Purdy v. Bankers' Life Ass'n

74 S.W. 486, 101 Mo. App. 91, 1903 Mo. App. LEXIS 371

• Court: Missouri Court of Appeals
• Decided: April 28, 1903
• Status: Published

Opinion

GOODE, J.

The by-laws of a corporation duly enacted and containing no provisions contrary to the charter or the laws of the land are binding on its members and presumed to be known to them. Hill v. Rich Hill Coal Co., 119 Mo. 9; Carr v. St. Louis, 9 Mo. 190; Palmyra v. Morton, 25 Mo. 593; McLellan v. School Board, 15 Mo. App. 362; 1 Thompson, Corporations, 594. Therefore, if the defendant’s by-laws regarding the forfeiture of certificates of membership because of the intemperance of the insured are valid, they operated on the certificate in controversy, although the deceased never actually knew of or assented to them. And, as the provision for notice to a member was observed in his case, the result of the hearing before the directors can not be set aside in this collateral proceeding on the ground that Purdy received notice of it after the event, unless the notice was designedly mailed to him when the defendant’s officers knew he would not get it in time to appear. The validity of the forfeiture depends rather on defendant’s compliance in good faith with the by-laws in attempting to notify Purdy, than on his timely receipt of the notice. Forse v. Supreme Lodge, 41 Mo. App. 106; Borgraefe v. Knights of Honor, 22 Mo. App. 127; Siebert v. Chosen Friends, 23 Mo. App. 272; Weakly v. Aid Ass’n, 19 Ill. App. 329; Union, etc., Ass’n v. Miller, 26 Ill. App. 230; Pitts v. Ins. Co., 66 Conn. 376.

The refusal of certain declarations of law concerning the forfeiture proceedings asked by the defendant, indicates that the trial court did not determine the cause on a finding that the proceedings were void for fraud. Hence, if the judgment is right, it is because the bylaws on which the proceedings were based are invalid, either from not having been adopted legally or from want of authority in the corporation to adopt them at all, or from their unreasonable and oppressive character.

The defendant’s charter confers on the board of directors the power to “to adopt all by-laws deemed necessary‘for the management and transaction of the business of the association in accordance with the law and articles of incorporation. ’ ’ The charter of a body politic may lodge the authority, to enact by-laws, which otherwise belongs to the membership at large, in the directors, and the regulations in question appear to have been regularly adopted by its directors, pursuant to the above clause of the articles of incorporation. State Sav. Ass’n v. Printing Co., 25 Mo. App. 642; Albers v. Merchants’ Exch., 39 Mo. App. 583.

•Corporations organized for gain have no power of expulsion or forfeiture unless granted by their charter or by general municipal law; that is to say, the power must be derived from the legislative sovereignty of the State. In re Long Island R. R. Co., 19 Wend. 37; Evans v. Phila. Club, 50 Penn. St. 107; Westcot v. Mining Co., 23 Mich. 145; Pulford v. Fire Department, 31 Mich. 458; People v. Cotton Exch., 8 Hun (N. Y.) 216; 1 Thompson, 853; 1 Bacon, Benefit Societies, sec. 99.

The Bankers’ Life Association is regarded by counsel for both sides as an assessment life insurance company, and we will treat it as such, although not sure that it is other than a regular, or “old-line” company. At all events, it follows the business of life insurance and issues policies or benefit certificates which vest property rights in insured members. The power to expel persons from such associations and to forfeit their insurance must be derived from a legislative grant, as in the case of other companies organized for gainful purposes; and if granted, the power extends no further than the language of the grant warrants when strictly construed, and can be exercised for no other causes than those enumerated. Mulroy v. Knights of Honor, 28 Mo. App. 462. This rule is wise and according to principles imbedded in the ancient strata of the law, which has always frowned’ on forfeitures as opposed to common right, and only to be pronounced by virtue of specific authority from the lawmaking sovereignty. Pulford v. Fire Dept., supra.

