Kennan v. Rundle

• Decision Date: 02 February 1892
• Citation: 81 Wis. 212,51 N.W. 426
• Parties: KENNAN v. RUNDLE ET AL.
• Court: Wisconsin Supreme Court

81 Wis. 212

51 N.W. 426

KENNAN

v.RUNDLE ET AL.

Supreme Court of Wisconsin.

Feb. 2, 1892.

Appeal from superior court, Milwaukee county; FRANKLIN L. GILSON, Judge.

Action by Thomas L. Kennan, as receiver of the Manufacturers' Mutual Fire Insurance Company, against Joseph P. Rundle and others, upon a guaranty bond. Defendants appeal from a judgment overruling a demurrer to the complaint. Reversed.Stark & Sutherland, ( Geo. E. Sutherland, of counsel,) for appellants.

The guaranty fund bond is a several undertaking. It is improper to join all the guarantors in one action, and therefore the complaint improperly unites several causes of action. The theory upon which this action must be sustained, if sustained at all, is that this guaranty fund bond became an original, unconditional, and immediate liability, and the fund an immediate, absolute asset of the company, liable to be called for at any moment, without reference to the amount of other assets applicable to the indebtedness of the company, and in no way collateral to the liability of the company. It is insisted that the Manufacturers' Mutual Fire Insurance Company had no power to create or accept any such fund. The statute expressly provides how such a fund may be created, what it is, and how it may be used. Sections 1909 to 1915, Rev. St. This fund was not created under or in accordance with these sections, and it follows that this attempt to create a guaranty fund was unauthorized, and an invalid proceeding. The Manufacturers' Mutual Fire Insurance Company is one of the particular class of companies organized under the provisions of sections 1941 a to 1941 g, Sanb. & B. Ann. St., and these statutes point out just what the capital of this kind of a company must consist of. Section 1941 c, Rev. St. And when the attempt is made to add to this capital, as a part of it, subject to be called upon at any time, an additional fund of $50,000, not in any way derived from cash premium or premium notes, such attempt was invalid, because not authorized by the statute. A corporation takes the rights and powers conferred upon it by statute, and can claim no right and do no act not authorized by statute, “not even as a means of raising funds to accomplish things authorized.” Dietrich v. Association, 45 Wis. 79-84;Jemison v. Bank, 122 N. Y. 135, 140, 25 N. E. Rep. 264; Bank v. Earle, 13 Pet. 588;Trust Co. v. Miller, 33 N. J. Eq. 155-162;Insurance Co. v. Martin, 13 Minn. 59, (Gil. 54.) The statute under which the Manufacturers' Mutual Fire Insurance Company was organized contains no provision for raising a guaranty fund in the way attempted. The Manufacturers' Mutual Fire Insurance Company is a simon-pure mutual insurance company, in which company every person insured becomes a member, and becomes liable to pay his share of all losses and expenses incurred by the company. This precise question has been determined by this court as applied to this particular company. Rundle v. Kennan, (Wis.) 48 N. W. Rep. 516. The receiver who brings this action has no other or greater right than the company would have had in reference to this guaranty fund, and cannot be permitted to pay the losses of this company in some other way than that pointed out by statute. By the statute, (section 1941 a,) this company was authorized to do insurance upon the mutual plan, and no other. The mutual plan means the mutual liability of every member of the company to contribute his share for losses and expenses. Rundle v. Kennan, supra. When a company which is organized for mutual insurance only, resting upon the mutual liability of every member for his share of all losses, is converted into something else than a mutual insurance company, a positive violation of law is made legal. Mutual insurance companies are not organized “with a view to profit.” State v. Association, 42 Ohio St. 555-564. A contract of insurance by a mutual insurance company is not an absolute contract of indemnity, such as is usual in stock companies having a specific capital. Com. v. Insurance Co., 119 Mass. 45-50. The purpose is to provide a cheap method of insurance, depending upon the liability of every member to simply pay his pro rata share of losses. “Liability to its members, and between it and them, must arise out of the charter, constitution, and by-laws. * * * A member of a corporation obligates himself to be governed by its rules and by-laws, and to seek indemnity for his loss in accordance with their provisions.” Warner v. Insurance Co., (Sup.) 15 N. Y. Supp. 632. It makes no difference what the result may be in the practical working of insurance under this mutual system. The plan provided for in the statute must be followed out, and no other plan can be enforced. People v. Association, (N. Y. App.) 27 N. E. Rep. 1037. It is undoubtedly true that a mutual insurance company may make rules and regulations and determine methods of