People v. Metro. Sur. Co.

• Decision Date: 02 April 1912
• Citation: 205 N.Y. 135,98 N.E. 412
• Parties: PEOPLE v. METROPOLITAN SURETY CO. FLEET v. YAWGER.
• Court: New York Court of Appeals Court of Appeals

205 N.Y. 135

98 N.E. 412

PEOPLE

v.METROPOLITAN SURETY CO.

FLEET

v.YAWGER.

Court of Appeals of New York.

April 2, 1912.

Appeal from Supreme Court, Appellate Division, Third Department.

Action by the People against the Metropolitan Surety Company in which John F. Yawger was appointed receiver, and defendant dissolved, and Henry Y. Fleet fild a claim. From an order of the Appellate Division (132 N. Y. Supp. 835) affirming an order at Special Term confirming the report of the receiver disallowing the claim, claimant appeals. Affirmed as modified.

See, also, 132 N. Y. Supp. 829,133 N. Y. Supp. 1055.

The Metropolitan Surety Company was a domestic corporation authorized by its charter to guarantee ‘the performance of contracts other than insurance policies' and to execute or guarantee ‘bonds and undertakings required or permitted in all actions or proceedings or by law required.’ On the 5th of January, 1909, an action was commenced in the Supreme Court of this state by the Attorney General in the name of the people to dissolve said company upon the ground that it had become insolvent and was subject to dissolution according to law. Such proceedings were taken in said action that on the 6th of January, 1909, John F. Yawger was appointed temporary receiver of said corporation, and on the 30th of January, 1909, such receivership was made permanent and the receiver clothed ‘with the usual powers and duties enjoyed and exercised by receivers according to the practice of this court and the statutes in such case made and provided.’ Mr. Yawger qualified and has ever since acted as permanent receiver.

On the 28th of May, 1906, in an action in the Supreme Court between Henry Y. Fleet as plaintiff and the Nolan Commission Company as defendant, an attachment issued against the property of the defendant was levied upon the sum of $1,920 on deposit in its name and to its credit in the Oyster Bay Bank. On the 15th of June, 1906, upon an application to dissolve said attachment, an undertaking was executed and delivered by the Metropolitan Surety Company, whereby ‘pursuant to the statute in such case made and provided’ it undertook ‘that the defendant will, on demand, pay to the plaintiff the amount of any judgment which may be recovered in the action against the defendant not exceeding the sum of two thousand nine hundred and eighty-seven dollars ($2,987), with interest.’ After the dissolution of the surety company and the appointment of a permanent receiver thereof, judgment was recovered in said action against the Nolan Commission Company in favor of Henry Y. Fleet, the plaintiff therein, for $2,809.20. Subsequently said Fleet filed a claim for the amount of said judgment, but the receiver rejected it, and thereupon an order was made referring it to a referee ‘to hear and determine as to the allowance thereof.’ The referee found the facts substantially as above stated and found as a conclusion of law that ‘claims under undertakings of an insurance company which has been dissolved for insolvency and placed in the hands of a receiver in an action instituted by the Attorney General, must be valued and determined and their status fixed as of the date of the commencement of the action for dissolution.’ He recommended that the claim be disallowed, and, upon application to the court at Special Term, the exceptions of the claimant to the report were overruled, the report confirmed, and the claim dismissed. The Appellate Division, upon appeal, affirmed said order, and the claimant thereupon appealed to this court.Alfred T. Davison, for appellant.

Edward R. Finch, for respondent.

VANN, J. (after stating the facts as above).

