1. Insurance may be effected in the name of a nominal
partnership where the business is carried on by and for the use of
one of the partners, especially when the property insured (grain)
is held by the parties insured on commission only, and in the
policy is described "as held by them in trust or on commission, or
sold and not delivered."
2. In case of an insurance thus effected, where no
representations are made with regard to the persons who compose the
firm, there is no misrepresentation on that subject which avoids
the policy.
3. And where the firm has no actual care or custody of the
property insured (grain), but so far as regards its preservation
from fire, it is entirely in the control of the other parties, and
is so understood to he by the company making the insurance; the
omission to inform the insurance company of an agreement of
dissolution previously made cannot be considered a concealment
which will avoid the policy.
Hamilton and Cook were partners in the grain commission
Page 81 U. S. 505
business, at Toledo, Ohio, and kept their consignments of grain
in store in an elevator at that place belonging to the Michigan
Southern Railroad Company, whose servants had the entire charge and
care of it. Hamilton retired from the firm in July, 1867, but no
notice of the dissolution was given, and by common agreement Cook
was allowed to carry on the business in the partnership name until
the end of the year. During this term, insurance to the amount of
$10,000 was effected with the Phoenix Insurance Company of
Brooklyn, through their agent, in the name of the firm, Hamilton
& Cook, against loss or damage by fire on the "grain in store,
their own, or held by them in trust or on commission, or sold and
not delivered," this being the usual method of taking insurance
among commission merchants in Toledo. Al loss occurred on the 21st
of December, whilst the policy was running, and the insurance
company declining to pay it, Hamilton & Cook sued them. The
defense set up was:
1st. Want of insurable interest in Hamilton, and
2d. Misrepresentation and concealment with regard to the
interest.
The plaintiffs, on the trial, waived any claim for grain
belonging to themselves individually and asked a verdict but for
the value of the grain which was received on commission, asking to
recover this amount for the use and benefit of the owners.
At the request of the plaintiffs' counsel, the court charged
that if no representations were made with regard to the individuals
who composed the firm of Hamilton & Cook, there was no
misrepresentation which could avoid the policy; and that if
Hamilton & Cook had no actual care or custody of the grain, but
that so far as regarded its preservation from fire, it was entirely
in the control of the railroad company, and so understood by the
company's agent when the policy was effected, the omission to
inform the defendant of the agreement of dissolution could not be
considered a concealment which would avoid the policy. Verdict and
judgment
Page 81 U. S. 506
went accordingly for the plaintiffs, and the case now came here
on exceptions to the charge of the court.
Page 81 U. S. 507
MR. JUSTICE BRADLEY delivered the opinion of the Court.
The principal question is whether insurance can be effected in
the name of a nominal partnership where the business is carried on
by and for the use of one of the partners.
Hamilton was a nominal partner, held out to the world as a
member of the firm by his own consent, and affected with every
liability of a partner -- to consignors, creditors, and all persons
dealing with the concern. The plaintiffs contended that this was a
sufficient interest to support the policy -- at least, in a
commission business where insurance was effected for the benefit of
the real owners of the goods. It is objected that a nominal partner
is only held such adversely, for the purpose of subjecting him to
liability as a partner and not for the purpose of giving him the
benefits and advantages of a partner. But whilst this is generally
true, the interest of a nominal partner in the liabilities of the
firm is such as should entitle him, in the absence of any attempt
to defraud, to join with the other members of the firm in effecting
insurance on the property of the concern. As Chief Justice Jones
remarked in De
Forest v. Fulton Insurance Co., [
Footnote 1]
"It does not always require either the legal title or beneficial
interest in the property to entitle a party otherwise connected
with it to effect a valid insurance upon it. A carrier may insure
goods he contracts to convey, yet he has neither the
Page 81 U. S. 508
legal title nor the beneficial interest in them, but he is
responsible for their loss."
