Great Western Insurance v. Thayer — 60 Barb. 633

Majority

p. 633

The Great Western Insurance Company vs. Thayer & Sargent.

Headnote

Where the charter of an insurance company authorized the company to receive notes for premiums, in advance, and declared that such notes should be deegied the absolute property of the company, and might “ be used for the payment of losses and liabilities, and for any other purpose connected with the business of the company; and when negotiated and in the hands of third persons, shall not be subject to any equitable claim or offset;” Held that this authorized a transfer by the company of a premium note in absolute payment, or as security for the payment, of a valid debt of the company.

MOTI03ST for judgment on a verdict taken subject to the opinion of the court at general term.

The action was to recover the amount of a promissory

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note for $1250, at three months from date, made by the defendants December 31, 1866, to the order of the Washington Marine Insurance Company, and. by the payee indorsed to the plaintiff. Defense: that the note was given without consideration, for the accommodation of the payee, upon an agreement that it was not to be used, nor the defendants liable upon it, except for the amount of premiums for such insurance as the defendants should procure from the payee, and that it was transferred to the plaintiff as collateral security. The case was tried before Judge Barnard and a jury, at December term, 1868, when the following facts appeared: In the fall of 1866 the Washington Marine Insurance Company being indebted to the plaintiff upon admitted claims for losses, to the amount of about $30,000, gave its three notes to the plaintiff to that amount, for the same, and as collateral thereto, notes receivable, amounting to over $30,000, reserving the right to substitute other collaterals, from' time to time, as the company should require return of special paper, the col-laterals being lodged with E. J. Brown and Charles Gould, to hold for the plaintiff. The three notes of the company were for $9944.76, falling due October 29, 1866; for $9945.70, due ¡November 20, 1866, and for $9943.67, due December 29, 1866. The first two -were paid at maturity, and $5000 on the last, and a proportionate amount of the collaterals taken up, leaving due upon the last note $4943.67 and interest, and collaterals remaining in the hands of Brown and Gould to secure it, for $5100.

In ¡November 1866, the Washington Marine Insurance Company, being in embarrassed circumstances, resolved to obtain subscription notes in advance of premiums, in accordance with section 3 of its charter. That section provides that “ the company, as an additional security to its dealers, may, from time to time, receive notes for premiums in advance from persons intending to transact business with said company. Such notes shall be received under

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the following regulation and agreement, to wit i They shall be drawn to the order of the company, and made payable at or within twelve months from date. As to third .parties, they shall be deemed the absolute property of the company, and may be used for the payment of losses and liabilities, and for any other púrpose connected with the business of the company; and when negotiated, and in the hands of such third parties, shall not be subject to any equitable claim or set-off as between the makers and the- company, whether existing at the time of their negotiation or accruing afterward.”

The note in suit was subscribed and given under this resolution and provision of the charter, with a large amount of others, by other dealers, amounting in all to upwards of $200,000; its liabilities then exceeding its assets by about that amount. And this note having so come into the hands of the Washington company, was after-wards substituted by it for a portion of the original collaterals held by the plaintiff for the balance due to it, given up at the time of such substitution. The Washington company stopped business in the spring of 1867, and the Messrs. Brown & Gould turned over to the possession of the plaintiff the remaining $5100 of collaterals (including the note in suit) which, by the original arrangement, .they had held in trust for the plaintiff, to secure the balance of $4943.67, due to it. At the time of the failure of the company, the defendants had taken up no premiums to be credited upon the note.

Upon these facts, the judge ordered a verdict for the plaintiff" for $1335.56, the amount due on the note, and the plaintiff now moves for judgment thereon.

Joseph H. Ghoate, for the plaintiff.

