Case Name: Alexander M. Lawrence, Receiver, Plaintiff and Respondent, v. William Nelson and William Nelson, Jr., Defendants and Appellants
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1859-02-26
Citations: 4 Bosw. 240
Docket Number: 
Parties: Alexander M. Lawrence, Receiver, Plaintiff and Respondent, v. William Nelson and William Nelson, Jr., Defendants and Appellants.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 17
Pages: 240–254

Head Matter:
Alexander M. Lawrence, Receiver, Plaintiff and Respondent, v. William Nelson and William Nelson, Jr., Defendants and Appellants.
1. A person who takes policies from the General Mutual Insurance Company, a corporation organized under the act of May 25, 1841, (Laws of 1841, p. 229,) and the act of April 6, 1842, amending the same, (Laws of 1842, p. 138,) thereby, by force of the 6th section of the act of 1841, becomes a member of said Company.
2. The said Company became insolvent, and a receiver of its effects was appointed, while notes given by the defendants to the Company for the premiums on policies taken by them from the Company were running to maturity. But before the receiver was appointed, losses had occurred of property insured by some of such policies, which losses had been adjusted by the Company, at sums amounting in the aggregate to $5,393.30. One loss under one policy (on the Galena), was adjusted January 9, 1854, at $3,083.45. In January, 1854, before the policies then outstanding had expired, they were canceled and surrendered by an agreement between the defendants and the Company, indorsed on such policies, by the terms of which agreement the return premiums on said policies, amounting to $2,172.87, were to be paid to the defendants “ratably out of the assets of the Company when divided.” The petition for a dissolution of the Company was presented March 10, 1854; its dissolution was decreed Sept. 9, 1854, and a receiver was appointed Dec. 26, 1854: Sdd,
3. (1.) That the defendants must pay to the receiver their premium notes in full. (Woodruff, J., dissenting.)
4. (2.) That they could not set off either the $2 172.87, or the $5,393.30, or the item of $3,083.45, (part of the $5,393.30.)'
(Before Slosson, Woodruff and Pierrepont, J. J.)
Heard, October 6, 1858;
decided, February 26, 1859.
This is an appeal by the defendants from a judgment entered against them upon the report of E. P. Cowles, Esq., as Referee.
The action was commenced by Mortimer Livingston, Receiver of the General Mutual Insurance Company, as plaintiff, against William Nelson and William Nelson, Jr., as defendants. Pending the suit, Mr. Livingston died, and Alexander M. Lawrence was appointed Receiver in his stead, and by order subsequent thereto, the action was continued in the name of Mr. Lawrence, Receiver, as plaintiff.
The complaint states the appointment of Mr. Livingston as Receiver, and his title as such to the property and effects of the Company, and that as such Receiver he became possessed of six several promissory notes, made and delivered by the defendants to the said Insurance Company, amounting in the aggregate to the principal sum of $2,422.50, describes them and prays judgment for the amount thereof with interest.
The answer admits the making of 'the notes, and alleges that they were given to said Insurance Company as premium notes for insurances effected by them with said Insurance Company; that upon several of the policies so effected losses were sustained, which said Company acknowledged, to the amount of §5,898.30; that this sum is wholly unpaid; that before the notes (described in the complaint) matured, the said Company became insolvent and ceased to insure, and canceled the policies for which said notes were given, and that there remained unearned of the premiums for which the notes were given, the sum of §2,172.87, which sum, by the canceling of the policies, the defendants became entitled to have, and demand from said Company, which two sums amount to $7,566.17 ; and that when said Company took said notes, it was insolvent and knew that fact; denies being indebted to the Receiver, and claims a balance due to them from said Company of §5,143.67, besides interest, and prays judgment for that sum.
The said Insurance Company was incorporated by the act of May 25, 1841, (p. 229 of Laws of 1841,) and its powers and the rights and liabilities of its members are prescribed by that act, and the act of April 6 1 842, (p.,138 of the Laws of 1842.)
