
    Charles H. McNeil, Respondent, v. Southern Tier Masonic Relief Association, Appellant.
    
      Co-operative insurance company—an insane person is not in good health—a by-law changing the contract is -unreasonable—default in the payment of an assessment excused by insanity.
    
    An insane person cannot be deemed to be in good health within the meaning of an insurance policy.
    A by-law of a co-operative assessment insurance company, by which the obligation of an existing contract of insurance is materially changed so that a power, given by the pre-existing by-law to the directors of the company to excuse a default on a satisfactory excuse being given, can only be exercised upon satisfactory evidence of good health, is unreasonable, where by the terms of the contract no such right is reserved, and the by-law will not be given a retroactive effect.
    Where a member of such a company after paying the assessments levied upon him for a period of twenty-two years becomes insane, and while in that condition, which continues until his death, omits to pay an assessment, notice of which is served upon him by mail, and the beneficiary of the certificate, some six months thereafter, immediately upon learning of the default in the payment of the assessment, notifies the association of the member’s condition and offers to pay the assessment, the beneficiary is entitled to recover upon the certificate, although the company has declined to reinstate the insured, stating as the ground therefor that he was over fifty-five years of age.
    Parker, P. J., dissented.
    Appeal by the defendant, the Southern Tier Masonic Relief Association, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Clinton on the 17th day of October, 1898, upon the decision of the court rendered after a trial before the court without a jury at the Clinton Trial Term.
    The defendant was incorporated on the 9th day of October, 1869 and since that time has been engaged in the business of life insurance upon the co-operative or assessment plan. David B. McNeil became a member of the association on the 19th day of October, 1874, and at that time the usual certificate of membership was issued to him, the amount thereof being stated at $2,000, payable to Laura E. McNeil, his wife. Thereafter, on the death of his wife, the insured surrendered the certificate and received from the ■defendant a new one, dated April 7, 1884, in favor of his daughter, Louisa W. Beardsley, and on the 20th day of October, 1884, on the death of the said Louisa, surrendered the last-named certificate and received the certificate set out in the complaint, of which the following is a copy:
    “ Southern Tier Masonic Relief Association, Elmira, New York.
    “No. 53.
    . Amount $2000.
    “ This is to Certify that Brother David B. McNeil, of Auburn, N. Y., is a member of the Southern Tier Masonic Relief Association of the State of New York, and is entitled to all its rights, privileges and benefits, and subject to the laws, rules and regulations governing said association.
    “ In favor of Charles H. McNeil (brother).
    
      “ [l. s.] In Testimony Whereof, the President and Secretary have hereunto set their hands, and affixed the seal of the Association at Elmira, N. Y., this 20th day of October, A. D. 1884.
    “C. N. SHIPMAN, President.
    
    “ H. B. BERRY, Secretary.”
    The by-laws in force in 1874, when the first certificate was issued to the deceased, and subsequent by-laws adopted by the corporation prior to those of January, 1892, were substantially alike in regard to the effect of the non-payment of assessments by a member. Those of 1872 provided that on the death of a member, the secretary should notify each surviving member of such death and of the sum payable by him on account thereof, and “ each surviving member shall, within 15 days after the date of such notification, pay to the secretary the sum of one dollar, and in case he shall neglect to pay the same within 15 days he shall be again notified by the secretary, and if said sum shall not be paid within 15 days after the date -of such second notice, his name shall be erased from the roll of members, and he shall forfeit all claim upon the association, provided, however, that the Board of Directors shall have power to restore such delinquent member, upon his giving personally, or in writing, a satisfactory excuse for his default, and paying all assessments which may have occurred up to the date of such restoration.”
    Those of 1878 contained the following provision : “ And if said sum shall not be paid within thirty days after the date of such notice, such member shall forfeit all claims upon the association in accordance with the certificate of incorporation. The secretary shall report to the Board of Directors at any regular or special meeting •of said Board the names of all persons who have forfeited their membership by non-payment of dues, and the Board of Directors shall, by a majority vote, pronounce a sentence of forfeiture, provided, however, that the Board of Directors shall have power to restore such delinquent member upon his giving personally, or in writing, a satisfactory excuse for his default, and paying all assessments which may have occurred up to the date of such restoration.”
    It was shown that from 1874 to January 10, 1896, a period of about twenty-two years, David B. McNeil had paid all the assessments levied upon him under the various by-laws as they existed at the time of such assessments, but on the 1st day of January, 1896, he became insane, and remained in that condition until liis death on the 15tli day of April, 1897. While he was in that condition, on the 10th day of January, 1896, the defendant sent a notice by mail, in due form, requiring him to pay an assessment of seven dollars within thirty days. This assessment was not paid. On the sixth day of July thereafter, the plaintiff, the beneficiary named in said certificate, sent a letter to the defendant stating that he was ready to pay the assessment of January tenth, and any other assessment since that period. This offer, it was admitted, was made at the earliest possible moment after the plaintiff learned of the default of the payment of the assessment in question, and it was further admitted that he at the time advised the company of the condition of the insured. To this offer the defendant returned the following reply:
    “ Elmira, N. Y., July 3, 1896.
    “ Mr. Charles H. McNeil, Plattsburgh, N. Y.:
    “ Dear Sir.— I have your favor of July 1st. D. B. McNeil was suspended from membership in this association for non-payment of assessment 163 due February 10th, 1896. As he is over 55 years of age it will be impossible to restore him.
    “ Very truly, E. O. BEERS,
    “B
    “ Secretary.”
    