I. By force of the statute, under which this note was given, it must be deemed the absolute property of the company, and having been used for the payment of losses,

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and in the due course of the business of the company, is not subject, in the hands, of a third party, to the defense set up, or to any defense growing out of the relations of the makers with the company. Every possible attempt to evade payment of similar notes under statutory provisions substantially the same, has been made, and long since overruled by our courts, and in conformity with all the authorities, the plaintiff is entitled to judgment upon the verdict. (Deraismes v. Merchants’ Mutual Ins. Co., 1 N. Y. 371 . Howland v. Meyer, 3 id. 290. Brown v. Crooke, 4 id. 51. Brown v. Harlech, 9 id. 589. White v. Haight, 16 id. 310. Brouwer v. Hill, 1 Sandf. 629 . Cruikshank v. Brouwer, 11 Barb. 228 . Hart v. Achilles, 28 id. 576.)

II. The matters suggested in defense, as to the plaintiff’s supposed knowledge that this was a premium note, and that the company to which it was given was in an embarrassed condition, and the fact that one of the defendants had never read the charter, are utterly immaterial, in view .of the principles laid down in the cases above cited. So, too, it makes no difference that the note was turned over to the plaintiff as collateral- to an obligation given by the company in payment of losses, instead of directly and absolutely. As the court says in Howland v. Meyer, ( 3 N. Y. 293 ,) “ any bona fide settlement of a presumed loss, contingent or absolute, made with the dealers of the company, in the usual course of business was authorized by the comprehensive language of the statute.” In fact, upon the evidence as to the actual condition of the company when the note was given, the defendants would have no defense upon the note, even as against the company, for they are liable even to the company upon the note, for losses and liabilities' after the exhaustion of the capital and assets. .

III. Apart from this effect of the statutory provisions, the note in suit is not open to the defense óf a want of consideration, for it is in evidence that it was substituted for

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other notes of other parties which were given up by the plaintiff upon its negotiation to them.

Benedict & Benedict, for the defendants.

I. The transfer or assignment by the Washington Insurance Company to the plaintiff, of the note in suit, was unlawful, prohibited by statute, and void. (1 R. S. 560, § 4, Edm. ed. Id. 549, § 9.) “Whenever any incorporated company shall have refused the payment of any of its notes, or other evidences of debt, * * it shall not be lawful for such company, or any of its officers, to assign or transfer any of the property or choses in action of such company to any officer or stockholder of such company, directly or indirectly, for the payment of any debt; and it shall not be lawful to make any transfer or assignment in contemplation of the insolvency of such company, to any person or persons whatever; and every such transfer and assignment to such officer, stockholder or other person, or in trust for them or their benefit, shall be utterly void.” Chief Justice Savage says that the legislature, in this statute, prohibits the assignment: 1. After insolvency, to officers or stockholders, for the payment of any debt. 2. Before insolvency, and in anticipation or contemplation of that event, to any other person. (Haxtun v. Bishop, 3 Wend. 17 .) This opinion decides that the refusal to pay any of its notes, or evidences of debt, at maturity, is insolvency. The Court of Appeals have since held that Chief Justice Savage erred in limiting the effect of the statute to the two cases he mentioned. “ That to exclude from the operation of the statute, transfers or assignments made in view or contemplation of present existing insolvency, would be to deprive the act of its most efficacious, practical and useful quality and character.” (Robinson v. The Bank of Attica, 21 N. Y. 406 , 411.) Thus we have the adjudication that the refusal of an incoporated company to pay its notes, or other evidence of debt, at maturity, is insolvency; and that an

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assignment of any of its property, in view of existing or anticipated insolvency, is in violation of the act. This definition of insolvency is adopted by the Court of Appeals in Brouwer v. Harbeck, ( 9 N. Y. 589 , 594,) a case exactly parallel to this in all its particulars. Allen, J., says: “Insolvency means a general inability to answer, in the course of business, the liabilities existing and capable of being enforced. * * * This construction is authorized by that which has been given to other statutes very analogous.” When the note in suit was given, the company-was indebted to the defendant and many other persons. They represented to the defendant Thayer, that they were “a little short.” And, upon this representation, they “took up the subscription paper.” It can hardly be pretended that this company could be solvent, under the loosest interpretation of the word! (Herrick v. Borst, 4 Hill, 650 . Berry v. The Bank of Central N. Y., 15 How. 445 . Brown v. ■ Montgomery, 20 N. Y. 287 .)

