Condon v. Mutual Reserve Fund Life Ass'n

¹⁰⁸ McSherry, C. J., delivered the opinion of the Court. The questions to be decided on this appeal arise on a demurrer interposed by the -appellee to a bill in equity filed by the appellant in the Circuit Court of Baltimore City. The appellant is a resident of Maryland. The appellee is a corporation created under the laws of the State of New York and having its principal office there, though transacting business in Maryland.

It is a mutual insurance company formed on and conducting the co-operative, or assessment plan. The appellant is a member of the body corporate and holds one of its certificates of membership issued in eighteen hundred and eighty-four. By this certificate it is provided that “ in consideration of the application for this certificate of membership ” — the application being expressly made a part of the contract — and in consideration of the payment of certain dues and designated mortuary assessments falling due in February, April, June, August, October and December of each year, “ or from such other periods as the board of directors may from time to time determine,” the Mutual Reserve Association “ does hereby receive Levi Z. Condon * * * as a member of said association.” It is then stipulated that the association will upon the death of Condon, during the continuance of the certificate and upon certain conditions, pay to his legal representatives the sum of ten thousand dollars “ from the death fund of the ) association at the time of said death, or from any moneys that shall be realized to the said fund from the next assessment tobe made.” The certificate further declares: “If at such date as the board of directors of the association may from time to time fix or determine for making an assessment, the death fund is insufficient to meet existing claims by death, an assessment shall then be made upon every member whose certificate is in force at the date of the last death assessed for, and said assessment shañ be made at such rates, according to the age of each member, as may be established by the said board of directors, and the net amount received from such assessment (less twenty-five per cent, to ¹⁰⁹ be set apart for the reserve fund) shall go into the death fund.” It is also provided that “the net earnings of the association, together with the twenty-five per cent, of the net receipts from each assessment shall constitute a reserve fund and that “ after the expiration of each period of five years, during the continuance of this certificate of membership, a bond will be issued * * * for an equitable proportion of the reserve fund, and the principal of said bond shall be available ten years from its date towards paying future dues and assessments under this certificate * It is likewise declared that the contract shall be subject to all the provisions and stipulations contained in the constitution and by-laws of the association, “with the amendments made or that may hereafter be made thereto.” And it is agreed that “ the entire contract contained in this certificate and said application taken together, shall be governed by, snbject to, and construed only according to the constitution, by-laws and regulations of said association, and the laws of the State of New York, the place of this contract being expressly agreed to be the home office of said association in the city of New York.” Upon the back of the certificate there is printed a “table of rates ” containing among other things a statement, that “ the basis of the assessment rate for each member according to the age taken at the nearest birthday on each $1,000 shall be as follows,” and then the various ages from twenty-five to sixty-five are set forth and the several sums payable at the respective ages are placed opposite. Condon’s age upon entering the association was fifty-five, and the amount designated as the assessment upon each one thousand dollars at that age is three dollars and twenty-five cents.

The appellant paid for some years six assessments annually, each of which amounted to thirty-two dollars and fifty cents. Subsequently the assessment was increased to forty-eight dollars and fifty-five cents, then raised to forty-nine dollars and ten cents, and later on to seventy-five dollars and thirty cents. These sums were paid by Condon “ with extreme reluctance.” On February the ¹¹⁰ first, eighteen hundred and ninety-eight, mortuary call number ninety-six was issued and by it the appellant was required to pay on or before March the third the sum of one hundred and thirty dollars. He alleges that these assessments were enormously in excess of what he understood to be the meaning and effect of his contract with the appellee at the time he entered into it.

By a written agreement the time for the payment of the ninety-sixth assessment was extended, first, for thirty days from March the third, and then for thirty days from April the second. Oh the twenty-ninth of April, Condon filed a bill in equity against the appellee in the Circuit Court of Baltimore City; and on June the seventeenth he filed an amended and supplemental bill. These are the bills now before us. The bill, which was filed by Condon for himself and in behalf of others similarly situated who might come in and make themselves parties to the proceedings, after setting forth the facts already alluded to proceeds to charge that the levying of the assessments in excess of three dollars and twenty-five cents per one thousand dollars of insurance and in excess of six per annum is a gross violation by the appellee of its contract with the appellant and is both fraudulent and illegal: That the validity of this action cannot be maintained upon the ground that by a strained interpretation of some of the conditions of the policy the levying of assessments is remitted to the discretion of the officers, because the discretion referred to means the honest discretion of the corporation and its officers : That these assessments were not levied bona fide in the honest exercise of any discretion vested in the corporation or its officers, but were levied with the dishonest and fraudulent purpose of forcing the appellant and others situated as he is to allow their policies to lapse by a failure to pay illegal, ruinous and fraudulent assessments.

