Case Name: John Berry, Receiver of The Atlas Mutual Insurance Company, Plaintiff, v. Martin W. Brett, James E. Brett, J. Ernest Miller and Elija A. Houghton, Defendants
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1860-06-09
Citations: 6 Bosw. 627
Docket Number: 
Parties: John Berry, Receiver of The Atlas Mutual Insurance Company, Plaintiff, v. Martin W. Brett, James E. Brett, J. Ernest Miller and Elija A. Houghton, Defendants.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 19
Pages: 627–639

Head Matter:
John Berry, Receiver of The Atlas Mutual Insurance Company, Plaintiff, v. Martin W. Brett, James E. Brett, J. Ernest Miller and Elija A. Houghton, Defendants.
1. The maker of a promissory note held by a Corporation, and, on the insolvency of the Corporation, passing to a Receiver thereof, (appointed to wind up its affairs for the benefit of creditors and stockholders,) has the same right of set-off against such note in the hands of the Receiver which he would have in the hands of the Corporation itself.
2. The fact that the note has not become payable at the time of the appointment of the Receiver, does not affect the rule.
3. The maker of a promissory note given to the Atlas Mutual Insurance Company for premiums of insurance, or to other Insurance Companies whose charters are in substantially the same form, (Laws of 1843, ch. 92, p. 67; id., 1842, ch. 217, p. 261; id., 1843, ch. 75, p. 50; ch. 90, p. 65; ch. 91, p. 66; ch. 94, p. 71, &c., ¿re.,) when sued thereon by the Company or its Receiver, may set-off, against such note, debts or demands due to such maker from the Company.
4. The case of Lawrence, Receiver of the General Mutual Insurance Company, v. Nelson, (21 N. Y. R., 158,) commented upon and distinguished, by Robertson, J.
(Before Woodruff and Robertson, J. J.)
Heard, March 14th;
decided, June 9th, 1860.
This case came before the Court upon a submission of a controversy, without action, pursuant to section 372 of the Code of Procedure.
The case containing the facts agreed upon by the parties was authenticated in due form, and was as follows, viz.:
“ The parties to this controversy hereby mutually agree upon and submit to this Court the following statement of facts:
“jFirst. That the Atlas Mutual Insurance Company was a Corporation, carrying on business in the city of New York, duly chartered and organized under an act, entitled, ‘ An Act to Incorporate the Atlas Mutual Insurance Company,’ passed April 10, 1843, a copy of which act, and the acts therein referred to, are hereto annexed, and marked A., and had been for two years, prior to April, 1855, carrying on the business of insurance on marine risks.
“ Second. That the defendants- were, on the 20th day of April, 1855, and previously had been, dealers in said Company.
“ Third. That on or about the said 20th of April, 1855, the said defendants, by their firm name and style of Brett, Son & Co., subscribed a paper writing, of which the following is a copy, and delivered the same to said Company:
“‘The subscribers hereto agree to give their notes at twelve months, from the twentieth day of April, 1855, to the Atlas Mutual Insurance Company, for the amount set opposite their names, respectively, in advance of premiums of insurance on risks, which may be taken by said Company for them, it being understood that, in consideration thereof, the subscribers are to be allowed by the Company, at the maturity of their notes, five per cent on the amount of premiums charged against said notes.
“ ‘ Hew York, April 20th, 1855.
“ ‘Brett, Son & Co.............Five Thousand Dollars.’
“ Fourth. That subsequently the said defendants, in pursuance of said subscription, executed and delivered to said Company their promissory note, dated on the 25th day of April, 1855, for the sum of twenty-five hundred dollars, being for a part of the amount so subscribed, as aforesaid, a copy of which note is as follows:
“ ‘ Hew York, April 25, 1855.
“1 Twelve months after date we promise to pay the Atlas Mutual Insurance Company, or order, for value received, twenty-five hundred dollars.
“ ‘ $2,500. Brett, Son & Co.’
“ Fifth. That at the time of the delivery of said note to the said Company, by the said defendants, the said Company also delivered to the said defendants a receipt therefor, of which the following is a copy:
“ ‘ Office of the Atlas Mutual Insurance Co.,
“ ‘ (117.) Hew York, April 23, 1855.
“ ‘ Received of Messrs. Brett, Son & Co. their note for twenty-five hundred dollars, at 12 months, from April 25,1855, in favor of the Atlas Mutual Insurance Company, being their subscription to the Atlas Mutual Insurance Company; to be held and used by the Company for the purpose of paying the losses of the Company, or to be' used in raising money to be applied to the payment of said losses. Five per cent to be paid by the Company on the payment of said note, according to the terms of the charter.
