Case ID: ny-st-rep_35/html/0881-01.html
Source: Caselaw Access Project
Author: {"author": "Landon, J. Learned, P. J. (dissenting.)", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John G. Greene et al., Resp’ts, v. Anthony Walton et al., App’lts.
    
      (Supreme Court, General Term, Third Department,
    
    
      Filed February 4, 1891.)
    
    Corporations—Liability op directors—Laws 1875, chap. 267.
    Defendants are directors of a corporation organized under chap. 267, of 1875, which provided that the directors should be jointly and severally liable for all debts. A policy of insurance issued by the corporation provided that said directors should not either individually or as a body assume any liabilities personally, by reason of the issue of the policy. Meld, that the provision of the policy being repugnant to that of the statute of incorporation was void upon grounds of public policy.
    (Learned, P. J., dissents.)
    Appeal by defendants from a judgment of a county court, affirming a judgment of a justice’s court in favor of plaintiffs.
    
      Edward D. Cutler (A. P. Strong, of counsel), for app’lts; Edwin C. Angle; for resp’ts.
   Landon, J.

The policy provides that “ the directors of this society, either individually or as a body, shall not assume any liabilities personally by reason of the issuance of this certificate.”

The statute, § 8, chap. 267, Laws 1875, provides that “the directors * * * shall be jointly or severally liable for all debts, due from said society or corporation, contracted while they are trustees,” etc.

The provision of the policy is repugnant to the provision of the statute and is void upon grounds of public policy.

The statute forms part of the charter of the corporation and the corporation can make no contract which its charter forbids. Abbott v. Johnstown H. R. Co., 80 N. Y., 27.

The corporation has power to make contracts for itself in aid of its business, but it has no power to make contracts in behalf of its directors. Presumably the directors are competent to make' their own contracts. This contract is not for the benefit of the corporation, and it is not a contract between the plaintiffs and the defendants; nor is it one like Lawrence v. Fox, 20 N. Y., 268, in which the benefit which one party might secure to himself he can secure to another; for the corporation could not secure a like benefit for itself. Sound public policy requires that a corporation shall make no contract nullifying as to its directors the provisions of the organic act as to their personal liability. Otherwise a corporation might do business, not under the conditions prescribed by the statute to secure upright dealing, but under opposite conditions, and thus put at naught the wholesome restraints imposed by the sovereign power.

It is not necessary to decide that the directors could not by direct contract with the plaintiffs protect themselves from personal liability.

This contract was made while the defendants were trustees, and although it did not mature until after their successors were appointed, yet when it did mature it 'was the debt which was contracted while defendants were trustees.

The policy promised payment to plaintiffs of “ the net proceeds of an assessment of one per cent, to be levied upon all, as members of class A, not to exceed the sum of $100, to be assessed for according to the constitution and by-laws.”

No such “net proceeds of an assessment” have been paid. The reasonable construction of the policy is that such an assessment would produce something.

The provision in the policy: “ As this society is purely mutual the payment of assessments is not obligatory, but is the voluntary contribution of its members,” was not strictly true. Every policy holder had to pay his assessment or forfeit his policy. Such a penalty for non-payment might prove adequate to procure payment. The plaintiffs were entitled to recover something. It appears that an assessment was made; if there is any error it is that it was not shown that the net proceeds of the assessment amounted to $100. Whether that error affects the merits we do not know, and we ought not in order to promote the success of a scheme of insurance like this to be astute in inquiring, and hence under the rule applicable to appeals from justice’s courts we may affirm the judgment. Code Civ. Pro., § 3063.

Mayham, J., concurs.

Learned, P. J. (dissenting.)

This is an appeal from a judgment of the county court, affirming a judgment recovered by the plaintiffs before a justice of the peace.

The action is brought against the defendants as directors or managers of the “National Stock Owners’ Mutual Benefit & Indemnity Society,” upon a certain certificate or guarantee policy of insurance issued to plaintiffs by said society, by which it insured the life of a certain bay horse, “Tom," belonging to plaintiffs.

The agreement of the certificate is to pay plaintiffs the proceeds of an assessment of one per cent, to be levied on all .as members of class A, not to exceed $100.

One of the provisions of the certificate is as follows: “ As this society is purely mutual, the payment of assessments is not obligatory, but is the voluntary contribution of its members.”

Another is that the society agrees to deposit in the postoffice a notice of the assessment directed to each certificate holder, etc.

The last provision is: “ It is distinctly understood that the directors of this society, either individually or as a body, shall not assume any liability personally, by reason of this certificate.” The society was incorporated under chap. 267, Laws of 1875, and the alleged liability is under § 8.

The first question arises on the provision last cited, declaring that the directors shall not assume any personal liability by reason of the certificate. I see so reason to doubt the validity of that provision. It was competent for the plaintiffs, themselves members of this mutual society, to make such agreement as they pleased and to waive any right given to them by the statute. Phyfe v. Eimer, 45 N. Y., 102.

This is not a question as to thé validity or invalidity of by-laws. It is simply a question whether a person may not waive a right which is given him by statute. The liability imposed on directors by the statute is for the benefit solely of persons contracting with the company. No rule of public policy is violated when such persons waive that liability. The plaintiffs could release the defendants from liability after the death of the horse. We see no reason why they might not before.

The case of Richardson v. Thurber, 104 N. Y., 606; 6 N. Y. State Rep., 489, has no application. That simply decided that the neglect in an assignment to provide for the statutory preference to employes did not make the assignment void, but that the statute qualified the assignment. It is not suggested that an employe could never voluntarily release his right to a preference.

But it is said by plaintiffs that it was the duty of the society to make an assessment, and that the defendants are liable under § 8 because this was not done. Passing the previous objection, (which applies to this agreement also), I may notice that the alleged liability under § 8 is for “ debts, payable one year from the time they shall have been contracted.” These words do not include the obligation of the society to make an assessment. That is a duty, not a debt. It is not a thing payable but a thing to be performed. The complaint does not charge defendants with neglecting to perform the duty of making an assessment, but with the failure to pay a debt of the society arising on the certificate of insurance and the death of the horse.

As a matter of fact it is testified that there was an assessment in March, 1885, after proof of the loss of the horse; though the plaintiffs dp not .remember receiving notice thereof. Further, if the defendants neglected their duty in making this assessment it does not appear that any damage was caused; for it is especially provided in the certificate of insurance that “the payment of assessments is not obligatory, but is the voluntary contribution of its members.” It is impossible to infer therefore that the plaintiffs have suffered any loss. They themselves can request the members to contribute to compensate plaintiffs for their loss. The assessment, if made, would be nothing more than what they can do. By the terms of the certificate the assessment imposed no legal duty on the members. The truth is that the parties to the certificate seem to have intended that no one should be liable for anything; and they have succeeded; except as to the cost of litigation.

There are many other matters discussed at length and with ability by the counsel on each side. But it seems to us unnecessary, in the view we have taken, to express any opinion on such matters.

I think the judgments of the county court and of the justice of the peace should be reversed, with costs against plaintiffs.

Judgment affirmed, with costs.