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    In the Matter of The Equitable Reserve Fund Life Association of the City of New York.

      (Court of Appeals,

      Filed March 1, 1892.)

    1. Benefit societies—Dissolution—Reserve fund—Death claims..
    A receiver found the assets of a mutual benefit insurance.association in such a condition that the death fund was largely deficient in its ability to-pay the death losses accruing prior to the dissolution of the .association, and by its constitution no death claim was to become otherwise due or payable. The reserve fund'had been formed by laying aside twenty-five percent. of the death assessments, and was not to be applied to death claims . until it exceeded $100,000, which it never did, and then only where the claims exceeded the mortality tables, etc. Held, that the reserve fund was not in any event liable to be called upon for payment to those holding death claims. It was essentially a fund for the assistance of the living-to the entire exclusion of the' claims of those who represented deceased, members. ■
    2. Same—Who shall share in reserve fund.
    Thirty-four assessments had been made, and after a receiver had been, appointed a thirty-fifth assessment was ordered by the court which many members failed to pay. Held, that under the circumstances there was no-absolute and legal duty resting upon the members to pay the thirty-fifth assessment and the non-payment did not deprive them of their right to share in the reserve fund. The thirty-fifth assessment should - be repaid and all members who paid the thirty-fourth and were living when these proceedings were begun should share in the reserve fund.
    3. Same—Members payable pro rata.
    Those who are entitled to the reserve fund. should be ■ paid therefrom. pro rata according to the amount each has contributed thereto.
    4. Same—When rights determined.
    . The date upon, which to determine the rights of claimants upon the reserve fund should be the date of the commencement of the proceedings, which terminated in the dissolution of the company.
    5. Same.
    The certificate holders who died after the commencement of the proceedings have no claim upon the death fund, but their representatives share in. the reserve fund.
    6. Same.
    The thirty-third and thirty-fourth assessments were levied under the amended constitution for a general purpose and not for any particular death claim. Held, that the mere fact that a claim was approved by the executive committee before the assessment was made does not give such claim a preference.
    7. Same—Expenses of dissolution.
    The two funds should pay pro rata the expenses of the winding up.
    Appeal from order of the supreme court, general term, first department, reversing in part an order of special term overruling exceptions to report of referee and affirming such report.
    This association was incorporated on the 17th day of May,, 1883, under and by virtue of chapter 175 of the Laws of 1883,, passed April 2d of that year, and entitled “ An act to provide for the incorporation and regulation of co-operative or assessment life and casualty insurance associations and societies.” This act. was amended by chap. 285 of the Laws of 1887.
    The corporation has been dissolved and a receiver appointed to distribute its funds among those entitled thereto.- Disputes have-arisen as to the respective rights of parties claiming an interest in, the funds in the hands of the -receiver of the dissolved corporation, the chief question being as to the proper application of the-two funds called the “ Death fund ” ánd the “ Reserve fund.” The company adopted a constitution and a set of by-laws, and used a. form of certificate of membership under which people became insured. It continued business from the time of its incorporation until the 18th of September, 1889, when upon the application of the attorney general a temporary receiver was appointed and the officers of the company enjoined from meddling with its funds. The receiver remained in charge of the company under this appointment until the 9th of November, 1889, when the company was formally dissolved and a decree to that effect duly entered, and the temporary was appointed the permanent receiver to distribute the effects of the company among those entitled thereto. The company was dissolved on the ground that it had been conducting its' business fraudulently, which by the 13th section of the act of 1883, as amended by the act of 1887, was made a ground for dissolving a corporation formed under such acts, upon application of the attorney general.
    The association -had no capital stock, and its only means of paying its expenses and the claims against it arose from admission fees, annual dues and assessments. It is in respect to the-moneys collected from assessments that the principal questions-here arise. The constitution stated that the object of the association was “ to advance the welfare of its members and to provide pecuniary indemnity, upon a member’s decease, to his family or others dependent upon him, or to such other person or persons as shall have been duly designated by him.” Art 1, § 2.
    All persons becoming members were required to “ comply with and be subject to all the requirements for membership set-forth in the constitution, by-laws and certificate of membership.” Art 2.
    The agency and general expenses of the business of the company were provided for by the admission fees and annual dues-from members, and such fees and dues were to be graded according to the amount of benefit called for, and were to be prescribed in the certificate. Art 8.
    The following sections from different articles of the constitution • have been specially alluded to and urged as material in the various arguments of counsel.
    Section 1 of article 6 is as follows:
    Benefits.
    “ Sec. 1. Upon the death of a member during the continuance of his or her certificate in full force, the association shall, within three months after due notice and satisfactory proofs of such death, and the approval thereof by the executive committee, pay to the beneficiary named on the books of the association, if such beneficiary be living at the time of such member’s death, otherwise to the heirs or legal representatives of such deceased member, the amount to which the same may appear entitled, according to the books of the association and the terms of the certificate of membership, out of the death fund (hereinafter defined) of the association; or if the death fund shall then be insufficient to pay the whole of any such claim, 'then pro rata with other claims out of the moneys to be realized to said death fund from an assessment to be made as hereinafter described, provided, however, that there shall be first deducted therefrom any counterclaim or indebtedness due from said member to the association. And no death claim shall become otherwise due or payable, except from the ■.reserve fund, as hereinafter provided."

    Article YII.

      Assessments.

    Sec. 1. Assessments shall be levied bi-monthly on the second Tuesdays of February, April, June, August, October and ¡December in each year, for such a sum as may be deemed by the executive committee of the board, of trustees to be necessary to meet the claims outstanding and not previously assessed for, but ■such assessments shall not exceed in the aggregate the amount stated in ‘the third section of this article.
    Sec. 2. Should the amount realized by any- such bi-monthly assessment, after providing for the reserve -fund and contingent fund as hereinafter stated, be insufficient to meet the claims for which the same was levied in full, then it shall be apportioned as provided in article YI, § 1 of this constitution.
    Sec. 3. The aggregate assessments in any one year shall not exceed the net cost of insurance upon the membership in force at the face value of the certificates, according to the American Experience Table of Mortality, with an addition thereto not exceeding forty per centum thereof to provide for the reserve fund (hereinafter defined), and for the expenses of levying assessments, and for investigating, adjusting and contesting doubtful, illegal or fraudulent claims. Such expenses shall not exceed five per centum of the total assessments so levied, which percentage may be set apart for those purposes, as a contingent fund, from the gross proceeds of said assessments. Such further assessments in excess of the foregoing, may, however, be levied as may be rendered, necessary by any law or laws of the state of Mew York, now or hereafter enacted.
    Sec 4. * * * *******
    Sec. 5. Twenty-five per centum of the proceeds of each death assessment shall be transferred from the assessment account to the-reserve fund account. This amount and interest thereon, together with the net earnings of the association, shall constitute a reserve fund. Mo part of the reserve fund shall be used for the payment of expenses.
    Sec. 6. The balance of each net death assessment, after provision for the contingent fund and transfer to the rese>-ye fund, shall be-transferred from the assessment account above specified to the death fund account, and from this account death claims shall be-payable.

    Sec. 7. The board of trustees shall designate some bank or trust company, in which all sums transferred to the death fund account shall be deposited for the settlement of death claims under the certificates of the association, which shall be payable in the manner hereinbefore provided.
    Sec. 8. The board of trustees shall designate some trust company or companies, bank or banks, with which the reserve fund shall be deposited, when not otherwise invested. The reserve fund maybe invested by the board of trustees in good securities of the-character prescribed by law, and may be used in the discretion of the said board to make any deposits required or allowed by the-laws or usages of this or any other state, or to meet any want or necessity of ¿the association that may hereafter arise by reason of unforeseen contingencies.
    Sec. 9. After the continuance of each certificate for a period of five years and every fifth year thereafter an apportionment of the-reserve fund shall be made to the holders of such certificates upon such basis and principles as the board of trustees shall deem safe- and equitable.
    The sum so apportioned to each certificate holder shall be applicable ten years from the date of such apportionment towards-paying future dues and assessments under such certificate; provided, however, that should membership under a certificate cease-by death or otherwise, the amount of such apportionment remaining unapplied shall be withdrawn from said certificate and shall be apportioned as above provided at the next quinquennial apportionment to members holding certificates issued in the same year as the aforesaid certificate.
    Sec. 10. The reserve fund in excess of $100,000 and in excess of the aggregate amount apportioned to members as aforesaid may in the discretion of the board of trustees be applied in settlement of death claims in excess of the American Experience-Table of Mortality, or towards making up any deficiency that may then exist in the death fund.
    By-laws were adopted, but they are not deemed of importance with regard to the questions raised and decided herein.

      When the company first commenced to do business it made assessments whenever a death occurred and the funds were collected for the payment of the special claim arising from-each death loss. The assessment was for the particular death. On the 12th of March, 1889, the constitution was amended in that particular so as to read as set forth in the first section of article 7, .and without reference to any particular death.
    Each member took his certificate, paid his assessment and continued bis membership with reference to the recognized power of the company at the proper time and in the regular way to amend itSjconstitution and by-laws.
    The following are the material provisions of the certificate issued by the company to the parties it insured:
    “ And the said association agrees that within ninety days after the receipt of ■ due notice and satisfactory proofs of the death of the above named member during the continuance of this certificate of membership, there shall -be payáble to-of-•county of -, state of -, if then living, otherwise to the heirs or legal representatives of said member, the sum of - -dollars from the death fund (hereinafter defined) of the association ■at the time of such death, or from moneys that-shall be realized to said death fund from the next assessment to be made as hereinafter provided; and no claim shall be otherwise due or payable, except from the reserue fund, as hereinafter provided.

