
    Leopold Goodman and Others, Respondents, v. The Mercantile Credit Guarantee Company of New York, Appellant.
    
      Credit indemnity. — construction of an ambiguous rider attached to a policy — what ■is not a “ general .assignment”—the common law presumed to exist in another State — return of'an execution unsatisfied, how far evidence cf no property loss ” construed, as to deductions to be allowed, for payments made or security held.
    
    An ambiguous instrument should be construed against the party who 'drew it.
    Where a corporation, insuring merchants during one year against losses arising from the insolvency of their debtors, has issued a policy providing, in substance, that-there should he deducted from the year’s losses, as an initial loss • to be borne by the merchants, one and three-quarters per cent of their total gross sales and deliveries during the ■ year, a similar deduction should not hy implication be imported' into a rider (attached to the policy) which makes no. provision for any deduction whatever, but. provides that the. policy should . cover all losses on sales of merchandise for the year preceding that named in" the policy, except losses of which the merchants had had notice, or those which they had sustained • prior to the last day of such preceding year, or cases where they had granted an .extension to their, debtors for goods sold during such ■ ; preceding year. .
    Where shell a policy provides that the “ term ‘ loss sustained by reason of the , insolvency of debtors'’ is agreed to mean losses upon sales made by the indem- ', nified to debtors who have made a general assignment for the benefit of their creditors,” an instrument executed by a debtor which, upon its face, distinctly states that it conveys only a portion of his property, the same to be applied : to the debts of certain specified creditors, cannot be deemed to constitute “a general assignment ” made by the debtors “ for the benefit of their creditors,” within the meaning of the policy, and there is imposed upon the persons indemnified the burden of- showing that the instruments of. transfer conveyed substantially all the property of the debtor.
    The return unsatisfied of an execution, issued against the property of the debtor in the county where the instrument of transfer was recorded, does not show that the debtor had transferred all his property nor prove that he may not have had property elsewhere: ■
    " Where there is no evidence as to what constitutes a general assignment in' a ' foreign State, the presumption is that the common law governs.
    Where a policy of credit insurance, limiting -the liability of the insurer to $10,000 in the case of any one debtor, contains a clause providing that “When only a part of a loss is covered by this, contract, the proportionate part of everything realized or secured hy the indemnified, shall be credited- to so much of the loss as is covered hy this contract,” the “ loss ” in question must be taken to mean the amount due on a debt, at the time when'the debtor became insolvent, and where.this debt then, exceeds $10,000, payments thereafter made by the debtor to, or security for the debt held by,, the indemnified, must be apportioned ratably between the. amount covered by the policy and", that not covered.
    
      A subsequent clause simply directing the subtraction, of all payments, but not specifying the manner of making such subtraction does not require that payments shall he applied only to that part of the debt which is not covered by the policy.
    Appeal "by the defendant, The Mercantile Credit Guarantee Company of'New York, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of New York on the Ith day of March, 1896, upon the verdict of a jury, and also from an order entered in said clerk’s office on the 11th day of March, 1896, denying the defendant’s motion for a new trial.
    
      A. J. Dittenhoefer and Damid Murray, for the appellant.
    
      Morris J. Hvrsoh and Ralph S. Rounds, for the respondents.
   Barrett, J.:

The action is brought upon a policy of credit insurance, and the plaintiffs have recovered a verdict for the full amount claimed. Several objections are made to the recovery, which we will consider in order.

1. By the policy in question the defendant insures the plaintiffs to an amount not exceeding fifteen thousand dollars, against loss sustained by reason of the insolvency of debtors owing the indemnified for merchandise sold and delivered in the regular course of business, between the first day of September, 1892, at twelve o’clock noon, and the first day of September, 1893, at twelve o’clock noon, in excess of. one and three-fourths (If per cent.) per cent, on the total gross sales and deliveries made during said period, subject to the terms and conditions printed below and attached hereto.” By an attached rider it is provided: “ This contract covers all losses on sales of merchandise for one year back from August 31st, 1892, to August 31st, 1891, but any and all losses of - which Messrs. Goodman Bros., have had notice of or sustained prior to August 31st, 1892, or where any extension has been granted to debtors for goods sold between August 31st, 1891,. and August 31st, 1892, are not covered by this contract.”

