From Casetext: Smarter Legal Research

Tuckerman v. Brown

Court of Appeals of the State of New York
Sep 1, 1865
33 N.Y. 297 (N.Y. 1865)


September Term, 1865

H.R. Mygatt, for the plaintiff.

L.J. Burditt, for the defendant.

The note on which the action is brought was made by the defendant for the purpose of assisting to form the New York Central Insurance Company, under the general statute of 1849, providing for the incorporation of insurance companies. (Laws of 1849, ch. 308.) This, if not in terms admitted in the defendant's answer, indisputably appeared by the evidence adduced on the trial. The preliminary steps had been taken, under the act in October, 1850, to organize the company on the mutual plan of insurance. Notice of the declaration of intention to form the same had been given and the charter agreed on, approved by the attorney-general, and filed with the secretary of State. Before, however, the organization was complete, and the company authorized to commence business, it was required by the act that agreements for insurance should have been entered into, the premiums on which should amount to $100,000, and that notes should have been received for such premiums. (§ 5.) These advance notes are declared capital stock, valid, negotiable, and collectible, for the purpose of paying any losses which may accrue, or otherwise. In February, 1851, the defendant agreed for insurance, and gave the company the note sued on for the premium. The comptroller, in pursuance of the 11th section of the act, having subsequently appointed commissioners to make an examination of the capital, securities and affairs of the company, and report the result thereof, the defendant's note (its date being then in blank) was produced to them, and was one of the notes forming, in part, the basis of the certificate on oath, of the commissioners "that the company has received and is in actual possession of premium notes based on applications for insurance to the full extent required by the fifth section of the act of April 10, 1849, to wit, to the amount of $100,000." That it was made to be so used, and was one of the original "stock" notes given for the express purpose of aiding in the formation of the company, was thus conclusively shown, and, in fact, was not denied, either in the pleadings, or on the trial. The defense alleged and attempted to be made available was, not that such was not the character of the note, but that by a special agreement between the defendant and the agent of the company, at the time of the agreement for insurance, the same was not to be taxed or assessed, but when the company was organized, returned, and a smaller note (one for the usual amount charged for insurance in such companies) substituted in its place; and that in pursuance of this agreement the note was surrendered the same or the next year, and one for $700 substituted for it, which latter note was, in July, 1855, paid and given up to the defendant.

The note, then, being confessedly one made for the purpose of complying with the provisions of the fifth section of the act of April, 1849, and formed a part of the original capital of the company contemplated by such act, it was payable absolutely, and was collectible to the full amount specified therein, without alleging or proving any loss or assessment by the company or the receiver. In White, Receiver, v. Haight ( 16 N.Y., 310), this court determined this to be the nature and character of a note in the precise form of the present one, and given and used under similar circumstances. It was unnecessary that the receiver should have alleged and proved, as he did, an assessment of the note to pay losses and expenses, and the offer to show that the defendant was insured in a department of the company in which the losses were fully paid, and that his note was assessed to pay losses in the stock department (meaning a department where the policies were issued for a cash advance premium only), was wholly immaterial. The note was absolute, and payable at all events, without an assessment.

There is, therefore, really but one question in the case, viz., whether the surrender and cancellation of the note by the officers of the company after its organization, in pursuance of an agreement between the defendant and its agent when given, constituted any defense to an action by the receiver to enforce it. I think it did not. The fraudulent nature of the transaction relied upon to avoid its payment, is unmistakable, and, if successful, would be a reproach upon the law. The company could not organize and commence business until it had received and actually possessed premium notes, based on applications for insurance, to the amount of $100,000. To effectuate this end, the defendant became an applicant for insurance, and gave his note of $1,400 for the premium, which note was subsequently used, and formed in part, the basis of the certificate of the comptroller, that the company was possessed in good faith of an amount of capital equal to the amount specified in the fifth section of the general law. The object to be attained by the application and note was well understood by the defendant. He was in no way deceived or misled as to that object. Upon the organization of the company (which was about 1st of April, 1851), a policy was issued to him. The application and note attached thereto remained in the custody of the corporation until some time in 1851 or 1852 (the precise date does not appear), when its general agent, with the assent of its officers and directors, returned the note to the defendant, substituting in place thereof, and attaching it to the application, a note for $700, the policy remaining unchanged. This is claimed to have been done in pursuance of, and to carry out an agreement between the defendant and the agent, made at the time the note was given, to the effect that when the company was organized the note should be returned, and one for the usual amount charged for insurance in mutual insurance companies substituted in its place. It is conceded that the agreement was not strictly performed, the $700 note substituted being much larger than the usual guaranty note given upon insurance of property like that covered by the defendant's policy; but the reason assigned for this deviation is, that the company did not wish to reduce its capital below $100,000. Subsequently to this change of notes, and in July, 1855, the defendant paid to the secretary of the company $230 in full satisfaction and settlement of his liability as maker of the $700 note, and also the liability of four other persons as makers of original notes that had been taken and reduced in a similar way. These notes were originally given for over $8,000. There was no formal action taken by the company in relation to this settlement of the reduced notes, but it was fully understood and authorized by its officers and directors, and the money paid to, and received by it.