    “It is understood and agreed that upon the occurrence of a death among the membership an assessment may be made upon the entire membership for such a sum as has been established by the board of trustees, according to the age of each member at admission and the amount of his certificate, as ppr table endorsed hereon, which forms part hereof. Seventy-five per cent of the -sum realized from each assessment shall constitute the death fund •of the.association, hereinbefore referred to, and be available solely and exclusively in settlement of death claims, as above provided. The residue realized from each assessment, namely, twenty-five per cent, together with the net earnings of the association, shall be deposited" in trust with a trust company, arid shall be invested in trust for the benefit of the members of the association in such investments as are now or may be hereafter authorized by law, and shall constitute the reserve fund, hereinbefore referred to, the interest on which, as it accrues, shall be placed by the said trustee to the credit of the death fund.
    “ The reserve fund above $100,000 and in excess of the aggregate amount represented by outstanding bonds, shall be applicable in settlement of claims in excess of the American Experiencé "Table of Mortality, "and when any claim by death is due to making up any deficiency that may then exist in the death fund.
    “After the continuance of each, certificate for a period of five years, and every fifth year thereafter a bond (bearing interest at '.a rate to be fixed by the trustees, payable annually to the death fund), will be issued for such amount as shall, by an apportionment of the reserve fund upon such basis and principles as the trustees shall deem safe and equitable, be allotted it, the principal ■of which bond shall be applicable ten years from its date towards paying future dues and assessments under such certificate; pro-, vided, however, that should membership under a certificate cease, by death or otherwise, any bond issued thereunder shall immediately become and be null and void, and any portion of the jprincipal thereof not so applied shall be apportioned as above provided at the next quinquennial apportionment to members holding certificates issued in the same year as the aforesaid certificate, ;and at any apportionment of the reserve fund, the rate of future mortuary assessments may be changed to conform to the actual mortality experience of the association, if such change shall to the "trustees seem necessary or expedient. Upon the death of a member, a mortuary assessment shall be made (but not more than one for each death) when the death fund is not sufficient to meet the •claim thereby arising.’.’

      Lucius McAdam, Samuel H. Benton, Geo. G. Holt and G. It. Minrath, for app’lts; Henry O. De Witt, Artemus B. Smith, It. J. Moses .and Henry H. Whitman, for resp’t
   Peckham, J.

This is the first appeal which has come to this •court in a proceeding to wind up a dissolved corporation that was ■originally organized under chapter 175 of the Laws of 1883, as amended in 1887.

The companies so organized are neither stock nor exactly mutual insurance companies. While partaking generally of the features of a mutual company, they could not be exactly described as such in all respects. Co-operative or assessment companies they are designated in the statute, and at any rate the rights of the members when the company has been dis: ■solved have never up to this time been the subject of our investigation. The statute provides for the incorporation of companies for the purpose of transacting the business of life or casualty insurance upon the co-operative or assessment plan, •and in § 5 of the act a description of what constitutes such plan may be found.

It is admitted that this company comes within that description.

In such case the liability of the company and the rights of its members must be measured and construed by the constitution ■and by-laws of the company and the certificates which it issued.

First. The chief and important question arising here is as to the rights of the holders of what are designated as death claims.

The death fund is not sufficient to pay all the claimants in full and those claimants demand the right to resort to the so called “ Reserve Fund ” for the payment of the balance of their claims.

The general term, reversing in this respect the ruling of the special term and of the referee, has held that the reserve fund was the property of -the association at the time of its dissolution .and it thereupon became available to meet all the unsatisfied ■debts and obligations of the association, and among such debts were the demands owned by persons in whose favor death claims, •accrued and which had not been wholly paid by the amounts-received from the death fund. Such persons were held to be creditors of the company and entitled to be satisfied, so far as-the assets were sufficient for that purpose, equally with other-creditors having demands against the company. Such claimants-were given the right of exclusive resort to the death fund, and if that fund did not suffice to pay them in full, then they were at liberty to come to the reserve fund and demand payment from it in common with the other creditors.

In determining the correctness of this view the fact mast not-.be lost sight of that the question is not to be determined upon. general principles of equity in distributing the funds of an insolvent estate. The rights of the parties are to be decided with: reference to the constitution and by-laws and the contents of these-certificates, all of which taken together form the contract between the company and the certificate holders. If the contract be in terms silent in regard to any particular question, a provision in-regard to it may be implied under the same circumstances that an implication would arise in any other contract. The contract is the-standard by which to determine the rights and liabilities of the-parties thereto. People ex rel. Meyers v. Masonic Guild, etc., Ass’n, 126 N. Y., 615; 38 St. Rep., 494.

We are after much examination of the question convinced that, the reserve fund is not in any event liable to he called upon for-payment to those holding death claims.

As a “ going concern ” the company provided in its constitution for the creation of two distinct funds, and we do not think the ultimate destination of those funds was altered by the dissolution-of the company. The company agreed to pay death claimants-from a fund called the death fund, and no death claim was, by the terms of the constitution art. 6, § 1, to become otherwise due- or payable except from the reserve fund under the circumstances thereafter mentioned, which were when such fund arrived at the-amount of $100,000, which it never did. Taking this provision alone, and I do not see how the holder of a death claim can found, a right to demand payment from any other than the death fundi There is nothing in the article of the constitution or in the circumstances surrounding its adoption that would enable us to say this provision would not obtain in case the company were dissolved. Of course it was adopted with reference to the idea that-it was to provide for a going concern, but when it carefully creates a separate and distinct fund for the payment of death losses- and plainly announces that the holder of a death claim shall look to no other fund for its payment (except upon a contingency which has not arisen), it seems to us that such condition attends-upon the claim at all times, even when presented to a receiver of the dissolved corporation. If it were not so to be regarded it-. would seem that some provision altering or annulling the condition upon the dissolution of the company would naturally have-been adopted.

It lies with those who claim the abolition of this condition to-•show it, or else to show clearly that it was intended solely for application to a living company. This death fund was to be formed by depositing therein seventy-five per cent of the amount of each assessment levied for the purpose of paying death claims, and if the fund were not enough to pay the whole of a death claim, the •claimant was to receive but a pro rata share thereof with other claimants. There was never a legal right to be paid in full under all circumstances. The balance of twenty-five per cent of the proceeds of each death assessment was to be transferred to the reserve fund, no part of which was to be used for expenses, but after it .reached $100,000 in amount, the excess could be used as provided for by § 10 of article 7 of the constitution.

The constitution also expressly provided for the uses to which the reserve fund could be put They were specified in article 7, particularly in § 9. Briefly stated, the fund was for the purpose •of enabling those who remained certificate holders at the time when an apportionment should be made to procure, or rather retain, insurance by the aid of that fund. Those living certificate holders who had an interest in the reserve fund could not - retain it unless they continued living members at the time of an apportionment, and paid all assessments. By their death before that time' they forfeited all their claims to any portion of the fund, and their beneficiaries, or personal representatives, were relegated to the death fund for the payment of their claims.

It is true there is no provision which, in terms, states that upon the dissolution of the company the reserve fund shall be distributed to those who are living, and are the holders of certificates and are in good standing, with all assessments paid. The fund was -created for the purpose of aiding those persons .to pay for their insurance who should, after the lapse of a certain number of years, be then the owners of certificates. If a man died, he lost -his chance or right to participate in the benefits to be derived from the existence of this fund.

Hence it was essentially a fund for the asssistance of the living, •to the entire exclusion of the claims of those who represented deceased members. When the company is dissolved, and it appears that the general purpose of the fund cannot for that reason be accomplished, we do not know upon what principle the claim •can be founded that .it must in that event be distributed, not to those living members who at that moment represent the persons for whom the fund was created, but that it must go to pay all •creditors, because it represents assets of the company. This would be a most wrongful conversion of the fund from its original purpose.

The argument seems to be that on account of the failure of the •company, the purpose of the fund cannot be fully met and accomplished ; therefore, it shall be put to uses for which it was 0 never intended, and which are wholly inconsistent with and opposed to such original intention. This is the practical result of the claim which is based upon the fact that the constitution does •not in terms provide for this fund upon a dissolution of the company.

But when it is found that the constitution expressly limits the-right of a holder of a death claim to payment from the death, fund, with an exception not material here, and when it is also-found that the reserve fund was created for a special purpose- and that no death claimant could resort to it upon any pretext until it reached $100,000, we are of the opinion that the purpose of the reserve fund is so far made plain that there is no doubt of the right of the living certificate holders at a particular date to-share among themselves the moneys remaining in that fund. The-fund is not assets of the company within the general meaning of that term. It is more in the nature of a trust fund. We do not think that § 8 of article 7 of the constitution is applicable to this-state of affairs. That section permits the board of trustees in their discretion to use the securities in which the moneys forming’ the reserve fund had been invested for the purpose of making" any deposits required or allowed by law or úsage of this or other-states, “or to meet any want or necessity of the association that-may hereafter arise by reason of 'unforeseen contingencies.” The-true meaning of the latter part of the section is not entirely plain,., but the want or necessity spoken of must arise by reason of unforeseen contingencies and while the company is alive and in the-hands of its board of trustees, for the question of - the application, of the securities is to be decided by such board.

