American Hospital & Life Ins. Co. v. Kunkel

• Decision Date: 10 December 1962
• Docket Number: No. 6929,6929
• Citation: 1962 NMSC 167,71 N.M. 164,376 P.2d 956
• Parties: AMERICAN HOSPITAL AND LIFE INSURANCE CO., a corporation, Plaintiff-Appellant, Guarantee Reserve Life Insurance Company, Third-Party Defendant-Appellant, v. Oscar KUNKEL and Mary A. Kunkel, Defendants and Third-Party Plaintiffs-Appellees.
• Court: New Mexico Supreme Court

Page 956

376 P.2d 956

71 N.M. 164

AMERICAN HOSPITAL AND LIFE INSURANCE CO., a corporation, Plaintiff-Appellant, Guarantee Reserve Life Insurance Company, Third-Party Defendant-Appellant, v. Oscar KUNKEL and Mary A. Kunkel, Defendants and Third-Party

Plaintiffs-Appellees.

No. 6929.

Supreme Court of New Mexico.

Dec. 10, 1962.

Carpenter, Phelps & Norwood, Roswell, Boyle, Wheeler, Gresham, Davis & Gregory, San Antonio, Tex., for appellants.

Sanders & Bruin, Roswell, for appellees.

FEDERICI, District Judge.

Three sets of parties appear on the caption in the trial court as well as in this court. So far as pertinent here, party-wise, they are American Hospital and Life Insurance Company, a corporation, who were plaintiffs below and appellants here, and Oscar Kunkel and Mary A. Kunkel, who were defendants below and appellees here. In this opinion we shall refer to plaintiff-appellants as American and to Oscar Kunkel and Mary A. Kunkel as Oscar and Mary. Guarantee Reserve Life Insurance Company, when necessary to be mentioned herein, will be referred to as Guarantee.

The evidence in the lower court was voluminous as evidenced by two large volumes comprising the transcript of record together with an additional volume containing exhibits. The trial court, however, made findings of fact and conclusions of law and, of course, the pertinent findings of fact made by the trial court are the facts in this court unless successfully attacked in this court and set aside for lack of sufficient supporting evidence.

It might be stated in the inception that since this case was decided in the trial court and since the perfection of the appeal in this court, the Supreme Court of the State of Colorado on November 13, 1961, rehearing denied December 4, 1961, handed down an opinion holding, in effect, contrary to appellant's contention in this court, and holding favorably to the ruling of the trial court below. The only real basic difference in the situation here and in the Colorado Supreme Court was that in the Colorado case it was John and Caroline suing American, whereas here it is American suing Oscar and Mary. American in the Colorado case is the same American involved in this case and John and Caroline in the Colorado case being in substantially the same situation as Oscar and Mary in this case. The Guarantee involved in the Colorado case is the same Guarantee involved in this case, and the Sherritt mentioned in the Colorado case is the same Sherritt mentioned in this case. The McCreless involved in the Colorado case is the same McCreless referred to in this case. Basically, the transactions between the parties and individuals involved were and are substantially the same in both cases. See Guarantee Reserve Life Insurance Company v. Holzwarth, 1961, Colo., 366 P.2d 377.

The issues in this case arose by American suing Oscar and Mary on a note or notes secured by real estate mortgage given to Guarantee for the purchase of Guarantee stock under certain conditions of repurchase by Guarantee, as hereinafter more fully set out. In due time said notes and mortgage were assigned to American by Guarantee through its President Sherritt.

The facts in this case, as found by the court and supplemented from the transcript of record for purposes of clarification and identification of parties, follow.

Prior to the execution of the pertinent note or notes in question by Oscar and Mary on or about December 31, 1953, Guarantee was under the management and control of its President, John S. Sherritt, who controlled the voting rights of a majority of the stockholders of the corporation, Guarantee being an insurance corporation and existing under the laws of the State of Colorado and authorized to transact insurance business in the State of New Mexico. American is an insurance corporation organized and existing under the laws of the State of Texas and authorized to transact insurance in the State of New Mexico. During the time pertinent here, S. E. McCreless was and is president of American and in control of the affairs of American.

At the time of the purchase by Oscar and Mary of Guarantee stock through Sherritt in December, 1953, Sherritt, on behalf of Guarantee, agreed orally, later reduced to writing in March of 1954, that if at any time Oscar and Mary should consider it advisable to return to Guarantee all or any part of the 11,428 shares of Guarantee stock, Guarantee would reduce the mortgage proportionately, or completely release the mortgage if all the stock were returned.

