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Holbrook v. Basset et al.

rangement; such securities shall be placed in the hands of T. S. Nelson and James S. Sturges, as special Trustees for all parties concerned; and we hereby give to said special Trustees full power and authority to sell said collateral securities, or any part or portion thereof, at the Board of Brokers, in the city of New York, or at public sale, or at private sale, or at the option of said special Trustees, and without advertising the same, or otherwise giving us any notice. It is also clearly and distinctly understood, that should any loss occur ultimately to any parties to this arrangement, that such loss shall be borne pro rata, by all the parties giving such notes.

"It is also understood that the said notes shall be paid by the Company, by the 1st of November, 1856; but the parties are, in the meantime, to give new paper for renewal for the same, or a lesser sum, until finally paid in full as above. "Signed on behalf of the Company,

[L. S.]
"Attested-GEO. H. TRACY,









J. S. WHITNEY & Co.,



At about the time of, and soon after said resolution was passed, and last said agreement was made, the persons and firms whose Bosw.-VOL. V.


Holbrook v. Basset et al.

names are attached to said agreement, and relying thereon and on the security of assets of said Atlas Insurance Company, placed in the hands of said Nelson and Sturges, under said resolution and agreement, and which said assets included the note in question, for the accommodation of said Atlas Insurance Company, made and lent to it their several promissory notes at short date, payable at....Bank, and amounting, in the aggregate, to about $40,000; and delivered said notes to said Nelson & Sturges, to be by them used as the agents of and for said Atlas Insurance Company, and who procured the same to be discounted at legal rates, an paid over the proceeds thereof to the proper financial officers of said Company, to be by them applied in the payment of the just and lawful debts of said Company, and they were all so paid out and applied; the said notes so made and lent to said Company were paid by the makers thereof at maturity; and they have not been paid in full the amount of the said notes so lent; nor has enough been realized from said collaterals to pay the same; and the amount owing and unpaid thereon, and uncollected from said collaterals, exceeds the amount of the note in suit and the interest thereon.

The persons so making and lending their notes did so in good faith, believing at the time that the transaction was lawful and for the benefit of said Company.

All of the persons who so made and lent their notes were, at the times, either trustees of said Company, or belonged to commercial firms, some of whose members were such trustees; and Nelson & Sturges were also trustees; and they knew at the time that the note in suit was given under defendants' said subscription.

On the 8th of November, 1855, the said Atlas Insurance Company was solvent, in the sense that its assets then largely exceeded its known and estimated losses; and its Trustees then honestly believed it solvent, and that its business operations would be continued, and all losses that might occur would be paid. It had at that time risks outstanding amounting to several millions of dollars. The Trustees of said Atlas Insurance Company did not know or believe, either on the 14th or 15th of January, 1856, or at the time when the persons whose names are



Holbrook v. Basset et al.

upon said trust agreement lent their notes as aforesaid, that said Company was actually insolvent, or would be unable to continue its business.


About the 1st of January, 1856, the said Atlas Insurance Company had settled about all the claims it then supposed to be due.

During January and February, 1856, large claims for losses, not before heard of by the Company, were presented, amounting in the aggregate to about $240,000.

The said resolution of the 14th January, 1856, and the said trust agreement made in pursuance thereof, were acts done to meet the new demands about then unexpectedly presented for losses.

The subscribers to the $300,000 subscription gave notes under the same, amounting in the aggregate to $212,250; for $87,750 of the amount so subscribed, no notes have been given by the subscribers.

Of the subscriptions to the $300,000 subscription, the sum of $117,000 in the aggregate, was subscribed by the Trustees; the notes given by them, on their said subscription, amount in all to $69,250, leaving of subscriptions the sum of $47,750 for which no notes have been given.

No notes were given under the $50,000 subscription.

Of the subscriptions made to the $300,000 subscription, other Insurance Companies subscribed, in the aggregate, $37,000, and the notes given by such subscribing companies amounted in all to $30,000, and no more.

