{
  "id": 8656519,
  "name": "LEXINGTON GROCERY COMPANY v. PHILADELPHIA CASUALTY COMPANY",
  "name_abbreviation": "Lexington Grocery Co. v. Philadelphia Casualty Co.",
  "decision_date": "1911-11-22",
  "docket_number": "",
  "first_page": "116",
  "last_page": "125",
  "citations": [
    {
      "type": "official",
      "cite": "157 N.C. 116"
    }
  ],
  "court": {
    "name_abbreviation": "N.C.",
    "id": 9292,
    "name": "Supreme Court of North Carolina"
  },
  "jurisdiction": {
    "id": 5,
    "name_long": "North Carolina",
    "name": "N.C."
  },
  "cites_to": [
    {
      "cite": "133 Ky., 748",
      "category": "reporters:state",
      "reporter": "Ky.",
      "opinion_index": 0
    },
    {
      "cite": "68 Fed. Rep., 529",
      "category": "reporters:federal",
      "reporter": "F.",
      "case_ids": [
        6727984
      ],
      "opinion_index": 0,
      "case_paths": [
        "/f/68/0529-01"
      ]
    },
    {
      "cite": "73 Fed. Rep., 96",
      "category": "reporters:federal",
      "reporter": "F.",
      "opinion_index": 0
    },
    {
      "cite": "92 Wis., 374",
      "category": "reporters:state",
      "reporter": "Wis.",
      "opinion_index": 0
    }
  ],
  "analysis": {
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    "char_count": 19796,
    "ocr_confidence": 0.443,
    "pagerank": {
      "raw": 1.3735846805563896e-07,
      "percentile": 0.6390152476070998
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    "sha256": "1508c8932d4b214a7e6a822712a678f77379d10da319b3c603dfd732a0329b6a",
    "simhash": "1:3aa4224e4c729885",
    "word_count": 3408
  },
  "last_updated": "2023-07-14T17:57:03.195282+00:00",
  "provenance": {
    "date_added": "2019-08-29",
    "source": "Harvard",
    "batch": "2018"
  },
  "casebody": {
    "judges": [],
    "parties": [
      "LEXINGTON GROCERY COMPANY v. PHILADELPHIA CASUALTY COMPANY."
    ],
    "opinions": [
      {
        "text": "AlleN, J.\nTbe application, bond, and Schedule A constitute tbe contract between tbe plaintiff and defendant, and it is a contract of insurance. Shakman v. Credit System Co., 92 Wis., 374.\nSpeaking of such contracts, Lacombe, Circuit Judge, says, in Tebbetts v. Guarantee Co., 73 Fed. Rep., 96: \u201cInsurance against mercantile losses is a new branch of tbe business of underwriting and but few eases dealing with policies of that character have as yet found their way into tbe courts. Tbe necessarily nice adjustments of tbe respective proportions of loss to be borne by insurer and insured, the somewhat intricate provisions which are required in order to make such business successful, and the lack of experience in formulating the stipulations to be entered into by both the parties to such a contract, have naturally tended to make the forms of policy crude and difficult of interpretation,\u201d and he quotes the rule of construction of ambiguous clauses laid down by him in Guar. Co. v. Wood, 68 Fed. Rep., 529: \u201cAs that contract is a voluminous document, prepared by the company, any ambiguity in its phraseology should be resolved against the draftsman. ... If the particular clause requiring interpretation cannot be brought into harmony with the rest of the contract, and the instrument considered as a whole is ambiguous touching the precise loss which the policy covers, that meaning is to be given to it which is most favorable to the insured.\u201d\nFrost on Guar. Ins., p. 572, also says, as to the rule of construction, that, \u201cAll conditions limiting liability are to be strictly construed. In the interpretation of conditions they are to be construed liberally in favor of the insured and strictly against the insurer. The policy should be interpreted in such a way as to accomplish the general purpose had in view, and at the same time give effect to all of its conditions, according to their fair and reasonable meaning.\u201d\nThe contract before us is based on experience, not on rating,- and this means \u201cthe plaintiff\u2019s experience with the several customers. In other words, the defendant was willing to insure the credit of each of plaintiff\u2019s customers to an amount that plaintiff\u2019s experience with such customers indicated would be a reasonably safe credit.\u201d Steinwender v. Cas. Co., 126 N. Y. Sup., 271; Cas. Co. v. Cannon, 133 Ky., 748.\nIt is also expressly stipulated in the bond that Schedule A shall describe-the class of customers to be covered by the bond, and if we turn to Schedule A we find three classes of debtors, which may be termed old customers, new customers, and those who are solvent owing outstandings. \u25a0 The fact that nothing is said in -this schedule about insolvency at the time of the execution of the bond, when defining old and new customers, and that it is expressly provided that as to outstandings only those of debtors wbo were solvent when the bond was. executed are insured, indicates clearly that it was the purpose of the defendant to insure the debts of old and new customers, created after the execution of the bond, although insolvent, provided the. credit extended was based on experience.