Section 4 of the act of 1841 designates seven persons as Commissioners, and declares it to be their duty “ to open books to receive applications for insurance to be effected by said Company, and as soon as applications amounting to $500,000 shall be received, said Commissioners shall give notice to those persons who have made such applications, of a meeting for the election of thirty-two Trustees; and every person having so made application for insurance, shall be entitled to vote at said election, and the persons chosen at said election shall be Trustees of said Company for the ensuing year.”
Section 5 provides for dividing the Trustees so elected into four classes of eight each; one class to expire in one, one in two, one in three, and one in four years, and for filling vacancies.
Section 6 of the act of 1841, declares that “ every person having taken a policy during the preceding year directly in his own name, Or in the name of his firm, and every person holding in his own name or in the name of his firm, a certificate of the Company, not discharged by payment of losses, shall be deemed a member of said Company, and entitled to vote at all elections. Every person who shall become a member of this corporation by effecting insurance therein, shall, the - first time he effects insurance, and before he receives his policy, pay the rates that shall be fixed upon and determined by the Trustees; and no premium so paid shall ever be withdrawn from said Company, but shall be liable to all the losses and expenses incurred by this Company during the continuance of its charter.”
The 7th section prescribes the nature of the securities in which the Company may invest its premiums; and the 8th provides for the annual election of Trustees after the first election, the notice to be given, and the manner of conducting it.
The 9th section' of the act of 1841, as amended by the act of 1842, declares that “the officers of the said Company shall, within one month after the expiration of one year from the day, on which they shall have issued their first policy,' and within the first month of each subsequent year, cause an estimate to be made, as near as may be, of the profits of the said Company during the preceding yearand after prescribing the mode of making such estimate of profits and its effect, further declares that “ the said officers shall thereupon credit on the books of said Company each person or firm who shall have paid any premiums to said Company during the preceding year, with such a. portion of the said net balance * "' * ■* as the amount of earned premiums paid by such person or firm during such year, and not returned, shall be of the whole amount of earned premiums received by said Company during said year, (less return premium,) and shall issue to such person or .firm a certificate declaring him or them, and his or their executors, administrators or assigns, to be entitled to a portion of the invested funds of the said Company, equal to the amount so credited to him or them, and also to the receipt annually, out of the interest or income derived by said Company from the investments of said profits, of an interest not exceeding six per centum per annum, which certificate shall contain a proviso that the amount named therein is liable for any- future loss by said Company.” * *
The notes in suit" were not given upon policies issued upon applications for insurance made under the 4th section of the act of 1841, but were given for premiums upon policies issued to the defendants in and according to its ordinary course of business.
The case contained an admission or stipulation, signed by the defendants’ attorney, as follows, viz.:
■ “ It is hereby admitted, for the purposes of this trial, that the General Mutual Insurance Company, in making the yearly estimate of net profits, under the provisions of their charter, credited each dealer with such proportion of the net, as the amount of earned premiums received from him was of the whole amount of earned premiums received by the Company during the year, without regard to the fact that the business of such dealer with the Company, for the year, had resulted in a loss to them; and further, that in making such'estimate, the premiums and premium notes were in all cases placed and credited to the Company, as earnings, and the return premiums were placed with the losses and expenses, and deducted therefrom to ascertain the net profits for the year.
“I admit the above, at the request of the plaintiff’s counsel, but do not admit the relevancy of the testimony, or the correctness of the practice of the Company.
“March 25th, 1858."
The Referee found, as matters of fact:
“ 1st. That said Company, on the 10th of March, 1854,' filed their petition for a voluntary dissolution under the statute for that purpose made and provided; and that subsequently, and on the 9th of September, 1854, said Company was dissolved by decree of the Court; and on the 26th day of December, 1854, by an order of the Supreme Court, made on that day, Mortimer Livingston was appointed the Receiver under the statute aforesaid, and as such became vested with the assets of said Company, and among them were the notes hereinafter mentioned. That said Mortimer Livingston having departed this life on the 24th of August, 1857, Alexander M. Lawrence was, by an order of said Supreme Court, made, on the 5th day of November, 1857, duly appointed the successor of said Mortimer Livingston, as such Receiver; that by an order of this court, made, on the 29th of December, 1857, this suit, which had been.commenced by said Mortimer Livingston, as such Receiver, was continued in the name of said Alexander M. Lawrence.
