Northern Assurance Co. of England v. Borgelt

Pound, C. A firm of insurance agents furnished a bond to one of the companies which they represented, conditioned, among other things, that the agents should “in all respects observe and fulfill the instructions of the said company” and that they should “in all other respects well and faithfully perform their duties as such agents.” The agents, it is alleged, neglected to cancel a policy when directed so to do; and the company was afterwards compelled to pay a loss upon the policy. Thereupon the company brought an action upon the bond, alleging these facts. It appeared from the petition that the neglect to comply with the order to cancel the policy took place more than five years prior to the time when the cause was begun, but the action was brought within five years from the time when it was ascertained that the company was liable for a loss under the policy and was compelled to pay such loss. Demurrers were sustained in the district court, and the company brings the case here on erron. Two points are made in support of the demurrer,— that the plaintiff, as appears on the face of the petition, is a foreign insurance company, and does not allege that it has complied with the statutory prerequisites to transaction of business in this state, and that the cause of action is barred by the statute of limitations. In support of the first point, we are cited to Commonwealth Mutual Fire Ins. Co. v. Hayden, 60 Nebr., 636, 83 Am. St. Rep., 545. But we think a manifest distinction is to be made between the two cases. Where the record discloses — 285 — affirmatively that a plaintiff, a foreign insurance company, has been doing business in this state without complying with tbe conditions prescribed by the statutes, a demurrer is proper. Commonwealth Mutual Fire Ins. Co. v. Hayden was sucb a case. We bave examined the record in that cause and find the petition alleged that the plaintiff had made contracts in Massachusetts, to be governed by the laws of that state, insuring property in Nebraska, and that copies of the policies were filed and inserted in the record. From the pleadings and instruments filed, it appeared affirmatively that the transactions involved were in violation of the statutes of this state. In the case at bar this is not true. There is an omission to allege that the statutory conditions had been observed, but there is nothing to show affirmatively that they were not in fact fully satisfied. The petition shows that the company had been doing business in the state in the ordinary manner by regular resident agents. The question is whether we shall presume that it Avas doing so unlawfully. On this point the authorities are numerous and uniform. Where it does not appear affirmatively that the plaintiff has done business in tlie state in contravention of the statutes, a demurrer will not lie because the petition fails to allege that the statutory conditions have been complied with. In such case non-compliance is a defense to be set up by ansAver. Smith v. Weed Sewing Machine Co., 26 Ohio St., 562; New England Fire & Marine Ins. Co. v. Robinson, 25 Ind., 536; Sprague v. Cutler & Savidge Lumber Co., 106 Ind., 242, 6 N. E. Rep., 335; Nickels v. People’s Building, Loan & Savings Ass’n, 93 Va., 380, 25 S. E. Rep., 8; Nelms v. Edinburgh American Land Mortgage Co., 92 Ala., 157, 9 So. Rep., 141; American Button Hole, Overseaming & Sewing Machine Co. v. Moore, 2 Dak., 280, 8 N. W. Rep., 131; New England Mortgage Security Co. v. Vader, 28 Fed. Rep., 265. In Cassaday v. American Ins. Co., 72 Ind., 95, the court said (p. 98) : “Where the complaint is silent on the subject, it can not be presumed that the appellee and its — 286 — agent bad not complied with tbe provisions of tbe statute at tbe time of tbe execution of tbe contract. In tbe absence of any showing to tbe contrary, it seems to us that we may fairly presume that both tbe appellee and its solicitor had complied Avith tbe requirements of the statute before and at tbe time tbe policy was issued and tbe note in suit was given therefor. At all events, we are of tbe opinion that tbe complaint ought not to be held insufficient on a mere presumption that tbe appellee and its agents may not have complied with tbe provisions of tbe statute.” Counsel cite several cases Avhere non-compliance Avith tbe statute was held a good defense. But those cases accord Avith tbe rule as above stated. In order to determine whether tbe action is barred by the statute of limitations, it becomes necessary to ascertain when plaintiff’s cause of action accrued, — Avhether at'the time tbe agents failed to cancel tbe policy, as directed, or at the time when loss to tbe company ensued as a result of their neglect or violation of instructions. A clear distinction is made between bonds conditioned to pay a certain sum of money or to do a certain act, and bonds conditioned to indemnify. i,A cause of action accrues upon a bond conditioned to do a certain act as soon as there is a default in performance, whether tbe obligee has suffered damage or not. If, hoAvever, tbe bond is conditioned to indemnify, damage must be shoAvn before tbe party^ indemnified is entitled to recover, so that a cause of action accrues, not from the date of the act wliici, causes damage, but from the time when pecuniary los?, ensues therefrom. Wilson v. Stilwell, 9 Ohio St., 468; 75 Am. Dec., 477; American Building & Loan Ass’n v. Waleen, 52 Minn., 23, 53 N. W. Rep., 867; Gilbert v. Wiman, 1 N. Y., 550, 49 Am. Dec., 359; Wicker v. Hoppock, 6 Wall. [U. S.], 94, 18 L. Ed., 752; Hicks v. Hoos, 44 Mo. App., 571, 579; Terre Haute & I. R. Co. v. Peoria & P. U. R. Co., 81 Ill. App., 455. It follows that in tbe one class of cases tbe statute begins to run from tbe date of default, in tbe