The bill further charges that these increased assessments cannot be defended by the suggestion that the same are “ to any extent ” needed in order to enable the corporation ¹¹¹ to meet its death claims, because if the corporation is in the prosperous financial condition represented in its circulars, the levying of such assessments is a wanton abuse of the power it possesses and “ plainly proves ” that the same are illegal, fraudulent and ultra vires. The bill then sets forth clauses two and three of the policy. It is under these clauses that a reserve fund is created out of the net earnings plus twenty-five per cent, of the net receipts from each assessment. By these clauses it is further provided that after five years a membership bond is to be issued to the policy-holder for an equitable proportion of this reserve fund; and this bond is made available after the expiration of ten years for the payment of future dues.

The bill charges that the amount of the bonds issued to the appellant is greatly less than, according to the face of his policy, he was entitled to — that, in fact, the apportionment made was fraudulent — and that upon a true accounting it will be found that he is entitled to sums very much greater than those allowed him in the two bonds which had been issued to him. The bill also charges that the corporation is insolvent. The relief prayed is as follows : First. For a subpoena.

Second. That an injunction may be issued restraining the corporation from forfeiting the appellant’s policy for the nonpayment of mortuary call number ninety-six, “ and adjudging that the said assessment is fraudulent and void.” Third. That in the event of the policy being construed as conferring the right to make the assesssment complained of, the policy may “ be declared to have been obtained under such circumstances as demonstrated that there was no real meeting of minds” and that no contract was in fact executed; and therefore, that the corporation may be decreed to refund to the appellant all the payments made by him to it from the beginning. Fourth.

That if the Court shall find that a binding contract was made, then, that the contract “ as set out i?i said policy,” in connection with the constitution and by-laws of the corporation, may be interpreted and the true meaning and effect thereof determined, and that the power ¹¹² of the corporation,” in respect of the levying of assessments, may be settled and adjudicated. Fifth. That the corporation may be required to give a full and particular statement of its assets and liabilities. Sixth.

That a receiver may be appointed to take charge of the assets within the jurisdiction of the Court and to administer them under the direction of the Court. Seventh. And for general relief. Other persons holding like policies became parties plaintiff.

The defendant demurred to the bill and the amended bill and assigned four grounds. The first, second and third allege that the application for membership and the constitution and by-laws of the association, forming parts of the contract of insurance, are not exhibited with the bill and .that it is, therefore, impossible for the Court to correctly interpret the contract. The fourth ground is in these words : “ For that it appears by the bill of complaint in this case, that the acts complained of on the part of the defendant affect the plaintiffs solely in their capacity as members of the said association, and that the said action relates altogether to the management of the internal affairs of the said association which, as appears by the said bill of complaint, is not a corporation of the State of Maryland, but is a corporation of the State of New York, and therefore this Court has no jurisdiction of the subject-matter of the said bill of complaint.” The amended and supplemental bill re affirmed all the allegations of the original bill, and prayed in addition that a further assessment maturing on July the first be declared illegal and that an injunction be issued prohibiting the forfeiture of the policies because of its non-payment. The demurrer distinctly challenges the Court’s jurisdiction to entertain the bill and to grant the relief sought.

This issue of law thus raised, we now proceed to consider. By Sec. 124, Art. 23 of the Code, it is provided that before a foreign insurance company can transact business in Maryland, it shall, amongst other things, file with the Insurance Commissioner of this State, “ a power of attorney ¹¹³ appointing a citizen of this State, resident within this State, the agent or attorney for the company, upon whom process of law can be served; there must also be filed with the Insurance Commissioner, a certified copy of the vote or resolution of the directors appointing such attorney, which appointment shall continue until another attorney be substituted. And said writing or power of attorney shall stipulate and agree, on the part of the company making the same, that any lawful process against said company, which is served on said agent, shall be of the same legal force and validity as if serred on such company or association within this State; and also, that in case of the death or absence of the attorney so appointed, service of process may be made upon the Insurance Commissioner of this State; and such power of attorney cannot be revoked or modified (except that a new one may be substituted) so long as any policy or liability remains outstanding against such company in this State. The term process, used above, shall be held and deemed to include any writ, summons or order, whereby any action, suit or proceeding shall be commenced, or which shall be issued in or upon any action, suit or proceedings, by any Court, officer or magistrate * * * *. ” Broad and comprehensive as this statute is, it obviously does not confer unlimited jurisdiction on Maryland Courts over foreign corporations.

The language of an enactment does not always, or necessarily, measure its scope, or mark the limits of its action. And so, on the other hand, it is equally true, that things apparently within its words may be actually beyond its operation. If they are, it is not to be assumed that the Legislature intended to include them; and if there be no intent to include them they are outside of its purview. That which the Legislature has no power to authorize a Maryland Court to do, that is, to exercise-extra-territorial jurisdiction, will not be held as included! within the jurisdiction really given, even though the latter may be conferred in such general terms as to apparently embrace the former within the letter of the statute, ¹¹⁴ A policy-holder in a mutual insurance association stands in a two-fold relation towards the company.

He is a policyholder and he is a member. Growing out of this, as well as altogether apart from it, there may be a distinct relation of creditor, but with this latter we are not now concerned. He is alike insurer and insured, but in both capacities he is a member; and it is solely because he is a member that he occupies either of these positions. His liabilities as insurer and his rights as insured depend wholly upon the obligations-and the conditions of his membership.