“ ‘ Geo. H. Tracy, Secretary.’
“ Sixth. That thereafter and previous to the 25th day of March, 1856, the defendants applied for and received policies of insurance from said Company, upon vessels, cargoes, &c.,—the premiums for which insurances exceeded the amount of such note, and were charged against the same by the Company to the amount thereof.
“ That the said Company having become insolvent, the plaintiff herein was, on or about the 25th day of March, 1856, duly appointed Receiver thereof, by an order of the Supreme Court, and has entered upon, and is performing the duties of said appointment, and as such, has authority to make this submission.
“ That at the time of the appointment of the plaintiff this note was held by the Phenix Bank, of New York, as collateral security for a loan, before that time made by the said Bank to said Atlas Mutual Insurance Company. That the payments hereinafter mentioned to have been made by defendants on said note were made to said Phenix Bank, while the note was so held by said Bank. That after the 9th day of November, 1857, the said Phenix Bank, having been paid in full its loan to the Atlas Mutual Insurance Company, delivered up such note, with others, to plaintiff, as such Receiver.
“ That the said note of said defendants is now in the possession of this plaintiff, and that he is the legal owner and holder thereof, as such Receiver.
“ That the defendants have paid upon said note as follows: On the 25th day of March, 1857, the sum of $873.06, and on the 9th day of November, 1857, the further sum of $107.68; and no other sum has been paid on the same.
“ That the defendants have claims against the said Company for losses, which claims were liquidated and allowed at the sum of $2,533.59, by the Atlas Mutual Insurance Company, and due to defendants prior to the appointment of the plaintiff as Receiver, being for losses on policies the premiums for which were charged against said note, and are recognized and allowed by this plaintiff as claims against said Company, which are entitled to be paid out of the assets of said Company only, pro rata with claims of the like nature.
“ The plaintiff insists that the defendants are bound and liable to pay to him as such Receiver, as aforesaid, the balance unpaid on said note, with interest, without any set-off against the same for said claims.
' “ The defendants insist that they are entitled to set-off against the amount unpaid on said note, the amount of said claims, or so much thereof as may be necessary.
“ The question to be passed upon by the Court is as follows:
“ Are the defendants entitled to set-off their claims for losses as above mentioned or any part thereof against the balance remaining unpaid on said note ?
“If this question is answered in the affirmative the defendants are to have judgment to that effect, without costs.
“ If the question is answered in the negative, then the plaintiff is to have judgment for the sum of $1,634.63, being the amount due on said note on the 9th day of November, 1857, and also interest on that sum from the said 9th day of November, 1857, without costs.”
The charter of the Atlas Insurance Company in the said case referred to, is contained in Session Laws of 1843, ch. 92, p. 67, and Laws of 1842, ch. 217, p. 261.
C. C. Egan, for the plaintiff.
I. The note being a subscription note, formed a part of the capital of the Company, was the security of dealers, and payable at all events. (Charter, § 12 ; Brouwer, Receiver, v. Hill, 1 Sand. S. C. R., 629; The same v. Appleby, 1 id., 158; Hone & Bokee, Receivers, v. Allen & Paxson, id., 171; Deraismes v. The Merchants' Mutual Ins. Co., 1 Comst., 372; Brouwer, [Brown,] Receiver of the Croton Ins. Co., v. Crooke, 4 id., 54.)
II. The defendants, by their subscription, and by giving their note, became corporators and members of the Company, with all the rights and liabilities attaching to original membership under the charter. (Crocker v. Crane, 21 Wend., 211; The Sun Mutual Ins. Co. v. The Mayor of New York, 4 Seld., 249 ; Verplanck v. The Mercantile Ins. Co., 1 Edw., 84.)
III. Had the Company, by reason of its insolvency, failed to write against the note, in whole-or in part, still the note must be paid, without deduction, but here it is admitted that premiums were taken upon policies issued to the defendants to an amount exceeding the note. (Hone, &c., v. Allen, &c., supra; Deraismes v. The Merchants' Mu. Ins. Co., 1 Comst., 372.)
IV. The set-off, claimed by the defendants, is founded upon general losses occurring before the appointment of plaintiff as Receiver, upon policies issued by the Company, and can only be liquidated out of the assets of the Company quando aeciderint; and pro rata with other like demands.
