. Only during the days of grace was there a default which could have been cured without loss of the policy, and during that period plaintiff's assignor did not know that its suggestion to respondents that the premium be paid had not been complied with.

On the other hand, respondents, by paying the premium and taking over the policy, could have protected themselves against loss because of their guaranty.

Respondents breached their agreement when the premium was not paid. That resulted in damage to appellant's assignor not only of the amount of the premium but of the value of the policy, which lapsed because of such failure to pay the premium. Gerard v. Cowperthwait, 2 Misc. 371, 21 N.Y.S. 1092, affirmed 143 N.Y. 637, 37 N.E. 827;Gray v. Murray, 3 Johns.Ch. 167.

In the Gerard Case the defendant gave a bond to the plaintiff which read in part: ‘Whereas the above bounden Frank H. Cowperthwait has agreed and does hereby agree in consideration of the sum of one dollar to him in hand paid, the receipt whereof is hereby acknowledged, to pay the premiums of insurance on the said policy as the same may become due from time to time.’ 2 Misc. 371, at page 372, 21 N.Y.S. 1092, 1093.

The General Term of the Court of Common Pleas decided that the default of the defendant in paying a premium made him liable for the entire damage resulting. The court said: ‘In this case Cowperthwait agreed to pay the premiums on the policy of insurance described in the bond when they became due. He failed to pay the March premium, and the policy in consequence of that failure lapsed and was void. No premium could become payable thereon at any time thereafter. The breach of the contract on his part was of necessity total, and the plaintiff must recover in this action his full and final damages. Besides, the loss of the policy was the natural and approximate result of the failure of the appellant to pay the premium. Had he done so the policy would now be alive; it became inoperative on his failure to pay the March premium. In such case the damages are the value of the policy. People v. Security Life Ins. & Annuity Co., 78 N.Y. 114 . The appellant had full knowledge of the special circumstances affecting the question of damages and that his breach...