Osgood v. Toole — 60 N.Y. 475

Majority

p. 475

George A. Osgood et al., Receivers, etc., Respondents, v. William S. Toole et al., Appellants.

(Argued April 7, 1875;

decided April 20, 1875.)

Headnote

In an action upon two promissory notes, defendants pleaded, among other things, the statute of limitations. .Upon the trial the question was not raised and no exception was taken in reference to it. Held, that as the objection, if it had been raised upon the trial, might have been obviated by proof of a renewal of the notes or a waiver of the statute, the question could not be raised upon appeal.

An objection cannot be taken for the first time upon appeal which might have been obviated if raised below; it must appear that no possible answer could have been made to it.

The 0. Ins. Co. was, by its charter, authorized to receive, “ as additional security to its dealers,” notes for premiums in advance, which, as between the maker and the company, were liable for losses after the cash capital and other resources of the latter had been exhausted. In - an action upon notes so given, held, that the liability of the makers was not discharged by a change lawfully made by the company in its manner of doing business, although such change might decrease the cash assets; also, that as the makers were not sureties to the company, but to its - creditors, they would not be discharged by wrongful acts of the company.

Also, held, that the word “ exhausted” did not require the collection or sale and actual application of all other assets before resort could be had to the “security notes;” but that where it clearly appeared that all the other resources of the company were insufficient to pay its liabilities, they should be regarded as exhausted within the meaning of the charter.

p. 476

Appeal from a judgment of the General Term of the Supreme Court in the first judicial department affirming a judgment in favor of plaintiffs, entered upon an order denying a motion for a new trial, and directing judgment upon a verdict. (Reported below, 1 Hun, 167 .)

This action was brought by plaintiffs, as receivers of the Columbian Insurance Company, upon two promissory notes, called security notes, given by defendant under article 3 of the charter of said company, which reads as follows:

“ When $200,000 of the capital stock shall be subscribed for and paid in, the company, as an additional security to its dealers, may, from time to time, receive notes for premiums, in advance, of persons intending to receive its policies. Such notes shall be received under the following regulation and agreement, to wit, They shall be drawn to the order of the company, and made payable 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- purpose 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 offset, as between the makers and the company, whether existing at the time of their negotiation or accruing afterward. As between the makers, and the company, they shall be liable merely to the extent of the premiums written upon them, and for losses and liabilities of the company after the cash capital and other resources of the company shall have been first exhausted. At the maturity of any such note (or note given in renewal thereof), the company shall protect and pay the same upon receiving from the maker thereof, in cash, the amount due from such maker for premiums written upon such note up to that time, together with a new note for the difference between the amount so written and the amount of the note so maturing ; interest at the rate of seven per cent per annum being allowed for premiums not due. Such new note shall be'for the same time as the original note, and be subject to the same

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provisions, terms and conditions. All return premiums made upon such notes, after the renewal thereof, shall be made in cash, and a new note of like character taken for the amount. If any such return of premium shall be made, after a dividend made upon the same, an equivalent for such dividend shall be retained by the company out of the money returned.”

By article 8, the “security notes”wereentitled to a portion of the profits. . Article 9 provided for the dividend of profits among the insurers, payable in scrip, and liable for future losses. In August, 1861, a new arrangement was made by the company which, in effect, increased premiums ten per cent, but entitled the insurers, at their option, to fifteen-per cent reduction, in cash, in lieu of a scrip dividend. The notes in suit were dated respectively, December 11, 1861, and July .11, 1861, both at seven months. Defendants pleaded .the statute of limitations. The question does not appear to have been raised in any manner upon the trial. The summons and the jwat to the complaint weré dated January II, 1869. The company failed in January, 1866, its debts far exceeding its assets, the former amounting to $3,000,000, the latter to $1,500,000, including “Alabama claims” of $1,000,000. The “security notes” then outstanding were above $50,000.

Defendants’ counsel moved for a nonsuit, among other things, on the ground that the defendants and others, makers of notes to the company, under the provisions of articles 3, 8 and 9 of the said charter, were sureties, and were entitled to all the right and privilege of sureties. That hy the new arangement of August 16, 1861, the rights and remedies of the defendants, as such sureties, were changed and affected injuriously. That by that arrangement especially, the fund provided for by article 9 of the charter, which was to be exhausted before recourse was to be had to these notes, was diminished without the consent of the defendants; and the company gave up and deprived itself of the benefit of that fund, which they otherwise would have held for the payment of the losses and debts of the company. That there is no

p. 478

proof that the assets of the company have been exhausted, which is necessary by article 3 of the charter, before recourse can be had to these notes.

The motion was denied, and defendants’ counsel excepted. The court charged that if the jury found that the resources of the company had been substantially exhausted plaintiffs were entitled to a verdict. Defendants’ counsel excepted, insisting that there was no evidence authorizing the submission of this question to the jury.

A. R. Dyett for the appellants.

There is no force in the objection that defendants cannot raise upon appeal the point that the notes were barred by the statute of limitations. (Coon v. Syr., etc., R. R. Co., 5 N. Y., 495 ; Meaking v. Cromwell, id., 136; 34 id., 383.; 21 id., 186; Tucker v. Tucker, 5 id., 408, 415 ; 12 Barb., 9 ; 10 id., 409; 40 id., 89; 42 id., 36; 1 Hilt., 161; 24 How. Pr., 324 ; 2 Wend., 146 ; 4 Sandf., 109 ; 14 J. R, 527 ; 16 id., 348; 18 id., 544.) The judge erred in denying the motion for a nonsuit. (Osgood v. Toplitz, 3 Lans., 184 ; 46 N. Y., 93 ; 16 id., 336; 7 Hill, 250 ; Ludlow v. Simond, 2 Cai. Cas., 1 ; 7 Paige, 451, 459; 44 N. Y., 453 ; 2 Comst., 352 ; Blydenburgh v. Bingham, 38 N. Y., 371 .)

