#### PEOPLE v. LIFE & RESERVE ASS’N OF BUFFALO.

(Supreme Court, General Term, Fifth Department.

December 2S, 1895.)

1. Co-operative Insurance Company—Reserve and Death Funds — Transfer by Act of Law.

A co-operative life insurance company issued “life reserve” and “life" certificates. A reserve fund was created by assessments on holders of reserve certificates only; a death fund, by equal assessments on all of the members. The constitution provided also that $10,000 should be transferred from the reserve fund to the death fund, and be invested for the purpose of paying death claims only; that only holders of reserve certificates should share in the reserve fund, but that all members should share in the death fund. In a proceeding to dissolve the company it was found that the reserve fund embraced all of the property, and that there were death claimants under both certificates. *II old,*that the $10,000 would be transferred to the death fund by act of law, and that all claimants would share equally therein.

2. Same—Application of Reserve Fund.

. In such proceeding the holders of reserve certificates and the representatives of such holders, including those to whom are due unpaid balances after the application of the $10,000 death fund, have an equitable lien on the reserve fund in the proportion which the amounts contributed by them respectively bear to the amount of such fund left for distribution.

3. Corporations—Dissolution—Rights of Parties—Commencement of Proceeding.

In dissolving a corporation a court does so on the basis that exists when the proceeding is commenced, and the rights of all parties are adjusted as-of that date.

Appeal from special term, Erie county.

Proceeding by the attorney general of the state of New York to-dissolve the Life *&*Reserve Association of Buffalo, N. Y., and to distribute its assets. A receiver was appointed, and questions in controversy between certain claimants were tried by a referee. From an order on referee’s findings, claimants Frank Spooner, Ella Royce, and John P. Riley appeal. The receiver was also directed to appeal.

Modified.

This action was commenced by the attorney general on the 23d of September, 1892, to dissolve the defendant, a co-operative insurance company, and to-distribute its assets. A receiver was appointed in the action, who took possession of the assets. Controversies having arisen among the different claimants to the fund and property of the corporation, the court appointed the Honorable Henry F. Allen a referee, who took proof concerning the same, and made a report to this court under date of April 2, 1895. The particular claims upon which the report was made were those of Frank Spooner and Ella Royce, who were beneficiaries under certificates known as “life reserve certificates,” held by members of the association. The two cases are exactly similar as to the questions involved, and were considered together by the referee, by the special term, and by this court. As before said, the company is a cooperative insurance company. It issued certificates to its members entitling them to certain rights and privileges in the corporation, the certificates being available in part during the life of the certificate holder, and, in case of partial or total disability, entirely available to the beneficiary named therein upon the death of the holder of the certificate. The constitution of the association provided for the issuing of two kinds of certificates or policies, one of which was known as a “life reserve certificate” and the other as a “life certificate.” The life reserve certificate provided, in effect, that in consideration of warranties and statements made in the application therefor, and the annual dues and all assessments, to be paid at the office of the association *1060within 30 days from notice of assessment, the holder became a member of the Life & Reserve Association; and that the death fund of the association was set apart from assessments for the exclusive and sole purpose of paying claims by death or total disability. The certificate was for $1,000, and provided that some reserve fund should be created, to be securely invested in United States bonds and other securities, and that after four years of continuous membership a bond would be issued to the holder of the certificate for the reserve fund set apart for it; the interest to be paid semiannually, and applicable to future assessments, principal to be paid in six years; and that the certificate was issued and accepted subject to the provisions and constitution and by-laws of the association. The life certificates were in the same form, excepting the provisions as to the reserve fund and bonds that might be given therefor. The constitution of the association created three funds, known as the “death fund,” the “reserve fund,” and the “safety fund.” The reserve fund was created by assessments made exclusively upon the holders of reserve certificates. The death fund was created by equal assessments upon all the members of the association, whether holding life and reserve certificates or life certificates,—that is to say, 82 per cent, thereof; the¡ balance, 18 per cent., constituted the safety fund. And the constitution further provided, in providing for the creation of the death fund, and for its continuance to pay death losses, that: “There shall be accumulated in the death fund a permanent sum from surplus of death assessments after the payment of claims assessed for or from transferring from the reserve fund of not less than the proceeds of one death assessment of the maximum death claim [$10,000], which shall be invested in such securities as the laws of the state permit insurance companies to invest their capital in, or deposited to the credit .of the association in a bank or trust company, and which, together with all interest and accretions thereto, shall be held in trust, unimpaired, for the benefit of policy or certificate holders, for the purpose of paying death or disability claims only.”

