Failey v. Fee

32 L.R.A. 311, 34 A. 839, 83 Md. 83, 1896 Md. LEXIS 57

• Court: Court of Appeals of Maryland
• Decided: March 26, 1896
• Status: Published

Opinion

Fowler, J.,

delivered the opinion of the Court.

The Order of the Iron Hall is a beneficial association and was incorporated under the laws of the State of Indiana. A bill was filed in the Superior Court of Marion County of that State by Albert R. Baker and others against said corporation for the appointment of receivers and for its dissolution and winding up. On the 23rd of August, 1892, the appellant, James F.’ Failey, was appointed receiver of the said corporation, with power to receive all its property of every kind within and without the State of Indiana, and on the same day Charles J. Wiener and Joseph C. France were duly appointed receivers by the Circuit Court of Baltimore City, with power to take charge and possession of the property of said corporation in this State. It appears that four of the general officers of the order are citizens of Maryland, residing in the city of Baltimore, and that there are twenty-six of its branch associations established in that city. No objection has been made to the exercise of its jurisdiction by the Maryland Court in the appointment of receivers. Some months subsequent to their appointment the appellant filed his petition in the Circuit Court of Baltimore City, in which he fully sets forth the decree of the Indiana Court by which he was appointed, and prays that the Maryland receivers may be required to account for and hand over to him all the property and funds of said corporation in their possession and under their control. The Maryland receivers answered this petition on the ioth of April, 1894, and in their answer, among other things, they admit that they have in their hands a large sum of money, which they allege was paid to them solely by the branches of said order and the members thereof in this State, and that they are entitled to have the same distributed among such members as reside here, and that the same should not be sent out of this State for distribution, to their prejudice. They also set up in their answer the claims of certain attaching creditors who issued their attachments before the appointment of receivers in either State, and who claim that, as holders of matured certificates, they cease to be members ot said order and have become creditors thereof. Subsequently the Circuit Court of Baltimore City ordered its receivers to transmit the funds in their hands to the appellant in Indiana, retaining here, however, sufficient to meet the claims of the attaching creditors, whose claims had not then been determined, but were reserved for future adjudication. On the 9th of December, 1895, the Circuit Court of Baltimore City ordered that the claims of the attaching creditors should be paid in full. From this order James F, Failey, the Indiana receiver, has appealed.

■ It thus appears that the only question presented is as to the correctness of the allowance of the attachment claims, and this depends mainly upon the further question whether these claimants are to be considered as members of the Order, or, being holders of 'matured certificates, they are to be considered creditors. If they are members they must, as was decided by the Court below, go to Indiana and seek payment from the receivers appointed there. From this decision no appeal has been taken, and all of the funds which were in the hands of the Maryland receivers have been transmitted to Indiana, except the sum involved in this particular controversy, which, as we have seen, was ordered to be retained here to pay creditors, and not members, in this State.

The appellant bases his claim to the fund in question upon the following grounds: First, that the attachments were premature, the benefits claimed under the matured certificates not being payable at the time the attachments were issued. Second, that the holder of a matured certificate does not become such a creditor upon the maturity of his certificate as to enable him to attach the funds of the association when insolvent, nor such a creditor as is contemplated by the rule, that requires domestic creditors to be paid before sending the fund out of this jurisdiction; and, lastly, that the contract with the order relied on by the holders of matured certificates is not capable of performance, and will not, therefore, be recognized or enforced in a Court of Equity.

