Pencille v. State Farmers' Mutual Hail Ins., Co., of Waseca

• Decision Date: 31 October 1898
• Docket Number: 11,208 - (50)
• Citation: 76 N.W. 1026,74 Minn. 67
• Parties: W. D. PENCILLE and Others v. STATE FARMERS' MUTUAL HAIL INSURANCE COMPANY OF WASECA and Others
• Court: Minnesota Supreme Court

76 N.W. 1026

74 Minn. 67

W. D. PENCILLE and Others v. STATE FARMERS' MUTUAL HAIL INSURANCE COMPANY OF WASECA and Others

Nos. 11,208 - (50)

Supreme Court of Minnesota

October 31, 1898

Action in the district court for Waseca county to declare an assessment levied by defendant corporation on its members invalid, to remove the individual defendants as officers of the corporation, and to have a receiver of its property appointed. Defendants demurred to the complaint on the grounds: (1) That plaintiffs have not legal capacity to sue (2) that there is a defect of parties plaintiff; and (3) that the complaint does not state facts sufficient to constitute a cause of action. From an order, Buckham, J., overruling the demurrer, defendants appealed. Affirmed.

SYLLABUS

Corporation -- Members May Maintain Action when Officers are Mismanaging It.

The rule that a corporation, by its officers, is the proper party to maintain an action to protect its property and enforce its rights, and that, until the corporation refuses or is unable individual members have no right to litigate for it, has no application where it appears from the complaint that the officers of the corporation are engaged in perpetrating a fraud upon its members, and grossly mismanaging the corporate affairs. Under such circumstances, members of the corporation can maintain an action against it and its officers.

Equity -- One Person May Litigate Question of Interest to Many.

Where questions to be litigated are of common interest to a large number of persons, and it is impracticable to bring them all into court, one or more may proceed in equity for the benefit of all.

Mutual Insurance Company -- Limits to Assessment upon Members.

The reasonable limits of an assessment, to meet losses, upon policy holders in a mutual insurance company, must not be disregarded, or the officers of the company making such assessment will be condemned as having transcended their authority, and the assessment will be held illegal and invalid.

Mutual Insurance Company -- Fraudulent Assessment.

According to the allegations of the complaint, -- the action having been brought by sixteen policy holders in a mutual hail insurance company, for themselves and on behalf of all other policy holders who chose to come into the proceeding, -- the officers of the company levied an assessment of $56,000 to meet and liquidate losses of less than $21,000. Held, that such an assessment is a gross fraud upon its face, and cannot be upheld.

Complaint Good upon Demurrer.

The complaint herein held to contain facts sufficient to constitute a cause of action.

John Moonan, for appellants.

The rule is well settled that a corporation, by its proper officers, is the proper party to maintain an action to protect its property and enforce its interests, and until the corporation refuses or until it is alleged it is unable to bring such suit, the individual members have no right to maintain it. 5 Enc. Pl. & Pr. 56; 4 Am. & Eng. Enc. 280, note 2.

We contend that there is not any showing of facts in this complaint that the assessment is excessive. When the court takes into consideration the fact that under the by-laws but one assessment can be made, that a large number of policy holders are renters, that a large percentage of each assessment is uncollectible, and many other facts proper to be taken into consideration and which were taken into consideration in making this assessment, we do not think that what is alleged in the complaint in this action will justify the conclusion that such assessment is excessive. Ionia v. Ionia, 100 Mich. 606; People v. Babbitt, 7 Allen, 235; Bangs v. Gray, 12 N.Y. 477; Jones v. Sisson, 6 Gray, 288; Wardle v. Townsend, 75 Mich. 385; Davis v. Shearer, 90 Wis. 250; Seamans v. Millers, 90 Wis. 490.

Charles C. Willson, for respondents.

The directors and officers of this corporation are but agents of the policy holders; and if they betray their trust, take more of their principals' money than is requisite to pay the legitimate corporate debts, or if they appropriate to themselves more than their fair and reasonable compensation for their services, courts of equity can and will on application of parties interested grant relief. They stand in a fiduciary relation, and are agents of and quasi trustees for policy holders. 2 Pomeroy, Eq. Jur. §§ 1088, 1094; Jones v. Morrison, 31 Minn. 140; Rothwell v. Robinson, 39 Minn. 1.

An assessment is not valid merely because it is made by the directors. It must appear that losses and legitimate necessary expenses have been incurred which cannot be paid without making an assessment. The policy holder's liability is not absolute or dependent on the caprice of the company's officers, but is conditional, and depends on the happening of losses and the incurring of expenses to which by his application and policy he agreed to contribute. May, Ins. § 557. In this case defendants have arbitrarily levied an assessment amounting to three times the losses. No court can approve such a confiscatory levy. People v. Babbitt, 7 Allen, 235; Rosenberger v. Washington, 87 Pa. St. 207; May, Ins. § 559; York v. Bowden, 57 Me. 286; Farmers v. Knight, 162 Ill. 470; Susquehanna v. Gackenbach, 115 Pa. St. 492; Johnson v. Farmers, 110 Mich. 488.

OPINION

COLLINS, J.

Appeal from an order overruling a demurrer to a complaint, the grounds stated being that the plaintiffs had not legal capacity to sue, that there was a defect of parties plaintiff, and that facts sufficient to constitute a cause of action were not stated.

The plaintiffs, sixteen in number, are policy holders in a mutual hail insurance company organized in this state, and brought the action in behalf of themselves and all other policy holders who might choose to come into the proceeding. The defendants are the company and its officers. The complaint contains a large number of allegations of misbehavior on the part of the defendants, but, simply stated, the charge is that the officers of defendant company have grossly mismanaged its affairs, and for their own aggrandisement have entered upon a deliberate system of official misconduct,...