\nIf we were to construe the proviso to paragraph 12 of subsection \u201cb\u201d as the defendant contends, and hold that claims against debtors who were insolvent at the time the bond was executed, although based on experience, are not protected by the bond, we would change the entire contract between the parties, and say that experience is not the basis of credit under the bond, but solvency.\nIt is argued that the construction contended for by the plaintiff is unreasonable, and that it cannot be supposed that the defendant would permit sales to insolvent persons, and insure them.\nIt would be sufficient answer to say that it has done so; but if the contract is examined, it will be found that the rights of the defendant are carefully safeguarded.\nThe plaintiff did not have an unlimited discretion in making sales. Claims against old customers were not insured beyond the highest amount paid by them on indebtedness created within twelve months prior to the execution of the bond, and in no event in excess of $2,000, and the indemnity as to the new customers does, not exceed 50 per cent of the first bill, which could not exceed $1,000, and after the first bill, new customers were classed as old customers.\nThe experience of wholesale and retail dealers has doubtless shown that it is reasonably safe to sell to men who' are not solvent, but who have good character and good habits, and who are accustomed to pay, and for this reason experience and not solvency has been adopted as the standard.\nThis being the plain purpose of the contract, if the proviso relied on by the defendant is repugnant to it, it would be our duty to reject it, but we do not think the repugnancy exists.\n\u2022Subsections (a) and (&) are provisos to the first stipulation or agreement in the bond, and subsection (a) provides that tbe debtors included in tbe bond are those covered by Schedule A, while subsection (&) enumerates the evidences of liability by the defendant.\nParagraph 12 of subsection (b) is obscure, and it is difficult to ascertain its meaning.\nSome word is evidently omitted before the word \u201cshall,\u201d and the test of insolvency is to be applied to some claim.\nIt cannot be applied to the claims of $150 first mentioned in the paragraph, because it- says that, in addition to insolvency, one of the foregoing facts enumerated in subsection (b) must exist, and it is provided as to the claims first mentioned that it is' not necessary for any of the foregoing facts to exist, and it cannot be applied to all the claims covered by the bond, because that would give it an effect which would withdraw claims covered by Schedule A and would make solvency the test.\nIf we bear in mind the purpose of the contract, and that experience is the basis of credit; that the claims to be insured are those covered by Schedule A, and that subsection (fr) is intended to furnish the evidences of liability, and read paragraph 12 in the light of these facts, we think the purpose of the paragraph was to provide evidences of liability that would be satisfactory' for small claims that did not exce\u00e9d $150, and that these small claims are divided into three classes, and that the proviso applies only to those three months overdue, or such as had been placed in the hands of a mercantile agency prior to the execution of the bond. As thus construed, the paragraph reads as follows:\n\u201c(12) Where a claim does not exceed $150 and none of the above state of facts have arisen, but the designated mercantile agency, a collection agency, or a practicing attorney in or near the place where the debtor did business reports in writing as to each of such claims and such report is attached to the preliminary proof of loss, that the debtor has absconded, leaving no assets applicable to the payment of his debts, or that such claim is uncollectible and the issue of an execution would be useless, and that during a period of at least thirty days prior to the making of such report diligent efforts have been made to collect such claim or claims, they shall, so far as they are covered by this bond and riders attached hereto, be included in the calculation of loss, and also any such claim which is more than three months overdue prior to the commencement of this bond, or that has been placed in the hands of such mercantile agency, collection agency, or attorney prior to the execution of this bond, shall also be included, provided the insolvency and one of the foregoing facts from 1 to 11 inclusive, as enumerated in this subdivision (Z>), occurs between the date of the execution and the termination of this bond.\u201d\nIn our opinion, there is no error.\nAffirmed.",
        "type": "majority",
        "author": "AlleN, J."