When the company was dissolved the reserve fund was not-left to be disposed of under the rules to be applied by law to the distribution of the assets of insolvent corporations free from the-provisions already spoken of.

The implication from the language used in the constitution and in the certificates is plain and forms part of the contract and must be respected when the reserve fund comes to be distributed.

The case of O'Brien v. Home Benefit Society, 117 N. Y., 310; 27 St. Rep., 326, sheds no light upon this part of the case. That-case arose against a living solvent company and the action was at-law to recover upon a certificate of membership issued to plaintiff’s intestate. The company had refused to pay on the ground of fraud and had refused to make any asssesment upon its members for the purpose of paying the certificate or any part thereof. The defendant claimed that if the plaintiff were entitled to maintain any action, it was one in equity to compel an assessment. We held an action at law was proper, and in" that action could be shown the amount which would have been collected by an assessment, and such amount was the damage sustained by the failure to levy such assessment up to the amount of the certificate.

It was shown the latter was for $2,000 and that an assessment-would have realized at least double that sum, and the damage sustained was, therefore, $2,000. In such a case it was said the defendant when it refused to make an assessment violated its contract: ° and became liable to the plaintiff forthe damages, and such damages-were proved. In this case if we assume' that the holder of one-of these death claims became a creditor of the association, we do not think such fact enables him to resort to the reserve fund: for payment. He may be styled a creditor, but the contract which his intestate entered into was such as to preclude him from resorting to anything but the death fund for the payment of Ms claim. To the same effect as the O'Brien case is Darrow v. Family Fund Society, 116 N. Y., 537; 27 St. Rep., 474.

We think very little light is shed upon such a question by reference to cases arising in regard to dissolved insurance companies of a totally different kind, from these co-operative or assessment concerns. What damage is sustained by the failure of an ordinary insurance company with reference to its policyholders, what is the exact nature of its contract with them, and by what method it shall be discharged, are questions which have been heretofore determined with reference to the peculiar nature of such policies and of such companies. In regard to co-operative companies a totally different plan of insurance has been adopted. There is no regular premium paid in these companies, and it is impossible to tell what the cost of insurance in a like company would be. And then, too, it is difficult to say what is a like company. The constitution and agreements of these societies may under the act of 1888, as amended by the act of 1887, be almost infinite in their variety. ' The provision for the distribution of the assets of the dissolved corporation “ among its members, certificate holders, policyholders and creditors,” as contained in § 13, as amended in the act of 1887, does not, in our judgment, at all affect the question as to the rights of the different classes of claimants in the different funds. Those rights must still be looked for in the contract made between the company and the holders of the certificates.

The case of Burdon v. Mass. Safety Fund Assn., 147 Mass., 360, is a case very much in point, as it arose in regard to a company or society of the same general nature as the one herein. We come to the same conclusion as did the learned court in that case. The difference of language in the two contracts is not sufficient to call for a different construction thereof.

Second. A question arises as to what holders of certificates shall share in the reserve fund.

Thirty-four assessments for the payment of claims had been made by the officers of the company in conformity with the constitution, and before the attorney-general instituted any legal proceedings against the company. Certain certificate holders had paid such assessments. After the thirty-fourth had been made, and prior to the time appointed for the thirty-fifth assessment, the attorney-general commenced these proceedings under the thirteenth section of the act of 1883, as amended by the act of 1887, for the purpose of procuring the dissolution of the company. A temporary receiver was appointed, and, pending the trial of the allegations in the petition of the attorney-general, upon which he asked for the dissolution of the company, the court, at his instance, enjoined the corporation, its trustees, directors, managers and other officers from collecting any debt or demand, and from paying out or in any way transferring or delivering to any person any moneys, vete., of the company. In substance and effect the order brought the business of the company to a stand still. The ground for demanding its dissolution, as alleged by the attorney-general, was that the company was conducting its business fraudulently. The application was based upon an official report of the facts made to him by the superintendent of the insurance department, and the report of that official was, by the statute, to be based upon an investigation which he was empowered to make, and such report was only to be sent to the attorney-general after an investigation by the superintendent, and after he was satisfied therefrom that the facts existed upon which the action of the attorney-gen eral was demanded. The attorney-general was only directed to proceed against the corporation after the receipt of the report from the superintendent, if he should be of the opinion that the facts required such action.

It is entirely apparent from this reference to the statute that when the attorney-general took the proceedings against the company and alleged in his petition that it was conducting its business fraudulently, such allegation was not the result of any mere guess or surmise, but it was based upon the official report from a responsible public officer made after an official investigation by him, conducted by virtue of the power-given him by statute. ■ A legal proceeding of this nature commenced under .such circumstances would in the nature of things have a most harmful effect upon the company and-would almost in and of itself .prevent the' doing of any more business by the company.

In truth although the officers of the company traversed the allegations of the law officer of the state, yet in the course of less,, than two months from the institution of the proceedings the company withdrew its answer and permitted judgment of dissolution to go by default The temporary receiver was appointed on the 18th of September. By the terms of the constitution already referred to, a bi-monthly assessment would be levied by the trustees on the 8th of October following, if the company were then in their hands. They, however, were stayed by the injunction which prohibited them from collecting any debt or demand and the proceedings for the dissolution of the company were in progress on the 7th of October. Upon petition of the receiver the court on that day ordered the officers of the association to make the mortuary assessment upon the members of the company in the manner and at the times provided for in the constitution.and bylaws, including the assessment for the coming 8th of October. Acting under this order of the court the so-called thirty-fifth assessment (Oct. 8), was made, and a certain proportion only of the holders of certificates who had paid the thirty-fourth assessment paid the thirty-fifth and last.

Those who paid this thirty-fifth assessment now claim the right to share in the reserve fund to the exclusion of ail others, on the ground that such fund should by the terms of the constitution be paid only to those who paid all assessments and were living at the date when the fund was to be divided. We do not assent to this claim.

We agree that no mere suspicion of insolvency justifies a policy holder in refusing to pay his premium when it becomes due. Very likely the same rule would obtain in the case of a certificate holder with regard to the payment of an assessment In this case, however, the company was in the hands of a receiver and proceedings were on foot looking to a dissolution of the corporation on account of the .fraudulent conduct of its business managers. These proceedings were based upon an official report of a public officer, and the presumption of its truth was not an unjustifiable one. Under such circumstances we are quite clear in the opinion there was no absolute and legal duty resting upon the certificate holders then existing to pay this 35th assessment or else to lose all benefit to be derived from this reserve fund. We have no doubt that if the proceedings instituted by the attorney general had terminated favorably to the company, the court would in that event have had the power to make some equitable provision for the case of those who had not paid assessments during the continuance of such proceedings

The assessments provided for in the constitution were those which were to be made by the officers of the company acting under its constitution and by-laws, and not acting simply under the direction of the court. In this case the court in effect made the assessment The payment of an assessment under the scheme revealed by the constitution of the company would be founded upon the expectation that the company was to go on as a business enterprise and continually seek and obtain new lives in place of those who died, and from such new lives obtain a portion of the means of payment of losses and a proportionate security for the payment of future liabilities. The commencement of these legal proceedings was well calculated, not only to shatter all hopes of securing new business, but also to cause many holders to believe in the foolishness of paying any more money with the sole result of thereby increasing ah already certain loss. Upon this branch of the subject I think the opinion of Judge Blodgett in In re Protection Life Ins. Co., 9 Bissell, U. S., 188, at 196, is entirely sound. The result is that those certificate holders who in fact paid the 35th assessment are not to share exclusively in this fund, but they are entitled to have the amount of such assessment repaid to them in full, and then all who paid the 34th assessment and were living when these proceedings were commenced shall share in the reserve fund. This repayment must come from the death and reserve funds in the proportion which each received of such 35th assessment

Third. From what has already been decided, it naturally follows that those who are entitled to the reserve fund should bopaid therefrom pro rata, according to the amount which each has. contributed thereto. The fund belongs to them, and they arc not restricted to the amount for which they might purchase other insurance of the same nature in a similar company. This is not the effect of their contract. By its terms they, as living certificate holders, are entitled to all there may be of the fund, and the distribution is not to be made upon the same lines as provided in the case of an insurance company, such as the Security Life, where entirely different questions arose. People v. Security Life, 78 N. Y., 115.

Fourth. The date upon which to determine the rights of claimants upon the reserve fund should be the date of the commencement of the proceedings which terminated in the dissolution of "the company.

In Attorney-General v. North Am. Life Ins. Co., 82 N. Y., 172, at 186, it was held that the date of the appointment of the receiver under the act of 1869 was the proper one at which to value all claims against the company, although it was not in fact dissolved until another application at a later date and under a different act. The court said the company was practically although not technically dissolved upon the first appointment of the receiver. There was under the act of 1869 a method by which the company should continue in a certain way to do business if the referee appointed under that act should so report, but the company did not continue and, therefore, the date named was adjudged the proper one. In this case the proceeding had for its end the dissolution of the company. We hold that after the commencement of the proceedings no assessment need be levied or paid, and if the proceedings terminate in dissolution the status of the claimants at the commencement of the proceedings is the proper one upon which to base the distribution. If not dissolved, other considerations obtain which the court in such case would give the proper weight to.

