Burnes v. Scott, 117 U.S. 582 (1886)

The second plea was in substance as follows: That when the note was made, the plaintiff Courtright, the defendant Burnes, the said Winston, and one Campbell had been, and were, partners in a contract for building a certain railroad therein named; that prior to the date of the note Winston had received and was in possession, as part of the assets of the partnership, of forty bonds for $1000 each, of the city of Atchison, subject to the payment of the partnership debts, and, after such payment, for distribution among the partners; that a short time before the date of the note the partners had appointed the defendant a trustee to settle the partnership affairs; that when the note was given the partnership affairs had not been settled, and were not settled at the time of filing the plea; that at the time of the making of the note, Winston turned over to defendant the bonds above mentioned, and estimated that there would be due him, as a partner in the firm, from its assets, the sum p. 584mentioned in said note, and thereupon requested the defendant, as trustee of the partners, to make the note “ with the understanding that the same was not to be sued on, but was to be deemed a mere memorandum of the amount that should be estimated as the share of said Winston, on account of said bonds, in a settlement among said partners; ” that the defendant executed the note accordingly, as trustee of the partnership and not as his individual note, and the plaintiff acquired title to the note with knowledge of these facts.

The bill of exceptions shows that upon the trial of the case the defendant, to sustain the issue on his part, offered evidence tending to show that u Winston, the payee and assignor of the note sued on,” Courtright, “ the plaintiff,” Burnes, “ the defendant, and one Campbell, were the contractors for the construction of the Chicago and Southwestern Railroad, as partners, and that Winston was entitled to an interest of two fifteenths in such contract; that Winston had charge of the execution of p. 585the contract and possession and control of the assets arising from the contract; that after the completion of the road, in October, 1872, Winston delivered to defendant forty bonds of the city of Atchison for one thousand dollars each, which had been received and were then held by him as part of the assets under such contract; that the bonds were delivered by Winston to and received by defendant as the trustee for the parties in interest in the contract, and that at the time the bonds were so delivered defendant gave to Winston the note sued on.”

As a general rule want of consideration is a defence to a promissory note, but it is not always a defence which can be made at law. It frequently requires the aid of a court of equity to give it effect. The plea, to support which the defendant contends the evidence of want of consideration was admissible, clearly sets up an equitable defence. It alleges that the note sued on is based on the “ transactions relating to the business of said partners.” Referring, therefore, to the preceding plea, which states the business of the partners, as we are authorized to do, we learn that the partnership business had not at the time of filing the pleas been settled, or the interest of Winston therein or in the bonds been ascertained. The plea under consideration further avers that the members of the partnership were interested in the said business and were necessary parties to a suit relating to the note, and that the amount due thereon, if anything, could not be ascertained until the final settlement of the partnership. It is plain, therefore, that the defence set up by the plea is not the legal defence of want of consideration, for the plea admits, by implication, that there may be something due on the note, but the equitable defence that the amount due on the note, if anything, is dependent on the amount coming to Winston from the assets of the partnership, which cannot be ascertained without a settlement of the partnership affairs in a suit to which all the partners are necessary parties. And yet having so pleaded, the defendant insists, in argument, that in a trial upon the promissory note in a court of law, and without the presence of two of the four partners, evidence is admissible to settle the partnership, and to prove, without making Winston a party to the suit, that there is p. 587nothing due him out of the partnership assets. . The pleading and the contention of the defendant appear, therefore, to be contradictory and inconsistent.

So in the case of Jones n . McMasters, 20 How. 8, 22, which was an action at law for the recovery of the possession of land, it was held that when the grant from the government on which the plaintiffs relied was regular in form, it was not proper, by way of defence, to go behind the survey and location; that, “if they were voidable for irregularity or other cause, the p. 588question was not one for a court of law in an action to recover possession, but for a court of equity to reform any error or mistake.”

