Parr v. Insurance Co. of North America

• Decision Date: 01 July 1929
• Docket Number: No. 3888-3890.,3888-3890.
• Citation: 44 F.2d 567
• Parties: PARR et al. v. INSURANCE CO. OF NORTH AMERICA (two cases). DONNELLY et al. v. SAME.
• Court: U.S. District Court — District of Maryland

44 F.2d 567 (1929)

PARR et al. v. INSURANCE CO. OF NORTH AMERICA (two cases).

DONNELLY et al. v. SAME.

Nos. 3888-3890.

District Court, D. Maryland.

July 1, 1929, and November 9, 1929.

W. Calvin Chestnut, of Baltimore, Md. (Haman, Cook, Chestnut & Marrell, of Baltimore, Md.), for plaintiffs.

John Henry Lewin and Alexander Armstrong, both of Baltimore, Md. (Armstrong, Machen & Allen, of Baltimore, Md., on the brief), for defendant.

Opinion in Overruling the Demurrers.

WILLIAM C. COLEMAN, District Judge.

The question presented, which is the same in each of the three suits, is one of interpretation of section 14 of article 57 of the Maryland Code, which is as follows: "In all actions where a party has a cause of action of which he has been kept in ignorance by the fraud of the adverse party, the right to bring suit shall be deemed to have first accrued at the time at which such fraud shall or with usual or ordinary diligence might have been known or discovered."

Each of the three suits is based upon the same contract between the defendant and the plaintiffs whereunder the plaintiffs acted as policy-writing agents for the defendant. This contract provided for the rate of payment of certain commissions, both fixed and contingent, to the plaintiffs, the clause governing the contingent commissions being as follows (paragraph 7): "It is further agreed that should a larger contingent commission than 5% be granted to agents in any other large city, then in that case the Baltimore agents (the plaintiffs) are to receive the same amount of contingent commission." The declarations allege, and it is admitted, that the defendant company paid a larger commission, namely 10 per cent., to its Boston agents during some twelve years while the contracts were in force but that plaintiffs were never paid more than 5 per cent. The present suits, instituted in the state court in February, 1919, and brought here by removal, represent, therefore, claims for the additional 5 per cent. for the years during which the Boston agents were paid the 10 per cent. All of these additional commissions now in dispute are computed upon business done more than three years prior to the institution of the suits. Defendant has pleaded the Maryland three-year statute of limitations in each case, except as to a part of the claim in the third suit, which is admitted not to be barred, and plaintiffs, by way of replication, have invoked the provision of the Maryland Code above quoted, to which replication in each case the defendant has demurred.

In order that the issue thus defined by the pleadings may be clearly understood, it is proper to set forth in full the stated grounds of plaintiffs' replication which are as follows:

"And for replication to the defendant's fifth plea the plaintiffs say that they were ignorant of their right of action to bring this suit until a comparatively short time (and within three years) prior to the institution of said suit, and that they were kept in ignorance thereof by what in law amounts to the fraud of the defendant, in that

"(a) The relation of the parties as principal and agent were of a fiduciary nature implying mutual trust and confidence;

"(b) It was the duty of the defendant under the Agency Agreement to properly prepare an annual statement which should affirmatively and correctly show the amount of contingent commissions to which the plaintiffs were entitled under the agreement, and the defendant did annually prepare and furnish to the plaintiffs a statement which, on its face, represented that the plaintiffs were entitled to only 5 per cent;

"(c) That the fact that the defendant was granting and paying to its Boston agents ten per cent contingent commission was not known to nor suspected by the plaintiffs, but was peculiarly within the private knowledge of the defendant.

"(d) That the plaintiffs not knowing in fact who were the Boston agents of the defendant or the amount of contingent commission paid to them, and having no suspicion of the correctness of the defendant's annual statements exercised ordinary and usual diligence in accepting the statements of the defendant as true and correct."

The demurrer in addition to the common grounds of insufficiency in and conclusions of law, and of duplicity, alleges (a) that the replication does not show when or how the plaintiffs discovered the facts alleged to amount as a conclusion of law to fraud; and (b) that it sets forth matter cognizable only in a court of equity.

