People ex rel. Attorney Gen. v. Life & Reserve Ass'n of Buffalo

• Citation: 150 N.Y. 94,45 N.E. 8
• Court: New York Court of Appeals
• Decision Date: 06 October 1896
• Parties: PEOPLE ex rel. ATTORNEY GENERAL v. LIFE & RESERVE ASS'N OF BUFFALO.

150 N.Y. 94

45 N.E. 8

PEOPLE ex rel. ATTORNEY GENERAL

v.LIFE & RESERVE ASS'N OF BUFFALO.

Court of Appeals of New York.

Oct. 6, 1896.

Appeal from supreme court, general term, Fifth department.

Proceeding by the attorney general of the state of New York to dissolve the Life & Reserve Association of Buffalo, N. Y., and to distribute its assets. A receiver was appointed, and questions in controversy between certain claimants were tried by a referee. From an order of the general term (36 N. Y. Supp. 1059) modifying an order on referee's findings, the receiver and other claimants appeal. Reversed.

The Buffalo Mutual Life & Reserve Association was incorporated in February, 1883, under the provisions of chapter 267 of the Laws of 1875. It commenced and continued business under the provisions of that statute until February, 1886, when it was reorganized under chapter 175 of the Laws of 1883 as the Life & Reserve Association of Buffalo, N. Y. Under the latter name it continued business until the 23d day of September, 1892, when this action was commenced. A judgment dissolving the association was entered therein on the 27th day of December, 1892. An order winding up its affairs, and for the distribution of its assets to and among its members and other persons entitled thereto, was granted upon the same day. Herman Waterman was duly appointed first as temporary receiver, and subsequently as permanent receiver, of such corporation. The order or judgment of dissolution also contained a provision appointing Hon. Henry F. Allen referee to take proof of the condition of the affairs of the corporation, and to ascertain to whom the assets of the association should be paid. The assets of the company at the time of its dissolution amounted in the aggregate to $176,816.22, some portion of which was uncollectible. At the time of the dissolution the members of the association holding certificates numbered 4,600, of which 3,600 were members of the reserve class, and held life-reserve certificates, and the members of the association holding life certificates numbered 1,000. The general and outside indebtedness of the association amounted to about $5,000. The death claims in the reserve class unpaid at the commencement of this action amounted to $23,450, while the death claims unpaid at that time based upon life certificates were $25,500. When the receiver took possession of the property of the corporation, it was ascertained that $32,833.94 of the reserve fund was not accounted for on the books of the association, that $3,906.05 had been lost in real-estate investments, and that $36,000 of this fund had been used in paying death claims against the association; thus making a total of $72,739.99 of the reserve fund which had not been held exclusively for persons holding life-reserve certificates. The assets on hand were not equal to the amount of the reserve fund which had been collected, and its accumulations. The death fund was overdrawn, and the safety fund had been exhausted. Substantially all the moneys on hand for distribution belonged to the reserve fund, and had been contributed by the reserve members of the association. Before the commencement of this action, and in December, 1886, Gilmore D. Royce became a member of the association, and it issued to him a certificate for $1,000 in the reserve class, making Ella Royce the beneficiary therein. Gilmore D. Royce died in February, 1892, while a member of the association in good standing. Thereafter Ella Royce presented a claim against the association for the amount named in such certificate. It was submitted upon proper proofs to the referee, who disallowed it. To that determination she filed exceptions, which were heard at a special term of the supreme court, May 7, 1895. The court sustained the exceptions, held that the claimant had an equitable lien upon the reserve fund, and directed her claim, with interest, to be paid therefrom. The appellant Frank Spooner is the beneficiary named in a certificate in the reserve class issued to his wife for $1,000. She died August 23, 1892, while a member in good standing. The matters affecting his claim are the same as those existing in the case of Ella Royce. The appellant Ellen Dwyer is a beneficiary under a life certificate issued to John Dwyer, who died prior to the commencement of this action, and at the time of his death was a member in good standing. The amount of his certificate was $2,000. The claim was disallowed by the referce, and the claimant thereupon filed exceptions to his report, which the special term overruled.