In computing the amount of loss covered by the policy, there has been deducted from the total amount of the plaintiffs’ losses only a sum equal to one and three-fourths per cent of the sales made between September 1, 1892, and.' September 1, 1893. - The defendant claims that the initial loss to be borne by the plaintiffs is one and three-fourths per cent of the amount of sales made during the period provided for in- the- rider,, as well as. in that, covered by the.policy .proper. We do not concur in this view. The clause in the policy, is plain, and provides for the deduction only of. one and three-fourths per cent of the amount of the sales made during the year from September 1,. 1892, ' to September 1, 1893. The rider is equally plain. It makes’ no provision for any deduction whatsoever-. Every ambiguity must be resolved against the defendant which drew this agreement. . Here there is no real ambiguity: To sustain the defendants contention we should have to read-into the policy something to its advantage. Nor is it a reasonable presumption- that the .parties meant to provide for an initial loss for the j>eriod between August 31, 1891, and August 31, 1892, similar to that for the'ensuing year. The nature of the. indemnity provided for in the policy proper is entirely different from that furnished by the rider. Any -loss. sustained -between September 1-,. 1892, and September 1, 1893, is the subject of insurance. On. the other hand, losses on. sales made during the preceding year are covered only if the plaintiffs. had not sustained or had notice of them prior to August 31, 1892, and even such losses are not.covered if any extension of credit, has been granted. Upon the accruing of a debt for goods sold between August 31,' 1891, and August 31, 1892, the debtor would be- apt, either to, pay or to secure an extension, or to exhibit some open evidence of insolvency. In -either case the debt would not be provable under this -policy. ’ Probably but a small percentage of debts for goods sold during the preceding year would, be provable under the terms of the ■ rider. Consequently the theory:—upon which the’ defendant’s contention rests-—which imports into the rider, by implication, each and every Condition of the policy, is lacking in force or plausibility. It is much more probable that the rider was meant as an incident' to the main insurance, and to be of benefit to the. plaintiffs,, than that it was intended as a system qf -insurance, co-ordinate to that of the policy, and subject to all of its conditions, which might very probably (as it in fact proved) be a heavy burden to the plaintiffs instead of an advantage; . ■ •

2. Complaint is made of, the allowance of the Thayer claim; This brings up the question of the proper interpretation of the 2d clause of the .policy, which reads : “ The term 6 loss sustained by' reason of the insolvency of debtors ’ is agreed to mean losses upon sales made by the indemnified to debtors who have made a general assignment for the benefit of their, creditors, or who have been declared insolvent in legal or judicial proceedings, or whose business has been sold by the sheriff, marshal or other public officer, under an attachment, execution or other process, or against whom an execution has been returned unsatisfied upon a judgment obtained by the indemnified for sales ‘of merchandise made during the period covered by this contract.”

On January 4, 1893, Thayer, the debtor, executed a conveyance of “ the entire stock of goods, wares and merchandise in the store No. 265 Main street * * • * in the City of Memphis, Tennessee ” (a more specific description of the property following), to a trustee, with directions to sell and apply the proceeds, after payment of fees and expenses, to the payment of nine specified creditors, preferring them in the order in which they were named. The instrument refers in one place to the property transferred as a part of his, the said Y. B. Thayer’s, property and effects,” and in another as only a part of: his property.” On January 11, 1893, Thayer executed another instrument, which recited the former, and conveyed any unexpended surplus to the same trustee for the payment fro rata of eighty-three creditors. The plaintiffs rely wholly upon these instruments, which they claim constitute a general assignment for the benefit of creditors. They first contend that, by “general assignment” in the policy is meant any such disposition by a debtor of his property as induces insolvency in the ordinary meaning of the term — as renders it impossible for the plaintiffs to realize their claim. This seems to us to be reasoning -in a circle. The policy provides for indemnity against losses by “ insolvency,” and then undertakes to define of what insolvency shall; consist. This definition is binding upon the parties, and no loss which does not comply with it can be proved against the defendant. But the execution of a “general assignment ” is employed as a test of “ insolvency.” Consequently, to say that such an assignment as produces insolvency is meant is either to say nothing at all, or to abrogate the contract definition entirely and adopt one from some outside source, which may or may not be like that provided for. “ Assignment ” - cannot be defined in terms of '“ insolvency ” at the same time that “ insolvency ” is. defined in terms of “ assignment.” -.

Discarding such a definition, we see no reason why the term “general assignment for the benefit of creditors” should, not be-given, its ordinary legal significance. Nor do we need to consider whether the law of -the- State where the debtor- did business and ' committed the alleged act of insolvency should :be applied. There is no evidence of what constitutes a general assignment in Tennessee, and -the Tennessee law will consequently be presumed to be the; common law. (Monroe v. Douglass, 5 N. Y. 452; Latham v. De Loiselle, 3 App. Div. 527.)

