Strouse v. American Credit Indem. Co. of New York

• Court: Maryland Supreme Court
• Writing for the Court: MCSHERRY, C.J.
• Citation: Strouse v. American Credit Indem. Co. of New York, 46 A. 328, 91 Md. 244 (Md. 1900)
• Decision Date: 20 April 1900
• Parties: STROUSE et al. v. AMERICAN CREDIT INDEMNITY CO. OF NEW YORK. AMERICAN CREDIT INDEMNITY CO. OF NEW YORK v. STROUSE et al.

46 A. 328

91 Md. 244

STROUSE et al. v. AMERICAN CREDIT INDEMNITY CO. OF NEW YORK.

AMERICAN CREDIT INDEMNITY CO. OF NEW YORK v. STROUSE et al. ^[1]

Court of Appeals of Maryland

April 20, 1900

Cross appeals from superior court of Baltimore city; Albert Ritchie, Judge.

"To be officially reported."

Action by Strouse & Bro. against the American Credit Indemnity Company of New York on an indemnity bond. From a judgment in favor of plaintiffs for a part only of the amount sued for both parties appeal. Reversed.

Argued before MCSHERRY, C.J., and PAGE, PEARCE, BOYD, BRISCOE, and SCHMUCKER, JJ.

Charles Marshall & Son and J. M. Marshall, for plaintiffs. Fisher Bruce & Fisher, Albert Stickney, and D. K. Este Fisher, for defendant.

MCSHERRY, C.J.

The record in this case is quite voluminous. There are seven bills of exception,--six signed at the request of the defendant, and one at the instance of the plaintiffs. The plaintiffs offered five prayers, four of which were rejected. The defendant presented sixty-nine prayers, three of which were granted. The court gave six instructions drawn by the plaintiffs in accordance with the trial court's views. There are fourteen special exceptions to these instructions, and there are twenty-five motions to strike out evidence admitted subject to exception. It will be simply impossible to treat separately each of these one hundred and twenty-six questions, and we must accordingly content ourselves with a general discussion of the controlling legal principles applicable to the whole case, and then reduce to appropriate groups these numerous points, and in that way dispose of them.

The suit was instituted by Strouse & Bro. against the American Credit Indemnity Company of New York upon a bond of indemnity. The American Credit Indemnity Company is a company which, for a stipulated premium, guaranties a creditor to a specified amount against losses resulting from the insolvency of his debtors. It furnishes a species of insurance. The bond which it issues is coupled with many conditions. On the 5th day of June, 1893, this company, in consideration of a written and printed application, which was made part of the contract of indemnity, and upon the payment of $580, and in further consideration of the acceptance of the terms and conditions embodied in the bond, bargained and sold to Strouse & Bro. a bond of indemnity guarantying them against loss to the extent of and not exceeding $20,000, resulting from the insolvency of debtors, over and above a net loss of $7,500, first to be borne by the indemnified, on total gross sales and deliveries of goods, wares, and merchandise amounting to $1,600,000, and made between June 1, 1893, and May 31, 1894, to firms, corporations, or individuals actually engaged in commercial and mercantile pursuits in the United States. Most of the conditions consist of descriptions of what are provable debts, and of directions as to the mode of proving them. Some of these must be stated, because upon their construction much of the controversy depends. The indemnity company is not liable for any debts unless the debtor has a certain rating in Dun & Co.'s Mercantile Agency Book, and its liability is limited, as respects any one insolvent debtor, to 35 per cent. of the lowest amount of the capital rating given such debtor by that agency, and no account against any one insolvent debtor can be proved for more than $10,000. Proof of loss must be furnished within 20 days after knowledge of the insolvency of any debtor shall have been received by the indemnified, and final proof of loss must be forwarded within 20 days after the expiration of the bond, and the amount due by the company must be adjusted, and is made payable, within 60 days after the receipt of the final proof of loss. Both the preliminary and the final proofs of loss are required to be made on blanks provided by the company. This scheme of indemnity includes two classes of losses,--the one, an initial loss, which must be borne by the indemnified; the other, a loss in excess of the initial loss, which must be borne by the indemnitor. Both kinds of losses are such as result from the insolvency of the debtors who owe the indemnified.

Obviously, the inquiries which first suggest themselves are these: What is meant by the term "insolvency," as used in the body of the bond? Which are the losses that belong to the two classes, respectively? What is the period of time at which the initial loss must be ascertained? as upon the location of that time the extent of the liability of the indemnitor in a large measure depends.