If the company be dissolved, and the date of its dissolution be taken as the proper time to adjudge the status of claimants, it seems to us great injustice is perpetrated. By failing to pay assessments otherwise falling due subsequent to the commencement of the proceedings to obtain a dissolution (which failure we hold to be proper), the death fund is not in the least augmented over its amount at the time of such commencement, while the number of persons who can claim,to share therein is increased by each death up to the time of dissolution, and no assessment is made to pay it. The party thus dying loses all rights in the reserve fund, while the death fund is not increased by the levy of any assessment to pay the death loss, and the dividend to each holder of a death claim is made constantly smaller by the death of each certificate holder. The certificate holder, on the contrary, who lives until the date of distribution, has been constantly having his . share in the reserve fund increased by the death of any holder before such dissolution, and he has been, and is called upon to pay no assessment towards the liquidation of the death loss from the death fund. Injustice each way is the result. In holding that the assessments' may be withheld subsequent to the commencement of legal proceedings and pending their continuance, the date of the commencement of such proceedings is the equitable one upon which to define the status of claimants resulting from a decree dissolving the corporation. The certificate holders at the time of the commencement of the proceedings must share in the reserve fund, and if any have died since that date, their representatives are entitled to the share which would have conic to them if living.

Fifth. The holders of death claims must also have their status defined as of the date of the commencement of the proceedings, which date is the same, I believe, as the appointment of the temporary receiver. Those certificate holders who died after that date have .no claim upon the death fund, but their representatives share in the reserve fund, as already stated.

Sixth. A preference among the death claims is demanded by the beneficiary under the certificate issued on the life of Johanna Hurley. • She died on the 23d of April, 1889, proofs of death were filed with the company on the third of June, and on the eighth of August an assessment was made which raised over $13,000, seventy per cent of which went to the death fund. The constitution (art. 6, § 1) provided for payment of death claims within three months after satisfactory proof of death, and the approval thereof by the executive committee. Before that time arrived the temporary receiver had been appointed, and all that had been collected of the assessment made in August after the payment of certain death claims therefrom, together with the other funds of the company, passed into his hands. The August assessment was known as the thirty-fourth, and was the last one made by the company. Prior to the thirty-third assessment all assessments had been made at irregular times as deaths occurred, and for the purpose of paying the particular death for which the assessment was made. The constitution was, however, amended prior to the thirty-third assessment, and by the terms of that amendment assessments were directed to be made bi-monthly, and the thirty-third and thirty-fourth assessments were made under such amendment, without reference to the death claims existing when the assessments were made, and for amounts equal to the full amount for which it was possible under the constitution to levy an assessment

Prior to the levying of the August or thirty-fourth assessment the claim of Hurley for $2,000 had been approved by the executive committee, as were also the claims of Creighton, $2,000; Cronin, $1,000; Day, $5,000; making a total of approved claims of $10,000, subsequent to the thirty-third and prior to the thirty-fourth assessment. There may have been other claims arising between these assessments which had not received the approval of the executive committee. If the fund thus raised from the thirty-fourth assessment had been solely applicable to the payment of the above-named certificates, there was enough in the fund to pay the Hurley claim in full. The Creighton and Day claims were paid in full before the company went into the receiver’s hands. The other claims were not paid. The fund arising from the thirty-fourth assessment having passed into the hands of the receiver in less than three months after the approval of the executive committee, and, therefore, before the Hurley claim became due, he contested the claim, but was finally defeated and the claim established as valid. There were other death claims outstanding and unpaid at the time of the thirty-fourth assessment^ and they have been proved before the referee.

Upon these facts we do not think the holder of the Hurley claim is entitled to payment in full before other claimants are paid anything. The thirty-third and thirty-fourth assessments were both levied under the amended constitution, by which an assessment was not levied for the payment of any .particular death claim, and in fact the highest assessment that could be was made by the trustees for both of such assessments. The mere fact that the Hurley claim was approved by the executive committee before the assessment was made does not in the light of the rule adopted for an assessment give such claim a preference. The fund raised became a trust fund for the payment of all valid death claims,and those who held such claims at the time of the commencement of the legal proceedings are entitled to share pro rata in the fund existing for their payment The change in the constitution and the mode of doing business show that it was not intended, nor indeed deemed practicable, to confine each assessment strictly to the payment of death claims happening since the last assessment. By the books that were kept it would appear that certain amounts were realized from each assessment and the date of a death loss would also appear, but when paid there would appear to have been no charge of the payment to any particular assessment. There was but one fund kept as a death fund, and from its total payments were made upon the different death claims as they came along at the end of disputes as to their validity or .of compromises as to their amounts.

No preference over other death claims should be given to that of Hurley.

'Seventh. The two funds should pay pro rata the expenses of the winding up The commissions of the receiver must of course be founded upon the amount of each fund and the percentage due must be paid by each.

We have, we think, now reviewed all the questions which have been presented for our determination and the result is that the orders, both of the general and special terms, will be modified in accordance with the views herein expressed. The costs of the receiver only will be paid out of the two funds pro rata.

All concur.

       Modifying 40 St. Rep., 800.


source: Caselaw Access Project

author: Beckwith, Ch. J.

license: Public Domain

text:
    Laura Wooden, Adm’rx, Pl’ff, v. The Western New York & Pennsylvania Railroad Co., Def’t.

      (Superior Court of Buffalo General Term,

      Filed December 30, 1891.)

    1. Master and servant—Delegation op authority.
    It is the duty of the master to determine whether a train of a certain size and character can be safely run over a bridge by steam power or let down a mountain grade by gravity, and where such determination is left to a servant the decision of the servant is that of the master, and the latter is liable for injuries caused thereby.
    . 2. Same.
    Plaintiff's intestate, who was a brakeman, was killed while the train was descending a mountain grade by gravity. The evidence tended to show that the accident was caused by the insufficiency of the means provided for resisting the gravity and momentum of the train, and that the brakemen were attending to their duties in trying to set the brakes. Feld, sufficient to carry the case to the jury on the question of negligence.

      This is a motion by the plaintiff for a new trial made upon exceptions taken at the trial and ordered to be heard in the first instance at the general term.
    The plaintiff’s husband was killed while an employee on the defendant’s road. He was a brakeman upon a train on its way from Buffalo to Emporium. Between Olean and Emporium is an elevation of ground called Keating’s Summit, or Keating’s Mountain. At the foot of the ascending grade the defendant kept an extra engine, called a pusher, to help trains up the grade, and the defendant had made a standing order that if the conductor of a train thought it unsafe to take his train down the opposite descending grade, which was done by letting the train go down by its own gravity, he was either to take off a number of the cars at the foot of the ascending grade, or get additional help from the men who were employed about the engine used as a pusher. Goodwin, the conductor, decided to' take his entire train over the mountain without additional help. There were about thirty-two loaded cars in the train. The accident happened in the night time, January 4, 1890. When going down the grade from Keating Summit, control of the train was lost, it left the track, and Wooden was found dead in the wreck.
    This action is brought by the widow of Wooden, claiming to be vested with a right to recover damages under the Laws of Pennsylvania. See Wooden v. W. N. Y & Pa. R. R. Go., 126 N. Y., 10; 36 St. Bep., 387.
    On the trial the plaintiff was non-suited on the ground that she failed to prove negligence on the part of the defendant.

      Harlow G. Gurtis, for pl’ff; John G. Milburn, for def’t.
   Beckwith, Ch. J.

It is claimed by the defendant that the company was negligence management of its road, nor in the manner of taking the train down the grade from Keating Summit; that if the entire- train was too heavy to be safely taken down the grade that night, the attempt was the fault of the conductor, and that the decision of the conductor that he could take the entire train over the grade safely was the act of a co-employee of the deceased brakeman.

An engine with a tender, attached to a train of thirty-two loaded cars, no air or steam brakes, a hand-brake on the tender, and hand brakes on the cars," a frosty night, the rails likely to be slippery, the train to be taken down a mountain grade by the force of gravity, attended by the dangers of momentum; it was the duty of the master to determine whether the engine and the means provided for holding or braking the train, both men and mechanical appliances, were sufficient to resist the force of gravity and the tendency of such a moving body to accelerated motion, and protect from the consequences of momentum; it was the master’s duty to determine whether these were sufficient to enable the employees, exercising that skill and care which could be expected from servants in that grade of employment, to take the train down safely.

It is the duty of the master to determine whether a train of a certain size and character can be safely run over a certain bridge by steam power, or let down a certain mountain -grade by gravity.

In this case the defendant was bound to know the difficulty and danger of letting the train down by gravity, and to provide, by whatever means might be necessary, .for the performance of the act safely, and it could not shuffle off that responsibility by leaving the matter to ¿he judgment of an employee. Therefore, when Goodwin determined that he could take the train of thirty-two loaded cars down the grade with only the three brakemen he had with him, his determination .was an act of the master.

