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Holbrook v. Basset et al.

2. An agreement by which certain parties agreed to lend to an Insurance

Company their notes to amounts specified, and to renew such notes from time to time until a day named, when they should be paid by the Company, the said “notes to be given to N. & S., as special Trustees, to be used by them as they may think proper for the benefit of the Company," is not in contravention of section 7 of “Regulations to prevent the insolvency of moneyed corporations,” (1 R. S., 591,) which forbids an assignment or transfer of effects, except to the corporation directly and by name, and it is not

void on that ground. 3. When, under such an agreement, and in pursuance of its stipulations, the

Company delivered to the so-called special Trustees, as collateral security to provide for the payment of such notes, valid notes third persons received for premiums in advance, and the notes so lent were discounted and the money paid over to the Company and used by it for the payment of its liabilities in due course of business, the transaction is valid, the transfer of the collateral securities is effectual, and the said special Trustees, or their transferee, (under a power to transfer contained in the agreement,) may

collect the said premium notes from the makers.' 4. A transfer of collateral security made in good faith to secure a present loan

to be used in due course of business, is not a transfer with intent to give a preference within the act (§ 9) forbidding transfers by corporations, when insolvent, with intent to give a preference to one creditor over

others. 5. An Insurance Company cannot be said to be insolvent, or to act in contem

plation of insolvency, within the act last mentioned, merely because the sums insured greatly exceed its capital; nor when its assets are more than sufficient to meet all losses of which the Company has any notice, information or suspicion; nor under such circumstances can a loan made by the Company, secured by collaterals, for the purpose of meeting the liabilities of the Company as they arise, with the belief that the Company is solvent and will meet all its engagements, and in order to sustain the Company in its business and enable it to do so, and with the application of the money raised to that object, be deemed a transser with intent to give an unlawful

preference. 6. Such a transaction is not void for the want of power to borrow notes,

merely because the Company, instead of borrowing money with which to meet its engagements, borrowed notes, caused them to be discounted and

used the money, under an agreement to pay the notes at maturity. 7. Such a transaction is not void under section 8 of the act which declares

that no transfer, not authorized by a previous resolution of the Board of Directors, shall be made by such a corporation of any of its effects exceeding in value $1,000, when it appears that a resolution was passed authorizing the officers to give such security as they should think proper for those who

1 Scott v. Johnson, post.

Holbrook v. Basset et al.

should lend their notes, and the officers did in good faith, without fraud or collusion, deliver a suitable amount as such security, and it further appears, in reference to the particular notes transferred, that the Board also resolved that the officers proceed in liquidation of the liabilities of the Company therewith. (Before Bosworth, Ch. J., and WOODRUFF and MONCRIEF, J. J.)

Heard, June 11th ; decided, July 9th, 1859. APPEAL by the defendants from a judgment ordered for the plaintiff, on a trial before Mr. Justice BOSWORTH, May 21st, 1858, without a jury.

The action is brought to recover the amount of a promissory note made by the defendants, and the defense is, that the plaintiff is not the lawful and bona fide owner and holder thereof; that the note was made and delivered to the Atlas Mutual Insurance Company, and transferred to Nelson & Sturges by that Company, upon an unauthorized trust, of which the plaintiff had knowledge when he received it from them.

Further, that the note was given in pursuance of a subscription, whereby the defendants and others were to give their notes when $300,000 was subscribed ; that such amount was never subscribed, but the Company obtained the note by fraudulently representing that it had been subscribed, and this was known to the plaintiff and to Nelson & Sturges, and neither of them gave a valuable consideration therefor.

That Nelson & Sturges were Trustees of the Company; that the Company was insolvent when the note was given, and the transfer thereof was contrary to law and void; and finally, that the Company are indebted to the defendants to an amount greater than the note, which they will set off, &c.

The facts found by the Court, and its conclusions of law thereon, are as follows, viz. :

The defendants being partners, doing business under the name and firm of “Basset, Bacon & Co.," about the 8th of November, 1855, made their certain promissory note in writing, in the words and figures following, to wit: "$1,250.

NEW YORK, Nov. 8, 1855. “Twelve months after date we promise to pay, to our own order, at Marine Bank, twelve hundred and fifty dollars, value received


Holbrook v. Basset et al.

Thereupon, and about the same date, the defendants indorsed said note, in their said firm name, and delivered the same to the Atlas Mutual Insurance Company.

The defendants were subscribers to a subscription taken by the said Insurance Company, and dated November 8th, 1855, and which is in these words:

“We, the subscribers hereto, agree to give to the Atlas Mutual Insurance Company our notes in advance of premiums of insurance at six and twelve months, in equal amounts, for the suns set opposite our names respectively, it being understood that in consideration thereof the subscribers are to be allowed by the Company, at the maturity of their notes, five per cent on the amount thereof.

