Monmouth County Mutual Fire Insurance v. Hutchinson & the Camden & Amboy Railroad & Transportation Co.

| New York Court of Chancery | May 15, 1870

The Chancellor.

The bill states that the complainants insured the dwelling-house and store-house of the defendant, Hutchinson, against loss by fire, to the amount of $1800, and while so insured the buildings were destroyed by fire on the 5th day of March, 1866; that the value of the buildings destroyed was $4000; and that the complainants, on the 9th of May, 1866, paid to Hutchinson $1800 for his loss. The bill further states that the fire was communicated to the buildings by sparks from the locomotives of the defendants, the Oamden and Amboy Railroad Company, running on their road near the buildings, and that the fire was caused by the negligence of the company’s servants; that the company was liable for the' loss occasioned by the fire; that the complainants having paid to Hutchinson the insurance, were, to that amount, subrogated in his place in the claim against the railroad company, and entitled to recover it from them in Hutchinson’s name; that the company, in November, 1866, knowing that the complainants had paid this insurance, settled the claim of Hutchinson with him, paid him $2000, in full for his damages, and Hutchinson released and discharged them from all further liability. The complainants claim that Hutchinson holds $1800 of the amount received in trust for them, and is bound to account' to them for it ; that the settlement between the defendants, and the release and discharge, was -a fraud on the complainants, and cannot be lawfully set up against them. The prayer of the bill is, that the defendants may be decreed to pay to the complainants the sum paid by them to Hutchinson, with interest; and to this is added the general prayer.

The cause of demurrer assigned in the demurrers filed, is want of equity in the bill; but in addition to this, on the argument, the defendants urged and assigned ore terms as a ground of demurrer, that there is a misjoinder; that the right of action, if any, against Hutchinson is in equity, and against the railroad company at law, and that both defendants could not be joined, either in law or equity.

It is settled, and was not disputed on the argument, that if the complainants paid Hutchinson for a loss by fire, occasioned by the fault of the railroad company, and afterwards Hutcliinson roceived the amount from the railroad company in satisfaction of his damages, he holds it in trust for the insurers, and they may recover it from him by suit in equity. 2 Phillips on Ins., §§ 1723, 1734; Blauwpot v. Da Costa, 1 Eden 130; Randall v. Cochran, 1 Ves., sen., 98; Varet v. N. Y. Ins. Co., 7 Paige 567.

It is also settled, that if the railroad company had not paid Hutchinson his damages, or had paid them to him, knowing that he had received the amount insured from the complainants, that they are liable to the complainants in a suit at law, which they have the right to bring in the name of Hutchinson, without his consent, to repay them the damages to the amount of the sum paid by them, and that a release by Hutchinson would be no defence to such suit. Hart v. The Western Railroad Co., 13 Metc. 99; Tyler v. Ætna Fire Ins. Co., 16 Wend. 397; Gracie v. N. Y. Ins. Co., 8 Johns. 245; Timan v. Leland, 6 Hill 237; 2 Phillips on Ins., § 1711.

But these two remedies cannot be pursued in one suit, and neither defendant is a proper or necessary party to a suit-against the other; and in no way are they jointly liable, so that a decree may be made, or a judgment given against both; and were there no other prayer than that they be decreed to pay the money to the complainants, the demurrers would be sustained for the misjoinder. But the prayer for general relief will entitle the complainants to any equitable relief warranted by the facts set out in the bill. The settlement by the railroad company with Hutchinson, after they knew that he had received the amount of the insurance, was a fraud upon the complainants, and the release given to them would be void for the fraud. Courts of equity have, peculiarly, cognizance of matters of fraud, and have jurisdiction over instruments affected by fraud, and will declare them void on that account; and this, even although the fraud is such as might be proved at law, so as to avoid the effect of the instrument. The release stated in the bill, if given under the circumstances there stated, is void as against the claim of the complainants, so far as the amount paid by them is concerned, and it is void for fraud, and they have the right to have it declared void before commencing a suit in the name of Hutchinson against the railroad company. In a suit for that purpose, which must be brought against the company who hold the instrument, Hutchinson is a proper, if not a necessary party. He participated in the fraud and received the benefit of it.

The demurrers must, therefore, be overruled. The complainants were permitted to amend their bill at the argument, on the terms that the costs of the demurrers, if they should be overruled, should abide the event of the suit.