In the cases cited by the defendant’s counsel, namely, Crispin v. Babbitt, 81 N.Y., 516; McCosker v. Long Island R. R. Co., 84 id., 77; Slater v. Jewett, 85 id., 72; Loughlin v. State, 105 id., 159; 6 St. Rep., 826; Besel v. R. R. Co., 70 id., 171; Hussey v. Coger, 112 id., 614; 21 St. Rep., 848; Newbauer v. R. R. Co., 18 Wk. Dig., 402; Beilfus v. Ry. Co., 29 Hun, 556, one can plainly see, in most of them, that the act of negligence specified as the cause of the injury was the.act of a servant working with others in the actual performance of a practical undertaking within the scope of the defendant’s business. The negligent servant and the servant injured were co-operatives. But when it is left to a servant to decide that it is not necessary to divide a train, or lighten it, or when it is left to him to decide that a train of a certain size with a certain kind of engine and with a certain number of brakemen can be safely run over a specified route, the decision of the servant is the decision of the master ; for it involves a consideration of the condition of the tracks, the character of the grades, and the sufficiency of the mteans furnished the employees for the management of the train. An employee, helping to run such a train, does not, when he enters the service of a company, contract to take the risk of the soundness of the judgment, or the skill or carefulness of a co-employee in such a matter. When he enters such service the law declares for him that the master will see to it that he shall have furnished him appliances reasonably safe and sufficient for the place and occasion of his employment.

• It was the defendant then that run the train that night over Keating Mountain.

The plaintiff claims that the defendant was guilty of negligence in trying to let a train of the size and weight of. that one down the mountain grade by its own gravity, with the appliances arid means of control with which the train was supplied. I think there was evidence sufficient to carry the case to the jury upon the question of such negligence. The evidence tends to show that the brakemen were not sleeping, but attending to their proper duties in trying to set the brakes. And the evidence tends strongly to support the conclusion that the accident happened as a consequence of the insufficiency pf the means provided for resisting the gravity and momentum of the train.

In this decision I have asserted propositions rather than attempt to exhibit the truth of them by argumentation. Most of the written opinions upon the subject of the question whether an act is the negligence of the servant or the master consist i;i the expression of the ect judgment of the court upon the character of the act, without analysis or demonstration. The usual formula is that the court thinks the act was or was not one belonging to the duties of the master. The higher courts will ultimately furnish the criteria by which one may safely determine whether a certain negligent act is on the master’s side or the employee’s side of the line that divides their responsibilities.

In this case I think the motion for- a new "trial should be -granted.

Titus, J., concurs ; Hatch, J., did not sit


author: Hatch, J. Titus, J.

text:
    James E. Dwyer, by Guardian, Resp’t, v. Peter Hickler et al., App’lts.

      (Superior Court of Buffalo, General Term,

      Filed December 30, 1891.)

    Master and servant—Negligence.
    Plaintiff, a youth nineteen years old, was employed by defendants to carry mortar and brick which he dumped in a trench for the bricklayers, who were building a sewer. While engaged in this work he was injured by the giving way of the sides of the trench, his leg being broken. He was •confined to his house for six weeks, but after five months went about his work as usual. Defendants had furnished competent workmen and materials for bracing, and there was some evidence that one of them had passed over the sewer shortly before the accident to see that the work was done right. In an action for such injuries the jury rendered a verdict for $2,500. Held, that the judgment thereon should be reversed.
    Appeal from a judgment in favor of plaintiff, entered upon "the verdict of a jury, and from an order denying a motion for a .new trial made upon the minutes of the court

      Giles E. Stilwell, for app’lts ; Charles F. Whiteher, for resp’t.
   Hatch, J.

The action is to recover damages for the negligent ■construction of a sewer whereby plaintiff was injured. The particular defect relied upon to constitute negligence, and create liability, is the failure to provide a safe and secure place for the plaintiff to prosecute his work. This failure is claimed to consist in negligently omitting to secure the sides of the trench with sufficient braces, whereby some of the soil became loosened, fell •out of its place, and striking plaintiff, broke his leg. The general rule of law is that a master is bound, in the first instance, to furnish-for his servant a reasonably safe and secure place for the prosecution of his labor. Has that duty been discharged in this case ? The opening of the trench and supporting the same was prosecuted by men engaged in different branches of the work, but all tending to a common end. Some dug out the earth and filled the buckets, some placed the ranges, braces and sheathing to support the sides as the earth was removed, and finally the plaintiff dumped the brick and mortar in the completed trench, while the bricklayers built up the sewer which the trench was to contain. The negligence of defendants, if there be any, consists in the failure to sufficiently brace the sides of the trench at the place where the dirt fell out. The duty of protecting the sides of the trench • rested upon one Forge, who was foreman of the bracing gang.” The proof showed, indeed it is not contended against, that Forge was.a skillful person, acquainted with his. duties, and in all respects competent to perform them ; thus the master discharged the obligation resting upon him of furnishing a competent co-servant for this branch of the work. Hofnagle v. N. Y. C. & H. R. R. R. Co., 55 N. Y., 608.

It also appears, without dispute, that there was furnished an abundance of material, braces, ranges and sheathing, which, if used, would have properly protected the sides of the trench. The master thus discharged this obligation. Ford v. L. S. & M. S. R. Co., 27 St. Rep., 246.

The cause of the accident, therefore, does not rest upon any failure of defendants to provide a safe place for plaintiff to perform his labor. On the contrary, it is the result of a failure of competent servants to make use of proper materials, furnished by defendant, to make the trench safe, but this is the negligence not ■ of defendants, but of the co-servants, and for that defendants are-not liable. Hogan v. Smith, 125 N. Y., 774; 35 St. Rep., 870; Loughlin v. State, 105 N. Y., 159; 6 St. Rep., 826; Cullen v. Norton, 126 N. Y., 1; 36 St. Rep., 359.

It is suggested by the learned chief judge that one of the defendants was actively engaged in overseeing the work as it progressed, and consequently he was personally chargeable with knowledge of the condition, and was bound to know of the defect The testimony is to the effect that he appointed Forge foreman of the bracing, and furnished necessary materials to be used for that purpose; that he passed over the sewer to see that the work was properly done. I am of opinion that this does not change the result, for when he had furnished everything necessary to secure safety, and given directions how the work should be-done, he had discharged his duty, and the omission was the failure of the servants to discharge the duty resting upon them.. Zeigler v. Day, 123 Mass., 152; Floyd v. Sugden, 134 id., 563; Quincy Mining Co. v. Kitts, 42 Mich., 34.

I have found no case going so far as to hold that a master, who-is generally overseeing the work, and who has furnished competent servants and sufficiency of material, and given necessary instructions, is bound at his peril to see that the work is properly done and his instructions followed out.

It is far from being conclusively shown how the accident occurred. It is nearly, if not quite, as strong, that the dirt was. loosened by the necessary construction of the brick work in the trench, and the consequent disturbance of the sheathing boards, as that it happened from lack of braces. Perhaps there was. enough upon this point to submit to the jury. But, upon grounds-already indicated, I am of opinion that the judgment and order should be reversed and a new trial ordered, costs to abide the-event.

Titus, J.

I concur in the conclusion reached by Judge Hatch-in his opinion that the judgment must be reversed; but not in-the reasons assigned by him. There is some evidence in the case-that the defendant McConnell was upon the ground at, or just. "before the accident happened, and "knew that the sides of the sewer .at that point had commenced to crack; that a consultation was had between him and some of his employees, and it was determined not to strengthen the embankment. At this time McConnell was directly and personally in charge of the work and responsible for any neglect in properly bracing the weak spots, he having full knowledge of its condition. And it is beyond controversy that there were cracks in the wall; that the situation was dangerous, and that the accident occurred within twenty minutes after. There is no evidence that the plaintiff had any ^knowledge of the condition of the sewer, or that he was in any way responsible for its condition, or for the injury to himself. "There is also evidence in the case that up to this point it had been customary to use three sets of braces in supporting the sides -of the sewer, and that three sets were used after tjiis point Was passed, but that only two sets of braces were used at this point in .■strengthening the bank.. It further appears in the case that before this point was reached seams and crevices had appeared in the . soil and that extra precautions were necessary to protect the bank where these seams occurred. It seems to me from these facts it became a question which the jury should pass upon, and that no -error was committed in submitting the question of the defendant’s negligence to the jury by the court.

I think, however, that the verdict is excessive and should be .set aside upon that ground. The plaintiff was nineteen years old. The injury, while serious, was not dangerous; the bone was broken squarely off; a simple fracture. From the evidence no permanent injury is or will result. The boy was confined 'to his house for six weeks, and for a time thereafter walked with the aid of crutches, and after five months he went to work ¡as usual. The jury awarded him $2,500, and it does not seem to me that for the injury the plaintiff was entitled to that sum. It is true the jury had a right to take into account the pain which be suffered, but they must have been misled as to the importance -of that question upon the measure of damages. The accident occurred not from any wilful or malicious act upon the part of the defendants, but simply the want of exercise of that care which -men under such circumstances are called upon and required to ■exercise. I think therefore that the judgment and order should be reversed solely upon the ground that the "amount awarded by the jury is excessive.

Beckwith, Oh. J., not sitting.


author: Hatch, J.

text:
    Louis M. Kimball, App’lt, v. The Farmers & Mechanics’ Bank of Buffalo, Resp’t.

      [Superior Court of Buffalo, General Term,

      Filed December 30, 1891.)

    1. Chattel mortgage—Vessels—Right op mortgagee to earnings.
    Plaintiff took a second mortgage on a vessel to secure a note and upon, default took possession, but released it on receiving an assignment of its net earnings for two round trips. Defendant, which held a third mortgage, subsequently seized the vessel, received the freight moneys and refused to pay the plaintiff. Held, that plaintiff’s assignment was superior to any right which defendant obtained by its seizure and that plaintiif was-entitled to recover the freight moneys, less expenses.
    2. Same.
    The first mortgagee can give no right, by consent and approbation, to the payment of inferior liens in derogation *of the rights of a superior lienor.
    Appeal from a judgment entered upon the report of a referee.

