Willis v. Morris.

creditors to accept the composition, and for plaintiffs to get more than the other creditors would be no hardship or fraud on other creditors."

The plaintiffs, in effect, agreed to relinquish the security they had obtained when they entered into the agreement of composition, and the question is whether the agreement that was entered into by all the parties was one which required the plaintiffs to accept fifty per cent in common with the other creditors. Such was the agreement, except for the secret understanding had, and that was a fraud upon the agreement of composition. See 1 Dan. Neg. Inst., § 194; Doughty v. Savage, 28 Conn. 146.

The fifth assigned error is that "the court erred in holding that the notes could not be enforced against defendant, in that evidence shows that the notes were not executed until after all the creditors had been paid the fifty per cent composition. If the agreement of plaintiffs and defendant, that defendant should pay plaintiffs fifty per cent more, was fraud on defendant's other creditors, it was because it was in the nature of a participation of plaintiffs with defendant in the proceeds of a combination by plaintiffs with defendant against defendant's other creditors, and the notes were executed by defendant in adjustment of profits, and when executed became a new, subsequent contract, enforceable by law, even if plaintiffs could not have compelled defendant to have paid the money on his oral promise."

The consideration of the notes relates back to the time when the plaintiffs and defendant stipulated that they should be given; and it is not a matter of importance whether they were given, if in pursuance of that secret understanding, before or after the payments made to the creditors. They were tainted with fraud, and their enforcement being executory, the case is not to be assimilated to the doctrine that parties to an illegal contract may have their rights adjusted as to the proceeds resulting from such contract after it has been executed and served its purpose. The cases of Pfeuffer v. Maltby, 54 Tex. 455, and De Leon v. Trevino, 49 Tex. 95; s. c., 30 Am. Rep. 101; cited in appellant's brief, do not apply.

The erudite written argument of Mr. Mann, of counsel for the appellants, deserves notice. It reviews the cases, English and American, on which, as he urges it, rested the doctrine held by Justice STORY in his work on Equity Jurisprudence, and by Bigelow on Fraud, and decided cases in our State courts, referring especially

Willis v. Morris

to Gilmour v. Thompson, 49 How. Pr. 198; Harvey v. Hunt, supra; Howe v. Litchfield, supra, and maintains that those text-writers, and those courts in the opinions delivered in the cases referred to, base the doctrine of the invalidity of such secret preferences given to creditors as between the debtor and the secretly preferred creditor, on decisions in England which were based upon what was deemed the proper construction of such transactions in view of the operation and effect to be given to bankrupt and insolvent statutes then in force, as distinguished from a doctrine of legal or equitable jurisprudence applicable to the abstract question.

With whatever accuracy of analysis and refinement of learning the history of the line of decisions referred to may be traced in pursuing adjudications on this subject back to early sources, we think that it must be conceded that the doctrine as it is now held in the authorities we have cited is now at all events well and firmly established as sound law; too much so to be shaken, especially as it is rested by the courts and text-writers of the highest authority on the broadest maxims of equity, and not upon the more limited view of adapting its application to subserve the integrity of particular bankrupt statutes or insolvent acts, or to maintain the policy of the law in making such effective.

Bigelow, in his treatise on Fraud, 342, treating of the voidness at law of security taken by a creditor who is a party to a composition agreement like this, for the residue of his demand, says that it is thus void because it is a fraud; a fraud on the rest of the creditors. Citing Jackson v. Davison, 4 Barn. & Ald. 695; Wells v. Girling, 1 Brod. & B. 452; Fay v. Fay, 121 Mass. 561; Sternburg v. Bowman, 103 Mass. 325. And he adds, that "this doctrine was established in equity before it was recognized by courts of law, and continues in force there notwithstanding it has become a matter of legal cognizance." Citing Jackman v. Mitchell, 13 Ves. Jr. 586; Constantein v. Blache, 1 Cox Ch. 287; Fawcett v. Gee, 3 Anstr. 910; Middleton v. Onslow, 1 P. Wms. 768.

Kerr Frauds, 214, 215, rests the doctrine on the same footing the equity jurisdictional head of fraud, and adds, “In modern times, the same rule has been acted on at law." That author cites numerous English and American cases.

We conclude upon the whole case that there is no error, and the judgment ought to be affirmed. Judgment affirmed.

British and Foreign Marine Insurance Co. v. Gulf, C. & S. F. Railway Co.

BRITISH AND FOREIGN MARINE INSURANCE COMPANY v. GULF, C. & S. F. RAILWAY COMPANY.

(63 Tex. 475.)

Carrier — statute prohibiting restriction of liability — insurance.

A statute forbidding common carriers to impose restrictions of their liability is not infringed by a provision in a bill of lading that the carrier shall have the benefit of any insurance to the owner on the freight.

A

The opinion states the

CTION for freight destroyed by fire.
case. The defendant had judgment below.

