Case Name: Alexander M. Lawrence, Receiver of The General Mutual Insurance Company, Plaintiff and Appellant, v. Nathaniel L. McCready, John W. Mott, and James H. Brundage, Jr., Defendants and Respondents
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1860-03-17
Citations: 6 Bosw. 329
Docket Number: 
Parties: Alexander M. Lawrence, Receiver of The General Mutual Insurance Company, Plaintiff and Appellant, v. Nathaniel L. McCready, John W. Mott, and James H. Brundage, Jr., Defendants and Respondents.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 19
Pages: 329–344

Head Matter:
Alexander M. Lawrence, Receiver of The General Mutual Insurance Company, Plaintiff and Appellant, v. Nathaniel L. McCready, John W. Mott, and James H. Brundage, Jr., Defendants and Respondents.
1. In the absence of any statute, or provision in the charter, authorizing an Insurance Company to receive notes in advance of premiums to be earned by the Company by insuring the maker, or defining the rights and liabilities of the parties when such a note is given, the mere facts that the maker united with several others in giving such notes to an Insurance Company upon an understanding that the notes should be renewed from time to time for such amounts as should not be earned, and that the makers should be allowed five per cent on the amount of premiums earned, as a compensation for the advance, do not make the makers liable to the Company so that, upon its insolvency and discontinuance of its business, the Receiver can collect thereon any greater sum than the Company has earned.
2. It seems that such a note would be good and collectible in the hands of an indorsee for value.
3. Whether the Company, if it had continued solvent and able and ready to continue to insure the maker, could, under the circumstances stated, collect the whole amount of the note, by requiring the maker to suffer them to earn the whole ? Qucere.
i. Such a note is not, under the circumstances stated, a “ subscription note,” properly so called, under various special charters and under the general insurance law, in which certain notes are made valid and binding, whether the premiums for which they are'prospectively advanced are ever earned or not, according to numerous decisions in this State.
5. Such a note may be surrendered by the Company, and, an open policy being issued, the note given for the nominal premium may be taken in substitution, and, if done in good faith, the transaction is valid, even though it afterwards appear that the Company was insolvent at the time: And this is even more clear, when they obtain thereby the responsibility of an additional person as maker of the substituted note.
6. On a note given for the nominal premium on an open policy to cover risks to be afterwards indorsed thereon, the premiums upon which are to be settled and the terms of insurance fixed when the indorsement is made, neither the Company nor the Receiver of the Company, if it become insolvent and cease insuring, can recover any sum greater than the1 premiums on risks actually taken under the policy.
7. But, to the extent of premiums upon risks actually taken, the Company, or its Receiver, may recover on such a note; and, if the Company become insolvent, and a Receiver is appointed, the makers having consented, with the Company, to a cancellation of the open policy, on an agreement to return the premium of a particular risk not earned, “to be paid ratably out of
■ the assets of the Company, when divided,” the Receiver is entitled to collect the premium on such risk, and the defendants must look to the dividends for reimbursement.
(Before Hoffman, Woodruff, and Moncrief, J. J.)
Heard, January 8th;
decided, March 17th, 1860.
Appeal from a judgment entered on the decision of E. P. Cowles, Esq., to whom the cause was, by consent of parties, referred, to hear and determine.
The action was brought by Mortimer Livingston, as Receiver of the General Mutual Insurance Company, to recover from the defendants the amount of their promissory note, dated January 5th, 1854, for $1,368.09, payable seven months after date to their own order, and indorsed to the said Company. The Company, on or before the 14th day of January, 1854, ceased to insure and became insolvent; and afterwards, in December, 1854, by proceedings on a petition filed March 18th, 1854, the said plaintiff was appointed Receiver of their assets, and among other assets he received from the Company the note of the defendants on which this action is brought.
