Evans v. Illinois Sur. Co.

• Decision Date: 10 June 1921
• Docket Number: No. 13802.,13802.
• Citation: 131 N.E. 262,298 Ill. 101
• Parties: EVANS et al. v. ILLINOIS SURETY CO. STATE OF OHIO v. HOPKINS.
• Court: Illinois Supreme Court

298 Ill. 101

131 N.E. 262

EVANS et al.

v.ILLINOIS SURETY CO.

STATE OF OHIO

v.HOPKINS.

No. 13802.

Supreme Court of Illinois.

April 21, 1921.

Rehearing Denied June 10, 1921.

Suit by H. H. Evans and others against the Illinois Surety Company, in which John S. Hopkins was appointed receiver for the defendant. From a judgment of the Appellate Court, reversing a decree disallowing claims of the State of Ohio, the receiver appeals.

Affirmed.

Appeal from First Branch, Appellate Court, First District, on Appeal from Superior Court, Cook County; Denis E. Sullivan, Judge.

Albert J. Hopkins, of Chicago, for appellant.

Pratt & Zeiss, of Chicago (John G. Price, Atty. Gen., of Ohio, and William J. Meyer, of Columbus, Ohio, of counsel), for the State of Ohio.

CARTER, J.

A bill for dissolution and a receivership of the Illinois Surety Company was filed in the superior court of Cook county April 19, 1916, by 54 stockholders of that company, setting forth facts which the bill stated showed insolvency of that company, and praying for an injunction against the further prosecution of its business. The surety company was alone made defendant, and on the same day entered its appearance and answered, admitting the facts set forth in the bill, and thereupon James S. Hopkins was appointed receiver, with power to do all acts necessary for the marshaling and distribution of its assets and the closing of its business. The order also enjoined the further transaction of business, and expressly retained jurisdiction over the parties until final hearing and settlement thereafter of all of the surety company's unfinished business and of the receivership. On March 1, 1917, an order was entered by the superior court, directing that the creditors of the surety company file their claims with the receiver on or before September 1, 1917. Three certain claims, Nos. 371, 1080, and 1241, were filed by the state of Ohio with the receiver. These claims with others, were referred to a master who reported that as to the last two claims above specified no breach of the bond in question had been proved; that as to claim No. 371, the contractors for whom the company became surety failed to carry out the provisions of their contracts, but that the default occurred subsequent to the appointment of the receiver, and the master recommended that all three claims be disallowed. The chancellor, upon hearing the master's report, overruled exceptions by the state of Ohio, and confirmed the report and entered a decree accordingly. An appeal was taken to the Appellate Court, where claim No. 371 was allowed, and it was found that claims Nos. 1080 and 1241 were prematurely filed with the receiver, and the decree of the superior court was reversed, with directions to allow claim No. 371 and for further proceedings with reference to the other two claims consistent with the views set forth in the opinion. The Appellate Court granted a certificate of importance, and the receiver has brought the case here by appeal for further review.

[1] It is argued by counsel for appellant, the receiver of the Illinois Surety Company, that the judgment of the Appellate Court should be reversed, and the decree of the superior court affirmed; that the receiver should only allow claims that were valid and due when he was appointed, and that the Appellate Court was wrong in holding damages could be recovered for a breach of any of its outstanding policies or bonds that occurred within two years after the receiver's appointment; that this holding is contrary to the established law of this country as to the allowance of claims filed with a receiver under such circumstances as found in this record. Counsel argues that--

‘When a receiver is appointed for a corporation ‘its business is brought to an absolute end, and the policy holders become creditors to an amount equal to the equitable value of their policies.’ Carr v. Hamilton, 129 U. S. 252, 9 Sup. Ct. 295, 32 L. Ed. 669.

There can be no question that it is a general proposition of law that claims which were unascertainable, and on which no right of action existed at the time the receiver was appointed, cannot be proved against the assets in the receiver's hands; that an adjudication of insolvency of the insurer and the making of an order of liquidation terminated the policies of the company, so that a claim for a loss accruing thereafter was not provable. 23 R. C. L. 102; Fuller v. Wright, 147 Ga. 70, 92 S. E. 873, L. R. A. 1917E, 1139, and authorities cited in the note on page 1141; People v. Metropolitan Surety Co., 205 N. Y. 135, 98 N. E. 412, Ann. Cas. 1913D, 1180, and cases cited in note. But when there is a statute of the state controlling the question of the appointment of a receiver and the liquidation of a corporation's assets, its provisions must control.

