Citizens' Ins. Co. v. Bailey

PHILLIPS, District Judge. Pearl H. Bailey brought this action against the Citizens’ Insurance Company of Missouri to recover the sum of $15,000 for an alleged loss under a policy of hail insurance. The insurance policy insured a crop of cotton growing on a tract of 500 acres known as the Buffalo Valley Farms, located in Chaves county, New Mexico, against loss or damage from hail. The application was executed May 24, 1926. The policy was countersigned May 27, 1926. The policy contained, among other things, the following provisions : “1. This policy of insurance is based upon the statements, representations and descriptions contained in the insured’s application of even number herewith which is hereby made a part hereof.” “4. This entire policy shall be void if the insured has concealed or misrepresented any material fact or circumstances concerning this insurance or the subject thereof; or if the interest of the insured in the crops covered hereunder be not truly stated herein; or in case of any fraud or attempted fraud or false swearing by the insured touching any matter relating to this insurance or the subject thereof, whether before or after a loss.” The application contained, among others, the following statements: “I hereby declare that the statement of the number of acres of each crop herein described is true; that I am the owner of the land herein described, with growing crops thereon; and my interest is as stated under the -heading ‘Percentage Interest Must be Stated.’ ” “Crop insured is a 100 per cent, interest. ’ ’ The policy also contained, among other things, the following provisions: “It being understood and agreed that the liability of this company shall in no event be held to exceed the actual proportionate interest of the insured in the crops described and insured hereunder.” “That this company shall not be bound by any act or statement made to or by its agents or representatives, restricting its rights or waiving its written or printed contract unless inserted in this application.” — 274 — “This policy is made and accepted subject to all of the stipulations and conditions printed herein and on the duplicate Application attached hereto and made a part hereof, which are hereby specially referred to and made a part of this policy, together with such other provisions, agreements, or conditions as may be endorsed hereon or added hereto; and no officer, agent, or other representative of this company shall have power to waive any provision or condition of this policy, except such as by the terms of this policy may be subject of agreement endorsed hereon or added hereto; and as to such provisions or conditions no officer, agent or representative shall have such power or be deemed or held to have waived such provisions or conditions unless such waiver, if any, shall be written upon or attached hereto.” The answer of the insurance company alleged that the plaintiff in his written application stated that he owned a 100 per cent, interest in the crop of cotton growing upon the land described in the application, and that he was the owner of such land with the growing crops thereon. It further alleged that at the time of the signing of such application and the issuance of the policy in question, P. G. Telles, Martin Es-pinoso, Jose Antobarias, Guadalupe Gardea, and Eliseo Arias, had valid and subsisting cropping contracts with the plaintiff, by which each of them became and were at such time an owner of an interest in the crop of cotton growing on such land, and at the time of the signing of the application and the issuance of the policy E. D. Anthony was the owner of an undivided one-half interest in the land on which the crop was growing, and was the owner of an undivided one-half interest in the crop of cotton, and that the interest of Anthony in such land and crop was in all things equal to the interest of plaintiff. To the special defenses set up in the answer, the plaintiff alleged, among other things, the following in his reply: “Plaintiff denies that the statement attributed to him in paragraph 9 of defendant’s answer as to the ownership by him of a 100 per cent, interest in the 500 acres of cotton insured was untrue, * * * but avers that such is and was the fact, that is, that he is and was the sole owner of a one hundred per cent, interest in said crop of cotton at the time of his application for such insurance.” “ * * * That plaintiff further states that he made application for the insurance herein sued for to one Merrill C. Martin who at such time was the duly appointed, qualified and acting agent of the said defendant company in Roswell, New Mexico, with jurisdiction extending over the vicinity of and including the Buffalo Valley Farm upon which the cotton insured was growing, and that at and prior to the making and signing of such application he apprised the said agent of each and every fact in connection with said crop of cotton and the ownership thereof and explained to him in detail the exact relation existing between said plaintiff and said E. D. Anthony and said plaintiff and said P. G. Telles, Martin Espinoso, Jose Antobarias, Guadalupe Gar-dea, and Eliseo Arias, and of their connection with said farm and the cotton growing thereon and in said application sought to he insured; (that said Anthony and said others were mere croppers, and had no interest except in the proceeds after the same were harvested and all indebtedness accruing thereon paid;)” “and plaintiff therefore avers that at and before the time of the issuance of said policy of insurance in suit said defendant company had full notice and knowledge of