
    State ex rel. Attorney General v. Peoples’ Mutual Benefit Association.
    1. Associations organized under the provisions of the law embodied in the Revised Statutes, § 3630, “ for the mutual protection and relief of its members, and for the payment of stipulated sums of money to the families or heirs of deceased members,” are not authorized to issue certificates of membership payable to the named beneficiary “or assigns,” nor payable in case of death to others than the family or heirs of the insured member.
    2. Trustees of such associations having voted to themselves and accepted designated sums of money, as compensation for their services for particular years, have no power, in subsequent years of their service, to vote themselves “back pay” for their services during such former years.
    3. Such trustees have no authority, by virtue simply of their trusteeship, to act for, or hind their association, except in their aggregate and administrative capacity as a hoard ; and where they assume, by virtue of their trusteeship, to act in the separate and individual capacity of treasurer, secretary or as general or special agent of their association, they cannot thereby create against it a legal liability to compensate them as trustees for such services.
    4. Such trustees, unless especially invested with the additional capacity and authority of officers or agents, are limited in their claims to compensation, to such sums as will reasonably compensate them for the time and expense incurred in going to, attending, and returning from, their official meetings, and for their services while in session.
    5. Whether a corporation which is shown, upon a quo warranto proceeding, to have misused or abused its franchises, should be ousted of its corporate franchises, is a question not capable of determination by any fixed rule or test, but rests in the sound discretion of the court, in the light of all the circumstances of the case before it.
    Quo WarrANTO.
    The defendant is a corporation organized on the 17th day of April 1877, under the provisions of the law since embodied in the Revised Statutes, § 3630, for the mutual protection and relief of its members, and for the payment of stipulated sums of money to the families and heirs of deceased members. The object of the present proceeding is to oust it from its franchises to do business as such corporation.
    Of the grounds alleged against it, those considered in the opinion of the court are, (1) that it has issued certificates of membership) for the payment of stipulated sums of money for the benefit of persons who are not of the family, or heirs of the assured; (2) that the certificates of membership issued by it, are made payable to the beneficiary or assigns, and .provide for the assignment of the same with the consent of the company, and that such certificates have been so assigned to p;>er-sons not of the family or heirs of the assured ; and (3) that it has been, and was at the commencement of this proceeding, operated for the profit of the trustees; that the sum of • $32,983.06 has been paid to its trustees under the pretence of remunerating them for attending the meetings of the board, whereas only forty-eight meetings have been held since its organization, making the average amount paid to each trustee for each attendance $77.24.
    The defendant admits that it issued some certificates payable to persons who were not of the family, or heirs of the assured ; avei’S that their issue was in good faith, but that up>on learning of a decision of this court that such certificates were' unauthorized, to wit, in August 1882, their issue was discontinued.
    The defendant also admits the issuing of its certificates payable to the beneficiaries or assigns, and their assignment as alleged, but avers that such form of certificate was approved by its legal adviser, and also presented to a former superintendent of insurance, and the attorney general, and that the trustees-understood them to give the opinion that the issuing of such form of certificate would be legal. That no objections had been made to such form until that of the present superintendent of insurance in August last. All bad faith is disclaimed, and the legality of such form is submitted to the court here for. determination, with the assurance that if it be adjudged illegal, no such certificate will be issued thereafter.
    The defendant denies that it has been operated for the profit of its trustees. Admitting that the sum of $33,700 has been paid to the trustees, it avers that only a small part of the amount so paid to them was for attendance at the sessions' of the board ; that its success — issuing over 6,800 certificates aggregating about $10,000,000, and paying all its matured claims promptly and in full, aggregating $258,117.41 — has. been accomplished by the labors of its trustees. That the trustees have, from the beginning “spoken, written and labored to build up the association, and all of them have shared in the responsibility and the work.” That the compensation paid the trustees was reasonable.
    The reply denies the new matter in the answer.
    • The cause was heard by the court on the evidence.
    The management of the association was entrusted to eleven trustees, a “ prudential committee ” of three trustees, a president, vice-president, secretary, treasurer, and general and special agents.
    
      James Lawrence, attorney general, for plaintiff.
    
      Harrison, Olds <& Marsh and O. N. Olds, for defendant.
   Owen, J.

It is admitted by the defendant that its certificates of membership were issued payable to the named beneficiary or “ assigns ” and that .with the consent of the company, certificates have been assigned to persons neither heirs, nor of the family of the assured. May this lawfully be done ? The purposes of the organization of the defendant are (1) the mutual protection and relief of its members, and (2) the payment of stipulated sums of money to th & families or heirs of the deceased member.

