
    James D. Ridley, Plaintiff, v. Alfred E. Paillard, and Francis V. S. Oliver, as Receiver, etc., Defendants.
    (Supreme Court, New York Special Term,
    February, 1899.)
    Benefit societies — Personal liability of a director who votes for an illegal transfer of funds — Parties.
    A director of a Family Fund Society who, in contravention of the provisions of its constitution, votes for the transfer to a mortuary fund, out of which general expenses were payable, of a safety fund which was to be held in trust for the benefit of “ persistent members ”, becomes personally liable in tort to one, of many such members similarly situated, whose rights in the safety fund were lost because of the illegal transfer. The other directors, who were also guilty of the misfeasance, need not be made defendants as all are severally liable and no one can enforce contribution against another.
    The grounds of the demurrer and the facts set out in the complaint, constituting the plaintiff’s cause of action, sufficiently appear in the opinion.
    
      Raphael J. Moses, for plaintiff.
    Charles S. Noyes, for defendant Paillard.
   Nash, J.

The question raised by the demurrer to the complaint •'that the plaintiff has not legal capacity to sue; that there is a defect •of parties-plaintiff; a defect of parties-defendant; that there are •other persons who were in control of the fund and jointly liable •with the defendant, who have not been made defendants, and that -the complaint does not state facts sufficient to constitute a cause .of action, are all determinable by the ascertainment of the char■acter of the action.

The plaintiff alleges that on the 10th day of June, 1885, he entered into a contract with the Family Fund Society, a domestic •corporation, then doing business under the laws of the State of Rew York, as a co-operative and assessment life insurance association, a copy of which, marked Exhibit “A,” is attached to the complaint.

That on January 31, 1891, proceedings were commenced by the ¡attorney-general in behalf of The People of the State of Rew York against the association, to procure its dissolution and the -distribution of its assets among its creditors, and its trastees, officers and agents were enjoined from exercising its corporate franchise and powers, and from collecting, receiving or disposing of any of its money, property or assets.

That thereafter and on October 8, 1891, the association was dissolved, and the defendant Oliver appointed the receiver thereof.

That by the terms of the contract or bond, as it is designated, entered into with the association by the plaintiff, in consideration of the payment of certain sums for admission fee, annual dues and expenses, and all mortuary calls, the plaintiff was by the terms of the bond admitted to membership in the general department of the association, and the plaintiff alleges, that during the existence of the association he kept and performed all of the conditions of said bond on his part to be kept and performed.

That during the'period elapsing between June 10, 1885, and January 31, 1891, the Family Fund Society made mortuary calls upon the plaintiff, and the plaintiff paid to the society, pursuant to such calls, $69.09, of which sum $12.22 was paid prior to December 1, 1886, and $56.87 thereafter.

That on the 10th day of June, 1885, the constitution of the Family Fund Society then in force, provided article IX, section 1: “ Twenty per cent, of each, net death assessment or mortuary call should be deposited in a trust company as a reserve fund to be accumulated to meet any contingency that may arise by reason of extra mortality, or otherwise, but no part of such reserve fund shall be used for the payment of expenses; such reserve fund shall be for the exclusive benefit of the members of the society and may be returned to the persistent members according to the terms and conditions of the bond or certificate of membership issued.”

That on FTovember 27, 1886, the said article of the said constitution was amended to take effect on the 1st day of December, 1886, and, as amended, read: “Art. IX. Safety Fund. Twenty per cent, of the net amount realized on each quarterly or other death assessment or mortuary calls received from members in what is termed the general department, shall be deposited to the credit of the society in a bank or trust company designated by the board of directors, or invested and reinvested by the treasurer, subject to the direction and approval of the board or of the executive committee, as a permanent safety fund.

“ The said safety fund may be used by the board of directors in their discretion to make any deposits required or allowed by the laws or usage of this or any other state or foreign country or to equalize quarterly or other assessments or mortuary calls, or to meet any want or necessity of the society that may hereafter arise by reason of unusual mortality.

“ The net amount of principal added to- the safety fund in each calendar year, not used for extra mortality shall, in the eleventh calendar year thereafter, be used to decrease the number or amount of quarterly or other assessments of such persons as shall have been members of the society for a period of ten consecutive years, in such mode, manner and form as the board of directors may decide to be equitable and expedient for the best interests of the society.