all and every fact connected with the said cotton crop and the ownership thereof,, including present vested interests, contingent interests and expectant interests; and said application was in fact prepared by the special agent, Martin.” The portion of the reply above quoted inclosed in parenthesis was added as a trial amendment. A stipulation in writing waiving a jury was filed, and the cause came on for trial before the .court. The evidence disclosed that at the time the application was made plaintiff had entered into oral agreements with the five persons, Telles, Espinoso, Antobarias, Gardea, and Arias, to work the land on a share or crop basis. Plaintiff was to furnish them with provisions and clothing, was to sell the crops at maturity, and pay to the croppers one-half of the proceeds of such sale, less the amount of advances made by plaintiff to the croppers for their expenses. The record further discloses that on February 17, 1926, plaintiff entered into a contract with E. D. Anthony by which plaintiff agreed to sell and Anthony agreed to purchase an undivided one-half interest in the Buffalo Valley Farms, and all personal property, equipment, and, machinery, for a consideration of $30,000. The contract, after providing the terms, time, and — 275 — manner of payments to be made by Anthony, and reciting tbe indorsement and delivery, as collateral for certain payments, of two promissory notes made by R. C. Sparks and payable to Anthony for the sum of $5,000 each, contained the following provisions : "6. As to any and all sums and expenditures necessary and to become necessary in operating said farm from and after this date and all sums for the proper conduct thereof from and after this date the purchaser becomes responsible and liable for one-half thereof and agrees also to devote his time and attention to the management and conduct of said business and farming operations, and out of the net proceeds derived from the crops raised upon said farm said purchaser, the party of the second part herein, shall be entitled to receive for his services in managing and looking after said farm compensation at the rate of $100 per month; and that as to all other sums derived from the crops, the same, after payment of the indebtedness, as may be mutually agreed upon from time to time, are to be divided share and share alike.” “7. Party of the first part, the seller, agrees that he will hold for the use and benefit of the purchaser an undivided one-half interest in the said Buffalo Valley Farm property, described as aforesaid, together with the equipment, pumping plant and appurtenances thereto, and will when the purchase money note maturing January 6, 1927, is paid, make, execute, and deliver to him, his heirs, executors, administrators. and assigns, good and sufficient warranty deed, conveying good and.merchantable title in and to such undivided one-half interest in said property to said party of the second part. * * * ” ”9. It is further understood between said seller and purchaser that they are to be tenants in common and co-owners in the operation of said property and partners only to the extent that they may become liable for any debts incurred on account of the operation of said farm.” To avoid the defenses set up in the answer, plaintiff relied upon two propositions: First, that plaintiff, at the time of the making of the application, was the owner of a 100 per cent, interest in the growing crop of cotton and in the farm; and, second, if he was not the owner of 100 per cent, interest, he made full and true disclosure of all material facts to Martin, the agent of the insurance company, that Martin prepared the written application, and upon the facts disclosed wrote into the application that plaintiff was the owner of the lands upon which the cotton crop was growing, and of a 100 per cent, interest in such crop, and that because thereof the defendant was estopped to deny the truth of such statement. At the conclusion of the evidence the trial court made the following findings: “2. That on the 24th day of May, 1926, plaintiff made application to said Merrill C. Martin,, as agent of said defendant company for the issuance to him of a policy of insurance covering the loss by hail of five hundred acres of cotton upon what is described in the evidence as the Buffalo Valley Farm, in Chaves county, New Mexico; and that prior to said time, in the negotiations leading up to the formal application for such insurance, plaintiff had advised and informed said agent, Martin, that he was the legal owner of said crop of cotton, but that in the raising of said crop he had and there was then existing certain arrangements between plaintiff and P. G. Telles, Martin Espinoso, Jose Antobarias, Guadalupe Gardea, and Elíseo Arias whereby said named parties, having already planted said crops, were to attend, care for and harvest the same and upon the sale thereof by plaintiff, were to become and be then entitled to a share of the proceeds of said crops, after the reimbursement to plaintiff of all moneys which he should have advanced for their account, and that said parties did not have and were not to have any interest in said crops as such; and that in addition thereto he then had a contract with one E. D. Anthony whereby said Anthony was ultimately to acquire an interest in the said Buffalo Valley Farm property upon the payment of certain sums of money in the month of January, 1927, and pending such date said Anthony was to superintend the conduct of the farming operations to be carried on upon said farm under the direction and control of the plaintiff, and for his services so to be rendered