Schlens v. Poe

• Court: Maryland Supreme Court
• Writing for the Court: BURKE, J.
• Citation: Schlens v. Poe, 128 Md. 352, 97 A. 649 (Md. 1916)
• Decision Date: 07 April 1916
• Docket Number: 64,65.
• Parties: SCHLENS v. POE et al. UNITED SURETY CO. et al. v. SCHLENS.

97 A. 649

128 Md. 352

SCHLENS v. POE et al.

UNITED SURETY CO. et al. v. SCHLENS.

Nos. 64, 65.

Court of Appeals of Maryland

April 7, 1916

Appeals from Circuit Court of Baltimore City; Chas. W. Heuisler Judge.

"To be officially reported."

Consolidated actions by Gustav A. Schlens against Edwin W. Poe and others receivers, and by the United Surety Company and others against Gustav A. Schlens. From the decree, all parties appeal. Reversed and remanded, with directions.

Morris Wolf, of Philadelphia, Pa., and Alfred S. Niles, of Baltimore (Niles, Wolff, Barton & Morrow, of Baltimore, on the brief) for plaintiff Schlens.

J. Kemp Bartlett, of Baltimore (Stuart S. Janney, of Baltimore, on the brief), for defendant receivers.

BURKE J.

When the conceded and uncontradicted facts are extracted from the mass of testimony contained in the record before us, the questions before the court present little difficulty. An outline of these facts will show the precise issues raised by the pleadings and indicate the principles of law which must be applied to the case.

The United Surety Company was incorporated by chapter 479 of the Laws of 1902, and organized and began business about January, 1905. It was authorized by its charter to sell surety and casualty bonds in the state of Maryland and elsewhere. It extended its business to the states of New York, Massachusetts, and other states, in each of which it had perfected an organization and was doing quite a considerable amount of business. On April 10, 1906, a contract was entered into between the United Surety Company and the Munich Reinsurance Company. The nature and terms of this contract were considered by this court, and the responsibility of the Munich Company under that contract was determined and established in the cases reported in Munich Reinsurance Co. v. United Surety Co., 113 Md. 200, 77 A. 579, and Id., 121 Md. 479, 88 A. 271. The business of the company was not profitable, and on January 13, 1911, the circuit court for Baltimore city, upon a bill filed by Thomas H. Bowles and others against the United Surety Company, placed the affairs of the company in the hands of receivers. The receivers qualified and have since administered their trust under the jurisdiction of that court.

About the close of the year 1909 the surety company found itself in a precarious condition. The insurance commissioner of the state of Maryland refused to permit the company to include in its annual statement certain items as assets. At a special meeting of the executive committee of the company held on February 3, 1910, the president of the company reported that, as stated at the last meeting of the executive committee, the statement of the company from an insurance point of view showed an impairment of capital to the extent of $39,000, unless the Munich Reinsurance claim, advance on contracts, and several other disputed items could be allowed in the statement as assets. He stated that he had been in daily conferences with the insurance commissioner for Maryland, with the representatives of the company at Washington, and before the Treasury Department there, making every effort possible to have these items allowed as assets, but that he had been unable to accomplish this, and that the insurance commissioner for Maryland, as well as the Treasury Department at Washington, insisted that these items could not be allowed, and that therefore they would not be allowed by the insurance commissioners of other states in which the company did business, and that consequently the only statement of the company which the insurance commissioner could pass showed an impairment of $39,000, and that, unless this could be made good, the company's statement would be disallowed, and the insurance commissioner stated that it could not continue to write further business. He also stated that the insurance commissioner for Maryland had notified the company that this impairment must be made good by noon of February 4th, and that the commissioner also stated that in his judgment at least $75,000 in cash ought to be put up as a safe margin to make good this impairment and give a reasonable surplus.

