United States v. Poe

Stockbridge, J.. delivered the opinion of the Court. The present appeal is taken from a ruling of the Circuit Court of Baltimore City, refusing a motion of ne recipiatur with respect to a petition presented by the receivers in this case, and denying to the United States the opportunity to file an answer to such petition. There is also presented by the record for review in this Court the order of the Circuit Court passed on the 10th of October, 1912, and which order is as follows: “Upon the petition of the receivers filed in this case, it is this 10th day of October, in the year nineteen hundred and twelve, by the Circuit Court of Baltimore City, adjudged and ordered: 1. That Pebruary IS, 1913, is hereby fixed as the final day for the filing of claims in these proceedings by the bond holders, policy holders and creditors of the United'Surety Company; and only claims filed on or before said day shall participate in any distribution of the assets of the company to be made to the creditors by the receivers. ⁹² 2.

That no default under any outstanding bond or guaranty of said company of any character occurring after the 13th day of January, 1913, shall give rise to a provable claim in any distribution of the assets of the company, to be made to the creditors by the receivers. 3. That the holders of outstanding bonds and guarantees under which no claim for loss is made, be and they are hereby authorized to file claims against the company for the amount of loss arising from procuring substitute bonds at prevailing rates, or for the unearned premiums. If the holders of bonds guaranteeing the maintenance of construction or other work for a fixed period are unable to procure substitute bonds on such terms, they may claim under the provisions of paragraph 4 hereof. 4. That the holders of outstanding bonds and guarantees under which claim for loss is made, but such claim is unliquidated or not definitely ascertainable, be and they are hereby authorized to file for the penalty of the bond, in order that their claims may be subsequently considered and a proper reservation of assets made therefor, if and when the same are definitely established.” The first of the orders appealed from does not come within any of the classes of orders from'which an appeal is allowed to this Court by the Code, and the matters included in the petition of the receivers, to which the motions referred to were filed, are entirely covered by the order of October 10th, also appealed from, and thus no discussion is necessary of the order denying the motion of ne renipiatwr, and refusing the opportunity to answer the petition.

Stated in concise, untechnieal terms, the effect of the order of October 10th, 1912, above set forth, was to terminate all liability of the United1 Surety Company upon bonds issued by it, as of the 13th day of January, 1913, and to exclude absolutely and for all time any claim which might ⁹³ thereafter arise, and to establish the 15th of Eebruary, 1913, as the date for filing all claims against the assets of the corporation in the hands of the receivers. The order, therefore, was in effect a preliminary order for the distribution of assets among creditors. The corporation never having been dissolved, or adjudicated insolvent, the case presented is one for which this Court has been referred by the diligence of counsel to no precedent, nor, so far as the Court has been able to ascertain, does there exist a precedent for a case of this character. Any rule which may now be laid down must therefore be understood to be in the nature of a first impression under the facts and circumstances of this particular case, not necessarily binding upon it in a case arising under a different state of facts.

To avoid misapprehension, the facts as now presented to the Court disclose the following situation: The United Surety Company is a corporation organized for the purpose of acting as surety upon bonds of various descriptions, such as public official bonds, bonds of executors and administrators, guardians, committees, trustees and receivers ; bonds to secure the issuance of attachments, injunctions, appeals, and others commonly designated as judicial bonds, bonds of contractors, for construction, maintenance or the performance of work of various kinds. The business is in many respects similar to that conducted by insurance companies; but it is a character of insurance which has been in existence but a comparatively short time, most of the companies doing the business of this nature having been formed within twenty-five years. Companies formed for this kind of business have in some instances become insolvent, or have been dissolved and their business wound up by the action or under the supervision of Courts exercising an equity jurisdiction, but in this instance the corporation in question has not been dissolved, has not been decreed to be insolvent, and while certain of the' principles which 'are applied in the case of payment of or distribution among the creditors of insolvent corporations may be made applicable ⁹⁴ to the case of a corporation situate as is the United Surety Company, they can not he so adapted or applied in their entirety. The effect of a decree of dissolution or of an adjudication of insolvency is undoubtedly to determine the outstanding contracts of a company, operating between the company and its creditors, as does the death of an individual between himself and his creditors, and for the very manifest reason that there has been a judicial determination of the impossibility of the performance by the dissolved or insolvent corporation of its contracts and engagements.

Union Trust Co. v. Belvedere Co., 105 Md. 529 . The order now appealed from in terms proposes the like cancellation upon an absolute date named therein, of all existing obligations of the company. These obligations, from the nature and character of the business conducted by the corporation, are in some respects peculiar to corporations conducting a surety business. Eor purposes of illustration take a guardian’s bond.

The object and purpose of it is to protect the interest of a minor with respect to funds in the hands of the guardian; the ward is of course not of age and may not come of age, so as to be able to maintain an action for a default upon that bond for a number of years. A default may have actually occurred and yet the ward be- in ignorance of the fact, not merely at the time of the actual default, but may have been on January 13th, 1913, and may continue to be so for still a considerable period of time. No authority has been cited nor is any believed to exist which will go the extent that does the order in this case of declaring that a Court of Equity has the power, in the exercise of an equitable jurisdiction, to declare such obligation to be terminated and void because the ward who was designed to be protected, and who is without the legal capacity to take any proceeding, has not filed a claim with the receivers before the 15th of February, 1913, and similar illustrations might be given with most of the other kinds of obligations entered into by the company. Growing out of such conditions there has arisen a practice, which has received the sanction of ⁹⁵ enactment into law in a number of States, requiring the companies which do an insurance business to maintain what is called a. reserve or premium reserve, and in some instances several different and cumulative reserves for the purpose of insuring to the policy-holders the protection to which their contracts entitle them.

Turning to a different phase of this case, the following facts appear from the records in the present case, and in an earlier appeal in relation to this same surety company. Two years have elapsed since the appointment of the receivers. At the time of such appointment there were outstanding a large number of policies issued by the company having penalties aggregating approximately $70,000,000. During the administration of the receivers the contingent liabilities of the company upon policies issued by it, have been reduced by re-insurance, expiration or cancellation of the policies, so that at the present time there are outstanding potential liabilities upon but 2286 policies, with aggregate penalties of $9,571,250.48.

As the potential or contingent liabilities of the company have decreased, there has been a corresponding decrease in the amount held in the premium reserve, the reduction being from $225,365.53 to $60,09'4.54. Of the assets as ‘ reported by the receivers at the time they took charge were the following items of importance: real estate (being the Home Office Building of the company) valued at $250,000, which still remains unsold in the hands of the receivers; $200,000, par value, of the stock of Baltimore City deposited with the State Treasurer, and which was the subject matter of a former appeal; $160,176.30 of premiums in the hands of agents for collection, and which after one year still appeared in their statement as $159,713.10, or a reduction during that year of $463.20, though the amount collected was probably somewhat larger than this, inasmuch as the receivers statement of receipts during their first year of administration reported $7,725.01 as received from agents. A portion of this may have been and probably was premiums collected by the receivers for the continuing of policies in ⁹⁶ force, but manifestly there had been no material or substantial reduction during the year in the large amount due for premiums from agents of the company at the time of the appointment of the receivers. There was also a claim against the Munich Insurance Company arising out of the business relations between the United Surety Company and the Munich Insurance Company, which appears in the report of December 31st, 1911, as an estimated assets of $200,000,