Forte v. Chamberlain

• Decision Date: 03 January 1910
• Citation: 124 S.W. 234
• Parties: FORTE et al. v. CHAMBERLAIN.
• Court: Arkansas Supreme Court

Page 234

124 S.W. 234

FORTE et al. v. CHAMBERLAIN.

Supreme Court of Arkansas.

January 3, 1910.

Appeal from Pulaski Chancery Court; John E. Martineau, Chancellor.

Action by Horace Chamberlain as receiver of the Commercial Fire Insurance Company against H. W. Forte and others. From a judgment in favor of plaintiff, defendants appeal. Reversed.

Carmichael, Brooks & Powers, for appellants. T. N. Robertson and Horace Chamberlain, for appellee.

McCULLOCH, C. J.

The Commercial Fire Insurance Company, a mutual fire insurance corporation, was by order of the Pulaski chancery court, at the instance of certain creditors and stockholders, on allegations of insolvency, placed in the hands of a receiver to wind up its assets and affairs, and appellee was appointed as such receiver. Authority for the proceeding is found in the following statute: "Any creditor or stockholder of any insolvent corporation may institute proceedings in the chancery court for the winding up of the affairs of such corporations, and upon such application the court shall take charge of all the assets of such corporation and distribute them equally among the creditors after paying the wages and salaries due laborers and employees." Section 950, Kirby's Dig. The corporation had given, and prosecuted its business as an insurance company under, certain bonds required by the act of the General Assembly approved April 24, 1905 (Acts 1905, p. 489) entitled "An act to regulate mutual fire insurance companies." Section 4 of that act provides that "before any such company or association shall do business in this state, it shall file in the office of the Auditor of State a qualified indemnity bond with three or more sureties or with a surety or trust company authorized to do business in this state, to be approved by the Auditor, in the sum of fifteen thousand dollars, to be conditioned for the prompt payment of all claims arising and accruing to any person or persons during the term of said bond by virtue of any policy issued by any such company or association upon any property in Arkansas, whenever the same shall become due, and shall faithfully comply with and perform all and singular the duties and obligations imposed upon them by the laws of the state." In the same clause it is further provided that any such company or association may upon giving an additional bond in the sum of $10,000, conditioned as aforesaid, issue nonassessable policies. Section 6 of the act contains the following provision: "Any company or association organized and operating under this act shall reserve not less than fifty per centum of its premium for the payment of losses and the benefit of its policyholders, and such reserve shall not be used for any other purpose; should it come to the knowledge of the Auditor of State that any company or association is not complying with this provision, it shall be the duty of the Auditor of State to institute suit on the bond mentioned in section 4 of this act, in the name of the state for the benefit of the policyholders of such company or association, against the obligors of said bond in any court having jurisdiction thereof, and liability of said obligors on such bonds shall be in a sum sufficient to increase said reserve to an amount equal to fifty per centum of the premiums received, not to exceed, however, the sum of fifteen thousand dollars." It is therefore seen that, according to the terms of the statute liability on the bond is for losses sustained by policy holders on property in Arkansas, and also for a sum sufficient to replace any deficit in the reserve of 50 per cent. of the premiums caused by the unauthorized use of such reserve for other purpose than the payment of losses, the action on the last-named liability to be instituted by the Auditor of State.

Appellants were policy holders on property in Arkansas, and sustained a loss before the insolvency proceedings were instituted, and they instituted an action at law against said corporation and the sureties on one of said bonds to recover the amount of their said loss. The receiver filed a petition in chancery court praying that appellants be restrained from prosecuting their action against the sureties on said bond, and the court overruled their demurrer to the petition, and rendered a decree perpetually restraining them from prosecuting said action.

The petition of the receiver sets forth all of the foregoing facts, and in addition it is alleged therein "that the only assets of any appreciable value of the defendant company is the liability of the sureties on the above-mentioned bond, and that the total amount of claims against defendant for losses accruing under policies issued by it, and filed in this cause by intervention, is far in excess of the total assets of said defendant." It is not claimed that any part of the required reserve of fifty per cent. was ever used for any other purposes than the payment of losses, or that there exists any liability on the bonds on that account. The decision of the case turns on the question whether the liability of the sureties on the statutory bonds to holders of policies on property in Arkansas for losses is an asset of the insolvent corporation which passes to the receiver, and whether the receiver can maintain an action on the bonds to enforce such liability. The language of the statute hereinbefore quoted answers both questions against the contention of appellees. The liability on the bonds is to a class of policy holders as creditors, and is in no sense an asset of the corporation. The corporation is principal in the bonds and could never, under any circumstances, maintain any action thereon, either for itself, its stockholders or any creditor, not even the special class of creditors for whose benefit the bonds were given. It is true that the receiver for an insolvent corporation is the representative of the creditors and stockholders of the corporation as well as the corporation itself, but only to the extent of the assets of the corporation, and not for the enforcement of collateral liabilities to the creditors. Jones v. Harris, 117 S. W. 1077; Bailey v. O'Neal, 122 S. W. 503. "While the receiver of an insolvent corporation,"...