Gilbert v. Washington Beneficial Endowment Ass'n

Mr. Justice Morris delivered the opinion of the Court: These causes were before us on a former appeal and are reported in 10 App. D. C. 316-365, and, as the facts are there stated as fully as seemed to be necessary, they need not here be repeated. An appeal to the Supreme Court of the United States having been dismissed by that court for — 357 — want of jurisdiction, the causes went back to tbe Supreme Court of the Distinct of Columbia for tbe taking of the audit and account directed by that court in its decree, which was affirmed by tbis court. Such accounting was bad before tbe auditor, that officer returned bis report to the Supreme Court of tbe District; exceptions thereto were filed, and tbe exceptions were all overruled, and a decree was rendered ratifying and confirming tbe report, and yet not in terms decreeing any distribution of tbe fund in tbe bands of tbe receivers. From tbis decree tbe causes are now brought here by appeal. It will be recalled that here there were originally some three or four different causes that were consolidated with each other, and that at the former bearing we bad occasion to comment on the irregular and defective character of tbe pleadings in all tbe causes. Tbe result of these irregularities has now become more glaringly apparent. But, as we said at tbe former bearing, there being a fund in court to be distributed to those who are lawfully and justly entitled to it, we cannot permit tbe imperfections of tbe pleadings to stand in tbe way of a proper distribution, especially as both tbe companies concerned, tbe Washington Beneficial Endowment Association and tbe Commercial Alliance Life Insurance Company of New York, are now understood to be defunct for all practical purposes other than tbe consummation of these suits. We are confronted, however, with the difficulty that tbe printed record before us is evidently incomplete. Tbe schedules referred to in the auditor’s report, and intended to constitute part of that report, are not to be found in the record. Their omission leaves us in tbe dark as to tbe amount of the fund to be distributed, and leaves us in some doubt as to tbe actual mode of distribution. Of course we understand that one of the schedules, that designated as schedule B, has been very properly omitted, on account of its voluminous character, as containing merely tbe names of about a thousand certificate-holders of tbe en — 358 — dowment association, with the comparatively small and unimportant sums allowed to each person in the distribution. These names and amounts undoubtedly are of no importance whatever in an appellate tribunal, when there are no exceptions based upon such individual allowances; but the sum and substance, and the tenor and purport of the schedule, if it was desired to omit the schedule itself, might well have been agreed upon between the parties and given in a brief paragraph. Again, the existence of a schedule B would seem to imply that there was also a schedule A, wherein the gross sum and the allowances out of it were included. In fact, it is quite evident from the record that there were more than one schedule; but neither have we any of these schedules in the record, nor are we advised as to their contents. In the very laudable desire to curtail the printed record too much is left to inference. It would have been easy in half a page to supply all of which we now have only conjecture. We assume, however, that the controversy before the auditor, and now before this court on the exceptions to his report, is fourfold. First, there is the claim of William T. Gilbert, receiver of the Commercial Alliance Life Insurance Company of New York, to receive the whole amount of the fund in the hands of the receivers in this case, on the ground that the contract between this company and the Washington Beneficial Endowment Association, which was heretofore vacated on the ground of fraud, was a valid and binding contract; and that the property sold by the receivers was, therefore, the property of the Commercial Alliance Company. Secondly, there is the alternative claim of the Commercial Alliance Company to reimbursement of the sum of fourteen thousand dollars paid by it in pursuance of its contract with the endowment association, which, it insists, should come out of the fund before there is any distribution whatever. Thirdly, there is the claim of Mrs. Henry Anne Stuart, intervenor in the suit of the endowment association against the Commercial Alliance Company, and complainant in one of the suits consolidated with it, for the payment of her — 359 — judgment in full as a preferred claim before those of any •of the other certificate-holders. Fourthly, there is the claim of the certificate-holders in general that they should all, including Mrs. Stuart, be paid equally and ratably, without any priority in any one. We understand that it is upon the basis of this last proposition that the auditor has made «distribution of the fund. There are some other issues also raised, notably one in regard to the allowance of counsel fees and costs of suit, which amounted to a considerable sum. These will be noticed more in detail hereafter. 