The special term in effect held (1) that death claims arising on life certificates were not entitled to be paid out of the reserve fund; (2) that death claims arising upon life-reserve certificates were entitled to be paid therefrom; (3) that after payment of the general debts existing at the time of its dissolution, the expenses of winding up its affairs, and the death claims existing against the association arising on life-reserve certificates issued to members who died before the commencement of this action, the remainder of the reserve fund should be distributed to the living members of the life-reserve class in good standing, and to the representatives of members of that class who have died since the commencement of this action, in the proportion which the amount contributed by each bears to the whole amount of the fund; and (4) that all moneys in the hands of the receiver derived from the assessments levied by the association in September, 1892, should be returned to such members respectively. The court thereupon ordered that from the moneys in his hands the receiver pay and distribute to the claimants whose claims have been established the sum of $55,000 as follows: (1) That he pay each and all of the claims allowed for money paid the association by claimants which came to the hands of the receiver from the assessment of its members in September, 1892; (2) that out of the remainder he pay each and all claims of general creditors in full as established by the report of the referee; (3) that he reserve in his hands $28,249 for the payment of death claims upon life-reserve certificates until the question whether they should be paid in full was finally determined; and (4) that the residue of the sum of $55,000 be paid to the executors, administrators, or beneficiaries of members of the association whose claims as holders of life-reserve certificates have been allowed. From the order of the special term sustaining their exceptions, and adjudging that Royce and Spooner have an equitable lien on the reserve fund of the association, and that their claims should be paid therefrom, the receiver appealed to the general term, and Ellen Dwyer also appealed from the order of the special term overruling her exceptions to the report of the referee. By stipulation of all the parties, and with the consent of the court, these appeals were heard and determined by the general term as one. The order of the special term was modified by the general term, and that court directed that $10,000 of the reserve fund should be paid to and distributed among the holders of the death and disability claims of both classes which existed at the time of the commencement of this action, and that the residue of the reserve fund should be distributed to and among the members of the reserve class, whether living or dead at the time of the commencement of this action, without any diminution by reason of having shared in said $10,000. From so much of the order of the general term as directed that only $10,000 should be distributed among the holders of death claims, and that the remainder be distributed among the holders of life-reserve certificates, the appellants Royce, Spooner, and Dwyer appealed to this court. The receiver appealed to this court from that part of the order which directed that $10,000, with interest, should be transferred from the reserve fund to the death fund, and held that it was properly applicable to the payment of the valid death and disability claims made against the association arising either upon life certificates or life-reserve certificates.

The constitution and by-laws of the association, so far as material to the questions involved, are as follows:

‘Object. The object of the Life and Reserve Association is to combine the efforts of all its members with the view to furnish life indemnity of pecuniary benefits to the widows, orphans, heirs, or relatives by consanguinity or affinity, devisees or legatees of deceased members, or permanent disability indemnity to members thereof; and, further, to collect and accumulate funds to be held in trust, and to be used by the association and its members in reducing future dues and assessments, and for such other purposes as are hereinafter provided for under the constitution, by-laws, and amendments thereto.’ Article 1, § 3. The constitution then provides that in no case shall the amount of certificates exceed $10,000 for males and $5,000 for females. Article 2, § 2. Section 3, art. 2, provides: ‘Certificates. This association shall issue two kinds or forms of certificates, one of which shall be known as a ‘life certificate,’ and the other as a ‘life-reserve certificate.’ No person holding a life certificate shall be entitled to, or shall in any manner derive, any benefit from the reserve fund, but such fund shall be and is for persons holding life-reserve certificates only.' It then states when life certificates shall issue, when life-reserve certificates may be issued, and the amount of assessments upon each, the life-reserve certificates being assessable to twice the amount of the life certificates. It then declares: ‘After four years from the date of the life-reserve certificates, and at the end of each period of four years thereafter, during the continuance of the certificates, commencing with the first day of January first preceding the date of such...