doing business, but it is also true, if such rules or regulations or methods conflict with the statute under which the company is organized, the rules and regulations and methods go for naught. Greene v. Walton, (Sup.) 13 N. Y. Supp. 147;Madison, W. & M. P. R. Co. v. Watertown & P. P. R. Co., 7 Wis. 59. It is also true that any person who deals with any corporation is bound to know the limitations and restrictions by law imposed upon it. “A person who enters into a contract with a corporation is bound at his peril to take notice of all the legal limitations of its capacity.” Davis v. Railway Co., 131 Mass. 259;Alexander v. Cauldwell, 83 N. Y. 480; Franklin Co. v. Bank, 68 Me. 43; De Bost v. Albert Palmer Co., 35 Hun, 386; Rice v. Peninsular Club, 52 Mich. 87, 17 N. W. Rep. 708; Beach, Corp. § 383. And it is especially true that every person who insures in a mutual insurance company is bound to know the laws and rules which govern it and fix the liability of its members, and is bound to know the statute under which it is organized, and bound to know that the essential element in the case is mutual liability. Pfister v. Gerwig, (Ind. Sup.) 23 N. E. Rep. 1041; Miller v. Association, (N. J. Ch.) 7 Atl. Rep. 895;Insurance Co. v. Stoy, 41 Mich. 385, 1 N. W. Rep. 877; Diehl v. Insurance Co., 58 Pa. St. 444; Coles v. Insurance Co., 18 Iowa, 426; Satterthwaite v. Insurance Ass'n, 14 Pa. St. 393; Lattomus v. Insurance Co., 3 Houst. 404; Fuller v. Insurance Co., 36 Wis. 599. In a mutual insurance company every policyholder becomes a member of the company, and is bound by the acts of the officers of the company. Their acts are his acts. Koehler v. Beeber, (Pa. Sup.) 16 Atl. Rep. 354;Insurance Co. v. Stoy, 41 Mich. 385, 395, 1 N. W. Rep. 877.Insurance Co. v. McKelway, 12 N. J. Eq. 133, cited approvingly in Trust Co. v. Miller, 33 N. J. Eq. 155, 160, and 162, and in Morris & E. R. Co. v. Sussex R. Co., 20 N. J. Eq. 542, 564, is a well-considered and thoroughly logical case, and practically the same as the case at bar, and in which it is said that “no corporation shall possess or exercise any corporate powers except such as shall be expressly given in its charter, or which shall be necessary to the exercise of the powers so enumerated and given.” A person who enters into any contract relation with a corporation is bound, at his peril, to take notice of the legal limits of its capacity. This is especially true as to persons who insure in a mutual insurance company, who thereby become members of that company, and are bound to know, not only its rules and by-laws, but also the statutes under which it is organized. See, also, Lucas v. Transfer Co., 70 Iowa, 541, 30 N. W. Rep. 771. There was a lack of corporate capacity on the part of the Manufacturers' Mutual Fire Insurance Company to create a guaranty fund in the way in which it was attempted, and, lacking this corporate capacity, every step taken in that direction was invalid. Hasbrouck v. Milwaukee, 13 Wis. 37. This company could not have gone into the banking business. Waldo v. Railway Co., 14 Wis. 575. It is well established that, where a corporation has exceeded its powers in making any contract or agreement, such contract or agreement will not be enforced. A party to an illegal contract is not prevented from setting up the illegality. The law simply leaves the parties to an illegal contract where they put themselves. Tylee v. Yates, 3 Barb. 222, 228;Trust Co. v. Miller, 33 N. J. Eq. 155, 160;Safford v. Wyckoff, 1 Hill, 11;Swift v. Beers, 3 Denio, 70;Nourse v. Pope, 13 Allen, 87;State v. Association, 42 Ohio St. 555;Banking Co. v. Rautenberg, 103 Ill. 460;State v. Bartlett, 30 Miss. 624; Port. Ins. 370; Tracy v. Talmage, 14 N. Y. 162. In Insurance Co. v. Davis, 12 N. Y. 569, 573, the court considers the power of a mutual insurance company to take the note of a third party, when there is no statute authorizing it, and says: “The mode of doing this part of the business is pointed out, (in the charter,) and that mode, I think, should be substantially followed. * * * This is theoretically, at least, a system of mutual indemnity and liability, and the plan evidently intended by the charter should be followed.” In North River Ins. Co. v. Lawrence, 3 Wend. 482, the court held that an insurance company could not recover upon a note given to it for money loaned, because the statute under which the company was organized provided that the company might loan its funds upon bond and mortgage, and this implied that they could loan in no other way. In Beach v. Bank, Id. 573, it was held that the Hudson Insurance Company had no power to loan money, and therefore could not maintain an action upon a note upon which it had advanced or loaned money. See, also, Bank v. Baldwin, 23 Minn. 198. In Loan Co. v. Helmer, 12 Hun, 35, the court held that the corporation plaintiff could not recover upon notes discounted by it, because the company had no right under the statute to do its business in that way. In City of Montgomery v. Plank-Road Co., 31 Ala. 76, the...