“ 2d. That this action was brought originally by said Mortimer Livingston, as •such Receiver, under .the authority of an order of the Supreme Court, made on the 10th day of April, 1855, to recover the amount, with interest due by said defendants on the following promissory notes, made and given by them to the said General Mutual Insurance Company, viz.:
1 Note for §560 00, dated Nov. 15, 1853, due Nov. 18, 1854.
2 “ “ -321 25, “ Aug. 17, 1853, “ Aug. 20, 1854.
3 “ “ 280 00, • “ Oct. 7, 1853,- “ Oct. 10, 1854.
4 “ “ 420 00, “ Nov. 11, 1853, “ Nov. 14, 1854.
5 “ “ 360 00, “ Nov. 18, 1853, “ Nov. 21, 1854.
6 “ “ 481 25, “ Dec. 15, 1853, “ Dec. 18, 1854.
“That the said defendants are indebted to the said Receiver in the sum of $2,422.50 for principal, together with interest thereon, from the dates on which they respectively became due as aforesaid.
“ 3d. That the said promissory notes were given for the premiums of insurance on certain policies made and executed to said defendants by the said General Mutual Insurance Company, That said policies, in the latter part of January, 1854, were canceled and surrendered before they expired, under an agreement to that effect indorsed on said' policies, whereby the return premiums on said policies were to be paid to said defendants “rata- bly out of the assets of the Company when divided,” as by reference to said policies and the agreement indorsed thereon will more fully appear, and that said return premiums, amount in the 'aggregate to the sum of $2,172.87, on which such sum the said defendants are entitled to a dividend, with other creditors, out of the assets of said Company. . . .
“ 4th; That the said defendants suffered a loss under the policy issued to them on the ship “ Galena,” amounting to $3,083.45, which loss was adjusted, and due and payable on the 9th day of January, 1854, and another loss on the policy on ship “ Vicks, burg,” amounting to $2,253.45, adjusted on the 18th day of March, 1854, and another loss on the ship St. Louis, amounting to $56.40, adjusted on the 16th of February, 1854, which said losses amount in the aggregate to the sum of $5,393,30.”
(On the trial, when the testimony was closed, and both parties had rested, “ the defendants’ counsel claimed that the said notes, which are the subject of this suit, passed into the hands of the Receiver, subject to the equitable right of the defendants to offset against, and to have applied to the discharge of the same the sum of $3,083.45, the adjusted loss due upon the ‘ Galena,’ on the 9th day of January, 1854; and that inasmuch as such offset would exhaust the whole of the plaintiff’s claim upon said notes, leaving a balance in favor of the defendants, the defendants were entitled to judgment against the plaintiff for such balance, together with their other claims against said Company; to be paid pro rata out of the assets of the Company.”)
“ The said Referee did further decide and determine as matters of law:
“ 1st. He overruled the claim- made by defendants’ counsel, that the said notes passed into the hands of the Receiver, subject to the equitable right of the defendants to offset against and to have applied to the discharge of the same the sum of $3,083.45, the adjusted loss due upon the ‘ Galena,’ on the 9th day of January, 1854.
“ 2d. He further decided as matter of law, that the plaintiff was entitled to recover the full amount of the notes set forth in the complaint, and accordingly rendered judgment in favor of the plaintiff for the sum of $3,022.69, the amount of said note and interest.
“ To which decision and judgment, and particularly so much thereof as decides that the defendants are not entitled to offset against the plaintiff’s notes; the said adjusted loss on the ship ‘ Galena,’ the defendants by their counsel duly excepted.”
From the judgment entered upon the report of the referee, the defendants appealed to the General Term.