      Sherman S. Rogers, for app’lt; Spencer Clinton, for resp’t. -
   Hatch, J.

When this case was before us on a former appeal,. 33 St Rep., 870, the record showed that plaintiff held the first, mortgage lien upon the vessel, and default having been made, was, in consequence, vested with legal title to the vessel. It appears from the present record that plaintiff was not a first mortgagee, but that another mortgage prior in date, and prior of record, was a lien upon the vessel, and that default had been made upon that mortgage; under the former decision therefore-plaintiff held only a lien upon the mortgagor’s equitable interest,, as that was all the mortgagor could give, but as between the plaintiff and defendant the situation, so far as I can see, is not materially changed. It was asserted before that the equitable right of the second mortgagee was the same as the legal right of the first mortgagee as between the mortgagor and mortgagee. This right must continue to hold equally good as to every other lien inferior to» it. Treat v. Gilmore, 49 Me., 34; Newman v. Tymeson, 13 Wis., 172.

The doctrine was announced upon the former decision that the assignment was outside the questions involved, and this for the reason that plaintiff was supposed to have the legal title, and having seized the vessel, the subsequent navigation was the-navigation of plaintiff, as he had then constructive possession, and consequently he took title to the freight moneys by virtue of such possession irrespective of the assignment. The present situation is somewhat changed. I am still of opinion that as to-all persons, except the first mortgagee, the plaintiff had the right to seize, and to thereby obtain as to such persons the same rights-held by the first mortgagee as to all persons. But if we concede that plaintiff had no right of seizure, or that the right of seizure could not affect the freights, then certainly defendant had no superior right, as it was a third mortgagee.

In Liverpool Marine Credit Co. v. Wilson, L. R., 7 Ch. App., 507, it is said: “ What is the position of a second mortgagee of a ship-with respect to the freights ? He has no legal right to take actual possession, and cannot, therefore, by his own act give himself that which is equivalent to possession.” If we adopt this rule, it follows that mere seizure would fail to vest defendant with title-to the freight moneys, as against one who acquired a title prior in date to the seizure. Thus, plaintiff not'having the legal title to the vessel could, nevertheless, protect himself as to the freights by any legal method, and thereby obtain a lien upon the freights ; thus, the assignment is superior to any right which the defendant-obtained by virtue of its mortgage, for as it had no lien upon the freight by virtue of its mortgage, it could only obtain such right by virtue of the seizure, if it could at all, but when it seized plaintiff already had an assignment if he took nothing by virtue, of his seizure.

From the present record it is quite apparent that if the replevin, proceedings instituted in the courts of Wisconsin bad been based, upon the mortgage held by Mr. Spaulding, and he had then taken possession of the vessel, by virtue of the mortgage, and navigated' her to Buffalo, his right would have been superior to the right of plaintiff, but in such event he would have been bound to apply the earnings of the voyage, less expenses, to the payment of his-mortgage. Here the seizure of the vessel was by virtue of defendant’s mortgage, and all the legal rights obtained by it were-based thereon.

Mere “ consent and approbation ” by the first mortgagee cannot, change the legal or equitable rights of the parties. Spauldingcould enforce the payment of his mortgage by application of the-freight moneys if he chose to seize, and could also sell the vessel, but he could give no rights, by consent and approbation, to the payment of an inferior lien in derogation of the rights of a superior lienor; otherwise he might pay, by the earning power of the vessel, all inferior liens, and then seize the vessel for his own debt and. cut off a superior lienor to the inferior liens who had exercised the legal rights held by him, and eventually leave him remediless. I am of the opinion that neither legal or equitable rights are-thus, subject to the benevolence of a superior lienor in favor of inferior-liens, where the person affected has obtained rights which the law recognizes. I am, therefore, of opinion that plaintiff becomes entitled to recover the freight moneys, less the costs and expenses, of navigation from Milwaukee to Buffalo.

The judgment is, therefore, reversed and a new trial ordered, before another referee, with costs to abide the event.

Beckwith, Ch. J., and Titus, J., concur.


author: Per Curiam.

text:
    Joel Wheeler et al., App’lts, v. Clarison Sweet et al., Resp’ts.

      (Superior Court of Buffalo, General Term,

      Filed December 30, 1891.)

    Indemnity—Ohabge.
    In an action on an indemnity bond it appeared that the sheriff had died, and the • action against him was continued against his administrator and. judgment recovered.. Held, that a charge that .if the conduct of plaintiffs and their attorney in procuring the appointment of the administrator and reviving and continuing the action to judgment was with a fraudulent intent to prevent the defendants from knowing of the proceeding and thereby depriving them of interposing a meritorious defense, that such conduct would avoid the judgment, was proper.
    Appeal from judgment in favor of defendants and from order-denying motion for a new trial.

      Spencer Glinion, for app’lts; Adelberi Moot, for resp’ts.
   Per Curiam.

This is an appeal from a judgment entered against the plaintiffs, and from an order denying a motion for a. new trial. The action was commenced to recover from the de~ iendants upon a bond executed by them in 1881, whereby they undertook to indemnify William W. Lawson, then sheriff of Erie ■county, for any damage he might sustain by reason of a levy or .sale under an execution in favor of the Third National" Bank agst Edson D. Shoemaker and another upon property claimed by the plaintiffs. The action was commenced against the sheriff, and judgment entered for the amount of the claim. Before the entry of judgment Lawson had died, and the action was revived and continued against his administrator, and judgment taken by default for the value of the property. The principal question litigated in this case was whether the judgment obtained against the administrator was collusive and fraudulent as against these plainiffs. Much evidence was offered by both parties upon this question. And the case was submitted by the court to the jury under an exhaustive charge, and they returned a verdict in favor of the ■defendants. Without discussing the facts in the case, a careful examination of the evidence warrants the conclusion that the ■question was properly submitted to the jury for its determination. The exceptions upon which the appellants rely relate principally to the charge of the court in submitting the case to the jury. Some of the statements in the charge, when separated from the context, are open to criticism; but taken as a whole we do not think the charge erroneous. The rule laid down by the court to govern the jury in determining the question was correct, and the 'jury was in fact told that if the conduct of the plaintiffs and their attorney in procuring the appointment of the administrator and reviving and continuing the action to judgment was with a fraudulent intent to prevent the defendants from knowing of the proceeding, and thereby depriving them óf interposing a meritorious ■defense, that such conduct would avoid the judgment. We think the charge correctly stated the law, and that the judgment should be affirmed, with costs.

Beckwith, Oh. J., and Titus, J., concur; Hatch, J., did not sit.


author: Van Brunt, P. J.

text:
    Francis B. Carpenter, App’lt, v. Sheridan Shook et al., Resp’ts.

      (Supreme Court, General Term, First Department,

      Filed December 31, 1891.)

      1. Actor and playwright—Royalties—Payment.
    In an action for royalties on an assignment of a play defendants alleged payment of all royalties due. There was evidence that the manager of defendant’s company forwarded the royalties to them and defendants paid them to plaintiff’s assignor. Plaintiff’s assignor admitted some payments were made, but that they did not amount to much and that he gave a receipt for each payment. Defendants’ books were not produced as they were in the possession of one of the defendants whom the one present at the trial had not seen since their dissolution several years before. Held, that the question was one for the referee, and his finding of payment should not be disturbed.
    S. Costs—Extra allowance.
    The complaint alleged a contract to pay fifteen dollars for each performance, and alleged that there had been 300 performances. Held, a sufficient basis on whi.h to compute an extra allowance.

      Appeal from judgment entered upon the report of a referee,, and from order granting extra allowance.

      J. F. Walker, for app’lt; David Gerber, for resp’ts.
   Van Brunt, P. J.

In October, 1875, the defendants executed' a contract in writing with one Mackaye, by which he assigned to-them an adaptation from the French made by him of a play known as “ Bose Michel,” and agreed that he would, with all reasonable diligence, take the necessary and proper steps to procure a copyright thereof, and would upon demand assign the; same to the defendants. Mackaye covenanted, among other things,, that he had not printed or published, or permitted to be printed or published, said adaptation; and the defendants promised,, among other things, to pay to said Mackaye fifteen dollars for every representation of the adaptation or play that might be given, by them, or under their authority, outside of the city of New York.

The complaint in this action alleged the making of the above-contract, and further, that 300 representations of said play had. been given by the defendants, for which no payments had been made, and an account was prayed for.

The" defendants by their answer admitted the contract, but denied that there was anything due thereon, and set up a counterclaim. The issues were referred to a referee, who reported in. favor of the defendants, and from the judgment thereupon entered, this appeal is taken.

In the disposition of this appeal it should not be considered that the court, by making no reference thereto, was of opinion that an action for an accounting would lie because of the contractual relations which existed between the plaintiffs assignor and the defendants.

Neither is it necessary for us to determine the question as to-whether the plaintiff’s assignor had complied with the condition of his contract, which required him with all reasonable diligence to take the necessary steps to procure a copyright of said play.

It appeared from- the evidence in the case that eighty-two representations, under the authority of the defendants, of this play were given outside of the city of New York, and for which the plaintiff’s assignor was entitled to a royalty.