The defendants knew, before they made and delivered the note in question, that Insurance Companies were subscribers to said subscription.

The said Atlas Insurance Company ceased to transact business on the 5th of March, 1856. An injunction suspending its operations was served on it on that day, and the appointment of a receiver of its property and effects was completed on the 25th of that month, and it proved to be utterly insolvent.

When some of the subscribers were called upon to give their notes for the amount of their subscriptions to said $300,000 subscription, the Company had become seriously embarrassed, and its failure was apprehended by them, and they refused to give their notes; some claiming to be creditors of the Company to a

Holbrook v. Basset et al.

larger amount, and the right to offset the amount of such subscriptions against their claims upon the Company.

All the subscribers to said $300,000 subscription, at the time of subscribing, did so in good faith, and intending to give their notes for the sum subscribed, according to the terms of said subscription.

The note in suit was transferred by Nelson & Sturges to the plaintiff after its maturity, and who knew at the time he received it, of the manner in which, and the purposes for which, it originally came into the hands of Nelson & Sturges.

The said Atlas Mutual Insurance Company had its existence, and did business, under a charter, a copy of which, and of its bylaws, is inserted in the Case; and its principal place of business was in the city of New York.

No part of the note in suit has been paid by or on behalf of the defendants.


I. The note in suit was a valid security in the hands of Nelson & Sturges, and collectible by them, to reimburse to the persons who had lent to the Atlas Mutual Insurance Company their negotiable paper on the security thereof, and on the security of other assets of said Company, the amount of the notes so lent, and paid by such lenders.

II. Holbrook, the plaintiff, has succeeded to the said rights of Nelson & Sturges, and is entitled to a judgment against the defendants for the amount of said note, and interest on it from maturity, which together amounted, at the date of the decision of this action, to $1,388.78.


Counsel for the defendants excepted to the conclusion of law, that the note in suit was a valid security in the hands of Nelson & Sturges, and collectible by them for the purposes mentioned in said conclusion.

Counsel for defendants also excepted to so much thereof as held that Nelson & Sturges had a right to hold said note, and other assets of said Insurance Company, to reimburse the persons who had loaned their notes to said Company,

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Holbrook v. Basset et al.

Counsel for defendants excepted to the conclusion of law, that the plaintiff is entitled to a judgment against the defendants for the amount of said note.

Section 12 of the charter of the Atlas Mutual Insurance Company (Sess. Laws, 1843, p. 69, §8; id., 1842, p. 263, § 12,) is as follows:

"The Company, for the better security of its dealers, may receive notes for premiums in advance of persons intending to receive its policies, and may negotiate such notes for the purpose of paying claims or otherwise in the course of its business; and on such portions of said notes as may exceed the amount of premiums paid by the respective signers thereof, at the successive periods when the Company shall make up its annual statement as hereinafter provided for, and on new notes taken in advance thereafter, a compensation to the signers thereof, at a rate to be determined by the Trustees, but not exceeding five per cent per annum, may be allowed and paid from time to time."

Section 10 of the by-laws of the Company is as follows:

"The President or Vice-President, with the advice and consent of the Finance Committee, or a majority of them, shall have authority to assign, transfer, or otherwise validly dispose of, any bond and mortgages, stocks, bills receivable, or any other assets of the same, in order to convert the same into money, or to secure the repayment of money borrowed by the Company through them, the payment of losses, or other purposes that shall have been sanctioned by the Finance Committee."

And the Finance Committee consisted of five Trustees-the President being a member ex officio.

The opinion of Mr. Justice BoswORTH, at Special Term, disposed of most of the questions raised on the trial, and is, therefore, inserted:

BOSWORTH, J. This action is brought upon one of two notes given by the defendants for the amount of their subscription to the Atlas Insurance Company, upon the subscription of the 8th of November, 1855, called herein the $300,000 subscription.

The defendants insist that the subscription, by its terms, was not to be binding until the sum of $300,000 was subscribed, and also that such sum was not subscribed, and, therefore, the note

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