‘When a statutory system is administered, the only question for the courts is what the statutes prescribe.’ Filene's Sons Co. v. Weed, 245 U. S. 597, 38 Sup. Ct. 211,62 L. Ed. 145, L. R. A. 1918C, 124.

The Illinois Surety Company was organized under the laws of this state in 1905 for the purpose of doing a general surety business, with headquarters in Chicago, under the provisions of an act passed in 1899 (Hurd's Stat. 1919, p. 779). Section 14 of that act provides:

‘Corporations formed under this act shall be subject to all laws of this state governing corporations for pecuniary profit, as provided for in an act entitled, ‘An act concerning corporations,’ approved April 18, 1872, in force July 1, 1872, and amendments thereto, in force July 1, 1897, and the duties thereof, and shall have the powers thereof, so far as the same are not inconsistent with the provisions of this act. Such companies shall also be subject to the provisions and requirements of an act entitled, ‘An act in regard to the dissolution of insurance companies,’ approved February 17, 1874, in force July 1, 1874.'

Section 10 of the General Incorporation Act, as to corporations organized for pecuniary profit, provides:

‘All corporations organized under this law whose powers may have expired by limitation or otherwise, shall continue their corporate capacity during the term of two years, for the purpose only of collecting the debts due said corporation, and selling and conveying the property and effects thereof.’ Hurd's Stat. 1917, p. 701.

Section 12 of the last-named act also provides:

‘The dissolution, for any cause whatever, of any corporation created as aforesaid, shall not take away or impair any remedy given against such corporation, its stockholders or officers, for any liabilities incurred previous to its dissolution.’

[2] It is argued by counsel for appellant that the provisions of the act regarding corporations for pecuniary profit cannot be applied to a surety company because it is an insurance company, as this court has held in People v. Potts, 264 Ill. 522, 106 N. E. 524, and that the first section of that act provides that the provisions of the act shall not apply to banking and insurance; that this court has held in Commercial Trust Co. v. Mallers, 242 Ill. 50, 89 N. E. 661,134 Am. St. Rep. 306,17 Ann. Cas. 224, that the act does not apply to corporations for banking purposes, and that for the same reason the act cannot apply to insurance companies. In making this argument counsel seems to have overlooked the long-settled doctrine of this and other courts that it is a familiar legislative process to incorporate one statute into another by reference; that--

‘it is a method of legislation which is frequently followed and has uniformly been held to be free from constitutional objections. The effect of such reference is the same as though the statute or the provisions adopted had been incorporated bodily into the adopting statute.’ People v. Crossley, 261 Ill. 78, 103 N. E. 537.

This court has also said that--

‘Whenever an act of the Legislature confers powers which are recited in another act, the act to which reference is made is to be consideredand treated as if it were incorporated into and made a part of the act which contains the reference.’ Zeman v. Dolan, 279 Ill. 295, 116 N. E. 642;People v. Stitt, 280 Ill. 553, 117 N. E. 784.

As already stated, the present Surety Act, under which this surety company was organized, became a law in 1899, and the General Incorporation Act, regarding corporations for pecuniary profit, was passed in 1872. The Legislature, without question, by the later act intended to incorporate the provisions of the Incorporation Act of 1872 into and as a part of the provisions of the Surety Act of 1899, and under the decisions of this court there can be no question but that the provisions of the General Incorporation Act heretofore quoted, and all its other applicable provisions, apply to corporations organized under the Surety Act; and this court in decisions already rendered has assumed that the provisions of the General Incorporation Act in this regard apply to insurance companies. In Life Association of America v. Fassett, 102 Ill. 315, the court, after stating that upon the dissolution or civil death of a corporation all its real estate, by the strict rule of the common law, reverts to the original owners or their heirs, and all its personal estate vests in the crown in England and in the state here, and all debts due to or from it are by operation of law extinguished, further stated that equity views the matter in quite a different light, and said (page 323):

‘In equity the corporation is regarded as a trustee holding the corporate property for the benefit of its creditors and shareholders, which, upon its dissolution or civil death, a court of chancery will lay hold of as a trust fund and distribute for their benefit. With a view of mitigating the rigor of the common law with respect to the effects of a defunct corporation, the Legislature of this and most, if not all, of the other states of the Union, have by appropriate legislative enactments provided for a...