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Theodore Sedgwick.

A treatise on the measure of damages, or, An inquiry into the principles which govern the amount of pecuniary compensation awarded by courts of justice (Volume 3) online

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'^Regina." The captain of the ''Regina" was unable to wait
for the arrival of the property at Kingston, and directed the
defendants, forwarding agents, to send it on by mail-steamer
and rail to a point where he would pick them up. The goods
were shipped by propeller, which was burned with its contents.
The plaintiffs' insurance on the property covered only ship-
ment by the "Regina;" because of the change it was cancelled.
The defendants were held liable for the value of the goods.

25 Story on Agency, § 218; Caffrey v. ^ Ernest v. Stoller, 5 Dill. 438.
Darby, 6 Yes. 488, 496; Davis v. Gar- 2* Goodrich v. Thompson, 4 Robert,
rett, 6 Bing. 716; Wallace v. Swift, 31 75.

Up. Can. Q. B. 523. 2' Catlin v. Bell, 4 Camp. 183.

26 Williams v. Littlefield, 12 Wend. '<" Wallace v. Swift, 31 Up. Can. Q.
362. B. 523.



1694 ACTIONS INVOLVING AGENCY § 817

The court declared an agent's liability for his wrongdoing to
be without the ordinary limitation of the rule of proximate
cause, but this was clearly a mistaken obiter dictum.

§ 817. Agents to insure.

* These questions very frequently arise between merchants
and insurance brokers or factors. So in a case ^^ where the
defendants, in taking out a policy for the plaintiffs, had omitted
"a Hberty to touch at the Canary Islands," and the vessel hav-
ing touched there, and been captured, the underwriters refused
to pay on the ground of deviation, Lord Ellenborough held that
the plaintiffs were entitled to recover a verdict for the sum in-
sured, deducting the premiums. Again, in a case ^- where the
defendant, in effecting a policy, had departed from his instruc-
tions, and the vessel being lost, the underwriters, in consequence
of the agent's neglect were not liable; two of the underwriters
for £200 having paid the loss, and a third for the same sum hav-
ing become bankrupt, Gibbs, C. J., held that the plaintiff was
entitled to recover the amount directed to be insured, less the
£400 paid, and the £200 subscribed by the bankrupt under-
writer; and the plaintiff accordingly took a verdict for the
balance. ^^

In a case in New York, where premiums had been paid at
Savannah to an agent of underwriters doing business in New
York, and a bill was filed against the company to compel the
execution of a policy, Mr. Senator Golden said: ''Suppose an
action had been brought against the Savannah agent for not
sending the premium to New York in due time, can there be a
doubt but that the appellant would have recovered in a court
of law, and that the measure of damages would have been the
amount which was to have been insured, and for which the
premium was paid?" ^^

Again, if an agent who is bound to procure insurance for his
principal neglects to procure any, and a loss occurs to his prin-
cipal from a peril ordinarily insured against, the agent will be

" Malloup;h v. Bjirbor, 4 Camp. 150. was said as to the measure of <lam-

'^ Park V. Ilainoiul, 4 Camp. 344. ages.

"Sec thi.s ca-se, Taunt. 49r), when; '■• Perkins v. Washington Ins. Co., 4

a new trial was refused, but nothing Cow. G45, 664.



§ 817 AGENTS TO INSURE 1695

bound to pay the principal the full amount of the loss occa-
sioned by his negligence.**

The English Common Bench seems at one time to have held
that the measure of the principal's damages in such a case is a
question of fact for the jury, and not a question of law. The
consignor sued for loss of freight, and the defendant pleaded,
as a plea of circuity of action, that it was the duty of the con-
signor to insure. The plaintiff demurred; and the question was,
whether the damages for failure to insure were measured ex-
actly by the amount of the loss. It was held that they were
not so measured, and the demurrer was sustained. Jervis, C. J.,
and Maule, J., delivered elaborate opinions, the reasoning of
which is not clear. The ground of the decision appears to
be, that since the amount of loss at the time of the breach
of duty could not certainly be said to equal the value of the
property, the law can never say that the measure of damages is
fixed at that amount. Thus Maule, J., said: ''The question is,
what damage has the party sustained at the time the cause of
action vested in him? If nothing had happened, and a policy
might then have been effected, the jury would consider what
was probable; if the loss had then happened, they perhaps
might have given the full amount, but they were not bound
to do so; there were a variety of circumstances which they might
properly take into their consideration." ^^