Such a transaction has no justification in law. Of the brood of insolvent corporations launched upon the community under the provisions of the general act providing for the incorporation of insurance companies, many, doubtless, from the beginning, were unworthy the public confidence, but none, perhaps, were ever organized or carried on by or through the perpetration of a grosser fraud than the one whose origin and short career this case discloses. The defendant's note, as is seen, was by no means the only one imposed on the commissioners as the bona fide capital required by the act, and that were subsequently reduced and finally canceled and given up to the makers for a nominal consideration. There were at least four others, arranged and settled by the defendant himself, and from the fact that after a brief existence the sham organization exploded, the inference is reasonable that there were more of a like description. That the defendant aided and abetted the fraud of the officers of the company is very manifest, although not an officer himself. He was a party to an engagement to insure his property, giving a premium note five times greater than the ordinary amount charged for insurance by companies organized on the mutual plan, knowing that such note was to be used to constitute in part the capital required to perfect the organization and obtain the necessary authority to issue policies. In truth, the note was never intended as anything more than a sham, being given with the express understanding that after being exhibited to the commissioners as evidence that the company had complied with the law, and the company had legal existence, it should be returned to the defendant, and one for a smaller amount take its place, which arrangement, in the order of events, was duly consummated. It is idle, in view of these circumstances, to allege or pretend that the defendant was unwittingly misled or deceived by any one, or an unwilling abettor of the fraud of the corporation or its officers. In fact the note was surrendered and canceled in accordance with the fraudulent agreement entered into by the parties at the time it was given, and it is this executed agreement that is now relied upon as the ground of defense; for there is no pretense that such surrender or cancellation was for any valuable consideration given or paid the company whilst solvent, if it ever was in that condition.

Clearly a defense of that kind rests on no legal foundation. It is an attempt to set up the violation of an express statute, and the fraud of the parties in bar of a recovery. Even had the defendant been guiltless of any fraudulent intent in the matter it would have availed nothing. He did not pay his note, but the same was canceled and given up in execution of an illegal and void agreement. There is no mistaking the purpose of the legislature, or the end to be attained by the provision that advance premium notes, like that given by the defendant, to the amount specified in the act, should be received and held by a mutual insurance company, before it commences the business of insurance. That purpose was to afford better security to members and policy holders than they would otherwise have, by requiring such company to possess a fund or securities in the nature of invested capital, immediately available for the payment of losses. To effect this it was provided that these notes for premiums in advance upon risks contracted to be taken before the company has legal existence, should be considered capital; were to be deemed valid, that is, operative of themselves; might be negotiated or transferred by the corporation at pleasure; or sued for and recovered at their maturity; in short, they were invested with all the characteristics of absolute and actual securities for the money mentioned in them. An agreement like that shown in this case, to surrender one of these notes upon the organization of the company, is plainly void; and its surrender and cancellation in pursuance thereof, by the corporation (irrespective of the fact of being a violation of an express statute), a fraud on its policy holders and creditors. In Brown, Receiver, v. Appleby (1 Sandf. S.C., 158), an agreement by the president of a specially chartered mutual insurance company, on receiving a note made in advance for the better security of dealers, that it should be given up at its maturity, was held void; and in Brouwer, Receiver, v. Hill (1 Sandf. S.C., 629), it was held that a note of that description cannot be given up to the maker without consideration, even by the board of trustees of the company, and if so given up, a receiver of the company's effects may recover it from such maker. The first mentioned decision is said to have been affirmed in this court, but whether so or not, it is clearly correct, both on principle and authority. A surrender without consideration, and in violation of law, of one of these notes given for premiums in advance (the object of them being the better security of dealers with the company), being a fraud upon its creditors and parties insuring in it, a receiver of its effects, in case of insolvency, may treat such surrender as void, and recover the amount of the security.

I am of the opinion, therefore, that the plaintiff, as receiver of this insolvent corporation, was entitled to recover the amount of the defendant's note. The exceptions having any materiality, were to the refusal to nonsuit, and the direction of a verdict by the judge. If the view taken of the case be the correct one, the nonsuit was properly denied; and as the facts were undisputed, leaving no question for the jury, the direction of the verdict was not error.

The judgment of the Supreme Court should be affirmed.

POTTER and BROWN absent; CAMPBELL takes no part.

Judgment affirmed.

Summaries of

Tuckerman v. Brown

Court of Appeals of the State of New York
Sep 1, 1865
33 N.Y. 297 (N.Y. 1865)
Case details for

Tuckerman v. Brown

Case Details

Full title:GEORGE S. TUCKERMAN, Receiver of N.Y. Central Insurance Company, v …

Court:Court of Appeals of the State of New York

Date published: Sep 1, 1865


33 N.Y. 297 (N.Y. 1865)

Citing Cases

Upton, Assignee, v. Tribilcock

The capital paid in, and promised to be paid in, is a fund which the trustees cannot squander or give away.…

Raegener v. Hubbard

It has been held that a note given under this statute "is not like an ordinary commercial note, where a…