State ex rel. Attorney-General v. Central Ohio Mutual Relief Ass'n

Gilmore, J. It has been held by this court that mutual relief associations, incorporated and organized under the act of February 3, 1875, are not subject to the statutes of this state relating to life insurance aud life insurance companies. The State v. The Mutual Protection Association of Ohio, 26 Ohio St. 19. This does not determine what will constitute a proper incorporation and organization of such associations under the act named; but it is conceded in the information in the •case before us, that the defendant has been incorporated and organized under the act, which must-be taken to be an admission that it is lawfully incorporated and organized; and •even if it has been made to appear by the exhibits that it has made part of its plea, that it has failed to comply with ■some of the material requirements of the law, in its incorporation and organization, such failure will not, in this •case, authorize a judgment of ouster, on the ground that [404] it was not duly incorporated, notwithstanding they may be-looked to for another purpose, as will hereafter appear. To entitle the state to a judgment of ouster, therefore,, the defendant must have been guilty of abusing or misusing its corporate franchises and privileges in respect to some or all of the unlawful matters charged in the information. The eighth charge in the information, which is given in the statement of the case, contains a statement, somewhat in detail, of the substance of what had been previously specifically charged. The testimony taken on the hearing of the case fully sustains each allegation of fact contained in the information as detailed in the eighth charge. The substance of these charges may be thus stated: 1. That for hire and reward the defendant is and has been insuring its members and others against the loss of the lives of strangers, in whom they have no insurable or other interest, and issuing to them certificates of membership, and thereby agreeing to pay them, respectively, large sums of money, on the happening of events — viz., the death of such strangers — as to which they have no interest whatever. 2. That for hire and reward, in each case, it has entered into a large number of contracts with the same person, undertaking to insure him thereby in the aggregate sum of $150,000, or more in one instance, against the deaths of fifty or more strangers to the insured, without the consent or knowledge of such strangers, many of who,m were in failing health, and in whose lives the insured had no insurable interest. The act under which the defendant is created (69 Ohio L. 82) declares that such associations are to be incorporated “ for the mutual protection and relief of its members, and for the payment of stipulated sums of money to the families or heirs of the deceased members of such association.”' The certificate of incorporation and the by-laws of this405 .•association use the language above quoted in declaring its purposes. The corporate powers of the -association are limited to the carrying into effect of the purposes thus declared. The only beneficiaries for whom it has power to provide are the •“ families or heirs of deceased members.” The charges of which the defendant has been found :guilty upon the evidence constitute gross abuses of its fran•chises and privileges. The sixty-four certificates of mem'bership that were issued to one person, who was not a member, upon the lives of strangers, in whom the insured had no insurable interest, were in the nature of gambling •or wagering certificates as known in life insurance. The .association had no power either to make such contracts or to issue certificates of membership thereon; and as to those ■who were participating in the transactions with knowledge •of the facts, they were what the information denominates them — i. e. “ swindling operations.”’ This is substantially ■conceded by counsel for defendant in argument, and the •blame is laid upon the agent who filled out and forwarded the sixty-four applications; and it is claimed that the officers •of the association were ignorant of the facts, and had no intention of doing wrong or abusing the franchises of the corporation in issuing the certificates. The defendant is willing that it may be ousted from the privilege of issuing such cer■tificates in the future. It is further claimed, that having .refunded to the party taking out these certificates the full amount paid therefor, and canceled them on the books of the- association, the court should not declare a forfeiture of -.all its franchises and oust it from being a corporation. Under some circumstances, this claim of the defendant .might be favorably regarded, but in this case it must be rejected. These incorporated mutual relief associations were un.known in this state until quite recently. Our people have therefore had but little opportunity to practically test their ■usefulness, even when strictly confined in their operations sto carrying out their purposes as declared by the statute. [406] That they might be successfully and beneficially operated,, under some circumstances, 1 do not doubt. Mr. May, in his work on insurance, section 146, in speaking of mutual insurance, says: “ Its original design was to-provide cheap insurance by means of local associations, the members of which should insure each other. Such associations are in their nature adapted only to local business.”' What is here said of mutual insurance is more strongly applicable to mutual relief associations. Again, putting a fair construction upon the language of the statute authorizing their creation, it seems clear that it was not the intention that corporations should bo formed and operated under it, by parties whose principal object was-the making of money for themselves, by pushing the operations of the association, in all parts of the state, by means - of all the appliances known to the life insurance business, through the instrumentality of numerous agents, who were allowed forty per cent, of all the money received as membership dues, etc. I do not say that all these things were-illegal, but they are matters properly to be considered in connection with others that will now be noticed relating to the charges against tbe defendant. While we do not say that the testimony shows that the officers of the association acted corruptly in reference to-the issuing of the sixty-four certificates to one person,, yet we find that they acted with knowledge of the facts,, obtained by an interview with the agent wdio took the applications, immediately after the first ten of them had been-sent to the home office, and that the facts so obtained were-such as should have alarmed and put them on full inquiry; but the illegal transactions were permitted to proceed without objection, and seemingly with their full approbation, until the person who held the sixty-four certificates became suspicious, and through the advice of counsel, demanded of the association the return of the $1,268 that had been paid for the certificates. There is a conflict in the testimony as to the conduct of the officers when the demand was made: but the money was not refunded until407 eminent counsel had been consulted, and the association then wanted to return the sixty per cent, of the money which it had received, and let the person who had paid it, look to the agent for the forty per cent, which he had retained. On the whole testimony we are satisfied that the officers in receiving the monejr and issuing the sixty-four certificates, acted with knowledge of both the facts and the law, and therefore culpably. The fact that another association in thé same county may be doing business in the saijie way, is no excuse for the defendant. Under these circumstances we think the defendant should not further exercise its corporate franchises and privileges, and the same are declared forfeited. There are some matters connected with the incorporation and'organization of the defendant, which, although not constituting the grounds for the judgment, yet, when taken in connection with the manner in which they have conducted their business, we regard as defects, which may properly have influenced the court in arriving at a conclusion in the ease. The second section of the statute (69 Ohio L. 83) provides that the certificate of incorporation shall specify as follows: 1. The name of such association ; 2. The place of its principal office; 3. “ The manner of carrying on the business of said association.” The certificate in this case leaves the manner of carrying on the business of the association to be such as it may “ from time to time prescribe 'by its rules and by-laws,” not inconsistent with the state laws. The by-laws provide for their own amendment by a two-third vote of the board of directors. Such an organization is too loose, indefinite, and uncertain. An association through which large sums of money are to be collected and disbursed for benevolent or any other purposes, should be constructed on a more substantial foundation. Again, I can find nothing in the certificate or by-laws fixing the amount to be paid as an admission fee, so to speak, by a person on becoming a member. Is this a mat [408] ter discretionary with the agent through whom the application is made ? If so, it should be corrected. The $1,268 •collected by the agent for the sixty-four certificates, so •often spoken of, seems to have been collected by him, and sixtjr per cent, of it paid to the association, without express authority either of the statute or any by-law of the association. The testimony shows that the agent received $25 •each for about two-thirds of the certificates, and six dollars each for the residue. This cash inducement may have Influenced the conduct of both the agent and the association 'in reference to those unlawful transactions. Be this as it may, the right to collect money by the agent of an incorporated association of this kind, for any purpose whatever, in the absence of statutory provisions on the subject, should be regulated by its certificate of incorporation or its by-laws. The forfeiture of all its corporate franchises and privileges is declared, and judgment of ouster from its right to be a corporation entered against the defendant. Boynton, J., did not sit in this case.