V. The Receiver, upon his appointment, (being the Trustee for all the creditors,) became vested with all the rights of the corporation to the note in suit as part of its property, and is entitled to recover. (Brouwer, Receiver, v. Crooke, 4 Comst., 55; Verplanck v. The Mercantile Ins. Co., 2 Paige, 438; 2 R. S., 464, §41.)
VI. The set-off claimed is not a debt existing in favor of the defendants against the plaintiff, (Receiver,) within the meaning of the statute, entitling the defendants to set it off. (2 R. S., 354.)
The plaintiff should have judgment.
G. Dean, for the defendants.
I. The claim of the defendants is a legal and equitable defense to the note now held by the plaintiff.
1. The defendants’ claim was liquidated and due prior'to the appointment of the plaintiff, and prior to the vesting of any title in him.
2. At the time the note fell due the legal title was in the Phenix Bank. The defendant paid all that was due to the Bank, and after maturity, plaintiff obtained it.
3. At the time the note fell due the defendants had claims against the Company for more than the amount, and had a right to set off the amount as against any one but a holder for value.
The Receiver is not a holder for value.
II. There is nothing in the charter of the Atlas Insurance Company, or in the character of the note, which takes away the right of set off as established in the late Court of Chancery. (Holbrook v. Receiver of the American Fire Ins. Co., 6 Paige, 220.)
1. This note was given years after the organization of the Company, and was no more a part of its capital than any note taken for premiums or cash paid.
2. This note was to be insured against, and could only be taken from persons intending to receive the policies of the Company.
Judgment should be given for the defendant.

Opinion:
Robertson, J.
The capital or funds on which the charter of the Atlas Mutual Insurance Company, represented by the plaintiff, contemplated that it was to carry on its business, and to which holders of policies from it were entitled to look for security, consisted of those derived from three sources:
1st. Premiums on the first applications for insurances before the organization of the Company, amounting in the aggregate to half a million of dollars, on the receipt of which it was entitled to commence business. (Laws of 1843, p. 67, § 2, 4.)
2d. Advances by third persons of money for such time and upon such terms as should be agreed, not exceeding in the aggregate one hundred thousand dollars. (§ 7.)
3d. Notes for premiums in advance received from persons intending to take out policies. (Laws of 1842, p. 263, § 12.)
Nothing is said in the charter as to how the premiums first mentioned are to be paid, whether in cash or on credit; for the advances so made to the Company, they were to issue certificates of fifty dollars each, pay legal interest thereon, and after apportioning profits and losses between such advances and premiums earned for expired policies, pay on such advances their proportionate share of profits until the whole was refunded, or deduct therefrom their proportionate share of losses until the whole was exhausted. The Company were to be at liberty to negotiate such notes for premiums, in order to pay losses, and upon such portion of them as should exceed the amount of premiums earned by the Company from the makers, they were to pay a compensation at a rate not exceeding five per cent per annum. (§ 12.)
The Trustees of the Company were also authorized to issue certificates to persons in whose names policies of insurance, on which the risk had expired had been issued, of a certain per centage on the premiums paid by them for such risks; which certificates should be for their share of the profits, to be subject to future deductions for losses, and to redemption when the net profits exceed a certain sum. (§ 13, Charter of Atlantic Company.) Persons insuring, or entitled to certificates, were expressly declared not to be answerable by reason thereof, or of anything contained in the act of incorporation except for the premiums or notes given in advance for premiums.
There is no prohibition in such charter, express or implied, against giving credit for premiums, nor are any persons insured declared to be members or incorporators.
Prior to incorporating the class of Insurance Companies of which the Atlas Company was one of whose charter that of the Atlantic Mutual Insurance Company, passed in April, 1842, was the model, another class of Insurance Companies, including the General Mutual Insurance Company of New York, of whose charters that of the United Mutual Insurance Company was the model, (Laws of 1840, p. 260, § 6,) were incorporated. By the sixth section of the act incorporating the General Mutual Insurance Company, (Laws of 1841, p. 231,) every person who in his own name or that of his firm, had taken out a policy of insurance from such Company, was declared to be a member of such Company, and every one who should so become a member was required the first time he effected insurance before receiving his policy, to pay the rates that should be fixed by the Trustees. It was also declared that no premium so paid should ever be withdrawn from such Company, but should be liable to all losses and expenses incurred by it during its existence.
