dant thereupon pressed him and according to Tilley informed him that he had taken over the business, that he was going to put his brother into it, and that he was going half shares with his brother. The witness under cross-examination, I agree, when asked to give, a second time, an account of the interview, gave new matter and did not refer to the old, but he was not shaken by cross-examination. He gave his evidence fairly and in my opinion spoke truthfully, and in these circumstances there is some evidence in support of the plaintiff's statement that the real arrangement was what he says-a fifty-fifty arrangement, and not a sale outright.

In these circumstances I do not wish to add a word more than is necessary-anything that would embarrass or prejudice the defendant in his present circumstances. It is the last thing I would wish to give expression to; and in these circumstances I shall confine myself to saying that having heard the evidence in the case and considered the matter I have come to the clear conclusion that the plaintiff's evidence is to be believed and that the plaintiff's story is the correct one. There never was any sale out-and-out of this business; and there was an arrangement under which it should be continued by the plaintiff on a fifty-fifty basis, and the defendant, when he received these monies, took them-the first one it is admitted-on account of profits, and with regard to the latter, his own case is that he took payment for what he handed over to the plaintiff. I think in these circumstances the plaintiff is entitled to an account of the sums received by or payments made on behalf of the defendant out of the assets of the firm. The defendant must pay the costs of the action, and the counterclaim is dismissed, with costs.

UNITED STATES. SUPREME COURT OF THE STATE OF MINNESOTA.

Friday, June 17, 1927.

CHUTE AND ANOTHER v. NORTH RIVER INSURANCE COMPANY.

Before Judge STONE.

Insurance (jewellery)—Claim—“ All-risks ` policy-Cracking of opal due to inherent vice-Loss held irrecoverable.

The facts are sufficiently set out in the opinion.

OPINION.

Judge STONE, in his opinion, said that this was an appeal from an order sustaining a general demurrer to the complaint

Recovery is sought for a fire opal valued at 2000 dols., because, according to the complaint, while the policy was in force "the opal . . became cracked." It "was not cracked at the time said policy of insurance became effective, but developed said crack after said policy became effective, but during the time it was in force." Then, with commendable candour, the complaint avers "that said crack was due to an inherent Ivice in said opal and was not the result of outside force." The one question is thus plainly apparent can there be recovery for mere cracking arising from an inherent defect or tendency of the insured property and not at all from extraneous and fortuitous cause? According to a work on "Gems and Precious Stones of North America " (George F. Kunz, 293), quoted by Counsel for plaintiff, fire opals are as "sensitive " as they are gorgeous. They have a tendency to "fissures and with "only a small loss of colour, have become entirely flawed, the cracks being such as to render the stones unfit for setting, since they are liable to break."

The diligence of Counsel has failed to furnish us with any case in point or even of much help except those arising on policies of marine insurance. But they furnish, we think, a fair analogy. The contract is an "all risks" policy, and of a kind which characterises marine insurance more than any other. The rule of marine insurance is that, under such a policy, the insurer is not liable for losses resulting from inherent vice, defect, or infirmity in the subject matter insured." In Arnould on Marine Insurance (11th Ed., Sect. 778) it is put thus:

. . . the underwriter is not liable for that loss or deterioration which arises solely from a principle of decay or corruption inherent in the subject insured, or, as the phrase is, from its proper vice; as when fruit becomes rotten, or flour heats, or wine turns sour, not from external damage, but entirely from internal decomposition.

In applying this rule we are not unmindful that in marine cases there is on the part of the insured an implied warranty of seaworthiness, and that risks insured against are perils of the sea (Clarke v. Mannheim Ins. Co. (Tex.), 210 S.W. 528). But, 'the purpose of the policy is to secure an indemnity against accidents which may happen, not against