The learned referee before whom this case was tried found that, the defendants had paid to the plaintiff’s assignor the royalty for these representations. .

The nature of the evidence was that this play was given under the direction of a Mr. Collier, who testified that while he re•mained with the company the royalties were paid by him to the-defendants; and the testimony of Palmer, one of the defendants, was that so long as Collier remained with the company he remitted the royalties to him, and the witness paid them over to the plaintiff’s assignor, and the only performances for which the defendants were liable were those which were given under Collier’s management.

The plaintiff’s assignor, in reply to this evidence, stated that he received some payments from the defendants for the performance of the play outside of New York, but he could not remember the number and the exact amount he could not now recall. But he could tell if he were to go and examine an account which might or might not be within his reach, but was not prepared to do so at the time of his examination.

It is true that he stated also that if he received anything it was but a trifling sum, and that he made repeated demands upon Palmer for payments on account of the representations while the play was being represented out of the city; and that he was invariably put off by the statement that royalties had not been received, and that as soon as they were they would be paid. But it is evident that these demands related to the performances of the play which were given without the authority or consent of the •defendants, and for the royalties on which they were not responsible. He further says that they never paid a cent for which he •did not give a receipt. The failure to produce any books and papers upon the part of the defendants was explained by Palmer in that he had not seen the books since his dissolution with the defendant Shook, which had taken place years before the trial of the case, and that he knew nothing in regard to their existence. This presented a fair question for the referee to determine,- and he having found in favor of the defendants upon this issue of payment, we see no reason to interfere with his conclusion. Indeed upon the whole case we are inclined to the opinion that the royalties for the performances in question were paid; and that the only controversy was as to representations which were given, but not under the authority of the defendants, and for which •they were therefore not liable.

The only remaining question is in regard to the right of the •court to direct an allowance. It is claimed that there is no basis in the case on which to compute it. It is stated that it was made on the idea that this was a suit for the recovery of $4,500, that is, for 300 performances at $15.00, which with interest would amount to $8,900, and that obviously the nature of the action had been misapprehended. It would be difficult to see how the nature of the action could be misapprehended, since that was the only action which could be maintained.

This formed the basis for the calculation of the amount of an allowance, and we see no reason for interfering with the order. The judgment should be affirmed, with costs.

Daniels and Barrett, JJ., concur.


author: Andrews, J.

text:
    Charles E. Rycroft, App’lt, v. Henry W. Green, Resp’t.

      (Supreme Court, General Term, First Department,

      Filed December 31, 1891.)

    Depositions—Libel.
    In an action for libel charging defendant with writing a letter to plaintiffs principals to the effect that he refused to sell their goods unless for a price above ther rates so that he could pocket the difference, defendant asked for an examination of plaintiff to enable him to frame his answer, stating that his defense was justification, and that the letter was privileged. Held, that an examination of plaintiff as to how his principals understood said letter, shown by letters to him, if any; as to the truth of said statements and the relations between him and liis principals, was not necessary for that purpose and should not be granted.
    Appeal from an order denying a motion to vacate an order for the examination of plaintiff, to enable the defendant to frame his answer.

      Vanderpoel, Cuming & Goodwin, for app’lt; Strong & Cadwallader, for resp’t.
   Andrews, J.

This action was brought to recover damages for • .an alleged libel. The libel consists of a letter written by the defendant to the plaintiff’s principals, charging the plaintiff with ■dishonesty in business. The defendant in his moving papers admits the writing and publication of the letter. He also discloses what his defense will be, namely: (1) A justification of the libel, 'Claiming that the charge of dishonesty in business made against the plaintiff is true. (2) That the letter was a privileged communication.

The plaintiff is an importer of linen goods, doing business in the city of Hew York. He is also, the sole American agent of the firm of D. Beveridge & Sons, manufacturers of linen goods, of Fife, Scotland.

The defendant is a merchant doing business in Philadelphia, In January, 1891, the defendant wrote to'Beveridge & Sons, inquiring the price of certain goods, and was referred by them to • the plaintiff. Subsequently the plaintiff’s salesman gave defendant a schedule of prices, calculated in American money, F. O. B., at Hew York, and in English money, F. 0. B., at Fife. Thereupon defendant gave an order for certain goods, F. 0. B., at Fife, but the plaintiff declined to accept any order except in dollars .and cents. Thereupon, on January 22,-1891, the defendant wrote and sent to Beveridge & Sons the letter in question, in which he ■charged that the plaintiff would sell the goods of Beveridge & .Sons at such rate only that he made above his regular commissions, from one cent to three and one-half cents per yard over his principals’ price, which he put in his own pocket, and that unless he made this profit he refused to sell his principals’ goods.

The defendant having obtained an order for the examination of the plaintiff, to enable him to frame his answer, a motion was made to vacate that order, which was denied, and from the order ■ denying such motion this appeal is taken.

The first reason given by the defendant for desiring to examine the plaintiff is that he has no other means of knowing how the firm of Beveridge & Sons understood his letter except by such letters as they may have sent to the plaintiff; and that he has no ■other means of knowing whether upon the receipt of the defendant’s letter Beveridge & Sons wrote plaintiff at all, or what the letter contained, if one was written.

It is obvious that the defendant does n'ot need any knowledge or information as to these facts, beyond what it appears he possesses, to enable him to frame an answer. The letter written by the defendant is not ambiguous in its terms, and there can be no doubt as to what Beveridge & Sons must have understood it to mean. It is not to be supposed that the defendant intends to set, up in his answer that Beveridge & Sons understood the letter as charging the plaintiff with dishonesty; and if the defendant believes that Beveridge & Sons understood the letter otherwise, he is at liberty to so allege in his answer.

It is inconceivable that it should be necessary for the defendant to examine the plaintiff to discover how Beveridge & Sons understood his letter, in order to enable him to frame his answer. Nor is it necessary for the defendant to examine the'plaintiff in order to find out whether, upon receipt of the defendant’s letter, Beveridge & Sons wrote the plaintiff, nor, if such letter was written, what it contained. The only possible reason for obtaining knowledge and information on these points would be to enable the defendant now to determine whether or not he had succeeded in injuring the plaintiff in the estimation of Beveridge & Sons. It. certainly would be no justification of the alleged libel for the defendant to allege in his answer and prove that the plaintiff was-injured by the letter in the estimation of Beveridge & Sons, and if the defendant believes that no such injury was done by his letter, he can make that allegation in his answer without an examination of the plaintiff.

The defendant’s second reason for examining the plaintiff is,, that he does not know whether plaintiff gave Beveridge & Sons the benefit of the increased prices obtained by selling their goods in American money, nor whether Beveridge & Sons paid plaintiff his commission upon the sales, nor whether he put in his own. pocket the difference of one cent to three and a half cents per yard over the regular prices. This admission of defendant is. adding insult to injury. The defendant admits writing and sending a letter to the plaintiff’s principals, in which he charged the plaintiff with dishonest dealings in such plain terms that no one who read the letter could fail to understand its meaning. Now, when the defendant is sued for writing and sending this letter,, which is libelous on its face, he conies into court and says that he cannot frame his answer until he has examined the plaintiff for the purpose of ascertaining whether the serious charges, which, he made in the letter, were true. It requires no argument to show that the defendant cannot have an examination of the plaintiff for such a purpose. He states in his moving papers that he proposes to defend upon the ground that the charges were true. The-allegations of his answer can be made upon information and. belief, and as he states that he believes the charges to be true, it is wholly unnecessary for him to examine the plaintiff in order to. find out whether or not they are true.

The third alleged reason for asking to examine the plaintiff is, that the defendant believes Beveridge & Sons did not know that, plaintiff would not sell their goods except at American prices, and he believes that plaintiff did not give Beveridge & Sons the-benefit of the figures of the increased prices, and that Beveridge- & Sons did not understand defendant’s letter to charge the plaintiff with making any wrongful and fraudulent profit, and that the ■defendant has no knowledge what the trust was, which Beveridge .& Sons reposed in plaintiff.

The statement that the defendant has no knowledge what the trust was, reposed in plaintiff by Beveridge & Sons, is obviously untrue. It appears by the moving papers that he knew that the plaintiff was the agent in Hew York for the sale of the goods of Beveridge & Sons, but whether he had such knowledge or not, it is wholly unnecessary for him to examine the plaintiff to obtain information upon this point, because he can allege in his answer that he has no knowledge or information sufficient to form a belief about the matter. The other matters, about which he desires to examine the plaintiff, relate to facts which he must necessarily ■set up in his answer if he intends, as he say she does, to justify the libel. He swears now that he has a belief as to these matters, and as he can make proper allegations in his answer based upon such belief, there is no necessity whatever for an examination of the plaintiff upon these points, to ascertain whether or not his belief is well founded.

Applications of this kind should not be favored. They are frequently made for the purpose of delay, or to annoy and harrass the plaintiff, or to enable a defendant to find out what the plaintiff expects to prove upon the trial. In the present case it is impossible to think that the defendant needs, or believes that, he needs, an examination of the plaintiff, to enable him to prepare Ills answer.

The order appealed from should be reversed, with costs and -disbursements to the appellant, and motion granted.

Yah Brunt, P. J., and Barrett, J., concur.


author: Barrett, J.

text:
    William Foerster et al., Resp’ts, v. Joseph Gallinger et al., App’lts.

      (Supreme Court, General Term, First Department,

      Filed December 31, 1891.)

