Hill v. Am. Sur. Co. of N.Y.

• Decision Date: 27 February 1900
• Citation: 81 N.W. 1024,107 Wis. 19
• Parties: HILL v. AMERICAN SURETY CO. OF NEW YORK ET AL.
• Court: Wisconsin Supreme Court

107 Wis. 19

81 N.W. 1024

HILL

v.AMERICAN SURETY CO. OF NEW YORK ET AL.

Supreme Court of Wisconsin.

Feb. 27, 1900.

Appeal from circuit court, Milwaukee county; D. H. Johnson, Judge.

Action by A. W. Hill, clerk, against the American Surety Company of New York, impleaded with E. B. Winterhalter. Judgment for defendants, and plaintiff appeals. Reversed.

On the 22d of June, 1894, the Enger-Kress Company made a voluntary assignment to E. B. Winterhalter, its vice president, and the respondent the American Surety Company became surety on his assignee's bond. The company's business was the manufacture of leather goods in a factory of their own located in North Milwaukee. They had at the time of the assignment about $38,000 of fire insurance. No effort was made by the assignee to secure consent to assignment of these policies to him, nor was any attempt made to obtain insurance upon either plant or contents. On July 7th the factory and contents were substantially destroyed by fire. Their value was approximately $37,000. Almost immediately thereafter, at the suit of a judgment creditor, a receiver of the assignor corporation was appointed, and on July 21st the court entered an order requiring the assignee to turn over to that receiver all the assets in his hands, subject to a claim for his compensation and disbursements while it had been in his possession. This was done, no account or report of the assignee's dealings with the property having been filed, or passed on by the court. His statement of his charges for compensation and disbursements were made, and finally allowed by the court, and paid to him by the assignee. The order for this transfer was predicated on invalidity of the assignment for the reason that the bond signed by appellant did not bear the certificate required by law of surety companies. Much evidence was given in support of a uniform custom of manufacturers to keep their property insured at and in the vicinity of Milwaukee; also of a very general custom of assignees and receivers to maintain insurance. Evidence was also offered as to the ease or difficulty with which insurance could have been procured by this assignee had he made an effort; and that most agents would not have assumed authority without submission to home offices, which would have required four or five days. The court found that it was customary for insurance agents not to write risks on property in the hands of assignees without submitting the applications to the home offices of their companies; “but whether or not the companies would, upon investigation, approve or accept such applications so submitted, or what proportion thereof would be so approved or accepted, was not shown by the evidence.” The court further found that: “If the assignee, after the assignment, had made due and diligent effort and had taken all usual and necessary steps to procure the consent of the several insurance companies which had issued the insurance policies to the transfer to him of said policies and the insurance represented thereby, and had also made due and diligent effort and had taken all usual and necessary steps to procure other policies of insurance or new policies to be written upon said property, he would not have been able to have procured such consent, or to have kept said policies alive, or to have secured other and new or additional insurance prior to the date of said fire. No damage was sustained by said plaintiff by reason of the failure of said assignee to attempt to secure a continuance of the said existing insurance, or to attempt to procure new insurance upon said property.” It was quite conclusively proved that he could, in all probability, have obtained some insurance; but neither how much, on the one hand, nor how little, on the other, is established. The court held as matter of law that the assignee was bound to insure if he could do so “readily.” The action was brought by a creditor, without an order of court, in the name of the clerk, to recover of the assignee and said surety company the amount of unpaid claims existing against said corporation,--about $23,000 and interest,--to be collected for the benefit of these creditors. Judgment was entered in favor of the defendants, from which the plaintiff appeals.

Quarles, Spence & Quarles, for appellant.

Miller, Noyes, Miller & Wahl, for respondents.

DODGE, J. (after stating the facts).

1. The first and fundamental question in this case is whether the defendant assignee was guilty of a breach of his official duty in refraining from effort to secure insurance on the building and stock of the manufacturing plant in his possession. Certainly no less degree of care and diligence can be permitted to an assignee than that which is imposed upon the bailee for hire or agent, namely, that of ordinary diligence,--such diligence and care as are exercised by ordinarily prudent persons under like circumstances, and the utmost good faith, and to that duty he should be strictly held. It has always been the policy of courts to protect those who, by force of the law, or without their consent, are represented by others in the care of their property. In the case of an assignment the body of creditors are the ones ultimately interested in the preservation and productiveness of the property. Upon them falls the loss, and to them results the benefit, of the assignee's management. They cannot direct specific acts, nor, in the main, can they control that management. Hence the duty of the courts to hold the assignee to strict performance, first, of all orders which the court may make as to his conduct, and, secondly, where the court is silent, to the full measure of diligence and fidelity above suggested. Burrill, Assignm. § 410; Smith, Rec. § 109; Litchfield v. White, 7 N. Y. 438;In re Dean, 86 N. Y. 398, 400;In re Cornell, 110 N. Y. 351, 357, 18 N. E. 142. In this case it is fully proved, and, if not proved, the fact is so well within common knowledge as to justify judicial notice thereof, that ordinarily prudent men, having in possession a large manufacturing establishment, such as this was shown to be, keep the same insured against loss by fire to an amount well approaching the real value. It is also proved that assignees and receivers do not customarily pursue a different course, in this respect, from others. By one witness it is said that the custom for assignees to insure is substantially universal; by another, that nine out of ten of them do insure; and by all the witnesses that the custom is general. We cannot doubt, therefore, that it is proved to have been the duty of the defendant assignee to have exercised such diligence to procure insurance upon this plant as would have been exercised by an ordinarily prudent and diligent man. In this duty he absolutely failed, confessedly. He made not the slightest effort to secure insurance, either by the assignment of existing policies or by the procuring of new ones; and this, too, in despite of express advice and direction from his counsel. He was, then, guilty of negligence in the performance of his duties as assignee, and no reason is apparent why both he and the sureties upon his official bond should not be liable for any damages proved to have resulted therefrom.

As we approach the question of damages, some difficulty is met. It is proved that the property destroyed was worth about $37,000; that the usual amount of insurance upon such property would have been more than enough to satisfy the claims of all the creditors, which aggregate $22,385.89; and that, by reason of the absence of such insurance, the creditors are damnified to that extent. On one hand, it is contended that this showing is sufficient, prima facie, to entitle them to recover, and that such recovery can be defeated or diminished only by proof that due diligence on the part of the assignee would have been ineffective in procuring either any insurance or some part of the amount necessary for the protection of the creditors; and that the burden of proving this situation rests upon the defendant, who seeks to diminish the apparently natural results of his own negligence. On the other hand, it is contended that the plaintiff must establish that the creditors have actually suffered damage by reason of the negligence of the assignee, which they would not have suffered had he not been so negligent. It is urged that it cannot be said that loss to a creditor is caused by an omission on the part of the assignee of any effort to insure,...