66

events which must happen" (Gulf Transportation Co. v. Fireman's Fund Ins. Co, 121 Miss. 655, quoting from Lord Herschell in the Xantho, 12 App. Cas., at p. 509). In Providence Washington Ins. Co. v. Adler, 65 Maryland 162, Kent and Parsons are among the authorities quoted for another rule, that insurers are not liable for property destroyed by the effect of its own inherent deficiencies or tendencies, unless these tendencies are made active and destructive by a peril insured against . . . It would, as Emerigon says, be intolerable that the owner should receive pay for goods that destroyed themselves." It is no longer intolerable that the owner should receive pay where goods destroy themselves, but the law remains that he cannot get it under a contract of insurance that does not make it clear that such is the intent and such the indemnity purchased. See also Marcy v. Sun Mutual Ins. Co., 11 La. Ann. 748, where recovery was sought for the sinking of a floating dock. A new trial was ordered because among other things the jury was not instructed that if the accident was occasioned "by the inherent defects in the dock," the insured could not recover. Among the other cases cited are Mellon v. Federal Ins. Co., 14 F. 2d. 997, British & Foreign Marine Ins. Co. v. Gaunt, 90 L.J. K.B. 801; 7 LI.L. Rep. 62. Interesting in this connection are the friendly fire cases in which it is held that damage, in order to be recoverable under the ordinary fire policy, must arise from a hostile " as distinguished from a "friendly" fire.

True, literal renlition could lead to a contrary result, and ambiguities in insurence policies are resolved ordinarily against the insurer. But to follow that reasoning to its conclusion here would be to control decision by an interpretation so literal as to ignore the purpose of the contract Plaintiff purchased and defendant furnished indemnity against loss or damage from fortuitous and extraneous circumstance rather than warranty of the quality and durability of chattels. It takes explicit language indicating that purpose to extend the effect of insurance beyond damage arising from or contributed to by extraneous causes and to make it cover loss from automatic deterioration alone. That rule is applied unequivocally in marine insurance. To apply any other here would make the policy cover natural disintegration, something clearly not intended. Because the policy must be considered as cne against damage from fortuitous and extraneous risks, it is not permissible to resort to an ultra-literal interpretation which will convert it into a contract of warranty against loss resulting wholly from inherent susceptibility to dissolution.

[At the request of subscribers, and with acknowledgments, the following is reprinted from the United States Daily.] UNITED STATES DISTRICT COURT.

(EASTERN DISTRICT OF
VIRGINIA).

Friday, July 1, 1927.

THE " AMERICA."

Before Judge GRONER.

Negligence-Damage to ship during repairsBoth ship-repairers' and ship's servants on board-Onus of proof-Seat of fireBest opportunity of knowing' Express agreement in writing to exercise the highest degree of careAdmissibility in evidence of prior communings-Alleged agreement by shipowners to insure against fire to the exclusion of contractors' liability disproved-Construction of contract.

The facts are sufficiently set out in the opinion.

OPINION.

His LORDSHIP, in delivering his opinicr, said: The United States of America as owner of the steamship America contracted with the Newport News Shipbuilding and Dry Dock Company for repairs to the vessel to be done at the yard of the company at Newport News, Va. The contract was in writing and included detailed specifications of the work to be done and special provisions as to the manner of performance and the care to be taken for the vessel's protection while at the contractor's plant. When the work was more than 99 per cent. completed, fire broke out and did damage claimed to amount to 2,000,000 dols.

This is a suit to hold the contractor responsible; and the determination of that question involves ascertainment of the respective obligations of the parties under the contract; and this, for purposes of clarification, makes somewhat extended reference to the contract necessary.

The contract was dated Jan. 4, 1926. The vessel left New York on Jan. 6, arrived at the shipyard on Jan. 7, and the fire occurred on Mar. 10. A considerable part of the crew remained aboard while the work was in progress. Under the contract the repairs were to be completed not later than Mar. 11, and demurrage for delay was fixed at 4000 dols. for each day. The various provisions of the contracts prior to Art. 10 thereof dealt with the character of work, the price, the manner of performance, changes which might be ordered, and such like matters. Art. 10 of the contract contains all of the provisions which are material in determining the respective contentions of the parties:

ARTICLE X.

Protection and Insurance.

1. The contractor shall at all times provide protection adequate in the judgment of the general manager of the or other duly United States Lines, authorised representative of the United States Lines, to protect fully the vessel, the work and all of the property of the United States at contractor's plant or on the vessel, provided, however, that the exercise of judgment by the general of the United States Lines manager or other duly authorised representative of the United States Lines provided for and in protection this paragraph, furnished by the contractor in accordance therewith, shall not release the contractor from any liability or responsibility it may be under, irrespective of the provisions of this paragraph and howsoever arising.

