Phenix Insurance v. P. J. Willis & Bro.

Maltbie, Presiding Judge.

On the fifth of October, 1883, G. W. Scott obtained a policy of insurance on a house in Lampasas for one year, from P. M. Hargrave, who was the local agent of appellant, The Phenix Insurance Company of Brook - " lyn, New York, and, on the fifteenth day of November thereafter, Scott, with the consent of the company, transferred said policy to the said P. M. Hargrave, he having a short time before purchased the property insured from Scott, and received a general warranty deed to the same. These transfers were made without consideration, and with intent on the part of both Scott and Hargrave to defraud the creditors of the said Scott; but this intent was not known to the insurance company until aftei the destruction of the building by fire, which occurred on the fourteenth day of August, 1884. On the thirtieth day of July, 1884, Hargrave made a general assignment of all of his property, including that insured, to Henry Exall, for the benefit of his (Hargrave’s), creditors. The insurance company in no way consented to this assignment. Appellees, who were creditors of Gr. W. Scott, on November 17, 1883, commenced suit against him, and caused an attachment to be levied on the property insured, claiming that the transfer to Hargrave was fraudulent and void, and on the fifth of September, 1884, garnisheed the insurance company. Notice of the fire was given and proofs of the loss made by said Scott, on the sixth of September, in proper form, he then claiming that the transfer of the property to Hargrave was intended as a mortgage, and on the seventeenth of the month the insurance company, through its general agent, denied all liability to Scott, and afterwards, in answer to the garnishment, denied under oath that it was indebted or in any way liable to Scott on the policy of insurance, which was controverted by appellees by a written affidavit.

It is contended by appellant that the garnishment was prematurely filed, because at the time of its issuance no proof of loss had been made, and by the terms of the policy proof of loss was required before the company could be held liable to pay. It has been frequently held that making proof of loss, where there is such a stipulation in the policy as is in this, is a condi- ' tion precedent, and must be complied with before suit can be maintained for the recovery of the amount of the policy. (East Texas Insurance Company v. Dyches, 56 Texas; O’Brien v. The Insurance Company, 63 New York; Insurance Company v. Nelson, 65 Illinois.)

But we are of opinion that the issuance of a writ of garnishment is not strictly speaking an action for the recovery of a debt, but is more in the nature of a bill of discovery, and may be filed in anticipation that a debt or other obligation will mature at some future time. This practice is evidently contemplated by our statute of garnishment. In this instance, the ¡property having been destroyed by fire, the agreement to pay 'the policy was no longer contingent, but had. become absolute ,by the happening of the event mentioned in the policy, subject to be defeated, however, by defenses pleaded and proven, as .might be done in other cases of debt. Consequently the garnishment was not prematurely issued.

hi or do we think it necessary that the controverting affidavit ,to appellant’s answer should contain all the allegations necessary to authorize a recovery on the policy in an ordinary suit ¡at law. Article 211 of the Revised Statutes provides that the : plaintiff may contest the answer of the garnishee, if he believes ■it incorrect, by affidavit in writing, stating in what particulars .he believes the same untrue; while article 213 provides that in , such cases an issue shall be formed, under the direction of the court, and tried as in other cases, giving the court plenary power in reference to the formation of the issue, so far as mere 1 form is concerned. “All that can be required of the plaintiff is that he state the facts on which he relies to establish the liability of the garnishee with sufficient certainty to enable the latter to prepare for his defense.” (Adkins v. Watson, 12 Texas, 199, 200.) In this case the complaint is not that the plaintiffs in their pleadings failed to state such facts as were necessary to enable the garnishee to make its defense, but that the pleadings were not sworn to. We think it sufficient that the controverting affidavit was under oath; there is no law requiring that the allegations upon which the issue is made up should be sworn to.

The principal question in the case yet remains: Was appel1 lant liable on its policy to the creditors of Scott. The company was induced to give its consent to the transfer of the policy upon the false representation that Hargrave had become the owner of the property insured, while the proof shoived that the „understanding was that the transfer from Scott to Hargrave should be a mere cover to enable Scott to effect a favorable ..compromise with his creditors, he being at the time largely F-indebted; and, no consideration having passed, the transfer l was fraudulent and void as to his creditors.

It is provided in the policy “that all fraud or attempt at ^raud, by false swearing or otherwise, shall be a complete bar to any recovery for loss under it.” The company doubtless, understood, and it was without doubt intended by Scott and Hargrave that it should understand, that there had been a complete and valid transfer of the property as to all persons; but it being invalid as to the creditors of Scott, created such a state of confusion and doubt as to the ownership of the policy as rendered it hazardous to pay the loss to any one. This was to the disadvantage and detriment of the company and calculated to provoke litigation; and, having been induced by false representations, was a fraud upon it, which it had provided against in its policy.

But it is objected that, conceding the fraud would ordinarily avoid the obligation of the policy, yet Hargrave being the agent of the company, and having knowledge of the fraud by reason of his own participation therein, the appellant is chargeable with his knowledge, and for that reason must be held to have waived its right to insist on the condition of the policy before referred to, though it was in fact ignorant of the fraudulent intent of Scott and Hargrave.

It is well settled that the knowledge of the agent will be imputed to the principal in matters where the agent is acting in the scope of his authority, and that the principal can not avail himself of the fruits of his agent’s fraud on account of his ignorance of such fraudulent conduct. (Kerr on Fraud and Mistake, 111, 112; May on Insurance, 142; Wright v. Calhoun, 19 Texas, 421.)

But Hargrave, in procuring the transfer of the policy from Scott to himself, was not representing the company, nor was the act for its benefit, it being a matter of indifference to the company to whom the policy was payable; the transfer being at the request and. for the accommodation of Scott, no valid reason is perceived why appellant should be estopped from insisting on the conditions of its policy. And in order to do so it was not necessary to return or offer to return any portion of the premium after discovering the fraud. (Besser v. Insurance Company, 37 Wisconsin, 39, 40; Phenix Insurance Company v. Stevenson, 78 Kentucky, 161.)

There is another view of the case, also, fatal to appellee’s right to recover. As a general rule, the plaintiff can not acquire any greater rights against the garnishee than the defendant himself possesses, unless the garnishee be in possession of effects of the defendant under a fraudulent transfer. (Drake on Attachment, 5 ed., par. 458.) There are certain exceptions to the rule, it is true (Id., 464), but the facts of this case are not within any of them. The transfer of the policy from Scott to .Hargrave, being with intent to defraud the creditors of the former, no trust could result in favor of Scott, whatever the understanding between himself and Hargrave may have been; and the legal title being in Hargrave’s assignee, Exall, Scott could not recover, and as a consequence appellees can not— appellant not being in any way tainted with the fraud of Scott, nor having any of the fruits thereof in its possession.

Opinion adopted January 20, 1888.

In view of the foregoing, we are of opinion that the judgment should be reversed and here rendered for appellant.

. jReversed and rendered.

[Judge Acker did not sit in this case.]