Insurance — Condition — Notice — Mistake — Construction of sec. 2, ch. 157, Gen. Stats. — Breach of contract — Who may sue. By the terms of the policy the defendants insured John M. White against loss or damage on his buildings, and agreed to pay the amount of the insurance, in case of loss, to the plaintiff. The plaintiff had an insurable interest in the property as White's mortgagee to the extent of $600. It is said that White had no interest in the insurance; but this is evidently stated inadvertently, for if, in the circumstances of the case, the defendants are liable to pay the full amount of the insurance, — $1,000, — then it is manifest that White has an interest to the extent of the surplus after the discharge of the plaintiff's indebtedness to him; and if this plaintiff can recover the whole sum insured in this action, he will recover and hold that surplus as the trustee of White. See Barnes v. U. M. F. Ins. Co., 45 N.H. 21, 28.
The insurance was obtained with White's consent, but he had really nothing to do with the transaction, and was ignorant of the terms and conditions of the policy. The plaintiff paid the premium, and was in fact the only party contracting with the company.
But the first ground of defence to the plaintiffs claim is, that the action cannot be maintained in his name. *Page 258
Probably no principle in the law of insurance is more clearly settled in this state than that by the rules of the common law, where a policy issued by a mutual insurance company had been assigned, the action upon it must be brought in the name of the assignor, although the assignment is assented to and the policy is made payable in case of loss to a third party, unless, by giving a new premium note, the assignee becomes substituted for the insured and a member of the company, in which case the action must be brought in the name of the latter. Nevins v. The Rockingham Fire Ins. Co., 25 N.H. 22; Rollins v. The Columbia Fire Ins. Co., 25 N.H. 200; Folsom v. The Belknap Co. M. F. Ins. Co., 30 N.H. 231; Blanchard v. Atlantic M. F. Ins. Co.,33 N.H. 9; Barnes v. Union M. F. Ins. Co., 45 N.H. 24; Pierce v. Nashua Fire Ins. Co., 50 N.H. 297; Granger v. Howard Ins. Co., 5 Wend. 200; Conover v. Mutual Fire Ins. Co., 3 Den. 254; Nevins v. Rockingham Fire Ins. Co., before cited. And it makes no difference that by the express terms of the policy the insurance, in case of loss, is to be paid to the assignee or to a third person Nevins v. Rockingham Fire Ins. Co., Blanchard v. Atlantic M. F. Ins. Co., and Barnes v. Union M. F. Ins. Co., before cited.
The rule is otherwise in some jurisdictions — May on Insurance, secs. 446, 447, and cases cited in notes; but it seems to be so firmly established in this state, in accordance with the general rule of the common law applicable to personal contracts of this character, that it would seem inexpedient now to adopt a different rule unless this may, in some sort, be regarded as substantially the case of an assignment, chapter 30 of the Laws of 1869 is not applicable to this case. That chapter relates solely to policies which have been assigned.
Prior to that statute it was understood that where, by the terms of the charter or by-laws of a mutual insurance company, provision is made for a transfer of the policy, upon mortgage or sale of the property insured, giving to the assignee all the rights and privileges before possessed by the assignor, a suit upon the policy must be in the same of the assignee. There was privity of contract in such a case, because the company expressly agreed that the assignee should stand in the place of the assignor, possessed of all his rights and privileges. The act of 1869 provided that in such a case the party in interest might bring his action either in the name of the assignor or assignee; but that statute cannot be held to apply to a case like the present, notwithstanding it may seem to be within the spirit of the act. Loring v. Manf. Ins. Co., 8 Gray 28.
In May on Insurance, see. 446, it is said, — "The general rule applicable to personal contracts is, that, if assigned, the action for a breach must be brought in the name of the assignor, except where the defendant has promised the assignee to respond to him. But a consent to the assignment is generally held to be the equivalent of this promises And so, if the policy is made `payable in case of loss' to a third party." Numerous decisions in the courts of Maine, Massachusetts, and New York are cited in support of this proposition. But, as we have seen, the *Page 259 policy of our own courts is different, prohibiting the maintenance of an action by the assignee, although the assignment is assented to and the policy is made payable in case of loss to a third party, unless, by the giving a new premium note, the assignee becomes substituted for the assured, and a member of the company. All the New Hampshire cases before cited, it will be observed, relate to cases of mutual companies; and in every one of them mutuality of membership seems to be made the test of capacity to sue. The anomalous doctrine is maintained, that the plaintiff has no right of action except in a certain sense against himself, that is, against the association of which he is himself a member.
