Scottish Court of Session Decisions

In 1892 John Benton, farmer, and Alexander Murray, advocate, Aberdeen, lent the sum of £600 to the Equitable Mortgage Company, Limited, on debenture bearing interest at 5 per cent. per annum, and repayable on 1st June 1897.

On 16th June 1892 Benton and Murray insured that investment with the Employers' Insurance Company of Great Britain.

The following are the main provisions of the policy of insurance:—After the narrative that there had been paid to the company the sum of £2, 5s., being the agreed premium for such assurance until 1st June 1893, and that it had been agreed that the sum of £2, 5s. should be the future annual premium of such assurance thereafter, and that the same should be payable on the 1st June each year, the policy proceeded—“Now these presents witness that the company, in the event of failure to pay on the part of the debtors, hereby guarantee to the assured payment of the said principal sum of £600 sterling within four months of the date when the same is repayable as above stated, and of said interest thereon, … provided notice is given to the company of such failure to pay … Provided always that this policy is subject to the conditions indorsed hereon, which are to be taken as part hereof.”

These conditions included the following: “1. This policy will be void … ( b) if the premium is not paid within fourteen days after it becomes due;” ( c) if the assured does not give the company notice of default on the debtors' part within a specified time; “( d) If the assured without the consent in writing of the company, consents to any arrangement modifying the rights or remedies of the assured against the debtors or takes proceedings for recovering the principal sum assured or interest thereon. 2. If the debtors delay payment of any principal or interest for thirty days after the same ought to be paid, or if the debtors stop payment, have a receiving-order made against them, become bankrupt, or are by the company known or believed to be in an unsound position, or if the company is called upon to pay any money under this policy, the assured shall, at the request and cost of the company, give to the company all such information as the assured may possess and the company may require as to the issue of the debentures hereby assured and the circumstances under which the assured took the same and the securities and rights available to the assured, and shall also at the like request and cost and upon payment by the company of the principal remaining due upon the debentures and interest at the rate within specified to date of payment, execute all such deeds and writings in favour of the company or its nominees, and do all such things as may be required by the company for vesting in them or their nominees all rights of the assured against the debtors and any property or person whatsoever, and the company may enforce any such rights or remedies in the name of the assured, but at the cost of the company.… 3. This policy shall continue from year to year so long as the assured shall pay the premiums hereunder on the days appointed for payment thereof, or before the expiration of

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fourteen days thereafter, but the company shall not be bound to accept any premium payable after the 1st day of June 1897, or in any way to continue this policy beyond the expiration of the period of twelve calendar months from that date.”

The Equitable Mortgage Company went into liquidation on 30th August 1893.

In May 1894 the Equitable Securities Company was formed to take over its rights and liabilities. Assenting creditors of the Equitable Mortgage Company received debentures of the new company on giving up their claims against the old company, and the remaining assets of the latter passed into the hands of the new company.

In July 1894 Benton and Murray, as specially authorised by the Employers' Insurance Company, assented to this arrangement, and subsequently exchanged their debenture of the old company for one of the new company maturing in 1904, and bearing interest at 4 per cent.

Benton and Murray paid a premium on their policy of insurance in June 1894, but did not pay a premium in June 1895. The Employers Insurance Company paid them the interest assured under the policy down to 1st December 1894.

In July 1895 the Employers Insurance Company went into liquidation, and in December 1895 Mr Murray for himself and Benton lodged an affidavit and claim with the liquidators for £603, 13s. 8d., being the principal sum insured under the policy plus the difference in interest between the rate paid by the old company and that paid by the new from 1st December 1894 to 13th July 1895.

Upon this claim the liquidators pronounced the following deliverance:—“The liquidators reject the claim in respect of the claimants' failure to renew the policy in June 1895.”

The assets of the company realised sufficient to pay the claims of creditors in full.

The liquidators having on 25th August 1896 presented a note to the Court for approval of deliverances, &c., Benton & Murray lodged answers and objections thereto, in which, after narrating the facts, they craved the Court to direct the liquidators to issue a deliverance admitting their claim to an ordinary ranking, and to authorise the liquidators to pay them twenty shillings in the pound on their claim.

The liquidators lodged replies to these answers and objections, in which they admitted that a sum of £2, 18s., representing interest from 1st December 1894 to 1st June 1895, was due to the respondents.

On 14th May 1897 the Lord Ordinary ( Stormonth Darling) pronounced an interlocutor disapproving of the liquidators' deliverance, and otherwise granting the crave of the objectors.

