Highlanders v. Wiseman
| Decision Date | 11 July 1941 |
| Docket Number | 30977 |
| Citation | 299 N.W. 459,140 Neb. 28 |
| Parties | ROYAL HIGHLANDERS, APPELLEE, v. GILMORE R. WISEMAN, APPELLANT: GEORGE M. MULLEN ET AL., CROSS-APPELLANTS |
| Court | Nebraska Supreme Court |
APPEAL from the district court for Lancaster county: HARRY D LANDIS, JUDGE. Affirmed.
AFFIRMED.
Syllabus by the Court.
1. The decision of the department of trade and commerce (insurance) remains in full force until reversed by final judgment of the district court or on appeal from that tribunal.
2. Where a statutory enactment exists for the creation of a corporation or a change in its corporate form, with powers as here assumed, and there has been a bona fide attempt by such corporate authorities to comply with the requirements thereof including proper notice to all parties in interest as provided therein, and where the proceedings of such corporation in accomplishing the proposed transformation have been submitted to the director of insurance, and by him examined, and approved by his order duly entered, and his certificate of approval and incorporation has been duly issued to such applicant, and thereafter it openly and continuously exercises the corporate powers evidenced thereby, and no appeal is prosecuted from the order of approval of the department of insurance, such corporation is thereby constituted at least a corporation de facto under its new form of organization and presumptively a corporation de jure.
3. The board of directors of what is herein denominated and described as a mutual legal reserve life insurance company is its governing body, and lawfully vested with the management of its ordinary corporate affairs, possessing within the limits of its authority full discretionary powers, and which, in the honest, lawful and reasonable exercise thereof, are not subject to control by stockholders, or by courts at the instance of stockholders.
4. The accepted principle is that the wisdom and expediency of corporate business policies and the methods of executing them are left to the discretion and decision of the board of directors. In the absence of usurpation, or fraud, or gross negligence, or transgression of statutory limitations, courts of equity will not interfere at the suit of dissatisfied stockholders merely to overrule the discretion of directors on questions of corporate management, policy or business.
5. Under the facts in this record, such corporation's legal existence as a mutual legal reserve life insurance company is not subject to collateral attack by private individuals or by the state; nor can it be questioned on direct attack by private individuals, but only by the state.
6. By the mutualization of the Royal Highlanders, a former fraternal organization, accomplished in the instant proceeding, the identity of the company was not changed. A new corporation is not created. The old corporation continued with new powers. The title to the assets continues in the same company and it is not relieved from its liabilities. The obligations of its contracts remain unimpaired.
7. All insurance contracts issued prior to May 4, 1937, were continued in full force and were evidenced by the application for membership, the certificate of insurance, the edicts or by-laws of the society, and the fraternal laws under which such policies were issued.
8. The right of policyholders to participate in the distribution of surplus of this insurance company depends entirely upon the existing contract between the policyholder and the company. The rights of the members of the Royal Highlanders whose membership and policies antedated May 4, 1937, are unchanged.
9. The powers and duties of the insurance commissioner or superintendent are limited to those defined by statute.
10. Where the board of directors is vested with the power, either generally or by specific provision, to determine the time, amount or method of distribution of surplus to the policyholders entitled thereto, the court will not ordinarily interfere, in absence of showing of fraud, or bad faith, or a clear transgression of a legislative mandate.
11. Upon due consideration of the evidence in the record, we find that in limiting the distribution of surplus funds to $810,724.97 the board of directors has violated no provisions of statutes applicable to that subject, has not exceeded its statutory powers, is in all respects carrying out its contracts in good faith, and is not transacting business fraudulently. We further find that the action taken by such board of directors, both as to amount and method of distribution, is reasonable and in all respects justified by the facts disclosed and established by the evidence, as clearly within their legitimate discretion.
Appeal from District Court, Lancaster County; Landis, Judge.
