Wright v. Minn. Mut. Life Ins. Co., 193 U.S. 657 (1904)

This case originated in a bill filed in the Circuit Court seeking to declare a dissolution of the insurance company, the sequestration of its assets, and have a receiver appointed with a view to winding up the affairs of the association. On the sixth of August, 1880, an insurance association was organized under the laws of Minnesota, known as the Bankers Association; afterwards, in 1884, its name was changed to the Bankers Life Association of Minnesota. The general purposes of the association were to secure benevolent and fraternal cooperation between !ts members, and pecuniary assistance, to the families of its deceased members and other designated beneficiaries. Its vol. cxcin—42 p. 658G58 OCTOBER TERM, 1903.

“All assessments upon members of this corporation shall be apportioned among all members thereof pro rata, that is to say, in proportion to the amount that each member has paid into said guaranty trust fund. All assessments due or to be paid to this corporation shall be paid to such officers or persons and at such places as the said board of trustees shall name and specify. In order to secure prompt payment of all losses occasioned by death of its members and to avoid unreasonable expense incident to the making and collection of assessments and to promote the convenience of all parties, said assessments p. 659need not be made on account of such death loss separately, but may be made at stated intervals as said board of trustees may direct, to provide for all or any death losses of said corporation that have taken place prior to the making of any such assessment or assessments. Any assessment for the purpose of paying any death losses shall uniformly be two per cent of each surviving member’s contribution to said 1guaranty trust fund ’ for each such death loss, and in case any such assessment shall produce a gross amount in excess of the amount needed to pay such death losses, then such excess may be used to discharge death losses subsequently occurring.”

Upon the death of a member the beneficiary was to receive p. 660a sum equal to two per cent of the then subsisting guaranty trust fund, not exceeding, hoWever, two thousand dollars upon each full membership, and not exceeding in any case six thousand dollars. Power to amend the articles was vested in the trustees (except as therein otherwise provided), and they were to direct, manage and control the business of the company.

Under the new articles a form of policy was issued, known as the “ guaranteed option policy.” These policies were issued to new holders, and members under the assessment plan were permitted to transfer their membership so as to receive such policies, which required the payment by the insured of a stipulated annual premium in advance. The premiums were figured upon certain tables of mortality, and approximate those which would have been charged by an old line company on the legal reserve basis. This form of policy contained a condition providing that if the fund derived from such policies shall be reduced below the amount of the reserve, the company may require the insured to pay his just proportion of the deficiency within sixty days after written request therefor; or, at the option of the company, such proportion, with compound interest thereon at the rate of four per cent per annum, may be charged as a lien against the policy and any sum which may become payable thereunder. And in another form of policy it was stipulated that if unexpected losses and expenses shall be found to have reduced the funds derived from such policies below the amount of the reserve, the company shall have the right to apportion the deficiency ratably against it and each similar p. 661policy in proportion to its reserve, and the amount so proportioned against each policy to be an indebtedness thereon, bearing interest at four per cent per annum thereon until paid by dividends or otherwise.

“Sec. 1. To the extent necessary to protect and continue the rights and privileges of any member holding a mortuary assessment certificate, and to preserve and secure the fulfillment of all contract obligations to him, and to continue and perpetuate m the company the power and authority to levy assessments and to do and perform all and everything necessary or expedient to enable it to carry out the mortuary assessment p. 662contracts in accordance with the terms thereof and with the law and present by-laws in such case made and provided, the present and existing by-laws shall continue in full force and effect.”

This is a bill on the part of two dissatisfied holders of certificates, issued while the company was doing business on the assessment plan, to wind up the affairs and distribute the assets of what appears, so far as the record discloses, to be a solvent and prosperous mutual insurance company with which others in interest are apparently satisfied. The Federal right alleged to be invaded, and the one adjudicated upon, which gives a right 'of direct appeal prosecuted from the decree dismissing the bill to this court, is the constitutional guaranty against the impairment of the obligation of a contract contained in section 10 of Article I of the Constitution of the United States. The complaining certificate holders allege that the laws of Minnesota, under which the changes in the plan of the insurance business done by the defendant company were made, from the assessment to the legal reserve, flat premium plan of “old line insurance, work a violation of that provision. As this is the groundwork of the bill in the Federal court, it becomes necessary to make a case duly invoking protection of rights secured by the Federal Constitution. The statute in question expressly p. 663provides that it shall not operate to impair the obligation of any contract. In view of the argument that the act must necessarily have that effect, we inquire whether there was a contract with the certificate holders that the plan of insurance should never be changed. It is to be observed that the right of amendment of the articles of association, except in one particular, was reserved in the original articles of association. In article 10 it was provided that the amounts pledged to secure payment of assessments occasioned by the death of members should be used only for that purpose, and the same should remain invested in United States registered bonds. This article, it was expressly provided, should never be amended or in any way changed, without the written consent of every member of the company. It appears that in the changes through which this company has passed this article has not been amended, and the fund has remained intact for the uses and purposes stated. It is not every change in the charter or articles of association of a corporation that will work such a departure from the purposes of its creation as to forfeit obligations incurred to it or prevent the carrying on of the modified business. A radical departure affecting substantial rights may release those who had come into the corporation on the basis of its original charter.