1, 2. With reference to the first and second of these claims, those of the Commercial Alliance Company, what was stated by us in the former hearing must yet suffice. If the position which we then assumed in affirmance of the decision of the court below was right, to the effect that the Commercial Alliance Company had acquired no just or valid title to the property of the endowment association, and that its payment of fourteen thousand dollars to the stockholders of the endowment association was not a payment which should be allowed out of the property of this latter in derogation of the equitable rights of the certificate-holders of the endowment association, the auditor Was entirely right in excluding the claims of the Commercial Alliance Company. The remote contingency to which we then referred, that the Commercial Alliance Company might be entitled to come in and receive any balance of the fund that might remain after the ■satisfaction of the certificate-holders and other creditors, ■has not been realized. It would seem that the fund is wholly insufficient to allow more than a small dividend to the certificate-holders. 3. Next in order is the claim of Mrs. Henry Anne Stuart to the payment of her judgment in full before any distribution is made to the other certificate-holders. This priority she claims on three grounds: 1st. Because her judgment from the time of its rendition was a lien on the real estate of the endowment association, which had been fraudulently sought to be transferred to the Commercial Alliance Com — 360 — pany, and therefore became and remained a lien on the proceeds of its sale in the hands of the receivers; 2d. Because* she was the first judgment creditor to file a judgment creditor’s bill in equity, and she thereby acquired an equitable lien on the real estate sought to be recovered, and on the proceeds of the sale of it by the receivers; and 3d. Because in the order of time she was the first death claimant; that is, that her claim, by virtue of the death of the person whom she-represented, was the first of all those now in existence to become fixed and absolute and to become a certain indebtedness of the association, while the claims of all other certificate-holders remained mere possibilities and were not debts of the association in any proper sense; and that, therefore, under the terms of her certificate and by virtue of the by-laws of the association, such claim became payable before that of any other certificate-holder. The auditor in this case proceeded upon the theory favored by courts of equity, that equity is equality. And it is true that courts of equity usually seek to put all the creditors of an insolvent estate, whether the estate be that of a deceased person or that of a defunct or moribund corporation, upon the same footing as to the payment of their claims, and in general to allow no preferences between them. Tet not all equality is equity; and justice oftentimes demands-preferences. The equality which is to be sought is generally rather equality between members of a class than between different classes of individuals. In the settlement of the affairs of insolvent insurance companies, whether they be purely joint stock organizations, established to make money for their stockholders; or of the mutual class, wherein, although the interest of the stockholders predominates, yet there is some supposed participation in profits by the policy-holders; or of the endowment kind, such as was the Washington Beneficial Endowment Association, wherein, over and above a guaranty fund contributed by stockholders, the principal resource of the association is not from premiums paid at regular and stated intervals, but from assessments, regular in amount, with ref — 361 — erence, however, to difference of class, but irregular and uncertain in the time of their levy, dependent on the death of certificate-holders, it may be assumed that there are usually three classes of persons concerned: 1st, ordinary creditors; 2d, policy or certificate-holders, who in a sense are to be regarded as creditors; 3d, stockholders, who likewise, although in a yet different sense, are to be regarded as creditors. It is well-settled law, of course, and it is the plain dictate of justice, that all these are not entitled to come in equally and share in the distribution of the property of an insolvent corporation. On the contrary, it is well settled that they should be preferred in the order enumerated. There may at times be preference of judgment debts over simple contract debts, and even of simple contract debts as between themselves with reference to the order of time in which they have been contracted. If Mrs. Stuart’s claim in the present case were that of an independent third person, not otherwise connected with the endowment association, but who had, let us assume, become its creditor by selling supplies to it, such as the furniture in its office, we presume, whether her claim was reduced to judgment or not, there would be little doubt of her right to priority of payment out of the assets of the association, before any distribution of such assets between either the certificate-holders or the stockholders. When the claim has been reduced to judgment the right to priority of payment becomes more imperative. Now, we find no difference in principle between such a claim and that actually here in controversy. Charles Stuart had been a certificate-holder of the association. He had died several years before the