2. Without limiting by the provisions hereof any liability of the contractor, howsoever arising, it is understood that from the delivery of the vessel to the contractor until its redelivery to the United States Lines, after the completion of the work or while the work hereunder is being performed, the contractor shall be responsible for and protect and

save

harmless the United States of America, the United States Shipping Board, the United States Shipping Board Emergency Fleet Corporation, the United States Lines and the vessel, against all losses (provided, however, that the United States Lines will continue the present hull, machinery and equipment insurance upon the vessel during the period the vessel is at the contractor's yard, but the Own expense, contractor shall, at his protect the United States Lines through a builder's risk insurance, for the amount of this contract, and for such of the United States Lines' material removed from the vessel, or as may be placed int at the contractor's plant), storage accidents, injuries and/or damages of any nature to the vessel (except demurrage which is provided for hereinunder and provision relating to liquidated damages) and/or the vessel's equipment and/or its cargo and/or its movable stores and/or to the crew or property thereof, through any act or default or neglect of the contractor, and/or of any of the contractor's agents or employees, case where losses, in any other accidents, injuries or damages shall have been due to causes within the control of the contractor, or where such losses, accidents, injuries or damages could have been prevented by the contractor by the exercise of a degree of care exhibited in high-grade repair-yard practice, including (but not limiting by such specific mention, the generality of this requirement), the following precautions:

or

The contractor shall take precautions to protect the ship from fire in every the prompt possible way, including

of

removal of rubbish, care in the use of
inflammable materials and torches, care
electric wiring, strict prohibition
against smoking, and in all other ways to
prevent fires and add to the safety of the
ship. The United States Lines reserves
the right to permanently refuse admit-
tance to the ship, or expel therefrom any
of the contractor's employees who violate
the rules laid down from time to time
to carry out the intent of these clauses.
shall maintain an
The contractor
efficient system of inspection over the
activities of welders, acetylene burners,
painters and similar workmen employed
by him under this contract, so as to
minimise the danger of fires occurring
He
through carelessness or otherwise.
shall have at all times while such work
is in progress, a line of fire hose, under
in each
available
section
pressure,
involved and at least one man on duty
at all such times solely for the purpose
of operating this hose in emergency.

In addition, the contractor will provide
chemical fire extinguishers in ample
or other
quantities (and sand boxes
approved oil fire extinguishers and at all
locations where directed) to supplement
Wherever steel
the hose protection.
plates are being burnt through under this
specification, adequate provision must be
made to prevent sparks coming in contact
with inflammable material; and the con-
tractor will be required to adopt such
other reasonable measures in this con-
nection as may be directed by the United
States Lines.

Wherever a rivet forge is being used over a wood deck, it shall be set in a tight, shallow, metal-lined pan, at least four feet by five feet, to protect wood deck from cinders, coals and hot rivets. If, in spite of this precaution, burned spots occur on the deck in the vicinity of the rivet forges, contractor shall patch or replace the deck in a suitable manner approved by the United States Lines' representative, to remove such burns.

3. For the purpose of this contract, the vessel shall be considered as having been delivered to the contractor when access thereto has been afforded to the contractor, whether the vessel be at the contractor's plant, at anchor in a stream or harbour, tied up at a wharf, dock, pier, loading or discharging berth, in dry dock or elsewhere and in whatever condition; and for the purposes of this contract the vessel shall be considered as being in the possession of the contractor until the work hereunder shall have been completed to the satisfaction of the United States Lines, irrespective of where or in what condition the vessel may be. Completion of this contract shall include the removal from the vessel of all the contractor's tools, equipment, &c., and all rubbish. 4. The contractor shall at its own exharmless the pense protect and United States of America, the United States Shipping Board, the United States Shipping Board Emergency Fleet Corpora

save

tion, the United States Lines, and the vessel, from all claims and liabilities ordinarily covered by proper casualty or liability insurance, and workmen's compensation insurance. It is expressly understood that the workmen engaged upon the work hereunder shall at all times be employees of the contractor and/or sub-contractors, and not of the United States of America, or of the United States Shipping Board, or of the United States Shipping Board Emergency Fleet Corporation, or of the United States Lines.

