Hill v. Reed

Harris, J. In framing a general law for the organization of insurance companies, it was an object of the first importance to provide security for the payment of liabilities. To effect this object, the 5th section of the act requires a capital to be raised — 285 — before the company is authorized to commence business. This capital, in the case of mutual insurance companies, is to consist of notes m'ade by applicants for insurance. The company, having complied with the requirements of the 3d section of the act, is authorized to receive propositions and enter into agreements for insurance. A necessary element in such agreements is, that the applicant shall give his note in advance for the premiums he proposes to pay the company. When the notes thus given shall amount to the sum prescribed in the 5th section, the company, upon complying also with the requirements of the 11th section of the act, may proceed with the business for which it was organized, and not before. The notes thus to be obtained constitute the capital of the company, and furnish the security upon which dealers with the company must chiefly, if not altogether, rely. Such notes are declared to be valid, and to be negotiable and collectible for the purpose of paying losses or otherwise. It has been supposed that the propositions for insurance which the company, by the 4th section of the act, is authorized to receive, must, to make the transaction valid, contain a specific description of the property to be insured, so that the company, when it should have complied with the other requirements of the act and be ready to commence business, might make out its policies in accordance with the proposition. But I do not understand that any such thing was contemplated by the legislature. The object of the legislature, as we have seen, was to provide a sufficient capital for the security of creditors. To do this, in the case of mutual insurance companies, a specified amount of notes was requisite. The consideration of these notes was to be future insurance. Whether that insurance should ever be effected or not, was a matter with which the legislature had no concern. Its end was gained, if the notes were made. These were to be given, not upon contracts of insurance, but upon agreements on the part of the company that it would, upon request, after it should be fully organized, enter into contracts of insurance with the makers. When such contracts should be made, the premiums paid thereon would probably reduce the — 286 — amount of the notes pro tanto. Until such premiums should be paid, the makers of the notes would, on the one hand, be liable for the whole aniount, and, on the other, would be entitled to the compensation authorized by the act ; and, in this case, provided for in the charter of the company, for the use of their credit. The language of Oakley. Ch. J. in a case arising under another act, is equally applicable to this case. “ The -application for insurance,” he says, “ is a very different thing from the contract of insurance to which it leads. It is a mere proposition, and only needs to state the objects on which insurance -is sought, without specifying the particulars. With the applications the parties gave their notqs for a corresponding amount of premiums. They then had a right to demand regular policies of insurance for risks within their applications, and the company was bound to issue them.” (Caryl v. McElrath, 3 Sand. S. C. R. 176.) Again; it is objected that the note of the defendant is not such a note as by the 5th section of the act the company was authorized to receive as a part of its capital. The notes so to be received are required to bg payable “ at the end of, or within, twelve months from the date thereof.” This note is payable “ in such portions, and at such time or times, as the directors of the company may agreeably to their charter and by-laws require.” In other words, it is payable on demand. The object of the legislature, obviously, was, to have the capital of the company available for the payment of debts, when required. It cannot be pretended that a note which, in legal effect, is payable on demand, is not as available for the purposes of the company, as if payable at a specific time within a year from its date. Indeed, I think a note payable on demand may well be said to be payable “ within twelve months from the date thereof.” It is enough that there has been a substantial compliance with the requirement of the statute in this respect. I am of opinion, therefore, that the proposition of the defendant for insurance and the acceptance of that proposition by the company, and the execution of the note by the defendant, were in conformity with the statute, and that enough appears upon the face of the complaint — 287 — to show that the company had become a body corporate and was authorized to enter upon its appropriate business. But had there been any failure of the company to conform to the requirements of the statute, I do not think the defendant would have the right to avail himself of the objection. He made ■a proposition for insurance to the company, assuming that it had legal capacity to entertain such a proposition, and enter into an agreement with him in accordance with his proposition. Such an agreement was entered into between him and the company. He has received the benefit from the agreement for which he stipulated. He has been credited and paid for the use of his credit as a part of the capital of the company. It does not lie with him now, when called upon to perform the agreement on his part, to say that his proposition was not such as the statute contemplated, or that the company had not legal authority to contract with him. (Brouwer v. Appleby, 1 Sand. S. C. R. 168. Palmer v. Lawrence, 3 Id. 170. Dutchess Cotton Manufactory v. Davis, 14 John. 238.) Nor can the objection that the assignment under which the plaintiff claims title to the note in question is illegal and void, be sustained. It was held, in Haxton v. Bishop, (3 Wend. 13,) that an assignment by a moneyed corporation to a trustee, for the benefit of creditors generally, was not within the prohibition contained in the 6th section of the act to prevent fraudulent bankruptcies. That section is incorporated into the revised statutes, and is the 4th section of the title containing special provisions relating to corporations. (1 R. S. 603.) But, without reference to the character of the assignment, this 4th section of the 4th title of the chapter of the revised statutes relating to corporations, has no application whatever to an insurance company organized under the act of 1849. Such a company is a moneyed corporation, (1 R. S. 598, § 51.) Being a moneyed corporation, it is subject to the provisions of the second title of the chapter of the revised statutes relating to corporations ; and it is declared by the 11th section of the 4th title, that the provisions of. that title shall not apply to any moneyed corporation which shall be created after the first of January, 1828, and which should be — 288 — subject to the provisions of the second title. (1 R. S. 605.) The only statutory restriction upon the power of such a corporation to make a valid assignment is that contained in the 9th section of the second title. 1 R. S. 591. (a) A general assignment for the benefit of creditors, without preference, though made in insolvency, or in contemplation of insolvency, is not prohibited. 11 The only other question which I deem it worth while to notice relates to the condition upon which the note is made payable. • The defendant agreed to pay the company, or its treasurer, ten thousand dollars, “ in such portions and at such time or times as the directors may, agreeably to their charter and by-laws, require.” The note was received as a part of the capital stock of the company. The statute declares that such notes shall be valid and negotiable and collectible, for the purpose of paying losses, or otherwise. Thus the note is made transferable, and may be collected for the purpose of paying the liabilities of the company. It is payable at such time as the directors may require. Those directors adopted a resolution under which all the assets of the company, including this note, were transferred to the plaintiff, in trust that he should collect them and apply the proceeds to the payment of the debts of the company. Such a resolution must, I think, be regarded as a requirement that the note should be paid. It is a substantial compliance with the condition upon which the note was made payable. The note could only be collected for the purpose of paying debts. It was made negotiable for that purpose. It was payable when the directors should declare that payment was needed for the purpose of discharging the liabilities of the company. By the res — 289 — olution adopted by the directors they did declare that this note, as well as all the other assets of the company, must be converted into money, for the purpose of paying the liabilities of the company. In pursuance of the authority vested in the plaintiff by the assignment, payment of the note was demanded. Under these circumstances, I do not think the objection that payment of the note has not been required by the directors can be sustained. The plaintiff therefore is entitled to judgment upon the demurrer, but with liberty to the defendant to answer the complaint within twenty days after notice of this decision, upon payment of the costs of this issue of law and subsequent proceedings, to be taxed by one of the justices of this court, or the county judge, or clerk, of Erie. [Erie Special Term, June 13, 1853. Harris, Justice.] Footnotes [(a)] That section is as follows: “ No such conveyance, assignment, or transfer, nor any payment made, judgment suffered, lien created, or security given, by any such corporation when insolvent, or in contemplation of insolvency, with the intent of giving a preference to any particular creditor, over other creditors of the company, shall be valid in law; and every person receiving, by means of any such conveyance, assignment, &c. any of the effects of the corporation, shall be bound to account therefor to its creditors or stockholders, or their trustees, as the case shall require.”