The opinion of the court was delivered by: Juergens, District Judge.
Plaintiff is a New York corporation with its principal place of
business in New York City, and each of the defendants is a
citizen and resident of the State of Illinois. The amount in
controversy fairly exceeds the sum of $3,000.00, exclusive of
interest and costs, and the cause was commenced on April 1, 1957.
Third-party defendant R.F. Niblo is a citizen and resident of the
State of Illinois; third-party defendant The Travelers Indemnity
Company is a Connecticut corporation organized to transact
business in the State of Illinois; and third-party defendant R.F.
Niblo, Inc., is an Illinois corporation.
R.F. Niblo, Inc., for more than ten years prior to December 20,
1954, and thereafter until July 1, 1956, was the duly appointed
and acting agent of The Travelers Insurance Company, The
Travelers Life Insurance Company and The Travelers Indemnity
Company (hereinafter referred to as "Travelers") for the sale and
issuance of insurance policies and bonds of indemnity within
the City of Centralia, Illinois, and vicinity, including the
collection of premiums or charges therefor.
During the period of approximately eight months prior to
December 20, 1954, R.F. Niblo, Inc., was unable to satisfy its
financial obligations, including delinquent premium balances due
and owing Travelers in the amount of $3,763.78; a promissory note
of R.F. Niblo, Inc., R.F. Niblo and Aaron Karchmer payable to the
order of The Old National Bank of Centralia in the principal sum
of $8,500.00; a promissory note of R.F. Niblo, Inc., R.F. Niblo
and Herman Morton payable in the principal sum of $3,000.00; and
a promissory note of R.F. Niblo, Inc., R.F. Niblo, Herman Morton
and Charles Gross likewise payable in the principal sum of
$2,500.00; which promissory notes had been executed by the
respective defendants Herman Morton, Aaron Karchmer and Charles
Gross wholly as accommodation co-makers and at the request of the
third-party defendant R.F. Niblo.
Travelers were proposing cancelation of their agency contracts
with R.F. Niblo, Inc., for the reason of the failure to remit the
delinquent premium balances and the failure to regularly account
for and remit premium balances within the prescribed period of
forty-five days from the month of issuance of the respective
bonds and policies of insurance.
The proposed cancelations of the agency contracts were deferred
from time to time at the request of third-party defendants R.F.
Niblo and R.F. Niblo, Inc., and defendants Herman Morton, Aaron
Karchmer and Charles Gross in cooperation with their efforts to
obtain a satisfactory sale, refinancing or reorganization of the
R.F. Niblo, Inc., business.
During the month of November, 1954, Travelers offered to
withhold termination of the agency contracts and continue R.F.
Niblo, Inc., as their duly authorized agent, provided R.F. Niblo,
Inc., pay the $3,763.78 delinquent premium balances and further
provided that defendants Herman Morton, Aaron Karchmer and
Charles Gross, jointly and severally, guarantee the payment of
any and all sums then or thereafter owing Travelers on account of
insurance or bonds issued by or through R.F. Niblo or R.F. Niblo,
Inc., and further provided that said defendants would become and
serve as members of a five man board of directors for the future
control and operation of R.F. Niblo, Inc., and its business.
On or about December 10, 1954, R.F. Niblo, Inc., made payment
of $3,763.78 delinquent premium balance and in addition all other
premium account balances payable to The Travelers Companies as of
November 1, 1954.
On December 20, 1954, the board of directors of R.F. Niblo,
Inc., was increased from three to five in number and thereafter
at all times herein pertinent the directors and respective
officers of the corporation were as follows:
R.F. Niblo, Director and President
Aaron Karchmer, Director and Vice President
Herman Morton, Director and Secretary
N.W. Niblo, Director and Assistant Secretary
Charles H. Gross, Director and Treasurer.
The Old National Bank of Centralia, Centralia, Illinois, was
designated the sole depository for funds of R.F. Niblo, Inc., and
by action of the board of directors on December 20, 1954, it was
provided that all checks, drafts, or other orders for the payment
of money, notes, or other evidences of indebtedness, issued in
the name of the corporation, should be ...