in such capacity was to receive a salary of $100 per month, payable out of the proceeds of any crops raised on said farm, and after the payment out of the proceeds of said crop of the cost and expenses of making the same and certain other indebtedness, provided for in said contract, any such proceeds as might then remain were to be divided share and share alike between them; and that in addition to the facts so communicated to the said Merrill C. Martin, as such agent, and to confirm the same the said Merrill C. Martin as such agent made an independent — 276 — investigation as to the interest of the said Pearl H. Bailey in the crops then being raised upon said Buffalo Valley Farm and said property, from -which information so furnished by plaintiff and that acquired by said independent investigation said agent determined that, for the purpose of insurance, plaintiff was the owner of a 100 per cent, interest in said crop of cotton.” (Italics ours.) From the foregoing facts, the court concluded as a matter of law as follows: “And upon the foregoing facts the court concludes as a matter of law that at the time of the making of the said application for insurance and the issuing of the policy upon the said crop of cotton to the said plaintiff by the defendant company, the plaintiff was then the legal owner and had ah insurable interest in the property insured to the extent of 100 per cent, thereof.” The court further found there was a total loss under the policy amounting to $12,-837.62, and gave judgment therefor, with interest. This is a writ of error from that judgment.' Whether the croppers were to have a present vested interest in the growing crop of cotton and were tenants in common as to such crop with the plaintiff, depends upon the intention of the parties to the cropping contract.- Underhill v. Allis-Chalmers Mfg. Co. (C. C. A. 8) 15 F.(2d) 181, 183, 184. However, in view of our conclusion as to the legal effect of the contract with Anthony, we find it unnecessary to determine the interest, if any, of such croppers in the growing crop of cotton. The written contract entered into between plaintiff and Anthony on February 17, 1926, was unconditional. It absolutely bound the plaintiff to sell and Anthony to purchase. Anthony put up collateral security to secure certain deferred payments. Anthony went into joint possession and management of the property with plaintiff. There was no reservation of crops to the plaintiff. Paragraph 7 expressly recited that the plaintiff “agrees that he will hold for the use and benefit of the purchaser [Anthony] an undivided one-' half interest in the said Buffalo Valley Farm properly together with the equipment, etc.” Paragraph 9 recites that the relation of plaintiff and Anthony was that of tenants in common and co-owners. In the case of Phenix Ins. Co. of Brooklyn, N. Y., v. Kerr (C. C. A. 8) 129 F. 723, 726 (66 L. R. A. 569), the court said: “If the owner has agreed to sell and the vendee- has agreed to buy on definite terms, the purchaser is the sole and unconditional owner of the property within the true .meaning of the clause upon this subject in insurance policies, because the vendor can compel the purchaser to pay for the property notwithstanding its injury or destruction, and hence to suffer the loss occasioned thereby. Milwaukee Mechanics’ Ins. Co. v. Rhea & Son (C. C. A.) 123 F. 9, 11,13 Am. & Eng. Ency. of Law (2d Ed.) 178, 179, and cases cited; Hough v. City Ins. Co., 29 Conn. 10, 76 Am. Dec. 581; Rumsey v. Phœnix Ins. Co. (C. C.) 1 F. 396; Amsinck v. American Ins. Co., 129 Mass. 185; Wainer v. Milford Fire Ins. Co., 153 Mass. 335, 26 N. E. 877, 11 L. R. A. 598; Redfield v. The Holland Ins. Co., 56 N. Y. 354, 15 Am. Rep. 424; Pelton v. Westchester Ins. Co., 77 N. Y. 605; Dupuy v. Delaware Ins. Co. (C. C.) 63 F. 680.” See, also, Waller v. City of New York Ins. Co., 84 Or. 284, 164 P. 959, 961, Ann. Cas. 1918C, 139; Insurance Co. of N. America v. Erickson, 50 Fla. 419, 39 So. 495, 111 Ann. St. Rep. 121, 7 Ann. Cas. 495; note 2 L. R. A. (N. S.) p. 512 We think there can be no doubt under this contract that Anthony acquired at the time of the execution and delivery of the contract the equitable title to an undivided one-half interest in the land and the growing crop of cotton. -It follows that the statement in the policy that plaintiff was the owner of a 100 per cent, interest in the land and the crop of cotton was false and rendered the policy void and non-enforeeable (Rochester German Insurance Co. v. Schmidt (C. C. A. 4) 162 F. 447; Fidelity Union Fire Ins. Co. v. Kelleher (C. C. A. 9) 13 F.(2d) 745; Syndicate Ins. Co. v. Bohn (C. C. A. 8) 65 F. 165, 27 L. R. A. 614), unless defendant under the facts and circumstances is precluded from asserting such defense. Such statement constituted a warranty, and, if false, it is wholly immaterial that plaintiff may have made it in good faith and honestly believed it to be true. Rochester German Ins. Co; v. Schmidt, supra; Fireman’s Fund Ins. Co. v. Barker, 6 Colo. App. 535, 41 P. 513; Geiss v. Franklin Ins. Co., 123 Ind. 172, 24 N. E. 99, 18 Am. St. Rep. 324; Wilbur v. Bowditeh Mut. F. Ins. Co., 10 Cush. (Mass.) 446 ; 26 C. J. § 208, p. 171; 32 C. J. § 520, p. 1293. Counsel for the plaintiff, insist that the defense of estoppel was made out and strongly relied upon the decision of the Supreme Court in Continental Life Ins. Co. v. Chamberlain, 132 U. S. 304, 10 S. Ct., — 277 — 87, 33 L. Ed. 341, and section 41 of chapter 135, 1925 Session Laws of New Mexico, which statute provides that any person licensed as an agent to represent an insurance company shall in any controversy between