    Sale—Credit—Fraud.
    An existing credit on a sale of goods in futuro cannot be avoided on the ground that when called upon to fulfil the vendees were fraudulently buying goods of others or that they were then insolvent and did not disclose the fact to the vendors. Fraud will not be implied from a subsequent dispostion of property not contemplated when the contract was made.
    Appeal from a judgment in favor of the plaintiffs entered upon a verdict had at circuit, and also from an order denying the ■defendants’ motion for a new trial.

      Adolph L. Sanger and Louis Marshall, for app’lts; Blumenstiel .& Hirsch, for resp’ts.
   Barrett, J.

This action is for goods sold and delivered at .■agreed prices. The defense is in substance a credit which had not expired when the action was brought. The plaintiffs went to trial conceding; the unexpired credit, but claiming an avoidance ■of the credit on the ground of fraud. The material facts are these: The contract was for future deliveries. It was made on the 21st of February, 1888. It reads as follows:

“New York, February 21, 1888.
“ Order
“ Given by Gallinger & Co., 86 Barclay street, N. Y., abt. 5 cases Sept. 1st. 5 c. abt. Sept. 15, abt. Oct. 1st 5, Oct. 15th, 5 abt. Nov. 1st and 5 abt. November 15th.
Subject to change of Tariff
• with privilege of calling for ten cases of the above after July 1st, by giving the notice of six weeks thirty cases full cut three inch U Drop of 10,000 each case.
Price, One dollar sixty-two one-half cents.
“ Terms, 3 mths. Acceptance,
“Wm. Foerster & Co.”

This contract resulted from personal solicitation on the part of one of the plaintiffs, and there is no pretence anywhere in the-case that the defendants induced the plaintiffs to enter into the-contract or to part with their goods. There was no evidence that, the defendants were insolvent at this time, nor was there any evidence of fraud in the making of the contract either by way of active misrepresentations, fraudulent concealment, preconceived design to cheat or otherwise. This was explicitly stated by the-learned judge in the opening -of his charge, and the jury were-then requested to determine whether the defendants were subsequently guilty of fraud in receiving the goods under the contract. The jury gave a verdict for the plaintiffs, adding, as the ground, that they believed “ that there was fraud perpetrated on or about November 30, 1888, the date of the assignment by the-defendants, by the fraudulent conversion of a portion of their, assets.”

The goods sued for were all delivered before the 30th of November, 1888, and, consequently, the jury found that the defendants were guilty of fraud in receiving goods (which they were-legally bound to take) because, of the fraudulent conversion, at a subsequent period, of a portion of their assets. Even if this special appendage should be stricken from the record, the utmost that can be claimed in support of the verdict is, that the defendants were buying goods fraudulently from other people at the time they were called upon to fulfill their contract with the plaintiffs; also, that they were then insolvent, and that if they had not. remained silent on that head, the plaintiffs might have exercised the right to hold the goods, in analogy to stoppage in transitu, until the notes given for the purchase price .were paid. ~We do-not think, however, that either of these positions is tenable. The-only contract between the parties was that made in February. Such contract was entire, and it was of binding obligation in its-entirety. The deliveries under it were alone divisible. If the-contract had amounted to a mere option, as in Ames v. Moir, 138 U. S., 306, we agree that it would' have been a fraud if the defendants, with the preconceived design of securing possession of the goods' without payment, had made a call under such option. ■ Here, however, the defendants were bound by the.terms of the contract to take -the goods at certain specified dates, and it appears that they substantially begged the plaintiffs (without success, however), to relieve them from their obligation on that head. It is idle to talk of rescinding the delivery of the goods. The delivery was not the contract, but in execution of it; and the contract cannot be rescinded, because it was not, tainted with fraud. A contract of sale, made innocently and in good faith, cannot be rescinded because the vendee subsequently purchases goods from other people with a design to cheat them. If the contract of sale were made in contemplation of such fraudulent acts, and with the intent before the credit expired to make such fraudulent disposition, that would be a different thing. That would show a preconceived design to cheat and defraud. But where nothing of the kind was contemplated when the contract was made, it is difficult to see how a subsequent change of heart is to relate back and make that fraudulent which was originally innocent. There is an observation in Arnold v. Shapiro, 29 Hun, 478, upon which the learned judge at circuit felt constrained to submit this question of subsequent fraud to the jury. This case is not fully reported, and it is not quite clear whether all that was there said was necessary to the decision. The rule laid down seems to have been that fraud in contracting the debt may be predicated of a.fraudulent disposition of the debtor’s' property in contemplation of making the contract In other words, that a preconceived design not to pay for goods purchased may be evidenced by a fraudulent disposition of property already made or contemplated, as well as by other facts. It was also held that this principle is equally applicable to avoiding an •existing credit obtained by a concealment of such fraudulent disposition or contemplated disposition. We entirely agree with this view when limited to a fraudulent disposition of property made prior to, or even contemplated at the time of, obtaining the credit. The same result could scarcely have been intended to apply to a subsequent disposition of property not- contemplated at the time of making the contract The observation is, it is true, broad enough to cover this latter proposition; but it may, without a strained interpretation, be limited to a subsequent disposition fraudulently contemplated when the contract was made. The text of, this observation is that “the same effect should also follow such a disposition of the debtor’s property after he has contracted the debt and secured the credit.”

.The reason given for this view is that it is always implied in such transactions that the debtor will make no disposition of his property which will operate as a fraud upon his creditor. This means, we presume, that business is done with the general idea that people will not thereafter cheat their creditors. But that understanding can scarcely be said to be impliedly engrafted upon all contracts so as to alter their legal effect in case one of the parties shall subsequently do something which may militate against due performance. An agreement to do something at a time cannot well be varied into to do it at another time, by an implication o‘f a condition subsequent to act honestly. We think the case on this head was erroneously presented to the jury. The plaintiffs did not rescind the contract,, and the action was not for the value of the goods said to have-been fraudulently received by-the defendants. On the contrary, the plaintiffs deliberately affirmed the contract, and it is probable that they did so with knowledge of the defendants’ fraud. They certainly did so with knowledge of the defendants’ insolvency. After the failure, they notified the defendants that they intended to sell the remaining goods on their account On the 8th of December, 1888, the following letter was sent to the defendants l

“New York, Dec. 8, 1888.
Mess. Galling er & Go., Pittsburgh:
“ Gent.—Owing to your failure we propose to sell 5 cases prismen for your a/c. by the 15th inst. unless you redeem them by that date or furnish guarantee that they will be paid for, in cash less disct Respectfully,
“Wm. Foerster & Go.”

And one of the plaintiffs testified as follows: “ They did not accept them (these five cases) by the 15th of December, and we-then sold these goods for their account.” This action was brought, the next day, December 16th, which is the date of the summons. It is a further affirmation of the contract For the complaint is upon the contract. It is not for the value of the goods delivered,, but for the prices agreed upon in the contract.

It is plain, therefore, that the only rescission which has been attempted is of the credit ■ It must be conceded that, under the authorities in this state, the plaintiffs had a right to rescind the-credit without rescinding the contract of sale. Wigand v. Sichel, 3 Keyes, 120; Roth v. Palmer, 27 Barb., 652. As, however, the agreed prices were made with relation to the credit, it is difficult, to perceive how the one can stand and the other fall. Non constat, but the prices would have been lower for cash. The rule laid, down in these cases amounts, at least, to punishing the defendants’" fraud by an arbitrary fine of the interest on the contract price for the unexpired term of credit. There would be no practical difficulty with the more logical rule that the contract of sale should be rescinded in toto. For then, in case the goods were still in the-possession of the vendee, they could be restored to the vendor by replevin, or an action for conversion would lie upon refusal to-restore them on demand. And in case the goods had been sold or otherwise used by the debtor, an action for their value would-lie, for in case of such use the law would imply a promise to pay the value. In the case last cited, Hogeboom, J., made this observation: “Indeed, I think the plaintiffs might properly and preferably have prosecuted simply for goods sold and delivered, and allowed the rest of the transaction to come out as a matter of evidence: If he had done so, the order of proof would have been as follows: The plaintiffs would have proved that they delivered goods of a certain value to the defendant, and that the latter received the same or that they were afterwards shown to be in his possession. From this evidence the law would imply a promise to pay the value, and the plaintiffs might properly have rested.” .

The answer to this is said to be, that where there is an express «contract the law will not imply one, and that, consequently, if the whole contract is avoided the vendor must bring trover. Without acceding to the doctrine laid down in the above quotation, we may safely say that the rule against an implication where there is an express contract need cause no practical embarrassment, for where the whole contract is avoided because of the vendee’s fraud, the express contract has ceased to be. It is as though it had never existed, and as though the parties simply stood in such relations and implications as flow from the delivery of goods by the one and their receipt and possession by the other. It may be that from the delivery of the goods by the vendor and their receipt and possession by the vendee standing alone the law would not imply a sale and a promise to pay the value. But from such delivery and possession, followed by the use of the goods by the vendee as his property, a promise to pay the value would certainly be implied.

But without dwelling further upon this branch of the case, we think that the complaint should have been dismissed because of the failure to show that the contract was entered into fraudulently «or in contemplation of any fraudulent purpose.

The judgment should be reversed and a new trial ordered, with posts to the appellants to abide the event. '

Van Brunt, P. J., and Andrews, J., concur.