[IN THE EXCHEQUER CHAMBER.]

MORRISON v. THE UNIVERSAL MARINE INSURANCE COMPANY.

Marine Insurance - Concealment - Election to avoid Contract - Delivering out Policy.

The plaintiff's insurance broker effected an insurance with the defendants on the chartered freight of the plaintiff's ship Cambria without disclosing to the defendants certain information in his possession, which it was material that they should know (October 10th). In so doing he acted in good faith, supposing from inquiries that he had made that the information was incorrect. After initialing the slip, but before executing the policy, the defendants (October 13th) became possessed of the information which the broker had not disclosed, and they afterwards executed and delivered out the policy without any protest or any notice that they would treat it as void (October 14th or 15th). Upon receiving news of the loss of the vessel, they gave notice to the plaintiff that they did not consider the policy binding on them (October 20th). On the trial of the action upon the policy, the learned judge directed the jury (in substance) that the defendants were bound to make their election within a reasonable time after they became aware of the concealment, and left it to them, without expressing any opinion, whether the defendants had elected to go on with the policy. The jury having found that the defendants did not so elect, and a rule for a new trial on the ground of misdirection having been obtained and afterwards made absolute in the court below:-

Held (reversing the judgment of the Court below), that this direction was right; and that there being no election in fact, and no evidence that the plaintiff had been prejudiced by the defendants not electing earlier to disaffirm the policy, the defendants were not estopped from denying its validity, nor was it material to consider whether their conduct in delivering out the policy without a protest had been such as to entitle the plaintiff to consider it as an election.

APPEAL against the decision of the Court of Exchequer directing a new trial on the ground of misdirection. (1)

(1) Ante, p. 40.

Feb. 14. Benjamin, Q.C. (Batt, Q.C., and J. R. Mellor with him), argued for the appealing defendants.

Holker, Q.C., (Herschell, Q.C., and McConnell with him), for the plaintiff.

The rule below was granted on the ground (amongst others) that the verdict was against the weight of evidence (1), but it was only made absolute on the ground of misdirection; and no leave was given to the plaintiff to appeal on that part of the rule which related to the alleged misdirection as to Lloyd's Lists, on which the Court below were unanimous. The appeal was therefore confined to the alleged misdirection as to election. On the argument of the appeal, however, Holker, Q.C., beside urging the arguments used below on that point, contended also that the verdict was wrong; but the Court refused to allow this matter to be gone into.

May 10. The judgment of the COURT (Blackburn, Keating, Mellor, Lush, Honyman, JJ.) was delivered by

HONYMAN, J. This is an appeal by the defendants from a decision of the Court of Exchequer, making absolute a rule obtained by the plaintiff for a new trial.

The action was brought by the plaintiff, the owner of the ship Cambria, on a policy on chartered freight, dated the 12th of October, 1870, for 500l. The defendants pleaded, among other pleas, concealment of a material fact. The case came on for trial before Blackburn, J., at the Liverpool Winter Assizes, 1871. The following were the facts proved, so far as is material to the question before us: The insurance in question was effected by the plaintiff through his brokers in London, Messrs. Previté & Greig. On the 8th of October, 1870, the plaintiff gave orders to his brokers to insure 5000l. on the ship and 5000l. on freight, and, on the 10th, he sent to Messrs. Previté & Greig a telegram in the following words: "10th October, 1870. Since writing Saturday, paragraph in Mercury, 'Cambria, quære Cameo, from New Orleans, aground on North Breaker.' To-day's Mercury says: 'The vessel on the North Breaker, reported yesterday as the

(1) See ante, p. 48.

Cambria, is stated to be the Cameo from New Orleans.' Can you find out at Lloyd's? Let me know by wire before acting." The broker, upon receipt of the orders and telegram, proceeded to endeavour to ascertain whether the ship reported to be aground was or was not the Cambria. He accordingly (as was admitted on the part of the defendants), in good faith, proceeded to cover the risk, and prepared the usual slip, and, on the 12th of October, 1870, a line of 500l. was taken by the defendants' assistant-underwriter, Mr. Prichett (in the absence of Mr. Fisk, the principal underwriter), and that slip was initialed by him.

