People v. Globe Mutual Life Insurance

The reports of the referee, William McDermott, rejecting the claim of Jas. D. Wells, who- was the general agent of the defendant for the Dominion of Canada, and that of James C. Mix, who was its general agent at Syracuse, in the state of Mew York, presents three questions:

First. When a life insurance company has contracted with a person to act as its general agent for a stipulated number of years, at a specified yearly salary, and the company becomes insolvent and passes into the hands of a receiver, and is also dissolved by the action of the state, before the expiration of the term for which such agent was hired, has the agent any legal right to recover from the fund in the hands of the receiver the salary fixed by the agreement, for the unexpired term of service, as damages for not continuing the employ

ment; or did the contract end with the corporate dissolution by the action of the state, and because such action prevented further service, has the agent no valid claim for damages for an alleged breach of the agreement by the company ?

Second. When by the contract between the general agent and the company, the former is, upon the procurement by him of a policy of insurance, to be paid a certain per cent upon the first premium received from the insured, and also a per centage upon every renewal premium thereafter paid, and the payment of renewal premiums upon policies of insurance procured by such agent is prevented by the insolvency of the company, the appointment of a receiver and its dissolution by the state, what damages, if any, can such agent recover by reason of the non-renewal of policies, which he had procured prior to such insolvency receivership, and corporate death %

Third. When a general agent, whose compensation depended in part upon his success in procuring policies of insurance to be taken in a life insurance company, upon which policies, when procured'by him, he was to receive an agreed per centage upon the premiums paid, is, before the expiration of the period for which he was employed by such company, prevented By the insolvency receivership and dissolution of such company, at the suit of the people of the state, from obtaining in it further policies of insurance, what damages, if any, is he entitled to by reason of his being thus deprived of the opportunity to earn money during the unexpired term of his agency, by procuring policies of insurance in such company %

These questions are to he answered in a proceeding affecting a fund in the hands of a receiver of an insolvent and dissolved corporation for distribution, and in the light of the consequences to such fund depending upon such answers. Whatever sum is allowed to either of these general agents as •damages is really so much taken from a fund created by-premiums paid for insurance by policyholders, who are also ■seeking, by the recovery of damages for a broken agreement

A corporate body manifests its life only through officers and agents. When the latter speak or-act in behalf of the corporation, such speech or act is that of the artificial being which they represent. Viewing the claims made by these agents, which the referee has rejected, in the light of the status which they occupied towards the policyholders, it is impossible to see upon what equitable grounds, at least, they can share in the fund for distribution with those whose means created it. The questions propounded are not to be answered upon the theory that an action has been brought against a corporation still in being, by its general agents,' for breaches of its contract with them, and of its duties towards them. If that was the case the arguments of the learned counsel for the claimants would, perhaps, be unanswerable. It is impossible to deny that the corporate body and its superior officers do owe certain duties to some of its employes, at least, with whom it makes contracts of service. There must be, however, when a corporate body has become insolvent, some limit to the application of this rule, for there may be officers of a corporation having with it contracts for service who, from their official positions, were so identified with its management as to be estopped from claiming damages against it for their non-fulfillment by reason of insolvency. This exception to the general rule of corporate liability for a breach of contract, caused by inability to perform, is evident. The difficulty consists in its application and in the designation of those who must be deemed a part of the management which

Before the court, as rival claimants of the fund in its hands, on the one hand are the officers of the company — its general agents — who are in part at least responsible for its condition; and on the other, individuals who parted with their money, on the faith of representations made by the persons claiming adversely to them, for insurance and protection which they never have, and never can obtain. In determining between these opposing and coniiicting claims, it is impossible to close our eyes to the fact that in the making of contracts of insurance, as between the insurer and insured, the general agents, who are claimants, represented the former. Whether such agents acted in good faith or in bad faith, with knowledge of the insolvency of the corporation, or without such knowledge, in either they represented the corporation. It was their action, their arguments and their persuasions which prevailed with the insured to accept the contracts of the corporation now insolvent and in receiver’s hands, and to place them upon an equality with those for whose unfortunate condition they are responsible, would be equivalent to making an injured party pay the individual. injuring him for the labor of inflicting it. This result, so contrary to reason and justice, ought not to flow from the adoption of any supposed legal rule for our guidance, for the law, being the perfection- of both reason and justice, can do violence to neither. As the corporate being, now dead and dissolved, acted through agents, of whom the claimants formed a part,

The equity of the foregoing line of thought is apparent, and the only plausible answer, as it seems to me, which can be made to it is, that the statute (chap. 902, Laws of 1869, sec. 8) provides, in the case of an insolvent registered company (and the Globe life was such an one), after paying all registered policies in full, the remainder of the fund arising from the conversion of its assets into money, “ shall be then applied to the payment of all the just debts of said company incurred in the conducting and carrying on its lawful business.”

The argument on the part of the claimant is, that the corporation had a right to make contracts of service for a term of years, and that insolvency and inability on its part to perform them, and even the action of the. state, taking the corporate life, did not excuse non-performance, so as to bar a claim for the damages flowing from such non-performance, because, as it is said, the corporation owed to them, as it did to policyholders, the duty of keeping itself solvent.