This case has never been overruled, or apparently even no-
ticed, by an English court since it was decided. But, in a later
case, the Court of Chancery held the opposite opinion. ^^ In
that case a bankrupt had failed to insure property of the peti-
tioner, as he should have done, and the property was burned.
The petitioner presented a claim for the value of the property,
as a liquidated claim provable in bankruptcy, and the claim
was allowed. Turner, L. J., said: "I apprehend that the value
of the timber would be the measure of damages in an action
for breach of the contract." The court of Common Bench, in
an opinion delivered by Erie, C. J., noticed this decision, calling
it "the sound judgment of Lord Justice Turner," and said of
the case: "The amount due for not insuring was precisely the

'5 Charles v. Altin, 15 C. B. 46, ^« Ex parte Bateman, 8 De G. M. &

66. G. 263, 268.



1696 ACTIONS INVOLVING AGENCY § 817

same as would have been due for the same quantity of timber
sold and delivered. It was held, therefore, to be equivalent to
a debt, though technically a right to damages." ^^

This seems to establish the law in England on the true basis.
In America it has never been doubted that the measure of
damages was the exact amount of the loss. The leading case
was on the Pennsylvania circuit, ^^ where the learned Mr.
Justice Washington charged: ''That if one merchant is in the
habit of effecting insurances for his correspondent, and is di-
rected to make an insurance, and neglects to do so, he is him-
self answerable for the losses as insurer, and is entitled to a
premium as such. That the amount of loss for which an under-
writer who had subscribed the policy would have been answer-
able is the only measure of damages against him. If he can
excuse himself for not having effected the insurance, he is an-
swerable for nothing; if he cannot excuse himself, he is then
answerable for the whole." And it appears that, on exception
to the charge, this judgment was affirmed in the Supreme Court
of the United States. ^^ The same point was laid dowTi in an-
other case, by the same able judge, "^^ still more broadly: "The
law is clear, that if a foreign merchant, who is in the habit of
insuring for his correspondent here, receives an order for mak-
ing an insurance, and neglects to do so, or does so differently
from his orders, or in an insufficient manner, he is answerable
not for damages merely, but as if he were himself the under-
writer; and he is, of course, entitled to the premium." The
language of the court above quoted is not to be taken as

" Betteley v. Stainsby, 12 C. B. Maine: Storer v. Eaton, 50 Me. 219

(N. S.) 477, 499; ace, Callender v. (semble).

Oelrichs, 5 Bing. N. C. 58; Smith v. Minnesota: Everett j^. O'Leary, 90

Price, 2 F. & F. 748. Minn. 154, 95 N. W. 901.

'* Morris t;. Summerl, 2 Wash. C. C. New Hajnpshire: Ela v. French, 11

203. N. H. 356.

" See to the same effect the following New York: Gray v. Murray, 3 Johns,

cases: Ch. 167; Beardsley v. Davis, 52 Barb.

Illinois: Chicago Building Society v. 159.

Crowell, 65 111. 4.'53; Schocnfcld v. Canada; Douglass v. Murphy, 16 Up.

Fleishcr, 73 111. 404. Can. Q. B. 113; Wallace v. Swift, 31

Indiana: Crissoll v. Riley, 5 Ind. App. Up. Can. Q. B. 523.

496, 503, 30 N. E. 1101. ■'» Dc 1 astctt v. Crousillat, 2 Wash.

Louisiana: Area v. Milliken, 35 La. C. C. 132, 136.
Ann. 1150.