The broker did not communicate to Mr. Prichett the orders he had received from the plaintiff or the telegram of the 10th, or give the underwriters the opportunity of judging for themselves whether the ship reported to be aground was or was not the Cambria.

Information relating to the grounding of the Cambria had appeared in Lloyd's List of the 8th of October, but, by mistake, had not been inserted in the loss book, and was not so inserted till the 12th of October, after the risk had been taken by the defendants. This was seen by Mr. Prichett shortly afterwards on the same day, and he then learnt from the broker that he had been in possession of the information which he had not communicated to him.

It was admitted that in effecting marine insurances the matter is considered merely as negotiation till the slip is initialed, but that when that is done the contract is considered to be concluded.

It was proved to be the usage of underwriters to issue a stamped policy in accordance with the slip, notwithstanding anything that might happen after the initialing of the slip. But it was not stated to be the usage to do so without protesting or notifying to the assured that it was the intention of the underwriters, notwithstanding the delivery of a stamped policy, to rely on the concealment, and as, in general, the concealment is not discovered till after the policy is issued, there probably was no usage on the subject.

It was further proved to be the practice of the defendants always to date the policy as of the date of the slip, and that the

ordinary course of business in the defendants' office is, that the slips, after being initialed, are sent from the underwriters' department to the secretary's department, and there stamped policies are filled up by the clerks in accordance with the slips, and signed by the directors, and left in the office until called for by the brokers. Accordingly, the clerks filled up a stamped policy in accordance with the slip, dating it as of the 12th of October, 1870, and this was executed by the directors on the 14th or 15th of October, and deposited in the usual way in the office, and taken away by the broker's clerk on the 14th or 15th. In the meantime, viz., on the 13th of October, Mr. Fisk had returned to London, and was then informed by Mr. Prichett of the circumstances attending the taking of the risk, and that the information had not been communicated to him, but it did not appear that Mr. Fisk took any steps in the matter, though he stated that he was the person whose duty it would be, on ascertaining there had been a concealment, to determine whether the insurance should be carried out.

On the 19th of October, news was received that the ship lost was the Cambria, and the defendants on the next day gave notice to the brokers that they repudiated all liability. Except this, the defendants never gave any notice to the plaintiff or his brokers, or protested in any way against being liable on the policy. The premium was debited to the broker in the usual way, but was not payable till the 8th of November, and was tendered to the defendants after the 20th of October, but refused by them.

The learned judge told the jury that when an underwriter discovers that there has been a material concealment in effecting the insurance, he is not bound to put an end to the policy, but has a right at his election to say, "'You have been guilty of a concealment which would entitle me to determine the policy, but I prefer to go on with it;' ... but he cannot say, 'I elect to go on,' and then, when he hears there is a loss, say, 'Now, that I hear there is a loss I will not recognise the policy.' ... He cannot keep the contract and get rid of it too. He has a right to say, 'Take back your premium and make the contract a nullity.' He has also a right to say, 'You have done what has entitled me to get rid of the contract, but I will keep the premium and go on.' He has a perfect right to

do either of those things, and when he has got notice of the concealment, he is bound to make his election within a reasonable time; he is not bound to do it with desperately hot speed. A man cannot wait to take his chance, he must elect within a reasonable time."

The learned judge then examined the evidence, and pointed out to the jury that Mr. Prichett knew on the 12th of the concealment by the broker; that on that day he told Mr. Fisk so, and that Mr. Fisk was the man to determine whether the premium should be returned; that he knew on the 13th of October of the non-disclosure, and that he might have returned the premium, or had a right to say he would return the premium, and that the return of the premium would indicate that he considered that he was not liable; that no doubt, if he had offered to return the premium, Mr. Previté's answer would have been, 'I will not take it,' but still that Mr. Fisk had no right to hold the premium; that he could not play fast and loose; but must either adopt or refuse it.