Proceeding in the matter of an appeal of the Royal Highlanders from an order of the director of the department of insurance of the state of Nebraska. From a decree reversing order of the department of insurance, Gilmore R. Wiseman, on behalf of himself and all policyholders similarly situated, appeals, and George M. Mullen, C. E. Walsh, Estelle Guye and Rena Hyatt cross-appeal.
Affirmed.
See, also, ___ Neb. ___, 299 N.W. 467.
Harry Grimminger and Beghtol, Foe & Rankin, for appellant.
Flansburg & Flansburg, for appellee.
Jackson B. Chase, Loren H. Laughlin, John C. Mullen, William H. Thomas and Wilber S. Aten, for cross-appellants.
Heard before SIMMONS, C. J., ROSE, EBERLY, CARTER and MESSMORE, JJ., and MEYER and ELLIS, District Judges.
In this proceeding Gilmore R. Wiseman is appellant, George M. Mullen, C. E. Walsh, Estelle Guye and Rena Hyatt appear as cross-appellants, and the Royal Highlanders is appellee. The appellant and cross-appellants seek a review of the judgment entered in the district court for Lancaster county in favor of the appellee herein, and against the appellant and cross-appellants, wherein that court "finds generally in favor of the Royal Highlanders, * * * upon each and all of the issues presented by the pleadings in this case;" approves the determination of the board of directors of the Royal Highlanders that there was $ 810,724.97 properly available for distribution to the policyholders thereof, and approves the terms, manner and form of the distribution of that sum made by such board. This judgment also determined that the order of the department of insurance directing that such board of directors make an additional distribution to such policyholders of the sum of $ 514,885.90 over and above the sum of said $ 810,724.97 was improvidently made and entered, and the same was set aside and reversed. The correctness of this determination is presented by this appeal.
We do not overlook, in this connection, the attack upon the legality of the present corporate organization of the Royal Highlanders as being wholly unauthorized by the statute (now Comp. St. Supp. 1939, sec. 44-415) from which its corporate powers in its present corporate form are derived. However all parties to this litigation are in apparent agreement that immediately prior to the present change of this corporate entity it had been duly organized and incorporated as a fraternal insurance company and for many years had been successfully carrying on business as such. But a situation had been developed in the affairs of this organization which clearly indicated the wisdom of changing the Royal Highlanders, a fraternal society, into a mutual legal reserve life insurance company. Proposed amended articles of incorporation to accomplish that purpose were accordingly adopted by a two-thirds vote of the board of directors. The form of the communication by which the proposed change was to be submitted to the membership was approved, and also the form of the proxy by and through which the membership would accept or reject such proposition was duly approved by such board of directors. Thereafter on March 10, 1937, an application for change of charter was filed with the department of insurance. This application set forth the amended articles, the proposed communication to the policyholders calling the special meeting and the form of proxy whereby the policyholders were each given the right to express his approval or disapproval of the proposed change; and there was also made a part thereof a financial statement which disclosed that the total admitted assets of the Royal Highlanders just before March 1, 1937, was $ 4,611,579.82, and that the total surplus of the company at that time, that is, assets over liabilities, was in the amount of $ 2,177,645.87, and that the society was 189.47 per cent. solvent. On March 10, 1937, the department of insurance entered an order approving all steps taken "under and by virtue of the provisions of the statutes, section 44-415," and also directed that the Royal Highlanders call a meeting of its policyholders to be held at 10 o'clock a. m. on April 24, 1937, at its home office at 1321 Sharp Building, Lincoln, Nebraska, for the purpose of voting upon the proposition to adopt the amended articles and to change the Royal Highlanders into a mutual legal reserve life insurance company, in the manner, upon notice, as directed by the terms of the aforesaid order. As a part of the aforesaid order the following was included: "The department of insurance further directs that there shall be no distribution of any of the assets of the company, but that all present funds shall be maintained and devoted to the same purpose as heretofore existed in such company." This order further directed that the results of such election be reported to the department on April 24, 1937. It appears that a paper document including all the matters approved by the department, and including a complete copy of its order of March 10,...
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