Vandiver v. Poe

Stockbridge, J., delivered the opinion of the Court. On the 13th January, 1911, the United Surety Company was placed in the hands of receivers. The bill filed in the case was by some of the stockholders and directors of the company, and among other things alleged that through mismanagement and wastefulness in the conduct of its affairs, the surplus of $250,000 had been altogether wiped out, and its capital stock had been impaired, but nevertheless the said company was solvent, but had been prohibited by an order of the State Insurance Commissioner from writing any further bonds of any nature or description until the impairment of its capital stock had been made good. The prayer of the bill was, first, that receivers might be appointed; second, for an injunction requiring the officers, agents and employees of the company to deliver to receivers the books, papers and accounts, and all the property of the company, and to refrain from interfering in any manner with the possession of the property by the receivers; and, third, that a day should be fixed before which all claims of every description should be filed in Court, or be forever barred from participation in the assets ³⁵⁰ of the corporation.

The allegations of the bill were admitted, by the company by its answer. In May, 1906, the company had deposited with the Treasurer of Maryland,. $100,000, of the registered stock of the City of Baltimore, par Value, in order to comply with the provisions of the’Act of 1896, Chapter 160. (Code 1912, Art. 23, sec. 110.) At the same time it had deposited with the Treasurer of the State of Maryland an additional $100,-000.00 par value, of the registered stock of the City of Baltimore, in order to meet the legal requirements imposed by the laws of some of the other States in which the company wished to do business. On the 27th July, 1911, the receivers filed a petition, the object of which was to require the State Treasurer to deliver over tp them the $200,000 par value, pf Baltimore City stock, and by its order of July 28th, 1911, the Circuit Court of Baltimore City ordered such transfer from the State Treasurer to the receivers.

Thereafter, and before the decree had become enrolled, the State Treasurer filed a petition to re-open the order of July 28th, in order that he and his bond might be heard thereon, and present objections thereto. These objections came on to be heard later, and after such hearing, on March 16th, 1912, the Court re-affirmed its order of July 28th, 1911, and directed the securities in the hands of the State Treasurer to be by him delivered over to the receivers of the company, and it is from these two orders or decrees that the present appeal has been taken. The question presented is a narrow one, and one- for which no precise precedent has been cited or found. While there are a number of cases in which receivers of insolvent corporations, or corporations which have been dissolved, or the charters of which have been declared forfeited, have sought to recover from an official depositary securities placed in his hands for the security of those doing business with the company, in order that the proceeds of such securities might be distributed among claimants according to their respective legal rights, no case has been found of a like application to ³⁵¹ gain possession of the securities of a solvent company. ' The solvency of the company in question is not merely alleged in the bill, but has been re-iterated time and again by these receivers in various papers filed by them, and was distinctly testified to on the stand by one of the receivers, and it is alleged to have been the reason for the dismissal of an action instituted by certain of the stockholders of the company for the dissolution of the company.

One of the receivers testifies in these words: “We are endeavoring to work out a practical liquidation that will result in a benefit to those who own the property, that is. those who own its bonds, policies and stock.” In the case of the American Casualty Co. case, 82 Md. 535 , $200,000 had been deposited in a similar manner with the State Treasurer, and an application was made by receivers of that company to turn over to them such securities, but in that case no question appears to have been raised as to the power or propriety of Mr. Jones, then State Treasurer, surrendering the property. At the time when the deposit was made in the American Casualty' case, the statute, Act 1892, Chapter 109, then in force, did not require a deposit with the State Treasurer of any securities by a company doing a surety business. In the able opinion filed in that case the late Chief Judge McShebby held, that the circumstances under which the deposit was made were such as to create a valid trust and to be administered as a trust, and further that if the State Treasurer “did not care to take upon himself the responsibility of distributing the fund among the parties entitled to it, he had the undoubted right either to invoke the aid of a Court in its distribution, or upon petition of the receivers to surrender it to the Court whose officers the receivers were,” and that the fund then in Court “must be treated as impressed with a trust and must be applied solely to the claims of policy holders,” subject to prior or paramount liens. By the Act of 1896, Chapter 160, companies doing a surety business were brought within the control of the law, and the securities of such companies so ³⁵² deposited with the State Treasurer, were required to be “registered in the name of said treasurer, officially, as held in trust under and pursuant to this section, and the same shall be held by said treasurer/ in trust for all the holders of policies or guarantees of said corporation. * * * And all of the said stocks so held in trust by the said treasurer * * * shall be held by said treasurer subject to sale and transfer and to the application of the proceeds of such sale by the said treasurer only on the order of any Court of competent jurisdiction.” This presents the case of a fund distinctly required by a Legislative Act of Assembly as a condition of doing business, designated as a trust fund for a specific purpose with a trustee created by the Act, and the mode of the execution of his trust in some measure pointed out.

The question is thus not identical with the situation which was presented in the Casualty case. There the insolvency of the company was established — here solvency is said to exist; there no statute had been provided covering the case — here we have an explicit one. In 1 Beach on the Law of Insurance, see. 82, it is said: “The effect of statutes of the States providing for the deposit by insurance companies of securities with some State official for the protection of its policy holders, and the act of the company in complying with such statute is to create a trust fund in the hands of such official, he thereby becoming trustee for the class of beneficiaries represented by the insured in those States. Such trust have been held as perfect as those created by deed or will and as much entitled to protection from the Courts.

In a case where a life insurance company had deposited with a State Treasurer an amount in securities under a statute passed to enable it to thus comply with the requirements of statutes of other States, that it might do business in those States, had become insolvent, and its affairs and assets had been placed in the hands of receivers, it was held that the receivers could not by action recover this amount from the State Treasurer. It was a trust fund in his hands for the benefit of the various policy holders. The State had made him a trustee, placed no ³⁵³ limitation upon his rights and powers as such, and presumably intended to have him subject to the general- law of trusts. When the trust terminates it is his duty to distribute the fund among the beneficiaries.” The rule is thus"'-expressed in IV Joyce aon Insurance, sec. 3593: “In many States insurance companies are required to -deposit'a-fund with the State Treasurer or other State officer- for thfe'secure ity of the policy holders in such States.

In case of a- deposit being made in pursuance of such a requirement the receiver of the company can not obtain possession of the fund for the benefit of general creditors, but it must be divideil among the persons for whose protection it was deposited, ’ and no' other can acquire the benefits thereof.” ' ......."• ■' : The leading case on this subject is Cooke et al., Receivers, v. Warner, Treasurer, 56 Conn. 234 . In that case the Insurance Commissioner of Connecticut had taken proceedings against the Continental life Insurance Company upon the ground that its assets were less thán its liabilities, 'and asked the appointment of a receiver, and that thfe: