
    PEOPLE v. LIFE UNION.
    (Supreme Court, General Term, First Department.
    January 18, 1895.)
    Mutual Benefit Insurance—Distribution of Reserve Fund.
    Tlie by-laws of a mutual benefit association provided that assessments ■should be applied to create a “mortuary and benefit fund” and a “reserve fund." Death claims were payable out of the mortuary and benefit fund. The reserve fund was declared to be “for the exclusive use and.benefit of members” of the association, but that it “may be” used to pay death claims in excess of the experience table of mortality, and that after it should have reached a certain sum the accumulations should be divided among the members, or applied to death claims, “as may be determined by a vote of the members.” Held that, on dissolution of the association, the reserve fund was distributable exclusively among holders of certificates in force, and that death claimants were not entitled to share therein. In. re Life Association, 30 N. E. 114, followed.
    Appeal from special term, New York county.
    Action by the people against the Life Union. From an order partially confirming the report of a referee, and from an order refusing to recommit the referee’s and actuary’s reports to them, respectively, Thomas Ashweb and other members of defendant appeal.
    Affirmed.
    Argued before VAN BRUNT, P. J., and O’BRIEN and PARKER, JJ.
    R. J. Moses, for appellants.
    E. L. Mooney and M. P. O’Connor, for the People.
   VAN BRUNT, P. J.

What this action was brought for does not appear from the record herein, as the pleadings are not set forth. It seems, however, that on the 27th of February, 1894, an order of reference was made, to examine the account of a receiver who' seems to have been appointed in this action, and to hear the allegations and proofs of such persons as might appear before the referee-with reference to the distribution of the fund in the hands of the receiver, known as the “Reserve Fund,” and to report to the court what disposition should be made of said reserve fund, in his opinion.. Subsequently, the referee reported that, as between the two classes of claimants to the reserve fund, the representatives of deceased certificate holders, and the living members,—including in the latter class the representatives of those who have died since the commencement of these proceedings,—the living members, or their representatives, were, in his opinion, entitled to the fund proportionally to the gross amount of assessment paid by them, respectively. It is-this conclusion of the referee which it is necessary for us to consider. Upon the coming in of the report, exceptions were duly filed, which were overruled, so far as this question was concerned,, and the report confirmed, and this appeal was taken from so much, of said order. A motion was also made to send the report back to the referee, which was denied, and from that order an appeal was also taken. It is admitted upon the part of the appellant that, if the action of the court upon the appeal first above mentioned should" be upheld, there would be no necessity for referring back the report" of the referee. The referee based his decision upon the decision of the court of appeals in Re Equitable Reserve Fund Life Ass'n, 131 N. Y. 371, 30 N. E. 114. That association was somewhat similar in character to the one at bar, and had a similar reserve fund, and the question involved was as to its disposition. It was there held that the rights of the parties were to be decided with reference to-the constitution and by-laws of the association, and the contents-of the certificates of membership, all of which, taken together, formed the contract between the company and the certificate holders. The questions presented are substantially the same as those before the court in the case cited, with one exception, which will be noticed hereafter. It appears from the report of the referee that the certificate of incorporation of the Life Union was filed on the 11th of June, 1885, in the office of the clerk of the city and county of New York, under the law then in force (chapter 175, Laws 1883), and the association commenced its business on the co-operative or assessment plan, in this city, shortly thereafter; the first policy having been issued on the 22d of August, 1885. The charter provided that all moneys collected for the reserve fund should be deposited with a trust company designated by the board of directors, as a trust fund, for the sole benefit of the members of the Life Union. No moneys so deposited should be withdrawn, except upon the order of the president, treasurer, and secretary, for such purposes as should be provided for in the by-laws, and in conformity with the terms and conditions controlling the trust fund. Upon the 11th of June, 1885, the association adopted the following by-law:

“Article 12. Reserve Fund. Section 1. Fifteen (15) per cent, of all net assessments for mortuary and benefit purposes, with accretions, shall be deposited with such trust company as may be designated by the directors, as a trust fund, for the exclusive use and benefit of the members of the union. Sec. 2. The reserve fund, except that portion represented by paid-up certificates, may be used to pay losses in excess of the American Experience Tables of Mortality. Sec. 3. After five years from the thirty-first day of December, 1885, and each year thereafter, a dividend from that portion of the reserve fund created the first year of each series of five years shall be made to all members whose certificates have been in force continuously for that period, which amounts shall be credited to their account, and used in payment of future dues and assessments. Sec. 4. Such amounts as may be required to meet paid-up certificates, as provided in section 5 of article 8, shall not be used for any other purpose. Sec. 5. Any portion of the reserve fund not otherwise required may be loaned to pay claims under section 2 of article 8, as therein provided.”

Section 5 of article 8 is as follows:

“Any member of the union whose certificate has been in force for ten or more consecutive years shall have the option of surrendering the same, and receiving therefor a paid-up certificate for such equitable proportion of the reserve fund as may appear to his credit on the books of the union.”

The accumulation of the trust fund commenced in 1886, and an agreement was made on the 12th of April of that year between the Life Union and the Knickerbocker Trust Company, by which the latter agreed to hold and invest the funds deposited with it, the material portions of which agreement read as follows:

“Third. Upon receipt of a certified copy of a vote of the board of directors of said union, authorizing the transfer of any portion of the reserve fund .above mentioned to the death-fund account, such transfer shall be made by the trust company. But in every case the resolution of the board of directors authorizing such transfer shall state that such transfer is authorized by sections 2, 3, 4, and 5 of article 12 of the by-laws of the union.” “Sixth. In case of a dissolution of the party of the first part (the Life Union), the entire reserve fund shall be divided among the then members of the union proportionally to the gross amount of assessments paid by said members, respectively, to the union, in accordance with a statement which shall be furnished by the party of the first part, and certified to by the board of directors, prior to such dissolution, as correct, or shall be distributed in such other equitable manner as the courts shall direct.”