It is contended that it is not necessary that- an assignment, in order to be general,, must cover absolutely- all of the debtor’s property, and that, if substantially, all is transferred-, the assignment is general..' Such a doctrine has -obtained elsewhere (Mussey v. Noyes, 26 Vt. 462), but not in this State. The- question, however, need .not be considered, since the facts are quite.- insufficient to bring the. case within -the operation of the rule contended for. The instrument on its face distinctly states that it- conveyed but a portion of the assignor’s' property.. .- This, at the. least, put upon the plaintiffs the burden of showing that,' nevertheless, substantially all of his property was conveyed. Practically all of the evidence on this head was ■ the fact of the return unsatisfied of an execution against the debtor’s property-in the county where the' -trust deeds- were 'made- and recorded, about a month' after their execution. This was some, though by no means conclusive, evidence that Thayer had no tangible jnoperty in that county after the execution, of the deeds. It was no evidence, however, as to his nónde viable property within that county, or as to his property of ' any description elsewhere. In .fact, it appears affirmatively that the debtor, after the return of the. execution, received the sum of: $350 for certain book accounts ' which he owned, the face of which considerably exceeded that sum.

On this branch of the -case we hold that the-instruments executed by Thayer do not. on their face comply with the policy definition of a general assignment, and that the plaintiffs failed to show that-they in fact brought him within the proper category. ■

3. Objection is made to the allowance of the Legg claim, or the whole thereof. This brings up for construction the 4tli and 8th clauses of the policy. The former reads-: “ When only a part of a loss is covered by this contract, the proportionate part of everything realized or secured by the indemnified shall be credited to so much of the loss as is covered by this contract.” The latter reads : “ In adjusting losses under this contract, and before determining the percentage of loss to be borne by the company under this contract, there shall be first deducted all sums paid, offered and accepted, settled or secured, and also the value of any security or collateral held by the indemnified, and all credits, discounts and allowances which the debtor would have been entitled to if the debt had been paid at the time of the receipt- by the company of the notice provided for in condition three in rider attached.” (Referring to a notice to be given the defendant of the insolvency of debtors within ten days after the occurrence of such insolvency.)

The facts as to the Legg claim are as follows: In April, 1893, Legg owed the plaintiffs over $18,000 on notes given for the purchase price of goods covered by the terms of the policy. ■ They advanced to him in addition the sum of $13,055 in order to take up certain diamonds and jewelry which lie had pledged, and surrendered to him $6,458.96 of the merchandise notes. In return he delivered to them the diamonds and jewelry, and éxecuted the following paper: “ This is to certify that Mrs. L. Goodman has this day loaned me the sum of nineteen thousand five hundred and thirteen dollars (19,513-j^-), and has as collateral security mounted diamond goods, loose diamonds and watches, which cost me about twenty-five thousand dollars, which she agrees to keep as long as I pay the interest monthly at the rate of 6 per cent per annum, and will return said goods upon the payment of said sum ($19,513T9T6T) nineteen thousand five hundred and thirteen dollars.”

Although Legg had not paid the amount, the plaintiffs, when they came'to present their proofs of loss, treated the $6,45.8 as paid, subtracted it from the whole merchandise debt, and presented a claim for the remainder, amounting to over $12,000,' as an unsecured debt. The defendant contends that the $6,458.96 debt was still in existence on September 1, 1893, when the proofs of loss were rendered, and that consequently a debt of over $18,000 should have been stated, with security upon about a third thereof. As there is a limitation of $10,000 in the policy upon losses through .any one. debtor, it is immaterial to the defendant whether- the whole merchandise debt amounted to $18,000' or only $12,000; In considering this question, we shall- treat the transaction of April, 1-898, as one of the plaintiffs’ and not of Mrs. Leopold Goodman’s. This question was brought up-at the trial, and the plaintiffs’ counsel conceded that Mrs. Goodman was not in fact the principal in the matter.- It is trae that later he sought to withdraw this concession, but he gave no reason for seeking to do so, and there- is no pretense .that the . fact is not as-it was- first conceded to'be.- 'We do not think that the plaintiffs’ counsel was at liberty, to retract his stipulation arbitrarily and without assigning the. least reason .for such a.course, and.-we must hold it binding for the purpose of the trial for which it was made.

