Folts v. Globe Life Ins. Co.

Citation223 N.W. 797,117 Neb. 723
Decision Date04 January 1929
Docket NumberNo. 26604.,26604.
PartiesFOLTS ET AL. v. GLOBE LIFE INS. CO. ET AL. (HUMMEL, INTERVENER).
CourtSupreme Court of Nebraska

OPINION TEXT STARTS HERE

Syllabus by the Court.

A member of a fraternal benefit corporation, organized and carried on for the sole benefit of its members and their beneficiaries, and not for profit, may sue the corporation and its officers for himself and all others similarly situated, to recover corporate funds wrongfully misappropriated, when it appears that an appeal to such officers and the supreme governing body for redress would be ignored or denied.

A provision in the constitution and laws of a fraternal benefit corporation, voiding the certificate of membership of a member, if he, for any cause, at any time, for any purpose, institutes a suit against the corporation or any of its officers, because of any action done or contemplated by such officer or a committee of the corporation, without first submitting his grievances to and exhausting his remedies before the proper tribunals, is not applicable to an act done by the supreme governing body from which no appeal lies.

No fraternal benefit corporation, organized under the laws of Nebraska, has any power, directly or indirectly, to write insurance or issue membership certificates for profit; nor can it use its funds to incorporate an old line insurance stock corporation and subscribe for its capital stock to be sold to members of the fraternal, under the guise of having such stock company co-operate with the fraternal in writing a line of insurance not permitted to fraternals.

Such fraternals, having surplus funds available for investment in securities prescribed by its constitution and laws, cannot organize and subscribe for the whole of the capital stock of a business corporation, under the pretext that such transaction constitutes an investment.

When, as in this case, a fraternal benefit corporation, organized and carried on under the laws of the state, for the sole benefit of its members and beneficiaries, and not for profit, causes its officers to organize a stock insurance corporation, using the funds of the fraternal to subscribe for the capital stock and surplus of the insurance corporation, such transaction is ultra vires of its charter, unlawful, against the public policy, and void.

Fraternal benefit insurance organizations, while exempt from the statutes relating to insurance corporations and corporations generally, are not exempt from the general principles of law which confine all corporations, societies and associations to the objects and purposes of their existence.

Fraternal societies, as such, are generally left free to determine their own course on matters relating to qualifications, discipline, control and conduct of their members concerning internal government; but, in matters of business, property rights and contracts, they are answerable to the laws of the land, and, in these latter respects, they have no implied power to stray from the purposes declared in the statutes under which they are organized.

Under the facts in this case, the organization of the Globe Life Insurance Company by Sovereign Camp Woodmen of the World and its officers, and their subscribing for the entire capital stock of the Globe Life Insurance Company, in no sense constituted a consolidation under chapter 122, Laws 1925.

Laches is a creature of equity. Equity will deny relief as to consummated purely ultra vires acts of a corporation, even though it be technically expedient and proper, when, to grant it will occasion the public great inconvenience, and the defendant serious loss, if the plaintiff may be readily compensated in damages.

In determining whether equitable relief will be granted in a given case, courts will balance the equities and govern themselves accordingly, and, in doing so, will take into consideration whether the act complained of is merely ultra vires, or is against the public policy, unlawful, and wholly void.

Under the facts in this case, held, the plaintiffs are not estopped, nor precluded by laches, to maintain this suit.

The fact that the department of trade and commerce is vested by law with supervisory powers over insurance business conducted within the state, and that it approved the transaction in question, can afford no protection to wrongdoers.

Appeal from District Court, Lancaster County; Shepherd, Judge.

Action by Frank E. Folts and others against the Globe Life Insurance Company, Clarence G. Bliss, Secretary of the Department of Trade and Commerce, and others, wherein Alex F. Hummel intervened. From the decree, defendants, with the exception of the last-named defendant, appeal. Affirmed.

Brogan, Ellick & Raymond and Gaines, McGilton, Van Orsdel & Gaines, all of Omaha, and Hainer, Flansburg & Lee, of Lincoln, for appellants.

Wm. B. Price, John M. Stewart, C. J. Campbell, G. E. Hager, and Don W. Stewart, all of Lincoln, and John P. Breen, M. L. Donovan, and W. H. Hatteroth, all of Omaha, for appellees.

