Holbrook v. Basset et al.,

Bank v. N. Y. & N. H. R. R. Co., 3 Kern., 599; Hood v. N. Y. & N. H. R. R. Co., 22 Conn. R., 502, 508-572; Wyman v. Hal. and Aug. Banks, 14 Mass. R., 58, 63; Salem Bank v. Gloucester Bank, 17 id., 1, 28, 29.)

IV. The power given to Nelson & Sturges to take an unlimited amount of the assets of this Company, and to sell them at their option, is a direct violation or repeal of section 8 of the act before referred to.

V. The defendants, being interested as creditors and stockholders, may take advantage of a statute "to secure their rights."

VI. A corporation, or its stockholders or receivers, may in every case impeach any contract made by directors or other officers or agents, in the name and professedly by such corporation. (2 Denio, 110; 5 id., 567; 3 Barn. & Ald., 1.)

But the defendant, without reference to his connection with the Company, may defend for want of title in plaintiffs. (Johnson v. Bush, 3 Barb. Ch. R., 207.)

W. Britton, for plaintiff, (respondent.)

I. There was no illegality in the transfer, for the transaction under which the note was transferred to Nelson & Sturges was valid.

1. It was but a loan by the parties thereto, for whom Nelson & Sturges acted, to the Company, and taking collateral security thereto, which is clearly legal. (Charter Atlas Co., § 12, "Atlantic;" Barker v. Mechanic Ins. Co., 3 Wend., 96; Munn v. Commission Co., 15 Johns., 44; Attorney-Gen. v. Life Ins. Co., 9 Paige, 470; Moss v. Oakley, 2 Hill, 265; Barry v. Merch. Ex. Co., 1 Sandf. Ch., 280; Beers v. Phoenix Glass Co., 14 Barb., 358; Curtis v. Leavitt, 15 N. Y. R., 62–65; King v. Merch. Ex. Co., 1 Seld., Furniss v. Gilchrist, 1 Sandf., 53.)

547;

2. If a trust by the Company, it was competent for the Company to make such a trust. (Angell & Ames on Corp., § 241; Curtis v. Leavitt, 15 N. Y. R., 62-65; De Ruyter v. St. Peter's Church, 3 Comst., 238; Nelson & Sturges v. Eaton, 15 How. Pr. R., 305; Barry v. Merch. Ex. Co., 1 Sandf., 280; Leavitt v. Blatchford, 17 N. Y. R., 534, et seq.)

3. If not valid in toto, there is no invalidity in any portion under which plaintiff claims. The maxim, "void in part

Holbrook v. Basset et al.

void in toto," is not, in general, law, and this is not an exceptional case. (Curtis v. Leavitt, 15 N. Y. R., 96, 97.)

4. Nor can it be objected that the agreement was void for noncompliance, on the part of the Company, with part 1, title 2, chap. 18, art. 1, sec. 8 of the Revised Statutes; for,

(a.) That section is in conflict with the 12th section of the charter of the Atlantic Company, made a part of the charter of the Atlas, and the charter having been last enacted, the Revised Statutes must yield. (Howland v. Meyer, 3 Comst., 293.)

(b.) But if that section of the Revised Statutes does apply, the resolution passed January 14th (appearing in minutes of 29th) authorized the transaction.

(c.) If not authorized by the resolution, it is only invalid as against the Company, its Receiver, or judgment creditors; defendants are not in a position to set it up. (Nelson v. Eaton, 15 How. Pr. R., 305; Tracy v. Talmage, 4 Kern., 162; Curtis v. Leavitt, 15 N. Y. R., 240, 106, 107; City Bank of Columbus v. Bruce, 17 N. Y. R., 515.)

(d.) Moreover, the Company, by accepting the benefit of the transfer, ratified the act, which ratification, in its legal effect, is equivalent to previous authority. (Curtis v. Leavitt, 15 N. Y., 48-50; Reuter v. Electric Tel. Co., 88 Eng. C. L. R., 341; Palmer v. Yates, 3 Sandf., 138.)

BY THE COURT.-WOODRUFF, J. The full discussion of the various questions arising on the trial of this case found in the opinion of Mr. Justice BOSWORTH at Special Term, has narrowed the controversy between the parties to a very few points. For the most part, that opinion appears to have been satisfactory, and no point or argument is made on the appeal addressed to the principal matters discussed there.

It has not, therefore, been claimed here that the note upon which this action is brought, was not a good and valid note in the hands of the Atlas Insurance Company, to whom it was delivered by the defendants, or that it would not be valid and collectible if it were now in the hands of the Receiver of that Company; nor that there was any proof that it was obtained by fraud or misrepresentation; nor that the defendants are relieved from the obligation which its terms import, by reason of any Bosw.-VOL. V.

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proof that the condition of their agreement or subscription was not satisfied.

These points, and others which were discussed at Special Term, not having been raised on the appeal, and the opinion there pronounced not having in those particulars been assailed, we shall assume that the note is a valid binding note obtained without fraud or misrepresentation, given upon a sufficient consideration, and collectible by the Atlas Insurance Company, or its Receiver; and we shall also bear in mind that the note was received by the Company for premiums in advance from the defendants, who intended to receive its policies.