We will first consider the nature of the contract which is found in the policy or certificate issued by the Order to each of its members, and one of which is held by and is the basis of the claims of each of the appellees. Without setting forth the certificate in full, it is sufficient for the present purpose to .say in general terms that it provides that the holder shall be a member of the Order, entitled to all the rights and privileges properly belonging to his rank and standing, including a benefit of not exceeding one thousand dollars, provided he shall obey all lawful commands of the Order, pay all lawful assessments and comply with all the laws and usages of the Order, and all laws which may hereafter be enacted, and especially with the conditions set forth in the certificate, which, so far as we need now refer to them, are contained paragraph first, which is as follows : “ In case the said member shall continue to pay all assessments and demands which may be legally made against him on this certificate for the full term of seven years from its date, * * * then the said member shall be entitled to a sum not exceeding the principal amount named herein, less the amount he has already received as benefits from the order on account of sickness or other disability or otherwise.” We do not think that there is any element of impossibility apparent upon the face of or inherent in the contract as set forth in the certificate. The fact that the business of the order ended disastrously appears, so far as we can judge from the meagre information upon this subject given in the record, to have resulted from a combination of circumstancs, and it is probable that the impracticability of the plan or scheme of the order set forth in the by-laws had much to do in producing this unfortunate result. The officers in this State representing the order say, in their answer to the bill, that they have confidence in the organization and plans of the order, and believe that the present difficulties are the result simply of local mismanagement, and the appellant, in a statement under oath, shows that the order was not without valuable assets. It is as follows:

Cash on hand..........$ 715,577.33

Notes and other securities...... 33,148.68

Real estate........... 25,325.00

Money deposited in bank...... 7I3>333-7°

Reserve fund in various States and Canada . 1,238,643.18

making a total of nearly three millions of dollars. He says, however, that he believes he would not be able to realize more than $200,000 from the large amount deposT ited in bank, because of the insolvency, and that it would depend very much upon the decisions of the Courts of the various States growing out of suits which followed the appointment of receivers in Indiana, as to the amount he would be able eventually to recover from the reserve fund. It would seem, therefore, that the statement made in the bill that the effect of the Indiana suit and the allegation in the answer that the local mismanagement had destroyed the Order were not altogether without foundation. But the record does not contain sufficient information as to the actual work done by this Order to enable us to say with certainty what was the cause of its downfall. It is true we have the result, but we are not disposed, as the case is now presented, to say that the impossibility of performing the contract set forth in the certificate is the sole cause of that result.

The case of Bordley et al. in the matter of the estate of the Order of Tonti, lately decided in the Supreme Court of Pennsylvania and not yet reported, adopts the report of the auditor made in the Court from which that case was appealed and supports the view so strongly urged by the appellants in regard to the nature of the contract. But it seems to us that there is a broad distinction between the contract itself and the mode which the parties may adopt to execute it. The contract may be perfectly valid and capable of execution, while the scheme adopted to execute it may be impracticable, but it does not necessarily follow that the fatal defects of the latter attach to and totally destroy the contractual rights secured by the former. The contract here, is not, as suggested by the appellants, to pay one thousand dollars at the end of the seven years upon the payment in the meantime by the member of certain assessments which could not upon any calculation produce five hundred dollars, but it was to pay a sum not exceeding a thousand dollars within seven years upon the payment during that time of all lawful assessments and-the performance of the other conditions set forth in the cer tificate. Of course, if the contract in question were the one suggested, the-order could not perform it and live for any extended period, for it is apparent it could not long continue to pay out $1,000 for every $500 received. Such a condition of things, as we have already intimated, does not necessarily result from the contract, however much it may be the result of the plan adopted for assessments or other mismanagement complained of by some of the officers. Under such circumstances, especially where, as here, entire good faith is conceded to the appellees, it would seem to be much more reasonable to leave the parties subject to their contract so far as it applies to the changed conditions, than to entirely ignore it.

