Gilbert v. Finch

• Decision Date: 10 February 1903
• Citation: Gilbert v. Finch, 173 N.Y. 455, 66 N.E. 133 (N.Y. 1903)
• Court: New York Court of Appeals Court of Appeals
• Parties: WILLIAM T. GILBERT, as Receiver of COMMERCIAL ALLIANCE LIFE INSURANCE COMPANY, Respondent, v. EDWARD L. FINCH et al., Appellants.

173 N.Y. 455

66 N.E. 133

GILBERT

v.FINCH et al.

Court of Appeals of New York.

Feb. 10, 1903.

Appeal from supreme court, appellate division, First department.

Action by William T. Gilbert, receiver of the Commercial Alliance Life Insurance Company, against Edward L. Finch and others.From an order of the appellate division (76 N. Y. Supp. 143) reversing a judgment in favor of defendants, they appeal.Affirmed.

Michael H. Cardozo and George Wilcox, for appellants.

Henry D. Hotchkiss, for respondent.

HAIGHT, J.

This action was brought by the plaintiff, as receiver of the Commercial Alliance Insurance Company, against the defendants, as directors of that company, to recover the sum of $10,000 and interest.The Commercial Alliance Insurance Company was incorporated under the laws of this state, and continued in business until October, 1894, when the plaintiff was appointed receiver in an action brought for that purpose by the attorney general of the state.The evidence taken upon the trial tends to show that, prior to the bringing of the action by the attorney general, the defendants, and other persons beyond the jurisdiction of the court, were acting as directors of the company, and that they entered into negotiations with the 10 surviving incorporators of the Maine & New Brunswick Insurance Company, a corporation organized under the laws of the state of Maine, for the purchase and control of that company; that such negotiations were finally consummated on the 3d day of May, 1893, by the president of the Commercial Alliance Company, who, acting in pursuance of the direction of the defendants and their associates, took from the funds of the company $35,000, and paid the same to the 10 surviving incorporators of the Maine & New Brunswick Company, giving to each the sum of $3,500, and taking from them a paper in which they purported to transfer and assign ‘all their right, title, and interest, as corporators, associates, or otherwise, in said Maine and New Brunswick Insurance Company.’Simultaneously with the execution and delivery of this paper, and in pursuance of that agreement, all of the officers and directors of the Maine Company resigned their places, and the same were filled by the defendants, or persons acting for or on their behalf.Shortly thereafter, and on the 22d day of July, 1893, the Maine & New Brunswick Company was judicially declared by the supreme judicial court of Maine to be insolvent, and a receiver was appointed to wind up its affairs.After the plaintiff was appointed receiver of the Commercial Alliance Company, he brought an action against the 10 surviving incorporators of the Maine & New Brunswick Company in the United States circuit court for the district of Maine to recover back the $35,000 which had been paid to them under the direction of the defendants.Subsequently this action was compromised under the direction of the court, the plaintiff receiving from such surviving incorporators the sum of $25,000; and he thereupon executed and delivered to them an instrument in which he released and discharged all of the defendants in that action ‘from all claims or demands arising from said suit, or the subject-matter thereof, and also from all claims, demands, actions, and causes of action whatsoever in favor of said Commercial Alliance Insurance Company, or of myself as receiver of said company, to date.The execution of this instrument shall not affect any cause of action of the receiver against any person not named herein.’It also appeared upon the trial that the defendant Miller had brought an action against the Commercial Alliance Company prior to the appointment of the plaintiff as receiver, in which he claimed that a large sum of money was due and owing to him from the company.This action was settled upon the payment to him of the sum of $8,000, and thereupon mutual releases were exchanged between him and the company upon the consideration expressed therein of $1.

We fully concur in the conclusions reached by the appellate division, to the effect that the transaction by which $35,000 were taken from the treasury of the Commercial Alliance Company and paid over to the incorporators of the Maine & New Brunswick Company was ultra vires, and constituted a waste of the funds of the Commercial Company, and that the defendants, who authorized such appropriation of the moneys, became liable to respond to the plaintiff in damages.We also are of opinion that the appellate division properly disposed of the claim of the defendant Miller under his release.

There is but one question upon which we deem further discussion necessary.That arises out of the release given by the plaintiff to the Maine incorporators upon the settlement of the action against them for $25,000.It is contended by the defendants, in the first place, that, if they are required to return to the plaintiff the $35,000 which they paid, or caused to be paid, to the Maine incorporators, they would become, in equity, entitled to subrogation to the rights of the plaintiff, and entitled to recover the money which they had paid to the Maine incorporators, and that the release would operate to deprive them of this right.In the second place, they contend that the release was a settlement of the entire claim, and that its effect was to discharge them, upon the theory that they were joint tort feasors.

It is not our purpose to question the character or the motive of the defendants in carrying out the transaction.We may readily concede that they thought they were acting for the best interests of the company which they represented.They doubtless thought that by getting control of the Maine Company, and getting themselves installed as officers, they could get the policy holders in that company to transfer their insurance into the Commercial Alliance Company; but good motives and good intentions do not render the transaction valid, or relieve them from liability for the wrong which they have committed.The Maine incorporation was not a stock company.Its officers had no stock in the company which they could sell or transfer, and consequently there was nothing that the Commercial Alliance Company could purchase.The thing accomplished by the transaction was the resignation of the officers of the Maine Company, and the substitution of the defendants or their representatives.It was therefore a misappropriation of the moneys of the Commercial Alliance Company by the defendants and their associates, which operated to waste the funds of the company; and they thereby became wrongdoers, and, among themselves, joint tort feasors.We are also of the opinion that the officers of the Maine Company also committed a wrong.If they, as officers of the Maine Company, could transfer any of the property of that company to the Commercial Alliance Company, they had no right, as such officers, to divide up the $35,000 among themselves, and put it into their own pockets.If they had no property rights which they could transfer to the Commercial Alliance Company, then they had no right to take the money of that company and convert it to their own use, so that, as among themselves, they were joint tort feasors.As to whether they were joint tort feasors with the defendants, we do not deem it necessary to now determine, for it is our purpose to consider the question in both aspects.

If the defendants had paid the Maine incorporators $35,000 of their own money to resign their position in that company, and have the defendants substituted in their places, we are aware of no equitable or legal principle upon which they could recover the money.They got what they purchased.They understood fully what the Maine officers had to transfer.In using the money of the Commercial Alliance Company, they committed, as we have seen, a wrong upon that company; and our attention has been called to no case in which equity has enforced the right of subrogation in such a case.Indeed, we had supposed the policy of the law to be to leave wrongdoers without aid in equity from the burdens of the position in which they have placed themselves.The rule is well settled that, as among themselves, equity would not compel contribution or enforce subrogation.Peck v. Ellis, 2 Johns. Ch. 131;Miller v. Fenton, 11 Paige, 18;Thorp v. Amos, 1 Sandf. Ch. 26, 34;Pierson v. Thompson, 1 Edw. Ch. 212, 218;Wehle v. Haviland, 42 How. Prac. 399, 410;North v. Sergeant, 33 Barb. 350, 354;Weidman v. Sibley, 16 App. Div. 616, 619,44 N. Y. Supp. 1057.We consequently conclude that the principles of subrogation do not apply to the defendants in this case.

In considering the effect of the release, we shall assume that the defendants were joint tort...