Commonwealth v. Shoe & Leather Dealers' Fire & Marine Insurance

112 Mass. 131

• Court: Massachusetts Supreme Judicial Court
• Decided: March 15, 1873
• Status: Published

Opinion

Gray, J.

In each of these cases, the petitioners, at the time when all the property of the insurance company was sequestered and placed in the hands of receivers, had a valid claim against the company for the amount of a loss by fire under a policy of insurance issued to them by the company, and were also debtors to the company upon promissory notes signed by the petitioners and held by the company; and the question presented for our determination is whether the petitioners are entitled to have their liabilities upon the notes set off against their claims upon the policies.

The statutes of this Commonwealth concerning insolvent debtors and insolvent corporations (except railroad and banking corporations) allowed moneys due on any policy of insurance to be proved against the estate, if the loss happened before the making of a dividend; and expressly provided that if it should appear that there had been mutual credits given by the insolvent and any other person, or mutual debts between them, the account between them should be stated, and one debt set off against the other, and the balance allowed or proved on either side. Sts. 1838, c. 163, § 3; 1851, e. 327, §§ 1, 3, 26 ; Gen. Sts. a. 118, §§ 25, 26, 113,114.

Under such a statute, according to the uniform current of decisions in this and other courts, a claim under a policy of insurance for a loss already sustained, though not yet adjusted, would be set off against a debt from the assured to the underwriter, in equity as well as at law, without regard to the question whether the underwriter held collateral security for its payment, provided no other person was interested on either side as creditor or debtor. Demmon v. Boylston Bank, 5 Cush. 194. Aldrich v. Campbell, 4 Gray, 284. Ex parte Prescot, 1 Atk. 230. Grove v. Dubois, 1 T. R. 112. Koster v. Eason, 2 M. & S. 112. Forster v. Wilson, 12 M. & W. 191. Holbrook v. Receivers of American Ins. Co. 6 Paige, 220. Osgood v. De Groot, 36 N. Y. 348.

The bankrupt act of the United States, by which the operation of the state insolvent laws has been suspended, contains a similar provision for the set-off in all cases of mutual debts or mutual credits between the parties. U. S. St. 1867, c. 176, § 20. Drake v. Rollo, 3 Bissell, 273. Hitchcock v. Bollo, lb. 276.

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The statutes of the Commonwealth, which authorize the justices of this court, sitting in equity, upon the application of the insurance commissioner, to restrain an insurance company which is insolvent, or in such a condition as to render its further proceedings hazardous to the public or to those holding its policies, from continuing its business, and to appoint receivers to take possession of all its property, contain no directions as to the proof of debts or the allowance of set-offs. St. 1855, c. 124, § 8. Gen. Sts. c. 58, § 6.

But we are of opinion that the same rule should be applied in ascertaining the balances due between the corporation and its creditors and debtors at the time of the judicial sequestration of its property, where the proceedings are instituted by the insurance commissioner, under these statutes, as when instituted by the corporation or its creditors under the insolvent or bankrupt laws. Equity will not permit the general rule upon the subject (where no fraud is shown) to be affected by the question by whom or in what form the proceedings, upon which the assets of the corporation are distributed among its creditors, are set in motion.

Being of opinion, for this reason, that the set-offs should be allowed, it is unnecessary to refer particularly to the opinions in Commonwealth v. Phoenix Bank, 11 Met. 129, and Colt v. Brown, 12 Gray, 233, which related to banking corporations not subject to proceedings under the insolvent acts; or to consider the decisions, fully collected at the argument, upon the question whether, under the circumstances of these cases, a set-off could be allowed in an action at law, or would be ordered by a court of equity, in the absence of any agreement of the parties or any provision of statute in obedience or regard to which its discretion should be exercised. Petitions granted.

See also Gray v. Rollo, 18 Wall. 629.