troubles of the association involved in these proceedings commenced. By his death the contract between him and the association, which up to that time had been executory and conditional on both sides, became fixed and absolute. All liability on his part, or on the part of his estate or representative, to- make any further payments to the association, either in the way of assessments or otherwise, ceased; and the liability of the association to him, which — 362 — theretofore had been contingent and might never have become absolute, became a definite, positive obligation to pay a fixed sum of money. The relation between the association and the representative of the deceased became that of debtor and creditor in the ordinary sense of those terms, precisely to the same effect in law as though the representative of the deceased had sold goods to the association for which she had not been paid. It is a mistake to argue, as has been done in this case, that the engagements and liabilities of the certificate-holders of this association were to each other,, rather than to the association ; and that they looked to the assessments to be made at the death of each member as the source from which the amount of his certificate was to be paid. On the contrary, it is very plain from the face of the certificates and from the by-laws of the association, that it was the association that became obligated to the individual certificate-holder, and not his associates, except indirectly; and that the death claims were payable absolutely and without reference to the assessments, and might even be paid out of the guaranty fund, if necessary — although, of course, it is true that the association looked to its receipts from these assessments either to pay the claim, or to reimburse itself, if it had already paid it. And it is equally clear that the liability of the individual certificate-holder was not to make any payment to his associates, but to pay certain sums from time to time to the association, not fixed sums at stated times, as in ordinary insurance companies, but sums fixed in amount and payable on uncertain occasions, that is, upon the happening of the death of a certificate-holder of the same class. In other words, the contract of the parties in this regard did not differ substantially from that of the ordinary policy of insurance. In the one case, the amount payable in each year and the time of payment are both certain; in the other case, the amount of payment upon each death is certain; but the amount of payments in a year and the times of payment are necessarily uncertain. But the contract, whether certain — 363 — or uncertain, is between tbe individual certificate-holder and the association. Upon the death of Charles Stuart, Mrs. Stuart, as his representative, became entitled to make demand upon the association to pay the amount of the certificate, and upon its refusal to pay, to sue and obtain judgment, and to enforce the judgment by execution upon the property of the association; and this she proceeded to do. Under ordinary circumstances, no other certificate-holder, certainly no certificate-holder whose claim had not been matured by death, could have reasonably interposed either to prevent the voluntary payment of such claim, or of the judgment into which it became merged, by the proper officers of the association, or its enforcement against the property of the association by levy and execution. Now, does the insolvency of the association accruing long after the right had accrued, or does an act of misconduct on the part of its managers, such as was the attempted transfer of its assets in this case, or does the institution of proceedings in equity looking to the winding up of the affairs of the association, justify the establishment of a different rule? It is difficult to see how a right acquired by a creditor can be displaced by a wrong committed by the association, or by the act of other persons having no privity with the creditor, but who seek merely to redress the wrong that has been committed. The fact that Stuart was originally in the same category as other certificate-holders of the association does not alter the situation. The mutual agreement of all the parties was that the claims of those who died first should be paid out of the funds of the association, and directly or indirectly by the assessments levied upon the survivors. The contingency of death, which made the representative of him who died a creditor of the association, at the same time made the survivors debtors of it to the extent of their assessments. Indirectly the survivors became debtors to the estate of the deceased ; and the enforcement of the assessments might possibly have been required by mandamus, if the association had failed or refused to call for them or to demand their — 364 — payment. It cannot be that, if afterwards the association falls into difficulties and becomes insolvent, these parties who are debtors to the association, so far as Stuart’s claim is concerned, can require that claim to be prorated with their own indefinite claims, which become matured only by the insolvency of the association. It would be possible that they themselves could cause this insolvency; and yet they would be enabled to take advantage of their own wrong, if thereupon they could be permitted to share equally with those who