A. C. Morris, for appellants (the defendants).
I. The referee should have allowed the offset of the loss on the Galena.
The petition for the dissolution of the Company was filed March 10th, 1854.
The order for the dissolution of the Company and the appointment of a Receiver, was not made until September 9th, 1854.
■ Conceding that the order for the dissolution, &c., relates back to the time of filing the petition, still the Receiver’s rights to the assets did not attach until March 10th, 1854.
The defendants’ notes, none of which were due until several months afterward, passed into the hands of the Receiver with the other assets. At this time the Company was indebted to the defendants in the sum of $3,083.45,- for.the loss on the Galena, which -was then due and payable.
Although the notes of the defendants were not due, they had an equitable right to anticipate their payment and have them offset against the loss on the Galena. (Keep v. Lord, 2 Duer, 78; Hicks v. McGorty, id., 298; Lindsay v. Jackson, 2 Paige, 581; Receiver of Middle District Bank, 1 id., 585; Miller v. Receiver of Franklin Bank, id., 444; Holbrook v. Receiver of American Ins. Co., 6 id., 228; Bradley v. Angel, 3 Comst., 475.)
The Receiver took the notes subject .to this, equitable right. Under the authority of the above cases the defendants were entitled to an injunction at any time before the notes fell due to prevent their transfer to bona fide holders for value without notice. This is the only object of an injunction. Where the notes are not transferred, but suit is brought upon them by the original ■ holder after 'they become due, the offset may be made under the statute.
In the present case the notes all fell, due in the hands of the Receiver, and he is in no better position, in regard to them than the Company itself would have been if it had not become insolvent.
The statute defining the duties of receivers expressly recognizes the right of offset in cases like the present.
“ Such receivers shall have all the power and authority conferred by law upon trustees to whom an assignment of the estate of the insolvent debtors may be made pursuant to the provision of the 5th chapter of the second part of the Revised Statutes.” (2 R. S., 469, § 68.)
“The said trustees shall have power to sue" in their own names, or otherwise, and recover all the estate, debts, and things in action belonging or due to such debtor, &c., &c., and no setoff shall be allowed in any such suit for any debt unless it was owing to such creditor by such debtor before the first publication of the notice required in the first article,” &c. (2 R. S., 41, § 7,) and § 39 [36] p. 47, expressly allows a setoff of mutual debts by such Trustees.
EE. There can be no reasonable objection to a judgment in favor of the defendants for the residue of their claims:
Claim for loss on Gralena,............ .............$3,083 45
Deduct notes,................. .............2,422 50
Balance due defendants,............ ............. $660 95
Add loss on Vicksburg,............. .............2,253 45
“ “ “ St. Louis,............. ............. 56 40
Return premiums, ........'......... ............. 2,172 87
$5,143 67
Add difference of interest
If the defendants take judgment against the Receiver for this balance, no prejudice can result to any person interested in the assets. A judgment against a Receiver merely adjusts the amount of the’claim as against the insolvent corporation. In a suit against a Receiver it is not necessary for him to protect himself against a deficiency of assets by such pleas as executors, before the Revised Statutes, were compelled to interpose. As the executor under the present, law is protected by the Surrogate, so is a Receiver by the Court that appoints Mm. ÍFhe judgment merely adjusts the amount due as between the party .and the corporation. No execution can issue upon such a judgment against the Receiver personally, and a levy upon assets would undoubtedly result in punishment for contempt of Court.
HI. Upon each of the policies upon which a return of premium is claimed is an indorsement as follows:
“It is agreed to return premium of..............allowed under this policy to. be paid ratably out of the assets of the Company when divided. This policy is hereby canceled from .........., 1854.”'
By reference to the body of the 'policies it will be perceived that each policy contains a provision allowing the assured 'to cancel at hM option. The indorsement is printed and appears to be a general form, adopted by the Company to apprise its dealers, as they brought in their policies to be canceled, that the Company was going into liquidation and that it was paying out no money. How the Referee could have tortured this indorsement into an agreement by the defendants to allow “ the amount of "their. notes to go to help to make up the fund from which they were to.be paid their return premiums ” is inconceivable.
