Citation Numbers： 22 F. 200
Judges： Matthews
Filed Date： 7/1/1884
Status： Precedential
Modified Date： 9/9/2022
This is a proceeding to review and reverse a decree of the district court, sitting in bankruptcy, sustaining the exceptions of the Globe Insurance Company to a report of the register in reference to its claim as a creditor. The claim, as stated and finally allowed by the decree, is as follows:
Total claim, ------ $50,134 48
Credits admitted, ------ 47,353 77
Balance fouDd, - • $ 2,780 71
The Cleveland Insurance Company, the bankrupt, and the Globe Insurance Company, which was the sole petitioning creditor, the proceedings being in involuntary bankruptcy, were both corporations under the laws of Ohio for the organization of fire insurance companies. In October, 1870, the Cleveland Company had outstanding fire risks in Chicago to a large amount, on which it procured from the Globo Insurance Company reinsurance amounting, upon adjustment of the losses reinsured, to $17,353.77, being the credits given by the claimant to the bankrupt in tbe proof; and this amount, it is admitted, is the adjusted loss, for which the Globe Insurance Company would be liable upon the reinsurance. The policy of reinsurance stipulated “that all risks reinsured by this policy are subject to such conditions, privileges, alterations, and accomodations as may be given by the Cleveland Insurance Company, and all losses payable pro rata, and at same time with said Cleveland Insurance Company.” The Chicago fire occurred in October, 1871, and on November 9, 1871, the Cleveland Insurance Company, having become insolvent by reason thereof, made a general assignment of all its property, under the law of the state of Ohio, to Moses C. Younglove for the-equal benefit of all its creditors. The Globe Insurance Company sought to settle with the assignee for less than the full amount of its liability, but its offers of compromise were declined. Thereupon it purchased claims against the Cleveland Insurance Company for the avowed purpose of using them as set-offs to the claim of the latter against itself. The claims thus purchased amount to $50,134.48, and constitute the amount of debits in the proof of the claim filed. These claims were purchased prior to May 2, 1872, and consist of 10 policies of insurance issued by the Cleveland Insurance Company, upon which the amount of the losses had been agreed on at the sum charged in the statement of account, and which have boon assigned by the original owners to the Globe Insurance Company. Of these 10 policies so assigned, 4, in which the adjusted losses amount to $14,482.50, were reinsured for the full amount by the Globe Insur-anee Company. The remaining 6 covered adjusted losses amounting to $35,482.98, and on these policies there was partial reinsurance on each, amounting in all to $15,878.98, leaving $19,773 not rein-sured, and the whole amount reinsured, $30,861.48. This amount, being tbe aggregate liability upon these 10 policies of the Globe Insurance Company on its reinsurance, constitutes that amount of credits allowed in the account; the remainder of which, $16,992.29, is made up of losses on five additional policies, which the Globe Insurance Company does not own. Tbe other claims were assigned to it within 60 days prior to May 2, 1872, and after the assignment by the Cleveland Insurance Company to Younglove.
“Among other indebtedness of said Cleveland Insurance Company to the petitioner, the sum of four thousand and ninety 90-100 dollars, being the one-half of an adjusted loss upon a policy of insurance issued by said Cleveland Insurance Company to Sweet, Dempster & Co., of Chicago, Illinois, of which the other half was reinsured to said Cleveland Insurance Company by your petitioner; and the whole of which said policy and the adjusted loss thereunder has been, since the occurrence of said loss, assigned by said Sweet, Demp-ster & Co., for a valuable consideration, to your petitioner; the whole of said loss, as adjusted and acknowledged by said Cleveland Insurance Company, amounting to the sum of eight thousand one hundred and eighty one 81-100 dollars.”
An answer was filed denying the allegations of the petition, to which there was a reply; and, a jury being waived, the issues were submitted to the determination of the court. It was found by the court “that the respondent was indebted to the petitioner in the "amount of more than $250, as set forth in the said petition;” but the court also found that the assignment by the Cleveland Insurance Company to Younglove was not an act of bankruptcy, and accordingly, on October 16, 1874, dismissed the petition. This judgment was reversed by the circuit court, June 15,1876, for error in not holding the assignment to be an act of bankruptcy. The Cleveland Insurance Company sought to reverse this judgment of reversal by suing out a writ of error from the supreme court, but this writ was dismissed for want of jurisdiction. Cleveland Ins. Co. v. Globe Ins. Co. 98 U. S. 366. Such proceedings were thereafter had therein, in the district court, that on October 9,1879, the Cleveland Insurance Company was finally adjudged a bankrupt for the. cause aforesaid, and |>y proper proceedings thereunder M. C. Younglove, to whom the assignment had been made, was chosen and confirmed as assignee in bankruptcy, and accepted the trust. On January 19,1880, the Globe Insurance Company filed with the register its claim as a creditor,' with proof thereof, being for the balance of account, amounting to $2,780.71, remaining after deducting from its claim of $50,134.48 for policies of the Cleveland company, and adjusted losses thereunder assigned to it, the amount of $47,353.77, admitted by it to be due on account of, reinsurance, the particulars of 'which have already been referred to. To the allowance of this claim, Burke, as a creditor, and Younglove, as assignee, filed exceptions. These exceptions were three in number, and as follows:
1. It is first objected that the claim of the Globe Insurance Company to extinguish its liability on account of reinsurance, by means
Section 20 of the act of 1867 is as follows:
“That in all cases of mutual debts or mutual credits between the parties the account between them shall be stated, and one debt set off against the other, and the balance only shall be allowed or paid, but no set-off shall bo allowed< oí a claim in its nature not provable against the estate: provided, that no set-off shall be allowed in favor of any debtor to the bankrupt of a claim purchased by or transferred to him after the filing of the petition.”