by no possibility could have had a hand in such insolvency. Courts of equity seek as far as possible to give effect to the contracts of parties, if such contracts are legal and valid; and we must hold the contracts of the parties in these causes to' have been legal and valid, notwithstanding the false basis upon which they are founded. As applied to the Stuart case the contracts in this instance of the certificate-holders other than Stuart was that they were to pay certain assessments to the association in order to enable the association to pay Stuart. These assessments have not been paid. It is true they are no longer payable on account of the insolvency of the association. But it is not equitable that the certificate-holders should be relieved from payment of them, and yet at the same time withdraw all the other assets from liability for the Stuart claim, and apply them to their own benefit. Bor this would be the result of requiring the Stuart claim to be prorated with their own. These views are believed to be not only in accordance with the dictates of reason, but likewise in substantial accord with the tenor of the decisions of the courts. No case precisely in point has been shown to us; but the principle that preference should be allowed where a superior equity is shown has been established in various cases. See Boston & Albany RR. Co. v. American Casualty Insurance Co., 82 Md. 535 ; People v. Security Life Ins. & Annuity Co., 78 N. Y. 114, 128; Attorney-General v. Norlh American Life Ins. Co., 82 N. Y. 172, 193; People v. Globe Mutual Ins. Co., 91 N. Y. 174; Vanatta v. N. J. Mutual Life Ins. Co., 31 N. J. Eq. — 365 — 15; Commonwealth v. Mass. Mutual Fire Ins. Co., 112 Mass. 116; S. C., 119 Mass. 45. In the ease cited of People v. Security Life Ins. & Annuity Co., 78 N. Y. 114, 128, which has not been overruled cither expressly or by implication in any subsequent case, as claimed by counsel, it was held, with reference to ordinary policies of insurance, that death claims which had matured were entitled to no preference over the claims of unmatured policy-holders in the settlement of the affairs of an insolvent-insurance company; but an exception is expressly made in regard to mutual companies in which “ the holders of running policies were liable to pay death losses.” And this exception was noted in consequence of the citation of the opinion of Chancellor Runyon, of New Jersey, in the case above cited of Vanatta v. N. J. Mut. Life Ins. Co., in which he held that death claims were entitled to such preference. The case of Vanatta v. New Jersey Mutual Life Ins. Co., 31 N. J. Eq. 15, bears a very close resemblance to that now before us. There, as here, was an insurance company which did an insurance business by way of assessments levied from time to time according as deaths occurred, substantially as this Washington Beneficial Endowment Association did. It became insolvent, and a receiver was appointed, and it was found necessary to wind up its business. The question of priority arose between its different policy-holders. The court said: “ If it be considered that the policy-holder whose claim becomes due is not himself liable to assessment, but is to receive the amount of his insurance from the company, and when his loss is paid he ceases to be a member, and if it be not paid he may maintain suit against the corporation, it is obvious that the analogy of partnership will not hold. His contract with his fellow-members was not to bear any part of his own loss. He was to help to bear theirs, if theirs happened before his. His fellow policy-holders bound themselves, in consideration of his payments and his obligation to contribute, if necessary, to pay the money which would be due on their contracts, if theirs matured before his, to — 366 — contribute, if necessary, to the payment of tbe money which would be due on his if it should mature before theirs; and when the contingency happened, when the period of payment arrived, the mutuality which up to that time had continued at once ceased. The policy-holder whose policy became due thereupon, ipso fado became a creditor. “ If this view be correct, it follows that all policies, which were due when the decree of insolvency was made, are entitled to be paid as debts of the company, and are not to be put on the same footing- as claims for return of premiums, and it makes no difference whether the claims were in judgment or not. * * * “ The death claims, including those in which the death happened, before the decree of insolvency, and endowment policy claims which became due before that decree, including all on which all premiums, which ever could have been required to be paid had the company continued to be solvent, had been paid before the decree, will rank as debts; and the policy-holders will be assessed, if necessary, according to the provision of the charter, for the payment of any deficiency of assets to pay them. Should there be any surplus of assets after payment of the expenses of the trust and the debts, in which are included the before-mentioned death and endowment claims, it will be distributed among the other policyholders.” In the case of Commonwealth v. Massachusetts Mutual Fire Insurance Co., 112 Mass. 116, which was, it is true, the case of a fire insurance and not of a life insurance company, but in which in