Case ID: mass_78/html/0355-01.html
Source: Caselaw Access Project
Author: {"author": "Metcalf, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William R. Clark vs. Charles S. Brown.
    The St. of 1854, c. 453, § 26, making the president and directors of a mutual marine insur* anee company personally liable on any policy issued by them when they know the company to be insolvent, does not make the policy void.
    Action of contract by the indorsee of a promissory note for $421, made by the defendant on the 21st of January 1856, and payable in fourteen months to the Commercial Mutual Insurance Company or order.
    Answer, 1st. Want of consideration ; 2d. Failure of consideration ; 3d. That the note was given for the premium named in a policy of insurance, issued by that company to the defendant, contrary to the provision of the St. of 1854, c. 453, § 26, that if a mutual marine insurance company “ shall be liable for losses beyond the amount of the fund, cash unpaid, premiums for risks terminated and subscriptions, the president and directors, knowing the condition of the company, shall be liable personally to the insured for all losses occurring on insurance effected while such state of things continues.”
    At the trial in the superior court of Suffolk at January term 1858, the defendant offered evidence that when the policy was issued the company was liable for losses beyond the amount of the fund, cash unpaid, premiums for risks terminated and subscriptions ; and that the defendant surrendered his policy to the company, before the termination of the risk, but after transfer of the note in suit to the plaintiff.
    But Nash, J. ruled, “ that the intention of the St. of 1854, c. 453, § 26, was not to make void the contracts of insurance made under the circumstances set forth in the defendant’s answer; that the note given for the premium was on good consideration and valid, and the policy was binding on the company, with the individual liability of the directors superadded ; that the policy of the statute was to restrict the business of the company within certain bounds, and was effected, not by avoiding the insurance and premium note, but by fixing upon the directors said personal liability; that therefore the facts proposed to be shown by the defendant would not constitute a defence to the note; and that the surrender of the policy made by the defendant to the company, after the note had been transferred to the plaintiff, would not affect the rights of the plaintiff.” A verdict was taken for the plaintiff, and the defendant alleged exceptions.
    
      J. Gutter, for the defendant.
    A contract, the consideration of which is illegal, either at common law or by statute prohibition, ,s void; and inflicting a penalty for an act is a prohibition thereof without express words. Bartlett v. Vinor, Carth. 252. Wheeler v. Russell, 17 Mass. 258. Williams v. Cheney, 3 Gray, 222. Mitchell v. Smith, 1 Binn. 110. The liability imposed by St. 1854, c. 453, § 26, upon the president and directors of a mutual marine insurance company, for issuing a policy under the circumstances therein stated, is in the nature of a penalty, and a policy so issued is void. Williams v. Cheney, 3 Gray, 222. Hunt v. Knickerbacker, 5 Johns. 334. The issuing of a policy of insurance by such a company is a representation that the company is in the condition recognized by the statute as justifying the risk; and, if false, entitles the assured on discovery of the fraud to avoid the contract. Lobdell v. Baker, 3 Met. 469. Kidney v. Stoddard, 7 Met. 252. Bufe v. Turner, 6 Taunt. 338. Adamson v. Jarvis, 4 Bing. 66.
    The surrender of the policy was a rescission of the contract, and would have avoided the premium note in the hands of the company. Lewis v. Cosgrave, 2 Taunt. 2. Holbrook v. Burt, 22 Pick. 546. Fraud or illegality in the note being shown, the burden of proof is upon the plaintiff to show that he is a bona fide holder. Munroe v. Cooper, 5 Pick. 412.
    
      E. M. Bigelow, for the plaintiff, was stopped by the court.
   Metcalf, J.

We are of opinion that the judge, on the trial of this case, rightly construed the St. of 1854, c. 453, § 26, and th.at all his rulings were correct. Exceptions overruled.