Court Opinion

ID: 5459230
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:29:03.794125+00
Date Added: 2024-06-11T08:32:48.117653
License: Public Domain

W. F. Allen, J.
The demurrer is only to the first cause or ground of action alleged in the complaint, which is, that the Utica Insurance Company never became a valid corporation for any of the purposes of the organization, by reason of an omission on the part of the associates to comply with the precedent requirements of the statute; also by reason of an alleged fraud practiced upon the persons appointed by the comptroller to examine and ascertain whether the company was in possession of the engagements for insurance, to the full extent required by the act under which the company assumed to organize; and also by reason of an alleged defect and insufficiency in the certificate required to be given by the examiners, preliminary to the commencement of business by the corporation. The relief asked upon this branch of the case is that it be adjudged that the association was never organized as a mutual insurance company, and that the premium notes given upon insurance effected with the company are therefore void. I assume, as it is assumed by the defendant in terms by his demurrer, and by the argument of his counsel, that the plaintiffs did insure with the Utica Insurance Company after the commencement of its business upon the plan of mutual insurance, and gave their notes for *398the premiums of their respective insurances, in whole or rd part, and that such notes, upon the appointment of the defendant as receiver of the effects of the company, passed into hia hands and are now held by him, and claimed to be valid against the several makers, to the full amounts thereof; that the plaintiffs were, in virtue of their insurances, members and corpora-tors of the mutual insurance company, if any such company was in existence.
It may be assumed that whatever the alleged corporation wmuld have to prove, in an action brought by it, upon the issue of mil tiel corporation, may be controverted in an action brought against the corporation for relief based upon the corresponding allegation that no such corporation ever existed, and I am of opinion that beyond this the party contesting the corporate existence of the company cannot go. 'All that the corporation is called upon to prove, to establish its existence, in a litigation with individuals dealing with it, is its charter and user under it. (McFarlan v. The Triton Ins. Co. 4 Denio, 392. Utica Ins. Co. v. Tilman, 1 Wend. 555.)' In The Fire Department of N. Y. v. Kip, 10 Wend. 266,) Savage, Oh. J., says: “ That the plaintiffs are a corporation, was proved by the production of the statute declaring them to be so. This case, in that respect, is different from those corporations created by statute, and to become entitled to corporate powers by something to be done in futuro. In such cases we have held that at least proof of user under the charter shall be produced.” (See also U. S. Bank v. Stearns, 12 Wend. 314; Williams v. Bank of Michigan, 7 Wend. 539.) There is a class of cases reported in actions brought against corporators upon subscriptions to the capital stock of the company, or agreements entered into preparatory and preliminary to the perfect incorporation or organization of the association, and which are therefore necessarily conditional, depending for their validity, upon the completion of the organization according to the terms of the statute incorporating or authorizing the incorporation of the company. This condition is implied, in the undertaking, and is as much a part of it as if expressed in terms. Such are the cases of *399Salem Milldam Corporation v. Ropes, (6 Pick. 28; S. C. 9 id. 187;) Central Turnpike Corporation v. Valentine, (10 id. 142 ;) Hamilton and Deansville Plank Road Co. v. Rice, 7 Barb. 157.) There is a manifest distinction between actions of that character and those growing out of dealings with the corporation, after it should claim to be an incorporated company, and should be in the full exercise of corporate privileges, and brought by or against third persons, strangers to the corporation. It may be said of the relation which the insured in mutual insurance companies occupy in respect to such companies, that it is peculiar. While for some purposes they are corpora-tors, and members entitled to the privileges and subject to the liabilities incident to that relation, for other purposes they are treated as third persons and strangers, and in actions by or against them, growing out of their dealings with the corporations, their rights and remedies would not be other or different than they would be were they not members or corporators for any purpose. There is nothing in the complaint from which I can infer that the notes, against which relief is sought, were made at and in order to the organization of the company; and whether, if they were, the result would be changed, I am not prepared to say. If the company had in form a charter authorizing it to act as a body corporate, and was in fact in the exercise of corporate powers at the time of its dealing with the plaintiffs, then it was, as to them and all third persons, a corporation defacto, and the validity of its corporate existence can only be tested by proceedings in behalf of the people. (Per Senator Beardsley, 7 Wend. 553. Trustees of Vernon Society v. Hills, 6 Cowen, 23.) In Wood v. Jefferson Co. Bank, (9 id. 194,) the act under which the plaintiff claimed to have become incorporated did not make any particular persons a corporation, but provided for subscriptions to the capital stock, and that before the issuing of notes, <fcc. by the bank, an affidavit that certain things had been done, should be made by the president and cashier, and filed, and the plaintiffs showed by their books the election of officers and the making and filing *400of the affidavit, and it was held sufficient prima facie proof of the existence of the corporation.
It is said that fraud vitiates every, even the most solemn acts, and this is true as well of judicial and legislative acts, as acts inter partes. But it does not follow that every individual may assert fraud with a view to impeach the validity of every public act. So far as the fraud alleged affects the validity and legal existence of the supposed corporation, it concerns the public interests, as it relates to and affects the validity of the contract between the public and the associates, or the power which the latter claim to have acquired under the laws ; and the people, or some one having by law authority to represent them, can alone investigate the fraud, and ask that the charter may be annulled or adjudged never to have had an existence. So far as the fraud alleged has wrought an injury to individuals, beyond that which has been sustained by the public at large, to that extent they may have relief. If parties have been induced to enter into contracts of insurance upon a fraudulent representation of the agents and officers of the company in regard to its capital or pecuniary resources and ability, or any other matter which righfully influenced them in the negotiation, they may be relieved against their contracts ; but as it is not necessary for their protection to go beyond that and declare the non-existence, for any purpose, of the. corporation, it should not be done. Perhaps the facts will warrant an amendment of the complaint, so as to entitle the plaintiffs to this relief. (See per Bronson, Ch. J., 4 Denio, 397.)
