Equity Mut. Fire Ins. v. Murray

Opinion op the Court by Wm. Rogers Clay, Commissioner Reversing. The Equitable Mutual Fire Insurance Company of New York is a mutual fire insurance company organized! under tbe laws of that State. On March 6, 1894, Logan C. Murray executed the following note to that — 743 — company: “87. $400.00. Capital Stock Note of the’ Equitable Mutual Fire Insurance Corporation of New York. New York, March 6,1894. On demand I promise to pay to the order of the Equitable Mutual Fire Insurance Corporation, at its offices in the city of New York, the sum of four hundred dollars, value received. Payment hereof is subject to the conditions and obligations of the insurance law of the State of New York (chapter 690, Laws of 1892) and the bylaws of the said corporation printed on the back of this note. (Signed) L. O. Murray, 291 Broadway, New York.” On April 9, 1894, Murray took out a policy of insurance in the sum of $2,500 in said corporation. The provisions of the insurance law referred to in the note copied above are as follows: “Sec. 113. All capital stock notes of any domestic mutual fire insurance corporation shall remain as security for all losses and claims, until the accumulation of profits invested as required by law shall equal the amount of cash capital required to be possessed by stock fire insurance corporations, the liability of each note decreasing proportionately as the profits are accumulated. Any note which may have been deposited with any mutual fire insurance corporation subsequent to its organization in addition to the cash premium on any insurance effected with such corporation may at the expiration of the time of such insurance, be relinquished and given up to the maker thereof or his representative, upon his paying his proportion of all losses and expenses which may have accrued thereon during such term. The directors of any such corporation shall have the right to determine the amount of the note to be given in addition to the cash premium by any person insured therein, — 744 — but in no case shall the note be more than five times the whole amount of the cash premium, and every person effecting insurance in any mutual fire insurance corporation, and his heirs, executors, administrators and assigns continuing to be so insured, shall thereby become members of the corporation during the period of insurance and shall be bound to pay for losses and necessary expenses accruing in and to such corporation in proportion to the amount of his deposit note or notes. ’ ’ “Sec. 115. Every person becoming a member of any domestic mutual fire insurance corporation by effecting insurance therein, shall before he receives his policy, deposit his promissory note for such a sum' of money as shall be determined by the directors of the corporation. Such part of such note, not exceeding twenty per cent, as shall be required by the by-laws of the corporation, shall be immediately paid, and the remainder of such deposit note shall be payable in whole or in part, as the exigencies of the corporation shall require for the payment of losses by fire and incidental expenses of the corporation. At the expiration of the term of insurance such note, or the part thereof which shall remain unpaid after receiving thereon from the maker a proportionate share of all losses or expenses occurring during such tefhi, shall be relinquished by the corporation to the maker, and the corporation may loan such portion of the money received upon any such note or from any such member as may not be immediately wanted for its use, if the same shall be secured by a bond and a mortgage on unincumbered real property of double the value of the sum loaned. Sec. 116. The directors shall as often as they deem necessary, after receiving notice of any loss or dam — 745 — age by fire sustained by any member, and ascertaining the same, or after the rendition of any judgment against the corporation for loss or damage, settle and determine the sums to be paid by the several members thereof as their respective proportion of such loss, and publish the same in such* manner as they shall see fit or as the by-laws shall have prescribed. The sum to be paid by each member shall always be in proportion to the original amount of his note or notes, and shall be paid to the officers of the corporation within thirty days next after the publication of such notice. If any member shall, for the space of thirty days after such publication and after personal demand for payment shall have been made., neglect, or refuse to pay the sum so assessed upon him, the directors may sue for and recover the