      }
    ],
    "attorneys": [
      "E. E. Raper and McCrary & McCrary for plaintiff.",
      "Walser & Walser for defendant."
    ],
    "corrections": "",
    "head_matter": "LEXINGTON GROCERY COMPANY v. PHILADELPHIA CASUALTY COMPANY.\n(Filed 22 November, 1911.)\n1. Insurance \u2014 Credit Bonds \u2014 Contracts\u2014Evidence.\nIn this action brought upon a contract to indemnify against loss by giving credit, the application bond, and Schedule A, to which the bond refers, are construed as a contract of insurance between the parties.\n2. Insurance \u2014 Credit Bond \u2014 Contracts\u2014Construction\u2014Intent.\nA contract indemnifying a merchant against a- credit loss should be construed more strongly against the insurer, and ambiguities should be reconciled, if possible, by gathering the intent of the parties from the whole instrument; and if the particular clause requiring interpretation cannot be thus brought into harmony with the rest of the contract touching the precise loss which the policy covers, that meaning is to be given to it which is most favorable to the insured'.\n3. Same \u2014 Ambiguity\u2014Void Provisions.\nWhen in an application by a merchant for a bond of indemnity for credit losses it is provided, \u201cExperience shall be the basis for credit under the bond as specified on Schedule A,\u201d with a spieci-fied account limit, and it is expressly stipulated in the bond that Schedule A shall describe the class of customers to be covered by the bond, which specifies three classes of debtors, which may be termed old customers, new customers, and those who are solvent, the fact that nothing is said in this schedule about insolvency at the time of the execution of the bond, when defining old and new customers, and that it is expressly provided that as to \u201coutstandings\u201d only those of the debtors who were solvent when the bond was executed were insured, indicates clearly the intent to insure.the debts of old and new customers, created after the execution of the. bond, although insolvent, provided the credit extended was based upon the experience of the insured; and an ambiguity in a different section of the bond, which is repugnant to the intent gathered from the whole instrument, that experience is to be the basis of credit extended, is void.\n4. Insurance \u2014 Credit Bond \u2014 Intent\u2014Construction.\nAn application for a bond of indemnity by a merchant for credit losses provided that credits covered by the bond were to be extended to customers upon the basis of experience, with limitation as to amount, etc., as contained in Schedule A of the bond accordingly issued. Paragraph 12, subsection B, of the bond, provided that it covered \u201cthe insolvency, etc., in this subsection\u201d occurring between the date of the execution and termination of the bond. When construed in connection with the other parts of the bond under consideration in this ease: Held,, that experience being the basis of credit and that the debts insured are those covered by Schedule A, the intent of subsection B of paragraph 12 was to provide evidences of liability that would be satisfactory for small claims that did not exceed $150, which were divided into three classes, and that the proviso, applies only to those three months overdue, or such as had been placed in the hands of a mercantile agency prior to the execution of the bond.\nAppeal from Lyon, J., at April Term, 1911, of DavidsoN.\nTbe plaintiff is a corporation, doing business as a wholesale grocer at Lexington, N. 0., and the defendant is a corporation which issues credit bonds upon certain conditions and in consideration of premiums paid.\nOn or about 22 January, 1908, the plaintiff made application to the defendant to issue for its benefit a credit bond, and in said application it is provided: \u201cExperience shall be the basis for credit under the bond as specified on Schedule \u2018A/ with a single account limit not exceeding $2,000, shall be covered by said bond.