The amendment of Juno 22, 1874, added the following:
“Or, in case of compulsory bankruptcy, after the act of bankruptcy upon or in respect of which the adjudication shall be made, and with a view of making such set-off.” <
The amending act also contains the following:
“See. 21. That all acts or parts of acts inconsistent with the provisions of this act be, and the same are hereby, repealed.” ....
It will be observed that in the present case the claims of the Globe Insurance Company were purchased before the filing of the petition in bankruptcy; and that, although they were acquired after the act of bankruptcy upon which the adjudication was founded, and with a view of using them as set-offs, yet the amendment of June 22, 1874, did not take effect until after the petition was filed, though before the Cleveland Insurance Company was adjudged to be a bankrupt. It is accordingly contended by counsel for the petitioning creditor that this case must be governed by section 20 of the act of 1867, as it stood before the amendment.
2. It is objected to the allowance of these claims as set-offs, in the second place, that when they were acquired the title of the claim against the Globe Company, in favor of the Cleveland Company, had passed from the latter to Younglove, by virtue of its assignnent to him; and that, although that assignment was adjudged to be an act of bankruptcy, it was not void and without effect, but was voidable merely, and then only at the election and suit of the assignee, and not at the instance of an individual creditor; and, if avoided, not so as to confer upon such creditors any preferenco to which they would not otherwise be entitled.
3. It is objected,-in the third place, to the allowance of these claims, that the Globe Insurance Company was prohibited by the law of its creation from acquiring title to them for any purpose, or, at least, for the purpose of using them as set-offs to extinguish claims against itself.
On the other hand, it is contended that none of these objections to the claim of the petitioning creditor are now open, the matter of them all being res adjiidicata, it having been necessarily determined by the judgment declaring the Cleveland Insurance Company a bankrupt.
Nevertheless, in applying these objections to the claim of the Globe Insurance Company, they do not, any of them, touch so much of that claim as consists in compensating so much of the amount due on account of reinsurance, with an equal amount of the original claim of policy-holders, insured by the Cleveland Company, which were rein-sured; that is, $30,361.48. The claim to extinguish that amount of liability upon the reinsurance by producing, transferred and thus canceled, the policies and losses on account and by means of which that liability has arisen, is not strictly nor properly a matter of set-off. That arises only between independent debts mutually due between the same parties. Here it is a matter of counter-claim arising on" of the same transaction, where the party sought to be charged as liable on the reinsurance meets that liability by proof of payment, dis
The right to make such satisfaction, if the original party chooses to accept it as payment, is not a right to set off one debt against the other, but is the right merely of the party charged with, a liability to show that he has discharged it; to prove that he has performed and not broken his obligation; to plead that the plaintiff has not suffered the damage against which the defendant had given an indemnity. This right, it is clear, is not affected by the twentieth section of the bankrupt act of 1867, nor by the amendment to it of 1874, nor by the voluntary assignment to 'Younglove, who would be as much hound by such a defense as his assignor, nor by the principle which denies to insurance companies of Ohio corporate power to purchase the assignment of claims against those to whom they are indebted for losses to be used as set-offs, in order to satisfy and pay them.
This principle is embodied in the third objection to the allowance of the claims in question. It rests for authority upon the decision of the supreme court of Ohio in the case of Straus v. Eagle Ins. Go. 5 Ohio St. 59. In that caso it was decided that a fire insurance company, under the laws of Ohio, had no corporate power to acquirb title to claims against the insured for the purpose of using them as set-offs against the claims for a loss. The language of Judge Ranney, in delivering the opinion of the court, was very strong and sweeping. Ho declared as the company “could not, under the power of investment, employ its credit to purchase claims for such a purpose, that it had no power to become a party to,the contract of indorsement by which it obtained the notes in question, and no capacity to take or hold the legal title.” The principle of this ease was reaffirmed and applied in the ease of White’s Bank v. Toledo F. & M. Ins. Co. 12 Ohio St. 601; but some of the language used in the case of Straus v. Eagle Ins. Co., supra, was limited and qualified as follows:
“The court, indeed, say, in that case, that ‘tho contract’ (i.e., the indorsement) ‘ is void and the instrument a nullity; ’ but while we concede that thore was such an abuse of power as should prevent the relief asked, wo are not prepared to hold, where the indorsement is one which, under certain cir*206 cumstances, the company might lawfully accept, — in other words, where there was a mere abuse, and not a total want of power, — that such indorsement would be null and void for all purposes and as against all persons."
