Corey v. Sherman

• Decision Date: 08 October 1894
• Citation: 60 N.W. 232
• Parties: COREY ET AL. v. SHERMAN ET AL.
• Court: Iowa Supreme Court

60 N.W. 232

COREY ET AL.

v.SHERMAN ET AL.

Supreme Court of Iowa.

Oct. 8, 1894.

Appeal from district court, Black Hawk county; D. J. Lenehan, Judge.

Action in equity to set aside the appointment of an assignee, and to cancel assessments, and for other relief. From a decree for plaintiffs, defendants appeal. Modified.Boies, Couch & Boies, Chas. A. Clark, and G. W. Burnham, for appellants.

Alford & Gates, C. W. Mullen, and Henderson, Hurd, Daniels & Kiesel, for appellees.

KINNE, J.

1. The record in the case is voluminous, and the facts quite complicated. We shall endeavor to state as precisely as possible the facts touching the organization and manner of doing business of the defendant company.

In February, 1887, a notice, signed by James P. Sherman, one of the incorporators of defendant company, was published, stating in substance that said Sherman and his associates would organize a corporation to be known as the Citizens' Mutual Insurance Company, “for the purpose of mutual insurance against loss by fire or tornado among its members, by mutual obligations given therefor;” That the association would commence business March 17, 1887, and continue 20 years; that the place of business should be Waterloo, Iowa; that the business should be conducted by a board of directors, elected as provided in articles of incorporation and by-laws; that the guaranty fund or capital stock should not exceed $50,000, to be paid as ordered by the directors and required by the articles and by-laws; that the highest indebtedness of the association, except for insurance liability, should not exceed $10,000, and private property of the incorporators should be exempt from corporate liability. After and prior to March 17, 1887, defendants signed and acknowledged articles of incorporation, which were recorded in the office of the recorder of Black Hawk county and with the secretary of state. These articles seem never to have been formally adopted at a meeting of the corporators, but were, as we have said, signed and assented to by them, and always acted upon as such. In substance they provided that the association was formed for the purpose of mutual insurance “upon our property and that of all other persons who may become members of this association by the giving of mutual pledges thereof.” They also provided the corporation should have the right to sue and be sued, to have a seal, to render the interests of shareholders transferable, to exempt the private property of members from liability for corporate debts, to make contracts, acquire and transfer property, make rules and regulations for the management of its business; that its principal place of business should be Waterloo. That its business should be conducted by a board of directors chosen by the guarantors or shareholders from among their members as required by the by-laws. That said guaranty fund or obligation should not exceed $50,000 in shares of $100 each, transferable among members upon the books of the company, and that fund might be increased by vote of two-thirds of the holders thereof, and that each share should be entitled to one vote upon all questions affecting the interests of the association. That it should be subject to assessment by the board of directors, not exceeding 10 per cent. in any six months, for the purpose of meeting losses and expenses for which the association may be liable, but only when there was not sufficient money raised from assessments or pledges of members to pay such losses when due; and all moneys so paid from said fund were to be regarded as advancements, and were to be paid from the funds of the association, as ordered by the directors. The directors were to select from their own number, or from the guarantors, the officers. That the fund of the association to pay losses and the necessary expenses shall consist exclusivelyof moneys raised by assessment on mutual pledges given by the members for their insurance, which assessments shall be made only by the directors or executive committee, and may be limited by the by-laws. All persons insuring in the association become members thereof during the period of their insurance. Afterwards the company published a notice of incorporation, containing the matters required in such notices, and, in addition thereto, the following: “The said corporation, by its articles of incorporation and by-laws, authorizes and provides for a guaranty fund, not to exceed fifty thousand dollars, consisting of limiting individual pledges made by certain of the incorporators and other members, which shall be paid as ordered by the directors, and as required in said contracts and by-laws;” also providing that the private property of subscribers to said fund should be exempt from the debts of the corporation, except to the extent and in accordance with the terms and conditions of their respective pledges. Said guaranty pledge provided: “I promise to take the number of shares of said fund set opposite my name, at one hundred dollars per share, payable on the order of the board of directors of said association, provided not to exceed ten per cent. thereof shall be payable in any six months, and provided the whole amount of my subscription shall be void, at my option, after three years from” February 24, 1887. The sum of $50,000 was subscribed to this fund. In no other respect was the law touching insurance companies as found in Code, §§ 1122-1131, and other sections relating to stock companies, complied with.

The company proceeded to transact a general insurance business, taking all kinds and classes of risks, issuing several kinds of policies, upon amounts received in cash and partly in cash and partly in notes; and sometimes, when cash policies were issued, and the money therefor was not paid at the time, a promissory note was taken in lieu of cash. Policies were also issued upon the mutual plan, and a note, incorporated in the application, was taken for the amount of the premium, and an assessment for one-sixth of said amount, or one year's premium, was collected in advance, and annually thereafter. Each note provided that not more than one-sixth of the amount should be assessed against the maker in any one year. In these cases applications were made by the insured. In cases where cash was taken for insurance, or notes in lieu of it, no applications were made by the insured. Such policies were ordinarily issued upon a daily report from the agent soliciting the risk. In some cases applications were taken with an installment note incorporated therein, providing in terms for the payment of the premium in fixed annual installments. The policies in form were like those issued by regular mutual and stock companies. All policies provided for cancellation by the company,--in one mutual form by tendering to the assured a ratable proportion of the premium received, in the other by returning the obligation or note, or by notice by mail to the assured; in the cash form of policy, upon giving notice to the assured, and returning a pro rata share of the premium. Policies could be canceled upon request of the assured, in the mutual forms, by surrendering the policies and payment of all assessments due at that time in the one form, and all assessments charged against it at the end of the month in the other; and in the cash form, upon request of the assured, the company reserving the usual short rates for the time the policy was in force. An instruction and rate book was issued for agents, in which attention was called to the fact that assessments could not exceed one annual premium in any one year, and other matters which need not be set out. When it began business the company also issued cards, circulars, and folders advertising its assets and mode of transacting business, and setting forth that it had a guaranty fund of $50,000 pledged to the payment of losses, in the event that money raised from the assessments on premium notes should be insufficient for that purpose. It also represented that it was doing business under state authority, and that it was duly authorized, under chapter 4 of title 9 of the Code, to transact a fire insurance business. It also made reports to the auditor of state showing the guaranty fund. The business transacted by the company outside of Iowa was mostly on the cash plan, and generally on policies running a year, and the indebtedness of the company at the time it made the assignment was largely for losses incurred in other states. In February, 1888, the company prepared a statement of the policies it had issued, and sent it to the auditor of state, who issued to it a certificate under section 1153 of the Code, and a like certificate was issued for the years 1889 and 1890. In 1890, and possibly in 1889, the income of the company was not sufficient to meet its losses and expenses. On January 23, 1891, the guarantors met, and ordered a special assessment of 10 per cent. on the amount of each subscription to the guaranty fund, which was charged up to them on the books of the company. February 3, 1891, the guarantors rescinded their former action, and ordered all sums paid refunded. January 26, 1891, the board of directors ordered an assessment of 25 per cent. upon the gross amount of each deposit note held by the company upon policies in force prior to January 1, 1891, for the purpose of paying losses and expenses. On February 3, 1891, the directors met, and ordered that any moneys paid on account of special assessment of guaranty fund be refunded. At the same time nearly all the guarantors gave notice of their withdrawal from the guaranty pledge, to take effect at that time. At the same meeting the board of directors ordered that a general assignment be made by the company of all its property for the benefit of all its creditors, and on the same day the president and secretary of said company executed an assignment of all the property of the company to James P. Sherman, defendant herein...