Case Name: The Hope Mutual Life Insurance Company, plaintiffs and respondents, vs. Dennis Perkins, defendant and appellant
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1867-02-15
Citations: 4 Rob. 182
Docket Number: 
Parties: The Hope Mutual Life Insurance Company, plaintiffs and respondents, vs. Dennis Perkins, defendant and appellant.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 27
Pages: 182–189

Head Matter:
The Hope Mutual Life Insurance Company, plaintiffs and respondents, vs. Dennis Perkins, defendant and appellant.
1. The maker of a contract, in the form of a promissory note, by which he agreed to pay to an insurance company a certain sum of money, or such assessments on the same as the trustees of such company should find it necessary to make to pay their losses, according to the terms of his subscription to a guaranty fund of such company, by which the subscribers to such fund agreed to contribute thereto'for the indemnity of persons insured by such company, as a security, in addition to expected profits, by their promissory notes, to be held by the company for the sole purpose of paying losses, and be resorted to for any deficiency by a pro rata assessment, is liable to such company for the amount of such note; where it was authorized by its charter to receive notes and other securities in advance for premiums of persons intending to receive its policies, and negotiate the same only for the purpose of paying claims against it, and the persons giving such notes or securities were, by another statute, entitled to receive six per cent thereon, in addition to any other profits ; and the maker of such note had received profits thereon, and been credited with the interest on it, for premiums, all other funds of the company having been exhausted, and the company became insolvent.
2. Even if such note had not, by its terms and that of the agreement for the guaranty fund, been one strictly answering the description of those mentioned in the charter, it sufficiently approached their nature, and being, upon sufficient consideration by the mutual obligation of the parties to such agreement, wss so far a part of a valid agreement to carry out the purposes of the incorporation of such company, as to entitle it as trustee for all who should contract with it on the 'faith of such fund, to sue in its own name, and recover the amount due on such note; in order to pay its losses.
3. There is no substantial difference between such a note and those authorized by the charter. The power of negotiating the notes was equivalent to that of calling upon the makers for payment, and was merely an indirect mode of doing the same thing.
(Before Robertson, Oh. J., Monem. and Garvin, JJ.)
Heard May 18,1866;
decided February 15,1867.
- This was an action brought by the plaintiffs, an incorporated insurance company, against the defendant, upon his promissory note for $2500, payable to the plaintiffs, or their order, in twelve months after date, or sooner if required, or such assessments on the same as the trustees of such company should require to pay losses, according to the terms of his subscription to the guaranty fund, to be presently described.
The plaintiffs were incorporated by the general assembly of the state of Connecticut, with the powers of such companies, at the May session, 1846, located at Stamford, and organized and put in operation about the 1st of September, 1846, in conformity with the provisions of its charter. The defendant was elected and acted as one of its trustees. The plaintiffs commenced business as a mutual life insurance company, both at Stamford, in Connecticut, and in the city of New York. The eighth section of the charter provides that the company may, during the first two years after the passage of the act, receive notes and other securities in advance for premiums of persons intending to receive its policies, and negotiate the same only for the purpose of paying claims against it in the course of its dealings, upon such terms and conditions as may be provided for by the by-laws of the company. By section 13 of Private Laws of Connecticut (vol. 3, pp. 684, 685,) it is provided that persons giving such securities may be allowed therefor, not exceeding six per cent, in addition to any other profits they may be entitled to as members of the company.
• In March, 1847, the board of trustees passsed a resolution declaring it was desirable to raise a guaranty fund of from $15,000 to $50,000, upon such terms and conditions as were not at variance with the charter, &c. and authorized the executive officers to receive subscriptions for the same, and with the advice of the supervisory committee to accept such as they should approve, and providing that no policies should issue until such subscriptions were obtained, with other securities approved and actually received, to the amount of $15,000. Such a subscription was made and subscribed, in which it was provided that the sum subscribed by each was to be put in- a note; that the plaintiffs should hold such note for the sole purpose of paying losses accruing upon policies of the company after the other funds in their hands had been first applied; notes to he assessed for amount required ; and subscribers to be entitled to an allowance of six per cent per annum, so long as said company should hold the same. When the company should have acquired a surplus of $25,000 out of the profits of the business, then the indemnity to cease, and the notes be returned to the makers thereof, the subscribers to be allowed, in lieu of a return, to take up the amount of their notes in premiums, if so disposed. The defendant subscribed $2500, and other persons with him subscribed other sums, amounting in all to about $25,000, by citizens of New York and Stamford, Connecticut. The defendant gave his note for the sum subscribed by him, dated May 1, 1847, and delivered it to the plaintiffs, promising to pay to the plaintiffs’ order, in twelve months after date, or sooner if required, $2500, or such assessments on the same as the trustees should find it necessary to impose, to pay losses, agreeably to the terms of his subscription, to the guaranty fund, dated April 19, 1847, for value received. The other subscribers executed and delivered their notes, and the notes of the defendant and others were held by the company as a fund or security for any deficiency arising upon losses on policies issued by the plaintiffs, after all other funds of said company should havefbeen exhausted.