This to my mind is very unsatisfactory. I fail to see now it can make any difference in the rights of these parties that the defendants here are a stock company and not a mutual company. The right of a party to recover should depend, not at all upon his association with the defendants as a member of their corporation but, independently of that, upon his contract.
The leading principle of mutual insurance companies is, that each person whose property is insured becomes a corporator, or a member of the company, and, by reason of such association, is bound to take notice of, and is placed under obligation to observe, its by-laws. Angell on Fire and Life Insurance, secs. 10, 146. But a policy of insurance is a contract, and is to be governed by the same general principles applicable to other personal contracts. May on Insurance, secs. 172, 173.
The general rule therefore applies, and I am not aware that it admits of any exception, that the person to sue for a breach of a simple contract might be the person from whom the consideration for the promise moves. Dicey on Parties 81; Chitty on Contracts 62.
To entitle a party to sue upon a promise, the promise need not, necessarily, in express terms, be addressed to the party entitled to sue. In terms; it may be addressed to a party who, in law, shall be regarded as the agent of the party from whom the consideration moves, and the real party thus offering the inducement to the promise may bring the suit upon it in his own name, notwithstanding the promisor may have promised nothing to him directly. "The consideration," it is said, "must proceed from the promisee; or, more strictly, the law considers the promise to be made to the person from whom the inducement to make it comes, or, in other words, from whom the consideration moves."
As the person to sue for the breach of an agreement must be the person with whom the agreement is made, or, in other words, to whom the defendant has made a promise, it follows that the person to sue for the breach of a simple contract must be the person "from whom the consideration moves," since, as already explained, he is the person to whom the law considers the promise to have been made.
A stipulates with X, that in consideration of a payment made by A to X, X shall build a house for M. A made the payment, and so the consideration moved from him. The person to sue X, therefore, *Page 260 is not M, but A. Here, the party entitled to sue is the party to whom the promise was directly made.
But, another example: A, the plaintiff, had a claim against M for a debt of £ 70. X, the defendant, undertook, in consideration of M's making a title for X, to pay A the £ 70. A was held to have no right of action against X. Crowe v. Rogers, 1 Str. 592; Price v. Easton, 4 B. Ad. 434; Butterfield v. Hartshorn, 7 N.H. 351. Here, the promise was made to A, but he had no right of action against X, because the consideration moved from M and not from A. But the person really interested in the contract, and for whose benefit it is made, is the person with whom the law considers it to be made; "for though a person who has expressly contracted with A cannot treat the contract as not being with A, on the ground that another person, P, is really interested, yet when a contract is made expressly with A, either by word of month or in writing (provided the written instrument be not a deed), it is allowable for P, the person really interested, to show that the contract is, though on the face of it with A, yet in reality with him, and that he, therefore, has a right to sue upon it.
In short, the principle always holds good, as now settled and established, that no stranger to the consideration can take advantage of a contract, even though made for his benefit, and the consideration must move from the party entitled to sue upon it. Dicey on Parties 81-85, 132, 137; Leake on Contracts 221, 313.
Even the cases of negotiable promissory notes and bills of exchange in which the holder may sue, although was never a party to the original contract evidenced by the note or bill, are not really to be regarded as furnishing an exception to the general rule, since not only are such choses in action governed by the doctrine of equitable assignments which courts of law, from regard to public policy and in the interests of commerce, always recognize and protect, — Chitty on Con. 132, — but the possession of negotiable paper is regarded as prima facie evidence of consideration and title in the holder. 2 Pars. on Notes and Bills 438; Dicey on Parties 117.
Upon the familiar principles of estoppel, also, the maker of negotiable paper is estopped to question the capacity of the payee to indorse it. Drayton v. Dale, 2 B. C. 293; Big. on Est. 447.
"In some cases," says Prof. Parsons, "the actual promisee would be considered only the agent of the beneficiary, and in others the beneficiary would be regarded as the trustee of the party to whom the promise was directly made, and, as such trustee, might maintain an action in his own name. In this country the right of a third party to bring an action on a promise made to another for his benefit seems to be somewhat more positively asserted, and we think it would be safe, to consider this a prevailing rule with us; indeed, it has been held that such promise is to be deemed made to the third party, if adopted by him." 1 Pars. Con. 467, 468. The cases cited by the learned author seem to fully sustain the propositions of the text. Carnegie v. Morrison, 2 Met. 381; Brewer v. Dyer, 7 Cush. 337; Met. Con. 205-211. *Page 261
This rule, of course, does not hold in the case of a deed or other specialty. The person to sue for the breach of a contract by deed is the person with whom the contract is expressed by the deed to be made, i. e., the covenantee.