\u201d\nThe premium was paid and on 27 January, 1908, said bond was issued in accordance with the application, and contains the following stipulations, among\u2019 others not necessary to be stated:\n\u201cFirst. If between the date of the execution of this bond and 22 January, 1909, on goods usually dealt in and at the time of shipment and delivery, solely owned by the indemnified and shipped bona fide and in the regular course of business since 23 February, 1908, the company receives preliminary notices of loss as required by this bond and Schedule A, upon which claim the actual loss sustained by the indemnified thereon as covered by this bond and Schedule A is in excess of $1,000, hereinafter called the initial loss, on sales and shipments not exceeding $400,000, or, if such sales and shipments as aforesaid exceed such sum, a proimrtionally increased initial loss, the company agrees to pay sdch excess loss,, not exceeding the amount of this bond: Provided,\n\u201c(a) That such losses shall have been sustained on claims against debtors, each of whom is covered by Schedule A attached hereto,.signed by the president and secretary and countersigned by the actuary and one of the registrars, of the company, and which is made a part hereof: Provided further, that when a mercantile agency is designated in the application as a basis for some or all of the credits to be covered by this bond, that the last book printed by such agency prior to the shipment of the goods shall be the basis for covering such shipments from and including the first of the month appearing on such book.\n\u201c(b) That only claims on which losses occur, which exist (1) against a debtor who has effected a general compromise with his creditors; (2) against a debtor by or against whom a petition to be declared a bankrupt or insolvent has been filed under the Federal bankruptcy law, or under some insolvency or assignment law of any of the United States or any territory thereof; (3) against a debtor against whom an execution in favor of the indemnified or some other creditor has been returned unsatisfied; (4) against a debtor whose stock in trade has been sold in judicial proceedings; (5) against a debtor against whom, upon the ground of insolvency, a writ of attachment or replevin or other process has been issued; (6) against a debtor wbo, upon tbe ground of insolvency, bas transferred bis stock in trade to a trustee or assignee under some assignment law for tbe benefit of bis creditors; (7) against a debtor wbo bas died, leaving bis estate insufficient to pay bis debts in full, and sucb fact is certified to by tbe executor or administrator or any court having jurisdiction thereof, and sucb certificate or a copy thereof is attached to tbe preliminary notice of loss; (8) against a debtor wbo, being a corporation, firm, or individual for whom a receiver bas been appointed upon tbe ground of insolvency; (9) against a debtor where tbe legal proceedings show that, to defraud bis creditors or avoid tbe payment of bis debts, be bas sold out or transferred bis stock in trade; (10) against a debtor wbo bas given a chattel mortgage for tbe benefit of bis creditors; (11) against a debtor wbo bas been found to be insolvent through judicial proceedings; (12) where a claim does not exceed $150 and none of tbe above state of facts have arisen, but tbe designated mercantile agency, a collection agency, or a practicing attorney in or near tbe place where tbe debtor did business reports, in writing, as to each of sucb claims, and such report is attached to tbe preliminary notice of loss, that tbe debtor bas absconded, leaving no assets applicable to tbe payment of bis debts, or that sucb claim is uncollectible and tbe issue of an execution would be useless, and that during a period of at least thirty days prior to tbe making of sucb report diligent efforts have been made to collect sucb claim or claims, and any claim which is more than three months overdue prior to commencement of said bond, and any claim that bas been plac\u00e9d in tbe bands of sucb mercantile agency, collection agency, or attorney prior to tbe execution of said bond shall not be covered by this (12th) paragraph, but shall, so far as tbe same are covered by this bond and riders attached hereto, be included in tbe calculation of losses, provided tbe insolvency and one of the foregoing facts as enumerated in this subdivision \u2018b\u2019 occurs between tbe date of tbe execution and tbe termination of this bond.