On December 29, 1954, Oscar and Mary gave notice to Guarantee that they desired Guarantee to repurchase their stock under the repurchase agreement, and returned the stock to Guarantee. They requested that their mortgage be released but the release has never been furnished them, nor were the notes returned. A few days later the returned stock of Oscar and Mary was transferred by Sherritt to other individuals, most of it going to Sherritt, president of Guarantee.

Subsequent to the return of the stock by Oscar and Mary to Guarantee and in August, 1955, Sherritt, on behalf of Guarantee, and McCreless, on behalf of American, negotiated a plan whereby McCreless would take an option to purchase a controlling interest in the stock of Guarantee, and by which he might take immediate control of the management and operation of Guarantee, which was consummated.

Also, in August, 1955, the Insurance Commissioner of Colorado required that American enter into a reinsurance agreement or treaty before he would approve the proposed option arrangements between Sherritt and McCreless. American loaned $175,000.00 to Sherritt, president of Guarantee, and Sherritt turned his stock over to American as collateral security, and transferred all voting rights under the stock to American. Under the management provisions of the option agreement, McCreless, president of American, and other officers and employees of American became the officers of Guarantee and took over the majority of the positions as directors for Guarantee. American apparently would not have had to enter into the reinsurance agreement if it had not wanted to make the loan and option agreement with Sherritt. American assumed control of Guarantee in hopes that by various manipulations it would be taken into its holdings as a profitable transaction, and its officers acted in a speculative venture with knowledge that was peculiarly available to them, and they were experienced in insurance company business.

As a part of these negotiations, Guarantee, through Sherritt, assigned over to American, through McCreless, the notes and mortgage that had been signed by Oscar and Mary for the purchase of Guarantee stock, but which Guarantee stock had, prior to the assignment, been returned to Sherritt on Sherritt's repurchase agreement with the request that the mortgage be released, but which mortgage was never released by Sherritt, nor were the notes returned. So at the time of these negotiations we find Sherritt now holding Oscar and Mary's shares of Guarantee stock, and also holding their notes and mortgage. When these negotiations were completed between Sherritt and McCreless (Sherritt for Guarantee and McCreless for American), Oscar and Mary had no Guarantee stock. Sherritt then assigned their notes and mortgage to American, as well as their stock, as part of the Sherritt-McCreless negotiations.

The reinsurance agreement entered into between American and Guarantee provided that American would assume all policies of Guarantee; and the trial court found that by virtue of the reinsurance agreement American expressly assumed all liabilities of Guarantee, which would include, so the trial court held, the claim of Oscar and Mary against Guarantee. The trial court further found that prior to entering into the reinsurance treaty American investigated the books and records of Guarantee and the official reports made to lawful governmental authorities. The court further found that no records of any liability or contingent liability to Oscar and Mary were found in the corporation records of Guarantee, except for claims made therein after the date of the reinsurance treaty and after Guarantee apparently became insolvent. However, the trial court also found that Guarantee's stock book noted the return of the surrendered stock, and that Oscar and Mary in no way prevented the terms of the repurchase agreement, in the form of a letter, from being a part of the records of Guarantee.

The trial court further found no evidence of fraud or had dealing on behalf of Oscar and Mary although Oscar was a stockholder and member of the Board of Directors of Guarantee during the time of purchase of the stock and repurchase agreement and reinsurance agreement. The trial court, in its finding that the stock surrendered by Oscar and Mary under the repurchase option was properly noted in the stock books of Guarantee and that said books disclosed that such surrendered stock had, within a few days, been transferred to Guarantee, also found that no consideration for such transfer appeared in said book. The trial court makes perhaps its most pertinent finding and conclusion in determining that the stock repurchase agreement was valid against Guarantee at the time of its birth, and particularly in finding that then and at the time of the exercise of the option by Oscar and Mary to surrender said stock to Guarantee, the Guarantee company was solvent. The trial court found further that such repurchase and release of the mortgage by Guarantee to Oscar and Mary would not at that time have reduced the security of the stockholders or policy holders to the extent that it would have rendered Guarantee insolvent, holding, as a consequence, that this would not impair the rights of creditors of Guarantee as against the rights of stockholders. This finding or conclusion of solvency reached by the trial court from the evidence before it as to the admitted assets and from the...