The answer of the defendants, so far as it is material to state its contents, 1. Averred that the note was without consideration. 2. That the General Mutual Insurance Company, on the 5th day of January, 1854, issued to the defendants an open policy of insurance, whereby they agreed to insure the defendants to the amount of $68,404, on freight and merchandise, on any and all vessel and vessels which the defendants might require and report to the Company, the premium on such risks to be fixed at the times of the indorsement of the risks on the said policy, and such clauses to apply as the Company might insert as the risks are successively reported. That the note in suit was given for the nominal premium on the amount of such open policy and in consideration of the risks to be thereafter earned upon risks which should thereafter be taken under the said policy; and that before any premium had been earned, and before any of the orders in the complaint mentioned, the Company canceled the said policy and all outstanding risks. 3. The defendants counterclaim several sums, being due for return premiums on canceled policies, and several losses under policies issued by the said Company.
It appeared on the trial, that on the 6th day of January, 1853, the firm of N. L. McCready & Company, which was composed of two of the defendants only, to wit, Nathaniel L. McCready and John W. Mott, gave to the General Mutual Insurance Company the note for $3,000, mentioned in the findings of the Referee, and that the note on which this action is brought dated January 5th, 1854, was given by McCready, Mott & Company, a new firm formed by the taking of James H. Brundage into the copartnership with McCready & Mott.
The other material facts appear by the finding of the Referee, as set forth in the case on appeal, as follows, viz.:
“And the said Referee, upon said testimony, did find as matters of fact:
“ First. That Mortimer Livingston, the plaintiff named in the original complaint, was duly appointed Receiver of the General Mutual Insurance Company, and after the commencement of this action departed this life, and that Alexander M. Lawrence, • the present Receiver was duly appointed in his stead. The peti tion for the dissolution of the Company and appointment of the Receiver, was filed March 10, 1854.
“ Second. That the defendants, with many other parties, set forth in their bill, Book C, on the 6th January, 1853, made and delivered to the General Mutual Insurance Company their promissory note for $3,000, termed a subscription note, payable at twelve months, being in the usual form and with the usual incidents to a subscription note, five per cent commission being allowed on the amount used. That this note fell due in January, 1854, when the amount used, including five per cent commission, amounted to $1,729.75, and the balance unused was $1,368.09. That the note for $3,000 was paid in full by defendants at the bank, who received the check óf the Company for the balance unused as above. That defendants then gave their note (upon which this suit is brought) at seven months; the open policy (Exhibit, Mo. 1,) having been issued at the same time, and of the same date.
“ That this was according to the practice of the Company in renewals of subscription notes where there was a balance due and unused, except that the note in suit, instead of being taken at twelve months as the balance of a subscription note, was in the usual form of an ordinary premium note on which the open policy was issued, and that such note was for the premium on such open policy; the practice not being to issue an open policy on the renewal of a subscription note.
“ Third. That under said open policy risks were entered upon which the premiums amounted to $139.50, according to the indorsement on said policy, and that said policy was subsequently canceled, and that an indorsement of said cancellation was made on said policy as follows:
“ It is agreed to return premium, $139.50, allowed under this policy to be paid ratably out of the assets of the Company when divided. This policy is hereby canceled from 20th of January, 1854, including all undetermined risks.
“ Alfred Ogden,
“Prest”
“ And that all the risks indorsed on said policy were at that time undetermined.
“ Fourth. That said Company ceased to insure, and stopped business on the 14th January, 1854, and at that time were insolvent.
“ Fifth. That said Company were, at the date of filing of said petition, (10th March, 1854,) indebted to the defendants as follows :
For return premium on policy, schooner “ Jos. Green,”............ $20 88
With interest on same from 10th January, 1854.
Return premium on policy, schooner “ Moses Taylor,”............. 51 50
With interest on same from 9th July, 1854.
Return premium on policy, Jas. S. Loffland,..................... 20 13
Return premium, schooner “Kensington,”....................... 61 36
Partial loss on schooner “ Kensington,”......................... 316 50
Return premium on policy, “John A. Taylor,"................... 96 25
With interest on said three last sums from 12th January, 1854.