The learned judge further told the jury that, although a good deal had been said about the slip and the stamped policy, he thought that, as regarded that part of the case, it made no difference whatever, and remarked, that he believed (though the jury probably knew better than he did) that it had been quite correctly stated that the putting it on the slip was considered in fair dealing and mercantile understanding as being the contract, as if it were made on that day. That this would equally apply if the contract had actually issued as a stamped policy. The learned judge again drew the attention of the jury to the fact that Mr. Prichett knew of the concealment on the 12th, and Mr. Fisk on the 13th, that it was not till the 20th, after the news of the loss, that any step was taken by the defendants, and he then asked the jury, "Do you think that the defendants, having the opportunity (taking into account that they should make the election within a reasonable time), had elected to go on with the contract? If so, that puts an end to the defence. On this I express no opinion at all. I leave this entirely to you."

Four questions were left by the learned judge to the jury. The first is immaterial as regards the questions before us. In answer to the second, the jury found that the concealment was a material one. In answer to the third, viz., whether the broker had a right

to suppose that the underwriters were acquainted with Lloyd's Lists, they said, No. In answer to the fourth question, - did the defendants' company, after knowledge that the broker had not disclosed this fact, elect to treat the policy as subsisting? - the jury replied, No.

The learned judge thereupon directed the verdict to be entered for the defendants.

In Hilary Term, 1872, Mr. Holker, for the plaintiff, obtained a rule nisi for a new trial on the ground of misdirection, the misdirection alleged being, that the learned judge ought to have told the jury that the defendants were to be presumed to know the contents of Lloyd's Lists, and that the plaintiff was not bound to communicate information contained in them, and that, on the facts found, with reference to the execution of the policy without protest after knowledge of the concealment, the judge ought to have directed the jury to find for the plaintiff; and also on the ground that on the question of election, the verdict was against the weight of evidence. After argument, the rule was made absolute for a new trial by the majority of the Court of Exchequer (Martin and Bramwell, BB., Cleasby, B., dissenting).

From this decision the defendants appealed, and we have now to determine whether the case ought to go down to a new trial.

Upon the argument, it was admitted by Mr. Holker, who appeared for the plaintiff, that as the Court of Exchequer was unanimous on that part of the rule relating to Lloyd's Lists, and as no leave to appeal was given, it was not open to him to contend before us that the verdict could be upset on that ground. He also admitted that he could not contend that as matter of law the judge was bound to tell the jury that the circumstances before mentioned relating to the delivery of the policy amounted to an election to go on with the insurance. But he drew our attention to the facts that the defendants had made no fresh entry in their books; that they had not struck out the debit of the premium; and that the usage as found was only a usage to deliver out a stamped policy, so as to enable the assured to raise the question; and that it was not found to be the usage to deliver it without a protest or reservation of the underwriter's rights; and he contended that the learned judge ought to have told the jury that the defendants by not protesting

when they issued the policy (as was done by the underwriters in the case of Nicholson v. Power (1), and by remaining quiescent from the 13th of October, when Mr. Fisk became aware of the concealment, down to the 20th of October, when they became aware of the loss of the ship, had allowed the plaintiff to remain under the belief that he was insured, and could not, on hearing of the loss, repudiate their liability. He further submitted, that the learned judge ought to have explained to the jury what amounted to the exercise of election, and that his omission to do so was equivalent to a misdirection.

