Case Name: The Texas Banking and Insurance Co. v. Cohen and Sampson
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1877
Citations: 47 Tex. 406
Docket Number: 
Parties: The Texas Banking and Insurance Co. v. Cohen and Sampson.
Judges: 
Reporter: Texas Reports
Volume: 47
Pages: 406–421

Head Matter:
The Texas Banking and Insurance Co. v. Cohen and Sampson.
Insurance.—A partnership composed of three persons obtained a policy of insurance on a stock of goods for one year. The policy contained the following provision, viz : “ This policy is not assignable 'unless by consent of this corporation, manifested in writing; and in case of any transfer by sale or otherwise, without such consent, this policy shall from thenceforth be void and of no effect.” During the year, one of the three partners retired from the firm, selling his interest in the partnership to his copartners, after which, and while the business was being carried on by the remaining members of the firm, at the same place, the goods were destroyed by Are. In a suit by the two remaining members of the Arm to recover the amount of the policy: Held—
1. That the sale by one partner to his copartners of his interest, did not, on account of the proviso in the policy, release the company.
2. Considering the scope, object, meaning, and spirit of the contract, sucli a sale and retirement of one of the partners is not such a change in the persons to the contract, and in, the interest in the property lost, as to prevent a suit on the policy by the firm as it existed when the loss occurred; and the proviso in the policy must be understood as intended to prevent only the “ sale ” and “transfer” of the proprietary interest of those with whom the insurers contracted, to others, with whom they had not consented to contract.
3. The insurance was intended to cover the mercantile stock of which the assured were proprietors, stored from time to time in the building in which that business was conducted. There was no substantial change caused by the sale by one partner to the others material to the risk, and clearly none within the intent of the proviso.
4. Changes in a firm, of the character complained of by appellant, often occur from the deatli or bankruptcy of one of the parties ; and it was the duty of the company, in view of the conflicting opinions entertained by the courts of different States on the point involved, to make the stipulations of the policy so plain as to leave no doubt of the intention.
On Rehearing.
The wording of the provision in the policy is such that it may be regarded as embracing both a stipulation against the assignment of the policy, and against a transfer of the property insured, but whether it referred to one or the other is immaterial, as the release by one partner to. his copartners of his interest in the firm is neither such an assignment of the policy or transfer of the property as was contemplated by the stipulation in the policy.
Appeal from Galveston. Tried below before the Hon. A. P. McCormick.
Miller Cleveland, for appellant.
1. The policy sued on was a contract to indemnify three persons against loss by tire of goods belonging to them. It was not a contract to insure the goods in whosesoever possession they might be, or to whomsoever they might belong. In other words, the contract was personal, and did not follow the property unqualifiedly. This is of the essence of the contract. (Flanders on Fire Ins., 1.)
2. The appellees could maintain no suit on the policy without averring and proving an assignment to them of Henry Sampson’s interest and the company’s assent thereto. “A contract with several persons, for the payment to them of a sum of money, is a joint contract with all, and all the payees therein have a joint interest, so that no one can sue alone for his proportion.” (1 Parsons on Cont., 13.) The case of Baltimore Fire Insurance Company v. William McGowan and John C. McGowan is a direct decision on this point. (16 Maryland, 45.)
3. The transfer by Henry Sampson to his partners of his interest in the goods insured, without notification to and the assent of appellant, avoided the policy.
Flanders, in his recent work on insurance, pages 428,429, lays down the rule to be, that “where insurance is affected by partners or cotenants, a sale of all his interest by one cotenant, or by one partner to another, is within the prohibition of a policy of insurance, which declares that alienation, ‘ by sale or otherwise,’ shall forfeit the policy; and under such a clause against a transfer or change of title, a dissolution of the firm and a division of the partnership property among the partners, so that each is to hold his share separately and distinctly, is not strictly a sale of the goods, yet it operates a change of title and discharges the insurers.” And so, Parsons, in his work on contracts, pages 19 and 20, edition of 1864, lays it down as a general proposition, that a guarantee to a partnership is extinguished by a change of the firm, although the partnership name is not changed, and that this has been held to be the effect of such change, although the guarantee to the firm was expressly for advances by them or either of them. He says, “ a guarantee may doubtless be a continuing contract, and be unaffected by a change of circumstances as to the subject-matter; and also as to the parties for whose benefit it shall inure, etc., provision may be made for its validity to a partnership after a change of members. But, from what has already been said, it will be obvious that, unless the contract of guarantee expressly provides for these changes, their occurrence discharges the guarantor from his obligation.”
Counsel cited Portsmouth Ins. Co. v. Brinkley & Co., 2 Law Journal, 483; Hartford Ins. Co. v. Ross et al., 23 Ind., 181; Dix v. Mercantile Ins. Co., 22 Ill., 278; Finley et al. v. Lycoming Mutual Ins. Co., 6 Casey, 311.
F. Charles Hume, for appellee.
We hold that the transfer made by Henry Sampson to plaintiffs, his partners, of his interest in the partnership, was no violation of that clause of the policy expressed in the following words: “ This policy is not assignable, unless by consent of this corporation, manifested in writing; and in case of any transfer, either by sale or otherwise, without such consent, this policy shall from thenceforth be void and of no effect.” The transfer meant by that language is not that made by one partner to another of a policy issued originally to the firm composed of the two. (Pars. on Merc. Law, 533; May on Insur., 99; Ang. on Life and Fire Insur., 197.) It is true that the law has been ruled otherwise by some courts of last resort, but I think an analysis of the cases will disclose that not only is the weight of authority with us, but also the better reason.