§ 817 AGENTS TO INSURE 1697

meaning that the agent could be sued on the contract of in-
surance, but that the measure of damages is the amount that
could have been recovered on the pohcy, less the premiums.
So where a defendant had agreed to procure insurance for the
plaintiff, but before the insurance was effected, the property
was destroyed in the Chicago fire of 1872, it was held that the
defendant was not liable for the face value of the policy, but
only for the amount of dividends which the insurance company
contemplated rendered insolvent by that fire, would have de-
clared on a pohcy of that face value. ^^ And the negligent
agent cannot claim the premium as an insurer if the ship comes
safe to port/^

In an action against a broker for negligence or unskilfulness
in effecting an insurance, "the plaintiff," says Mr. Sergeant
Marshall, ^^ "is entitled to recover the same amount as he
might have recovered against the underwriters had the policy
been properly effected." And so, says Mr. Phillips, ^^ the
agent "puts himself in the place of an underwriter, and must
pay the loss, or the part of it for which the underwriter is not
liable, but for which he would have been liable had the policy
been made according to the instructions, or in such manner as
the principal had a right to expect and require." ''^

The same principle was applied in an action of assumpsit,"*®
where the defendants had been employed as factors to settle
with underwriters as for a total loss. The defendants adjusted
the loss at 20 per cent., and cancelled the policy; and the court
said: "If the defendants, as agents or factors of the plaintiffs,
have, through mistake or design, disobeyed their instructions,
they are undoubtedly responsible, and are to be considered
as substituted for the insurers. This was a point conceded on
the argument;" and a motion for a new trial on the ground of

*' Chicago Building Society v. Crow- New York: Thorne v. Deas, 4 Johns,

ell, 65 111. 453. 84.

" Storer v. Eaton, 50 Me. 219. Pennsylvania: Miner v. Tagert, 3

*' Marshall on Insurance, 4th ed., Binn. 204.

p. 244. England: Delaney v. Stoddart, 1

"2 Phillips' Insurance, 2d ed., p. T. R. 22; Wilkinson v. Coverdale, 1

566. Esp. 75; Wallace v. Telfair, 1 Esp. 76

*^ United States: De Tastett v. (cited); Harding v. Carter, 1 Park,

Crousillat, 2 Wash. C. C. 132. Insur., 7th ed., 4.

« Rundle v. Moore, 3 Johns. Cas. 36.
107



1698 ACTIONS INVOLVING AGENCY § 818

excessive damages was denied. Where a life insurance policy-
lapsed through the negligence of an agent, the plaintiff recov-
ered its net value at the time.^^

§ 818. Liable only if insurer would have been.

* But the plaintiff can only have judgment for the same sum
which in point of law he might have recovered on the policy,
and not for any amount which the indulgence or liberahty
of the underwriters might possibly have induced them to pay.
So,^^ where the plaintiff had requested insurance to be effected
at Liverpool on certain slaves, and the defendant had neglected
it, it was contended that though the plaintiff could not have
recovered the value of the slaves in an action against the under-
writers, yet that in point of the fact slaves were frequently the
subject of insurance at Liverpool, where the loss was always
paid by the underwriters without disputing the question; and
that consequently the plaintiff might recover the value of them
in this action, because by means of the defendant's negligence
the plaintiff had sustained the loss. ' ' But the court were clearly
of opinion that the slaves were not the subject of insurance,
and that the plaintiff could not recover in this action more than
he could have recovered in an action against the underwrit-
ers." ^^ And so, says Mr. Justice Story; ^° ''there must be a
real loss or actual damage, and not merely a probable or pos-
sible one." So, if the ship deviate, or the voyage or insurance
be illegal, or the principal had no interest, or the voyage as
described in the order would not have covered the risk, — in all
such cases the agent will not be responsible.

Nor will the plaintiff in such an action be allowed the costs
of an unsuccessful suit against the underwriters, unless such
action was necessary, or brought by the direction of the agent.
So,^^ where the plaintiff had been nonsuited in an action against
the underwriters, on the ground of concealment of material
information, and in the suit against his agent, claimed to in-
clude the costs of the action on the policy, Lord Eldon said,

*'' Griiidlc V. EuHlrrn ExjircsH Co., (17 '■'' Agency, § 222.

Me. 317. ^' Seller v. Work, Marsh. Inaur., 4th

« Web.ster v. Do Tjustet, 7 T. R. Uil . Eng. cd., 243.
*" Fornin v. Oswcll, 3 Camp. 357.