II. The transfer of the note to Brown was void, within the statute. The statute provides that whenever a corporation shall have refused payment of any of its -notes, or other evidence of debt, it shall not be lawful to assign or transfer any of the property or choses in action of the company to any officer or stockholder of such company for the payment of any debt. 1. The company had refused the payment of its indebtedness. 2. The paper was delivered to Brown, to secure the payment of a debt. 3. Brown was a trustee of the Washington Insurance Company, and a member of the finance committee. This is in direct violation of the. letter of the statute. If it shall be suggested-that it was given to secure a debt due to another person, the answer is, that the purpose of the statute is to prevent preferences in the distribution of its assets; and to what debt the preference is given, cannot be material.'

III. The transfer of the note in suit was, to .use the language of the" statute, “ utterly void,” and the plaintiff •

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cannot recover upon it against the defendants. The plaintiff has no title to the paper; has no right to prosecute or collect it.

IV. So question of variance between the pleadings and proof can arise, if the case shows that the plaintiff is not entitled to recover. The trial shows that the questions tried were the questions here raised, and the court will assume, if necessary, that the pleadings were amended on the trial. (The Oneida Bank v. The Ontario Bank, 21 N. Y. 503 . Belknap v. Sealey, 14 id. 143.)

V. This note was given “ to be written out in premiums on marine risks for our (defendant’s) account.” It was not given under the provisions of any law. It was not given for anything else, except what was stated in the agreement as above. It was not given by the defendants, who were creditors of the company, to have it turned over to secure' the plaintiffs, who were also creditors. It was given on condition of payments by the company, which they did not make, and was without consideration, and could not be recovered on in their hands. The plaintiffs gave no value for it. They took it as security for a precedent debt, and subject, therefore, to the defendant’s equities. (Skilding v. Warren, 15 John. 270 . Vallett v. Parker, 6 Wend. 615 , 622. Small v. Smith, 1 Denio, 583 .)

The pleadings in this case raised no question of the ownership of the note by the plaintiffs. The allegations in respect to that subject, in the complaint, are not denied in the answer, and the defendants have not set up anything in their answer to impeach the plaintiff’s title.

The only question, therefore, for us to consider is, whether the defendants can avail themselves of any equities to which the note might have been subject had it remained in the hands of the Washington Marine Insurance Company. That question, it seems to me, is answered in the

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negative by the charter under which the note was made. The proof shows that the note was a subscription note; and by the third 'section of the charter such notes are to be deemed the absolute property of the company, “and may be used for the payment of loss and liabilities, and for any^other purpose connected with the business of the company; and when negotiated, and in the hands of third persons, shall not be subject to any equitable claim or offset.” This, it seems to me, authorizes a transfer, either in absolute payment, or as security for the payment, of a valid debt of the company. (Howland v. Meyer, 3 N. Y. 290 .)

[First Department, General Term, at New York,

November 7, 1871.

There should be judgment for the plaintiff, on the verdict, with costs.

Ingraham, P. J., and Carduzo, Justice.]

Cases cited

Deraismes v. Merchants' Mutual Insurance 1 N. Y. 371 N.Y. p. 636
Cruikshank v. Brouwer 11 Barb. 228 N.Y. Sup. Ct. 1851-06-14 p. 636
Robinson v. Bank of Attica 21 N. Y. 406 N.Y. at 411 p. 637
Brouwer v. Harbeck 9 N. Y. 589 N.Y. at 594 p. 638
Brown v. Montgomery 20 N. Y. 287 N.Y. p. 638
Vallett v. Parker 6 Wend. 615 N.Y. Sup. Ct. at 622 p. 639
Howland & Aspinwall v. Myer 3 N. Y. 290 N.Y. p. 640