Counsel then discussed the following cases: Hoffman v. Ætna F. I. Co., 32 N. Y., 405; McMasters v. The Westminster Mut. Ins. Co., 25 Wend., 379; Howard v. The Albany Ins. Co., 3 Denio, 301; Tillou v. Kingston Mut. Ins. Co., 7 Barb., 570; Wilson v. Genesee Mut. Ins. Co., 16 Barb., 511; Day v. Pough. Mut. Ins. Co., 23 Barb., 627. The review of these cases was exhaustive, and much reliance was placed on the reasoning contained in the opinion in Hoffman v. Ætna F. I. Co., 32 N. Y., 405.

Opinion:
Roberts, Chief Justice.
The partnership, composed of Cohen and two Sampsons, toók out a policy of insurance on a stock of goods for one year, and during the year one of the Sampsons retired from the firm, by selling to his copartners Ms interest therein; after which, the business being continued by the remaining members of the firm, in the same place, the goods were destroyed by fire before the end of the year. The remaining partners having recovered a judgment against the appellant, the only question at issue, as agreed upon by the counsel, is, whether or not the company is released by such ' a sale, by one partner to his copartners, under and by force of a provision of the policy of insurance, in the following words, to wit: " TMs policy is not assignable, unless by consent of this corporation, manifested in writing; and in case of any transfer, by sale or otherwise, without such consent, this policy shall, from thenceforth, be void and of no effect."
This question has arisen upon similar stipulations in policies of insurance, in many of the States, in most of wMch it has been decided that the company is released by a sale of this sort and the retirement of one of the partners of the firm. In a few others, including New York, the contrary rule is adopted. In the former class, the change in the parties to the contract of insurance, and the change in the parties who sustained the damage in the loss of the property by fire, are the influencing considerations in forming the judgment ; and as different persons own the property lost, that must constitute the damage done, from the persons who made the contract, a suit cannot be maintained by the less number of persons who owned the property when it was lost. (The Baltimore Fire Ins. Co. v. McGowan, 16 Md., 45; Wilson v. Hill, 3 Metc., 69; Tate v. M. F. Ins. Co., 13 Gray, 80.) This would seem to rest on the general doctrine of the rights of parties to sue upon joint contracts, rather than upon the breach of the stipulation in the policy now under consideration. (Pars. on Cont., 13.) In other cases, an additional and a broader view is presented, in which it is considered that the company contracts for the care, diligence, and integrity of each and all of the members of the firm contracted with, in the preservation of the property from loss, as part of the inducement to and consideration of the contract; and that a sale by one of the partners, and his retirement from the firm, without the written consent of the company, is a substantial change of the parties to the contract, which this stipulation in the policy was designed to protect it against. (Keeler v. Niagara F. Ins. Co., 16 Wis., 537; Hart. F. Ins. Co. v. Ross et al., 23 Ind., 181.)
In the latter class of cases, in which the Court of Appeals, in the State of Hew York, takes the lead, all of these grounds are attempted to be answered by the conclusion that, considering the scope, object, meaning, and spirit of the contract, such a sale and retirement of one of the partners is not such a change in the persons to the contract, and in the interest in the property lost, as to prevent a suit on the policy by the firm, as it existed when the loss occurred, and that stipulation in the policy under consideration must be understood as intended to prevent only the sale and transfer, of the proprietary interest of those with whom the insurers contracted; to others, with whom they had not consented to contract.
This view is summed up, in a case similar to the one before us, as follows, to wit:
" The plaintifis were parties to the contract made with the defendant. They were conducting the business contemplated by the terms of the policy. The insurance was intended to cover the mercantile stock, of which the assured were proprietors, stored, from time to time, in the building in which that business was Conducted. There was no substantial change material to the risk, and clearly none within the intent of the proviso. • Each member of a partnership firm, as Lord Hardwick said, is seized, per my. et per tout, of the common stock and effects." (West v. Skip, 1 Ves. Sr., 242.)
" This interest of each and all the policy in question was designed to protect, and its language, fairly construed, is in harmony with this intent. There is no reason why the full measure of agreed indemnity should be withheld from the plaintifis, who were owners at the date of the insurance, and sole owners at the time of the loss." (Hoffman v. Ætna Fire Insurance Company, 32 N. Y. Rep., 416.)
The reasons upon which this conclusion is reached in the case cited are so elaborate and exhaustive as to render it unnecessary to repeat them, or to seek to improve upon them. It is founded upon a liberal equity in reference to the objects of both of the parties in making the - contract of insurance, and is believed to be in harmony with our system of jurisprudence in Texas. This court having the question before it now, for the first time, coincides in opinion with the Court of Appeals of the State of New Work, in the case above cited. Apart from having to determine between conflicting views of great weight presented on each side of the question, it is worthy of consideration in respect to the weight of authority, that the decision cited and relied on in aid of our own judgment, emanates from the Court of Appeals, in a State wherein is situated the great commercial metropolis of the continent, and that it has been recently followed by two other States, and has been incidentally referred to, without objection, by the Supreme Court of the United States. (Burnett v. Eufaula Insurance Company, 46 Ala., 53; Pierce v. Nashua Insurance Company, 50 N. H., 297, cited from 9 Am. Rep., 235; Phœnix Insurance Company v. Hamilton, 14 Wall., 509.)
A consideration of importance in this matter is, that it is well known that such changes as tins in the parties of a firm, and others of like character, such as the death or bankruptcy of one of the partners, are of very frequent occurrence, without materially altering, practically, the business or character of the firm; and if insurance companies regard such changes as prejudicial to their interest, it is their duty (especially in reference to the conflict of authority on the subject) to make the stipulations in the policy plain in that respect, which they can easily do.
Affirmed.