Smith v. Hall

1. An Insurance Company, incorporated by the laws of New York, cannot make a valid transfer of its notes, amounting to over §1,000 in the aggregate, unless it is authorized by a previous resolution of the Board of Directors, if such transfer be made merely as security for a precedent debt, and to a person knowing that there is no such resolution authorizing the transfer. 2. When the transfer is made to a firm, one of whose members is a Trustee of the Company, the firm has constructive notice of the non-existence of such a resolution. 3. Where the complaint alleges an indorsement of the note by such Company to the plaintiff, and the answer denies the fact of such indorsement, and avers that the transfer was made by some officer or officers of the Company, when it was insolvent, to secure a precedent debt, proof is admissible that there was no resolution authorizing the transfer. 4. Where a promissory note, payable to the order of The Atlas Mutual Insurance Company, was transferred and delivered to the plaintiffs as security for a debt due to them by the Company, and the indorsement was in form: “ Pay........for account of The Atlas Mutual Insurance Company,” G-. H. T., Secretary, the restrictive form of the indorsement forms no obstacle to the plaintiffs’ recovery on the note against the maker. The collection of the note, and the application of it to the payment of the debt of the Company, would be according to the right of the plaintiffs, and it would be a.paj'ment for account of the Company.

This is an appeal by the plaintiffs from a judgment dismissing their complaint with costs. The action was tried before Mr. Justice Slosson, without a jury, in March, 1856. The complaint states that the. defendant made his note, dated the 10th of December, 1855, whereby he promised to pay, six months after its date, to the order of The Atlas Mutual Insurance Company, at the Atlantic Bank, $150; that said Company “indorsed the same to said plaintiffs” before its maturity; that it is past due and wholly unpaid; and that the plaintiffs are the lawful owners and holders of it, and defendant justly owes them thereupon $150, and interest from June 13th, 1856, and prays judgment accordingly. The answer avers that the note is wholly without consideration and void; denies that said Insurance Company indorsed it to the plaintiffs, or that they are the lawful owners and holders of it; and alleges that it was transferred to the plaintiffs by some officer or officers of said Company, when the Company was insolvent, to the knowledge of the plaintiffs, for a prior indebtedness of the Company, with intent to give a preference to the plaintiffs over other creditors of the Company, contrary to the statute, and that the plaintiff, Boynton, was at the time a Trustee of the Company. It alleges that the Company owes the defendant $300, “ for moneys due on losses and reinsurance on policies of insurance heretofore issued by said Company to said defendant,” which sum the defendant claims to set off. It was proved on the trial that the note in suit, and another note of the same amount maturing June 8, 1856, were given by the defendant to this Insurance Compan}', upon an open policy, for premiums in advance. The defendant subsequently took risks, the premiums on which amounted to $236.72. It did not appear whether the other note had or had not been paid. The note in suit, with other notes belonging to the Company, amounting in all to $1,153.33, were delivered to the plaintiffs on the 15th of January, 1856, and the plaintiffs gave a receipt therefor, which described the notes and stated that they were “guaranteed by the Company.” They were transferred to the plaintiffs as security for the payment of money which they had loaned to the Company previously thereto, (loans having been made from time to time from May, 1855, until shortly prior to the transfer of the note in question.) It did not appear whether the balance due to the plaintiffs was more dr less than the amount of the notes so transferred, or was just that amount, unless it appears from the testimony, uncontradicted, “ that this note was indorsed to the plaintiffs for their own exclusive use, and in no part for the use of the Company.” George II. Tracy, the Secretary of the Company, indorsed and delivered the notes so transferred. The Secretary, to the knowledge of the Trustees, had been in the habit of indorsing the notes of the Company. .This note, and those transferred with it, were indorsed and delivered to the plaintiffs with the knowledge and approbation at the time of the President and Assistant President. The form of the indorsement was: “ Pay........for account of The Atlas Mutual Insurance Company. “ Geo. H. Tract, Sec'y.” '• The words of the indorsement, except the name of the Secretary, were printed; and this form of indorsement was printed on many of the notes belonging to the Company. . This and the notes transferred with it, as testified, were “ indorsed to the plaintiffs for their own exclusive use, and in no part for the use of the Company.” • It did not appear that there was any resolution of. the Board of Trustees authorizing the transfer of the 15th of January, 1856, and there was some evidence that no such resolution had been passed. The plaintiff, Boynton, was a Trustee of the Company .and had been from the time of its organization. The Company stopped payment on the 5th of March, 1856. The Court found as facts: “ 1. That the said note was made by the defendant, as alleged in the complaint. “ 2. The it was indorsed by said Atlas Mutual Insurance Company as follows: ‘Pay........for account of The Atlas Mutual Insurance Company,’ and delivered to the plaintiffs, with other notes, to secure to them the repayment of loans of money made by the plaintiffs to said Company at different times from May, 1855, to some time prior to January 15, 1856, and that the payment of said note was guaranteed by the Company. “ 3. That the said note, with others, in all exceeding $1,000 in value, were at one time indorsed as above and delivered to the plaintiffs, and that there was no resolution of the Board of Trustees of said Company authorizing said transaction, or in relation thereto. “ 4. That said note was a premium note on an open policy, and given for premiums in advance, and that the Company was in the habit of using such notes, and selling and transferring them for the payment of its debts. “ 5. That by the 12th section of its charter, said Company was authorized in the following words, viz.: ‘ The Company, for the better security of its dealers, may receive notes for premiums in advance, of persons intending to receive its policies, and; may negotiate such notes for the purpose of paying claims or otherwise in the course of its business; and on such portions of said notes as may exceed the amount of premiums paid by the respective signers thereof, at the successive periods when the Company shall make up its annual statement, as hereinafter provided for, and on new notes taken in advance thereafter, a compensation to the signers thereof, at a rate to be determined by the Trustees, but not exceeding five per cent per annum, may be allowed and paid from time to time.’ “6. The plaintiff, John Boynton, was at .the time of this transaction, .and had. been from the organization of The Atlas-Insurance Company, one of its Trustees. “7. The said note was not taken by the plaintiffs in- payment of the. indebtedness of The Atlas Insurance Company to said plaintiffs.” The Court held as conclusions of law: “1. The indorsement of said note was restrictive in form, and did not. transfer the title thereof to the plaintiffs absolutely. “ 2. The transfer of said note was void under the 8th section of the act to prevent insolvency of moneyed corporations, as said transfer was not authorized by a previous resolution of the Board of Trustees. “ j. That said note was not such a note as is described in said 12th section. 4. That the plaintiffs could not maintain this action.” The plaintiffs’ counsel thereupon excepted to the said conclusions of law, and to each of them separately. Judgment having been entered upon the decision, the plaintiffs appealed from it to the General Term.