This argument, which has been already partially answered, is certainly plausible, and upon, the presentation of these cases it impressed me favorably. Further refléction, however, satisfied me that, as its adoption in this case will result in absolute injustice to the policyholders, the law must make some distinction between the classes of contracts, or the individuals towards which or whom it applies the doctrine, that the act of the state extinguishing the corporate life does not

James D. Wells, one of the claimants, agreed to serve the corporation for ten years, from July 15, 1876, as its “ general agent” for the “Dominion of Canada,” and the other, James C. Mix, for five years from April 22, 1877, as its “ general agent at Syracuse.” Both have been paid the stipulated salary for the term of actual service, but both claim the damages they allege to have been sustained by the non-payment of salary during the unexpired term of .their contracts; and both claim such damages as they aver were caused to them by the dissolution of the corporation, flowing from the non-renewal of policies obtained, and their inability to procure new and' other policies during the unexpired terms of their agencies. The validity of these claims depends upon the effect of the state’s action in preventing the corporation from continuing its business. The claimants insists, as has been already stated, that the act of the state in ending the life of the corporation cannot absolve it from performing its contracts, nor bar the claims for damages because as to them, as to the policyholders, it owes the duty of preserving its solvency. The report and conclusions of the referee, on the other hand,, are, that the act of the state, terminating as it did the corporate existence, absolutely excused performance of the contracts, and that as no renewal premiums could thereafter be received, nor further business done, the claimants, by the terms of their contracts, cannot obtain a, per cent-age upon premiums never to be paid, nor obtain damages based upon future business, which can never be transacted. Which of these views is sound %

In answering the question just propounded, it is not nec

The claimants were, as just mentioned, general agents of the G-lobe Mutual Life Insurance Company, each having a locality, the business in which he supervised. Each knew when his contract was made, that its value, and its continuance, depended upon the management of the corporation, which if careless, void of judgment or dishonest, could only terminate in proceedings by the state which would end its life, and prevent the further execution of the agreement. The contracts entered into between the claimants and the company made the former a part of the managing and directing force of the latter. To the outside public, and especially to those persons who by their action or that of their associates, were induced to take out policies of insurance in the company of which these claimants were important officers, they were the Company. Possibly they were not personally sharers in the mismanagement which has resulted in the company’s insolvency and death, but thejr associates were; and when a court has before it for adjudication claims based upon contracts for service in the corporate management, and others founded upon agreements entirely distinct therefrom — those with policyholders for example — it cannot fail to see a wide distinction between them as to their meritorious character. The agreements under consideration made under the circumstances which have been stated, must be held to end with the legal death of one of the contracting parties, such death, as the natural death of one of two individual contracting parties, giving no cause of action for damages on account of non-performance, because performance has become impossible. This result follows for two reasons: First. They were contracts for services which could only be rendered if the corporation continued in being, and subject to the contingency of its death, ■

In reaching the conclusion just announced, it is proper to say that I have been unable to find a case precisely like the present, though reference was made upon the argument to

For the reasons which have been stated, and upon the authority of the decision just referred to, the claims of Mr. Wells and of Mr. Mix, for damages caused by the non-fulfillment of their contracts by the corporation, must be disallowed. The agreements for future service terminated with the death of the company by the action of the state. A few words must be added in regard to the renewal premiums upon policies obtained by them prior to the insolvency of the corporation, and which renewals such insolvency prevented. The point made in their behalf is, that they are entitled to such damages because their per centage upon renewal premiums would have compensated them for past services actually performed, and as such renewals were prevented by the act of the company, they are entitled to be made good for that of

Ensworth agt. The New York Life Insurance Company (1 Bigelow's Ins. Cases, 645); Lewis agt. Atlas Mutual Life Insurance Company ( 61 Mo., 534 ); 5th Bigelow's Insurance Cases, 239; and Ætna Life Insurance Company agt. Nixon (an Indiana decision, reported in vol. 11 of the Insurance Law Journal, page 570), which have been cited as decisive of the question, were all cases between agents and existing corporations, and in neither had the state intervened and terminated the life, and in neither was the right to recover per centage upon renewal premiums which could never be received^ considered or discussed. Neither is therefore applicable to the present.

In Hercules Mutual Life agt. Brinker ( 77 N. Y., 435 ), an agent had been discharged, and in an action brought against him by the company for money in his hands, the court held that he could offset his per centage upon renewal premiums actually received by the corporation, which were paid upon policies he had procured prior to the termination of his agency. The case presented no claim for damages arising from the non-receipt of premiums prevented by insolvency, but the language and reasoning of the court is against the validity of any such claim. This is apparent from the prevailing opinion by judge Danfobth, who (see page 445) says: “ The contention of the plaintiffs’ counsel is, therefore, against the plain language of the agreement, when he argues that commissions were to be paid Fleischl only on premiums actually collected and paid to the society by him. The commis

Perhaps the extract from the opinion of ¡judge Danfoeth ■ just given, needs no explanation to show its application. It may be proper, however, to add, that the plaintiff’s point in the case referred to, that when the agent was discharged his right to commissions upon renewal premiums ended, because the agent would no longer collect them, was overruled. The court held, no matter by whom such premiums wrere collected, so long as the company received them, entitled the agent to his commissions; but it was also further decided, that his right to such commissions depended upon the collection of the premiums “by the company through him or some other person—as to that he takes the risk — but so long as the premiums upon the policies are paid to the company he is entitled to his commission.”

The case is clearly decisive of the point under consideration. No contract can be made for parties differing from that which they make for themselves. By the terms of those made in the present instance, the parties performing the service elected to receive as a compensation therefor not a gross sum, but a per centage upon premiums actually received. Unless such premiums were actually received, by the prpvi

The same reasoning reaches the claims made for damages on account of future business, which could not be done by reason of the failure of the company. With the ending of the corporate existence the contract also terminated, and no cause of action for such termination survived to the plaintiff. There being no right to continue the service, there can be no future earnings; and as the prohibition to continue the corporate business must prevent the obtainment of other poli' cies of insurance, there cannot possibly be an allowance of damages based upon the possibilities of future earnings, which it is plain can never be made.

The report of the referee upon these two claims are sustained, and the exceptions taken thereto are overruled. To prevent any confusion growing out of the alleged want of power in the referee to decide the questions involved, the order to be entered must affirmatively disallow and reject the claims.