Lloyd’s v Harper (1880) 16 Ch D 290

Lloyd’s v Harper (1880) 16 Ch D 290

Court of Appeal — guarantees, death of a guarantor and enforcement for third parties

Facts

In May 1863, Samuel Harper gave the managing committee of Lloyd’s a written guarantee to secure his son Robert’s admission as an underwriting member. He undertook responsibility for all his son’s engagements in that capacity. Robert was admitted and underwrote marine insurance policies, including policies for people outside Lloyd’s who dealt through insurance brokers.

Lloyd’s was then a voluntary association. Once admitted, an underwriting member could not be excluded merely because a guarantee was withdrawn. Membership ended on specified events, including bankruptcy or insolvency. The association was incorporated by the Lloyd’s Act 1871, which transferred the relevant property, contracts and rights to the corporation.

Samuel died in September 1876, and Lloyd’s was notified shortly afterwards. Robert continued underwriting until he suspended payment in November 1878 and ceased to be a member. Lloyd’s and a firm of insurance brokers sued Samuel’s executors to enforce the guarantee, including for obligations Robert had undertaken after his father’s death. Fry J held that the estate remained liable. The executors appealed.

Issues

The court considered whether the guarantee ended on Samuel’s death or notice of it; whether it covered underwriting obligations to outsiders as well as members; and whether the incorporated Lloyd’s could enforce it and recover substantial sums for those protected by it, despite suffering no corresponding loss itself.

Decision and reasoning

The Court of Appeal dismissed the executors’ appeal and affirmed Fry J’s judgment with costs.

The guarantee survived the father’s death. Its consideration was Robert’s admission to Lloyd’s: an act performed once and for all. Admission gave him a continuing status which Lloyd’s could not terminate simply because the guarantee ceased. Allowing Samuel to withdraw the guarantee after admission would therefore defeat the arrangement for which Lloyd’s had already given its consideration. His death, or notice of it, did not end liability for underwriting engagements Robert entered into while that membership continued.

The judges distinguished guarantees supporting a continuing relationship established by a completed act from guarantees supporting separate future advances or supplies. In the latter situation, a creditor may be able to stop advancing money or goods after notice. The decision did not establish that every guarantee necessarily survives death: its reasoning depended on this guarantee’s terms and the consideration already given.

Protection extended to outsiders. The promise covered Robert’s engagements as an underwriting member, not merely his subscriptions or obligations to the committee. Insurance contracts with outside customers fell within that description. This construction also served the guarantee’s purpose of protecting the credit of Lloyd’s by securing performance of members’ underwriting obligations.

Lloyd’s could enforce the guarantee for those protected. The committee had taken it as trustees for the people beneficially interested. Outsiders dealing through member or subscribing brokers could require their brokers to call on Lloyd’s to enforce it. Lloyd’s was therefore not limited to nominal damages simply because the policy losses were suffered by others. The 1871 Act had transferred the relevant contractual rights to the corporation, so incorporation did not prevent it from suing.

The judgment left Samuel’s estate liable for Robert’s unsatisfied underwriting engagements down to his suspension of payment, whether undertaken before or after Samuel’s death. The amounts payable and the persons entitled were to be established by inquiry.

Source: Original report, (1880) 16 Ch D 290.