And for total loss on the barque “ John A. Taylor,” the sum of.... 3,500 00 With interest from October 8th, 1854.
A consent and admission of the defendants’ attorney was submitted as follows:
11 SUPERIOR COURT.
“It is stipulated and agreed that the fact that the original subscription note given in evidence on the trial, was made by N. L. McOready & Company, a firm composed of McOready & Mott only, while the note on which this action is brought was made by McOready, Mott & Company, a firm composed of McOready, Mott and James H. Brundage, Jr., is to have no effect upon the decision of this case, except so far as it may tend to show the purpose for which the note sued upon was made and delivered.
M. G-. Harrington.
Defendants' Attorney.
“ And the said Referee did further decide and determine as matters of law:
“1st. That the plaintiff was not entitled to recover in this action upon the note set forth in the complaint.
“2d. That plaintiff was not entitled to recover, under the indorsement of the cancellation of the policy, the premiums, or any part of them, on the risks indorsed thereon.
“ 3d. That the defendants were entitled to be paid by said Receiver the aforesaid sums of money for return premiums and for total loss, with interest from the dates above set forth, to be paid to said, defendants ratably with other creditors of the General Mutual Insurance Company, from the funds in the hands of the said Receiver, upon the distribution of the assets of said Company, and accordingly found that judgment should be rendered in favor of the defendants for the sum of $5,177.32.”
Judgment was éntered in conformity with this decision, and directing that the said sum of $5,177.32, be paid by the plaintiff to the defendants, ratably with other creditors of the said Company, out óf the fund in his hands as Receiver upon the distribution thereof.
The plaintiff, having excepted to the decision of the Referee, appealed to the General Term. Some of the proofs given on the trial are mentioned in the opinion of the Court.
Alexander Hamilton, Jr., for the plaintiff (appellant).
I. It is beyond doubt, as found by the Referee, that the note in question, for $1,368.09, represented, on the 5th January, 1854, the balance unused of a subscription note for $3,000, given by the defendants, with many other parties, on the 6th January, 1853.
II. On the 5th January, 1854, the sum of $1,368.09 was absolutely due from defendants to the Company, and was subject to no contingency whatever, and did not depend upon the fact that any value or consideration had been received.
Repeated decisions in this and other Courts of this State have wisely established that, in cases of insolvency, all the creditors of a Company have a right to look to the subscription notes, or those of that character, given to create a capital and furnish credit and stability to the Company. (White v. Haight, 16 N. Y. R., 310; 1 Sandf., 53, 158, 171, 177, 629; 3 id., 176; 1 Comst., 371; 3 id., 290; 4 id., 50; 4 Seld., 312.)
III. The Company, on the 5th January, 1854, being insolvent, it. was not in the power of the officers of the Company, by any change in the form or evidence of the debt, to affect or destroy its character, nor to convert an absolute into a contingent liability, and thereby relieve the defendants at the expense of other creditors of the Company.
1. Here the sum due was the balance of a subscription -note, which defendants must pay in any event.
2. The note given for such balance should have been taken at twelve months, though it was in terms made payable at seven months, and an open policy issued with it.
3. It cannot be pretended, upon the evidence in this case and the facts found by the Referee, that there were two independent transactions; but, on the contrary, it appears that the arrangement was confessedly to convert the balance of a subscription note into an open policy premium note.
IV. The Referee, in deciding that the plaintiff (the Receiver) was not entitled to recover upon the note sued upon, places his decision on the purely technical ground of the form of the action, and the pleadings in the cause; because,
1. The complaint set forth the note, and claimed that the defendants were indebted for the amount stated in it.
The note, on its face, was an obligation for the payment of a certain sum; the defendants have recourse to matters dehors the note, and in explanation of it they resort to the open policy. The plaintiff, on the other hand, insists that this note being shown to represent the debt due on the subscription note, any attempt to change its character was unauthorized and void, as against the creditors of the Company, by reason of its insolvency. (17 John. R., 321, as to “value received.”) .
