Case Name: William L. Howland, receiver of the New York Protection Insurance Company, respondent agt. John H. Edmonds, executor, and Sarah Greenman, executrix, of Hiram Greenman, deceased, appellants
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1862-03
Citations: 23 How. Pr. 152
Docket Number: 
Parties: William L. Howland, receiver of the New York Protection Insurance Company, respondent agt. John H. Edmonds, executor, and Sarah Greenman, executrix, of Hiram Greenman, deceased, appellants.
Judges: 
Reporter: Howard's Practice Reports
Volume: 23
Pages: 152–163

Head Matter:
COURT OF APPEALS.
William L. Howland, receiver of the New York Protection Insurance Company, respondent agt. John H. Edmonds, executor, and Sarah Greenman, executrix, of Hiram Greenman, deceased, appellants.
A promissory note given in the form of premium notes, as and for capital stock notes in organizing a mutual insurance company, is payable on demand, and the statute of limitations begins to run against it from its date.
March Term, 1862.
This action was tried at the circuit court held in Oneida county, before the Hon. Le Eoy Morgan, one of the jus tices of this court, without a jury. The action was brought to recover the amount of an original capital stock note, in the following words:
“ $480.:—For value received, in policy No. 256, dated Oct. 21, 1849, issued by the New York Protection Insurance Company, I promise to pay the said company, or their treasurer for the time being, the sum of four hundred and eighty dollars, in such portions and at such time or times as the directors of said company may, agreeably to their act of incorporation, require. Signed. Hiram Greenman.”
The New York Protection Insurance Company, on the 21th October, 1849, was duly incorporated under the general act providing for the incorporation of insurance companies, passed April 10, 1849, with a capital of $100,000, and thereafter commenced business by the issuing of policies of insurance. The company sustained large losses, became greatly embarrassed, and was unable to meet its liabilities as they matured, and on the 11th of August, 1853, in an action pending in the supreme court against said company, an order was made appointing a receiver, and this plaintiff was, on the 18th of September, 1855, appointed in the place of the former receiver, who had died, and with the same powers.
Prior to the organization of the company, and on or about said 2lth day of October, 1849, Hiram Greenman made and delivered the note in suit as one of the original notes required by the statute to be given for the purpose of organizing the company. Said Greenman, the maker of the note, died November 11,1850, and letters testamentary were issued to the defendants February 8, 1851. On the 15th of May, 1860, the supreme court, at special term, on the application of creditors alleging the conceded indebtedness of the company to exceed the whole value of the premium notes and other assets of the company, made an order directing the receiver forthwith to collect the notes which formed the original capital.
It appeared that the indebtedness of the company exceeded the value of its entire assets. The plaintiff gave notice to the defendants of said order of the 15th of May, 1860, and demanded payment of the note in action.
It was admitted by the defendants that a short time before the commencement of this action, payment of said note was demanded of them by the plaintiff, and that payment thereof was refused.
The only defence relied upon was the statute of limitations.
The justice decided that the statute of limitations did not bar the plaintiff’s action, and refused to grant a motion made by the defendants for a non-suit, and judgment was ordered and entered for the plaintiff, from which judgment the defendants appealed to the general term in the fifth district, where the judgment was affirmed at the April general term, 1861. All the justices at the general term delivered opinions. Justices Bacon, Mullin and Morgan for affirmance, and Justice Allen for reversal. The case is reported in 33 Barb., 433.
From the judgment ordered at general term an appeal was made to this court, which was argued at the January term, 1862, and decided at the March term thereafter.
A. C. Miller and Ward Hunt, for appellants.
Henry R. Mygatt, for respondent.

Opinion:
Denio, J.
The general principles involved in this question are very well established. A note payable, by its terms, on demand, may be prosecuted immediately, the suit itself being a sufficient demand ; and if any other similar expression be used, as on request or on being called on, the law is the same, and no demand before suit brought is necessary. (Wenman agt. The Mohawk Ins. Co., 13 Wend., 267; Norton agt. Ellam, 2 Mees. & Welsb., 461; Waters agt. Thamet, 2 Adolph. & Ell., N. S., 757.) On the other hand, if the defendant's liability depends upon the performance of a condition precedent, it is very plain that no action will lie until it be performed ; and a request or demand of the thing claimed may, and frequently does constitute such a condition to the obligation of performance on the part of the defendant.