§§ 818a, 818b agents to obtain security 1699

that there was no necessity to bring that action to entitle the
plaintiff to recover in the aforesaid case, and as it did not ap-
pear that the action on the pohcy was brought by the desire or
with the concurrence of the present defendant, he ought not to
be charged with the costs of it ; and this is in analogy to the rule,
as we have seen it laid down between principal and surety.**

§ 818a. Agents of insurer.

An agent of an insurance company placing insurance in viola-
tion of orders upon a building, which is afterwards destroyed,
is liable for damages measured by the amount recovered by
the insured from the company with interest and costs, but no
allowance is made for the plaintiff's counsel fees in the defense
of the action brought by the insured, nor, where the agent has
not prompted it, for the expenses of a useless appeal. '^^ Dam-
ages for failing to cancel a risk are computed on the same prin-
ciple, as those for wrongfully placing it.^^ The defendant is
entitled to his commission on the insurance obtained, ^"^ but, it
has been held,^^ not to deduction for the return premium that
the company would have been obligated, on the cancellation
of the policy, to pay the insured. For failure to inform the com-
pany of facts that rendered void a policy which he should him-
self have cancelled, an agent has been held liable to his prin-
cipal to the amount at which settlement was made.^^

§ 818b. Agents to obtain security.

One employed to obtain security is liable for all loss sus-
tained through failure to obtain proper security." Normally
this can be measured by the difference in value between the

" Sun F. Office v. Ermen trout, 2 Pa. 320; American Central Ins. Co. v.

Dist. Rep. 77. Burkert, 11 Pa. Super. Ct. 427.

^' United States: Franklin Ins. Co. v. ^* Franklin Ins. Co. v. Sears, 21 Fed.

Sears, 21 Fed. 290. 290.

Iowa: State Ins. Co. v. Jamison, 79 ^^ London Assur. Corp. v. Russell, 1

la. 245, 44 N. W. 371, 18 Am. St. Rep. Pa. Super. Ct. 320.

366. ^* American Central Ins. Co. v. Bur-

Minnesotn: Royal Ins. Co. v. Clark, kert, 11 Pa. Super. Ct. 427.

61 Minn. 476, 63 N. W. 1029. " Massachusetts: Coffing v. Dodge,

Pennsylvania: Kraber v. Union Ins. 167 Mass. 231, 45 N. E. 928.

Co., 129 Pa. 8, 18 Atl. 491; London Missouri: Marshall v. Ferguson, 94

Assur. Corp. v. Russell, 1 Pa. Super. Ct. Mo. App. 175.



1700 ACTIONS INVOLVING AGENCY § 819

security called for and that obtained. ^^ Sometimes, however,
it equals the full value of the interest to be secured. ^^ An agent
to invest money in a mortgage who fails to find a prior incum-
brance which is on the land is liable for the loss that results.
If the principal discovers and removes the prior incumbrance,
the measure of damages is the amount paid to remove the
incumbrance,^" even though part of the land covered by the
mortgage was not subject to the prior incumbrance.^^ But
if the principal does not discover the existence of the prior
incumbrance until the land is sold to satisfy it and lost to him,
the measure of his damages is the amount of his loan.^^ Where
an agent takes a mortgage signed by a husband alone, without
release of dower, he is liable for the actual loss; which would
be the amount by which the loan exceeded the value of the
husband's interest, but no more in any case than the value of
the wife's interest in the land.^^

§ 819. Agents to deal with obligations.

An agent to collect a claim who fails to do so is accountable
in the exact measure of his principal's loss proximately caused
thereby. ^^ Thus where agents for sale neglected to obtain the
cotton in which payment was to be made they were held
liable for its value at the time of their breach of duty with in-
terest; ^^ similarly a factor receiving and failing to collect notes
for the sale of another's property was made to account for
principal and interest. ^^ In an Alabama case ^^ one holding

^^ Indiana: Welsh v. Brown, 8 Ind. ^^ Pennsylvania: McFarland v. Mc-

App. 421, 35 N. E. 921. Cleos, 17 W. N. C. 547.

Iowa: Lunn v. Guthrie, 115 la. 501, Canada: Harrison r. Broga, 20 Up.

88 N. W. 1060, 91 Am. St. Rep. 175. Can. Q. B. .324.

Kentucky: Bank of Owensboro v. *' Whitoman v. Hawkins, 4 C. P. D.