2. The defendants, in their answer, do not deny making and delivering the note, but set up as a defense that it was without consideration.
3. This was the issue raised by the pleadings, and the plaintiff, to rebut this defense, showed conclusively, as found by the Referee, that this note was given for the balance of the subscription note.
4. The real issue is fairly made on the pleadings, nor was it necessary or proper for the plaintiff to anticipate any defense the defendants might interpose. The note, on its face, imported a consideration, “ value received.” The defendants denied the consideration, and the plaintiff established its real character.
V. If any doubts could be raised as to the right of the Company to take subscriptions notes under their charter, they would be disposed of, and the defendants estopped on the ground that they had united with many other parties in creating a fund and giving credit to the Company by giving notes, having all the characteristics and privileges incident to subscription notes. (Deraismes et al. v. The Merchants’ Mutual Insurance Company, 1 Comst., 371.)
VI. The only real question in this case is, whether the officers of a Company, though acting in good faith, can, in case of insolvency, change the evidence of a debt, or convert an absolute into a contingent liability to the diminution of the fund and the injury of the creditors.
It is submitted that under the statutes and authorities, such acts are wholly void as against the creditors and Receiver who represents them. (Deraismes et al. v. The Merchants’ Mutual Insurance Company, 1 Comst., 371; Brouwer v. Appleby, 1 Sandf. S. C. R., 159; Brouwer v. Hill, id., 629.)
It is inaccurate to say, in this case, that one contract is declared upon and a recovery sought upon another.
The complaint is upon a promissory note for the payment of a certain sum; it imports a consideration upon its face “ value received.”
The answer denied a consideration, and averred certain other matters to establish a want of consideration; it then alleged certain offsets or counterclaims.
As these were not disputed, no reply was necessary, and the question of consideration was at issue.
VII. It is submitted that the complaint is sufficient to sustain a judgment for the plaintiff upon the facts proved; and that, in any event, the Court, at General Term, can treat the pleadings as having been amended so as to conform to the facts proved in any respect in which the Court ought clearly to allow an amendment at Special Term. (Bowdoin et al. v. Colman et al., 6 Duer, 183.)
VIII. The Referee erred in deciding that, under the indorsement of cancellation, nothing was due. That indorsement imported an agreement, assented to by defendants, that they should pay the premium, in full, and receive the return premium ratably. Judgment should therefore have been given for such premiums in favor of the Receiver.
The judgment should be reversed, and judgment given for the Receiver for the amount of the note sued upon, with interest and costs.
E. W. Stoughton, for the defendants (respondents).
I. The action was brought solely upon the note mentioned • in the complaint, and the plaintiff cannot be permitted, whatever may be his right as to the balancé of said note for $3,000, to recover the same in this suit.
II. The said note for $3,000 was not a subscription note, and, therefore, the makers thereof could only have been made liable thereon to the extent of premiums which might be thereafter earned and become due unto the said Company. (See Act of Incorporation, passed May 25, 1841.)
III. If the said note for $3,000 was a subscription note, the Company had power to cancel and surrender the same "unto the makers, who, if they practised no fraud upon said Company in obtaining such note, would be entitled thereto.
In this case no such fraud was practised, nor did the officers, in surrendering such note, act under any mistake of facts, by them material to be understood. (Hyde, Rec'r, &c., v Lynde, 4 Comst., 387; Curtis v. Leavitt, 15 N. Y. R., [1 Smith,] 108, 139, 198.)
IV. It is clear upon the evidence, and the Referee has so found, that the note in suit was given in consideration of the open policy issued at the time it was made, and for the purpose of securing the payment of such premiums as might be earned upon risks to be written upon the said policy. That the Company had power to take such premium notes, and in consideration thereof, to issue such policies, no one will deny; and that the transaction in question was real, and was acted upon by the parties, cannot be disputed.
