Case LXXVIII: Breach of Contract

The following case was sent me recently for discussion.

An agent employed by an insurance company was commissioned to investigate the cause of a fire, and discovered a store of paraffin in the house that had been burnt down. According to the terms of the insurance policy, no payment can be claimed from the company by any one storing paraffin on his premises, but in this case the paraffin was certainly not the cause of the fire, as the agent found it had not been touched by the flames. The shopkeeper, in order to avoid any difficulty with the insurance company, gave the agent £50 to say nothing about the paraffin, and the company paid £500, the sum for which the house was insured, without demur. Is the agent bound to refund (1) the money that was the price of his silence, (2) the money paid by the company? If so, to whom ought it to be refunded?

Answer.—From the wording of the question I infer that the insurance agent has accused himself in the confessional of his trickery. Otherwise we should have to begin by considering the case of the shopkeeper, and ask whether he ought not to refund the money received. The agent and the shopkeeper are cooperatores ad damnum, but in such a transaction the jubens et consulens comes first, and the mutus or at least non obstans second.

The shopkeeper is guilty of breach of contract. An insurance policy is a bilateral contract: “You pay me so much annually, and I undertake to pay you a proportionate sum if your house is burnt down accidentally, or by some one else's fault." Both parties are bound conscientiously to observe the terms of the contract.

In the case before us a flagrant breach of contract has occurred on a point upon which the company insists as a conditio sine qua absolute non. The shopkeeper has no right at all to his £500, he is enriched by means of res aliena; and that being so, as he has been the cooperator jubens in the transaction, he is especially bound to make restitution.

In a less degree the agent is also bound to refund the money.1 He is not bound, if the causa principalis has made restitution (Alph., lib. 3, n. 581); but, on the other hand, the causa principalis is required to indemnify the agent, if he has made good the whole loss.

In case the shopkeeper refuses to refund the money, and the agent has not the means to do so, he must at least pay the company the £50 that he received as hush money.

If the shopkeeper makes restitution, common sense would probably suggest that the two cooperatores should refund pro rata in solidum; the consulens £450 and the mutus the £50 hush money. The tacit condition that the £50 is to be paid only if the insurance money is secured is worthless. I suppose, however, that the agent might keep the £50 if the shopkeeper refunded the £500 in full, and made no claim upon him; for (1) the latter was sciens and volens, and must have been prepared for a possible frustration of his designs; (2) the agent was, quite apart from that, bound to make full restitution in case the shopkeeper refused to do so.— Professor Gspann.

1 For the mutus contra justitiam to be held responsible, three things are requisite: (a) that he be bound by his office, (b) that he culpably failed to prevent it, and (c) that he could have averted the harm without grave inconvenience.