Western Bank, 13 Bush, 526, 26 Am. 13.
Rep. 211. 62 Shepherd v. Field, 70 III. 438.

Massachusetts: Coffing v. Dodge, 167 "' Slanler v. Favorite, 107 Ind. 291,

Mass. 231, 45 N. E. 928. 57 Am. Rop. 106.

'» First Nat. Bank v. First Nat. "^ Chapman v. McCrea, 03 Ind. 360.

Bank, 116 Ala. 520, 22 So. 976. ^^ Dick.son v. Screven, 23 S. C. 212.

Illinois: Shepherd v. Field, 70 111. *" Bastablc v. Denegal, 22 La. Ann.

438. 124.

Missouri: Marshall v. Ferguson, 94 "7 First Nat. Bank v. First Nat.

Mo. App. 175. r/. Lowenlmrg r. Wal- Bank, 116 Ala. 520, 538, 22 So.

ley, 25 Can. 51. 976.



§ 819 AGENTS TO DEAL WITH OBLIGATIONS 1701

transfers of land certificates as collateral security for a debt
deposited them with a bank for collection; the bank lost them.
The damages recoverable were held to equal the expenses of
making substitution for the documents to no greater amount
than the value of the documents as security. Included in these
expenses were the cost of legal advice and the investigation of
land office records, the amount laid out in a trip to obtain
some of the transfer documents from a holder and the costs,
expenses, and attorneys' fees involved in litigation to establish
the plaintiff's interest in the remainder.

These principles seem best developed in cases concerning
the collection of money due on mercantile instruments. If a
bank receive a note for collection in another State, and neither
collects nor gives the owner notice of non-payment, nor returns
it till barred by the statute of limitations, and there be no evi-
dence of the insolvency of the maker, the measure of damages is
the amount of the note less the charges for collection. ^^ Where
one with whom commercial paper is deposited for collection fails
to present it on time he is liable for the difference between the
amount due upon the instrument with interest and the amount
realized from it.^^ If owing to the maker's insolvency, nothing

«8Wingate v. Mechanics' Bank, 10 Flanders, 4 N. H. 239; Knapp v. U. S.

Pa. St. 104. & Canada Express Co., 55 N. H. 348,

*9 United States: Hamilton v. Cun- New York: Smedes v. Bank, 20

ningham, 2 Brock. 350, 366. Johns. 372; Hitchcock v. Bank, 57 App.

Alabama: Bank of Mobile v. Huggins, Div. 458, 68 N. Y. Supp. 234; Walker v.

3 Ala. 206. Bank, 9 N. Y. 582; First National

Indiana: Tyson v. State Bank, 6 Bank v. Fourth National Bank, 89

Blackf. 225, 38 Am. Dec. 139; Amer- N. Y. 412.

ican Express Co. v. Dunlevy, 3 Amer. North Carolina: Stowe v. Bank of

L. Reg. N. S. 266; Chapman v. Mc- Cape Fear, 3 Dev. 408.
Crea, 63 Ind. 360. North Dakota: Commercial Bank v.

Massachusetts: Whitney v. Mer- Red River Valley Nat. Bank, 8 N. D.

chants' Exp. Co., 104 Mass. 152, 6 Am. 382, 79 N. W. 859.
Rep. 207. Wisconsin: Merchants' Bank v.

Michigan: Mitchell v. Shuert, 16 State Bank of Phillips, 94 Wis. 444, 69

Mich. 444. N. W. 170.

Minnesota: Borup v. Nininger, 5 England: Van Wart v. Woolley, 3 B.

Minn. 523; West v. St. Paul Nat. Bank, & C. 439.
54 Minn. 466, 56 N. W. 54. In Gray's Harbor Commercial Co. v.

Nebraska: Dem v. Kellogg, 54 Neb. Continental Nat. Bank, 74 Mo. App.