A covenant is an agreement by deed. In every covenant, therefore, there is a covenantor who promises, and a covenantee to whom the promise is made. The person to bring an action for a breach of the covenant must be the covenantee. This rule holds good, because a covenant differs from a simple contract in this, that it is good without the existence of any consideration to induce the covenantor to enter into the covenant, whilst a simple contract is not valid if made without a consideration; — Dicey on Parties 101, 102, — where the following illustrations of the distinction in this respect between specialties and simple contracts, and of the general rules applicable to both, are given:
"X covenants with A to pay him £ 10. A can sue X if the covenant be broken, even though there were no consideration whatever to induce X to enter into the covenant. Suppose, again, that it were perfectly well known that the covenant was made with A simply as agent for M, and was intended for M's benefit: still, if it appeared on the face of the deed to be a covenant with A, an action for the breach of it would have to be brought by A, and could not be brought by M. But in the case of a simple contract, M, as the principal really interested, could sue." 1 Pars. Con. 468.
From all these considerations, it would seem to follow conclusively, that the plaintiff Chamberlain, and not White, is the proper person to sue for a breach of the defendants' contract. Although the promise is in terms to White, it is also in terms a promise to pay to Chamberlain; and in law, it is to be regarded as a promise directly to Chamberlain. The entire consideration moved from Chamberlain — White was, in fact, as well as in law, a total stranger to the contract — and, although White may ultimately derive a benefit from the contract, such a result can only be reached through the medium of the plaintiff, as his trustee, between whom and the defendants is the sole privity of contract.
None of the New Hampshire cases, I think, will be found to uphold a doctrine contrary to these views. The cases cited by the defendants are nearly all cases of assignments, and governed by the general principle stated in the outset, that in such a case the suit must be brought in the name of the original contracting party; whereas, in the case before us, the plaintiff not an assignee, but is, in fact as well as in law, the original contracting party.
In Nevins v. Ins. Co., 26 N.H. 28, the policy issued to Nevins was made payable in case of loss to Holland Lane. It was held that Nevins properly brought the action, and not Holland Lane, because said PERLEY, J., "the contract of the defendants was with this plaintiff; * * he gave the premium note, and was the member of the corporation; * * Holland Lane do not appear to have had any insurable interest in the goods," etc.
In Rollins v. Ins. Co., 25 N.H. 200, it was held that *Page 262 under the peculiar provisions of a by-law of the defendants, an assignee of a policy might maintain a suit in his own name; but it appearing that the policy was not in fact assigned, the action was properly brought in the name of the party originally insured; his contract with the defendants and his insurable interest remained; he was the member, and not his creditor, and it is to be inferred that he and no other gave the premium note.
In Folsom v. Ins. Co., 30 N.H. 231, membership was regarded as the sole test of the right of action on the policy. It was held that "in the absence of any provision in the charter or by-laws of a mutual fire insurance company whereby the assignee becomes a member of the company, the action in case of loss must be in the name of the assured, with whom the contract was made." To the same effect is Pierce v. Ins. Co., 50 N.H. 297.
In Blanchard v. Ins. Co., 33 N.H. 9, the policy issued to Gates was made payable to Blanchard. EASTMAN, J., said, — The application was the foundation of the insurance. This was made by Gates. He also gave the premium note and agreed to pay the assessments, and the policy was issued to him upon the faith of the application. There was no mutual contract between Blanchard and the company. He was not known to the defendants except through Gates. By the request and direction of Gates, and in consideration of the payments and undertakings made by him, the insurance was made payable, in case of loss, to Blanchard. There was no consideration paid by Blanchard, and no engagements entered into by him; and he was not a member of the company," c.
There is another aspect of this case already alluded to which seems to indicate quite clearly the right of this plaintiff to maintain the suit in his own name for the recovery, not alone on his own, but also of White's interest in the policy. He obtained the insurance with White's consent for an amount greater than the value of his incumbrance upon the property insured. As to this surplus, therefore, he may be regarded as the agent and trustee of White; and it is well settled that an agent, may bring an action on a policy of insurance in his own name, upon the ground that the promise of the underwriter is made directly to the agent, and that he is a direct party to the contract. Paley on Agency 362; Story on Agency, sec. 394; Barnes v. Union M. F. Ins. Co., 45 N.H. 21, 28.