Now the defendant’s charter is not silent on the subject, but speaks as follows:

“Sec. 2. The business of this association shall be conducted upon the mutual assessment plan, in which the payment of ail assessments shall be secured by a guaranty fund, contributed by each member pro rata according to age at entry; this guaranty fund, together with the insurance provided in the certificate of membership and by-laws of the association, t'o be forfeited upon failure of a member to pay his assessments within the time prescribed by the by-laws of the association, provided, however, that relief from such forfeiture, and provision for reinstatement of lapsed members, may be made by the board of directors. ’ ’

• That is the only expression in the charter as to forfeiting a member’s certificate. It provides for bylaws fixing the time when assessments must be paid, forfeiture for non-payment and the reinstatement of defaulting members. What the laws of Iowa are gn the subject is not proven, and whatever power existed to enact by-laws to annul a member’s certificate for intemperance, or any other cause than default in payment of assessments, was contained in the charter. But that instrument rather withheld than conferred the power to pass such by-laws, since the expression of one cause of forfeiture implies the exclusion of others and enactments to take away vested rights must fail unless their validity is clear. Erdman v. Ins. Co., 44 Wis. 376; Ballon v. Gile, 50 Wis. 416; Schillinger v. Boes, 9 Ky. 18; 1 Thompson, sec. 948; 1 Bacon, sec. 87, 377. A clear source of power to enact the rules in question is not found in the chartered right to adopt all by-laws necessary for the management and transaction of the business of the association; which clause of the charter is separate and unconnected with the one which provides for forfeiture of a member’s insurance.

The articles of defendant contemplated no forfeiture of a certificate by the decision of the directors for anything except defaulted payments, and if a member kept his assessments paid, he stood free from risk ■of losing his insurance save by the judgment of a judicial court. Purdy’s certificate enjoyed immunity from forfeiture by the directors on the ground that his habits had become intemperate, but if that was a fact it would be a good defense to this action on the certificate. Indeed, the certificate itself, though it said it' might become null and void if the insured grew intemperate, spoke of a forfeiture of membership only in case dues were not paid.

If the directors had possessed authority to enact by-laws on the subject, we would question if those before us are not unreasonable and therefore void. , The hearing provided for is superficial and a member may be expelled on nothing resembling evidence or proof-on a letter from some irresponsible party, or on rumor, as Purdy was. As to him the trial was in another State and five hundred miles, distant. He had no chance to appear without undergoing much annoyance and expense, and had no recourse by appeal if the decision went against him. Aside from the fact that the directors were interested and may have been prejudiced, a procedure so onerous and oppressive and entailing the loss of valuable property, is repugnant to the essential principles of our law. State ex rel. v. Merchants Exch., 2 Mo. App. 96; Albers v. Merchants Exch., supra; 1 Thompson, secs. 1013,1016, inclusive; also see. 1023 and cases cited. The franchises with which corporations are endowed, must be exercised with justice and according to those ideas of fairness which pervade general jurisprudence. St. Louis v. Weber, 44 Mo. 547. There is no positive test of the degree of unreasonableness and oppression which will render a corporate statute invalid, nor any rule to go by in passing on the question of its validity, except that its unfairness must be demonstrably clear for a court to set it aside. The defendant’s forfeiture by-laws afford opportunity for arbitrary action against a member’s rights and for the cancellation of certificates without thorough investigation of the charges on which they are cancelled. It may be well said that so difficult a question as whether a person’s habits have grown intemperate enough to endanger his general health, calls for the knowledge of experts and can not be lawfully decided on such a hearing and by such a body as passed on Purdy’s case. A charge like that is radically different from one based on defaults in payments, which can be established or disproved with ease.

But a provision that is unreasonable as a by-law, may be good as a contract. Goddard v. Exchange, 79 Mo. 609, 9 Mo. App. 290; Austin v. Searing, 16 N. Y. 112. The defendant contends its by-laws entered into and became a part of the contract between it and Purdy. If this were true the result would not be altered as to any by-law which was ultra vires, because it was a nullity. But the contention is unsound. The certificate embraces the statements .in Purdy’s application as part of the contract, but not the by-laws; and if its language leaves this point ambiguous, the language of the application makes it clear. The last paragraph of the latter instrument is as follows:

“It is hereby expressly agreed that the above application and this declaration with the certificate issued ■thereon shall form the basis of the contract between the above named person and the Bankers ’ Life Association, of Des Moines, Iowa.”

It is thus seen that the certificate and the application made up the agreement between Purdy and the defendant, and that the by-laws were no' part of it.