Heard before GOSS, C. J., and ROSE, DEAN, GOOD, THOMPSON, EBERLY, and HOWELL, JJ.

HOWELL, J.

This is an appeal by Globe Life Insurance Company, Sovereign Camp Woodmen of the World, W. A. Fraser, John T. Yates, T. E. Patterson, and J. E. FitzGerald, from a decree of the district court for Lancaster county, requiring all appellants, except Sovereign Camp Woodmen of the World, to return to Sovereign Camp Woodmen of the World certain bonds and moneys aggregating $2,000,000, paid to the Globe Life Insurance Company by Sovereign Camp Woodmen of the World and individual appellants in subscribing for practically the total capital stock of Globe Life Insurance Company, which appellees, Frank E. Folts, Charles Bowen, and William B. Price, as plaintiffs, and Alex F. Hummel, as intervener, claim to have been illegal and fraudulent, and enjoining each and all of the appellants from using the good will, property or organization of Sovereign Camp Woodmen of the World in the business of Globe Life Insurance Company.

Appellees will be referred to as plaintiffs, Globe Life Insurance Company as Insurance Company, and Sovereign Camp Woodmen of the World as W. O. W.

The petition and the petition of intervention are quite lengthy and, in a general way, seek the same relief.

Plaintiffs sue, as members of W. O. W., for themselves and all others similarly situated, and aver: W. O. W. is a Nebraska fraternal benefit corporation, organized for the sole benefit of its members, and not for profit, with a membership of about 450,000, carrying insurance of about $750,000,000; plaintiffs are members, in good standing; the individual defendants, with others, compose the Sovereign Executive Council of W. O. W., also are members of the Sovereign Camp, and, in violation of the articles of incorporation and the statutes of Nebraska governing fraternals, conspired to organize the Insurance Company with funds of W. O. W., and to divert its business to the Insurance Company; on June 16, 1927, certain officers of the Executive Council caused the Sovereign Camp to adopt a resolution directing the Executive Council to organize a legal reserve life insurance company, with capital and surplus of $2,000,000, to be paid from funds of W. O. W.; the defendant officers did organize and incorporate the Insurance Company on October 31, 1927, under the laws of Delaware, its capital stock and surplus to be paid before commencing business; its nature, objects and purposes were to issue contracts of annuity, endowment, disability, accident, health, and other forms of life insurance, and to reinsure and coinsure contracts issued by other corporations; defendants Fraser, Yates, Patterson and others were elected president of the board, vice-president and secretary, respectively, of the Insurance Company, and, on November 1, 1927, caused certificates of stock of Insurance Company to be issued to themselves, others and W. O. W., representing $2,000,000 in face and surplus value, $1,997,200 being issued to Fraser and Yates as trustees of W. O. W., and caused bonds and cash of the total value of $2,000,000 to be turned over to the Insurance Company, including $100,000 in bonds deposited on December 16, 1927, with the department of trade and commerce of Nebraska; November 14, 1927, said officers procured certificates in Delaware and Nebraska, authorizing the Insurance Company to do business in both states; under its articles of incorporation and laws of Nebraska, W. O. W. had no authority to do such things; the organization and purchase of the stock of the Insurance Company were illegal and void; organizers and deputies were being trained to sell insurance for the Insurance Company and to solicit members of W. O. W. to purchase such insurance; circulars, pamphlets, letters and other advertising are being circulated among the members of W. O. W., commending the Insurance Company for its line of insurance; the officers of W. O. W. are devoting their time and funds of W. O. W., and its good will, to acquire business for the Insurance Company, greatly injuring W. O. W.

The prayer is that the bonds and money, turned over to the Insurance Company, be returned to W. O. W.; the officers named be removed and an election of new officers ordered; a permanent injunction be issued to prevent defendants from interfering with the business of W. O. W.; the Insurance Company be ordered to pay W. O. W. for losses and damages, and for general equitable relief.

The petition of intervention contains similar allegations, in addition to others, among which, that the individual defendants were officers of both the Insurance Company and W. O. W.

Defendant Bliss, secretary of trade and commerce, filed no answer or other pleading, except a general demurrer which was overruled.

W. O. W. answered, in substance: Admitted practically all of the allegations of the petition except illegality and fraud; alleged that it was a self-governing body, with a lodge system, organized under the laws...

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