It appears from the evidence, that upon payment of the premium notes, no commission was allowed to the makers, whilst upon the payment of what were called subscriptions notes they were entitled to fifteen per cent on the sum paid.
Different rights and obligations were therefore created by the execution of these two instruments; and it clearly appears from the evidence that both parties intended—and so expressed their arrangement in form—that the note in suit should be a premium note, and not what they called a subscription note.
V. Even assuming the defendants to be still liable to pay the balance of the note for $3,000, such liability is quite consistent with the fact that they are liable upon the note in suit only as makers of an ordinary premium note.
VI. The Receiver succeeds only to such rights as the Company might themselves have enforced. The note for $3,000 was canceled without fraud or mistake. After such cancellation, the Company could not' have recovered against the makers thereof, and hence the Receiver cannot. (4 Comst., 337; Curtis v. Leavitt, 15 N. Y. R., [1 Smith,] 12-152.)

Opinion:
By the Court — Woodruff, J.
I am disposed to concur m the views expressed by the Referee in relation to the $3,000 note given by RT. L. McCready & Company to the Insurance Company, whose rights and interests are represented by the plaintiff.
There is nothing, I think, in the proofs given on this trial which shows that RT. L. McCready & Company were bound'on the 5th day of January, 1854, to pay to the Insurance Company any greater sum than had been earned for insurances made for the makers.
The witnesses, it is true, speak of this note as a subscription-note, but upon what terms it was given, for what especial purpose, and under what agreement, was not shown, except perhaps in one particular, viz., that to the extent that N. L. McCready & Company should insure and make payments on that note, to that extent N. L. McCready & Company, the makers, were entitled to five per cent for having advanced the note to the Company. And it may reasonably be inferred, that if that note had, before its maturity, passed by lawful transfer to the hands of a bona fide holder for value, the makers, being then bound to pay the whole note, might perhaps be at liberty to claim from the Company five per cent for having made the advance.
But as between the Company and the makers no agreement is shown which, in terms or by implication, bound the makers to pay any greater amount than was earned in premiums; or in other words, which would preclude the makers from alleging and showing that, except to the extent of premiums earned, the note was without consideration, and that they were to pay to the Company no sum greater than the amount of such premiums.
And so the note was in fact treated by the Company when it became due, i. e., while the makers paid it in full, the Company refunded so much of the consideration as had not been earned.
The plaintiff in this action assumes that what the witnesses call a subscription note, has the character and involves all the obligations which attach to a note given under the 12th section of various acts incorporating other insurance companies, which notes are by statute made valid binding notes, whether the premiums of insurance for which they are prospectively advanced are ever earned or not, according to the construction given to that section in numerous cases. (1 Sand., 159; id., 629; 3 id., 176; 1 Comst., 371; 4 Seld., 312; 3 Comst., 290; 4 id., 51.)
And a like effect is given to notes advanced to make up the capital of Insurance Companies organized under the general Insurance Act of April 10, 1849. (Laws of 1849, ch. 308, § 5, p. 442; White v. Haight, 16 N. Y. R., 310; Elwell v. Crocker, 4 Bosw. R., 22.)
But the act incorporating the General Mutual Insurance Company contains no such section as the twelfth section above referred to; and the note was not shown to have been given to make up a capital for the Company, or to be used as the basis of credit. The Company was incorporated in 1841, (Laws of 1841, p. 229 ; id., 1842, p. 138;) and the so-called subscription note was not given until January, 1853.
The former President of the Company, in his testimony on the trial, describes the arrangement under which it was given thus: " I know that a subscription note for $3,000 was given by H. L. McCready & Company, in advance of premiums, with a good many other notes by other parties of different amounts: they were given in January, 1853, and were due in January, 1854." " The subscription notes are given for premiums to be earned by the Company on risks effected with the Company." " The usual mode of settling subscription notes was to renew the balance of the note, (the difference between the premiums given the Company and the note,) for twelve months," * " the makers having been credited, in account, with five per cent on the amount used. That allowance of five per cent was made on all subscription notes: that was part of the agreement made with the parties."