TV. The Referee has entirely misconstrued the charter of the General Mutual Insurance Company. (See Charter, Laws 1841, 229; Amended, Laws 1842, 138.) :
The notes sued upon are not subscription notes, but ordinary premium notes, the distinction between which has always been well understood by the Mutual Insurance Companies and their dealers. The distinction is shown in the admission of the plaintiff’s counsel and is clearly pointed out in' Brouwer v. Hill, (1 Sandf. S. C. R., 644,) also Merchants Insurance Company v. Rey, (id., 184.)
Alexander Hamilton, Jr., for respondent (the plaintiff).
1. The act incorporating the General Mutual Insurance Company, (Sess. Laws of 1841, 229, and Laws of 1842, 138,)' established peculiar relations affecting the question.
Every insurer, a dealer .with the Company, became a member or corporator interested in the premiums paid by all other dealers and corporators. (Sess. Laws of 1841, Chap. 252, §§ 6, 9.)
II. The earnings of the Company, being the premiums received from all the dealers, as well as the income derived from investment of premiums, were placed in a common stock or fund; and from this common fund the losses and expenses for the year were deducted, and out of the balance, if any, of profits, a dividend was declared to each dealer ratably according to the amount of earned premiums paid by him. (Sess. Laws of 1842, Chap. 132, § 1.)
Thus each dealer or insurer was not only a corporator, but interested in all the premiums paid by others, as well to pay his losses as to entitle him to profits.
The community of interest under this charter can be illustrated in this way:
A. B.’s earned premium amounts to $500.
The loss under his policy amounts to $500.
No profit has been 'made in- the dealing with him.
From the yearly statement it appears the total amount of earned premiums was......................$100,000
The total amount of losses and expenses was.......\. 50,000
Surplus of profits,................................ $50,000
Now, under the charter, A. B. is entitled to such a part of the $50,000 of profits as the earned premiums he paid bore to the whole amount of earned premiums; $500 being the ¥| „ part of $100,000, A. B. would be entitled to the part of $50,000, or a certificate of $250. He receives, in other words, a share of $250, in the aggregate profits to which he contributed nothing.
The dealers with the Company were in fact guarantors of each other, and in this consisted the “ mutuality ” of the plan.
It was a quaqi-partnership.
IH. To allow the setoff as claimed by the defendants, would be to pay his loss on the Galena in full to the extent of the amount of the notes offset against the loss,, to the injury of the other creditors of the fund.
IY. To deduct the notes of solvent parties from their losses is to pay the claim in frill "pro tanto,” though the Company has passed into the hands of a Receiver, who can declare a dividend of forty per cent only; and to pay this dividend must look to these parties as contributing to the fund.
V. Among creditors equality is equity, and the statute relating to “ voluntary dissolution ” expressly provides for such equality among all the creditors. (2 R. S., 4 ed., 712.)
A fortiori, should such equality be established here, where the charter entitled every dealer to a participation in the premiums paid by all other dealers. (Herckenrath v. Am. Mut. Ins. Co., 3 Barb. Ch. R., 63.)
VI. The Receiver is bound to collect' in all the assets, and until they are collected it is not known whether any dividend will be made or not. The Receiver represents the rights and interests of all the other creditors, who are to be protected against every attempt to obtain an undue'advantage or preference on, the part of any one of them.
VII. The notes, in this case, so far as they were given for policies other than those upon which losses áre claimed, are distinct and unconnected demands, and therefore come within the principle established by the Chancellor in 6 Paige, 232.
Eo case in the courts of this State present this question of equitable offset as depending upon the comparative equities of the general creditors and the particular creditor seeking the offset.
In Pennsylvania, however, this point has been expressly raised and decided. (Hillier v. Alleghany Co. Mut. Co., 3 Barr., 470; Long v. Mut. Ins. Co., 6 id., 421.)
