Case ID: ad_1/html/0084-01.html
Source: Caselaw Access Project
Author: {"author": "Patterson, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The People of the State of New York, Appellant, v. The Equitable Mutual Fire Insurance Corporation of New York, Respondent.
    
      Mutual fire insurance company — what proof required before a receiver will be appointed—power and duty of the Attorney-General — he may act within the thirty days — restoring impaired capital — evidence of the cash required before the company transacts business—effect of past irregularities where repa/raiion is offered.
    
    A clear case of a violation of law, actual insolvency, and insufficiency of assets, not justifying the continuation of its business, or acts showing that the affairs of the corporation are being carried on fraudulently or unlawfully, must be presented before the court will appoint a receiver of a mutual insurance, company.
    
      The provisions of section 43 of chapter 690 of the Laws of 1892 do not operate as a limitation upon those provisions of the Code of Civil Procedure defining the cases in which the Attorney-General may institute an action, of this character. Cases may arise where the delay of thirty days contemplated hy section 43 might work irreparable injury and where immediate action is called for.
    In a doubtful case, however, the ability and offer of the company to restore its impaired capital by supplying funds as directed by the insurance department are circumstances which the court should consider where application is made to it upon the part of the Attorney-General to appoint a receiver of a mutual insurance corporation.
    It is erroneous for the ofiicia1 examiners of the insurance department, when determining the solvency of such a corporation, to omit to credit the corporation with capital stock notes, executed in the form and certified as required by the statute, when such notes are in the possession of the company, unincumbered, at the time when the examination is made.
    A company which had, when it begun business, §40,000 in cash in the bank, the proceeds of certain sight drafts deposited by it with the bank, being twenty per cent of the §200,000 worth of premiums referred to in section 111 of chapter 690 of the Laws of 1892, and made by statute a preliminary requirement to the transaction of any business, has not in any manner violated said section 111.
    Upon an application for a receiver of such a corporation the court will not be induced to grant the application by reason of improprieties and irregularities of its officers committed in the past where these improper acts have been repm diated by the directors and reparation is tendered.
    Appeal by the plaintiff, The People of the State of New York, from an order of the Court of Common Pleas for the city and county of New York, entered in the office of the clerk of said court on the 17th day of IVIay, 1895, denying the plaintiff’s application for the appointment of a temporary receiver of the defendant corporation.
    
      Theodore E. Hancock, Attorney-General, for the appellant.
    
      Eenneson, Grain c& Ailing and Asa A. Ailing, for the respondent.
   Patterson, J.:

We see no good reason for differing with the court below in its conclusion not to appoint a receiver pendente lite of the defendant corporation. The grounds of the application made by the Attorney-General were that the defendant was insolvent, and unable to pay its debts, and had violated various provisions of the laws under which it was incorporated, and of statutes of the State binding upon it, whereby it incurred a forfeiture of its rights and franchises, and became liable to a judgment of dissolution, and the affidavits of Messrs. McCabe and Gordon, upon which the motion was founded-, allege as reasons for a receivership that there are funds and property of the corporation in various forms which need immediate care and attention, .and should, therefore, be placed in the custody of the court.

The duty of the Attorney-General to apply for and. the authority of the court to appoint a receiver of such a corporation as this are matters of statutory regulation (Code Civ. Proc. §§ 1785, 1786, 1788, 1810), but a clear case of violation of law, actual insolvency, insufficiency of assets to justify the continuation of business or acts showing that the affairs of the corporation are being carried on fraudulently or unlawfully, must be presented before the court will interfere.

In this case, the action of the court is asked for on two principal grounds of complaint, namely, that the defendant, a mutual tire insurance corporation, was at the time this action was begun insolvent, having an excess of indebtedness over assets of $53,091.19, and that it has violated the law in that twenty per cent of the capital stock notes was not paid in cash as required by the Insurance Law.

