Huber v. Martin

• Decision Date: 30 January 1906
• Citation: 105 N.W. 1031,127 Wis. 412
• Parties: HUBER v. MARTIN ET AL.
• Court: Wisconsin Supreme Court

127 Wis. 412

105 N.W. 1031

HUBER

v.MARTIN ET AL.^a1

Supreme Court of Wisconsin.

Jan. 30, 1906.

Syllabus by the Judge.

A mutual insurance corporation having a charter provision to the effect that a membership therein could only be created by accepting from it a policy of insurance and continue only till the end of the policy period, did business for a considerable period of time accumulating a large surplus. A law was then enacted authorizing a re-incorporation under the general law for the creation of insurance corporations, with the consent of two-thirds of existing policy holders representing at least one-half the outstanding insurance, the re-organized concern to be the owner of the property of the superseded company for its use in the conduct of its business. The act provided that any existing policy-holder of such a mutual company, in case of its being superseded, should be entitled at his option to take stock in the new company to the extent of such part of the total stock as the amount paid by him on his policy bore to the total amount of risks in force, or to receive such proportion of the surplus as the company's actuary might deem equitable, that being coupled with a provision that all the property of the superseded company should become that of the new concern, as aforesaid, no part to be divided among the members thereof. The legislative basis of re-organization, in form, contemplated the possibility of members of the superseded company at a specified time, in the aggregate, securing a small percentage only of the stock in the new concern or of the surplus aforesaid, and of existing and past policy-holders of the mutual company, in the aggregate, obtaining not to exceed one-third of such surplus of stock. A re-organization occurred in form under such law as to the corporation in question, plaintiff and others not consenting.

Under the charter of a mutual insurance company providing, in effect, that one can become a member only by taking out a policy of insurance and that the membership can survive only to the end of the policy period upon which it is based, no one can rightly be treated as a member for any purpose at any time unless he then holds an unexpired policy of insurance.

If the charter of a mutual insurance company contains no provision on the subject, membership commences only with the taking out of a policy and lasts only for the policy period.

As regards rights and remedies, the policyholders in a mutual insurance company are stockholders therein the same as owners of stock in a stock corporation, there being no charter provision to the contrary.

The interests of policy-holders in a mutual insurance company are two fold, they are both insurers and insured. In respect to the former they are entitled to share in the losses and profits of the business on the basis of a partnership, except so far as the charter or policy contract provides otherwise.

The title to the property of a mutual insurance corporation is in the company, but the equitable interests therein are vested in the members the same as in case of a stock corporation. While the corporation owns the property the members own the corporation.

It is competent for a mutual insurance corporation, there being no limitation in its charter to the contrary, to make rates for insurance with a view of probably creating a surplus and of subsequently distributing the same to members so far as experience shall show that the same is not needed in the business.

In case of a distribution of the surplus of a mutual insurance company or of its other assets, thero being no charter provision to the contrary, existing policy-holders and such only are the ligitimate distributees. In the aggregate, they are entitled to the whole.

The Legislature may alter or amend the charter of a corporation but cannot legitimately appropriate its property without the consent of all of its members, either to its own use or that of a private party, though such party be a successor corporation, in the absence of some authorization to the contrary in the charter originally.

For all except corporate purposes, the property of a mutual insurance company, the same as that of any other corporation, belongs to its members whether they are stockholders in the technical sense or in the broader one which includes policy-holders in such a company.

The property of a mutual insurance company and the equitable property rights of its members are within the guarantees of the state Constitution as regards the inhibition against laws impairing the obligation of contracts, and the inhibition of the national Constitution as regards the equal protection of the laws and deprivation of property without due process of law.

A law enacted during the life of a mutual insurance company providing for the distribution of its assets or a bestowal thereof upon another without consent of all of its members, no authority in that regard being contained in the charter of such company, offends against the constitutional limitations referred to.

Any member of a mutual insurance company suing for himself and others similarly interested, may invoke equity jurisdiction to redress or prevent any wrong injuriously affecting the property rights of the corporation, when its officers will not move appropriately to that end.

The supposed common-law rule, that upon the termination of a corporation its debts become extinguished, its realty reverts to the grantors and its personal property goes to the sovereign, if it ever existed in fact, is wholly obsolete, except as to purely public corporations.

In case of a scheme of legislation for a particular purpose, created by the enactment of a law specially referring to the subject, and to other laws required for a complete plan, if the special enactment is the inducing provision and is unconstitutional, the whole is inefficient. The matter is governed by the rule, that where part of a law is unconstitutional and was the inducement to the rest, which by itself would not have been enacted, the whole is void.

An unconstitutional act of the Legislature is not a sufficient basis for a corporation de facto. That can exist only in case of a law under which it might have been created de jure.

The law that corporate existence cannot be inquired into, except by judicial proceedings in the name of the state, does not apply to a pretended but not even a de facto corporation.

In case of success, in form, of an attempt to reorganize a mutual insurance company on the stock plan under a law, in terms, authorizing it and the insurance business formerly carried on by the old company being continued ostensibly by the new creation, using the former's assets and good will, if the attempt is fruitless because of the enabling act being void such continued business is to be regarded as really that of the old corporation; as belonging to it.

Appeal from Circuit Court, Washington County; James J. Dick, Judge.

Action by Ulrich Huber against Andrew Martin and others. From a judgment sustaining demurrers to the complaint, plaintiff appeals. Reversed.

Appeal from the circuit court for Washington county from an order sustaining demurrers to the complaint. The facts relied upon for a cause of action were these: The defendant Germantown Farmers' Mutual Insurance Company is a corporation created and existing under chapter 278, p. 421, of the Laws of Wisconsin, for the year 1854, and the defendant Germantown Insurance Company is a corporation existing under chapter 89, Rev. St. 1898 and chapter 229, p. 341, of the Laws of Wisconsin for the year 1903. The individual defendants are the officers and directors of the two corporations. Plaintiff is a policy-holder of the first-named company, holding policy No. 67,198, dated August 1st, 1901, and expiring by its terms August 1st, 1906, and by the law of 1854 mentioned he became a member thereof. Such company has, or did have before they were dissipated, as hereafter stated, assets in excess of $211,375.76, which are really the property of its members. September 28th, 1903, the individual defendants and others wrongfully conspired together and organized the Germantown Insurance Company, to the end that it might acquire the assets of the Germantown Farmers' Mutual Insurance Company for the use and benefit of the former and the members of such conspiracy without the consent of the policy-holder members of the old organization, and the purpose of such conspiracy was accomplished, so far as creating the new organization and putting its members in possession of such property. Such new organization has paid a small part of the assets wrongfully acquired to members of the old company. Nearly all the stock of the new organization has been taken by the officers and directors of the old company, they thereby wrongfully acquiring to themselves the large property aforesaid, which belonged to the old organization and its members, leaving said members no security for payment of their policies, except that assumed by the new organization. Plaintiff has been denied access to the books of the new organization on which account he is unable to state precisely the amount of unlawful gains which it secured by the wrongful acts aforesaid. This action is prosecuted on the behalf of plaintiff and all others similarly situated for the benefit of the Germantown Farmers' Mutual Insurance Company, such company being made a defendant because its officers are the persons guilty of the mischief complained of, and insist that the new organization has absorbed the old one leaving the latter incapacitated to maintain any action.

Upon such facts plaintiff prayed for an accounting by the Germantown Insurance Company and the individual defendants as to all their doings in the premises, and for restraint upon them as to appropriating the good will of the Germantown Farmers' Mutual Insurance Company, or disposing of or injuring its assets, and for a receiver to take over the...