In our opinion, this contention is ill founded. The law as to the rights of a person who has been induced by fraud to enter into a contract has recently been laid down by this Court in the case of Clough v. London and North Western Ry. Co. as follows (2): "The fact that the contract was induced by fraud did not render the contract void, or prevent the property from passing, but merely gave the party defrauded a right, on discovering the fraud, to elect whether he would continue to treat the contract as binding, or would disaffirm the contract and resume his property. This was not controverted at the bar, and it is not necessary to cite authorities for it. And we further agree that the contract continues valid till the party defrauded has determined his election by avoiding it. And, as stated in Com. Dig. Election, C. 2, if a man once determines his election it shall be determined for ever; and as is also stated in Com. Dig. Election, C. 1, the determination of a man's election shall be made by express words or by act. And, consequently, we agree with what seems to be the opinion of all the judges below, that if it can be shewn that the London Pianoforte Company have at any time after knowledge of the fraud, either by express words or by unequivocal acts, affirmed the contract, their election has been determined for ever. But we differ from them in this, that we think the party defrauded may keep the question open so long as he does nothing to affirm the contract. The principle is precisely the same as that on which it is held that the landlord may elect to avoid a lease and bring ejectment when his tenant has committed a forfeiture. If with knowledge of the forfeiture,

(1) 20 L. T. (N. S.) 580.

(2) Law Rep. 7 Ex. at p. 34.

by the receipt of rent or other unequivocal act, he shews his intention to treat the lease as subsisting, he has determined his election for ever, and can no longer avoid the lease. On the other hand, if by bringing ejectment he unequivocally shews his intention to treat the lease as void, he has determined his election and cannot afterwards waive the forfeiture: Jones v. Carter. (1) We cannot do better than cite the language of Bramwell, B., in Croft v. Lumley (2), which precisely expresses what we mean. He says 'The common expression "waiving a forfeiture," though sufficiently correct for most purposes, is not strictly accurate. When a lessee commits a breach of covenant on which the lessor has a right of re-entry, he may elect to avoid or not avoid the lease, and he may do so by deed or by word; if with notice, he says, under circumstances which bind him, that he will not avoid the lease, or he does an act inconsistent with his avoiding, as distraining for rent (not under the statute of Anne), or demanding subsequent rent, he elects not to avoid the lease; but if he says he will avoid, and does an act inconsistent with its continuance, as bringing ejectment, he elects to avoid it. In strictness, therefore, the question in such cases is, has the lessor, having notice of the breach, elected not to avoid the lease? or has he elected to avoid it? or has he made no election?' In all this we agree and think that, mutatis mutandis, it is applicable to the election to avoid a contract for fraud. In such cases the question is, has the person on whom the fraud was practised, having notice of the fraud, elected not to avoid the contract? or has he elected to avoid it? or has he made no election? We think that so long as he has made no election, he retains the right to determine it either way, subject to this, that if, in the interval whilst he is deliberating, an innocent third party has acquired an interest in the property, or if, in consequence of his delay, the position even of the wrongdoer is affected, it will preclude him from exercising his right to rescind. And lapse of time without rescinding will furnish evidence that he has determined to affirm the contract, and, when the lapse of time is great, it probably would in practice be treated as conclusive evidence to shew that he has so determined. But we cannot see any principle, and are not aware of any authority for saying, that the mere fact that one who is a party to the fraud has

(1) 15 M. W. 718.

(2) 6 H. L. C. at p. 705; 27 L. J. (Q.B.) at p. 330.

issued a writ and commenced an action before the rescission, is such a change of position as would preclude the defrauded party from exercising his election to rescind."

In the case now before us, the learned judge expressly told the jury that if the defendants had elected to go on they could not afterwards, on hearing of the loss, repudiate their liability; and left to the jury to say whether the defendants had elected to go on with the contract, calling their attention pointedly to the fact that Mr. Fisk, whose duty it was to determine the question whether the insurance should be repudiated, knew all the circumstances on the 13th, and that nothing was done by the underwriters to repudiate their liability till the 20th, after the receipt of the news of the loss.

It is true that the learned judge told the jury that he himself attached no weight to the handing out of the stamped policy. But even if we were of opinion that more weight might have been attributable to this view than was given to it by the learned judge, this would not amount to a misdirection, nor can we see that the learned judge failed in any way properly to explain to the jury the nature of an act of election.