The certificates of membership which were in general use, and which are to be considered in the disposition of this appeal read as follows:

“Within ninety days after receipt of satisfactory proof to the union of the death of the above-named member, while this certificate remains in force, upon the following conditions, there shall be payable to -, of state of -, if living at the time of said death, otherwise to the legal representatives of said member, less such amounts as may have been advanced in final sickness, the sum of-thousand dollars, from the mortuary and benefit fund of the union, at the time of said death, or from any moneys that shall be realized to the said fund from the next assessment to be made, as hereinafter set forth, it being understood and agreed that not more than one assessment shall be made for each death loss. (1) It is understood and agreed that whenever a loss occurs in the membership of the union, either by death or permanent disability, and the amount in the mortuary and benefit fund is insufficient to meet the same, an assessment may be made upon all the holders of certificates in force at the time of such loss, according to the age of each member at the time of admission, and the amount of his certificate, as per table indorsed hereon. Eighty-five per cent, of the net amount realized from each assessment shall constitute the mortuary and benefit fund of the union, hereinbefore referred to, and shall be used only for the payment of approved losses, as above provided. (2) Fifteen per cent, of all assessments, with the accretions thereon, shall constitute a reserve fund, which shall be deposited with a trust company as a trust fund for the exclusive use of the members of the union.” “(4) At the expiration of five years from the 31st day of December, next, and each year thereafter, all that portion of the reserve fund created the first year of the series of five will be divided, pro rata to the amount contributed, amongst those certificates which have been in force five or more years, and placed to their credit, to be used in payment of dues and assessments as they occur.” “(G) The reserve fund, not represented by dividends declared, or amounts necessary to meet paid-up certificates, may be used to pay losses in excess of the American Experience Table of Mortality.”

The by-laws of 1887, as amended and adopted on June 21, 1887, provide as follows:

“Article 8. Benefits. Section 1. Upon the death of a member, the union shall, within three months after due notice and satisfactory proofs of such death, pay to the beneficiary named on the books of the union, if such beneficiary be living at the time of such member’s death, otherwise to the heirs or legal representatives of such deceased members, the amount to which the same may appear entitled, according to the terms of the certificate of membership, out of the mortuary and benefit fund (hereafter defined) of the union; or, if the mortuary and benefit fund shall then be insufficient to pay the whole of any such claim, then out of the moneys to be realized from the next assessment to be made, as hereinafter described. And no death claim shall become otherwise due or payable except from the reserve fund, as hereinafter provided.”
“Article 11. Mortuary and Benefit Fund. Section 1. Eighty-five (85) per cent, of all net assessments for mortuary purposes shall be deposited with such bank or trust company as may be designated by the directors, to the credit of the mortuary and benefit fund of the life union, from which claims shall be paid.”
“Article 12. Reserve Fund. Section 1. Fifteen (15) per cent of all net assessments for mortuary and benefit purposes, with accretions, shall be deposited with such trust company as may be designated by the directors, as a trust fund for the exclusive use and benefit of the members of the union. Sec. 2. The reserve fund, except that portion represented by paid-up certificates, may be used to pay losses in excess of the American Experience Table of Mortality. Sec. 3. After the reserve fund shall have reached the sum of $100,000, the accumulations over that amount shall be annually divided among the members of five or more years’ standing, and placed to their credit, to meet future dues and assessments, or shall be applied to pay death claims, as may be determined by a vote of the members at that time.”

After the adoption of these by-laws, the certificates of membership were amended, and in 1892 the by-laws were further amended: In view of the decision in the case above referred to, of In re Equitable Reserve Fund Life Ass’n, it does not seem necessary to discuss the rights which were conferred by these by-laws, except so far as they may differ from those in the case cited. In the Equitable Reserve Fund Life Association action, a section of one of the articles of the constitution permitted the board of trustees, in their discretion, to use the securities in which the moneys forming the reserve fund had been invested for the purpose of making any deposits required or allowed by law or usage of this or other states, or to meet any want or necessity of the association that might thereafter arise by reason of unforeseen contingencies; and the court held that this section, although somewhat obscure, evidently referred to a want or necessity which might arise by reason of unforeseen contingencies, and while the company is alive, and in the hands of its board of trustees, because the question of the application of the securities was to be decided by such board. Now, the provisions which are contained in the by-laws, etc., of the corporation, now under consideration, is that the reserve fund may be used to pay losses in excess of the- American Experience Tables of Mortality, evidently reposing the discretion as to whether the fund shall be thus used or not in the corporation. Where such discretion is reposed in the corporation, it must be exercised by its board of directors, and was evidently intended only to apply, as in the case cited, to a living corporation; the action to be taken while the corporation was in the exercise of its powers and duties, and not by a dead corporation. Taking the provisions of the constitution, the by-laws, and the certificates of membership together, it seems to be apparent that this reserve fund was created primarily for the benefit of the members of the association. The provisions of article 12 of the constitution, which provided for the institution of this fund, show that it was to be for the exclusive use and benefit of the members of the association, and that the reserve fund, except that portion represented by paid-up certificates, “might be used to pay losses in excess of the American Experience Tables of Mortality." Now, it seems to us, if the reasoning of the court of appeals in the case cited is correct, it is entirely applicable to the case at bar, and death claimants have no interest in this fund. Although this view of the object of the reserve fund was contrary to that which was held by this general term when the case of In re Equitable Reserve Fund Life Ass’n was 'before us, not being able to see any practicable distinction between the two cases, we are compelled to follow the adjudication of the court of last resort. The orders appealed from should be affirmed, with costs. All concur.  