Report No. 70
109.31. Conflict with section 130-Recommendation.-
It has been pointed out in a Calcutta case1 that section 130 and section 134 do not harmonise with each other. While under section 130 "all the rights and remedies" of the transferor vest in the transferee," the words in section 134 are-"the residue, if any, belong to the transfer". The wording in section 134 ought to be "the residue, if any, shall be re-transferred by the original transferee to the original transferor", or other person entitled to receive the same. We recommend that section 134 should be suitably amended on this point.
1. Ranjit Roy v. D.A Davis, 1935 ILR 62 Cal 1 (10) (Costello, J.).
109.31A. Section 135.-
Section 135 provides that every assignee by endorsement or other writing of a policy of insurance against fire, in whom the property in the subject insured shall be absolutely vested on the date of assignment, shall have transferred and vested in him all rights of suit as if the contract contained "in the policy had been made with himself. This provision was considered necessary because the Exception to section 130 excludes," inter alia, fire policies.
The significance of section 135 seems to lie in this, that if the property is transferred, the right of suit of the original insured shall be transferred and vested in the assignee of the policy "as if the contract contained in the policy had been made with himself". Indirectly, the effect of the section is to provide negatively that the assignee of the policy can sue only if the property in the subject insured is absolutely vested in the assignee at the date of the assignment.
109.32. Subrogation and assignmen.-
Supreme Court judgmen.-The section as such raises no problems, but one question not directly arising out of the section, but concerning insurances, may be dealt with at this stage. On payment of the loss, the insurer is subrogated to the right of the insured. This is a general principle of insurance law.
The doctrine of subrogation is a doctrine of equity jurisprudence and is one of the legacies which the Roman law has handed down to posterity. And, like all doctrines of equity, it embodies a rule of natural justice. It is a doctrine which operates independently of contractual relations. For, though there is no real contract in essence, the law will infer such a contract under particular circumstances. It is also a doctrine which, if not entirely is at least very closely, connected with the doctrine of salvage lien.
Subrogation does not, however, dispense with the necessity of an assignment of the policy to the insurer, so that it may still become necessary to determine whether there is an assignment and if so, whether it is valid. As to the effect of an assignment, however, there seems to have arisen a difference of opinion in one case in the Supreme Court.1 In that case-to state only the material facts-the plaintiff company Shri Sharada Mills Ltd., sued the Union of India as representing the Central and Southern Railways for damage to certain bales of cotton sent by the plaintiff by railway.
The cause of action was in negligence. One of the defences put forth by the railways was that the plaintiff company could not institute the suit, as it had insured the goods with the Indian Globe Insurance Co. and had already received the total loss from the insurance company. In proof of the assignment, a letter was put on record. Ray, J. (as he then was) thus formulated the question2-
"The question which falls for determination in this appeal is whether the respondent mill on recovering Rs. 32,254-6-9 from the Indian Globe Insurance Co. Ltd., and assigning all rights against the Railway Administration in favour of the insurance company as a sub-rogee was competent to institute and maintain the suit against the Railway Administration."
The majority-Ray, J. (as he then was) and Dua, J.-without deciding the question whether the letter that was put on record amounted to an assignment, held that since the insurance company had chosen to allow the Mills (plaintiff company) to sue, the suit was properly constituted. The cause of action of the Mills against the railway had not perished on giving this letter. Mathew, J. (who was in the minority), on the other hand, held that there was an assignment by the assured of all the rights to sue the railway administration, by virtue of which the India Globe Insurance Co. could file a suit against the railway, and that precluded the assignor from suing the railway administration.
1. Union of India v. Shri Sharada Mills Ltd., AIR 1973 SC 281 (on appeal from AIR 1966 Mad 381) (Majority Judgment of Ray & Dua, JJ. with Mathew, J. dissenting).