      This action was brought on the contract of insurance thus entered into between the defendant and David B. McNeil, in which the-plaintiff was named as the last beneficiary. The corporation defended on the ground that because of the failure of the assured to pay the assessment of January 10, 1896, in consequence of his-insanity, he forfeited his membership in the association, with all rights under the said certificate.
    
      Frederick Collin, for the appellant.
    
      S. L. Wheeler, for the respondent.
   Putnam, J.:

When the certificate of membership was issued by the defendant-to David B. McNeil, the contract of insurance between the parties was formed by said certificate and the charter and by-laws of the defendant then in force. (People v. Grand Lodge of Empire Order, 156 N. Y. 533, 537.)

Those by-laws provided, among other things, in substance, that if' the assured should fail to pay an assessment after due notice thereof,, within a time mentioned, he should forfeit all rights upon the association, but that the board of directors should have power to restore-a delinquent member on his giving personally, or in writing, a satisfactory excuse for his default, and paying all dues and assessments-to that date. The provisions thus referred to entered into the contract made between the parties; and as the subsequent by-laws-adopted by the defendant prior to January 11, 1892, contained no substantial change as to the effect of a non-payment of an assessment, by a member of the association or the procedure to be adojited in such a case, they continued in the contract at least from October-19, 1874, until the change made in the by-laws on January 11,1892.

In the case of Dennis v. M. B. Association (120 N. Y. 496), an action to recover on a contract of insurance containing similar provisions in regard to the effect of the non-payment of an assessment,, it was held “that defendant’s contract must be construed as an agreement on its part to accept a valid, i. e., a sufficient or satisfactory excuse for non-payment, and thereafter continue the policy in force; that the question as to the validity of the excuse was not left exclusively to the determination of defendant’s officers, but where? such an excuse existed they were bound to be satisfied therewith • that the facts showed a valid excuse, and that the death of D. did not alter defendant’s contract obligations, but the legal right to reinstatement passed to the beneficiary under the policy.” In the case cited a notice of assessment was given to the insured on February fifteenth. On March eighth he was stricken with apoplexy and became unconscious, remaining in that condition until March nineteenth, when he died. It was held that his condition was a valid excuse for the non-payment of the premium, and should have been acce]3ted by the defendant, and that the plaintiff was entitled te recover. Under the doctrine stated in that case, it cannot be doubted that if the by-laws in force when the contract between the defendant and the deceased was made, continued to enter into the contract under which the plaintiff claims, at the time of the death of David B. McNeil, the plaintiff was entitled to recover. The excuse for the non-payment of the assessment was as good and valid as that rendered in the authority cited. The deceased, when the assessment of January 10, 1896, was made, was insane, and continued in that condition up to the date of his death. The beneficiary, as soon as he ascertained that an assessment had been made, notified the defendant of the condition of the deceased and offered to pay the assessment. No objection was made to the manner of notification or proof required as to the insanity of the insured, or in regard to his ■ condition of health, the defendant absolutely declining to reinstate him on the ground simply that he was over fifty-five years of age.

