No. 169.Circuit Court of Appeals, Second Circuit.
March 6, 1943.
Appeal from the District Court of the United States for the Southern District of New York.
Action by Beidler Bookmyer, Inc. against the Universal Insurance Company to recover commission allegedly due under a policy of insurance. From a judgment for defendant, 46 F. Supp. 806, entered on its motion for summary judgment, plaintiff appeals.
Before L. HAND, CHASE and FRANK, Circuit Judges.
Greenhill Greenhill, of New York City (Simon Greenhill and Joseph Greenhill, both of New York City, of counsel), for appellant.
Bigham, Englar, Jones Houston, of New York City (Francis X. Nestor, of New York City, of counsel), for appellee.
In 1932, appellant, an insurance brokerage concern, procured the issuance by appellee, an insurance company, to the insured, an importing company, of a so-called open ocean cargo policy of marine insurance. The policy, by its terms, was to remain in force until cancelled by either the insured or the appellee on thirty days’ notice. Under the policy, shipments from foreign ports were automatically covered immediately upon inception of the transportation; but the insured was required
promptly to notify appellee of the nature and extent of the risk as soon as the insured obtained such information; the policy provided that provisional notice of a prospective shipment should be given by the insured to the broker, followed by final notice when the insured learned that the shipment was actually in transit, the transmission of such notices to appellee being the duty of the broker. Premiums were computed on the basis of each separate shipment in accordance with prevailing rates at the time of such shipment. For some nine years, up to August 5, 1941, notices were thus sent through appellant to appellee; and, pursuant to an agreement — based on the custom in the insurance business — between appellee and appellant, appellee paid appellant, as commission, 10% of the premiums on each shipment. On August 5, 1941, appellee received a letter from the insured that, as of that date, Boynton Brothers, another brokerage firm, had been appointed in place of appellant as the broker of the insured in connection with the policy. Appellee at once advised appellant of the receipt of that letter. No provisional or final notices of shipments were received by appellee from appellant after August 5, and no services were thereafter rendered by appellant in connection with the policy. All commissions on premiums relating to shipments as to which notice had been given up to August 5 were paid by appellee to appellant; commissions on premiums relating to subsequent shipments were paid to Boynton Brothers. Appellant was informed by the insured that the reason for its action was that appellant “had made enough money on the account and that was all there was to it.”
Appellant and appellee each filed a motion for summary judgment with accompanying affidavits. The lower court denied appellant’s motion, granted appellee’s and entered a judgment dismissing appellant’s complaint.
FRANK, Circuit Judge.
As the insured had no contract with appellant, it could, without liability to appellant, arbitrarily exercise its privilege of cancelling the policy, although its sole purpose in doing so was to terminate appellant’s right to earn future commissions under that policy. The letter of August 5, 1941, from the insured to appellee, if reasonably construed, meant that the insured would cancel the policy if appellee did not assent to the change of brokers. As it would be frivolous to make the rights of the parties turn on needless formalities, we think the situation is just as if appellee had received from the insured a formal cancellation notice and a request for the issuance of a new policy and as if appellee had immediately accepted both. Since appellee did not control the insured, and the insured was under no obligation to appellant, the cancellation did not render appellee liable to appellant. As the policy was, in effect, cancelled on August 5, no premiums were thereafter earned thereunder, and therefore no commissions were due appellant; it had no contract with appellee as to the policy which existed after August 5, and performed no services after that date. Appellee was under no obligation to appellant to resist the instructions in the letter from the insured, or to question the latter as to whether and why it meant to insist upon the change of brokers. See Clinchy v. Grandview Dairy, 283 N.Y. 39, 27 N.E.2d 425; Degnan v. General Acc., F. L. Assur., etc., Corp., 161 App. Div. 439, 146 N.Y.S. 360, affirmed 221 N.Y. 484, 116 N.E. 346.