other it runs from tbe time when loss or damage is — 287 — entailed npon the obligee. In the one class, if the act is done afterwards, or for other reasons, the damages may be nominal only, and at common Iuav non damnificatus was not a proper plea. In the other, damage is the gist of the case; without it there is no cause of action, and non dwmnificatus might be pleaded at common law. Consequently, if the sole condition in thé bond were that the agents should perform certain specified and well-defined acts, the statute would undoubtedly run from the time when they failed in performance. But, without attempting to refer the condition that the agents fulfil the instructions of the company to the one class or the other, we thinlc the action maintainable upon the condition that they should “in all other respects well and faithfully perform their duties as such agents.” This would he so whether the statute had run as to the other condition or not. Although a cause of action for a prior breach of a bond given by an agent for protection of his principal may have been barred by limitation, such fact Avill not bar an action for another and subsequent breach.. The statute of limitations runs for each breach from the time when it takes place. Deposit Bank v. Hearne, 48 S. W. Rep. [Ky.], 160. Hence, if there Avas a breach of the bond Avhen loss accrued to the company by reason of the misconduct of its agents, the fact that there had been a prior breach of another condition at the time they disobeyed their instructions would not affect the running of the statute. The rule that where the bond is conditioned to do a certain act a cause of action accrues and damages are recoverable upon default in performance, although no actual loss has yet resulted, has been criticised justly as an effort to engraft on the courts of common law a species of specific performance, irregular and illegitimate, and Avhich neither their forms of procedure nor the general arrangement of their system enable them to exercise without great danger of injustice and abuse. 2 Sedgwick, Damages [7th ed.], 307-311, Under the code sytsem, — 288 — many of tbe difficulties suggested disappear. Wilson v. Stilwell, 9 Ohio St., 468, 470, 75 Am. Dec., 477. Yet it must be admitted that contracts of pure indemnity are more in accord with present legal conceptions. Originally courts were governed strictly by the precise terms of the instrument, and held that non dammficatus could not be pleaded in an action on a bond conditioned for the doing of a certain act, even though it appeared that the bond was given by way of indemnity. Holmes v. Rhodes, 1 Bos. & Pul. [Eng.], 638; Neville v. Williams, 7 Watts [Pa.], 421; American Building, Loan & Investment Co. v. Booth, 17 R. I., 736, 24 Atl. Rep., 779. At present the tendency is otherwise. Courts now incline strongly to construe bonds as contracts of indemnity only, and will attach more importance to the general purpose of a bond, as shown by its provisions as a whole, and the interests of the parties in the subject-matter, than to the precise form of words employed. American Building & Loan Ass’n v. Waleen, 52 Minn., 23, 53 N. W. Rep., 867. “The nature of the duty of the obligor, and character of the obligee, will be regarded as explanatory of the intent of the parties.” Strawbridge v. Baltimore & O. R. Co., 14 Md., 360, 367, 74 Am. Dec., 541. Looking at. the situation of the parties, the nature of the acts to'be done, and the terms of the instrument, we have no doubt that a principal purpose was to indemnify the company against any loss that might ensue from misconduct of the agents, and we should be justified in treating the bond in suit as a contract of indemnity. In that case, the cause of action could not be held to have accrued until the company was compelled to pay a loss under the policy wrongfully left outstanding. But if the other view were taken, by reason of the terms of the condition to “well and faithfully perform their duties as agents” in all other respects, we think the same result would follow. It is the duty of an agent of limited authority to adhere faithfully to the instructions of his principal, and if he exceeds, violates, or neglects them, and loss results to his principal as a natural and ordinary consequence, it — 289 — is his duty to make such loss good. Phoenix Ins. Co. v. Frissell, 142 Mass., 513, 8 N. E. Rep., 348; Whitney v. Merchants’ Union Express Co., 104 Mass., 152, 6 Am. Rep., 207; Mechem, Agency, sec. 474; 1 Am. & Eng. Ency. Law [2d ed.], 1058. As counsel express it aptly, it is an implied or expressed term of every contract of agency that the agent will reimburse the principal for any loss that he may sustain through the neglect of the agent. When a loss results from the agent’s misconduct, this general duty becomes a specific duty to pay the amount of the damage. This is as much one of the agent’s duties as the duty to obey instructions, and we think it fairly and clearly covered by the general language of the bond in question. As it was the duty of these agents to make good any loss which accrued to the company through their neglect or violation of the instructions given them, the condition that they would fully perform their duties as agents was broken when loss accrued under such circumstances and was not made good, and the cause of action would not be barred until five years from the time when loss to the obligee resulted from their misconduct. We recommend that the judgment be reversed and the cause remanded with directions to overrule the demurrers. Barnes and Oldham, 00., concur. By the Court: For the reasons stated in the foregoing opinion, the judgment of the district court is reversed and the cause remanded with directions to overrule the de-muri'ers. Reversed and remanded.