In the year 1892, and also in 1893, the defendant adopted new by-laws, by which, in substance, it was provided that if a member, after due notice, failed to pay an assessment within thirty days, the certificate of membership should be null and void. But power was given to the executive committee of the defendant to reinstate a delinquent member at any time within one year for good cause shown, and upon satisfactory evidence of good, health. The deceased after he had failed to pay the assessment of January 10, 1896, being insane, it was not possible to produce satisfactory evidence of good health. Insanity is a mental disease, and also implies disease or congenital defect in the brain. (1 Rawle’s Bouv. L. Dict. 1051.)

Within the meaning of the insurance contract, one insane cannot be deemed in good health. If, therefore, the contract between the parties can be deemed changed by the by-laws adopted in 1893, which appear to have been in force at the time of the death of the insured, in reference to non-payment of assessments, the recovery cannot be sustained. (Dennis v. M. B. Association, 120 N. Y. 501; Wheeler v. Connecticut Mut. Life Insurance Co., 82 id. 543.) The insanity of the deceased did not excuse his non-payment of the assessment, and satisfactory proof that he was in good health was not and could not be produced.

But under the contract entered into between the parties, which had been in existence for over seventeen years before the by-laws as to the effect of the non-payment of an assessment had been substantially changed, as that contract has been construed in Dennis v. M. B. Association (supra), the plaintiff having furnished a satisfactory excuse for the-non-payment of the assessment of January 10, 1896, was entitled to maintain this action.

Did the adoption of the by-laws of 1892 and 1893 by the defendant have the effect of changing the contract as then existing between the parties, and after such adoption did those by-laws become and form a part of the contract, instead of those existing when the certificate was issued %

It will be noticed that, by the certificate, David B. McNeil became a member of the association, “ entitled to all its rights, privileges and benefits, and subject to the laws, rules and regulations governing said association.” The certificate did not provide that the deceased should be subject to the rules and regulations thereafter enacted; and the by-laws then existing, while providing the procedure by which they might be amended, contained no provision empowering the corporation to amend its by-laws so as to affect existing contracts. There was no express reservation of the right to amend the by-laws. The contract by its terms did not confer upon the corporation a right to change its provisions by the enactment of a new by-law. But the defendant undoubtedly possessed the same powers that all such corporations possess —■ to make reasonable .by-laws and reasonable amendments thereto.

If the by-laws of 1892 and 1893, as to the effect of the non-payment of an assessment by the insured, on their adoption, 'took the place of those existing when the contract was made, and became a part of the contract, they effected a material change therein. When the certificate was issued, and until 1892, the membership of the insured could not he forfeited on the ground of his omission to pay an assessment, if he had a satisfactory excuse therefor. Under the by-laws adopted in 1892 and 1893, the failure of the insured to pay an assessment worked a forfeiture of his interest in the association, and he could only be reinstated on satisfactory evidence of good health, no matter what excuse he rendered.

It was provided by the by-laws of 1893 that service of a notice of assessment by mail should constitute conclusive proof of due notice to a member, so that in case of such service by mail, and a failure of a member to receive it, he could not be reinstated, if not in good health. In the case under consideration, the insured was insane when the assessment was made, incapable of transacting business, irresponsible for his actions. He was practically in the same situation as one to whom a notice had been sent by mail, and who had not received it. Although the deceased had a most satisfactory excuse for his failure to pay the assessment, under the by-laws of 1892 and 1893, the executive committee of the defendant not only could not be compelled to accept his excuse, but had no power to receive it. These by-laws, if valid as against the deceased, gave to the defendant a power to forfeit his membership, which it did not possess before. Under the by-laws existing when the contract was entered into, the plaintiff, as beneficiary named in the certificate, was entitled to recover. If the by-laws of 1892 and 1893 had the effect of changing the contract, the plaintiff’s claim thereunder ceased.

We are of the opinion that the by-laws of 1892 and 1893, while valid as to subsequent contracts, did not affect that under which the plaintiff claimed in this action.