[1] The undertaking in question is in the words of the statute authorizing it, as the promise of the obligor is to pay ‘the amount of any judgment which may be recovered in the action .’ Code Civ. Proc. § 688. This was not an absolute but a contingent promise. It was the promise of a surety which is contingent in its nature. It could become effective in creating an absolute liability only upon the happening of an uncertain event. The promise must be considered in the light of the facts as they existed when it was made and at that time ti was an open question whether the claimant would recover judgment in his action against the Nolan Commission Company. However probable the result might be, it was uncertain, as it depended upon contingencies which could be resolved only in the future. The action might never be tried, and, if tried, the plaintiff might fail of success, on the merits, from the death of witnesses, or from some defect of form or procedure. The amount of a possible recovery would be as uncertain as the question whether there would be any recovery at all. Both subjects would be open and contingent. The claimant could not prove any debt, for there was no debt, but simply a claim, which might or might not ripen into a debt for some amount, at some time in the future. The result of every lawsuit is uncertain until judgment is rendered. As Chief Justice Waite once said, speaking of a bond like the one before us: ‘It was payable on the happening of an event which might never occur, and was therefore contingent.’ Wolf v. Stix, 99 U. S. 1, 8, 25 L. Ed. 309. The surety company therefore was under no obligation to pay, and there was no debt to be paid until the contingent liability was matured by a judgment into an absolute liability. When that time arrived the surety company had been dissolved and a permanent receiver appointed.

[2] The question presented by this appeal involves the date when the corporate assets constituting a trust fund are to be marshaled, equities adjusted, and claims allowed. In a leading case, decided upon careful consideration after a review of the authorities, all the judges concurred in holding that: ‘Claims under policies of a life insurance company which has been dissolved for insolvency and placed in the hands of a receiver, in an action instituted by the Attorney General, must be valued and determined, and their status fixed, as of the date of the commencement of the action for dissolution, and are not affected by the death of the insured after that date and before the distribution of assets.’ Judge Haight said: ‘The judgment relates back to the commencement of the action and became effective as of that time, and thereafter the company could not require the payment of premiums or insist upon forfeitures. It is the day on which the court practically takes possession of the assets of the company for the purpose of distribution among its creditors, and consequently is the day on which the rights of creditors should be ascertained and the value of their claims determined.’ The court appreciated the fact that the rule thus adopted would result in some hardship, but all the judges were of the opinion that any other rule ‘would so far retard and delay the distribution of the assets as to make its administration practically impossible,’ and therefore that individual claims should ‘give way to the greater claims of the masses, and to a wise public policy which demands an early distribution of the assets.’ People v. Commercial Alliance Life Ins. Co., 154 N. Y. 95, 98,47 N. E. 968, 969.

That case related to policies issued by a life insurance company, and the rule was applied although the insured died only five days after the judgment of dissolution. In a contract of life insurance the contingency must happen at some time if the policy remains in force, whereas in the undertaking before us it might never happen. The smae rule had previously been applied to claims arising under certificates of membership in assessment life and casualty insurance associations. Matter of Equitable Reserve Fund Life Ass'n, 131 N. Y. 354, 30 N. E. 114;People ex rel. Attorney General v. Life & Reserve Ass'n, 150 N. Y. 94, 45 N. E. 8.

In a later case we applied it to the assets of a dissolved trust company. People v. American Loan & Trust Co., 172 N. Y. 371, 377,65 N. E. 200, 201. All the judges united in saying that: ‘A corporation is created by the edict of the Legislature and dies at its command. Knowledge is imputed to all who deal with it that when it suspends business the law takes charge of its affairs, liquidates its debts, converts its assets, and distributes the proceeds among its creditors. Those who contract with it do so ‘with knowledge of the statutory conditions, and these must be deemed to have permeated the agreement and constituted elements of the obligation.’ People v . Globe Mut. Life Ins. Co., 91 N. Y. 174, 179;People v. Security Life Ins. & Annuity Co., 78 N. Y. 114 . The process of administration provided by law is through a receiver, as the executive arm of the court. He is appointed for the benefit of all the creditors, both preferred and unpreferred, and holds the assets, under the direction of the court, in trust primarily for them and finally for the corporation or its stockholders. Thereupon by operation of law the creditors become the equitable owners of the assets, and the administration of affairs is for their benefit as such. The claims of creditors against the defunct corporation differ from their claims against its assets in sequestration, for they are not proved against the insolvent and dissolved nonentity, but against the fund in the receiver's hands. * * * As the decree of dissolution relates back to the day when the court took possession of the assets, the delay is not the act or omission of the corporation, which is civiliter mortuus, but is owing to the law, and hence should operate neither to benefit nor prejudice any creditor. Distribution should be made as of the date when the delay began, for it was not only caused by the law, but was necessary for the protection of all classes of creditors.'

The bond of a surety company is practically a contract of insurance and stands on the same basis as an insurance policy so far as the division of assets is...