The learned judge further told the jury that they were to consider whether the election was exercised within a reasonable time, telling them that the party entitled to elect must do so within a reasonable time. It is not necessary to consider whether this direction is correct, or whether the party entitled to elect may not do so at any time, unless in the meantime he has elected to affirm the contract, or unless the rights of third parties have intervened, or the other party to the contract has altered his position, under the belief that the contract was a subsisting one; for, if the latter be the correct view, the direction of the learned judge was too favourable to the plaintiff, and of course he cannot complain of it.

If, indeed, it had appeared that, in consequence of the delay and of the absence of protest by the defendants, the plaintiff's position had been altered, and he had thereby been induced to believe that the defendants intended to waive their right to avoid the contract of insurance, and had consequently abstained from effecting insurance elsewhere, we should probably have thought that, though

there had been in fact no exercise by the defendants of their right of election, the case fell within the view taken in Clough v. London and North Western Ry. Co. (1), and that this question ought to have been submitted to the jury. But, in truth, although the plaintiff was examined as a witness on his own behalf, he did not assert that he was induced by the defendants' conduct to think the policy a binding one, and consequently abstained from effecting a fresh policy; and, looking at the letters that passed between the plaintiff and his brokers, set out in Appendix C. to the case (which shew that the broker could not succeed in covering the ship or freight for any amount beyond that already effected), it is impossible that any such case could have been successfully made, and we therefore think that the learned judge would have been wrong had he left any such question to the jury.

It remains only to examine the reasons given by Martin and Bramwell, BB., for granting a new trial. The letters to which we have alluded do not appear to have been brought before those learned judges, and we cannot help thinking that if their attention had been drawn to them they would probably have arrived at a different conclusion. Martin, B., treats the case as one of estoppel; but, according to a long series of cases like Pickard v. Sears (2), the estoppel would only arise on proof that the plaintiff had been prejudicially affected by a belief that the defendants were treating the contract as binding.

Bramwell, B., does not rest his judgment precisely on this ground, but it is evident that he was a good deal influenced by the belief that the defendants' silence prevented the plaintiff insuring elsewhere, which, as we have pointed out, was not the case.

The learned Baron seems to have thought that it was the duty of the defendants, within a reasonable time after discovering the concealment, to notify to the plaintiff their intention to avoid the policy, and that by not doing so, and handing out the policy without objection, they, in the absence of any evidence to explain their conduct, entitled the assured to treat it as an election not to avoid the contract. It is to be observed that he does not go to the length of saying that Blackburn, J., ought to have told the jury that the handing out of the policy without protest did, in

(1) Law Rep. 7. Ex 26.

(2) 6 A. &. E. 469.

point of law, amount to an affirmance of the contract, which precluded the defendants from afterwards raising the question; but that he ought to have left to them the circumstances of the case, as putting the burden of proof on the defendants to shew that the plaintiff did not understand, or had no right to understand, the conduct of the defendants as an election. For the reasons already given we think this is not so, and that, if there really was no election, it is wholly immaterial whether the plaintiff understood, or had a right to understand, the conduct of the defendants as amounting to an election, unless under that belief he altered his position.

For these reasons we think that the charge of the learned judge is not open to any of the objections made to it.

It was, however, further contended by Mr. Holker, that, though an application for a new trial on the ground of the verdict being against evidence cannot be carried to the Exchequer Chamber, it was competent to him, in supporting the judgment of the Court below, to rely on the alleged unsatisfactory character of the verdict as a reason for allowing the rule for a new trial to stand. We are, however, clearly of opinion that it is not so; sitting here as a court of appeal, we have no jurisdiction to deal with anything but matters of law, and cannot entertain the question whether the verdict be or be not unsatisfactory, or any other question of mere discretion.

The result is that the judgment of the Court of Exchequer must be reversed, and the rule for a new trial discharged.

Attorneys for plaintiff: Sharpe, Parker, & Co.

Attorneys for defendants: Thomas & Hollams.