Those obligations and conditions are evidenced by the constitution and the by-laws of the association and by his application for, and his certificate of membership, and by the law of the place of the contract. Apart from these there is nothing by which his duties and his rights as a member are to be determined. Rights as an insured he undoubtedly has. Those rights may be unlawfully invaded.

If invaded, he is not without redress when he seeks relief in the forum having jurisdiction over the parties and the subject-matter. The mere fact that he is a member of the corporation does not preclude him from asserting against the corporation any right arising out of his contract; but the character of the remedy invoked may measure the limits of the jurisdiction of the tribunal appealed to, when the domicile of the corporation is considered. It is, therefore, entirely possible that a state of facts which would authorize a Court in the exercise of its visitorial power to inquire into the validity of acts affecting the rights of a policy-holder, when done by a corporation located within the jurisdiction of the Court, would, as respects a foreign corporation, be wholly insufficient to confer upon the same Court jurisdiction to act at all. Thus in Rosenberger et al. v. Wash.

Mut. Ins. Co., 87 Pa. St. 207, a domestic fire insurance company was sued for the amount claimed to be payable on a policy against loss by fire.

The company was a mutual association. An assessment upon all the policy-holders had been levied some time prior to the .loss, but it was alleged by the plaintiffs to ¹¹⁵ be excessive and therefore illegal and they refused to pay it. When the loss insured against by the plaintiffs’1 policy occurred, the company insisted that the policy had been annulled because of the non-payment of the assessment. Suit was brought to recover on the policy, and it was held that the question as to whether the assessment was excessive ought ,to have been left to the jury.

Speaking for the Court Judge Trunky said: “ By the terms of the charter the plaintiffs submitted themselves to the acts of the managers as representatives of all the members. They were bound by the assessment unless they can show fraud or gross mistake.” The members “are, as members, subject to liabilities and entitled to privileges. A member may participate in its benefits, is presumed to know its rules and regulations, its books are evidence against him and he shall bear his proportion of burdens. His corporate rights may be subject to the control of the corporation, but his rights as a party insured rest on the contract.

Assurer and assured alike are bound by the charter — neither can do what it does not authorize.” The company was located within the jurisdiction of the Court, was subject to its visitorial power, and it was held, in these circumstances, that evidence tending to show fraud in the levying of the assessment was competent, because if the assessment was, in fact, fraudulent, it was illegal, and if illegal its non-payment furnished no ground for declaring the policy forfeited. But we have no such state of facts to deal with in the pending case. This litigation was not instituted to recover 011 the policy a sum payable under it for a loss actually sustained. Its object, as will be shown later on, is to regulate by a decree of the Circuit Court of Baltimore City, the management, the conduct and the internal government of a foreign corporation.

And the question is : Does the statute, Sec. j24. of Art. 23 of the Code, already cited, include such a proceeding, or confer jurisdiction to entertain such a bill as we have now before us ? This question must be answered in the negative, and it must be so answered both upon principle and according to precedent. ¹¹⁶ If we turn for a moment to Secs. 295 and 297 of Art. 23 of the Code, it will be found that provision is there made in terms quite as broad as, if not broader than, those used in Sec. 124, for subjecting to suits in this State all corporations not chartered by the laws of Maryland. Such corporations transacting business in this State are deemed to hold and exercise franchises within the State and are made liable to suit “ on any dealings or transactions ” had in the State. Such suits may be brought in any Court of the State or before a Justice of the Peace “ by a resident of this State for any cause of action,” and by a non-resident, when the cause of action has arisen or the subject of the action shall be situated in this State.

The scope of these provisions has been defined by this Court. In North State Copper and Gold Milling Co. v. Field, 64 Md. 151 , it appeared that the appellee was a citizen of Maryland, and the appellant was a corporation created by the laws of North Carolina. The proceeding was an application for a mandamus. Field claimed to be a stockholder in the North State Company.

He alleged that the directors of the company had made an illegal and invalid assessment upon each stockholder and had then forfeited his stock for the non-payment of that assessment. He sought to be reinstated as a stockholder. After quoting the sections of the Act of 1868, ch. 4.71, which are incorporated in the sections of the Code just above alluded to, this Court said : ‘ ‘ The object of our statute, and of similar statutes passed by other States, is to provide for the collection of debts due from foreign corporations to our own citizens, and to enforce contracts made here by foreign corporations through its agents, and to protect our citizens from frauds or wrongs, whether the wrongdoer be foreign or domestic. But it was npt the intent of our statute to give our Courts jurisdiction over the internal affairs of a foreign corporation.

Our Courts possess no visitorial power over them, and can enforce no forfeiture of charter for violation of law, or removal of officers for misconduct; nor can they exercise authority over the corporate functions, the ¹¹⁷ by-laws, nor the relations between the corporation and its members, arising out of, and depending upon, the law of its creation. These