Davis & Sayles, for appellant.

Ballinger & Mott, for appellee.

WILLIE, C. J. The important question in this case arises out of the provision contained in the bill of lading executed by the appellees to Z. Maurey & Co., to the effect, that in case the property was destroyed, the carrier liable for the loss should have the full benefit of any insurance effected upon or on account of said property.

The question is, whether or not, with that reservation in the bill of lading, the appellant, in whose company the insurance had been effected, can recover from the railroad company the value of the cotton destroyed after having paid the same to the shipper.

It is a conceded fact that the cotton was destroyed by fire, and in such a manner as would not have excused the railroad company at common law.

It appears from the record that whilst the bill of lading and certificate of insurance were both executed on the same day, the former was prior in time, for the certificate of insurance describes the cotton as having been already shipped by the railroad company.

Hence, it must follow that the appellant was affected with notice of the reservation contained in the bill of lading. The insurance company, knowing that the property was in charge of the railroad company as a common carrier at the time, is chargeable with notice of the circumstances of the contract for its transportation, entered into between the carrier and the shipper of the cotton.

This being the case the insurance company must be held to have contracted with the full understanding that in case of loss of the

British and Foreign Marine Insurance Co. v. Gulf, C. & S. F. Railway Co.

cotton whilst in charge of the appellee, and that loss was satisfied by the railroad company, the latter would be entitled to the insurance money due upon the cotton, unless the reservation in the bill of lading was such as could not be made and was therefore void and of no effect.

This disposes of the point made that the insurance company, being entitled to the shipper's rights and remedies against the carrier, could not be deprived of them by any contract between the carrier and the shipper to which the insurance company was not a party.

The insurance company had no rights against the appellee when the bill of lading was signed and the reservation was made; but on the contrary the railroad company had all the right which the reservation could give it as against the appellant company at the time the insurance was effected.

If therefore the question depended upon the right of two parties to interfere with the contract of a third, by an agreement between themselves alone, we should be compelled to hold that neither the certificate of insurance, nor the transfer by the owner of the cotton to the insurance company, was of any avail, as against the previous contract between the shipper and the railroad company.

The whole question therefore turns upon the right of the appellee to make the reservation as to the insurance money in its bill of lading.

This right is questioned on the ground that the reservation is in effect a limiting of the common-law liability of a carrier for the loss of goods transported by him; a limitation prohibited by the statutes of our State.

It is said that by allowing the carrier to reimburse himself out of the insurance money, we relieve him of all responsibility and permit him to deal with the property in his charge as carelessly and negligently as he pleases, and yet save him from accountability in case of its loss.

It is perhaps true that the carrier is enabled by such contract to indemnify himself for any money he may pay out on account of the loss of the goods, but does this relieve him from responsibility, or limit his liability in the least?

To an action of the shipper for the value of the goods he could not successfully plead that he was not liable because of the insurance, and that the shipper must look to the insurance company for com

British and Foreign Marine Insurance Co. v. Gulf, C. & S. F. Railway Co. pensation. It would be no defense to the action, and the carrier has not therefore limited his liability to the person with whom he has contracted.

The shipper has all the rights and remedies against the carrier he would have possessed had no such reservation been made. If the goods are lost from other causes than the act of God or the public enemy, the carrier is liable, and it is no concern of the owner that after the loss is compensated by the carrier, the latter can seek reimbursement at the hands of some one else.

But it is said to be against public policy to allow such reservations in the bill of lading, because it lessens the necessity for care and diligence on the part of a railroad company in reference to the property in its charge for transportation.

This may be so in some measure, but it certainly does not release the company from liability, or place them in the same position as if they had contracted that they should not be liable either in whole or in part for the loss of the goods, unless they would be so liable at common law.

There is a great difference between contracting for a limit of ⚫ common-law liability and contracting to be fully liable as at common law, but to have the privilege of indemnifying against loss by reason of such liability.

Besides, the owner does not bind himself to insure, or to do anything which will result in benefit to the carrier. "There is therefore no contract of exemption against liability for loss by negligence, no agreement that the carrier shall be indemnified, but the contract simply is, that in the contingency of insurance, a consequent benefit will in case of loss result to the carrier." Rintoul v. N. Y. Cent. & H. R. R. Co., 16 Am. & Eng. Ry. Cas. 144.

The carrier has the right to insure the goods in his charge by a contract made directly with the insurance company, and this he may do to the extent of their full value. Fland. Ins. 380; May Ins. 80; Lawson Cont. of Carr. 391, 392; Hutch. Carr., § 2129; Van Notta v. Insurance Co., 2 Sandf. 490; Insurance Co. v, Calebs, 20 N. Y. 177.

This is upon the principle" that every person who would be liable in the event of the loss of the property may effect an insurance for his own protection." Hutch. Carr., § 429.

The carrier needs no protection against losses for which he is not liable under his contract with the shipper, and if not allowed to