2. Para. 2 in the AIR (Emphasis added).
109.33. Dealing with one contention that had succeeded in the High Court, namely, that the assignment was of a mere right to sue and there fore void under section 6(e), Mathew, J. held that the assignment was of something which the letter of insurance recognised as assignable. He discussed at length the authorities and the views of text-book writers and English and Indian cases on the subject.
It was, of course, the unanimous view of all the judges that mere subrogation does not operate as an assignment But, in this case, there was a letter which, according to Mathew, J., operated as an assignment and therefore precluded the assignor from suing. The principal basis of the High Court's decision upheld by the majority in the Supreme Court,1 was that even after the assignment the assignor is not debarred from instituting the suit, though the assignee could also well have been added as a plaintiff. Mathew, J. did not agree with this view.
1. Sharada Mills Ltd. v. Union of India, AIR 1966 Mad 381 (384), para. 7.
109.34. Comment on the Supreme Court's judgment.-
We have considered this judgment of the Supreme Court very carefully and with great respect, but we regret to say that it seems to us that the majority view would introduce a certain amount of anomalous element in the law. If, even after the assignment, the original assignor can sue the debtor so long as the assignee permits him (the assignor) to sue, then, we apprehend, there is introduced into the law of assignment and into the law of procedure a set of propositions which, with great respect, do not reflect the common understanding of the position.
In the first place, it would, in effect, mean that both the assignor and the assignee have a cause of action; this would put an end to the effectiveness of the "transfer". The rights under the policy are either transferred, or not transferred. They cannot reside in two persons at the same time. If they cannot reside in two persons, they must be in one person only and that person must be the assignee, provided there has been a valid assignment.
Since, in the case before the Supreme Court, the Mills did not dispute the fact that the letter had been addressed by them to the Insurance Company, there was no conflict as to facts between the Mills and the insurers. The insurers had, by virtue of the letter, acquired the rights of the insured. This was also the case of the Railways. So it is difficult to understand how the Mills could sue, when the facts were undisputedly as stated above.
109.35. In the second place, the majority view would mean that where the cause of action is really in favour of Y (assignee), V (assignor) can still sue if Y permits him to sue. It is, with great respect, difficult to understand how this would be consistent with the law of procedure. In the general understanding that law, if a person sues on behalf of another there must be a proper authority in that regard.1
Though it is here-which is the reason why we have considered it proper to express our view, since a fundamental question as to the effect of assignment is in issue. However, we venture to express a hope that the Supreme Court may like to reconsider the matter on a suitable occasion.
1. Order 3, Code of Civil Procedure, 1908.
109.36. Position in England.-
Reverting to the subject of insurance policies, in England it is not necessary for the assignee of the beneficial interest in the contract to possess or to acquire any interest in the subject-matter of insurance1, though he may do so as a collateral part of the transaction.2-3 This will be the case where the property insured is mortgaged and the proceeds of the policy are assigned as collateral security.
1. McPhillips v. London Mutual Fire Insurance Co., (1896) 23 AR 524 (fire insurance); Ivamy General Principles of Insurance Law, (1966), p. 378.
2. London Investment Co. v. Montefiore, (1864) 9 LT 688 (fire insurance).
3. Ivamy Principles of General Insurance Law, (1968), p. 378.
109.37. Assignment in England before and after loss.-
In England, where a loss has already taken place, the right of the assured to recover the sum payable under his policy is an ordinary chose-in-action,1 and it may, therefore,2 like other closes-in action, be assigned by the assured before payment.3-4
Once the loss has occurred and the right to indemnity has therefore crystallised, the assured can assign his interest under the policy irrespective of whether or not he has parted with or lost his interest in the subject-matter insured between loss and assignment5.
The assignment of the assured's right to receive the proceeds of the policy is the assignment, not of the contract of insurance, but of the debt arising under the contract, and is, therefore, the assignment of an ordinary chose-in-action.6
An assignment of the beneficial interest in a contract of fire insurance (before loss) also appears to be valid in England.7 This seems to follow from the fact that the beneficial interest in a contract is, as a general rule, assignable in equity.