• In the absence of any statute applicable to the taking of notes by this Company; and in the absence of other or further proofs in relation to the arrangement under which these notes were given, or the purposes to which they were to be applied; the transaction so described indicates an advance of notes for the accommodation of the Company which they might no doubt use for the purposes of their business, but which they were to earn by the premiums of insurance which the makers might effect with them, and which were subject to renewal to the extent or amount unearned at the time the notes became due; and for this accommodation the makers were to receive five per cent on such sum as was received in premiums and paid by the makers.
Under such an arrangement it is by no means clear that the Company could collect on such notes any greater amount than was earned in premiums; and if it be conceded that the Company might insist that the makers were bound to insure from time to time until the whole amount had been in fact earned, still, if the Company became insolvent while holding the note, and so became unable to fulfill its part of.the agreement, the consideration would fail; and, as between the immediate parties, (the Company and the makers,) we perceive nothing in the arrangement to prevent the makers from insisting on an exoneration from any liability beyond the amount earned.
Still less do we discover in this arrangement anything which could prevent the Company and such makers, acting in good faith, from making any new and substituted agreement to which both should assent, especially if it was made upon a distinct consideration moving thereto.
It is found by the Referee, and the proof clearly shows that this was done. A new note was given for the balance of the note not earned, in which a third person, not before in any manner bound, (the defendant Brundage,) joined, at the expiration of the first twelve months, i. e., at the maturity of the note for $3,000. This new note was made payable at seven months. It was expressly understood that it should be what is termed an open policy note, or a note for the unearned premium of an open policy issued at the same time to the makers. The $3,000 note was paid, and so much thereof as had not been earned was refunded.
It is difficult to see that there was in this anything which was not within the clear authority and power of the Company to do, if they saw fit. They were not under any obligation arising out of any statute, or implied in the original arrangement, as testified to, to retain the $3,000 note, or to insist upon its full payment, even if it were conceded that they might have done so, offering at the same time to give insurance to a corresponding amount.
They obtained thereby the obligation of a new partner (in the firm of McCready, Mott & Company.) A policy was issued to such new makers. Insurances were entered thereon, and the whole transaction bears the mark of good faith, and we are not able to see in it, upon the case as presented to us, any ground for impeaching it as fraudulent or illegal. And therefore, if the question before us was, whether the original makers of the $3,000 note still remained liable, notwithstanding this substituted transaction, we should find it difficult, upon any proofs in the cause, to say that they were not fully exonerated from any liabilty except according to the tenor and effect of the new arrangement.
It is quite clear that the defendant, Brundage, never was liable on the $3,000 note, and therefore that he is not liable, unless he is bound to pay the note now in suit. The stipulation contained in the case admits that the $3,000 note was made by McCready and Mott only, while the note in suit was made by the three defendants, but that this fact "is to have no effect upon the decision of the case except so far as it may tend to show the purpose for which the note sued upon was made and delivered."
We are somewhat in doubt as to the proper construction to be given to this stipulation. The fact that a note executed by a new firm was given is (as already noticed,) a significant one as showing not only that a mere renewal of the unearned portion of the $3,000 was not all that the parties contemplated, but also that a new consideration existed for making the substituted arrangement; and further, it served to characterize the new transaction as made in good faith, and as the basis of further new relations between the parties under the open policy then taken out and the insurances entered thereon.
We can hardly think the stipulation was intended to mean that judgment may be entered against Brundage, if McCready & Mott should be deemed liable for the unearned balance of the $3,000 note. The Referee does not appear to have so understood the stipulation — and the power of the attorney to make such a stipulation is not free from doubt.
The utmost that it can reasonably import is, I think, that if upon any grounds, McCready & Mott are liable upon the note in suit, Brundage is conceded to be liable with them.