whole amount of his note or notes, with costs of suit, but execution shall only issue for assessments, and costs as they accrue, and every such execution shall be accompanied by a list of the losses for which the assessment is made. If the whole amount of the notes shall be insufficient to pay the loss occasioned by any fire or fires, in such case the sufferers insured by the corporation shall receive, toward making good their respective losses, a proportional share of the whole amount of such notes according to the sums by them respectively insured. No member shall ever be required to pay for any loss occasioned by fire or inland navigation more than the whole amount of his note. Any such corporation may receive from any person applying for insurance, in lieu of a deposit note, the whole amount in cash for the premium therefor, without subjecting such person to any other or additional liability, or in any way impairing or — 746 — changing the obligation of the corporation or effecting the rights of any person interested therein.” The by-laws of said corporation, printed on the back of the note, are as follows: “In case it shall be necesary for the payment of losses or snch incidental expenses as may be necessary for transacting the business of the corporation, the board of directors shall, at any regular or special meeting, determine the amount of assessment that shall be made upon the capital stock notes of the corporation. They shall make such assessment and settle and determine the sums to be paid by the several members of the corporation as their respective portion of such loss shall be in proportion to the original amount of his note or notes; and thereupon the secretary shall notify in writing each maker of such note of the amount due thereon under such assessment. The amounts so due shall be paid to the officers of the corporation within thirty days after the mailing of said notices. ’ ’ On September 11, 1895, L. O. Raegner was appointed receiver of the Equitable Mutual Fire Insurance Corporation of New York. He thereupon executed bond and took charge of the assets of the corporation. Thereafter Raegner proceeded to ascertain and fix the liabilities and assets of the corporation. The liabilities were fixed at $86,834.87. The only assets the corporation had were capital stock notes amounting in the aggregate to the sum of $160,000-. On April 30, 1896, the receiver made and levied an assessment of 60 per cent of the face value of each of the capital stock notes, including the note of Logan C. Murray. On May 1, 1896, notice of such assessment and of the amount due was given to Murray. On December 26, 1900, a further assessment of 40 — 747 — per cent was made by tbe receiver, and notice of this assessment given to Murray. This action was instituted July 18, 1905, by Raegner, as receiver of the Equitable Mutual Fire Insurance Corporation, against the defendant, Logan C. Murray, on the note above set out, to collect the sum of $240, with interest from the 1st of May, 1896, and for the sum of $160, with interest from December 26, 1900. The defendant answered in five paragraphs. The first and second contain denials of certain allegations of the petition. The third pleaded that the writing sued on was executed without any consideration. The fourth contained a plea of fraud. In paragraph 5 the defendant pleaded the statute of limitations as to the first assessment of 60 per cent, charging that said assessment became due on May 1, 1896, when defendant received notice of said assessment, and that more than five years had elapsed prior to the institution of this action. By amended answer Murray made the further defense that he was only liable for 1-400 part- of the liabilities of the corporation, and that in no event was he liable for any shrinkage in the assets of the corporation. Plaintiff filed a reply, pleading that a'plea of no consideration, or of fraud, was not available as a defense to the note in question under the laws of the State of New York, and in his pleading set forth several decisions of the courts of that State. Demurrers were filed to the various paragraphs of the petition and, to the amended answer and reply. The court overruled defendant’s demurrer to plaintiff’s reply. Judgment was then given in favor of plaintiff, against defendant, for $160, with interest from January 25, 1901. From this judgement the receiver appeals, and defendant, Murray, also prosecutes a cross-appeal. — 748 — The first question is: Was the court right in holding that the five-year statute of limitations applied to the first assessment? To determine this question, we must