Parks v. Supreme Circle

Teaming, V. C. The contract between complainant and defendant society is not embodied in a formal written contract similar to a policy of — 135 — insurance. The contract is to be found in the fundamental laws of the society; and a power of amendment contained in the Charter act or by-law of the society in general terms is to be understood as referring only to reasonable amendments adopted in furtherance of the contract, and not to such as would overthrow it or materially alter its terms. O'Neill v. Supreme Council, 70 N. J. Law 410, 420; Sautter v. Supreme Conclave, 72 N. J. Law 325; Poole v. Supreme Circle (N. J. Ch.), 85 Atl. Rep. 821; S. C. on appeal, 80 N. J. Eq. 259. An examination of the charter and the by-laws of defendant corporation which existed at the time complainant became a member discloses the contract between the corporation and complainant to have been an engagement on complainant’s part, in common with all other members, to pay dues of fifty cents monthly and under certain contingencies to pay sixty cents monthly, and in consideration of these payments defendant corporation engaged to apply the dues so received in a manner specifically stated in the by-laws, to the end that a fund should be created from which $500 should be paid to the beneficiary of each member at his decease. The application of the dues, as specified in the by-laws, was to be as follows: Five per cent, of the monthly receipts was to be carried to a reserve fund from which no appropriations could be made except for the payments of death benefits ; the remainder of the monthly dues were to meet, so far as sufficient in amount, current monthly obligations maturing through deaths of members, except that on the first day of January of each year an amount equal to five cents per capita for each member on that day was to be deducted from the dues and paid to the general fund to meet current running expenses. The foregoing comprises the essential features of the by-laws which defined ihe mutual engagements between the members and the corporation prior to March 1st, 1910; the remaining by-laws deal with administrative matters incidental to the consummation of the defined scheme. The effect of the amendments to the bylaws which are now called in question is: 1. To leave all members who joined prior to March 1st, 1910, in a class or division by themselves and to permit them to continue to pay dues at the old flat rate and receive death benefits in the amount — 136 — originally fixed. 2. To prohibit accession of membership to that division after March 1st, 1910. 3. To permit these old members to join the new class or division, should any of them elect to do so. 4. To transfer from the reserve fund and from the other money on hand from which death benefits are payable a percentage of the moneys comprising these funds to a new fund for the benefit of members comprising that class or division. 5. To render the funds of each division, after the transfer, liable only for losses arising by deaths of members in the division in which the deaths occur. Pursuant to that plan a division of the funds was made July 1st, 1913. There were then six thousand four hundred and ninety-one members who joined prior to March 1st, 1910, and who had not consented to transfer their memberships to the new division, and twelve thousand one hundred and eleven members who had either joined subsequent to March 1st, 1910, or had consented to be transferred to the new division; these were classed as members of the new division. The money then on hand which was liable for the payment of death benefits, including the reserve fund, was $57,-438.37. The aggregate life expectancies of the six thousand four hundred and ninety-one members was ascertained to be one hundred and fifty-four thousand seven hundred and thirty-eight 3rears, and like life expectancies of the new members was ascertained to be three hundred and thirteen thousand eight hundred and thirty years. The funds were then divided in proportion to these aggregate expectancies. This division resulted in leaving a fund for the old members of $18,968.34, and for the new members, $38,470.03. The effect of placing members whose memberships antedate March 1st, 1910, in a division In'- themselves and prohibiting accessions of membership to that division cannot be doubted. Without new members, it is only a question of time when the death benefit funds of that division will become inadequate to pay the losses arising through the death of its members. It is possible that without-an increase of dues that condition would have been ultimately reached even though no changes of the b3r-laws had been made; but the isolation of old members with the prohibi — 137 — tion of accessions not only renders the loss of their policies inevitable but speeds the day. It having been found unlawful, as against these non-assenting old members, for defendant to increase the dues of such, members by the adoption of a by-law graduating dues according to ages of members, the amended by-laws now in question extend to these old members the option to either join the new class and thereby become obliged to pay increased dues or submit to isolation and the consequent certain loss of the measure of indemnity contemplated by their contracts. It seems impossible to distinguish in principle between a bjr-law either increasing dues or reducing the amount of death benefits (both of which have in this state been declared unlawful because violative of rights vested under contracts of this nature) and a by-law the certain operative effect of which is to render the payment of death