Pierson v. Cronk — 27 N.Y. St. Rep. 122

Majority

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Henry R. Pierson, Receiver, etc., App’lt, v. Justine M. Cronk, Adm’x, Resp’t.

(Supreme Court, General Term, First Department,

Filed November 7, 1889.)

Headnote

1. Insurance companies—Consolidation—Guaranty.

In 1871 defendant’s intestate, then president of The Mutual Protection Life Insurance Company, proposed to buy a majority of the slack of the Widows & Orphans Benefit Life Insurance Co. This was done and the latter was consolidated with the Mutual Protection. This latter company afterwards transferred its assets to still another company which became insolvent. In 1887, The Widows & Orphans Co. was dissolved, and plaintiff was appointed receiver. In the proposal for the above consolidation the subscribers to it pledged themselves that the contract obligations entered into by the Widows & Orphans Company with its policy holders and others should be rigorously fulfilled to the same extent as though consolidation had not taken place. This guaranty was added “ In consideration of one dollar to each of us paid, and for other valuable considerations us thereunto moving, we hereby individually and collectively guarantee the fulfillment of the agreement in the foregoing letter of the Mutual Protection Life Insurance Company.” In an action against defendants intestate by the receiver of the Widows & Orphans Co. to recover the amount ■ unpaid upon policies issued by his company, upon the guaranty, Held, that the action could not be maintained.

2. Same.

The effect of the proposal and guaranty was no more than to require faithful management of the affairs of the Widows & Orphans’ Co., after consolidation. They cannot he construed to create a pecuniary obligation upon the guarantors for the payment of the amounts mentioned in the policies upon which suit has been brought.

Appeal from a judgment recovered on the dismissal of the plaintiff’s complaint at the circuit.

Raphael J. Moses, Jr., for app’lt; P. H. Vernon, for resp’t.

This action has been brought by the plaintiff as receiver of the Widows & Orphans Benefit Life Insurance Company. It was created as a corporation under the laws of this state and

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authorized to make insurance upon lives. On the 8th of March, 1877, the corporation was dissolved by a judgment of this court upon the application of the attorney-general. And this action was brought by the receiver appointed upon the dissolution of the corporation, to recover the amount unpaid upon policies of insurance issued by the company. To maintain the action against the intestate, who died during its pendency, a proposal made by him as president of the Mutual Protection Lite Insurance Company, and by the vice-president and secretary of that company, to the trustees of the Widows & Orphans Benefit Life Insurance Company, on the 5th of March, 1871, was read in evidence. By this proposal an offer was made to purchase the majority of the stock of the Widows & Orphans Company, and substantially to consolidate it with the Mutual Protection Life Insurance Company. This proposal to that extent was accepted as a basis for the consolidation of the two companies. The stock to the amount required for this purpose was purchased by the officers of the Mutual Protection Life Insurance Company. A majority of the directors or trustees of the Widows & Orphans Company resigned, and others selected for that purpose by the Mutual Protection Life Insurance Company were elected as their successors. And in this manner the Widows & Orphans Company was placed under the control and management of the Mutual Protection Life Insurance Company. The latter company afterwards transferred its assets to still another company, which finally became insolvent

The plaintiff averred the intestate to have become liable for the payment of the amounts left unpaid upon the policies of the Widows & Orphans Company, by reason of a contract entered into as a part of the proposal, the performance of which was guaranteed by him. In support of the appeal, it has been alleged that the plaintiff was also entitled to maintain the action because of the misappropriation of the assets of the Widows & Orphans Company, and provisions of the statute of this state have been referred to as sustaining this theory. But it is sufficient by way of answer to this position to say that the action was not brought in that form. It was upon an alleged guaranty of the proposed contract of the Mutual Protection Company that the complaint was formed And that this was the understanding at the time when the action was about to be commenced appears from the petition made for leave to commence and prosecute it. That petition applied for a direction for the receiver to “bring an action against the guarantors upon the said contract, or that your 23etitioners may have leave to commence such action in his name as receiver for their benefit, and the benefit of such other policy holders of said Widows & Orphans who may come in and contribute to the expenses of such proceeding, upon giving indemnity to said receiver in such sum as to the court may seem just.” The order which was made pursuant to the application was of the same tenor, for it authorized the a23plicants “ to commence a suit in behalf of themselves and of others similarly situated, in the name of Henry R. Pierson, receiver of the Widows & Orphans Benefit Life In

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surance Company upon the guaranty in said petition set forth.” There was no misunderstanding, therefore, as to the nature of the proceeding intended, to be taken when the application and order were made, and the complaint itself discloses no other intention than to proceed upon the alleged guaranty as the ground of action. And unless the plaintiff can maintain the right to recover in the action upon the guaranty, it necessarily must fail, as it was held that it should at the circuit.