ascertain whether or not the defendant’s liability was founded' upon a contract in writing, or upon a contract not in writing. Certainly no liability attached, so far as the note was concerned, until the assessments were properly made and the required notice given to the maker of the note. When these assessments were properly made, and proper notice thereof given, then the note was a written obligation on the part of defendant to pay the assessments. This is not a case where one subscribes for stock without executing any written obligation to'the company. In such a case no liability would attach until the calls or assessments were properly made, and each separate call would constitute a distinct cause of action. This principle is recognized in the cases of Dorsheimer v. Glenn, 51 Fed. 404, 2 C. C. A. 309, and Hawkins v. Glenn, 131 U. S. 319, 9 Sup. Ct. 739, 33 L. Ed. 184, cited by counsel for appellee. Counsel contend that the rule laid down in these oases is conclusive of this case, for the reason that the stock note executed by the defendant is in effect a subscription for stock. It is true that it is a subscription for stock, but it is a written subscription. Defendant’s liability is not based on the call alone, but is founded on his written promise to pay. The note sued on was a direct promise on the part of the defendant to pay when the assessments were properly made and due notice thereof was given. The fact that the assessments had to be made before any liability attached did not change the the nature of defendant’s obligation. His written obligation to pay was not changed into a contract not in writing merely because it did not mature until — 749 — some act had to he done by the corporation. Plaintiff’s canse of action was founded upon the note. It was a direct suit upon the note. This note was the defendant’s promise in writing to pay the assessments properly made by the corporation. Plaintiff’s action being founded upon the note, it necessarily follows that the statute of 15 years, and not of 5 years, applies. That being the case, it is unnecessary to determine whether the time the assessments fall due is controlled by the New York statutes or the by-laws printed on the back of the note. In either event plaintiff’s cause of action upon the first assessment was not barred. The note in question was executed in the State of New York and was made payable therein. It is therefore a New York contract, and its validity should be determined by the laws of that State. In that State the defenses interposed by the defendant are not available. The foundation of the New York rule is that, where one of two persons must suffer by the fraud of a third person, the loss should fall upon him who first gave the credit. This view of the law conforms to ours. When a party has enjoyed insurance, and the rights of others, who have based their action upon his conduct, would be prejudiced by his escape from liability, he should not then be permitted to offer a plea of fraud or want of consideration. Regener, Receiver, v. Hubbard (Sup.), 56 N. Y. Supp. 173; Raegener, Receiver, v. Hubbard, 16 7N. Y. 301, 60 N. E. 633; C., C. & St. L. R. R. Co. v. Druein, 80 S. W. 778, 26 Ky. Law Rep. 103, 66 L. R. A. 275; Van Matre v. Sankey, 148 Ill. 536, 36 N. E. 628, 23 L. R. A. 665, 39 Am. St. Rep. 196; Lane v. Watson, 51 N. J. Law, 186, 17 Atl. 117; Green v. Neal’s Lessee, 6 Pet. 298, — 750 — 8 L. Ed. 402; Ball v. Anderson, 196 Pa. 86, 46 Atl. 366, 79 Am. St. Rep. 693; Cushing v. Perot, 175 Pa. 66, 34 Atl. 447, 34 L. R. A. 737, 52 Am. St. Rep. 835; Sleeper v. Norris, 59 Kan. 555, 53 Pac. 757; Shelby v. Guy, 11 Wheat. 361, 6 L. Ed. 495; Watson v. Lane, 52 N. J. Law, 550, 20 Atl. 894, 10 L. R. A. 784; Lewis on Statutory Construction (2d Ed.), section 315; American Digest, vol. 44 (Century Ed.), section 256. Furthermore, it is the well-established rule, not only in New York, but elsewhere, that the receiver of an insolvent mutual insurance association may assess solvent members thereof to make up for the inability of insolvent members to respond to assessments. May on Insurance, section 559; Joyce on Insurance, sections 1253, 1275, 1303; Bangs, Receiver, v. Gray, 12 N. Y. 477; Susquehanna Mutual Fire Insurance Co. v. Jackenback, 115 Pa. 492, 9 Atl. 90; Seaman v. Mutual Insurance Co., 90 Wis. 490, 63 N. W. 1059; Davis v. Shearer, 90 Wis. 250, 62 N. W. 1050; Wardle v. Townsend, 75 Mich. 385, 42 N. W. 940, 4. L. R. A. 511. For the reasons given, the judgment is reversed on the original appeal, and affirmed on the cross-appeal, and cause remanded for proceedings consistent with this opinion.