It now remains to consider the effect of the vacating of the buildings insured, without notice to or the consent of the insurers.
The policy contained the following clause: "If the premises hereby insured become vacated by the removal of the owner or occupant, without immediate notice to the company and consent indorsed hereon, * * this policy shall be void."
Provisions of this character may be, very properly, annexed to a contract of insurance. They tend to protect the insurer against the results of negligence and fraud. A dishonest owner may be more *Page 263 easily tempted to burn his own buildings during their non-occupation then when his goods are stored therein. The risk is usually regarded as greater, and a larger premium required to be paid in the case of buildings unoccupied, if the insurer consents to take such risk at all.
Still, since the provision, when applied as in this case to a state of things not existing at the date of the policy, tends to the subversion of the contract by an occurrence after its execution and partial performance, it is in the nature of a condition subsequent, and, like all such conditions, is not specially favored in law, and it will be construed and interpreted most strongly against the party imposing the condition.
The circumstances of this case call upon us to avoid the effect of this condition, if we may do so consistently with sound and established legal principles. The buildings remained occupied nearly a year after the date of the policy, and were then vacated, and so continued until their destruction, nearly nine mouths afterward.
Notice was not given because the party who obtained the insurance had no knowledge that the buildings were vacated, and the owner, who did not obtain the insurance, had no knowledge of the condition inserted in the policy; and "the buildings were not destroyed by reason of exposure to any risk which it was the object of the conditions in the policy to guard against."
The defendants have not claimed or suggested that the failure to give the prescribed notice arose from any wilful negligence or fault of anybody. It resulted from a condition of timing which may well be regarded as a mistake on the part of the plaintiff; in other words, it arose from the plaintiff's honest reliance upon a mistaken condition of things. He knew that the buildings were occupied at the date of the policy, and had no suspicion that an abandonment of them was contemplated, nor that it had occurred before the period of their destruction.
The Gen. Stats., ch. 157, sec. 2, were intended to afford relief for cases of this kind; and we may properly seek for aid in the interpretation and construction of this condition, under the light or this enactment. The terms of the statute are, — "No policy of insurance shall be avoided by reason of any mistake or misrepresentation, unless it appears to have been intentionally and fraudulently made; but the party insuring, it any action brought against them on such policy, may show the facts, and the jury shall reduce the amount for which such party would otherwise be liable as much in proportion as the premium ought to have been increased if no mistake or misrepresentation had occurred."
The plaintiff's counsel, in argument, suggest that "it may be contended that the mistake or misrepresentation intended by the statute must be one occurring prior to or at the time of issuing the policy," and then the counsel go on to argue that "this is too narrow a construction, and that it may be one happening during the life of the policy, and referring to all its substantial conditions, limitations, or prohibitions, as well as to facts arising before the issuing of the policy. It would (the plaintiff contends) properly include a mistake or *Page 264 misrepresentation occurring in the assignment or transfer of the policy or of the property insured; and this construction, he says, is especially proper in relation to policies issued by stock companies, where, as he understands, no formal or written application is made or signed.
These suggestions evoke no reply from the defendants, who waive and ignore entirely the statute referred to as applicable to the case. And yet the plaintiff's proposition and argument seem to me forcible, and such as to compel and require attentive consideration.
The terms of the statute are very broad: "No policy shall be avoided by reason of any mistake or misrepresentation, unless it appears to have been intentionally and fraudulently made."
Now the "misrepresentation" may refer solely to representations made in the original application for insurance, or to representations inducing an assignment of the policy; but the "mistake" is not thus limited, — and, pray, why should it be? The terms "mistake" and "misrepresentation" are not conjoined, and made identical or cumulative or aggregate; they are separated by the disjunctive "or," — and necessarily so, for they are totally unlike. A misrepresentation may be "intentionally and fraudulently made," but a mistake cannot be intentionally or fraudulently made. We hear of culpable negligence, but who ever heard of an intentional and fraudulent mistake? Therefore the law properly and necessarily distinguishes between the two contingencies, and declares that the policy shall not be avoided by a misrepresentation "unless it appears to have been fraudulently made," or "by reason of any mistake."