It further appears from the bill of exceptions that in support of the plea that the plaintiff had made a champertous agreement with his counsel for the prosecution of this suit, the defendant offered evidence which tended to prove a contract made by the plaintiff with his counsel, George W. DeCamp, by which the latter agreed to prosecute the suit and defray all the p. 589expenses thereof, in consideration of which he was to receive a certain proportion of the sum recovered. The court, however, did not give effect to this plea, and overruled a motion made by the defendant to dismiss the action on the ground that the plaintiff had made such champertous contract. This action of the court the defendant assigns for error.

This is in accord with the views of this court. The precise question under consideration was decided in the case of Boone V. Chiles, 10 Pet. 177. That was a bill in equity to establish the title to a tract of seven hundred acres of land in Bourbon County, in the State of Kentucky. Among other defences it p. 590was alleged that an agreement in writing had been made between Boone, the plaintiff, and one Engles, by which Engles undertook at his own expense to prosecute a suit for the seven hundred acres in dispute, and, as a consideration for his trouble, was to have one-half of the land, and that the suit was prosecuted under that agreement; that it was, therefore, a case of champerty and maintenance forbidden by law, in which the court could give no relief. But the court held that, although the English statutes which had been adopted in Kentucky punished the offence and declared the contract for maintenance void between the parties, the right of the plaintiff was not forfeited by such an agreement, and it might be asserted against the defendants whether the contract with Engles was valid or void. The same rule has been declared in other American cases. Whitney v. Kirtland, 27 N. J. Eq. (12 C. E. Green), 333; Robison V. Beall, 26 Georgia, 17; Allison v. Chicago de Northwestern Railroad Co., 42 Iowa, 274.

In Elborough v. Ayres, L. R. 10 Eq. 367, it was conceded that the fact that the plaintiff, in an action for malicious prosecution, had been maintained, would be no bar to the action, and the Vice-Chancellor held that such maintenance would be no p. 591ground for the interference of a court of equity to prevent the action from going on, citing Vice-Chancellor Wigram in Evans v. Prothero [not reported on that point].

On the trial it appeared in evidence that on the 3d or 4th of December, 1877, Hunter made some inquiries at the office of the company in Philadelphia as to the rates of insurance on the life of a person aged forty or forty-one years upon an p. 593endowment policy of twenty years, stating that he thought of insuring for his own benefit the life of a person in the sum of $10,000. After some conversation on the subject of insurance generally, he left, stating that the person to be insured would probably call in a day or two. On the 5th of the month Armstrong called, and informed the agent that he came at the request of Hunter to make application for a life insurance. He was thereupon examined, and after answering the questions usually propounded to applicants, and among others those in relation to existing insurances on his life, he signed a formal application, leaving, however, blank the place for the amount of the insurance which he desired, and for the answer to the question touching the payments of the premium. He also executed an assignment of the policy, leaving blanks for its date and for that of the policy, and for the name and residence of the assignee. This was his entire connection with the transaction. In the afternoon of the same day, or on the following morning, Hunter informed the office that the amount of the insurance desired was $10,000, and that it would be more convenient for him to pay the premiums quarterly. The term “ quarterly ” and the sum “ $10,000 ” were, therefore, upon his instructions, inserted in the application, which was then sent to New York and the policy was there executed by the company. Before the receipt of the policy in Philadelphia he visited the office, and stated that, as he intended to leave the city and be absent for some time, he would pay the premium, and that his lawyer would call for the policy. He accordingly paid the stipulated premium, and the fee for the policy. Some days afterwards his lawyer received the policy and also the assignment, which was attached, the blanks having been filled. They were subsequently delivered to Hunter, and were found in his possession at his death.