The exhibit of the company’s affairs, from which the conclusion is drawn by the plaintiff that it is insolvent, is contained in a report, annexed to the complaint, made to the Superintendent of Insurance by official examiners, and upon the basis of the unqualified adoption of that report insolvency of the corporation would appear. But the examiners omitted to credit the corporation with $160,000 of capital stock notes, such as are authorized by the law under which this defendant was organized and is doing business. All these notes are now in the possession of the company. They are in the form and certified as required by the statute. They are held as security for losses and claims. No assessment has ever been made upon them and the makers are liable thereon for the full amount thereof. Mr. Walton, the secretary of the company, swears “that upon the organization of the defendant, it had, in compliance with law, 400 applications for insurance, premiums on which amounted to $200,000, of which $40,000 was paid in in cash and notes of solvent parties founded on actual and bona fide applications for insurance for $160,000.” Why these notes are entirely ignored is not made to appear. They stand as capital or as security for all losses and claims until the accumulation of invested profits equals the amount of cash capital required to be possessed by stock fire insurance corporations, the liability of the makers being proportionately reduced as profits accumulate, and are to be taken into account in the ascertainment of the financial condition of the company. Giving the defendant the benefit of this asset, the charge of insolvency falls to the ground.

The second serious charge upon which the decision of the motion under review ivas based is, that the defendant violated the law by non-compliance with that provision of the statute which requires twenty per cent of the $200,000 of premiums referred to in section 111 to be paid in in cash before the company may begin business. Under that requirement the defendant was bound to have available for all purposes the sum of $40,000 in casli when it began transacting business. Its officers reported to the insurance department that it was possessed of that amount. The examiners of the insurance department have declared that the report was false, and that instead of having that amount of cash on hand, they merely held 400 sight drafts of $100 each which were deposited with the Tradesmen’s Bank in the city of New York, and Hopkins, an accountant, swears that he was told by the manager of the company that these 400 drafts were never paid, but that $40,000 was borrowed on them by the company from the bank. Mr. Skinner, the manager, denies having made that statement, and other affidavits show that the company never had any relation whatever with the bank as to these drafts except to receive the credit as cash of the proceeds of the 400 drafts, which, by arrangement between the bank and the makers of the notes, were, without any intervention of the company, received on deposit as a cash asset of the company and credited as cash on the bank pass book of the company. This fact seems established by abundant evidence and the bank credit existing, the company was entitled to its use -and could draw for the fidl amount in money as and when it was needed. The subsequent history of the company’s relations with the Tradesmen’s Bank is not controlling upon the particular subject of fraud or non-compliance with law at the time the company began business now under consideration.

That some officers of the corporation committed gross improprieties and irregularities must be conceded, but as soon as the directors became aware of them those acts were repudiated by formal resolution of the directors. Some of these acts were highly reprehensible. The check for $12,500 given on August 6, 1894, purporting to be for return premiums, but in reality given to take up 125 of the sight drafts, was a great wrong, but it was without authority ; and the giving of the check for $21,400 to the American Exchange Bank to secure 214 similar drafts was equally culpable, but that act was also disavowed. Reparation for these wrongs is, however, tendered. Readiness, willingness and ability to maice good the impairment are shown, and the company has given notice to that effect to the insurance department and has claimed the benefit of the thirty days’ grace of the statute in which to accomplish that object. We have no reason to doubt the sincerity and good faith of the offer. We do not assent to the view that section 43 of chapter 690 of the Laws of 1892 operates as a limitation upon those provisions of the Code of Civil Procedure defining the cases in which the Attorney-General may institute an action of this character. There may he many cases where immediate action is called for, and where a delay of thirty days might work irreparable injury. In a doubtful case, however, such as the present, we consider that the ability and the offer of the company to restore its impaired capital by supplying funds to any amount directed by the insurance department are circumstances proper to be considered upon the application. With the other facts, to which we have adverted, they furnish an additional reason for the exercise by the court of its discretion adversely to the appointment of a receiver.

The order appealed from, under the condition upon which it was granted, should be affirmed, with ten dollars costs and disbursements

Van Brunt, P. J., Barrett, Williams and O’Brien, JJ., concurred.

Order affirmed, with ten dollars costs and disbursements.