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AMERICAN SURETY COMPANY v. MORTON

December 22, 1961

AMERICAN SURETY COMPANY, A CORPORATION, PLAINTIFF,
v.
HERMAN MORTON, AARON KARCHMER AND CHARLES GROSS, DEFENDANTS AND THIRD-PARTY PLAINTIFFS, V. R.F. NIBLO, R.F. NIBLO, INC., A CORPORATION, AND THE TRAVELERS INDEMNITY COMPANY, A CORPORATION, THIRD-PARTY DEFENDANTS.



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 ...


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