To constitute a valid assignment of a fire policy in England before the loss,8 the consent of insurers to the assignment must be obtained. This is necessary because the assignment is, in effect, the substitution of a new assured, and the contract is purely a personal contract between the insurers and a particular assured.9 The consent must be signified in the form prescribed by the policy. This is usually by memorandum signed by or an behalf of the insurers.
1. Lloyd v. Fleming, 1872 LR 7 QB 299 (302, 303) (Marine Insurance).
2. Ivamy General Principles of Insurance Law, (1966), p. 376.
3. Hamilton v. Snowden, 1880 WN 58 (175) (CA); Randall v. Lithgow, (1884) 12 QBD 525; Green v. Brand, 1884 Cab & El 410.
4. English and Scottish Mercantile Investment Co. v. Brunton, (1892) 2 QB 700 (CA); Bank of Toronto v. St. Lawrence Fire Insurance Co., 1903 AC 59 (PC).
5. Cf position as to marine insurance Halsbury, 3rd Edn., Vol. 22 (Insurances), p. 108, para. 198.
6. See Randall v. Lithgow, (1884) 12 QBD 525; Green v. Brand, (1884) Cab&El 410; English and Scottish Mercantile Investment Co. v. Brunton, (1892) 2 QB 700 (CA) (assignment after loss).
7. Tolhurst v. Associated Portland Cement Manufacturers, 1903 AC 414 (420).
8. Halsbury, 3rd Edn., Vol. 22, p. 316.
9. Lynch v. Dalzell, (1729) 4 Bro Part cas 431 (HL); Sadler's Co. v. Badcock, (1743) 3 Atk 554.
109.38. Section 136 and its principle.-
We have disposed of section 135. Section 136 provides as follows:-
"136. No Judge, Legal practitioner or officer connected with any Court of Justice shall buy or traffic in, or stipulate for, or agree to receive, any share of, or interest in, any actionable claim and no court of justice shall enforce, at his instance, or at the instance of any person claiming by or through him, any actionable claim so dealt with by him as aforesaid."
It is generally assumed that section 136 is based on the principle that persons employed in or connected with the administration of justice should not place themselves in a situation where their interests may conflict with their duty. This principle is obviously sound, but it appears to us that the section is too widely worded, in so far as it prevents the person concerned from entering into even transactions which are not in the nature of trafficking or which do not involve an element of undue advantage.
109.39. Section 136-Situations in reported cases.-
That the present widely worded section may cause hardship would be evident when one considers a few situations dealt with by the courts. Thus, the right of the subscriber to a provident fund1 to get a definite sum out of the fund is an actionable claim. An employee having such a claim may be completed by circumstances to transfer his claim, say, when he is to leave the place which is the headquarters of the fund. If he transfers his claim to a relative who happens to be a legal practitioner, the transfer would be void under section 136.
Take, next, the case where there is a contract for the sale of immovable property to a judge.2 If the judge transfers the benefit of the contract to his nephew who happens to be a legal practitioner-there is no allegation of taking undue advantage-the nephew cannot purchase it. It may be a bona fide transaction, there being no question of either party being guilty of any misconduct, and yet the section will apply.
1. Bhupati Mohan Das v. Phanindra Chandra, AIR 1935 Cal 756.
2. Compare the facts in Akhtar Beg v. Hag Naivaz, AIR 1924 Lah 709.
109.40. Section before 1950.-
At this stage, we must note that the old section was much narrower than the present one. The old section read as follows (before 1900):
"136. No Judge, Pleader, Mukhtar, Clerk, Bailiff or other officer connected with Courts of Justice can buy any actionable claim falling under the jurisdiction of the Court in which he exercises his function."
The intention probably was not to place the persons concerned in a position in which they may be tempted to use the influence of the information which they may acquire by virtue of their possible connection with the transaction of business in the Court, to the prejudice of persons who might have to resort to it for the adjudication of actionable claims.