Trade Mut. Liability Ins. Co. v. Peters
| Decision Date | 14 May 1935 |
| Parties | TRADE MUT. LIABILITY INS. CO. v. PETERS et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Suit in equity by the Trade Mutual Liability Insurance Company against Lewis H. Peters and others. From a final decree entered after a hearing and findings of fact and rulings of law, plaintiff and individual defendants appeal, and from decrees denying plaintiff's motions to dismiss defendants' appeals, plaintiff appeals.
Decrees denying motions to dismiss appeals affirmed; final decree reversed, and final decree for defendants.
Appeal from Superior Court, Suffolk County; Weed and Broadhurst, judges.
D. J Lyne and J. P. Rooney, both of Boston, for plaintiff.
F. S Deland, of Boston, for defendant National Bank.
L. H Peters, of Boston, for individual defendants.
The receiver of the plaintiff, a mutual accident and liability insurance corporation formed under G. L. (Ter. Ed.) c. 175, § 47, Sixth, brought this bill against the president, vice-president and directors of the corporation and also its attorney and Beacon Trust Company, to set aside an assignment of accounts and notes receivable of the corporation, made in November, 1929, to the individual defendants, and an assignment of the same made soon afterwards by the individual defendants to the defendant Beacon Trust Company as security for a loan to them of $30,000. Pending the suit, Beacon Trust Company became merged in Atlantic National Bank of Boston, and the latter was added as a party.
The corporation by statute was under the supervision of the commissioner of insurance. It was required annually, on or before March first, to file with the commissioner a statement of its financial condition on December thirty-first of the preceding year. G. L. (Ter. Ed.) c. 175, § 25.[*] That section provided that ‘ the assets and liabilities shall be computed and allowed in such statement in accordance with the rules stated in sections * * * ten, eleven and twelve.’ By section 1 it is provided that the ‘ net value of policies' or ‘ unearned premiums' shall mean ‘ the liability of a company upon its insurance contracts, other than accrued claims, computed by rules of valuation established by sections nine to twelve, inclusive,’ of which sections 10, 11 and 12 applied to this corporation. Section 1 also made it impossible to count in the ‘ net assets' uncollected premiums or notes therefor, more than three months due. The commissioner discovered, on an examination as of August 31, 1929, made in October, 1929, that the liabilities of the company, computed according to the statute, exceeded its assets, similarly computed. An important factor in the statutory deficit was want of diligence on the part of the corporation in collecting its premiums.
Discussions followed, with respect to a method of wiping out the statutory deficit, which the commissioner determined to be $30,000. An assessment upon the policy-holders (section 83), the establishment of a guaranty capital (section 79), reinsurance in another company (section 20), and direct gifts of the needed amount by officers and policy-holders, were all considered. It was finally decided to take the old accounts and notes for premiums, more than three months overdue and therefore not capable of being counted in the ‘ net assets' in determining the statutory condition of the corporation, and assign them to the officers and directors for the purpose of letting them be pledged for a loan from a stranger to the officers and directors of $30,000, which would be paid into the treasury in cash. In this way the corporation would convert old and slow accounts into cash. Whatever its effect upon the real condition of the corporation, its statutory deficit of $30,000 would be repaired and would cease to exist. Of course, it was essential to this plan that the corporation should not owe the officers and directors for the $30,000 paid into the treasury.
This plan was carried out. The face value of the overdue accounts and notes assigned by the corporation to the individual defendants, and by them to the Beacon Trust Company, was $37,366.63. The judge finds that ‘ the transaction * * * was regarded by the parties to it, and was in fact and law a sale by the company to the individual defendants of overdue accounts for thirty thousand dollars.’ The judge finds that the price of $30,000 paid for the overdue accounts and notes was ‘ more than adequate, and more than they were fairly and reasonably worth.’ The real condition of the corporation was therefore somewhat improved by the transaction.
The assignment from the corporation was authorized on November 19, 1929, and executed on November 22, 1929. Between November 1, 1929, and November 22, 1929, $5,700 was collected by the corporation on the assigned accounts and notes, and by it paid to the individual defendants. They applied the sum towards the discharge of their notes to Beacon Trust Company. The judge held that the assignments did not cover that sum of $5,700, that that sum belonged to the corporation, and that the individual defendants must restore it to the corporation. He entered a decree affirming the validity of the assignments, dismissing the bill as against the Beacon Trust Company and the Atlantic National Bank of Boston, but ordering the individual defendants to pay the plaintiff $5,700, with interest thereon from November 26, 1929, and costs. Both the plaintiff and the individual defendants appealed.
The plaintiff contends that the whole transaction was illegal. It was, however, perfectly honest, and we find nothing in the statutes cited that made it unlawful. True, section 83 provides that a corporation lacking sufficient assets ‘ shall make an assessment upon its members.’ But even if this applies to a merely statutory deficit, we do not think this requires an assessment where the statutory deficit is otherwise remedied. Section 64, we think, does not enable the corporation to retain the benefit of the $30,000 received and at the same time repudiate the assignment by which it was obtained. Bowditch v. New England Mutual Life Ins. Co., 141 Mass. 292, 4 N.E. 798,55 Am.Rep. 474.
We do not agree with the ruling of the judge that the assignment covered only the amount remaining unpaid on the accounts and notes when the assignment was executed on November 22, 1929. The matter had been discussed from a time early in November. The vote was ‘ to assign overdue accounts and overdue notes as of November 1, 1929 according to the records of the company.’ The assignment was of ‘ the following accounts receivable overdue as of November 1st, 1929,’ followed by a list of the accounts. We think that the intention was to assign the accounts as they existed on November 1, 1929, and that money collected on them, between that date and the date when the assignment was executed, belonged to the assignees.
It is not contended that any account or note passed by the assignment unless on November 1, 1929, it was more than three months overdue. An assignment of recent accounts, which could have been counted as assets under the statute, would not have served the purpose of the plan. One accountant testified that of the $20,803.65 paid by the corporation to the assignees as money collected on the assigned accounts, only $8,413.22 could be identified as money collected after November 1, 1929, upon accounts more than three months overdue on that date. The individual defendants were in a fiduciary relation to the corporation, and must show affirmatively their right to receive money from its treasury. Pappathanos v. Coakley, 263 Mass. 401, 408, 161 N.E. 804; Daniels v. Briggs, 279 Mass. 87, 92, 180 N.E. 717. The judge evidently gave credit to the conflicting testimony of another accountant, that the entire sum of $20,803.65 had been collected after November 1, 1929, upon accounts more than three months overdue on that date, and that consequently it was properly paid to the assignees. The question was one of fact and depended upon oral testimony before the judge.
An appeal in equity opens all questions of fact, discretion and law, presented by the record. Romanausky v Skutulas, 258 Mass. 190, 154 N.E. 856; Norcross v. Mahan, 283 Mass. 403, 404, 186 N.E. 504; Hannah v. Frawley, 285 Mass. 28, 31, 188 N.E. 385; Old Colony Trust Co. v. Third Universalist Society of Cambridge, 285 Mass. 146, 151, 188 N.E. 711, 91 A.L.R. 837; Abbott v. Bean, 285 Mass. 474, 478, 189 N.E. 435. This court in dealing with...
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