Case ID: abb-ct-app_4/html/0589-01.html
Source: Caselaw Access Project
Author: {"author": "Bacon, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

WHITE v. ROSS.
    September, 1860.
    A person who has dealt with a corporation de facto, can not avoid liability to it on the contract, by questioning the validity of the organization.
    
    An act of the legislature recognizing the existence of a corporation—e.g. changing its name—cures irregularities in its organization.
    A mutual insurance company formed under the general act of 1849, L. 1849, p. 441, c. 308, may, under the power to determine “ the mode arid manner ” of exercising its powers, divide risks into classes according to hazard, so that a note shall, in the first instance, be assessed only for losses of the class to which it belongs.
    But if need be, the whole assets, including notes on both classes, must be applied for payment of losses in either class. 
    
    
      Justus White, as receiver of the Union Insurance Company, sued Giles Boss and others on a premium note given by them to the company.
    The company was originally incorporated as the Union Mutual Ins. Co., under L. 1849, p. 441, c. 308.
    ■ By a special act, L. 1851, p. 775, c. 395, the charter was amended by omitting the word “ Mutual ” from the name of the company, and limiting the number of directors.
    The plaintiff having been appointed receiver of the corporation, brought this action and recovered judgment in the supreme court, and the defendants appealed. ■,
    
      Cox £ Avery, for the defendants, appellants.
    
      Henry B. Mygatt, for the plaintiff, respondent.
    
      
       Followed in Sands v. Hill, 42 Rarb. 651.
    
    
      
       To the same effect, Sands v. Boutwell, 26 N. Y. 233; Sands v. Sanders, Id. 239; Cooper v. Shaver, 41 Barb. 151; though it is doubted by the reporter, at p. 236, note, and opposed in Sands v. Shoemakers, vol. 4, p. 149, of this series.
    
   By the Court

Bacon, J.

Two questions only are made by the defendants’ counsel upon this appeal. The first is, that the company, of which the plaintiff is receiver, was not duly incorporated. There are two conclusive answers to this objection. In the first place, the defendants were members of the corporation. They became such members when they delivered the note upon which this suit is prosecuted, and received their policy. Having thus dealt with it as a corporation da facto, they can not now be heard to question the validity of the organization. That can only be impeached by the sovereign power of the State.

But in the second place, if there were any errors or informalities in the mode of its formation, they were cured by the law of 1851, which recognized the existence of the company and changed the corporate name. This is the highest exercise of the sovereign power by which, in effect, the people speak, and waiving the defects of the organization, if such exist, declare the corporation to have existence not only, but to be endowed with all the faculties necessary to corporate life and action. Buffalo & N. Y. City R. R. Co. v. Dudley, 14 N. Y. 336. The power which prescribes the formalities to be observed in creating a corporation is able to dispense with them. This is expressly adjudged in Black River & Utica R. R. Co. v. Barnard, 31 Barb. 258. The second objection to a recovery, taken by the defendants’ counsel, is, that the assessment which was and ought to he enforced in this suit, not being upon the whole capital, but on a part only, was void. The company of which the plaintiff is receiver, it seems, divided the applications for insurance into two classes, one of which was termed the commercial, the other the farmers’ class; the rates being adjusted upon different scales in respect to what; were supposed to be the different degrees of hazard of the two classes, and the notes were only to be assessed for losses in the department to which they belonged. This was done in accordance with the 11th section of the charter of the company, which provides in express terms for such a division.

The ground of objection to this, is alleged to be that in effect it creates two organizations : that it destroys the element of what is called mutuality, and does not subject the whole assets in solido to the payment of all the risks assumed. These objections are in part unfounded in fact, and so far as such an arrangement is supposed to contravene the spirit of the act of 1849, authorizing the formation of insurance companies, the question is, I think, disposed of by the decision of this court in the recent case of Mygatt v. N. Y. Protection Ins. Co., 21 N. Y. 52. By the 11th section of the act of 1849, the corporators were authorized to declare in their charter the mode and manner ” in which they were to exercise their corporate powers. This was held, in that case, to transfer to the companies which should organize under the act full legislative control over the subject, and invest them with power to provide for any kind of insurance permitted by the act, and to regulate what may be called their internal economy, in such way as to the directors should seem prudent and best, so long as they did not contravene any express provision of the act under which they organized.

The provision in the charter of this company is not in conflict with any provision of the act of 1849, that has been pointed out, and it can not, with any propriety, be said that there are two organizations. The division of risks into classes is only one of the modes or manners ” in which the company chooses to transact its business, and has not as much diversity as the two modes of insurance on the cash and premium-note systems, which it is now settled, can be united under one organization. “If,” as is said by Judge Paige, in Sheldon v. Roseboom, 29 Barb. 309, note, “the capital to be applied to the payment of losses is to be divided, so are the risks. If the capital is less for each defendant, so are the hazards.”

Both classes are to be assessed by the receiver, and in truth, I suppose, it can not be doubted, that all. the notes of the company constitute its capital, and that, although the notes of one department must first he assessed to pay the losses in that department, yet, if they are found not to be sufficient, and anything remains in the other department beyond paying the claims upon it in that branch, resort must be had to those remaining assets until the whole are exhausted. And this is an answer to that part of the objection, which insists that the whole assets must he applied to the payment of all the risks assumed by the company. If the necessity exists, resort must be had to the entire fund. It is precisely the principle which subjects the 'premium notes to contribution for losses on the cash policies, after the funds of that department have all been applied.

The judgment must, in my opinion, be affirmed.

All the judges concurred.

Judgment affirmed, with costs.