Opinion.—“At the close of the argument in this case on 5th February I asked the parties to ascertain and inform me at what date the Equitable Mortgage Company, Limited, was, as stated in the objections for Benton, ‘wound up and dissolved.’ It was an American company, and therefore I could not construe the statutes for myself, as I would have done if it had been a British company. I have waited three months for the information, and it is not forthcoming. I therefore propose to decide the case without it.

The question is, whether the respondents have forfeited their rights under the policy of assurance dated 16th June 1892, by failure to pay a premium of £2, 5s. on 1st June 1895. That depends on whether there had been ‘failure to pay’ on the part of the Equitable Mortgage Company within the meaning of the policy prior to that date.

I think there had been. The principal sum of £600 advanced by the respondents to the Mortgage Company was not repayable by the latter till 1st June 1897; but circumstances might quite well occur before that date making it impossible for the debtors to discharge their obligation when the due date arrived. During the argument it seemed to me that no circumstance could have that effect more clearly than the dissolution of the Mortgage Company, and therefore I asked for the date of dissolution. But I think there is enough in the admitted facts to enable me to say that whatever was the precise date of dissolution there had been ‘failure to pay’ on the part of the company before 1st June 1895.

It is admitted by the liquidators that the Mortgage Company had gone into liquidation prior to June 1894. Probably that circumstance did not by itself constitute ‘failure to pay,’ though it gave the Insurance Company a right under the second condition endorsed on the policy to make immediate payment of the principal with interest to date, and to demand an assignation of all the rights of the insured. But the liquidators further admit the respondents' statements regarding what is called the ‘reconstruction of the Company.’ These statements are that in March 1894 a new Company called the Equitable Securities Company, Limited, was projected to take over the assets and liabilities of the Equitable Mortgage Company under a reconstruction scheme; that in July 1894 the respondents were authorised by the Insurance Company to accept, and did accept, ten debentures for £60 each from the new Company, repayment being deferred till March 1904, and interest reduced to 4 per cent.; and that the Insurance Company expressly agreed that the respondents' acceptance of these new debentures should be without prejudice to their claim under the insurance of their original debenture with the Mortgage Company. This latter and most material point is amply borne out by a letter from the Insurance Company dated 23rd July 1894. The effect of this transaction, to which the Insurance Company became a party, was to create a slightly altered debt and an entirely new debtor. The Equitable Mortgage Company, even if it continued to exist for some time afterwards, could no

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longer be called on to pay the old debt, for the parties had agreed otherwise, and it could not pay by any possibility, because it had parted with all its assets. There was therefore on its part from that moment ‘failure to pay’ the principal sum, though payment could not have been demanded till 1st June 1897. The risk, which is the characteristic feature of a contract of indemnity, was at an end, for it had become a certainty. The insured had acquired an indefeasible right to recover from the insurer. I fail to see how the respondents could forfeit the right which had thus vested in them by any subsequent act or default of theirs. It was enough that they had kept the policy in force up to the time when the liability of the Insurance Company arose. After that the company may have had the right (instead of paying up at once and ending the matter) to wait for the stipulated date, paying interest in the meantime. But during that interval there was, so far as I can see, no obligation on the part of the insured to pay premiums. It would, I think, require very special words in a policy of insurance to make premiums payable after the claim had emerged and become indefeasible, and I find no such words in this policy.

It follows that the liquidators' deliverance cannot be sustained.”

The liquidators reclaimed, and argued—(1) The contract here was to ensure the debenture upon condition of getting five years' premium. The amount of premium was calculated upon that footing, and the respondents were really seeking to get the benefit of the policy for three years' premium only. Though the Equitable Mortgage Company had been wound up, failure to pay in the sense of the contract did not emerge till the debenture matured, and by that time the policy had lapsed— Laird v. Securities Insurance Company, Limited, March 12, 1895, 22 R. 452; Dane v. Mortgage Insurance Corporation, 1894, 1 Q. B. 54; Finlay v. Mexican Investment Corporation [1897], 1 Q.B. 517; Simpson v. Mortgage Insurance Corporation, 38 Sol. Journal, 99. The logical result of the respondents' argument was that payment could have been demanded by the assured the moment the debtor company was replaced by the new one. (2) The respondents' theory of compensation in respect of the interest due in the Insurance Company's hands was nowhere suggested in the claim, which was on the contrary fatal to it, and it was in any event unsound— Cowan v. Gowans, January 25, 1878, 5 R. 581.

Argued for the respondents—The Lord Ordinary was right. (1) There could be failure to pay before the date of maturity. Once it was ascertained that the debtor could not pay when maturity should have arrived, the risk emerged, or rather became a certainty; and after that nothing could void the Insurance Company's liability. (2) In any event the amount of interest due on the debenture and in the Insurance Company's hands in June 1895 was more than sufficient to pay the premium then due, and should have been applied for the purpose.