The policy and purpose of the law were, to promote honest and open fair dealing, to do equal justice, to protect the confidence reposed by the insured in those with whom he may contract, and (especially disclaiming any reference to this defendant company) to spring the traps "concealed in a mass of rubbish" before the unwary traveller shall have put his foot in them; to prevent and prohibit, in short, the farce and fraud by which it has too often been found that the party apparently insured by the stipulations written upon one side of a piece of paper, was uninsured by the conditions involved in the "insurance typography" indorsed upon the other side of the same piece of paper.
I am unable to doubt that the statute was intended to apply, not merely to a mistake in matters antecedent to the execution of the contract of insurance, but to any and all matters affecting its continuing vitality.
The statute cannot be well said to interfere with the rights of parties to bind themselves by such stipulations and conditions as they may choose deliberately and fairly to make. As equity will generally afford relief to a party in jeopardy by reason of a mistake, so courts of law, 1 trust, will be reluctant to give a narrow and semi-effectual construction to a statute intended to aid the application of equitable principles. More than fifteen years before the date of this policy the legislature of 1855 enacted the substance of the law which is now expressed in sec. 2 of ch. 157, Gen. Stats., and every subsequent contract *Page 265 of insurance made in this state has been made in view of and in subordination to this law, which has thus been practically incorporated into the contract; for "the obligation of a contract," it is said, "consists in its binding force on the party who makes it. This depends upon the laws in existence where it is made; these are necessarily referred to in all contracts." Cooley's Const. Lim. *285. "The law, then, which has this binding obligation, must govern and control the contract in every shape in which it is intended to bear upon it, whether it affects its validity, construction, or discharge. It is, then, the municipal law of the state, whether that be written or unwritten, which is emphatically the law of the contract made within the state, and must govern it throughout, whenever its performance is sought to be enforced." WASHINGTON, J., in Ogden v. Saunders, 12 Wheat. 259.
Contracts relating to the traffic in spirituous liquors are very stringently limited by force of state laws which bear upon them, but such contracts are not within the category of those whose obligation is forbidden to be impaired by the Federal constitution.
A bankrupt or insolvent law of a state, which discharges both the debtor and his future acquisitions of property, has been held not to be a law impairing the obligation of contracts so far as respects debts contracted subsequently to the passage of such law. Baldwin v. Hale, 1 Black 231; Sturgis v. Crowningshield, 4 Wheat. 199; Potter's Dwarris on Statutes, c., 475, 476. I am therefore of the opinion that the statute should be applied to the correction of this mistake.
But aside from these considerations, I am not clear that a reasonable interpretation of the condition will not relieve the plaintiff from the forfeiture contemplated by its terms. The condition makes the policy void unless immediate notice of the vacating of the premises be given; but the policy is not avoided eo instanto, by the act itself of non-occupation. There is a period of time after the occupation ceases in which the policy still remains in force.
What is immediate notice? In construing this contract, I think we must hold, as matters of law, that "immediate" notice means reasonable notice, — reasonable in all the circumstances of the case. What is reasonable, is a question for the jury; but, by the provisions of the case, upon the facts transferred to this court, judgment is to be rendered.
We have then this fact: the tenant moved out of the premises without the knowledge of the insured, and the premises remained unoccupied till their destruction, without the knowledge of the insured; and, although several months thus elapsed, still, I think, as jurors and as lawyers both, we should hold that notice to be reasonable, and therefore within the legal intendment of this condition which was given as soon as the occasion for giving the notice was found to exist. That occasion never became apparent to the plaintiff (no laches are imputed to him for his non-observation or ignorance of the occasion), and therefore the obligation to give the notice contemplated by the condition was never, in fact, cast upon him. *Page 266
The risk contemplated by vacating the buildings never, in fact, occurred in this case, since they "were not destroyed by exposure to any risk which it was the object of the conditions in the policy to guard against."
Nevertheless, since it is apparent that the defendants might not have insured the buildings upon the terms contracted for if they had known the buildings were unoccupied, and that upon notice of non-occupation they might have made an increased premium the condition of their consent to the continuance of the risk, I am of the opinion that the amount of their liability must be reduced "as much in proportion as the premium ought to have been increased if no mistake * * had occurred."
We are unable, therefore, to render a judgment, as contemplated by the provisions of the case, and the cause must be sent to the circuit court for the determination of the question of damages only
CUSHING, C. J., concurred.