It is insisted by the company that the term "insolvency" is limited and defined by conditions 11a and 11b, indorsed upon the bond. These clauses are as follows: "(11a) General assignments of or attachments against insolvent debtors, the absconding of the debtors, or executions returned nulla bona, shall constitute insolvency." "(11b) The appointment of a receiver, a 'sell-out,' or the death of a debtor does not establish insolvency, but the indemnified may prove such claim during the term of this bond or renewal thereof, provided legal proof shall be given establishing the insolvency of the debtor." These bonds of indemnity and certificates are contracts confined to the business affairs of merchants, and relate exclusively to the insolvency of merchants. Naturally, then, it must follow that the insolvency against which they afford indemnity is "insolvency" as understood by merchants and as defined in bankrupt and insolvent laws relating to merchants and mercantile transactions, unless a contrary or different purpose is clearly and unequivocally manifested by some term of the contract. On the face of the bond, protection against loss "resulting from the insolvency of debtors" is afforded. The insolvency designated is the usual legally defined "insolvency," which is an inability of the debtor to pay his debts as they fall due in the ordinary course of business, and this is dependent neither upon a formal adjudication, nor on an actual insufficiency of assets to meet liabilities. Castleberg v. Wheeler, 68 Md. 266, 12 A. 3. As a defeasance clause limiting the liability of the indemnitor must be clearly expressed and strictly construed (Indemnity Co. v. Cassard, 83 Md. 272, 34 A. 703), conditions 11a and 11b cannot be held to narrow the meaning of the term "insolvency" as used in the body of the instrument. "General assignments of, or attachments against, insolvent debtors *** shall constitute insolvency." "The absconding of debtors, or executions returned nulla bona, shall constitute insolvency." Obviously, this means that these things shall constitute evidence of insolvency. It is not every general assignment, or every attachment, that is declared to constitute insolvency; but such an assignment made by, or an attachment issued against, an insolvent debtor. But who is an "insolvent debtor"? Unless you reason in a vicious circle, the answer must be one who is unable to meet his obligations as they fall due in the ordinary course of business. An execution returned nulla bona cannot constitute insolvency. The return is the act of the officer, and not of the party, and no act of a third person can constitute a debtor's insolvency. Insolvency is a status. Brown v. Smart, 69 Md. 332, 14 A. 468, 17 A. 1101, affirmed in 145 U.S. 457, 12 S.Ct. 958, 36 L.Ed. 773. The return on an execution may be evidence of that status, but is not the status itself. These four things named in clause 11a do not create the status or condition of insolvency; they are simply results which flow from the antecedent, pre-existing insolvency. They are therefore evidence of the thing from which they proceed; they are not the thing itself. Section 11b makes this demonstrably clear. The appointment of a receiver, a sell-out, etc., does not establish--that is, does not prove--insolvency; but "legal proof" may be given establishing the insolvency of the debtor; that is, establishing his inability to pay his debts as they fall due in the ordinary course of business. Now, if nothing but the things named in 11a constituted insolvency, there could be no "legal proof" of insolvency, under 11b, because there could be no insolvency to be proved unless there was a general assignment, an attachment, an absconding, or a return of nulla bona. A thing which in its very nature cannot constitute insolvency, though it may constitute evidence of insolvency, cannot, by being called insolvency, be other than it intrinsically is, namely, a means of proving the existence of insolvency. This must be so unless the thing to be proved is identical with the thing that proves it,--unless insolvency as a fact, and the evidence which proves that it is a fact, are one and the same thing. But the two are manifestly different. In American Credit Indemnity Co. v. Carrollton Furniture Mfg. Co., 36 C. C. A. 671, 95 F. 114, there was a suit against this same defendant on a bond issued in 1895. In bonds issued by it after 1893, clause 11a was materially modified. Insolvency was limited and defined by the modified clause, thus indicating that the defendant did not itself consider that the precise clause now before us imposed a limitation as it stood prior to the change.

One of the difficulties with respect to the ascertainment of what losses are to be included in the initial loss of $7,500 is alleged to arise out of condition 12a, which is in these words: "To simplify adjustment and to avoid disputes, it is agreed that such sum of gross loss shall be the limit to be borne by the indemnified, as less 25 per cent. will equal the agreed amount of annual net loss; all claims making up such said sum of gross loss to remain the property of the indemnified, the company relinquishing its...