The president further stated that after the passage of the resolution and the discussion of this matter at the last executive committee meeting he, together with Mr. Ernest J. Knabe, Jr., the chairman of the board, and Mr. Hershey, as counsel, had been actively engaged in endeavoring to devise some means by which this money could be raised; that they had submitted the entire situation and all the facts and statements, etc., to the insurance commissioner for Maryland, and at his suggestion and with his approval they had put themselves in touch with several of the larger surety companies operating in the same line of business and acting through Mr. Edwin Warfield, the president of the Fidelity Trust & Deposit Company, with a view to securing assistance from those gentlemen to save the company from going by the board; that they had submitted, with the approval of the insurance commissioner, and at his suggestion, a proposition through Mr. Warfield to sell the claim of this company for amounts due or to become due under the Munich Reinsurance contract, also amounts due on advances on contracts, amounting to approximately $47,282.57, also the so-called "salvage" account, amounting to approximately $39,211.00, as well as premiums over 90 days old, amounting to approximately $40,405.69, for the sum of $100,000, and that Messrs. Ernest J. Knabe, Jr., and his brother, William Knabe, as majority stockholders of the company, in order to assist the company, also offered to guarantee the said Fidelity Trust & Safe Deposit Company, or any syndicate which they might form to make such purchase, to make good any loss that such purchaser might sustain from the purchase of these nonadmitted assets. He reported that after prolonged negotiations and a number of conferences with these gentlemen they took the position that, in the light of their experience as insurance people, these nonadmitted assets were of an extremely uncertain character, most of them being contingent upon the outcome of lawsuits, and that they would not consider even paying $50,000 for the same, or any other price, nor would they purchase them or loan money on them to any purchaser. The president stated that after all other efforts had failed he had succeeded in inducing the Messrs. Ernest J. Knabe, Jr., and William Knabe to purchase these nonadmitted assets upon terms set forth in the following resolution, which he now submitted for the action of the committee, to wit:

"Whereas, in order to save this company from failure and to enable it to preserve its extremely valuable assets and to protect the interest of all the stockholders and policy holders, and to enable the company to continue in business it is necessary to raise immediately a certain amount of cash; and

Whereas, Messrs. Ernest J. Knabe, Jr., and William Knabe have offered to purchase all the assets hereinbefore set forth for the sum of $100,000, upon terms herein set forth:

Now, therefore, be it resolved that this company do sell for $100,000, on the terms hereinafter mentioned, to Messrs. Ernest J. Knabe, Jr., and William Knabe, absolutely, its claims for all premiums over 90 days old, as per memo. submitted and to be set forth in these minutes, the face value of which is $40,405.69, but all of which are subject to agent's commissions, and some of which are admittedly bad, and the net value of which is estimated should be at least $19,000, but whose amount is in no sense guaranteed; all advances on contracts, the net value of which is estimated should be at least $30,000, but which amount is in no sense guaranteed; and the so-called 'salvage' account, the net value of which should be at least $20,000, but whose amount is in no sense guaranteed, and also the claim of this company known as the Munich Reinsurance claim, now pending in the Court of Appeals of Maryland, the net value of which is estimated should be at least $88,000 but whose amount is in no sense guaranteed; all of which assets are to be sold as aforesaid, of which $75,000 is to be paid in cash this day, and the balance to be paid within 6 months from the date hereof; the deferred payment of $25,000 as aforesaid to be secured by this company retaining title to the said Munich Reinsurance claim, said claim to be assigned finally and absolutely to the said Messrs. Knabe when and as soon as said $25,000 is paid; if the same shall not be paid until or before the final settlement is had of said Munich Reinsurance claim, then any balance realized from said claim over and above $25,000, with interest from this date, to be and become the property of said Messrs. Knabe, subject, however, to the following conditions to which the said Messrs. Knabe are to agree and do hereby agree:

First. The United States Surety Company shall agree and it does hereby agree that it will serve as the agent of the said Messrs. Knabe to use their best efforts and diligence to collect, subject to the general direction and control of the said Messrs. Knabe, all of the aforementioned assets hereby sold, and to pay the net proceeds from such collections as collected to the said Messrs. Knabe.

Second. That if the amount realized from all of the said assets shall exceed the amount of the purchase price paid as aforesaid, plus 6 per cent. interest and 33 1/3 per cent. of the amount paid in addition as a bonus, then the amounts realized from said assets in excess therefor shall be returned to the company.

Third. That no releases or settlements for less than the full amount of the claim shall be made without the assent of the Messrs. Knabe or one of them being first had and obtained.

Fourth.

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