Summarized, the object of the Maryland statute here in question is to postpone the running of limitations — where (1) the plaintiff has been kept in ignorance by the fraud of the adverse party, and (2) has exercised usual or ordinary diligence to discover the fraud — until plaintiff obtains knowledge of it. The gist of defendant's contention that this statute cannot be availed of in the present action is (1) there is no allegation of that kind of fraud commonly cognizable in a court of law; that is, that there must be fraud in fact — deliberate or intentional deceit — as opposed to fraud in law consisting merely of failure to disclose to the plaintiffs their cause of action. And (2) that even if actual fraud be not a prerequisite, plaintiffs are barred because the statute's requirement of "usual or ordinary diligence" imposed an affirmative duty upon the plaintiffs to inquire regarding the commissions paid elsewhere, which they did not do.

The construction to be given this Maryland statute is that adopted by the highest court of the state. Elmendorf v. Taylor, 10 Wheat. 152, 6 L. Ed. 289; Kansas City Structural Steel Co. v. Arkansas, 269 U. S. 148, 46 S. Ct. 59, 70 L. Ed. 204. From an examination of the decisions of the Court of Appeals of Maryland construing this statute, we find the following propositions to be established: First, the statute was passed for the purpose of enabling parties to set up the fraud of the defendant in a court of law, just as in a court of equity, for the purpose of removing the bar of limitations, which, prior to the statute, was not permissible in Maryland. Wear v. Skinner, 46 Md. 257, 24 Am. Rep. 517. See also State v. Henderson, 54 Md. 332; New England Co. v. Swain, 100 Md. 558, 60 A. 469. Second, in equity suits, fraud of the type involved in the present cases is within the contemplation of the statute. Peoples v. Ault, 128 Md. 401, 97 A. 711; Anderson v. Watson, 141 Md. 217, 118 A. 569. In the first of these latter cases, the basis of the bill was a contract of employment providing that not only should the plaintiff employee receive a certain sum monthly as wages, but that in addition, he should receive 10 per cent. of the net profits, if any from each of the employer's construction contracts. The contractor reduced the net profits by illegal expenditures which he concealed from the employee. In affirming a decree of the lower court allowing recovery by the employee, the Court of Appeals said, page 405 of 128 Md., 97 A. 711, 712:

"As to the plea of the statute of limitations and the bar of the settlement made in January 1908, it is sufficient to say that, if the appellee was entitled to more than was paid him at that time by reason of the net profits being reduced by expenditures the illegality of which fact was concealed from him by the appellant, the statute operates only from the time such fraud was discovered, or could have been discovered by due diligence. Section 14, art. 57, of the Code. Under the facts in the record we are of the opinion that the appellee had no knowledge of what these extra expenses were for, and was led to accept them in making his settlement as correct by reason of his implicit confidence in the integrity of his employer."

In the second case, in granting as accounting for wages due by a coal mining company to its employees, based on the use by the company of inaccurate scales for weighing coal, the court said, pages 228, 229 of 141 Md., 118 A. 569, 573:

"We cannot assume, as we are asked to do by the coal company's demurrer, that for 15 years that company continuously withheld from its employees, without their knowledge or consent, by means of false weights, agencies, and instrumentalities in its exclusive control, compensation justly due them, to its gain and their loss, without assuming also that it knew and intended to do what it did. On the other hand, in the face of their statements that they knew nothing of the short weight, and considering the fact that the conditions resulting in the false weights were so latent as to deceive even the officials charged with the duty of inspecting such scales for the state, we cannot assume that the employees of the coal company were guilty of negligence in failing to discover the false weights. We cannot say under such circumstances that the company had no knowledge of the false weights nor that it had no intention to deceive. Knowledge and intent are mental phenomena which in the case of a corporation can only be inferred from the acts of its agents. It seldom happens that a person, natural or corporate, overtly admits or declares, either orally or in writing, an intention to perpetrate a fraud, and it follows that the existence of such an intent can, in many cases, only be known from inferences drawn from the conduct of its agents.

"It is not necessary, in establishing the knowledge and intent essential to a charge of fraud, to show such knowledge and intent by direct evidence, but they may be inferred from the conduct of the parties (Sisk v. Garey, 27 Md. 417), and if we assume that the company, over a long period of years, intentionally deprived and withheld from the plaintiffs, without their knowledge, compensation justly due them, under the circumstances of this case fraud may be inferred from such conduct on its part." (Italics inserted.)

We are unable to distinguish these cases from those now under consideration. The criminality of what was done by the employer in the first...