this regard the principle was the same, it was held by the Supreme Court of Massachusetts, in the language of the syllabus to the case, that, “ when a mutual fire insurance company becomes insolvent, the previously accrued profits which have been credited to the policies do not belong to the policy-holders, but are funds for the payment of losses.” And when the same case was before the court a second time, it was held that any excess of assets over and above what was required for the payment of losses upon policies whereon loss had accrued, was divisible among those who had con — 367 — tribuced to sucli payment by the payment of their assessments (119 Mass. 45). See also B. & O. RR. Co. v. B. & O. Relief Assn., 77 Md. 566. It would seem that the rule of priority of payment for contracts of insurance that have become absolute, is the necessary result of the engagements of the parties with each other. We are of the opinion, therefore, under the whole scheme of this endowment association, and under the contracts made with it by certificate-holders, the indebtedness of the association to Mrs. Stuart, which became fixed and absolute long before the insolvency of the association, and which was finally established as an absolute liability by the judgment that was rendered upon it, became a preferred claim, entitled in equity to be paid before any distribution of the assets of the association among those who were themselves obligated indirectly to such payment. 4. With reference to the other certificate-holders no exceptions have been filed to the auditor’s report, and there is nothing for us to consider. That they are entitled to a distribution among them of the remainder of the assets of the association, after the payment of the Stuart claim, we regard as beyond question. It has been held that the Commercial Alliance Company is not entitled to them, and' is not entitled to participate in any distribution until the certificate-holders are satisfied; and as the assets are far from sufficient to pay the certificate-holders, there is, of course, nothing for the Commercial Alliance Company. There is nothing for the endowment association, for it is hopelessly insolvent, and has gone out of existence. There is nothing for its stockholders, for its stockholders cannot come in [in] advance of the certificate-holders, or equally with them. The certificate-holders, who, while the association was in active existence, and before it became insolvent, had only possibilities that might thereafter accrue into claims, and who at that time were debtors rather than creditors of the association, became actual creditors by its insolvency and the settlement of its affairs. Their liability to contribute further in the way of assessments was thereby terminated; and, as they had — 368 — paid to the association various sums from time to time on the faith of their contracts of insurance, they became entitled to an accounting as to the present value of such contracts on the basis of what is designated as the surrender value of their certificates or policies of insurance. For that these certificates have a surrender value under the circumstances, equally as ordinary policies of insurance under similar circumstances, we have no doubt. Equity has established such surrender value in regard to the ordinary policy; and the theory has been accepted and extended by the insurance companies to eases where the insured desire to withdraw from the contract, while it is yet executory. There is no reason to refuse to extend the same rule to these certificates of endowment. 5. Among the exceptions filed to the auditor’s report by Gilbert, as receiver of the Commercial Alliance Company, were several to the allowance of counsel fees and other costs. These he has withdrawn upon the record; and they would not therefore be noticed here, were it not that counsel in the so-called Ball case, or Equity No. 15,809, question his right to so withdraw them, so far as the withdrawal has the effect to allow fees to other counsel than themselves. We greatly question the right of any of the parties to these causes to have counsel fees allowed them; but we do not see how we can pass upon the matter. It is the right of parties who file exceptions to withdraw them. They are not bound to let them stand because other parties may find it to their advantage to have them retained. If counsel in the Ball suit had desired to have the question of counsel fees reserved to this court, they should have themselves taken exception to the allowance of such fees as they regarded objectionable. There is nothing before this court to pass upon in the matter of counsel fees. In consequence of the failure of the auditor to allow the claim of Mrs. Henry Anne Stuart a priority over those of the other certificate-holders, and the approval of his report in this regard by the Supreme Court of the District of Co — 369 — lurnbia, we think there was error in the decree of that court in the premises, for which it should be reversed. The decree appealed from will be reversed, and the cause will be remanded to the Supreme Court of the District of Columbia, with directions to have the account restated in accordance with this opinion. Under the circumstances the costs of this appeal will be paid out of the fund in the hands of the receivers. And it is so ordered. Reversed.