Dudley Field for the respondents.

The statute of limitations cannot be considered. (Code, §§ 74, 150; Rule 19 ; Benedict v. Seymour, 6 How. Pr., 298 ; Lippincott v. Goodwin, 8 id., 242.) Defendants’ rights and remedies, as sureties, were not changed or injured by the new arrangement. (Schroeppel v. Shaw, 3 N. Y., 446 ; Ogden v. Rowe, 3 E. D. S., 312; Vartie v. Underwood, 18 Barb., 561 ; Gahn v. Niemceweig, 11 Wend., 312 ; 3 Paige, 614.)

The statute of limitations is not available to the defendants in this court. The question was not raised at the trial, and no claim made or exception taken in respect to it. 'It is now sought to be raised upon the fact appearing upon the papers that the notes were given more than six

p. 479

years prior to the commencement of the action, and the only evidence of the time when the action was commenced is the date of the summons and jurat to the complaint. It is a well settled rule that an objection which if taken might have been obviated, cannot be urged on appeal, but it is claimed that this defence is not of that character. It is not enough that the objection appears prima facie well taken. It must be conclusive. It must appear that there is no possible answer which can be made to it. We have no legal means of determining if the question had been raised that the plaintiffs might not have proved a renewal of the notes, or waiver of the statute in writing or by payments. By omitting to make the objection the plaintiffs had a right to regard it as waived. The defendants had an opportunity on a motion for nonsuit, and at the close of the trial and by a request to charge, to raise the question, and it would be entirely unprecedented to permit the point to be made here for the first time.

It is urged that the liability of the defendants is discharged by the change made by the company on the twelfth of August, in the manner of doing business with the dealers of the company. That change increased the rate of premiums on an average, ten per cent, and permitted dealers to withdraw this sum, and five per cent in addition in cash in lieu of participating in the profits and receiving scrip dividends therefor as provided by the terms of the charter. These scrip dividends represented a fund which was liable to be applied upon the debts of the company, and which must with all other assets be exhausted, before resort could be had by the company to the “ security notes ” of which those in suit were a part. The “ security notes,” as they are called, were given by dealers, to represent advance premiums, and when the persons giving them had paid an amount of premiums equal to the notes for policies issued by the company, they were surrendered by the company, if in their possession, and if not they were paid and delivered to the makers, by the company ; and all premiums paid by the makers, as between them and the company operated pro tanto to reduce the amount of

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the notes, and the balance not thus absorbed were liable for the losses and liabilities of the company after the cash capital and other resources of the company were exhausted, and the inducement for giving these notes was the participation in the profits of the company provided by the charter. The learned counsel for the defendants insists that the makers of these notes occupied the position of sureties to the company, and that any change in the mode of doing business by which any assets were or might be diminished, discharged them from liability. It does not appear whether the change was or not beneficial to the company as a business arrangement. It does appear that the bulk of the business, after the arrangement, was done by paying net premiums, and that this yielded rather more than the old mode; but a portion of the dealers paid the increased rate and received the fifteen per cent in return, which included five per cent in lieu of a scrip dividend. I am unable to justify this defence upon any legal principle. It is not claimed but that the company had the legal power to make the change in the mode of doing business. There was no implied agreement with the defendants that the company would not exercise the power. On the contrary, the contract would be deemed made subject to the right to exercise it. Again, the defendants were not sureties to the company, but to its creditors for the company, and the wrongful acts of the company would not discharge them. The scrip dividends were obligations against the company only in the event that the fund which they represented was not needed to pay losses, etc. If needed, the fund could be used, and the scrip became of no value. If the company paid out the fund or any portion of it without legal authority, it could be recovered back by the receiver, but would not affect the. liability upon the security notes, except that the amount thus diverted, as well as all assets, 'must be first exhausted.

It is said the creditors assented, by receiving the five per cent from this fund. It does not appear that any creditor received any portion of it. A portion of the dealers, in clud

p. 481

ing some who had given security notes, availed themselves of the new arrangement, but it does not appear that any of those are creditors. All that the defendants could in any event claim, assuming the payment of five per cent to have been unauthorized and illegal, would be to have the amount thus wrongfully abstracted regarded as assets which must first be exhausted; and there is no evidence showing the amount, or that it would make any material difference with the financial position of the company; so that in any view of the transaction, whether the change is regarded as lawfully effected or not, it constitutes no defence to these notes.

The question was raised whether the evidence was sufficient to establish that all the other resources of the company had been exhausted. It appeared in evidence, and was not controverted, that the adjusted and fixed liabilities of the company amounted to nearly $3,000,000, that the available assets in possession were about half a million, and demands embraced in the Alabama claims (so called) of about $1,000,000; and if these were all realized the company would still be unable to pay fifty cents on a dollar. The only question is, what construction should be put upon the word exhausted / and I am inclined to think that it does not require a collection and sale and an actual application of all the other assets before resort may be had to the security notes. When it clearly appears that the other resources of the company are insufficient to pay its liabilities, such resources may, and I think should, be regarded as exhausted within the meaning of the charter. We must presume that the word was used in that sense. An actual application of every other asset would be highly inconvenient if not impracticable, consistently with the rights of those interested. It is unnecessary to notice the other points, as we concur with the opinion of the court below.

The judgment must be affirmed.

All concur.

Judgment affirmed.