When that is the case, such demand before suit brought must be averred and proved to enable the plaintiff to maintain the action ; and inasmuch as the cause of action must have accrued before the statute of limitations can commence to run, six years must in these cases have elapsed after the making of the demand, before the statute bar will attach. When the thing promised is the payment of a sum of money, no actual demand will in general, as we have said, be necessary, notwithstanding the terms of the contract ; but it is nevertheless in the power of the parties so to frame their engagements as to make a preliminary demand essential. And so likewise, though there be nothing in the terms of the instrument to take the case out of the general rule, the attending circumstances and the nature of the duty may be such, that the words which mention a demand or request will have a special significance, and require a preliminary demand to be made. An instance of the first description occurs in Thorpe agt. Booth, (Ryan & Moody, 388,) where a note was payable twenty-four months after demand, and it was held that the statute did not begin to run until the demand was made and the time mentioned had elapsed. Of the instances in which it is held that the nature of the debt or demand, for which the note was given, gives character and significance to the language respecting the request, the case cited from 3d Penn. Rep., 149, (Sinkler agt. The Turnpike Co.,) is a sufficient example. By the instrument which the defendant had signed, a sum of money was payable " in such manner, in such proportions, and at such times as should be determined" by the president and managers of a certain turnpike company, in pursuance of an act of the general assembly. It was held that the statute of limitations did not begin to run until a call had been made upon the subscribers, pursuant to the statute ; but this was upon the ground that, by the act, the managers were to arrange the stock into instalments and call for the money as it might be wanted during the construction of the road. It provided in express terms that no action could be maintained on the subscription until the managers had first fixed a time for payment and given notice of it. The cases of Miles agt. Bough, (3 Adolph & E., N. S., 845,) and Ross agt. The Lafayette Brg. Co., (6 Ind., 299,) proceed upon the same principle.
The law is the same as to the notes given to mutual insurance companies having charters similar to that of the Jefferson county company incorporated in 1836, (p. 42, § 6.) In these companies the statute provided that the notes should be payable (except as to the five per cent, required to be paid down) in part or in whole at any time when the directors shall deem the same requisite for the payment of losses by fire, &c. And so also as to notes given upon effecting insurance in the companies incorporated under the act of 1849, when they were organized, as they generally were, upon the system of premium notes assessable for the payment of losses and incidental expenses. All these notes were given in the same language as the one before us, the form of which was no doubt borrowed from them; yet it was always held, according to the obvious intention of the transaction, that no action could be maintained upon them, unless an assessment had been first made. The case of Savage agt. Medbury, (19 N. Y. R., 32,) was an action brought upon a note given to one of these companies, upon the taking out of a policy of insurance by the maker, and was in the same language as the note now under consideration, and there had been no assessment. It appears upon examination of the charter and by-laws of the company, that it was organized upon the system of premium notes, assessable for losses, and it was held that the plaintiff could not recover for the want of an assessment. In these cases it was the circumstances outside of the notes, and connected with their consideration, which attached a meaning and purpose to the peculiar expressions contained in them. Those circumstances, looked at in connection with the terms of the notes, showed that they were not made for the absolute payment of the sum of money mentioned in them, or for any sum, but as an engagement to pay a proportion of the losses which might belong to the makers to pay, not exceeding the numerical amount mentioned in the notes, when an assessment for that purpose should be made by the directors. But suppose a note in the same precise language should be given, upon the simple loan of a sum of money by an insurance company authorized to loan money and to take notes, would the language which refers to the requirement of payment by the directors have any other or different meaning than the words " on demand," contained in ordinary notes ? I know of no reason for any distinction between the two cases. The principle of the authorities holding that these words, in a note given for the payment of money, do not create a condition precedent, is, that the time for requiring payment is left to the uncontroled will of the creditor. When that is found to be the case, no condition is created by a statement that the money is payable on demand or on request, or when required by the creditor, or when the language contained in this note is used; an action being considered in all such cases a sufficient request.
The present action is founded upon the assumption that the note was payable absolutely, and that no assessment was required. Upon a contrary supposition, the defendant would be entitled to judgment for the want of an assessment, according the case of Savage agt. Medbury, just referred to, which would be a precise precedent for such a judgment. The plaintiff himself therefore contends that the exceptional language of the note did not create any' condition other than that the payee might require the payment in whole or in part, at pleasure. This is a condition which in strictness of language is contained in every note payable on demand. The maker may be said to promise to pay the money mentioned, provided the payee shall demand it, and whenever he shall make such demand; but this is a condition in form only, and not in substance or in legal effect.
