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Pacific Fire Ins. Co. v. Pennsylvania Sugar Co.

August 31, 1934

PACIFIC FIRE INS. CO.
v.
PENNSYLVANIA SUGAR CO.



Appeal from the District Court of the United States for the Eastern District of Pennsylvania; George A. Welsh, Judge.

Author: Davis

Before BUFFINGTON, DAVIS, and THOMSPON, Circuit Judges.

DAVIS, Circuit Judge.

On September 13, 1922, the Pennsylvania Sugar Company, hereinafter called plaintiff, shipped three carloads of sugar, each car containing 600 bags, from Philadelphia, consigned to itself, care of Western Federal Brokerage Company, to Chicago, Ill. The shipments were routed by rail and lake and were to be delivered by Chicago Steamship Lines, Inc., at Chicago.

The Pacific Fire Insurance Company, hereinafter called defendant, insured the sugar against loss. 1,735 bags were safely carried by both the railroads and the Steamship Lines and were by the latter placed on a pier or wharf in Chicago. While waiting delivery, the sugar was partially destroyed by fire on September 25, 1922.It was agreed that the total value of the sugar was $11,728.60 and the loss amounted to $5,266.31, which was due the plaintiff with interest from March 1, 1923, if it is entitled to recover at all.

The plaintiff brought suit against the Steamship Lines to recover the loss and the railroads, which were admittedly liable, cooperated with the plaintiff in its effort to recover from the Steamship Lines.

The plaintiff secured a judgment against the Steamship Lines, but it was insolvent and the judgment was worthless.

It required some time to secure the judgment and to discover that it was worthless. So the defendant waived the requirement of the policy that suit against it be commenced within twelve months after the fire, for if plaintiff succeeded in recovering loss from others, defendant would be relieved of its liability under the policy. The railroad companies, being likewise liable and being hopeful that the plaintiff would succeed in recovering its loss from the Steamship Lines, before the expiration of the statute of limitations for bringing suit against them, entered into an agreement with the plaintiff to pay, and did pay, to it a sum sufficient to satisfy the loss for which each was liable, "as a security" for the payment of the claim which plaintiff had against them, "but without effecting or constituting a payment" of the claim and "without effecting or constituting a release or extinguishment of the liability" of the railroads to the plaintiff.

After discovering that the judgment against the Steamship Lines was worthless, the railroad companies on March 8, 1932, jointly entered into a further agreement with the plaintiff wherein it was provided that the money theretofore paid as "security" should "be treated as, and is hereby declared to be a loan from the said Railroad Companies to the Pennsylvania Sugar Company, the same to be repaid exclusively out of the net recovery of Pennsylvania Sugar Company from the Pacific Fire Insurance Company in a suit or suits which Pennsylvania Sugar Company hereby agrees to bring and prosecute against the Pacific Fire Insurance Company for the loss of said consignments of sugar." The plaintiff had no liability to repay the "loan" except out of the recovery from the defendant.

In consideration of the agreement the plaintiff did "remise, release, quit-claim and forever discharge" the railroad companies from all loss and damages which it had sustained on account of the fire.

Pursuant to its agreement, plaintiff commenced suit against defendant and at the end of the trial the jury, by the direction of the trial judge, rendered a verdict against defendant for $8,498.05 on which judgment was entered, and from this judgment defendant appealed and raises four questions:

1. The first question is whether or not the payment made as "security" just before the time for bringing suit expired, or the subsequent agreement providing that it should no longer be held as "security" but should constitute a "loan" and be treated as such, in fact and law, reimbursed the plaintiff for its loss and extinguished defendant's liability.

It is well settled that any payment as damages to the insured by the wrongdoer before settlement with the insurer, by operation of law, reduced the liability of the insurer to the extent of the payment, and if the insured releases his right of action against the wrongdoer before settlement with the insurer, that release likewise destroys his right of action against the insurer. Insurance Company of North America v. Fidelity Title & Trust Company, 123 Pa. 523, 16 A. 791, 2 L.R.A. 586, 10 Am. St. Rep. 546; Illinois Automobile Insurance Exchange v. Braun, 280 Pa. 550, 124 A. 691, 36 A.L.R. 1262; Connecticut Fire Insurance Co. v. Erie Railroad Co., 73 N.Y. 399, 29 Am. Rep. 171; Auto Owners' Protective Exchange v. Edwards, 82 Ind. App. 558, 136 N.E. 577.

What the parties did was not intended by them as a payment or discharge, for the agreement expressly provides that it is paid "as security for the payment * * * without effecting or constituting a payment * * * and without effecting or constituting a release or extinguishment of the liability" of the railroads. Whether or not the transfer of money shall operate as a payment ordinarily depends upon the intention of the parties. The Kimball, 3 Wall. (70 U.S.) 37, 44, 18 L. Ed. 50; Luckenbach v. W. J. McCahan Sugar Refining Co., 248 U.S. 139, 149, 39 S. Ct. 53, 63 L. Ed. 170, 1 A.L.R. 1522. The purpose of the parties was to make the plaintiff secure so that it would not lose its right of action against the railroad companies, if it did not succeed in its suit against the Steamship Lines, for before that litigation ended, the time might expire within which it could bring suit against them.This purpose was made entirely ...


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