In re Nat'l Sur. Co.

• Decision Date: 29 July 1941
• Citation: 36 N.E.2d 119,286 N.Y. 216
• Parties: In re NATIONAL SURETY CO. Claim of MILFORD CONST. CO.
• Court: New York Court of Appeals Court of Appeals

286 N.Y. 216

36 N.E.2d 119

In re NATIONAL SURETY CO. Claim of MILFORD CONST. CO.

Court of Appeals of New York.

July 29, 1941.

Appeal from Supreme Court, Appellate Division, First Department.

Proceeding in the matter of the liquidation of the National Surety Company, wherein the Milford Construction Company filed a claim which was opposed by Louis H. Pink, Superintendent of Insurance of the State of New York, as liquidator of the National Surety Company. The claim was assigned to the County Bank of Greenwood, South Carolina, which appeared as a claimant. From an order of the Appellate Division affirming an order of the Special Term confirming report of the referee recommending allowance of the claim, 260 App.Div. 921, 24 N.Y.S.2d 982, the Superintendent of Insurance appeals by leave of the Court of Appeals after denial by the Appellate Division, of motion for leave to appeal, 261 App.Div. 804, 25 N.Y.S.2d 1022.

Orders reversed and claim disallowed.

DESMOND, J., LEHMAN, C. J., and RIPPEY, J., dissenting. Edward F. Keenan and A. Prentiss Butler, both of New York City, for appellant.

Jonas J. Shapiro and Theodore S. Jaffin, both of New York City, for respondents.

FINCH, Judge.

This is a proceeding to establish a creditor's claim against the assets of the National Surety Company now in the course of liquidation by the Superintendent of Insurance. The claim is founded on a judgment rendered in another State after June 1, 1934, on which date the corporate existence of National Surety was terminated by order of the Supreme Court of this State.

In 1931, National Surety Company executed a surety bond on behalf of Copeland-Wey, Inc., as principal, guaranteeing to the Highway Department of South Carolina the performance of a highway construction contract and the payment of claims for labor and materials in connection with the highway project. J. H. Milford subcontracted with Copeland-Wey and assigned the contract to Milford Construction Company, which alleges a claim of approximately $5,000. In February, 1933, a representative creditors' action was brought in South Carolina against Copeland-Wey, Inc., National Surety Company and the South Carolina State Highway Department, on behalf of all persons having claims against the defendants in connection with the road construction project. The Court of Common Pleas of South Carolina designated the Official Master of Richland county to hear the claims. Milford Construction Company filed its claim and a hearing thereon was held on May 24, 1933. In May, 1933, shortly after proceedings for the rehabilitation of National Surety Company were begun in this State, receivership proceedings were instituted in South Carolina and local receivers were appointed. In July, 1934, the South Carolina court in these receivership proceedings ordered that the claims against National Surety Company be referred to the same Official Master to whom the claims in the prior action previously had been referred. The report by the Official Master, captioned in both South Carolina proceedings, was filed in March, 1935. Shortly thereafter the Court of Common Pleas confirmed the recommendations of the Master and directed that the various creditors should have judgment against National Surety Company in the respective amounts allowed. Judgment in favor of Milford Construction Company was thereafter entered in the creditors' representative action instituted against Copeland-Wey, Inc.

Meanwhile, however, on June 1, 1934, before the entry of judgment in South Carolina, National Surety Company, a New York insurance corporation, was dissolved by order of the Supreme Court of this State, and the Superintendent of Insurance took possession of its property for purposes of liquidation.

The claimant Milford Construction Company filed its claim with the New York liquidator in March, 1935, and in October, 1937, assigned its claim as collateral for a loan by the claimant County Bank of Greenwood, South Carolina. During the interim, on October 2, 1935, the New York liquidator sent a notice to the Milford Construction Company that ‘Your claim in the amount of $5,039.83 has been examined and found to be correct, and will be recommended to the Court for allowance in that amount.’ The New York liquidator, however, did not recommend the claim for allowance. In this connection we note that according to the records of National Surety Company, the company had a claim of about $20,000 against J. H. Milford individually as a result of liability incurred in connection with some other surety bond and the liquidator has questioned the validity of the assignment. Claimants-respondents contend that their claim is unaffected by any setoff in favor of National Surety Company against J. H. Milford individually. In view of the result at which we have arrived this issue becomes immaterial.

The claim filed with the New York liquidator by the Milford Construction Company was referred to a referee who recommended the allowance of the claim on the ground that by force of the provisions of section 29 of the General Corporation Law, Consol.Laws, ch. 23, of the State of New York, the corporate existence of National Surety Company was continued for the purpose of being sued even after the entry of the order of dissolution, and that, therefore, the judgment rendered in South Carolina was binding in this State and conclusive on all questions affecting the claim. The referee, on the other hand, rejected the contention of claimants that as a matter of fact the New York liquidator had participated in the South Carolina proceedings and, therefore, was bound thereby as a party to the action would have been regardless of the effect of section 29 of the General Corporation Law. Special Term confirmed the report of the referee and the Appellate Division affirmed. Appeal is taken by leave of this court.

Three questions are presented by the record on this appeal: First, whether the South Carolina judgment is conclusive in view of the provisions of section 29 of the General Corporation Law; second, whether the South Carolina judgment is conclusive in view of the conduct of the New York liquidator in the South Carolina proceedings, and third, the effect of the liquidator's notice of October, 1935, that the claim would be recommended for allowance. No proof in support of the claim was presented other than the South Carolina judgment and, therefore, unless the judgment is binding upon the courts of this State, the claim must be dismissed.

Subsequent to the report of the referee in the proceeding at bar, we held in Matter of National Surety Co. (Laughlin), 283 N.Y. 68, 27 N.E.2d 505, that because of the conflict between section 29 of the General Corporation Law and the provisions of the Insurance Law, Consol.Laws, ch. 28, concerning the dissolution of insurance companies, section 29 does not apply to the case of insurance companies in the procees of liquidation. This is in accordance with section 6 of the General Corporation Law to the effect that where there is any other corporation law which conflicts with the General Corporation Law, the former shall prevail. The effect of the dissolution of the insurance company, therefore, is to be determined by the common law.

‘It is well settled that at common law and in the federal jurisdiction a corporation which has been dissolved is as if it did not exist, and the result of the dissolution cannot be distinguished from the death of a natural person in its effect. (Cit. cas.) ...