If the views expressed at Special Term had not been thus acquiesced in, our reflection upon the points involved would lead us to say that they have our entire concurrence.

The question therefore discussed on the appeal, and the only question, was, whether the plaintiff has such a title to the note that he can maintain the action thereon and recover from the defendants?

There is no formal defect in the title. The defendants made the note payable to their own order, and indorsed it in blank; it thereupon became transferable by delivery, and the possession of the note, and its production by the plaintiff, makes his formal title complete. But in fact the defendants delivered the note to the Atlas Insurance Company; that Company delivered the note to Nelson & Sturges under the agreement found by the Court, and to be presently considered, and the plaintiff received the note from Nelson & Sturges after its maturity, and knowing at the time the circumstances under which they received it. He is therefore in no better situation than Nelson & Sturges would be had they brought the action. It is therefore their title that is assailed.

The transfer to Nelson & Sturges is claimed to be illegal and void. It is necessary for the defendants to go to that length, for if that transfer is not void, but voidable only by the Company or its Receiver, then the plaintiff is entitled to recover, because neither the Company nor the Receiver having avoided the transfer or claimed that it was not in all respects fair, proper and equitable, and having made no claim upon the defendants, the latter are protected in paying it to the plaintiff as holder.

Holbrook v. Basset et al.

But the transfer by the Company is alleged to be void, upon these grounds: That the Company was insolvent at the time of the transfer, and therefore any transfer of its assets was unlawful; that not only on this ground, but also because it violated the statute, the trust upon which the transfer was made to Nelson & Sturges was illegal and void, and also because the Company had no power to borrow notes; and that the transfer to Nelson & Sturges, embracing in amount more than $1,000 of notes, was not sufficiently authorized by the Board of Directors, and was therefore void. These points are founded, or claimed to be founded, upon the provisions of sections 7, 8 and 9, of article 1st, of title 2d, of the 18th chapter, of part 1 of the Revised Statutes. (1 R. S., 591.)

In relation to the first point, it must suffice to say that the finding of facts does not support it, and the evidence supports the finding. Section 9 of the statute forbids any assignment or transfer when insolvent or in contemplation of insolvency, with the intent of giving a preference to any particular creditor over other creditors of the Company. In the first place, the Company had settled its losses up to the 1st of January, 1856, and down to the 15th of January had no knowledge of any losses which rendered the continued solvency of the Company doubtful, but on the contrary, its trustees and officers believed it entirely solvent; they could not, therefore, have made the transfer with intent to give a preference. In the next place, the liability to be called upon in the future for losses which may exceed the capital or assets of an Insurance Company, is not insolvency within the meaning of that statute. If it was, then it would never be proper for an Insurance Company to take risks exceeding the amount of its capital, since with those risks outstanding there is a liability to insolvency at any moment. The business of insurance, from its very nature, requires for its success the capacity to take risks to an amount greatly exceeding its capital, and it can never be deemed insolvent in the sense that its payments and transfers, in due course of business, can be said to be with intent to give a preference to one creditor over another, until its officers or agents are notified of losses which they are unable to pay. Again, the transfer in question was not within the statute; it was not in any sense a transfer to give a preference to a creditor; it was merely

Holbrook v. Basset et al.

giving security for an equivalent sum or amount then received. It was not a diminution of assets, but a raising of money and a cotemporaneous parting with securities, not to pay or secure a debt, but simply to provide for the return of the sum borrowed. Negotiation of bills receivable, and obtaining money thereon for the proper uses and purposes of the Company, is not of itself, and without collusion or fraudulent intent, a transfer of property to give preference to a creditor. And, once more, the transaction was to assist in sustaining the Company in carrying on its ordinary business and paying its losses, and with the expectation that its business would be continued, and not for the purpose of preferring any one or in any anticipation that all would not be paid. Such a transfer is lawful. See observations on this subject in Hoyt v. Sheldon, (3 Bosw., 303–306,) and the cases cited.

It is next claimed that the agreement, in pursuance of which the note was delivered to Nelson & Sturges, was void, and the transfer therefore void, because a trust was created by the agreement, which was void under section 7 of the act above referred to, which declares that "no conveyance or transfer of any effects for the use, benefit or security of any such" (moneyed) "corporation, shall be valid in law, unless it be made to the corporation directly and by name."

We understand the counsel for the appellant, in his argument upon this point, to insist that the advance agreed to be made by Nelson, Sturges, Massey, Smith and others, who signed the agreement of January 15th, 1856, and the delivery of their notes to Nelson & Sturges, to the amount of $40,000, was such a transfer as is forbidden by the statute.

The answer to this suggestion is twofold. If by any latitude of construction an agreement to advance notes to a corporation, and to indorse notes for its benefit, the notes to be used for the benefit of the Company, could be deemed a transfer of effects within the statute, and therefore invalid, the consequence would simply be that the agreement could not be enforced. Neither party could compel its performance. But if the notes are advanced and they are converted into money, and that money is paid to the corporation and used by it in its proper and ordinary business, the securities given for its repayment cannot be reclaimed without refunding the money.