benefits pursuant to the terms of the contract impossible. The by-laws of defendant prior to March 1st, 1910, set forth a plan of mutual insurance which included the element of accessions of new members as an integral part of the plan, and its successful operation was well known to be dependent upon such accessions. In such circumstances, it seems impossible to regard that part of the defiined plan other than as entering into the contract and forming one of its material elements. To that effect is Strauss v. Mutual Reserve Fund Life Association (N. C.), 36 S. E. Rep. 352; S. C. on rehearing, 39 S. E. Rep. 55. It is, however, clear that no injury would be suffered by the old members by reason of the establishment of the new class and prohibition of new members joining the old class if the revenues derived from the dues of members in the new class were not segregated and exempted from liability for losses occurring by death of the old members. It is this segregation of revenues which subjects the isolated class of old members to inevitable and early loss. But the present amendments to the by-laws go even further than establishing a new class which shall include all new members and enabling the new class thus established to enjoy its own revenues as an independent class. A division i.s made upon an — 138 — assumed equitable basis of the accumulated reserve fund and all moneys on hand which is subject to the payment of death benefits between the isolated class of old members and the new class which originated March 1st, 1910, and includes as members of the new class all members of the isolated class who have heretofore been transferred to the new class. Separate and independent treasuries are thus established for each class and each treasury is exempted from liability for losses in the other class. There is also established a withdrawal privilege dating from March 1st, 1910, 'whereby the old members in the isolated class have been privileged to withdraw to the new class. Hnder this plan each member of the new class, whether a new member or an old member who has. withdrawn from the old to the new class, has drawn to the treasury of the new class an assumed equitable percentage of the funds which were theretofore liable for all losses. The privilege is also given to other members of the old class to hereafter transfer their memberships to the new class, and in so doing carry with them to the treasury of the new class the assumed equitable share of such transferring members in the funds of the old class. Should it be found that the new members have not taken from the common funds more than their just share, it cannot be overlooked that the plan of division of funds embodies a past and future right of withdrawal of old members from the old to the new class and transfers to the new class a withdrawal value for members so withdrawing. The old by-laws do not contemplate a withdrawal privilege of members, but, on the contrary, contain a provision the observance of which would seem to render a future creation of a withdrawal privilege impossible. That provision is found in section 20 of the by-laws as they existed prior to March 1st, 1910: “Sec. 20. Five per cent, of the monthly receipts shall be added to the Reserve Fund, the same to be1 deposited in banks or trust companies paying interest, said depositories to be designated by the trustees, or to be invested in such manner as the Supreme Circle may direct. No appropriation shall be made from the Reserve Fund, except for the payment of funeral benefits (now called death benefits) for members, and then only by a vote of the Supreme Circle at an annual or special session.” — 139 — This inhibition of appropriations from the reserve fund for any purpose other than the payment of death benefits for members necessarily dedicates that fund to’ that exclusive purpose and use for its members. It may be urged that the privilege now created for members to withdraw or become members of a new division and carry with them to the new division an equitable percentage of this reserve fund is not inconsistent with the spirit of this by-law because the funds thus appropriated are to be used only for payment of death benefits; but it must be observed that the old by-laws deal alone with death benefits which have become payable through deaths of members, and does not contemplate appropriations from the reserve fund for the creation of a new fund to meet possible future losses, or the establishment of a withdrawal privilege for any purpose. The inhibition is against any appropriations from the reserve fund for any purpose except the payment of death benefits for members of the fund. The inviolability of the contract between a mutual society and its members is illustrated in Doane v. Millville Fire and Marine Insurance Co., 45 N. J. Eq. 274. A bvr-law of that company restricted its liability for fire losses to the revenues of the fire department, and for marine losses to the revenues of the marine department, and the revenues of each department were by the bylaws required to be kept separate. This by-law was held ineffective as against policyholders whose policies of insurance on their face contemplated an unrestricted liability of the company. As heretofore stated, complainant's contract of insurance is to be found in the provisions of the charter and by-laws already referred to; in my judgment, the amendments to the by-laws here in question cannot be enforced without an unlawful invasion of rights vested in complainant under that contract. I am obliged to advise an injunction against the enforcement of the amendment herein referred to.