In 5 American and English Encyclopaedia of Law (2d ed. 96) it is said: A corporation has not the power, by laws of its own enactment, to disturb or divest rights which it has created, or to impair the obligation of its contracts, or to change its responsibilities to its members, or to draw them into new and distinct relations, and all by-laws attempting to do this are inoperative and void.”

In the opinion in Illinois Conf. College v. Cooper (25 Ill. 133-137) the following language was used: A corporation has no power to-invade the rights of an individual by a by-law, nor in that way operate upon or affect injuriously the rights of others. They can contract and be contracted with, and are as much bound by their contracts as natural persons, and cannot, without the consent of the other contracting party, impose terms and conditions, before they will perform their contract, not embraced in the contract itself.” (See, also, Becker v. Farmers' M. I. Co., 48 Mich. 610; 3 Am. &. Eng. Ency. of Law [2d ed.], 1084; Kent v. Quicksilver Mining Co., 78 N. Y. 159; Matthews v. A. P. S. N. Y., 136 id. 333, 342.)

A corporation may, however, make rules and regulations not affecting a contract in substance — in other words, reasonable by-laws. But a by-law that will destroy a vested right is not such. (Kent v. Quicksilver Mining Co., 78 N. Y. 183; Weiler v. Equitable Aid Union, 92 Hun, 277; The People ex rel. Gray v. Medical Society of the County of Erie, 24 Barb. 570; Hobbs v. Iowa Mut. Ben. Assn., 82 Iowa, 107; Morrison v. Wisconsin Odd Fellows' M. L. I. Co., 59 Wis. 162.)

The true doctrine, we think is, that a by-law of such an association that would have the effect of materially changing or impairing the obligation of an existing contract, cannot be given a retroactive effect. If it is attempted to give it such a retroactive effect, the by-law is unreasonable, especially in cases where, by the terms of a contract of insurance entered into by such a corporation, no right team end its by-laws is expressly reserved. It cannot be doubted but. that the change in the defendant’s by-laws in 1892 and 1893, in reference to the effect of the non-payment of the assessment of a member, was a most material one, and if it could be held to enter into the contract of the parties, effected a material alteration therein. We conclude that the by-laws adopted by the defendant in 1892 and 1893 were inoperative as against the deceased, and did not have the effect of impairing the obligation of the contract existing between the parties. The defendant could not, by a subsequent by-law, affect a vested right, or make a new agreement with the deceased, or impair his rights under a contract which had existed for over seventeen years. It follows that the plaintiff was entitled to recover under principles laid down in Dennis v. M. B. Association (supra). But although the plaintiff was entitled to recover in the action, we are unable to determine that a recovery for $2,000 and interest can be sustained under the evidence introduced by the parties on the trial.

The by-laws of 1878, which the plaintiff introduced in evidence, contained the following provision in regard to the payment of death claims: “ Upon the death of any member of this association, the sum to be paid to the representative of the deceased member, as designated upon the books of the association, shall be $1.00 for every member of the association, not exceeding two thousand members.” Those of 1872 contained a similar provision.

There being no testimony contained in the case showing the number of members of the corporation at the time of the death of David B. McNeil, the judgment for $2,000 and interest was unsupported by the evidence.

J. Maxwell Beers, a witness produced by the defendant, however, testified that if the membership of the deceased had not lapsed, the plaintiff would have been entitled to recover the sum of $894.68 under the by-laws of the defendant. This testimony, we think, permitted a recovery by the plaintiff for that sum and interest from the 15tli day of October, 1897.

Our conclusion is that the judgment should be reversed and a new trial granted, costs to abide the event, unless the plaintiff stipulates within thirty days after the entry of the order herein to reduce the recovery to the amount above stated. If the plaintiff makes such stipulation the judgment, as modified, should be affirmed, without costs to either party in this court.

All concurred, except Parker, P. J., dissenting.

Judgment reversed and a new trial granted, costs to abide the event, unless the plaintiff shall stipulate within thirty days after the entry of the order herein to reduce the recovery to $894.68, with interest from October 15, 1897; if the plaintiff makes such stipulation the judgment, as so modified, affirmed, without costs in this court to either party.  