The plaintiff is quite correct in assuming that the money was payable absolutely, and that no assessment was necessary. We had occasion to examine that question in White agt. Haight, (16 N. Y. R., 310;) looking to the purpose to which these notes were given, and to the language of the statute requiring them, we came to the conclusion that they were intended to be securities for the sums of money mentioned in them, in the same absolute sense as though money had been paid in to the company as capital, and it had been loaned out by it on these notes. The consideration of the notes was, it is true, the agreement on the part of the company to insure the parties or their nominees to such an aggregate sum as that the premiums would amount to the money mentioned in the respective notes. When, therefore, the maker of one of these notes should have paid to the company the amount named in it, he would be entitled to take out policies in his own name, or for other parties, until the amount he had paid in satisfaction of the note had been charged in premiums. So any premium which he should in fact pay upon insurance obtained from the company, would at the same time be a payment on account of his note. If there were no other parties interested but the makers of the notes and the corporations, the former ought to be discharged from the payment when the company should have failed before insurances had been taken on account of their note. But this would defeat the pur pose for which they were given, which was to furnish a safe capital for the indemnity of all parties dealing with the company on the subject of insurance. It was to protect the insured parties from the consequences of such failure of the company that the notes were required to be given before a company was allowed to go into operation.
That purpose would of course be entirely defeated, and the whole plan would become illusory, if, upon the insolvency of the company, the notes in which the capital was invested, or which stood in the place of capital, should all be void for a failure of consideration. So far as the makers of the notes had absorbed their respective amounts in premiums actually before the failure, they would be satisfied, and the company would be possessed of the profits realized upon the business ; and this the legislature seems to have thought would in such a case be a sufficient capital; and so also if the notes had been paid without any insurance having been effected by the makers. If the notes remained on hand not extinguished by the payment of premiums or otherwise, they were to stand in the place of capital, and to be available for the payment of losses or otherwise. The plan of obtaining the notes of others in advance in consideration of engagements to insure them, when they should thereafter call for insurance, was a device resorted to some years before the passage of the act of 1849, in the charters of a number of mutual insurance companies granted by special statutes, principally in the city of New York, as was explained in the opinion of the court, in White agt. Haight. The system was the same in all these cases. The notes were to be given for premiums in advance of the actual issuing of the policies, and were to constitute a sort of capital for the security of the dealers, and were to be payable at all events, whether the makers obtained insurance or not, and although the company should fail and go into the hands of a receiver. The obligation to make payment in such cases was fully settled in this court, in Deraismes agt. The Merchants' Mut. Ins. Co., (1 Comst., 371,) and in Brown agt. Crooke, (4 id., 51,) and no other idea could be entertained, consistently with giving any fair scope to the obvious intention of the system.
The note under consideration, therefore, was an absolute and unconditional obligation to pay the money mentioned in it, when by its legal effect it should mature. It was such a note as might rightfully be received in establishing the company, for though not in terms payable in' twelve months, as required by the fifth section, it was payable on request, which the law construes to mean immediately, if such be the pleasure of the holder. The directors whose determination as to the time of payment is mentioned in the note, were, as the governing power of the corporation, the holders of the paper ; and the statement that the money should be payable at such time as they might require, was in effect a provision that it should be paid on the demand of the payees. It is therefore to be governed by the law which declares that notes payable on demand may be sued at any time, at the election of the holders. The statement that it might be called for in different portions or instalments, was for the purpose of enabling the.company to require the payment in that way; but I think no question arises upon that feature, inasmuch as no demand was at any time made for any part of the money less than the whole. The parties, it seems probable, adopted a form for these notes not entirely appropriate to their object, and it is certainly possible that the want of an accurate perception of the purposes of the act in requiring them to be given, led them to assume an engagement for the payment of money absolutely, when they supposed they were only undertaking to pay a proportion of the losses according to the theory of the Jefferson county act. If the language of the notes could not fairly admit of any other construction than that the signers would not be liable in this action, for whatever might be the requirement of the act, they could not be held beyond the fair meaning of the terms of the contract actually made by them. But there is nothing in the language of the note to qualify the effect of the absolute engagement to pay the whole amount of money mentioned in it, when the proper officers of the corporation should call for it. The most that can be said is, that, taking into consideration the history of mutual insurance companies, and the terms of the notes used where a guaranty as to losses only was intended, there is a fair ground for conjecturing that the defendant might have understood his engagement as amounting to such guaranty and nothing more. But as the language used can, without any violence, be accommodated to the case of an absolute undertaking, payable on demand, and as that was the exigency under which the contract was made, the law requires that construction to be given, and will not admit of any other.