There is much discussion in the authorities as to when a charter amendment is of that fundamental character that a majority of the members or stockholders cannot bind the minority by agreeing to a change in the nature of the business to be carried on or the purposes and objects for which the corporation was created. Each case depends upon its own circumstances, and how far the right of amendment has been impliedly or expressly reserved in the creation of corporate rights. It would be unreasonable and oppressive to require a member or stockholder to remain in a corporation whose fundamental purposes have been changed against his will. On the other hand, where the right of amendment is reserved in the statute or articles of association, it is because the right to make changes p. 664which the business may require is recognized, and the exercise of the privilege may be vested in the controlling body of the corporation. In such cases, where there is an exercise of the power in good faith, which does not change the essential character of the business, but authorizes its extension upon a modified plan, both reason and authority support the corporation in the exercise of the right. Nugent v. The Supervisors, 19 Wall. 241, 251; Picard v. Hughey, 58 Ohio St. 577; Miller n. Insurance Company, 92 Tennessee, 167, 185; Supreme Lodge Knights of Pythias v. Knight, 117 Indiana, 489.

It is doubtless true that the assessments have increased owing to the lesser number subject to assessment and the death of p. 665members. What would have been realized from assessments had there been no change of plan is matter of conjecture. The business is still that of mutual insurance, notwithstanding changed methods of operation. The new plan has been legally adopted and approved by the insurance commissioner of the State. The argument for appellants is that, having begun as an assessment company, the plan can never be changed without the consent of all interested. But we have seen that the right of amendment was given in the original articles of association. There was no contract that the plan of insurance should never be changed. On the contrary, it was recognized that amendments might be necessary. There was no vested right to a continuation of a plan of insurance which experience might demonstrate would result disastrously to the company and its members. We are cited to the statutes of many States authorizing similar changes and transfer of membership, but to no case holding legislative authorization of a change of this character to work the impairment by the State of the obligation of a contract.

No. 191. Southern Railway Company, Plaintiff in Error, v. Mary L. Beach, Administratrix, etc. In error p. 668to the Supreme Court of the State of North Carolina. Submitted March 18, 1904. Decided March 21, 1904. Per Curiam. Judgment reversed with costs, on the authority of Southern Railway Company v. Allison, 190 U. S. 326, and cause remanded for further proceedings. Mr. F. H. Busbee, Mr. W. A. Henderson and Mr. Charles Price for plaintiff in error. No appearance for defendant in error.

No. 570. Paul E. Berger et al., Petitioners, v. George A. Fuller. February 23, 1904. Petition for a writ of p. 669certiorari to the United States Circuit Court of Appeals for the Seventh Circuit denied. Mr. James H. Peirce, Mr. George P. Fisher, Jr., and Mr. William Henry Dennis for petitioners. Mr. Douglas Dyrenforth for respondent.

No. 573. Julius King Optical Company, Petitioner, v. Frederick F. Bilhoefer et al. March 7, 1904. Petition for a writ of certiorari to the United States Circuit Court of p. 671193 U. S. Decisions on Petitions for Writs of Certiorari.

No. 602. Empire State -Idaho Mining and Developing Company, Petitioner, v. Kennedy J. Hanley. March 7, 1904. Petition for a writ of certiorari to the United States Circuit Court of Appeals for the Ninth Circuit denied. Mr. p. 672George Turner and Mr. W. B. Heyburn for petitioner. Mr. John R. McBride and Mr. M. A. Folsom for respondent.

No. 599. Lindley E. Sinclair, Petitioner, v. District of Columbia. March 21, 1904. Petition for a writ of certiorari to the Court of Appeals of the District of Columbia p. 673denied. Mr. C. C. Cole and Mr. J. J. Darlington for petitioner. Mr. A. B. Duvall and Mr. E. H. Thomas for respondent.

No. 184. Delbert B. Gray, Petitioner, v. Union Cas - ualty and Surety Company. March 4, 1904. Petition for a writ of certiorari to the United States Circuit Court of Appeals for the Third Circuit dismissed for the want of p. 675prosecution. Mr. Ira J. Williams for petitioner. Mr. Maurice W. Sloan for respondent.

No. 640. Alexander K. Coney, Appellant, v. Continental Building and Loan Association. Appeal from the District Court of the United States for the Northern District p. 676of California. April 4, 1904. Docketed and dismissed with costs, on motion of Mr. Thomas H. Clark for the appellee. No one opposing.