The doctrine, as thus qualified, was again affirmed in Ehrman v. Ins. Co. 35 Ohio St. 324. This must be regarded as the settled law of Ohio; and as, in the present ease, both corporations are its creatures, that law furnishes the rule of decision. Its application is not prevented by the supremacy of the bankrupt act, for that does not assume to confer upon corporate bodies of the states any powers not given to them by their charters. It simply regulates, in the matter of set-off, such rights as parties may have lawfully acquired. What those rights are in each case must depend upon the general law of the land, and, when they rest upon corporate power, that law is the law of the locality which has created it. But the principle of the case of Straus v. Eagle Ins. Co., supra, as we have seen, does not apply here so as to forbid the Globe Insurance Company from purchasing the claims of original insured parties against the Cleveland Insurance Company, so far as necessary, and with a view to make good its obligation of indemnity, and to extinguish its liability upon the reinsurance. This is no abuse of its corporate power, and it is no injury to the company reinsured. It is a legitimate exercise of its corporate power in the proper performance of its contracts, and seeks its own protection only by removing the liability of the party it reinsured, which it ufidertook should not result in loss. And to that extent, therefore, the position of the Globe Insurance Company is justified against all objection. But that company went further than was merely necessary to extinguish the liability of the Cleveland Company for losses which the former had reinsured. It paid in several cases where it had reinsured but one-half the risk, not merely the half it had reinsured, but purchased the entire claim for the whole loss, that it might use the half for which it was not a reinsurer as a set-off against claims arising on other reinsurances which it could not meet directly; for as to som¿ of these, as has been stated, they did not become the owner of the claims for losses. There were five such claims, amounting to $16,992.29. No part of any of these has been paid by the Globe Insurance Company to the original owners, and the Cleveland Insurance Company Is liable to them respectively for the full amount. As against this liability the Globe Insurance Company is not at liberty to set off claims upon other losses for which it was not reinsurer; for, upon the principle decided by the supreme court of Ohio, to permit this would be an abuse of its corporate power.
It ,may be that it became necessary, in negotiating with the original claimants, to purchase an entire claim for the whole loss under a particular policy in order to become owner of the half covered by the reinsurance. But, if so, .this does not appear from the record, and cannot be assumed as a fact. If it were, it does not seem tc
It is argued, indeed, on the part of the latter, that the Globe Insurance Company, by virtue of the decision of the supreme court of Ohio, already referred to, could not acquire the title to these claims for any purpose whatever, and cannot even prove as a creditor on their account. But, as already stated, the doctrine of that court, as finally qualified, does not go so far, but only prohibits the illegal use of such claims by way of set-off against claims for losses covered by other insurance. They remain in the hands of the Globe Insurance Company as claims provable^ in its favor, as a general creditor, entitled to dividends out of the bankrupt’s estate pro rata with other unpreferred creditors. It is no objection to the view taken in this opinion of the relative rights of the parties that the Globe Insurance Company, by the form of its claim, has admitted itself to be debtor to the estate of the bankrupt to the full amount of the adjusted losses under the reinsurance, and seeks to cancel that indebtedness by a technical set-off, which is denied. This is a mere matter of form, and will be disregarded. The substance of the transactions will alone he looked at, and the account recast into a different fprm, according to the legal rights of the parties, and so as to accomplish justice between them. This will be done by striking from the two sides of the account, as rendered, the quantities and values which the law regards as mutual compensations, leaving the Globe Insurance Company liable as debtor to pay in full all that remains dne to the bankrupt’s estate, and entitled as creditor to its dividends, on an equal footing with other general creditors. The conclusion of the register was that the Globe Insurance Company was not entitled to relievo itself from its liability as reinsurer to any extent by means of its claims against the bankrupt, and that, consequently, it wras a debtor thereto for the full amount of $47,-358.77, hut entitled to prove against the estate as a general creditor for the sum of $50,134.48.'
The district court, sustaining the exceptions to this report, decreed that the Globe Insurance Company was entitled to cancel its entire liability as reinsurer by crediting the amount thereof against the whole amount of its claims as holder of assigned policies and losses, and to participate in the distribution of the bankrupt’s estate, as a creditor, for the balance, amounting to $2,780.71. The conclusion now reached, as a result of the views expressed in this opinion, differs from both. It is that the Globe Insurance Company is entitled to cancel $30,361.48 of its liability as reinsurer, that amount being the -whole amount of the assigned claims for losses reinsured by it, leav