It seems clear that the beneficiary named in each certificate must be an heir, or of. the family, of the deceased member. If the named beneficiary may assign his interest in the certificate to a stranger, who may thereby become invested with all the rights of his assignor, that may be effected by indirection, which is not permitted by direct means, and might result in the creation of a class of beneficiaries neither contemplated nor authorized by the defendant’s charter. We are riot now discussing the right of a beneficiary to assign his death claim, matured by the death of the insured member, or other matured claim, but the right of a named beneficiary, during the life of the insured member, to endow those who are neither of the family, nor can become heirs of the insured, with all the rights of the beneficiary. Such form of certificate is unauthorized.

2. The matters pleaded as defense to the charge of issuing certificates of membership, payable in case of death, to others than the families or heirs of the insured member are substantially established by. the proof. That they were unauthorized is conceded.

It is admitted that $33,700 have been paid to the trustees, as such, as compensation for their service since the organization of the defendant.

The evidence shows that a large proportion of the money, voted by the trustees to themselves, was paid to them upon the pretended warrant of resolutions authorizing i‘ back pay ” for service claimed to have been rendered during years prior to those in which the resolutions were passed.

The new members of the association had a right to assume that the sums appropriated and paid by and to the trustees as for their services in former years, were in full compensation tlierefor, and this scheme of voting back pay to themselves, by the trustees, cannot be justified by the most liberal construction of the statute under which the defendant was chartered.

The sums so paid to the trustees were largely in excess of a fair and reasonable compensation for service actually rendered by them as such trustees. The trustees holding other offices of the company, including members of the' prudential committee, were liberally salaried and paid for their services in their respective official capacities.

These allowances and payments to the trustees, are sought to be justified on the ground that, in addition to the ordinary duties peculiar to their trusteeship, they rendered services in the interest of the company, which were peculiar to the duties of secretary, treasurer, and general and special agents.

These trustees who wei’e constituted agents of the association -were, as such, liberally salaried and paid.

The duties peculiar to trusteeship are to be performed in an aggregate and administrative capacity. Their trusteeship does not equip them for the promiscuous and indiscriminate services for which they now claim to have been entitled to compensation. Their trusteeship does not constitute them agents,” .either general or special. As trustees, they have no power, acting in a separate and individual capacity, to bind the company. As trustees, they can bind the company- only by their action in their aggregate capacity as a board. For the time and éxpense incurred in going to, attending, and returning from, their official meetings, and for their services at such meetings, they are entitled to reasonable compensation. The assumption, however, that the trustees voted these sums to themselves simply as compensation for services actually rendered, is shown to be unwarranted by the fact that they were allowed without regard to the respective character, extent or value of such services. While the services for which they now claim the right to be compensated were widely unequal in extent and value, exact uniformity was observed in the amounts paid them. In fact, these payments seem to have been regulated rather by the condition of the treasury than by the compensation actually earned. To be plain about it, this system of paying so called compensation is but a poorly disguised scheme for a division of profits ” among the trustees.

Our inevitable conclusion from all this is, that the charge preferred against the defendant that it has been “ operated for the profit of its trustees,” is sustained.

In view of the admissions of the defendant and the foregoing findings of the court concerning the exercise and abuse of its franchises, ought the prayer of the relator to be granted and the defendant ousted of its franchises to do business as a corporation ? This question involves the discharge of an exceedingly delicate and responsible duty, and is one upon which we are not all agreed. It is conceded that the determination of this question rests with the sound discretion of this court, in the light of all the circumstances of the case.

Many things may be said to the credit of this defendant, the methods of its management, the care and fidelity of its principal officers and agents in the selection of risks, the promptness and fairness of the adjustment and payment of death claims, the class and character of those who chiefly constitute its membership. But it would be as injudicious as it is impracticable to attempt to fix a rule or establish a test by which the life of such a corporation, whose franchises have been abused, is either to be taken or spared.

The present membership of the defendant numbers about 3,500, chiefly worthy and deserving people, utterly innocent, if not wholly ignorant, of any misuse or abuse of its franchises. Purged of the unfortunate features of its management which this trial has developed, this association is capable of much usefulness. To visit the perversion of its objects by a few, upon the heads of the entire membership must result in irremediable hardship; and without stating more fully the grounds of our action, or the considerations which move us, it must serve our present purpose to say that the relator’s prayer that the defendant be ousted of its franchise to be a corporation is refused. Judgment will be entered, however, ousting it of the use of its franchises for the profit of its trustees, and for the issuing of certificates of membership in the form complained of by the relator. ^

Judgment accordingly.

Ohey, J., took no part in the decision of this case.

Follett, J., dissents from the refusal of the prayer for ouster of the defendant of its corporate franchises.  