National Surety Corp. v. Nantz

• Decision Date: 31 January 1936
• Citation: 90 S.W.2d 385,262 Ky. 413
• Parties: NATIONAL SURETY CORPORATION v. NANTZ.
• Court: Kentucky Court of Appeals

90 S.W.2d 385

262 Ky. 413

NATIONAL SURETY CORPORATION v. NANTZ.

Court of Appeals of Kentucky

January 31, 1936

Appeal from Circuit Court, Whitley County.

Action by Roy Nantz, administrator of the estate of Jim Nantz deceased, against the National Surety Corporation and others. Judgment for plaintiff, and named defendant appeals.

Reversed with directions.

William Marshall Bullitt and R. L. Blackwell, both of Louisville, and White & Case and R. H. Callahan, all of New York City, for appellant.

J. B Johnson and L. O. Siler, both of Williamsburg, for appellee.

THOMAS Justice.

On and prior to March 1, 1932, Mart West was the elected, qualified and acting sheriff of Whitley county, Ky. and O. W. Hood was one of his deputies. The deputy upon his assumption of office executed a bond to his principal, under the provisions of section 4141 of Carroll's Kentucky Statutes, with the National Surety Company, an indemnity corporation organized under the laws of the state of New York, as surety thereon, and which will be hereinafter referred to as the old company. Hood's bond was limited to the sum of $2,000, and its obligations ran exclusively to West, the sheriff. On the date mentioned, March 1, 1932, Hood, while attempting to arrest Jim Nantz for a misdemeanor, shot and killed him, and the latter's administrator, appointed after his death, later filed this action in the Whitley circuit court against the sheriff, his deputy, and the old company as the surety of the latter to recover damages for the alleged unlawful slaying of plaintiff's decedent; but the surety of the sheriff was not proceeded against. The named defendants denied the unlawful slaying of Nantz and pleaded facts excusing it. The old company as the surety of Hood interposed the additional defense that the bond it executed, and because of which liability was sought to be imposed upon it, did not inure to the benefit of strangers thereto, one of whom was the decedent's administrator in this case.

Appropriate pleadings made the issues, and the status of the cause remained on the docket in that condition until after midnight of April 30, 1933. The bond upon which the action was brought against the surety of Hood expired on May 10, 1932, two months and nine days after the death of Nantz. Between the date of Nantz' death and May 1, 1933, the affairs of the old company went into the hands of the superintendent of insurance of the state of New York for the purposes of liquidation, rehabilitation, or reorganization pursuant to the statutory provisions of that state relating thereto, and which provisions conferred broad powers on that officer with reference to such matters. Conferences were had between him and the stockholders, and some creditors of the old company, and finally a plan of reorganization was agreed to pursuant to the terms of the statute, a part of which was the incorporation of a new company to be known as the National Surety Corporation, and which will hereinafter be referred to as the new company. The terms of reorganization also provided for the organization of other companies to take charge of certain classes of assets of the old company and to work out and execute plans, means, and methods whereby they might be liquidated to the best advantage of all persons interested therein. The new company was capitalized, according to the plan and agreement, at $1,000,000, with a surplus fund of $3,000,000, making the actual value of the stock worth four for one. All of it was put into the hands of the superintendent of insurance as a fund to be applied on certain debts of the old company which had accrued prior to May 1, 1933, and the new company, under the reorganization plan, was exonerated from any liability for any unsecured claims, one of which is that of plaintiff herein, but there were just and equitable provisions made whereby they would eventually receive more than would be done under immediate liquidation.

But we deem it unnecessary to enumerate them in this opinion, except to say that they evidence fairness towards the holders of such claims, as well as due consideration for the protection of their rights. The new company agreed to and did become responsible for all future claims that might thereafter arise or accrue on bonds and suretyships then (after midnight April 30, 1933) in existence and unexpired, as well as renewals thereof, and to continue the business of the old company from thence forward. It (the new company) thereby became possessed of the valuable good will of the old company and thereby preserved the potential profits that might arise from the continued operation of the business of the old company, both of which would have been completely lost if the latter had gone into immediate liquidation at and from the time it went into the hands of the superintendent of insurance of the state of New York. Also, it was manifested and clearly proven that a vast amount of the assets of the old company, which, under the arrangement of reorganization, was appropriated to the extinguishment of its already accumulated debts, would realize but little, if anything, if immediate dissolution of the old company was made, and the reorganization agreement preserved such assets for the benefit of the creditors of the old company and others interested therein after the payment of debts in case of a surplus. The reorganization agreement and the plan as finally approved contained many details, specifications, and stipulations looking to the one end, of the greatest possible salvage of funds, but which is clearly unnecessary to be set forth seriatim in this opinion.

After the plan had been agreed upon and pursuant to a provision of the New York statute, the superintendent of insurance applied to the appropriate Supreme Court, corresponding to our circuit court, for an approval of the adopted method of reorganization of the old company and a continuing of its current and unexpired business, in the name of the new company. A creditor of the old company, belonging to the same class as is plaintiff herein, and whose debt, as we have seen, the new company did not absolutely agree to assume or pay, intervened and made all of the objections to the reorganization plan that could be presented under the facts, but the court, after a full hearing, approved the plan and adjudged that it was binding on all persons concerned, including the class of creditors to which the intervener and plaintiff herein belong, and which had the effect of requiring them to go into that litigation or to file their claims with the superintendent of insurance, and obtain their pro rata of funds available for such payments under the reorganization plan with the right to obtain future payments in the same way if, under the reorganization plan, any fund was accumulated for that purpose.

An appeal was taken from that judgment to an intermediate appellate court in the state of New York, and it affirmed the judgment; the style of the appeal being Application of the People by Van Schaick, Superintendent of Insurance, and the opinion is reported in 239 A.D. 490, 268 N.Y.S. 88. An appeal from its affirmance was prosecuted to the highest appellate court of New York, styled "Court of Appeals," and the judgment of both of the preceding courts was affirmed in the case of People, by Van Schaick, v. National Surety Company, 264 N.Y. 473, 191 N.E. 521. It will thus be seen that the plan of rehabilitation or reorganization of the old company as stipulated in the agreement for that purpose pursuant to the provisions of the New York statute, was approved by a final judgment of the highest court of that state, and which included the nonliability of the new company for the loss or claim attempted to be adjudicated in this case.

After the new company was organized and commenced to operate under the rehabilitation plan, plaintiff herein amended his petition and made it a defendant in the action. In the amendment he sought recovery against it as the successor of the old company upon the hypothesis or theory that it had purchased the business and the assets of the old company and thereby became liable for the latter's obligations under the principles announced by us in the case of American Railway Express Co. v. Commonwealth, 190 Ky. 636, 228 S.W. 433, 30 A.L.R. 543, and others of like tenor, both domestic and foreign. The new company, which is the appellant here, answered and relied on the defenses made by the original defendants, and, in addition thereto, pleaded all of the proceedings, judicial and otherwise, occurring in the state of New York and to which we have referred, and thereby relied upon the aboverecited judgments of the courts of that state as settling adversely the right of plaintiff herein to proceed against it by adjudging its nonliability therefor under the agreed to rehabilitation or reorganization plan which those judgments approved, and that under the provisions of article 4, section 1, of the Constitution of the United States, it was the...