At the commencement of this action there had accrued a number of death claims, duly proved, under reserve certificates amounting to about $23,000. There had also accrued death claims under life certificates to an amount exceeding $25,000. There had been no actual transfer by the officers of the association at the time' of the commencement of this action from the reserve fund of one maximum death claim of $10,000, as authorized by the constitution of the association. The great bulk of the property of the association consisted of bonds, mortgages, and other securities, embracing the reserve fund of the association. As matter of fact, the corporation was insolvent, unable to pay the various claims upon it and fully protect its certificate holders living and the beneficiaries of those dead; and there was no money or funds in the death fund, unless .the said sum of $10,000 should be regarded and treated as a part of such death fund. The claimants Spooner and Royce demanded payment in full of their respective claims, as being death claims due at the time the action was commenced, and as entitled to be first paid out of the reserve fund. The referee reported against this claim, and held that “the reserve fund should be distributed to the living members of the association of the life and reserve class in good standing, and representatives of the deceased members of such class of like standing dying before or after the commencement of this action, in the proportion which the amounts contributed by such members thereto respectively bear to the amount of said fund left in the hands of the receiver for distribution.” He further reported that the death claims under the life certificates were not entitled to share in the reserve fund, and based that conclusion upon the provisions of the constitution, which provided as follows (article 2, § 3): “No person holding. a life certificate shall be entitled to, or shall in any manner derive any benefit from, the reserve fund, but such fund shall be and is for persons holding life reserve certificates only.” A motion was made at the Brie special term of the supreme court to confirm this report. Opposition was made to the confirmation by the counsel for Royce and Spooner. Opposition also was made by those holding death claims growing out of life certificates on account of the exclusion of these certificates by the referee from payment out of the reserve fund. The special term made an order sustaining the referee in excluding *1061the death claim under the life certificates, but refused to confirm that portion of the report with relation to the claims of Itoyce and Spooner, and held that Royce and Spooner were entitled to “an equitable lien upon the reserve fund, for there was a promise and agreement that the fund might be resorted to in certain contingencies. In this case that contingency arose. The policy provision of the constitution that its officers should transfer to the death fund from the reserve fund sufficient to meet such claim was disregarded by the officers of that association. It was their duty, to make such transfer. They have neglected to do so. Under the provisions of the contract and in equity the officers of that association should have transferred sufficient moneys from the reserve fund to meet this death claim, and the fact that the transfer was not made during the life of this association gives to the beneficiary an equitable lien upon the reserve fund now on hand to pay the death claims.” And the court ordered these claims paid in full.

The reserve fund that passed into the hands of the receiver exceeded §175,-000; more than sufficient to pay all the death claims that had matured before the commencement of this action. From the order of the special term, Royce and Spooner, respectively, appealed. One of the death claimants under the life certificates (John *P.*Riley) also appealed. The receiver was directed to appeal from the said order by the court at special term.

Argued before LEWIS, BRADLEY, and WARD, JJ.

Jobn Ounneen, for receiver.

William E. Prentice and George Barker, for claimants Royce and Spooner.

Hamilton'Ward, Jr., for John P. Riley and others.

LEWIS, J.

We concur with the special term that at the commencement of this action there should be regarded as in the death fund as taken from the reserve fund the amount of the maximum death- assessment, being $10,000; hut we do not concur with the conclusion that the claimants Royce and Spooner should be paid in full from the said fund, to the exclusion of other death claimants, whether of the life reserve or the life class. When the $10,000 is taken from the reserve fund, and becomes a part of the death fund, it ceases to have any of the qualities or attributes of a reserve fund, and becomes a common fund for the payment of death claims, and under the constitution and the certificates issued by the association all the members of the association are entitled to share equally in the death fund, whether holders of life certificates or life reserve certificates. The corporation ivas dissolved by proceedings taken in this action, and the effect of that dissolution reached back to the commencement of the action, so that the functions of the corporation ceased at that time; the §10,000 .should be distributed pro rata upon all the proved and accrued ch-ath claims existing at that time. But one transfer of a maximum e¿a" a xxa the reserve fund to the death fund can he made at a time, iicr when no transfer has in fact been made before the commencement of the action, only one is made by construction, upon the equity dc-ctriuc- that what, should be done has been done. Th-- op-rattcn w.xnot Tie repeated after the action is commenced, to meet the h:.3 of the death claims then unpaid, or such as might after thrt dine. The court, in winding up a corporation and dLlribnilng its property, docs so upon the basis and consideration that exist './Lea the; action is commenced, and the rights of all the parties interested are adjusted as of that *1062date. The holders of life reserve certificates, and the representatives of such holders as had died, have an equitable lien upon all the reserve funds of the association in the proportion which the amounts contributed by the holders thereof respectively bear to the amount of such fund left in the hands of the receiver for distribution. This statement applies to the balance due upon the death claims arising out of the reserve certificates after deducting the amount received by them respectively on the distribution of the said $10,000, as well as to those, life reserve claims upon which nothing has been paid. Those holding life certificates only, or death claims arising from life certificates, do not share in the reserve fund aside from the said $10,000, and this statement applies to the balance due on such death claims as have received a pro rata distribution of the said $10,000.

The order of the special term should be modified to conform to the foregoing views, and, as so modified, affirmed. Costs and disbursements of the appeal should be allowed to each of the parties represented by counsel, as heretofore stated, but not more than three bills of costs and disbursements in all, which should be paid out of the funds of the association in the hands of the receiver. All concur.