“This subscription is towards the $400,000 subscription authorized by a resolution of the Board of Trustees of this date, and is not to be binding until the sum of $300,000 is subscribed.

"NEW YORK, Nov. 8, 1855."

The resolution of the Board of Trustees of said Insurance Company, authorizing the said subscription to be taken up, is in these words, viz. :

"Resolved, That a subscription in the sum of $400,000 in premium notes to be written against, be obtained, subscriptions to be binding when $300,000 is subscribed, including the $40,000 already subscribed."

The $40,000 subscription alluded to, in last said resolution, is in these words, viz.:

"We, the subscribers, bereby agree to give our notes for the amount opposite our names at four months, in advance of premiums, to the Atlas Mutual Insurance Company. Notes to bo given when $40,000 is subscribed.

"NEW YORK, Oct. 12, 1855."

In the several books used to obtain subscribers (there being at least eight or nine of such books in use at the same time) to the subscription of the 8th of November, 1858, (and spoken of throughout the testimony in this case as the $300,000 subscrip

Holbrook v. Basset et al.

tion,) that subscription agreement was preceded by a copy inserted
in each book of the $40,000 subscription, and both were preceded
by a copy of a subscription called the $50,000 subscription,
which latter subscription was in these words, viz.:

"NEW YORK, Nov. 8, 1855.
"The Trustees of the Atlas Mutual Insurance Company, in
order to show their desire and determination to place the Com-
pany in an independent position, do subscribe the amounts set
opposite their names, on the same conditions set forth in the reso-
lution of the Board of this date, to be paid in cash or notes at
thirty, sixty, ninety days, or four months, provided that the
amount of three hundred thousand dollars is subscribed under
that resolution.
J. S. Sturges,

F. A. Crocker,
J. S. Whitney,

J. Boynton,
S. Knowlton,

L. R. Chesbrough,
Snow & Burgess,

E. B. Litchfield, $50,000."
Ed. A. Lambert,

J. Collins,
J. E. Southworth,

T. C. Durant,
Marcellus Massey,

The defendants subscribed the subscription agreement of the
8th of November, 1855, to the amount of $2,500.

On the 30th of November, 1855, the Board of Trustees of said Company passed the following resolution, viz.:

“It being understood that $300,000 is now subscribed, under the resolution of the Board of Nov. 8th, it is therefore Resolved, that the officers commence at once to collect notes to that amount and proceed in liquidation of the liabilities of the Company therewith."

Subscriptions to the amount of $300,000 had then been made to the subscription of the 8th of November, 1855, including the subscriptions made by Insurance Companies, and including also the said $40,000 subscription, and exclusive of the said $50,000 subscription, which was not counted when the calculation was made to ascertain if $300,000 had been in fact subscribed; excluding the $40,000 subscription, and those made by Insurance Companies, $300,000 had not been subscribed.

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Holbrook v. Basset et al.

There was an original paper called the $50,000 subscription, in the words of the copy thereof above set forth, and signed by the persons whose names appear on such copy.

When the Trustees of said Company passed the resolution of the 30th of November, 1855, they in good faith believed that the $300,000 therein mentioned had been actually subscribed, and that such subscriptions had been made bona fide.

The note in suit, a copy whereof is above set forth, was, soon after the date of last said resolution, made, indorsed and delivered by the defendants to said Atlas Insurance Company, under the defendants' said subscription. No fraud, misrepresentation or deceit was practised on the defendants to induce them to so make, indorse, and deliver their said note.

On the 14th of January, 1856, the Board of Trustees of said Atlas Insurance Company passed the following resolution, viz.:

"Resolved, That the officers of the Company be and are hereby authorized to arrange with any parties, in or out of the Board of Trustees, for the use of their names, either as makers or indorsers of such paper as it will be necessary for the Company, from time to time, to have; and they may give any security and make such allowance as they shall think proper for the use of such paper."

In pursuance of, and under said resolution, the following agreement was made, viz. :

"NEW YORK, Jan. 15, 1856. "We, the undersigned, agree to, and with each other, and with the Atlas Mutual Insurance Company, that we will lend our notes to the amount of $5,000 each, to said Company, and will indorse each other's paper so given to an equal amount, on the conditions as stated below, such paper to be given to T. S. Nelson and J. S. Sturges, special Trustees, to be used by them as they may think proper for the benefit of the Company, and to be made at such date as they require. It being clearly understood that our liability on this paper, either as makers or indorsers, shall be fully secured by a deposit of col. laterals, to such an amount and of such character as said Trustees shall think sufficient to cover all the paper used under this ar

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