the insured and the company be held to be the agent of the company issuing the insurance. In order to bring himself within the principles of Insurance Co. v. Chamberlain, supra, plaintiff must have established that he made a true, full, and fair disclosure of all the material facts to the agent, and that the agent made out the application, and in filling in the answers to the questions therein contained placed his own interpretation upon the facts stated by plaintiff. ■ We entertain doubt that upon the record as a whole the trial court would have been warranted in- finding that plaintiff made a full and complete disclosure to Martin, the agent of the insurance company. Plaintiff testified, referring to the croppers, “They didn’t have an interest in the crop until it was made, under our agreement.” He further testified: “My understanding with the Mexicans and with Anthony was that they had no interest in the crops, only in the proceeds thereof.” In testifying with reference to his statement in the proof of loss that he owned a 100 per cent, interest in the crop, he said: “Yes, sir, because I believed my interest was 100 per cent.” He further testified: “I did not consider him [Anthony] as a partner until he had paid me what he agreed to pay as the first payment on that farm.” He further testified that he told Martin that the contract was in escrow, and that he was solely responsible for the money borrowed to finance the crop. It will be noted that the contract by its express terms made Anthony liable for one-half of the money so borrowed. The contract was not in escrow, but was deposited with the First National Bank of Roswell as collateral for a loan. Plaintiff further testified: t‘I told Mr. Martin that I was the owner of the Buffalo Valley Farms.” Martin, the agent of the defendant, called as a witness for the plaintiff, testified that he made out the written application; that “Mr. Bailey told me about his farm foreman, who at some time would acquire an interest in the place on the execution of certain conditions and agreements, but that there was no recorded interest other than his own. ’ ’ Martin further testified that plaintiff stated that he “was the legal owner of the farm and the crop”; that the contract with Anthony was in escrow; that Anthony would acquire no title or interest in the place until somewhere about the first of the year 1927, and then only upon the execution of certain conditions and the making of certain payments. Martin further testified that he made inquiry at the First National Bank of Roswell, and that the vice president of the bank told him the bank held the contract in escrow, and that plaintiff was the owner of the land and the crop. Martin’s evidence was not denied. We think the evidence construed in a light most favorable to plaintiff compels the conclusion that plaintiff believed, at the time the application for the insurance was made, that Anthony had no present interest in either the farm or the cotton crop. If such was plaintiff’s belief, it is very improbable that he stated facts which would indicate the contrary to the agent Martin. ' Martin’s testimony indicates that plaintiff represented to Martin that Anthony had no interest in either the land or the eotton and would acquire no interest in the land until January, 1927. We are therefore of the opinion that it is a fair conclusion from the whole record that Bailey believed, at the time the application for the insurance was made, that Anthony had no interest in either the land or the crop, and that he so stated the facts to the agent Martin. However, if the evidence would sustain a finding that the plaintiff made a true, full, and fair disclosure of the material facts to the agent, and that the agent placed his own construction upon such facts,, and wrote into the application that plaintiff' was the owner of a 100 per cent, interest in the crop, the reply did not plead and the court did not find, that such were the facts. It is true that the reply as originally drawn did allege in general the language that plaintiff apprised the agent of all the facts, but on the trial objection was made to these general allegations and plaintiff made a trial amendment in which he descended to particulars and alleged that what he told the agent was that Anthony and the others were mere croppers, and had no interest, except in the proceeds after the crops were harvested and sold, and all the indebtedness accruing thereon paid. The court, in his findings of fact, specifically found that plaintiff advised the agent, Martin, “that he was the legal owner of said crop of cotton”; that he had a contract with Anthony whereby Anthony ‘ ‘ was ultimately to acquire an interest in the — 278 — Buffalo Valley property upon the payment of certain sums of money in the month of January, 1927.” This is in effect an affirmative finding that plaintiff did hot disclose the true facts to'the agent. If there could be any doubt as to this from the language of the finding, it is set at rest by the court’s conclusion of law that plaintiff in fact did own a 100 per cent, interest in the crop of cotton at the time the application for the insurance was made. By its requests for findings of fact and declarations of law, and by exceptions preserved to rulings thereon, the defendant insurance company fully preserved its right to have reviewed the questions we have considered. We therefore conclude that neither the pleadings nor the findings of the trial court supported the defense of estoppel. It follows that the judgment was erroneous, and the cause is therefore reversed, with instructions to grant the defendant a new trial.