Considerable reliance is placed on the expression in the fifth section of the general act, to the effect that the note therein mentioned shall be considered a part of the capital stock of the company. The plaintiff's counsel argues from this that they are to be assimilated to the capital stock of the corporation, in the quality of permanency, and that the intention must therefore be to have them kept on foot during the whole period of the company's existence, except so far as portions of their amount may be needed for th'e payment of losses. Hence it is inferred that they cannot be considered as instruments payable on demand, which may be collected immediately. The argument, if otherwise well founded, would prove too much, for on that assumption it would be incumbent on the plaintiff to show the extent of the losses which policy holders had suffered, in order to determine what portion of the amount should be collected. But the proper answer is, that the term capital stock is used in this place instead of capital, the meaning being that the notes shall be considered in the light of contributed capital or funds, to be employed for the purposes for which the money paid in by the stockholders in other companies is used. Ordinarily we understand by the capital stock of a corporation the interest of the shareholders represented by the script or stock certificates, and the money which they pay to acquire that interest in the capital of the corporation. But the expression, capital stock, is frequently used in a general sense to denote the funds possessed by the institution, upon which it transacts its business, in the same manner in which we speak of the capital of a merchant, which is frequently called his stock in trade or his capital stock. It is in this sense in which it is used in the sentence referred to. For instances of the same kind, see Laws of 1853, (ch. 465, § 3;) Oswego Starch Factory agt. Dolloway, (21 N. Y. R., 449;) The People agt. The Bank of the Commonwealth, (23 N. Y. R., 192-219.)
It remains only to notice one or two cases which were referred to in the discussion of the case in the supreme court. In the Goshen Turnpike Co. agt. Hurtin, (9 John., 217,) the action was on a promissory note, by which the defendant promised to pay the plaintiff $125 for five shares of the capital stock of the plaintiff's corporation "in such manner and proportion, and at such time and place as the plaintiff should from time to time require." There was no averment of any call by the directors or other determination by them respecting the payment of the amount or any part of it, or of any special demand. The defendant interposed a general demurrer, and judgment was given for the plaintiff. It is impossible, I think, to point out any difference in principle between that case and the present as to the point under consideration, and the opinion of the court appears to me to show that this point was deliberately considered. They say : " The note was payable in money, and payable absolutely, and not depending on any contingency. It was in effect payable on demand," &c. The argument of the present defendants is, that the note now in question was not absolute; that it required action on the part of the board of directors to create an obligation to pay it, and that it is not, therefore, payable on demand, but on a condition. The argument in the case cited appears to have been, that the instrument was not a promissory note, not being payable absolutely, but on a contingency; that the amount was only payable as it should be called for by the company; to which the court responded, that it was not so ; but it was a promissory note, payable on demand.
The Dutchess Manufacturing Co. agt. Davis, (14 John., 238,) was an action on a subscription to the stock of the plaintiff's company, payable in such manner and proportion, &c., and the declaration set forth regular calls for instalments of the stock, made by the trustees. The plaintiff recovered, and was sustained by the court. The case is supposed to favor the views of the present defendants, because an averment of the making of calls was thought necessary by the plaintiff, and there was no intimation that it was not essential. But the general act for the incorporation of manufacturing companies, under which that company was incorporated, makes the subscription payable by instalment upon the call of the trustees, (1 R. L., 250, § 5,) and the case therefore belongs to the same class with Throop agt. Booth, and Sinkler agt. The Turnpike Company, which have been referred to, and distinguished from the present case.
It follows from these considerations, that the statute of limitations furnished a bar to the present action, and that the judgment of the supreme court, to the contrary, ought to be reversed, and a new trial awarded.
All the judges concurred, except Sutherland, J., (dissenting,) and Selden, Ch. J., absent.