In the case of Lawrence, Receiver of the General Mutual Insurance Company, v. Nelson, decided at the last term of the Court of Appeals, in which the judgment of this Court at General Term was affirmed, the liability of persons insured in such Company for the payment of their premiums to the Company, without a right of offset of a claim against such Company, came up for adjudication. The Court decided in favor of such liability, and, as I understand the opinion delivered, expressly upon the grounds that they became, under the charter, members, merely by making the insurance; that they were to pay their premiums in cash; and that such premiums, so paid in, were made, by the charter, a fund incapable of being used except to pay losses. Judge Weight, who delivered that opinion, says, expressly: "The defendants in this case became members of a Mutual Insurance Company, by effecting insurance therein: it was that class of Mutual Companies authorized to commence and transact an insurance business on the cash premiums paid by the associates. The first premiums paid were never to be withdrawn, but were to be pledged for the losses and expenses of the Company. The dealers and corporators were to pay their premiums in cash; and such premiums, and the income derived from their investment, were to constitute a fund for the payment of losses and expenses of the Company." He had previously stated that the rule is different from that of an ordinary Insurance Company, "where the Company is a mutual one, and the insured a member or corpora-tor, an insurer as well as party assured, and the Association has no dealings in regard to insurance except with its own members." "In a company of mutual insurers, each sufferer is bound to make compensation as well as receive it: the premium, whether paid, or secured to be paid, is withdrawn from his control, in contemplation of law, and placed in a common fund, subject, not only to his claims, but those of all others in the Company." " The members of the Association virtually agree to insure each other, and provide a common fund to indemnify in case of loss, as all have contributed to it." Such is the reasoning, and the result to which it leads, in a strictly Mutual Company, where no one is insured, except he becomes a member, where his premium of insurance forms part of the capital stock, is required by law to be paid in cash, and is bound to go into a common fund to indemnify all the members against a loss. But the same reasoning docs not apply to a Company where any one can be insured, where credit may be given on premiums for policies, where the premiums are not required to be kept apart as a fund, and where five per cent is to be paid for a loan of credit wherewith to meet losses. Besides this, in the case now before the Court, the liability of the defendants was permitted to be made by a promissory note, with all the advantages and disadvantages of that form of contract. What are sometimes loosely called subscription notes, under the twelfth section, do not have attached to them the statutory liability of a stockholder to pay in his subscription: the makers of them receive, for such portion as they do not work out as premiums on policies of insurance, the extra compensation of five per cent for the risk they run in being obliged to pay the whole note. In the strictly Mutual Company, every policy of insurance taken out is a subscription to the capital stock, to the extent of the premium, which the statute requires to be paid in cash, and, when paid, becomes inviolable, except for payment of losses, either in full or pro rata. In such Companies, giving and accepting a note payable at a future day for a premium amounts simply to an agreement to subscribe at a future day. The Company is, in law, a trustee of the mass of premiums for all the stockholders; and what is due from it as an artificial person to a single stockholder cannot be offset.
I think, therefore, that the conclusions of that case are not applicable to this, and that the maker of a note under the 12th section, whether he has used it up by premiums or not, is not a member or corporator; and that his liability is not beyond that of any other maker of a note for value taken by the Company in the course of its business, and that any money to be paid by him was not to be held in trust for the payment'of losses beyond any other assets of the Company.
But if the maker of such a note were to be considered as a member, and therefore partner with the other parties insured by such Company, and so not entitled to an offset, notwithstanding he was to receive five per cent compensation for the loan of his credit by such note, until he changed it into a credit to himself for premiums due; the note in question varied in character from one of such description, for the agreement upon which it was given was to have a deduction of one-twentieth on the premiums charged against it, although the receipt given for it expresses that five per cent was to be paid by the Company on the payment of the note. Neither of these provisions correspond with the conditions attached by the 12th section to notes given under it, and ought to be enough to save the defendants from the penalty of being a delinquent stockholder of a strictly Mutual Company; but, I am satisfied to place the position of the defendants on the first grounds stated.
If the note in question, or the premiums it represents, therefore be an ordinary debt to the Company, on which credit has "been given, I think the defendants clearly entitled, under the decision in the case of Holbrook v. The Receiver of the American Fire Ins. Co., (6 Paige, 220,) to offset his claim, liquidated before the appointment of the plaintiff, against the amount claimed to be due on the note, and that judgment should be given for the defendants to that effect, without costs, as stipulated in the submitted case.