In the proposal which formed the basis of the consolidation of the Widows & Orphans Company with the Mutual Protection Life Insurance Company this statement was made.

“ It need hardly be said, but for greater clearness we do say, and thereto pledge ourselves, that the contract obligations entered into by the Widows & Orphans Company with its policy holders and others, of every name and nature, will be rigorously fulfilled to the same extent and in the same manner as if no change such as is contemplated, should take place.”

And following the proposal was added this guaranty: “In consideration of one dollar to each of us paid, and for other valuable considerations us thereunto moving, we hereby individually and collectively guarantee the fulfilment of the agreement in the foregoing letter of the Mutual Protection Life Insurance Company,” which was subscribed by the intestate as one of the parties to it. The effect of these two instruments was carefully considered in Wise v. Morgan, 13 Daly, 402 . That was an action brought by a policy holder in the Widows & Orphans Company to recover the amount unpaid upon it under this guaranty. But it was held by the court that the action could not be maintained, first, for the reason that the guaranty itself did not enure to the benefit of the individual policy holders; and secondly, for the reason that it contemplated no, more than the faithful management and administration of the affairs of the Widows & Orphans Company by the officers to be placed in charge after the consolidation should be effected. This case was afterwards appealed to the court of appeals, and the judgment was affirmed in 103 N. Y., 682 ; 7 N. Y. State Rep., 862.

The present action differs from the case then before the court in the circumstance that it has now been brought by the receiver, not only representing the Widows & Orphans Company, but also its policy holders and other creditors. He is in a situation therefore where, if this contract could be legally construed to create a pecuniary obligation for the payment of the amounts mentioned in the policies for whose recovery the suit has been brought, it might be maintained. But no such obligation as that appears to have been intended to be entered into, either by the Mutual Protection Life Insurance Company, itself, or by the persons subscribing this guaranty. What the officers of the Mutual Protection ' Company proposed to do was to fulfil the policy contracts, as well as others, of tlie Widows & Orphrans Company, to the same extent and in the same manner as that would have been done if no change in the way of a consolidation should take place. It was not pro

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posed in any event to pay what might become due upon the policies of the Widows & Orphans Company, but to fulfil the contracts the same as though the change which was contemplated should not be brought about. And that is all that the intestate himself became liable for by subscribing the guaranty as he did at the foot of the proposal. There was no pecuniary obligation assumed in any event to pay the policies, but the agreement was to manage the affairs of the consolidated companies in such a manner that the holders of policies in the Widows & Orphans Company should be in the same condition as though no consolidation had been projected. And the difficulty in the way of maintaining the plaintiff’s action seems to arise out of the circumstance that proof was not given at the trial that the Widows & Orphans Company would have been in any better pecuniary condition than -it was at the time when the receiver was appointed if this consolidation had not taken place.

It was shown that the pecuniary condition of the Widows & Orphans Benefit Life Insurance Company on the first of October, 1871, was then such as to exhibit its ability to pay off the amounts mentioned in its policies. And further proof was given to the effect that the Mutual Protection Life Insurance Company was not in that pecuniary or solvent condition. But no evidence was given tending to establish the fact that it was by reason of this disparity then existing in the pecuniary situation of the two companies that these policy holders were prevented from securing the payment of the amounts for which the company became liable. There may have been a remote probability that such was the fact and that if it had not been for the consolidation of the two companies the persons represented by the receiver might have been paid the amounts maturing upon their policies. But this was in the nature more of conjecture than proof. And the case was left in that condition, where the court could very well hold that the failure of the holders of these policies to obtain indemnity did not result from any failure in the management and conduct of the affairs of the Widows & Orphans Company, or that the company would have been in a solvent condition n this consolidation had never taken place.

Proof of one of these facts was essential, under the agreement and the guaranty entered into, to entitle the plaintiff to maintain this action. And inasmuch as it was not given in the case, the court was justified in dismissing the plaintiff’s complaint.

The judgment should, therefore, be affirmed.

Van Brunt, P. J., and Brady, J., concur.