560, 74 N. W. 844. 633, 638, where the defendant bank's

New Hampshire: Grafton Bank v. wrongdoing was negligent merely, it



1702 ACTIONS INVOLVING AGENCY § 819

is collected, the measure of the agent's hability is then pre-
sumptively the face value with interest, the burden being upon
him to show that even had he displayed due diligence, and
thereby kept alive the holder's rights against endorsers, the
realizable would have proved less than the face value of the
papers. '°

If an agent to collect a bill gives a defective notice of protest,
and in a suit against the indorsers they are held discharged,
the holder of the bill cannot, it seems, in an action against the
agent on his contract, recover the costs of his suit against the
indorsers; for, as one court said, the suit was not brought on
account of the defective notice.'^ ^ If the agent is to be charged
with the costs of the suit, it must be in an action of tort, on
the ground that he has falsely represented to his principal
that he had given a proper notice.^- But this distinction seems
hardly sound ; for it is the duty of the agent, under his contract,
to keep his principal informed of his acts.

A collecting agent who by mistake receives less than the
amount of an obligation is accountable for the difference be-
tween the amount due and that obtained. ^^ An agent in-
structed to make collection in one form of property who receives
payment in another is subject to an action for the full value
of the claim in the medium of discharge intended ^^ and the
principal may elect to take instead the property in fact re-
ceived. ^^

An agent who has made collection is in general to hold the
receipts for his principal ; for unauthorized dealings with them



was held that the plaintiff was not en- 6 Hill, 648; Hitchcock v. Bank, 57

titled to interest on the note. App. Div. 458, 68 N. Y. Supp. 234;

™ Nebraska: Dorn v. Kellogg, 54 Neb. contra, Smedes v. Bank, 20 Johns. 372

560, 74 N. W. 844. (semblc).

New Hampshire: Grafton Bank v. ^^ Downer v. Madison County Bank,

Flanders, 4 N. H. 239. 6 Hill, 048.

New York: Smedes v. Bank, 20 " Kempker v. Roblyer, 29 la. 274.

Johns. 372; Hitchcock v. Bank, 57 '* Illimm: Rush v. Rush, 170 111. 623,

App. Div. 4.'')S, 08 N. Y. Supp. 234; 48 N. E. 990.

^^'alker v. Bank, 9 N. Y. 582. Mississipjn: Mangum v. Ball, 43

TFi.scon.sin; Merchants' Bank i>. State Miss. 288, 5 Am. Rep. 488.

Bank of Phillii)s, 94 Wis. 444, 69 N. W. " Griflin v. Gorman, 13 Ky. L. Rep.

170. 879.

" Downer /'. Madison County Bank,



§ 819 AGENTS TO DEAL WITH OBLIGATIONS 1703

by way of gratuitous disbursement/*^ sale ^^ or conversion into
other forms of property ^^ the measure of damages is the value
of the interest disposed of. Where a bank collects the amount
due on notes for a depositor, and fails to pay over the amount of
the notes on demand, the measure of damages is the value of the
notes at the time of collection.''^ In a New York case, the Bank
of Wilmington was the owner of a bill of exchange payable at
sight, at Troy, and indorsed and transmitted it to the Com-
mercial Bank of Pennsylvania, under an arrangement by which
the latter collected and retained the proceeds of paper thus re-
mitted to it, and with the same redeemed the circulating notes
of, and paid drafts drawn by, the Bank of Wilmington. The
Commercial Bank indorsed and transmitted the bill to the
Union Bank of New York, its correspondent in New York,
for collection, and the same was by the latter sent to the Troy
City Bank for the same purpose. Held, that the Commercial
Bank of Pennsylvania could recover of the Union Bank of
New York the amount of the bill, if collected by the Troy City
Bank, or if the same were lost by the omission of the latter to
charge the drawer and indorser.^° The extent of an agent's
liability to his principal for the wrong-doing of one employed
by himself is a problem in the substantive law of agency. It
has been settled in New York, that on a deposit of the bill of
exchange with a banker for collection in another State where
it was payable, the banker was liable to the holder for any
neglect or omission of duty, in respect of such collection on the
part of his agent or the notary employed by him in the foreign
State; ^^ and, on the authority of this case, it has also been de-
cided that where a person undertakes the collection of a bond
and mortgage, and covenants in express terms "to take proper
means to collect the mortgage," he is responsible for the de-



Online LibraryTheodore SedgwickA treatise on the measure of damages, or, An inquiry into the principles which govern the amount of pecuniary compensation awarded by courts of justice (Volume 3) → online text (page 3 of 94)