5. The contractor shall be responsible for the safety and proper keeping of materials, equipment and supplies furnished by the United States for the purpose of being installed in the vessel or used in the work. In the event of loss or damage to such materials or supplies after being furnished by the United States Lines and before being installed or used, the contractor shall replace the articles or repair the damages at his own expense. ...

Pars. 6, 7, 8, 9 and 10 are omitted as immaterial.

11. The United States Lines reserves the right to maintain at its own expense, officers, watchmen and crew on board the vessel, who shall be solely responsible to it and under its sole direction.

ARTICLE XVII.

1. All understandings and agreements of every kind heretofore had or alleged to have been had between the parties hereto, or any of their agents or representatives, whether written or verbal, are embodied in this contract, which is now the one and only contract between the parties hereto relative to this subjectmatter. . . .

It is contended on behalf of the United States that the failure of the shipyard to complete the repairs and deliver the vessel in the condition required by the contract was a breach thereof and imposes upon the shipyard the burden of proof to excuse the failure on its part to perform its obligations under the contract. On the other hand, it is insisted on behalf of the shipyard that the libel charges negligence on the part of the shipyard in failing to exercise the degree of care exhibited in high-grade repair-yard practice in performance of the work and the precautions necessary for the safety of the vessel, and that, therefore, under the rule-that he who charges negligence must prove it-the burden of proof is on the United States.

The question is important because of the paucity of evidence of the cause of the fire. Although it was stated at the trial that witnesses were at hand who were present in the room in which the fire started, they were not called by either party. The United States relied upon the answers to certain of the interrogatories which they duly offered in evidence, and the shipyard

was content to leave the proof in this respect where the United States stopped.

If the burden of the evidence was with the United States and if to sustain that burden it was necessary that they should prove by clear and satisfactory evidence that the negligence of the shipyard was the proximate cause of the damage complained of, a much more difficult case is made than if the burden of proof is on the respondent to show that it was not negligent in the performance of the work.

In the recently decided case of the International Mercantile Marine Co. v. W. & A. Fletcher Company, [1924] A.M.C. 444, 296 Fed. 855 (2 C.C.A.), which arose out of a fire on a vessel in a shipyard, Judge Hough, speaking for the Court, announced the following as the applicable rule :

Undoubtedly the general rule is that negligence is never presumed, and he that alleges it must prove the same; yet where one receives a chattel in certain condition, and redelivers it with marks of injury that only culpable negligence would probably cause, "it is the bailee who should open his mouth and make explanation to relieve himself;" and certainly slight evidence under such circumstances will shift the burden of evidence. (Schouler, Bailments, Sect. 23 and cases cited.)

In an equally recent English case in the Court of Appeal, Ruapehu, 21 Ll.L.Rep. 310, the question of the onus of proof, under circumstances very much like those present in this case, was discussed with great learning; and the conclusion reached by Atkin, L.J., as to the correct rule was as follows:

If this were a pure bailment, a delivery of a chattel to a bailee entrusted with the chattel to execute repairs on it and then re-deliver it to the owner, I apprehend that the bailee would be under the obligation to exercise reasonable care and skill in preserving the safety of the chattel. If he failed to deliver the chattel at all the onus would be upon him to show that the non-delivery was not due to absence of care and skill on his part. Moreover, if he re-delivered the chattel in a damaged condition, or if during the bailment the chattel were damaged so that when repaired it would be re-delivered damaged, the onus is upon the bailee to show that the damage was not due to the absence of reasonable care and skill on his part. He then continues:

If then the present case were not complicated by the presence on the ship of some of the owners' servants there would seem to be a simple case of bailment and an onus on the defendants to show that the fire was not caused by negligence on their part. How far is the position altered by the presence of the owners' servants? I do not think that the rights reserved to the owners

to retain the use of the vessel for certain purposes prevents the transaction from being one of bailment; but I think that the principle of onus of proof must in such a case he modified though not destroyed.