But the case of a nominal partnership carried on for the benefit
of one or more members of the firm seems to be still stronger. For
it may be said that the legal interest in the business is in the
firm, whilst the beneficial interest is in the member or members
for whose use it is carried on. In the case before us, as to all
the world except themselves, the legal interest of the business was
in the firm of Hamilton & Cook, the beneficial interest in Cook
alone. And as it is well settled that a trustee or agent may insure
the property held in that capacity for the benefit of all
concerned, there seems to be no valid reason why persons
constituting a nominal partnership should not be competent to
effect insurance as well as transact the other business in the
partnership name. In this case, the intimate connection of Hamilton
with the business, and the fact that as between him and the
consignors of the grain insured, the railroad company with whom it
was stored, and all other persons dealing with it, he was actually
a partner, and incurred all the responsibility and risk attaching
to that relation constituted, in our judgment, a sufficient basis
of interest for effecting insurance in the name of the firm. The
doctrine, established by a number of cases, that nominal partners
are proper plaintiffs as well as proper defendants in actions by
and against the firm lends support to this view. [
Footnote 2]
The case before us is an especially strong one from the fact
that the policy was effected mainly for the benefit of the owners
of grain held by Hamilton & Cook on commission. The action was
prosecuted solely for their benefit. The plaintiffs, on the trial,
expressly waived any claim for grain belonging to themselves
individually, and asked a verdict only for the value of the grain
which was received on commission, claiming to recover this amount
for the use and
Page 81 U. S. 509
benefit of the owners. The liberality with which policies of
this character, issued to trustees and agents for the benefit of
parties really interested, are sustained by the courts is stated
and illustrated in the case of
Insurance Company v. Chase,
[
Footnote 3] decided by this
Court in December Term, 1866. As looking in the same direction, we
may refer to the cases in New York which decide that a sale by a
retiring partner to his co-partners of his interest in the firm is
not a breach of the condition that the policy shall be void if the
property is conveyed without the consent of the insurance company.
[
Footnote 4]
The other ground of defense was that there was misrepresentation
and concealment as to the interest which vitiated the policy. It is
laid down by this Court in
Columbian Ins. Co. v. Lawrence
[
Footnote 5] that an applicant
for insurance is bound to fair dealing with the underwriters, and
in his representations should omit nothing which it is material for
them to know -- nothing which would probably influence the mind of
the underwriter in forming or declining the contract. This doctrine
is repeated in several subsequent cases, and is undoubtedly the
well established law. But its application will depend upon the
circumstances of each case. Generally speaking, it is undoubtedly
true that any misrepresentation with regard to the ownership of the
property insured will suffice to vitiate the policy. But policies
are constantly applied for and granted on general stocks of goods
held in trust or on consignment for numerous and unknown parties.
In such cases, it is not expected, nor would it be possible, that
the insurers should be informed as to the ownership. They are
content to insure for the benefit of whom it may concern. Of course
an omission to disclose the ownership on such cases cannot be
regarded as an improper concealment. In some cases it is important
to the insurers to know who is interested in the property in order
that they may form a judgment as to the probable
Page 81 U. S. 510
care which will be bestowed in its custody and preservation. In
other cases, this knowledge may be a matter of little importance.
In the case before us, the grain insured was in the sole custody
and care of the railroad company, and the insurers were little
concerned, as in fact their agent made no inquiry who were the
owners or interested therein, and no representation was made on the
subject farther than to make the application in the name of
Hamilton & Cook and to ask for a general insurance on the grain
in the elevator, whether their own or held by them in trust or on
commission &c. Under the circumstances of the case, we do not
see that anything material for the insurers to know, or that would
have had a bearing on taking the risk or fixing the premium, was
concealed or withheld. On this subject, the court, at the request
of the plaintiffs' counsel, charged the jury that if no
representations were made with regard to the individuals who
composed the firm of Hamilton & Cook, there was no
misrepresentation which could avoid the policy, and that if
Hamilton & Cook had no actual care or custody of the grain, but
that so far as regards its preservation from fire, it was entirely
in the control of the railroad company, and so understood by the
defendant's agent when the policy was effected, the omission to
notify the defendant of the agreement of dissolution could not be
considered a concealment which would avoid the policy. Under the
circumstances of the case, we do not think there was any error in
this charge.
Judgment affirmed.
Mr. Justice CLIFFORD dissented.
[
Footnote 1]
1 Hall 110.
[
Footnote 2]
See Parsons on Partnership, 134; Story on Partnership
ยงยง 241, 242; 1 Smith's Leading Cases 1190.
[
Footnote 3]
72 U. S. 5 Wall.
509.
[
Footnote 4]
See Hoffman v. AEtna Insurance Company, 32 N.Y. 405,
and cases there reviewed.
[
Footnote 5]
27 U. S. 2 Pet.
49.
