of his subscription note. However, where premium notes were thus taken in advance, but subsequently to the organization of a mutual insurance company, it was held to be a question of fact, to be determined by the character of the notes, or by other evidence, whether they were given under that clause of the company's charter which provided for forming a security for dealers, or whether they were given for the premiums in advance on insurances procured by their makers in the usual course of business."

§ 7232. Further of Premium Notes. - Such a note, being for the security of third persons dealing with the company, is, in the event of the insolvency of the company, valid in the hands of its receiver, for its whole face value, although the premiums on insurances actually received by the maker may have amounted to no more than a part of it; therefore, if premiums have been paid by members for risks at the time of taking insurance in the company, such premiums cannot be deducted from such a note. As the note is valid by force of the statute authorizing it to be taken, it seems that a partial failure of consideration cannot be set up to defeat recovery for its full amount. Somewhat analogous to the principle already considered with reference to the inability of subscribers to the capital stock of a corporation to plead fraud, or want or failure of consideration, after the rights of creditors of the corpora tion have supervened, it has been reasoned that, if a consideration is necessary, the concurrence of others, in giving similar notes for the purpose of giving credit to the company in pursuance of an agreement entered into by all the makers, the contemplated advantages of insurance in such company, and the compensation, authorized to be paid to the makers, on such an amount as the note should exceed the premiums of insur

1 Merchants' Mut. Ins. Co. v. Leeds, 1 Sandf. (N. Y.) 183. 'Merchants' Mut. Ins. Co. v. Rey, 1 Sandf. (N. Y.) 184.

Deraismes v. Merchants' Mut. Ins. Co., 1 N. Y. 371.

Howard v. Hinckley &c. Iron Co., 64 Me. 93.

Deraismes v. Merchants' Mut. Ins. Co., 1 N. Y. 371.

6 Ante, § 1438, et seq.

ance actually taken,-constitute a sufficient consideration to uphold it. Nor is it any defense to such a note that no insurance has been effected under the open policies for which the notes in question were given, nor that the company has become insolvent. As such a note is a valid security in the hands of the company, it may be transferred to a party who has insured in the company, in settling his claim for a loss.' Nor is a resolution of the board of directors necessary to authorize the president of the company to make such a transfer, where he is authorized by the by-laws to make contracts and to prosecute the ordinary business of the company. If the note is made payable to the maker's own order, and is not indorsed by him, it is none the less available as a security in the hands of the company, and a court of equity will compel its indorsement by the maker; and if it is wrongfully withdrawn from the company, its amount may be recovered in trover by the company, or by a receiver of its assets. Such a note cannot be given up to the maker without consideration, by the board of trustees of the company, any more than a stockholder of the company can be released by its trustees; and if so given up, the receiver may sue and recover it from the maker."

§ 7233. Assessing the Premium Notes.- Statutes exist in several of the States, authorizing the receivers of insolvent

1 Deraismes v. Merchants' Mut. Ins. Co., supra. Substantially to the same effect is Howard v. Palmer, 64 Me. 86.

Howard v. Palmer, 64 Me. 87; distinguishing Pendergast v. Commercial Mut. Ins. Co., 15 Gray (Mass.), 257, on the ground that the notes in question were something more than a note given by the assured against his own open policy. The practice of giving premium notes on open policies of insurance is explained in Brouwer v. Hill, 1 Sandf. (N. Y.) 629, where it held that the maker of such a note is not liable to

mutual insurance companies to lay assessments upon the premium notes given by the members, so far as may be necessary to raise money to liquidate the obligations of the company. Where these statutes exist, the power to lay such an assessment is regarded as springing from the statute, and the receiver, in making them, acts ministerially in virtue of his statutory authority, and not in virtue of an order of the court;' though, in view of what has preceded in another title," it can hardly be doubted that a court of equity possesses the inherent power to order such assessments, and to authorize the receiver to enforce them by suitable actions; and it has even been held that, in the absence of statutory authorization, the receiver of such a company can make such assessments for the purpose of raising money to meet its obligations.' These statutes have been generally construed as putting the receiver in the place of the directors, and vesting him with their rights and powers; so that he may collect of the members upon their premium notes whatever amount the directors might have collected, and upon the same principle, and in the same manner. On the other hand, the proceedings of the receiver in making assessments are of no greater force

1 Macklem v. Bacon, 57 Mich. 334; Russell v. Berry, 51 Mich. 287; Sands . Sanders, 28 N. Y. 416; Jackson v. Roberts, 31 N. Y. 304; Lawrence v. McCready, 6 Bosw. (N. Y.) 329; Berry v. Brett, 6 Bosw. (N. Y.) 627; Bangs v. Gray, 12 N. Y. 477; reversing 8. c. 15 Barb. (N. Y.) 264; Sands v. Sweet, 44 Barb. (N. Y.) 108; Thomas v. Whallon, 31 Barb. (N. Y.) 172; Williams v. Babcock, 25 Barb. (N. Y.) 109; Shaughnessy v. Rensselaer Ins. Co., 21 Barb. (N. Y.) 605. It is reasoned, in one of these cases, that the provisions of the Revised Statutes of New York authorizing the property of an insolvent corporation to be sequestrated and a receiver thereof to be appointed, embody a special delegation of power over such

860

corporations, to be exercised in a prescribed manner and upon a particular state of facts; and that, like all cases of delegated authority under a statute affecting liberty or property, the prescribed form for obtaining jurisdiction of the person and the subject-matter must be strictly pursued. Bangs v. McIntosh, 23 Barb. (N. Y.) 591.