Lastly, it is contended that Purdy’s failure to contest the attempted deprivation of his rights, although he lived two years after it happened, is fatal to plaintiff’s action.. This argument would have force if it was shown assessments were called for while Purdy lived, which he was bound to pay to keep his insurance alive. Hoeffner v. Grand Lodge, 41 Mo. App. 359; Glardon v. Supreme Lodge; 50 Mo. App. 45; Miller v. Grand Lodge, 72 Mo. App. 499; Supreme Lodge v. Wilson, 66 Fed. 789; Karcher v. Knights of Honor, 137 Mass. 368. But instead of Purdy falling in arrears as to his assessments, he had deposited with the association when he joined it, eighty-one dollars; fifty-four dollars for the guaranty and twenty-seven dollars for the contingent fund. Losses were paid from assessments levied on the guaranty fund and whatever part of a member’s contribution to that fund remained unused at his death, was payable to his beneficiary in addition to the amount of his' certificate. As Purdy had been a member only six years when he died, some of what he had deposited to pay for his insurance may have been unearned, and if so, the defendant attempted to forfeit that too.

Defendant’s counsel say that the guaranty fund is not used for the payment of assessments, but only as the basis on which to compute their amount, citing Mee v. Bankers’ Life Ass’n of Minnesota, 72 N. W. 74. That case is quite different from the one at bar; for it appears therein that mortuary benefits were provided for by the by-laws to be collected by assessments from the members, and that the so-called guaranty fund was simply a pledge for the payment of the assessments. The forfeiture was upheld in that case because the insured had failed to pay an assessment when called for in accordance with the by-laws.

No oral proof was made in this case concerning the practice in The collection of assessments to pay benefits, and we can only know about the mode in which benefit» were paid from the articles and the by-laws. Contrary to the assertion of defendant’s counsel, the articles of .incorporation state that the guaranty fund is to pay assessments: 11 The guaranty fund shall consist of deposits pledged by each member of the association for the payment of assessments and the said deposit required of each member shall consist of the sum of one dollar for each year of age of the member at the date of the application.” Another section reads: “The benefit fund [namely, the one used to pay benefits] shall consist of all moneys collected for the payment of losses occasioned by the death of members of the association and shall be collected by a pro rata assessment, levied by the board of directors on the guaranty fund of the association. ’ ’ Those sections of the articles negative the idea that the only purpose of the guaranty fund is to afford a basis for calculating the assessments to be paid by the different members, or to make sure the payment of the assessments. The inevitable interpretation of the provisions is that assessments are not only levied, but collected from the guaranty fund; and any assessment must be passed and not collected, if there is money enough to pay mortuary benefits on hand (By-Laws, art. 5, sec. 1).

Giving the articles and by-laws the Only interpretation their language will permit, it is clear that Purdy may have had funds on deposit with the defendant to pay any dues assessed against him, and this case is, in that respect, unlike Glardon v. Supreme Lodge, and is like the Iloeffner case, supra, in which it was ruled that if an expulsion is void, a member need not seek reinstatement; and that as the evidence showed all dues from Hoeffner (plaintiff’s deceased husband) to the grand lodge from the date of the alleged expulsion to his death had been tendered, the plaintiff’s rights were not impaired by failure to pay assessments.

Acquiescence is a branch of the law of estoppel and is used to defeat a party’s action on the principle of equitable estoppel; that is, it must appear that, because of something that was done, or because nothing was done, the party invoking the estoppel will sustain loss unless it is allowed. Mere silence or inaction, short of the limitation period, will not bar relief. Smith v. Roach, 59 Mo. App. 115; Spurlock v. Sproule, 72 Mo. 503; St. Louis Safe Deposit & Banking Co. v. Kennett Estate, 101 Mo. App. 370. Such is the general theory of this doctrine and we apprehend it is also the theory on which it is applied to cases like the present. Bostwick v. Fire Department, 49 Mich. 513; Palmetto Lodge v. Hubbell, 2 Strob. L. (S. C.) 457; 1 Thompson, sec. 931.

So far as appears, the defendant was not prejudiced by Purdy’s failure to seek reinstatement. Indeed, he could not seek it in the mode usually provided; that is, by an appeal to' some other tribunal of the order; but if he took any action was bound to proceed in a judicial court and in a foreign jurisdiction. It would be unjust to decide that because he remained inactive under such embarrassments, he ratified the illegal forfeiture of his, certificate; particularly as the association sustained no injury by his conduct, but had the money in its hands to discharge any assessments for which he was liable.

The judgment of the circuit court was for the right party and is 'affirmed.

Bland, P. J., and Reyburn, J., concur.