Within six weeks after the policy was issued Armstrong was attacked at night in a street in Camden, New Jersey, and received blows on his head which fractured his skull, from the effects of which he died two days afterward. Suspicion fell upon Hunter as the perpetrator or instigator of the attack. He was accordingly arrested, and was indicted and tried for the vo l . cxvn—38 p. 594murder of Armstrong in one of the courts of that State, and was convicted. He was sentenced to death, and was handed. By stipulation the testimony of any living witness might be read from the record of his testimony in that case, with like effect as if he were present and testified in this action, subject to all legal objections to its relevancy, competency and materiality. As the first step in proof of the defence that the policy was obtained to cheat and defraud the company, the defendant offered to read from that record the testimony of a witness to show that Hunter, being at the time the sole owner of the policy, intentionally caused the death of Armstrong; but the court, upon objection of the plaintiff, excluded the testimony, and an exception was taken. The defendant offered in different forms to make this proof, but the court refused to receive it, accompanying its ruling in one instance with this statement to counsel: “ I will take your offer as broad as you choose to make it; that you offer the testimony to prove that Hunter procured the application for the policy on Armstrong to be made, and that he did so for the purpose of having the insurance effected, and then disposing of Armstrong, and then getting the money ; make it as broad as that, and I will exclude it.”

The court, among other things, instructed the jury, in substance, that the contract of insurance was divisible; that the last part, providing for the payment of the insurance money to the legal representatives of Armstrong in case he should die before the expiration of the policy, was not assignable; that his assignment only transferred the interest, payable at the expiration of the policy ; and that the plaintiff was his legal p. 595representative, entitled to the policy and to whatever was due upon it. The defendant excepted. A verdict for the full amount of the policy, with interest, was rendered, and judgment entered thereon. 20 Blatchford, 493.

In the face of the verdict,- an inquiry into Hunter’s conduct, intentions and transactions is immaterial, for they cannot affect p. 596the policy if it be held that they did not bring him into relations with it. The contract was in writing, Armstrong and the company were the sole contracting parties. Extrinsic evidence cannot be allowed to vary this. Rawls N. American Mutual Life Ins. Co., 27 N. Y., 282, and Lawrence v. Fox, 20 N.Y. 268, are not like this case. The familiar rule that instruments simultaneously executed may be construed together is not applicable, except when the contracts are between the same parties.

V. As to the alleged misstatements of Armstrong it was an affirmative defence which should have been pleaded. Piedmont & Arlington Ins. Co. v. Ewing, 92 IT. S. 377; N. Y. Code Civil Procedure, § 500; Murray v. New York Life Ins. Co, 85 N. Y. 236. Where the statements are not vouched for as absolutely and subjectively true, they affect the validity of the insurance only to the extent to which they in fact induce the contract; for the applicant is bound not by an express engagement but by the general law of morals which governs every transaction, and his policy is not to be avoided save for statements which are made with the knowledge of their untruth and the intent to deceive. In one instance, deviation from existing fact is a breach of contract. In the other, it is nothing unless fraudulent. Moulor v. Am. L. Ins. Co., Ill p. 597IT. S. 335, and cases cited. The contract in this case is precisely within the rule established in Moulor v. Ins. Co.

A policy of life insurance, without restrictive words, is assignable by the assured for a valuable consideration equally with any other chose in action, where the assignment is not made to cover a mere speculative risk, and thus evade the law against wager policies; and payment thereof may be enforced for the benefit of the assignee, and, under the system of p. 598procedure in many States, in his name. Warnock v. Davis, 104 U. S. 775, 780; Archibald v. Mutual Ins. Co. of Chicago, 38 Wis. 542, 545; De Bonge v. Elliott, 8 C. E. Green (23 N. J. Eq.), 486, 495. The assignee here, Hunter, represented that he was the special partner of Armstrong, and had placed $5000 in the partnership, and was apprehensive that he might be charged as a general partner. If he was a special partner the contract was not a wager policy. And as it was not a contract for the benefit of the wife of the assured, it does not fall within those cases where, for the protection of the beneficiary, the power of the assured to divert the course of payment is restricted.