• Ante, § 3537, et seq.; § 3567, et seq. 'Embree v. Shideler, 36 Ind. 423; approved in Tippecanoe Township v. Manlove, 39 Ind. 249.

'Shaughnessy v. Rensselaer Ins. Co., 21 Barb. (N. Y.) 605, 608; Williams v. Babcock, 25 Barb. (N. Y.) 109; and other cases first above cited; Embree v. Shideler, 36 Ind. 423, 429; Lamar Ins. Co. v. Moore, 84 Ill. 575.

5745

than the same act would have possessed if done by the board of directors; and where he makes an application to the court, under a statute requiring this to be done, and secures the approval of the court, this, it has been held, operates no further than to place his act in the same position which an assessment by the directors would have occupied. This being the case, such an assessment is not conclusive upon the policyholders who have been assessed, of its necessity or validity.

§ 7234. Necessity of Assessment. While the receiver of a mutual insurance company is regarded as standing in the place of its directors in respect of the power to make and enforce such assessments, yet he can no more bring actions upon the premium notes deposited by the members, and recover the whole amount of those notes, without making assessments, than the directors could, if the company were a going concern. The reason is, that the receiver has no right to raise, by this means, any more money than is actually needed to liquidate the obligations of the company. This rule is analogous to that relating to actions by the corporation against its shareholders to recover the unpaid balances on their share subscriptions, under which, as already seen, a valid assessment by the directors must precede the bringing of an action. Here, as in the case of the assessment of stockholders, an assessment and notice are essential conditions, both in respect to the amount to be paid and the time of payment; and until these are shown, no breach on the part of the maker of the note is established. If there is no allegation or proof of such an assessment and notice, in an action by the receiver, on such a note, the plaintiff should be non-suited. Such an action cannot be sustained where the complaint shows on its face

592.

Bangs v. Duckinfield, 18 N. Y.

Ibid.

• Ibid.

'Shaughnessy v. Rensselaer Ins. Co., 21 Barb. (N. Y.) 605, 609; Williams v. Babcock, 25 Barb. (N. Y.) 109; Embree v. Shideler, 36 Ind. 423; Sav

age v. Medbury, 19 N. Y. 32; Manlove v. Burger, 38 Ind. 211.

· Ante, §§ 3538, 3542. Ante, § 1702. Williams v. Babcock, 25 Barb. (N. Y.) 109. See also Devendorf v. Beardsley, 23 Barb. (N. Y.) 656; Bangs v. McIntosh, 23 Barb. (N. Y.) 591.

that neither the receiver nor the court to which he reports his action, has examined and determined upon the validity of the claims against the company, for the payment of which the assessment is made. On principles already stated, the appointment of the receiver, when made by a court or authority of competent jurisdiction, will be binding upon the makers of premium notes. But such an appointment does not determine the necessity of an assessment, nor involve an adjudication of their liability on the notes. The insolvency of the company does not enable the receiver to prosecute actions on the premium notes, under circumstances in which the company could not have maintained such an action, nor to any greater amount. An order of court, directing the receiver to "prosecute and collect the whole amount unpaid on the deposit and premium notes, by any and all legal and proper ways and means," will not authorize him to sue without first making an assessment, inasmuch as "the amount unpaid" on a note can only be determined by an assessment."

§ 7235. Circumstances under Which Such Assessments may be Made.-The circumstances under which a receiver may make such assessments are governed by the contract embodied in the premium notes themselves, of which contract the statute under which the notes are given is a necessary part. If the notes are, by their terms, assessable only to raise money to pay losses, then, in an action to enforce such an assessment, it is incumbent upon the plaintiff to give some evidence that a loss has taken place. Where the company itself sued to enforce such an assessment, it was held that the record of losses kept by the company was sufficient evidence, prima facie, that the loss therein described had occurred; and the same rule has been held applicable where such an action is brought by a receiver.' Where the action is brought by a

1 Embree v. Shideler, 36 Ind. 423, 591.

• Manlove v. Burger, 38 Ind. 211. ▪ Ante, §§ 3386, 3537, 3538.

Savage v. Medbury, 19 N. Y. 32.

Devendorf v. Beardsley, 23 Barb. (N. Y.) 656.

Jackson v. Roberts, 31 N. Y. 304. Ibid. 310; People's Mut. Ins. Co. v. Allen, 10 Gray (Mass.), 297.