These notes were so held until the insolvency of the company, in 1854, when they were transferred to the receiver.
The existence of this fund, for the greater security of parties insuring with it, was announced in the newspapers, one in the city of New York, and one in the state of Connecticut; reported to the legislature of the state of Connecticut, and advertized in pamphlets in 1847 and 1849. The defendant received a per centage on this note, and had the interest credited to him for premium upon his policy ; thus recognizing the note.
The board of trustees, at a regular quarterly meeting, on the 2d of May, 1853, assessed the full amount of all the premium notes.
On the 22d of May, 1854, it was found that the company was entirely insolvent; that all the assets and resources of the company had been exhausted, except the guaranty fund ; that for acknowledged losses upon policies, the company owed over $14,000 ; for losses not adjusted, over $8000. The trustees levied an assessment of seventy-five cents on the dollar upon the notes, to meet the losses on policies of insurance and interest. A receiver was duly appointed, of all the effects of said company, with power to sue for, and collect the notes and claims of said company, and entered upon the performance of his duty, gave the defendant notice of the assessment, and demanded payment, and the defendant refused to pay. Other facts appear, in the opinion of the court, upon the trial of the issues in this case.
The jury, under the direction of the court, found a verdict for the plaintiffs, and judgment was entered thereon, from which the defendant appealed.
A. H. Dana, for the appellant.
Cephas Brainard, for the respondent.

Opinion:
By the Court,
G-arvih, J.
The defendant seeks to reverse the judgment in this case, for several reasons ; among others, that the note was void, because not authorized by the charter. The 8th section of the charter certainly authorizes the giving of notes for the better security of its dealers, and points out to whom such notes may be given, in addition to the object and design, by those intending to receive its policies, of which this defendant was one. The company was certainly duly organized, and thus became capable of acting as a party to such an arrangement. If, then, the company were a corporation, they had the ordinary power to carry into effect the purposes and objects of their creation, without any qualification — as such company, in order to induce the community to take policies with them, they started with the design of making the corporation strong in funds and credit; thus intending to establish relations of confidence with their dealers, and holding out inducements such as would attract to them a large class of persons whose only object in life assurance is to make provision for those they cannot otherwise provide for; permanency' and ability to pay being the chief reasons for preference of one company over, another. No company can do business without establishing a character for pecuniary ability to respond for losses. This defendant was a trustee of the company, took part in its action, was one of the assured ; was cognizant of its doings and action, received the interest upon his note, had the same allowed upon the premium due upon his policy, and, so far as appears in this case, assumed the liability purporting to be created upon the face of the note and subscription. It is quite clear, if this had been a note absolute upon its face, payable without any conditions, the defendant would have been liable, provided it was given for premiums. This the charter authorizes in terms ; the design being to create a fund out of which any losses should be paid. The 13th section provides, that upon such notes, or securities, persons giving such notes may be allowed not exceeding six per cent in addition to any other profits they may be entitled to' as members of the company ; showing clearly in these two sections, that the legislature contemplated the' making of notes by those named, and intending to receive policies in the company. All this preceded the issuing of any policies, was within the limitation of time fixed in the 8th section, and was preliminary to incurring policied liability. The charter provides that these notes may be negotiated for the purpose of paying claims against the company. The defendants' note restricts his liability to any deficiency arising upon losses upon policies issued by the plaintiffs after all other funds of said company have been exhausted> The charter provides for negotiating these notes for paying claims against the company, in general terms. The note restricts the payment to losses upon policies after exhausting all other funds of the company. The note, never-. theless, provides for paying claims. Losses upon policies are claims, and are none the less so because they remain after all other funds of the company have been exhausted. In this respect, therefore, it cannot be said that the note was unauthorized by the charter. The defendant cannot complain, so long as his obligation falls within the terms of the charter, and is applied only to the uses and purposes authorized by the enactment. Again, the presumption is, after the publication in the reports of the company to the legislature, and the organization, means and securities of the company in public newspapers, and inviting business, that the assured relied upon these notes as a fund upon which a call might be made in any event, and out of which the beneficiaries of the assured might obtain payment of the amount of the policies. The defendant went into this business with his eyes open, was to receive interest upon his money at the rate of six per cent per annum, in addition to hife share of the profits. This was the motive which prompted his action, and because the company has failed, he cannot now say, " I have been unsuccessful in my enterprise, and, therefore, repudiate my obligation." This would be fraud upon the beneficiaries of the assured, and work great injustice at the expense of common honesty and good faith. This, we think, is settled by the principles laid down in the case of White v. Haight, (16 N. Y. Rep. 310,) where a section like the 8th section of this company's charter is referred to at length and commented upon by Judge Denio. This same question, and in substance the same section, was directly up and adjudicated in the case of Deraismes v. The Merchants' Ins. Co., (1 Gomst. 