The theory of the defence is, that the purpose of Hunter in obtaining the insurance was to cheat and defraud the company. In support of that position evidence that he effected insurances upon the life of Armstrong in other companies at or about the same time, for a like fraudulent purpose, was admissible. A repetition of acts of the same character naturally indicates the same purpose in all of them ; and if when considered together they cannot be reasonably explained without ascribing a particular motive to the perpetrator, such motive will be considered as prompting each act. A creditor has an insurable interest in the life of his debtor, and may very properly procure an insurance upon it for an amount sufficient to secure his debt, but if he takes out policies in different companies at or nearly the same time, and thus increases the insurance far beyond any reasonable security for the debt, an inquiry at once arises as to his motive, and it may be considered as governing him in each insurance. In Castle n . Bullard, 23 How. 172,186, where the defendants were charged with having fraudulently sold the goods of the plaintiff, evidence that they had committed similar p. 599fraudulent acts at or about the same time was allowed, with a view to establish their alleged intent with respect to the matters in issue. The court said: “ Similar fraudulent acts are admissible in cases of this description, if committed at or about the same time, and when the same motive may reasonably be supposed to exist, with a view to establish the intent of the defendant in respect to the matters charged against him in the declaration.” In Lincoln y. Claflin, 7 Wall. 132, an action was brought for fraudulently obtaining property, and evidence of other frauds of a like character, committed by the defendants at or near the same time, was held to be admissible. “Its admissibility,” said the court, “ is placed on the ground that where transactions of a similar character executed by the same parties are closely connected in time, the inference is reasonable that they proceed from the same motive. The principle is asserted in Cary v. Hotalling, 1 Hill, 311, and is sustained by numerous authorities. The case of fraud, as there stated, is among the few exceptions to the general rule that other offences of the accused are not relevant to establish the main charge.” In Butler n . Watkins, 13 Wall. 456, 464, speaking on the same subject, this court said: “ In actions for fraud large latitude is always given to the admission of evidence. If a motive exist prompting to a particular line of conduct, and it be shown that in pursuing that line a defendant has deceived and defrauded one person, it may justly be inferred that similar conduct towards another, at or about the same time and in relation to a like subject, was actuated by the same spirit.” In Bottomley v. United States, 1 Story, 135, 144, Mr. Justice Story held the same doctrine, and cited several instances of its application. Thus, in the case of a prosecution for uttering counterfeit money, the fact that the prisoner has in his possession, or has uttered, other counterfeit money, is held to be proper evidence to show his guilty knowledge; and upon an indictment for receiving stolen goods, evidence that the prisoner had received at various other times different parcels of goods which had been stolen from the same persons is held admissible in proof of his guilty knowledge. So, on an indictment for a conspiracy to create public discontent and disaffection, proof is admissible against p. 600the prisoner that at another meeting held for an object professedly similar, at which the prisoner was chairman, resolutions were passed of a character to create such discontent and disaffection. “In short,” said the learned justice, “wherever the intent or guilty knowledge of a party is a material ingredient in the issue of a case, these collateral facts, tending to establish such intent or knowledge, are proper evidence. In many cases of fraud it would be otherwise impossible satisfactorily to establish the true nature and character of the act.” Many other authorities might be cited to the same purport.

It is further ordered that said reversal shall be without prejudice to the proceeding already had in adjusting the accounts between the parties of the business done while the injunction therein granted by that court was in force, but not to fix any p. 602particular standard <5f compensation in respect of the transactions in question ; and proceed with the adjusting of such accounts and to make proper orders for the speedy adjusting of the same, to the end that just compensation may be made to the defendant below on dismissing said bill for services performed pending the suit ; and to that end the master heretofore appointed therein, or such other master as the court may appoint in his place, may consider all the proofs relevant thereto heretofore taken in the cause, whether before or since a final hearing, and such other proofs as may be adduced relating to the extent and value of the service rendered by the defendant below for the complainant, and the payments made on account thereof, and relating to such other matters, necessary to be inquired into, in order to adjust said accounts between the various parties, to the end that a proper final decree may be entered in accordance with the opinion of this court.