It has been very decidedly intimated that after the taking up of the $3,000 note the makers thereof were only liable according to the terms of the new arrangement, and if so, the construction of the stipulation-is not material, for if, in that view, it be held to mean that if McCready & Mott are liable upon any ground in this action, judgment may be pronounced against Brundage also; still, the liability of the parties must depend on the nature and legal effect of the new arrangement.
By that arrangement an open policy was issued, and a note executed for the premiums for the risks to be thereafter indorsed thereon.
Upon a note, so given, it has been repeatedly declared that the liability of the makers only extends to the premiums for the risks actually taken by the Company. This subject was fully discussed in this Court in Elwell v. Crocker, decided, December, 1858, and the cases on the subject are there referred to. (4 Bosw. R., 22; 1 Sandf., 53, 184, 640, 641; 1 Comst., 371; 16 N. Y. R., 310.)
The cpmplaint herein proceeds solely upon the alleged liability of the defendants upon the note in suit. And if the defendants are not liable upon that, it would be changing the cause of action entirely in its scope and meaning, if the plaintiff were permitted to convert an action brought on a promissory note made by the three defendants, and proved to be so made, into an action founded on a liability of two of the defendants upon a previous note made by them and given up and canceled. So that if we were of opinion that the $3,-000 note was improperly surrendered, or that the Company or the plaintiff were not bound by the substituted arrangement, we incline to the view taken by the Referee, that there could be no recovery in this action, but that the failure of the plaintiff to establish a right to recover on the note in suit must be deemed not "a case of variance, but a failure of proof." (Code, § 171.)
This consideration, however, in the view we have taken of the plaintiff's rights, does not arise, for there is, we think, a ground of recovery, which appears to have been overlooked by the Referee, entitling the plaintiff to a portion of the amount of the note. And if so, the plaintiff does recover upon the very cause of action which he has alleged, and being entitled to recover upon that cause of action, the impropriety of permitting the plaintiff also to recover upon a cause of action not alleged, and upon grounds not set up in the complaint becomes even more obvious.
The amount of insurance under this open policy actually effected entitled the Company to premiums to the amount of $139.40; and, even though the Company had continued perfectly solvent, that sum is all which could have been collected upon the open policy note against these defendants. Of such a note, Mr. Justice Sandford says, in Brouwer v. Hill, (1 Sandf., 641,) the makers " are not responsible thereon beyond the amount of premiums actually earned by the Company; and the dealer has a right to cancel such a policy at any time and receive back his note, deducting the amount of earned premiums."
In this case, when risks had been indorsed entitling the Company to $139.40 for premiums, the policy was canceled by mutual consent. The Company was discharged from all liability upon its policy, and the defendants consented to look to .the dividends which might ultimately be made to its creditors for their return premium. In this transaction there was a distinct recognition of the right of the Company to have that amount, $139.40, as premium on risks taken, and a like clear right in the defendants to have that sum returned upon the cancellation of the policy and the release of the Company from the insurance. Now, if the' Company had at that time been solvent, it would have been, in all respects, right and proper for the one claim to be setoff against the other. But it was not inequitable for the officers of the Company to insist upon receiving payment of this premium as a part of the fund to be distributed ratably among all the creditors, and to require the defendants to take their chance, as creditors, of receiving back their return premium out of the general fund. And this was made a condition of the cancellation, and conforms to the proper construction of the indorsement then made on the policy.
The plaintiff was, therefore, entitled to recover from the defendants the $139.40; and, on payment of that sum, the defendants become creditors to that amount, in addition to the amount to which the Referee declared them to be creditors on other grounds. That sum, and that only, is due on the note, and for that the plaintiff was entitled to a judgment; while, on the other hand, the judgment should declare the amount due to the defendants, and upon which they are entitled to dividends, to be greater by a corresponding addition.
There must be a new trial, with costs to abide the event, unless the plaintiff elects to make the judgment conform to the views last above expressed, in which case the judgment may be to that extent affirmed, without costs to either party on the appeal.
Ordered accordingly.