The only remaining question is whether the plaintiffs have shown the Utica Insurance Company acting under a charter or an authority apparently valid, and really so, unless impeached by something outside of the record evidence of the corporate existence, and depending upon proof aliunde. If they have, and have thus furnished prima facie evidence of the incorporation, they cannot go behind that evidence to show that it was got up in fraud or mistake, or irregularly brought into existence. The decision of this question depends upon the true construction of the act under which the company undertook *401to organize and became incorporated, and what acts shall be deemed conditions precedent to the complete organization of the company, and what shall be the evidence of the performance of these conditions. The statute under which the company was formed, (1 R. S. 4th ed. 1279,) authorizes any number of persons not less than thirteen, to associate and form an incorporated company, for the purposes of health, life, marine or fire insurance; and section five of the act provides that no company formed and located out of the city of New York or county of Kings, for the purpose of doing the business of fire insurance on the mutual plan, shall commence business until agreements have been entered into for insurance, the premiums on which shall amount to $100,000, and the notes received therefor. A previous section had authorized the filing, in the office of the secretary of state, of a declaration of intention on the part of the proposed corporators, and a copy of the proposed charter. The extent to which the filing of the declaration and charter authorizes the associates to act as a company, is to enter into the conditional engagements for insurance, and to receive the premium notes to become valid and effectual as agreements upon the complete organization and incorporation of the association. That act does not constitute the association a corporation. The accumulation of the capital, by way of the premium notes, for the protection and security of the public, I cannot but think, is a condition precedent to the fall organization of the company. And the act does not stop here, but by $ 11 it is required that an examination shall be made by the comptroller or a commissioner appointed by him, who shall certify, under oath, that the company is in possession of the capital and premium notes, &c. to the full extent required by the fifth section of the act; that copies of this certificate shall be filed with the secretary of state, whose duty it shall then be to furnish the corporation with a certified copy of the charter and certificates, which, upon being filed by them in the office of the clerk of the county in which their company is to be located, “ shall be their authority to commence business and issue policies, and the same may be used for or against said *402corporation.” Without the certificate demanded by the 11th section, the corporation would have no authority .to commence the business of insurance, notwithstanding the requirements of the fifth section had been complied with, and the design was to furnish record evidence of the corporate existence of the company. The charter, or the evidence of the grant of the franchise from the people to the corporators, is their charter on file, and the certificates of the examiners of their securities, or properly authenticated copies of them, which take the place of a special act of the legislature, incorporating them by name. It was not intended to leave the fact of the possession by the company of the requisite amount of premium notes, at the time of its organization, to be proved as a matter in jiais, or to leave it an open question, liable to contestation by every individual having dealings with the corporation. The legislature provided a tribunal for the adjudication of this question, and its determination is final, so far as the existence or nonexistence of the corporation is concerned, until impeached and overthrown by a proceeding instituted by the people or their representatives, for that purpose. The reason and policy of the law is very obvious, and without an express provision to that effect, such would be the legitimate effect and construction of the act, and such construction would be in harmony with the decisions of our courts upon analogous statutes. (Jefferson Co. Bank v. Wood, supra. The Fire Department v. Kip. Caryl v. McElrath, 3 Sandf. 176.) But the statute is explicit, and, as I read it, leaves no room for construction. It makes the copies of the charter and certificates filed in the office of the county clerk, “ the authority” of the corporation to commence business and issue policies, and makes them evidence for or against the company; that is, evidence of the authority to act as a corporation. The legislature having said what act or acts shall give the company corporate powers, and what shall be the evidence of those acts, as well for as against the company, courts cannot, at the instance of third persons, go behind those acts and the prescribed evidence of them, for the purpose of determining the validity of the corporation and *403make the decision, perhaps, depend upon some mistake or accident from which no one has received, or can receive, any injury. The certificate of the examiners is, I think, a substantial, although not a literal compliance with the act, and the law looks to the substance rather than the letter of the transaction. The fifth section requires “agreements” for insurance to be entered into, the premiums on which shall amount to a sum named, and the eleventh section requires the certificate to state that the company is in possession of “engagements” of insurance to the full extent required by the fifth section. The certificate is that the company had notes given on “application” for insurance, to the prescribed amount. The agreements or engagements mentioned in the statute, could be only inchoate and conditional, until the full organization of the company. They could not until then ripen into actual contracts of insurance. Either party could then be compelled specifically to perform the engagement or agreement. But an application accompanied by a note, for the proposed premium, accepted and acted upon by the company, is as valid an engagement or agreement as can be made. It is in words the very engagement or agreement contemplated by the act; as that could only remain an application accepted by the company, to be acted upon and consummated at the option of either party, after the company should be authorized to issue policies. The terms must be construed in reference to the situation of the parties and the subject to which they relate.
[Onondaga Special Term,
February 12, 1855.
The plaintiffs are not entitled to the relief asked upon' the first cause of action, on the facts alleged, and the demurrer must be allowed, with leave to the plaintiffs to amend, on payment of costs.
W. F. Allen, Justice.]