371,) wherein it was held that a note so given is valid by force of the statute authorizing it to be taken. It cannot be successfully urged that this note was without consideration, it having been given by statutory authority, for the purpose of increasing the capital, and encouraging others to do business' therein. Such a note, given to an insurance company, and for such a purpose, has been declared valid. (Brown v. Crooke, 4 N. Y. Rep. 51.) It is true, this was for the benefit of a third party, but this makes no difference, (Lawrence v. Fox, 20 N. Y. Rep. 268,) and such a note may be enforced by such third party, although not privy to it, and without notice thereof until after- it was made. Again ; if a consideration was necessary, to maintain a statutory note, it is to he found in the concurrence of others in giving similar notes by arrangement with the defendant at the time the subscription was made for the purpose of giving credit to the company, the contemplated advantages of insurance to such a company, and receiving interest upon the notes at a certain rate, in addition to any other profits he might be entitled to as a member of the company. (1 N. Y. Rep. 371.)
We must, therefore, hold that this note was authorized by the charter, and given upon a sufficient consideration, and therefore valid in the hands of the plaintiffs, who were authorized to receive and hold it for the uses and purposes expressed in the charter, and was a legitimate use of the power conferred upon the company by the charter. t
Again ; it is contended on the part of the defendant, that by the terms of the note, it was to be returned to the defendant and cease to be an indemnity, whenever the company should have acquired a surplus of capital out of the profits of the business to the amount of $25,000 ; and it is contended that it is shown to have done so on the 1st May, 1850, and thus the defendant was exonerated from liability upon the note in question. Was he so exonerated ? The company reported, on the first of May, 1850, in their statement of the condition of the company to the legislature, their net proceeds at $25,479.29. This consisted of cash on hand $5813.84, premium notes $14,149.41, and dues from agents $5,515.89 ; and in the same report give losses notified, part of which are awaiting proofs $11,000 ; less amount not recognized $6500, leaving $4500 of losses to be paid. It is not pretended that this shows the company at this period free from all obligations against them, with a surplus capital made out of the profits of their business. Unearned-premiums cannot be said to be profits. .If there had been $25,000 of money in the treasury, with no losses upon policies to be paid, or other expenses to be taken'from the fund, it might have been then a question for consideration, but for aught that appears in this case, the company might at the time this report was made, have been liable to pay the whole $11,000 of losses ; and until that question was settled they could not properly say, and we cannot hold for the purpose of exonerating the defendant from his obligation, that the company at any time before its insolvency, had acquired a surplus of $25,000 out of the profits of their business, but the deductions of the $4500 from the net proceeds puts the amount below what would be necessary to exonerate the defendant under the provision in the subscription, and this last amount seems to be conceded. We, therefore, think this view of the case cannot be sustained.
It is further urged that the defendant is not liable on his note, until all other funds of the company have been exhausted.
This is one of the provisions of the subscription. It is in proof, and not disputed, that the company is insolvent; that its property and effects had passed into the hands of a receiver ; that all the visible property of the company had been sold on execution. It also appeared that the company then had no other means, except the premium notes, and guaranty notes, and the proofs show that the premium notes were worthless and not available; consisting of small sums, from $3 to $50, the makers of which were scattered through six different states ; from their location, and difficulty of collecting at such distances of such small amounts, nothing could be realized from them. As to the securities furnished by Caznau & Edwards, it is quite clear the arrangement was imperfect and not consummated, the securities not being satisfactory to the trustees, and ultimately went back into their hands without ever having been held by the company, as their property. There was an abundance of uncontradicted evidence, to establish that all other funds of the company had been exhausted, except the guaranty notes. The evidence in the case, so far as any question of fact was concerned, was uncontradicted, and there was no question of fact for the jury. The objections and exceptions taken by the defendant should be overruled, and the order and judgment herein affirmed, with costs.