\n\u201cSecond. Said Schedule \u2018A\u2019 shall describe tbe class of customers to be covered by this bond and tbe limit of credit to be extended to each of sucb customers.\u201d\nSchedule A is as follows:\n\u201cCO. Customers to whom the indemnified has shipped goods within twelve (12) months prior to shipping the first* item of the goods, wholly or partly included in the account upon which the loss was incurred, shall be considered old customers, and customers to whom the indemnified has shipped no goods within said twelve (12) months, or to whom the indemnified never sold any goods, shall be considered new customers.\n\u201cKK. Subject to the terms and conditions of the attached bond and this rider, old customers of the indemnified shall be covered for goods shipped during the term of the attached bond for an amount not exceeding the highest indebtedness such customer owed to the indemnified at one time, for goods shipped by the indemnified to such customer within twelve (12) months prior to shipping the first item of the goods wholly or partly included in the account upon which the loss was incurred, not exceeding, however, the amount paid upon such highest indebtedness during said period, but in no event exceeding $2,000 to one customer. .\n\u201cLL. New customers of the indemnified shall be covered for an amount not exceeding fifty per cent (50%) of the first bill, but the gross amount of such first bill shall not exceed $1,000, and such customer shall be considered an old customer as to goods shipped after the first bill has been paid, and shall then be covered accordingly.\n\u201cRR. As a condition precedent to having any claim for excess loss under the attached bond and this rider, by reason of any loss or losses on such old or new customers, the indemnified shall attach to the preliminary notice of each loss, if an old customer, a copy of the account upon which the loss was incurred, and a copy of the account, with debits and credits, showing the highest prior indebtedness within said twelve (12) months; and if a new customer, a memorandum must be attached to the preliminary notice of the loss, stating that such customer was a new customer, or else such loss or losses shall be excluded from the calculation of losses.\n\u201cThe words \u2018and the -aggregate of all such claims filed does not exceed one-half of the initial loss,\u2019 in lines 51 and 52 of the attached bond, have been made void.\n\u201cTbe words beginning with tbe word There,\u2019 in line 70, and ending with tbe word \u2018and,\u2019 in line 82, have been made void.\n\u201c0. Outstandings on tbe boobs of tbe indemnified against solvent debtors on 23 January, 1908, shipped since 1 October, 1907, shall be covered upon tbe same conditions and shall be included in tbe same manner as if tbe goods bad been shipped since tbe execution of tbe bond.\n\u201cSubject to tbe terms and conditions of tbe attached bond.\u201d\nThis action is to recover on said bond for losses, which tbe plaintiff alleges it has sustained.\nAn account between tbe parties was stated by a referee, and upon bis report being filed, judgment was entered in favor of tbe plaintiff for tbe sum of $3,693.38, and tbe defendant excepted and appealed.\nTbe exceptions present one question, and that is, whether accounts made after tbe execution of tbe bond, by persons who were then insolvent, are covered by tbe bond, if based on tbe past experience of the plaintiff with tbe persons making tbe accounts, and tbe defendant relies particularly on the proviso to paragraph 12 of subsection \u201cb\u201d of tbe bond, which reads as follows: \u201cProvided tbe insolvency and one of tbe foregoing facts in this subsection \u00a3b\u2019 occur between tbe date of tbe execution and termination of this bond.\u201d\nTbe referee and bis Honor held that such accounts were covered by tbe bond, and defendant excepted.\nE. E. Raper and McCrary & McCrary for plaintiff.\nWalser & Walser for defendant."
  },
  "file_name": "0116-01",
  "first_page_order": 156,
  "last_page_order": 165
}