Court Opinion

ID: 8780065
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:15:11.865798+00
Date Added: 2024-06-11T17:02:47.333729
License: Public Domain

NOYES, Circuit Judge ('dissenting).
A man must be just before he is generous; much more, if his charity begin at home. He may put aside moneys and agree with himself that they shall be.used only for particular purposes; but still his creditors may seize them. He may die and leave a will creating funds for many objects; but he can-not thereby defeat the demands of his creditors. That which a man has the right to reserve either for his uses or charities is that which remains after his debts are paid.
A corporation may create special funds for the benefit of its stockholders or members; but it must first meet its obligations to its creditors. .The courts have many times said that the assets of a corpora- ■ tion constitute a trust fund for the payment of its debts. 1 And this is true whether the corporation have, or have not, capital stock.
The primary reason why the stockholders or members of an insolvent' corporation cannot appropriate its property and leave its debts unpaid is that they, in reality, we the corporation. They cannot pay themselves at the expense of their creditors. And this reason is quite as -strong and the principle quite as applicable in the case of an insolvent co-operative insurance corporation as in any other case. Manifestly, the assets of such h corporation which the members have the right to divide, are those only which remain after general creditors are paid.
The beneficiaries of deceased members of a co-operative insurance corporation stand in a position similar to that of legatees under a will. They take by and through the member as the legatee takes through the testator, and are subject to the limitations attaching to the member. And while their rights may be vested and they may sue on the policy, they must look, as must the legatee, to the assets remaining after the payment of debts. In one sense they are creditors, but they are not like the general or outside creditors. Their rights are subject to the rules and regulations of the corporation because they take through them. The outside creditors deal with the corporation at arm’s length.
It follows then that if the reserve fund in question in this case constitute part of the assets of this insolvent corporation, it must first be applied to the payment of the general creditors. And as such fund was created out of the moneys of the corporation, it does constitute a part of its assets unless in one of two contingencies:
(1) Unless the state of Néw York which created the corporation ' *351has expressly provided by statute that reserve accumulations of cooperative insurance corporations shall not constitute a part of their assets and shall he free from the charge of their debts ;
(2) Unless the reserve fund constituted a valid trust fund.
Now the only New York statute upon the subject to which attention has been directed is the act which provides that nothing in it shall prevent the creation of a reserve fund Cor the payment of assessments or death losses. Manifestly this statute, considered as a positive grant of authority, falls far short of providing that a reserve fund if created shall not, in respect of general creditors, constitute a part of the assets of the corporation. The statutory provisions are consistent with the creation of a fund for the purpose stated, but subject to the payment of debts.
The reserve fund did not constitute a trust fund because, in the first place, the corporation did not part with dominion over it. The moneys were merely placed in. the hands of a custodian and were not altogether kept there. In the second place there was no trust because there was no designated beneficiary. The fund was to be distributed among members or “as the court shall direct.” In the third place if there were a trust at all, it was for the benefit of the members of the, corporation — in reality the corporation itself — and was, consequently, invalid as to outside creditors.
For these reasons I am of the opinion that, with respect to the general creditors, the reserve fund in question constituted a part of the assets of the corporation to which they had the right to look for the payment of their debts before it could be distributed to the members or their beneficiaries. While I have reached this conclusion merely by applying what would seem to be elementary legal principles, I think that it is not in conflict with, but is rather supported by, the decisions of the New York Court of Appeals which have been referred to.
For the reasons stated in the opinion in Matter of Traders’ & Travelers’ Accident Co., 68 Misc. Rep. 440, 125 N. Y. Supp. 85, which I approve, I think that the claim of the state of New York is entitled to a preference.
In my opinion the decree of the circuit court should be reversed with respect to the claims of the general creditors and the claim of the state of New York.

 However the trust fund doctrine may be regarded all the discussion of it serves to emphasize the proposition that when the affairs of a corporation are being wound up distribution must be made to the creditors before stockholders or members receive anything.