I do not claim that the Receiver stands in any better position as against these defendants than the Company, if plaintiffs, and insolvent, would. If, being insolvent,. the Company had been willing and had attempted to allow this setoff, the other creditors could have interfered and prevented.
The right and duty to refuse this setoff lie in the very constitution of the Company, and the resulting rights and obligations between the dealers.
• The report of the Referee is correct, and the judgment entered thereon.should be affirmed with costs.
This judgment, on an appeal from it to the Court of Appeals, was affirmed.

Opinion:
By the Court—Pierrepont, J.
The act incorporating the General Mutual Insurance Company provided that every person' on obtaining a policy and paying the premium became a corporator interested in the premiums paid by all the-other corporators; and in section 6 (Laws of 1841, p. 229), provides that "every per son who shall become a member of this corporation by effecting, insurance therein, shall, the first time he effects insurance and before he receives his policy pay the "rates that shall be fixed upon and decided by the trustees; and no premium so paid shall ever be withdrawn from said Company, but shall be liable to all losses and expenses incurred by this Company during the continuance of its charter."
Each dealer was therefore a corporator and interested in all the premiums paid by others. The earnings of" the Company were the premiums paid in by all the dealers and the income derived from the investment of these premiums, which was all placed in a common fund, and after paying the annual losses and expenses, á dividend of the balance was declared to each dealer pro rata, according to the earned premiums paid by him.
. It appears by a stipulation or admission found in the case, "that the General Mutual Insurance Company, in making the yearly estimate of net profits, under the provisions of their charter, credited each dealer with such proportion of the net, as the amount of earned premiums received from him was of the whole amount of earned premiums received by the Company during the year, without regard to the fact that the business of such dealer with the Company, for the year, had resulted in a loss to them; and further, that in making such estimate, the premiums and premium notes were in all case's placed and credited to the Company, as earnings, and the return premiums were placed with".the losses and expenses, and deducted therefrom to ascertain the net profits for the year."
Under this charter, a dealer with this Company might receive a large annual profit though the Company made nothing by dealing with him: for example, the earned premium of A. is $>1,000 and the loss under his policy is $1,000, the Company thus receive no more of A. than they pay him for his losses, and of course nothing is made by the dealing with- him; but the total earned premiums for the year are-$100,000 and the losses are but $10,-000, leaving a surplus of $90,000 of profits. A. is entitled to such part of this $90,000 as the premium he paid bears to $100,000 —that is, A. receives $900 of these profits toward which he has contributed nothing; thus each dealer was interested in the earned premiums of every other dealer, and the corporators were mutual guarantors of each other. In fact, a kind of partnership firm was formed, under an act of incorporation by which each member, being bound to pay his premium, was entitled to profits realized in proportion to his premium paid. Before the notes upon which this action is brought went into the Receiver's hands, the Company owed the defendants, for loss on the ship Galena, $3,083.45, -which the defendants seek to offset. Ordinarily, if an insurance company holds a person's note, and at the same time owes the maker for a loss, an offset can be made, and the Receiver stands in no better position than the corporation whose assets he received. But the corporation, in this case, is not like an ordinary chartered company dealing with strangers; the peculiar relations of the corporators towards each other- aré voluntary, and the obligations are mutual, and. it is entirely equitable that each should share losses when they happen in the same proportion' as he was entitled to profits when made, and such is the fair interpretation of -this contract. Each member must pay what he owes the corporation, and each will be entitled to his pro rata dividend of the assets. (Hillier v. Alleghany Co. Mut. Ins. Co., 3 Barr., 470; Long v. Mut. Ins. Co., 6 id., 421; White v. Haight, 16 N. Y., 310; Bangs v. Gray, 2 Kern., 477.)
The policies for which the notes were.given were canceled by written agreement, and it- was stipulated by the defendants that the return premiums were to" be paid ratably out of the assets of the Company when divided, and we see no reason why the defendant should not be held to that agreement.
The judgment should be affirmed,- with costs.