“ Such safety fund shall not otherwise be used for the payment of the expenses of the society.

“ All moneys belonging to the mortuary fund, or the safety fund, shall be kept invested and reinvested in sound securities at the highest rate of interest obtainable thereon consistent with safety, except such amounts thereof as may be required to be on deposit in cash to meet maturing claims thereon.

That said two funds shall be kept entirely separate and distinct from each other.

“ Any balance which may be on hand to the credit of the reserve fund, after providing for contingencies by reason of extra mortality or otherwise, shall be and the same is hereby transferred to the safety fund, and shall become a portion thereof; reserving, however, all existing rights, if any, therein.”

That the society collected and held from mortuary calls between December 1, 18&6, and January 31, 1891, the sum of $48,450 to the credit of the safety fund, and subject to the special trust imposed by the terms of the policies or bonds similar to Exhibit “A,” and under article IX of the constitution of the Family Eund Society as amended on November 27, 1886.

That the defendant Paillard was made a director of the society on the 26th of January, 1888, and accepted the office and continued to be a director of the society during the remainder of the period of its existence.

That the defendant Paillard was present and took part at the meeting of the board of directors of the society duly called, and at which there was a quorum present, held at the office of the society, on certain days from and including the 1st day of May, 1888, to and including January 30, 1891, and then and there as such director, and constituting a part of the majority of the quorum there present and voting, passed resolutions on such several days respectively, transferring from the safety fund to the mortuary fund certain sums specified in the complaint, aggregating $23,900, and under and pursuant to the authority of said resolutions there was taken from said safety fund the said sum of $23,900 in the amounts and on the dates respectively set out in the complaint.

That the'action of the defendant Alfred E. Paillard and his associates in the board of directors of the Family Fund Society, illegally transferred said safety fund to the mortuary fund and was done with the intent and for the purpose of having the said moneys used in payment of the expenses of said society, and of usual and expected death claims, generally, in violation of the rights of this plaintiff and other persistent members of the Family Eund Society, and this plaintiff alleges that the said several amounts so transferred to said mortuary fund are in fact used in payment of the expenses of said society and for the usual and expected death claims.

That this action is brought by the plaintiff on behalf of himself and all others similarly situated — persistent members of said Family Eund Society, whose policies' or bonds were in force on the 31st day of January, 1891, and that such policyholders exceed three hundred in number.

As adjudged in the case of Matter of the Equitable Res. Fund Life Association, 131 H. Y. 354, it must be held that the fund collected and received by the Family Fund Society designated as the safety fund, was not at any time assets of the society, within the general meaning of the term, but was received and held by the society in the nature of a trust, for the benefit of the “ persistent members,” of whom the plaintiff is one, and if the fund should be compelled to be restored, it cannot be distributed among the general creditors of the society.

Within the rule applicable to the liabilities of directors or agents of corporations, the directors of the society are liable for their own wrongful acts, in transferring the fund from the safety fund to the mortuary fund, by means of which the safety fund was misapplied and lost to the beneficiaries. The principle upon which the liability exists is stated in Morawetz on Private Corporations, §§ 566-570, where it is said that the liability of the directors or agents is entirely independent of any liability which the company may have incurred. If the company contracted to keep the property in safety, it would be liable to the owner for the breach of this contract. If the agents of a corporation knowingly participate in any misapplication of a fund held by the corporation in trust, they are liable in equity to the beneficiaries of the fund. The liability of the director to the beneficiary is solely for his positive misfeasance constituting a tort at common law; others participating in the tortious act need not be joined, as all are jointly and severally liable, and neither is liable to the other for contribution.

The fund not being the property of the Family Fund Society, the right of action against the defendant tort-feasor was not the property of the corporation and does not pass to the receiver. The fund having been expended for its purposes, an action could not have been maintained by the corporation for the restoration of the fund, and it would have been compelled to have restored it.

The receiver is made a party by direction of the court, and will represent any interest the corporation may possibly have in the subject-matter of the action, and as the corporation participated in the misapplication of the fund, he may perhaps be a necessary party. Ho objection to his being a party is taken by the demurrer.

The demurrer in this and the other actions — Gifford v. Clapp, and Mills v. Noyes — overruled.

Demurrer overruled.  