There remains, however, the question of the so-called “good faith” of appellee. Appellee was obligated by its contract with appellant (a) not to exercise its privilege of canceling the policy for the sole purpose of getting rid of that contract and (b) not to induce the insured to cancel the policy solely to enable appellee to be rid of that contract. It is no answer that appellee had not agreed to be thus restricted. Such restrictions on “rights” need not always be a matter of agreement. True, once upon a time — and not so long ago — the word “contract” cast a curious spell on legal thinking. It was then customary to say that, when men made a contract, they incurred no obligations except those which they actually intended, and that their actual intention must be found either in the explicit words of the contract or must be “implied” in those words. That assumption led to artificial and awkward reasoning. For instance, the courts developed the doctrine of concurrent conditions, although often the parties never intended such a result; in applying such and other kindred doctrines, it was said that, if the contracting parties had been reasonable men and had thought about the problem,
they would have intended a result which plainly they never intended. Actually, what the courts were doing in those and many other instances was this: They attached many legal consequences to the act of entering into a contract without regard to whether the parties had or had not actually intended such consequences. The ground for annexing such obligations is the same as that for annexing many obligations to those noncontractual acts which are called “torts,” namely that the courts consider that it is “just,” i.e., that it is wise policy to do so. The policy derives from the judicial belief that society will be better off if those obligations are exacted, or, to put it differently, if certain kinds of conduct will lead to court decisions terminating in enforceable court orders in the form of injunctions, execution sales and the like. Sometimes this process is described by saying (as we have said recently) that a contract creates a status or relation; it is now generally understood that the “feudal contract” did so, and everyone agrees that the marriage contract now does so. Holmes wittily summed up this revised attitude towards nonintentional contractual obligations in the remark that one may “commit a contract” as well as a tort. The policy considerations which yield such nonintentional obligations are not static, but grow or decline with shifts in judicial views as to what is socially desirable; usually the social reference is elliptically expressed by talking of what a “reasonable man” would deem fair and honest. It is far more wholesome for
the courts in the contract cases to spell out their mental processes, and frankly to acknowledge that such policy considerations are at work in their decisions, than to conceal that fact (from themselves and others) behind the fictitious postulate that they are carrying out the parties’ intentions. Holmes, who once spoke of “the humbug of talking about the intention of the parties,” sagely urged, on many occasions, that there should be candid judicial avowal of the judicial policy-making, and “interstitial” judicial legislation, unavoidably involved in many decisions. In all provinces of thought it usually promotes intelligence to bring out into the light the concealed actual postulates of thinking.
Granting then that appellee owed appellant a duty not to bring about the destruction of appellant’s right to commissions, the question here narrows down to this: Was there anything in the pleadings and affidavits before the trial judge which tended to show that, had he permitted the case to go to trial, there would have been evidence to support a finding that appellee induced the insured to cancel the policy in order to bring about the change of brokers. The only evidence suggested by appellee as having that tendency is that appellee’s vice-president and the president of the insured were “regular luncheon companions” and “warm personal friends.” That was not sufficient to raise such an issue of fact as to require a trial, i.e., there was not a “genuine issue” as to a material fact under Federal Rules of Civil Procedure, rule 56(c), 28 U.S.C.A. following section 723c.
Of course when the courts have decided to attach such an obligation that fact sooner or later becomes known to many persons, and it can then be said that, in truth, they intend that obligation to be a part of their contracts made with such knowledge, unless they expressly stipulate against that obligation. Cf. Williston, loc. cit., § 615 (pp. 1767-1769). Some of those obligations can thus be precluded by an express contractual provision. Others cannot, e.g., a mortgagor cannot, in the mortgage contract, bargain away his “equity of redemption.”
Some kinds of contracts give rise, it is said, to “fiduciary” status; see, e.g., Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 62 A.L.R. 1. In a certain sense, it can be said that almost all contracts create some “fiduciary” (i.e., “quasi-contractual”) obligations.
Fuller asserts that the courts do not today give sufficient heed to what is socially desirable (to what is “just” and “ought to be”), and seems to entertain the notion that they will more readily do so if only they will revert to the use of the phrase “Natural Law” to describe such considerations. See Fuller, The Law In Quest of Itself (1940); cf. Fuller, Reason and Fiat in Case Law, N.Y.L.J. October 28-30, 1942. It is doubtless true that, if everyone understood “Natural Law” to have the noble meaning which it has for persons like Fuller and Lucey, it would be an apt symbol for the duty of courts (within the limits set by well-established precedents and by statutes) to “do justice” according to principles acceptable to decent civilized men. Unfortunately, however, most persons who are not students of Scholastic jurisprudence (and some who purport to be) give other, and often conflicting, meanings to “Natural Law.” Indeed, it is acknowledged even by Lucey that that name is often misunderstood and frequently creates problems “due to a confusion of terminology.” As to the numerous conflicting meanings given to that name, see, e.g., Haines, The Revival of Natural Law Concepts (1930); Ritchie, Natural Rights (1894) 20, 71ff.; Becker, The Declaration of Independence (1942), Ch. VI; Sabine, A History of Political Theory (1937); Pound, Law and Morals (1923); Pound, An Introduction to the Philosophy of Law (1922); Pound, The Revival of Natural Law, 17 The Notre Dame Lawyer (1942) 287; Schneider, Philosophical Differences Between The Constitution and The Bill of Rights, in The Constitution Reconsidered (1938) 143.
As to candid recognition of the propriety of judicial legislation, properly limited, see authorities cited in Commissioner v. Beck’s Estate, 2 Cir., 129 F.2d 243, 245, and notes 3 and 4.