We must also hold that the debt of- $6,458.96 was not legally extinguished by the dealings had • with Legg.- It is. true that the notes were surrendered, but the debt was -still kept alive. The amount of it was added to the $1.3,055 of money 'loaned, and Legg became liable to pay the principal of ánd interest upon the whole,, the goods -being security for the performance of the obligation. Not the debt, but the existing evidence of it, was extinguished. . It is impossible to say that, the debt was not ' still in existence- when the ' debtor remained liable to pay it. It does not necessarily follow, however, that the. plaintiffs were not. justified in treating the secured part of the debt as. canceled. The determination of their rights depends upon, the solution of the following question : When a debt exists in excess of the policy limitation of $10,-000, and payments, -have been made thereon -after the insolvency, or security is held thereon at the time the proofs of loss are rendered, are the payments or the value of the security to be deducted before determining the percentage of loss to.be borne by the defendant, or -must the payments' or the value of the security be apportioned and the amount-of the debt cover éd by the policy receive its share?' This question is by no means free from difficulty." Its solution depends upon -the interpretation, to be put upon the word “ loss,’’ as used in the 4th clause. The plaintiffs contend that., it means the. amount remaining due upon a debt at the time of the rendition of the, proofs of loss,, while the defendant urges that it means the amount due at the time of the insolvency. The former meaning is certainly, in the abstract, the natural one. Money is not “lost” which the creditor is able to obtain, whether the payment be made before or after the commission of the act of insolvency. But an examination ' of the 4th clause seems conclusively to demonstrate that the word is not there used in that sense. To again quote it: “ When only a part of a loss is covered by this contract, the proportionate part of everything realized or secured, by the indemnified shall be credited to so much of the loss as is covered by this contract.” It is impossible that “ loss ” here should mean the. final unpaid balance of a debt, since it is provided that payments shall be credited upon such “ loss.” If “ loss ” means the amount of debt remaining after the subtraction of all payments, then there can never be a “ loss ” to which payments are applicable. Talcing this clause alone, it must, we think, be held to mean that where the amount due on a debt at the time of insolvency exceeds the amount permitted to be proved on account of any one debt, payments subsequently made must be apportioned ratably between the amount covered by the policy and that not covered.

But does such a rule conflict with that laid down in the 8th clause ? If so, it would be our duty to hold the latter controlling, since it is more favorable to the plaintiffs, and any case of doubt or ambiguity must be resolved against the defendant. The 8th clause lays down the general rule that all payments and the value of all security shall he deducted before determining the defendant’s percentage of loss. Where the debt is less than the policy limitation of $10,000 no question arises. Where it is greater the 4th clause does not permit that the whole payment shall be deducted from the whole debt and the remainder taken as the sum for which, jprvma, faeie, or for the due proportion of which, the defendant is liable, but requires the subtraction of a proportionate part of the payment from that part of the debt covered by the policy. But we do not think the 8th clause either directly or by fair implication requires the former course. It simply directs the subtraction of all payments, but does not specify the manner of making such subtraction. The plaintiffs insist that the payment shall be applied only to' that part of the debt which is not covered by the policy. But the 8th clause does not direct this. The defendant, on the other hand,, contends that the subtraction shall be made in a manner more advantageous to it, viz., part from the portion of the debt covered by the policy, and part from the portion which is not. The 4th. clause clearly indicates such a course, and we do- not think the 8th can fairly be said to forbid it.

In considering this question we have kept fully in mind the rule which gives the insured the benefit of any doubt fairly deducible from the terms of the contract drawn by the insurer. But, on the whole, we are unable to decide that such an ambiguity exists in the present policy. It appears with certainty that the meaning claimed for the word loss ” by the plaintiffs is not the meaning which that word bears in the 4th clause of the agreement; and, when the alternative meaning contended for- by the defendant is given it, the clause is clear and unambiguous. It then becomes necessary, in accordance with settled rules of construction, to reconcile this clause with the other provisions of the -contract if it can be done wit! i out violence to the words of the instrument. This seems to us entirely possible. It is with unfeigned regret that we differ on this point with an able and learned court which has had the defendant’s policy under consideration. (Mercantile Credit Guarantee Company v. Wood, 68 Fed. Rep. 529.) It follows that the defendant was entitled to be credited upon the $10,000 of the Legg loss covered by the policy with the value of the security held upon the $6;,458.96 part thereof not exceeding that sum, since any excess of security would not be applicable to the balance of the merchandise debt. It is not possible, from the record before ns, to determine the amount of the reduction, and a reversal becomes necessary. None of the other questions need be considered as they are not likely to arise in just the same form.

The judgment and order should be reversed and a new trial ordered, with costs to the appellant to abide the event.

Van Brunt, P. J., Rijmsey, O’Brien and Ingraham, JJ.j concurred.

Judgment and order reversed, new trial ordered, costs to appellant to abide event.  