If, then, we are correct in supposing that the contract is still in existence, what are the rights of the appellees, the holders of matured cetificates of membership of the said Order. This brings us to the consideration of the second reason upon which the appellant rests his claim, namely, that the appellees as such holders of matured certificates do not become such creditors upon the maturity thereof as to attach the funds of the Order when insolvent, or to give them any standing to demand that they be paid before sending the fund to Indiana. But the weight of authority is against this view. In 2 Bacon on Benefit Societies and Life Insurance, sec. 478, it is said: “ In mutual companies, claims founded on policies matured before the receivership are to be preferred to claims on policies not matured, for the maturity of the policy changes the status of the policy-holder. He stands to the company in the same place that a creditor stands to the firm ; he is to be preferred to members of the firm.” The same principle is announced in the case of Vannatta v. The New Jersey Mut. Life Ins. Co., 31 N. J. Eq. Rep. 19. In the case just cited, it was urged that the holders of unmatured certificates and the holders of unpaid matured certificates should stand upon the same plane, but this contention was thus disposed of: “The difference,” said the Chancellor, “ between the cases is, that in the one the claim was, when the decree was made, the claim of a creditor, and in the other there was no claim but that of a member, which was upon the assets, after the payment of creditors.” And to the same effect are Commonwealth v. Ins. Co., 112 Mass.; S. C. 119 Mass. 45 ; Mayer v. Attorney-General, 32 N. J. Eq. Rep. ; Stamm v. North Western Benefit Asso., 8 West. Rep. 767. But in the case of the B. & O. Relief Asso., 77 Md. 566, this Court expressed a similar view. We there held that a claim which had matured by death before dissolution of the association was a preferred claim. And in regard to claims based upon disability caused by sickness or accident, which under the constitution and by-laws of that association entitled a member to the payment of a sum of money as benefits, we said in the same case : " We do not see upon what principle the right of a member to claim for a disability that occurred before the dissolution of the association can be held to terminate with its dissolution.”

Some question has been made as to the effect of the insolvency of the Order on the claims of the appellees, but it does not appear to'us that the validity or status of the claims can be affected by an insolvency which did not exist until after the maturity of the certificates. Being creditors the insolvency of the order would have no more effect upon their claims than upon those of any other creditors. When the certificates matured the holders thereupon became creditors, and they remain so notwithstanding the subsequent insolvency of the Order.

But again, it was urged that the attachments cannot stand because they were issued on claims of uncertain amounts, the certificates held by the attaching creditors not providing for the payment of any definite sum of money, but for a sum not greater than one thousand dollars. It appears, however, by the agreed statement of facts found in the record, ‘J that at the time when the receivers were appointed there was an amount of money in the hands of the Order sufficient to pay all the matured certificates at the time when the same were due and payable according to their tenor; that the receiver also had an amount sufficient to pay the same, and that by the law of the Order the maximum amount named in the certificate would have been payable, and it would have been paid if the receivers had not been appointed and the business brought to an end.” Hence the amount which each attached creditor was entitled to had become certain and fixed before the attachments issued.

Finally it was urged that the attachments were prematurely issued, because the benefits were not payable at the time those proceedings were instituted. This view is based upon the theory that the time for payment specified in the certificate is controlled by the provisions of a by-law regulating the time of payment, which it is conceded was adopted subsequent to the issuing of the certificates. The latter provides that upon certain conditions which have been complied with, benefits shall be paid at the end of seven years, while the by-law provides that such benefits shall, when found correct, be adjusted within ninety days from the expiration of the certificate. While it is true the certificate is accepted subject to all laws which might, after its date, be enacted by. the Order, yet inasmuch as by the third section of the charter it is provided that benefits shall be paid as may be provided either by the by-laws or in the certificate of membership, the provision as to time of payment when found in the latter should govern. In the recent case of Cohen v. Order of Iron Hall, 63 N. W. Rep. 304, in construing a similar certificate, it was said: ‘ ‘ The reference to the laws of the association in the present case cannot be said to relate to the time of payment, but rather to the affirmative obligations assumed by the holder of the certificate; especially is this so, in view of the fact that the articles of association expressly provide that the amount shall be paid as may be, provided in the by-laws or in the certificate. The fundamental law, therefore, recognized the time of payment as fixed by the certificate, and the by-laws subsequently passed applied only to such certificates as by their terms made the same payable at the time fixed by the by-law.” In addition to this, being creditors, the appellees are entitled to payment whether their attachments are valid or not, and under our ruling in the case of Day v. Postal Tel. Co., 66 Md. 354, it is clear the fund should be distributed by the Maryland receivers to the payment of debts established in this proceeding, and the balance, if any, should be paid over to the Indiana receiver.

(Decided March 26th, 1896).

It follows that the order appealed from must be affirmed.

Order affirmed toith costs.