In applying the rule he says:

a very material question in this case would appear to be, when did the fire originate? If during the working hours the onus would be upon the defendants to show that it was not occasioned by their negligence: if during non-working hours then the plaintiffs must discharge the onus of showing that the injury was caused by the defendants' negligence.

Another case in which the rule is extended farther than in either of the two preceding cases is that of Pan-American, &c., Company v. Robins Dry Dock, &c., Company, 281 Fed. 97 (2 C.C.A.). That was a suit against a shipyard to recover damages occurring to libellant's steamship by a collision caused by defective repair work. The late Judge Rogers in discussing the question said :

This

The burden was on the libellant to prove the contract, and that at the time the respondent delivered back the ship the telegraph was not properly adjusted and in good working condition. burden was sustained. [Here it is admitted.] The presumption then arose that the respondent had not performed its contract, and was responsible for the condition in which the telegraph then was. The burden then rested on the defendant to overcome this presumption, and to establish by a preponderance of the evidence that it had fully performed its agreement, and that the crossing of the wire and chain connection of the ship's telegraph was not due to its workman's lack of skill, or careless conduct of the work, while the ship was in the respondent's possession.

The cases cited in respondent's note-like Southern Railway Company v. Prescott, 240 U.S. 632-are not, in my opinion, in point, for in all such cases the bailee was a mere custodian, whereas in the cases from which I have quoted, as in this case, the bailment was that known as locatio operis faciendi. (Pan American, &c., Company v. Robins, &c., Company, sup., at p. 108).

The result is, I think, to place the burden of proof in such cases upon him who has the best opportunity of knowing, and therefore being able to explain, the cause of the damage. In other words, in the case of damage to a vessel delivered to a shipyard for repairs, where the crew remain aboard but where the shipyard employees are in control of the parts of the ship under repair, and the fire which caused the damage started there, the burden of explanation would be upon the respondent.

If it started where libellant's servants were in charge, the burden of showing that

the negligence of the respondent was the proximate cause would have to be borne by the ship, which is just another way of saying that in all cases of delivery of property to a bailee for repair, the latter is required to re-deliver in accordance with the agreement or to show that his failure to do so is not due to his own negligence.

In this case the fire occurred while the vessel was lying moored to the dock at respondent's plant. Repairs to her machinery and equipment and furnishings to the amount of 200,000 dols. had been Emmore than 99 per cent. completed. ployees of the shipyard were on board doing work required by the contract. The fire started in stateroom No. 219 on C deck, and at the time it started there were present in the room a plumber and two joiners-all servants of the shipyard. The plumber was working on a basin pipe. One of the joiners was attaching hardware and the other was standing by. In the room was a plumber's furnace, which was lighted, and a soldering iron, a carpenter's sawhorse and miscellaneous carpenter's tools. The furnace, of a gallon capacity, was operated by gasoline. Painting had been done in this stateroom on the day preceding the fire and some of the paint on the walls of the stateroom was not entirely dry. One of the men was using the furnace unaided, and, as is stated by respondent in answer to interrogatory No. 6, "a fire started and before it could be extinguished caused substantial damage to the vessel."

This is substantially all the evidence with regard to the origin of the fire, but in my opinion it is enough to throw upon the shipyard the duty of explanation and correspondingly the duty of exculpating itself by showing that it was not due to the negligent use of the open furnace in this freshly-painted room. Its employees were at work at the place where the fire occurred. One of them was using an open flame furnace, without an assistant, in the proximity of wooden partitions made additionally imflammable by wet paint and in a stateroom 10 ft. by 13 ft., in which small space were crowded the different articles and tools heretofore mentioned, together with the usual accessories consisting of &c., Company, sup., at p. 108.)

Precisely how the fire started is not disclosed, but the shipyard and its employees are in a better position than anyone else to explain away this uncertainty; and this it has not done.

The obligation of care on the part of the shipyard commensurate with the danger arose not only out of the bailment but out of an express agreement in writing to exercise the degree of care exercised in highgrade shipyards, and in addition to provide certain enumerated and specific precautions against damage by fire. Among these latter was the maintenance of a system of inspection over the action of welders, acetylene burners, painters and similar workmen to minimise the danger of fires through carelessness to have at all times while the work was in progress a line of fire hose