Sherman v. Harbin
| Decision Date | 13 July 1904 |
| Citation | 100 N.W. 622,124 Iowa 643 |
| Parties | JAMES P. SHERMAN, Receiver of the Equitable Mutual Life Ass'n of Waterloo, Iowa v. GEORGE W. HARBIN, H. B. ALLEN, and W. L. ILLINGWORTH, Appellants |
| Court | Iowa Supreme Court |
Appeal from Blackhawk District Court.--HON. A. S. BLAIR, Judge.
ACTION on bonds executed by George W. Harbin, as president of the Equitable Mutual Life Association. Trial without jury resulted in a judgment for the plaintiff. The defendants appeal.--Affirmed on condition.
Modified and AFFIRMED.
Boies & Boies, M. J. Wade, and W. L. Eaton, for appellants.
Edwards & Longley and Courtright & Arbuckle, for appellee.
The Equitable Mutual Life Association of Waterloo, Iowa was organized in conformity with the provisions of chapter 65 of the Acts of the Twenty-First General Assembly, now incorporated in the Code as chapters 7 and 8 of title 9. Under section 4 of that chapter (now section 1787 of the Code) the president, George W. Harbin, executed a bond with a penalty of $ 5,000, March 4, 1896, covering the year following, and another on March 2, 1897, covering a like period, with H. B. Allen and W. L. Illingworth as sureties. The condition fixed by the statute was for the faithful performance of his duties. That of each bond reads "Now, if the said Geo. W. Harbin as president shall render a true account of his office and of his doings therein to the proper authority when required thereby or by law, and shall promptly pay over to the person or officer entitled thereto all money which may come into his hands by virtue of his office, and shall promptly account for all balances of money which may come into his hands by virtue of his office and shall promptly account for all balances of money remaining in his hands at the termination of his office, and shall exercise all reasonable diligence and care in the preservation and lawful disposal of all money, books, papers and securities, and other property appertaining to his said office, and deliver them to his successor, or to any person authorized to receive the same, and if he shall faithfully and impartially, without fear, favor, fraud or oppression, discharge all other duties now or hereafter required of his office by law, then this bond to be void, otherwise in full force." The duties of the officers were prescribed in the by-laws. Those of the president were to preside at all meetings of the association and board of directors, to sign all certificates of membership and all orders on the treasurer, and "to have general management of the business of the association, subject to the control of the board of directors." In the third and fourth counts of the petition the plaintiff, as receiver of the association, alleged that Harbin, in violation of the condition of his bond, negligently and wrongfully permitted "the payment out of the beneficiary fund of said association certain sums of money to persons not entitled thereto under the said articles of incorporation and the contract of insurance held by such persons, issued by said association, and which said sums of money properly and lawfully belonged to the beneficiaries of other deceased members of said association; * * * and by such wrongful and unlawful diversion of such funds from their proper channel other members of said association and the beneficiaries of policies held by other deceased members of said association have been thereby wrongfully and unlawfully deprived of their just portion of said beneficiary fund in the sums and amounts hereinbefore set out." The amount of these overpayments are alleged to have been $ 19,641.97 during the period of the first bond and $ 21,960.97 during the period of the second. The district court awarded judgment for the total amount of these bonds, with interest. The defenses interposed were, (1) that there were no overpayments; (2) that, if any there were, they were warranted by the failure to make full assessments; and (3) that, in any event, the receiver is not in a situation to complain.
I. The liability on each bond must, of necessity, have become fixed at the termination of the period covered by it; and not only a breach during that time must be shown, but damages resulting therefrom. The bonds run to the association, but under the law of this State any one for whose benefit they were executed may maintain an action for their breach. Such an association acts as trustee in the collection of funds and their distribution to the beneficiaries entitled to receive them. It was the duty of this association to pay the money collected to meet a particular loss to the beneficiary entitled thereto, and if, for any reason, this was wrongfully diverted to another purpose, the right of the association to follow the fund in order to recover it or to demand its return from the party wrongfully diverting it and discharge its obligation by turning it over to the beneficiary ought not to be questioned. The receiver, in winding up the affairs of the association, may do so in its stead. But neither can recover any more than the damages actually suffered from the misappropriation of the funds. No claim is made that Harbin converted a cent of this to his own use. The wrong imputed to him is the overpayment of certain beneficiaries; that is, the payment to them of more than their equitable portion of the assessment made. Conceding this, who can be said to have been damaged? Certainly no one save other beneficiaries to whom the moneys so diverted of right belonged. The interest of the association ended with the collection and proper distribution of the assessments. If, notwithstanding the fact the president wrongfully paid to one beneficiary funds belonging to another, and the latter has been subsequently paid in full, the injury flowing from the wrongful act has been atoned. It is of no concern to this receiver how this happened. The money belonged to beneficiaries for whom it was collected. Should the receiver succeed, the fund must be paid over to them, and not into the general assets of the association, to be distributed to those who suffered no wrong during the period of these bonds. It may be that the president of the association paid these losses from the funds collected from others during a later period. If so, he may be liable to beneficiaries for whose benefit the money so appropriated was collected. Such misappropriation did not occur during the life of the bonds in suit, and the receiver must necessarily look to bonds subsequently executed for restitution.
II. But there is a difference between the obligation of the association to a policy holder and its duty in the matter of distribution of the assessments and dues collected. With the president's payment of what the policy holder might legally exact the association as such could make no complaint, for in that event he merely paid out what it owed. But the statute provides that "the articles and by-laws of each such association and its notices of assessments shall state the objects to which the money to be collected is to be devoted, and no part of the proceeds thereof shall be applied to any other purpose than as stated and the excess, if any beyond payment of the benefit, shall be set aside and applied only to like purposes." Section 1788, Code. If, then, moneys were collected to be applied upon any particular loss, or any beneficiary was entitled to the money, or any specific portion thereof, raised by assessment or stipulated payment, neither the president nor the board of directors had the right to divert the same to some other purpose. One of the controverted questions is whether losses might be paid from the mortuary fund generally, or should be met by the assessments made for special losses and an equitable portion of the stated payments. To settle the dispute it will be necessary to resort to the articles of incorporation, the by-laws, the conditions of the policy issued, and notices of assessments, and to consider all these in connection with the amounts produced in the several modes of raising money to satisfy death claims. There can be no doubt but that the original purpose was to provide for losses from specific assessments. This clearly appears from section 2 of the fourth article of incorporation: "The life department may issue certificates of membership for such an amount as the board of directors may determine, conditioned upon the sum insured being realized by assessment, or annual, semi-annual, or quarterly payments, and certificates may be issued for a term of years or for the life of the member." But this was subsequently amended by striking all after the word "determine" and inserting instead, "Upon the advance payment or assessment plan." This amendment, however, merely eliminated the particulars, and does not necessarily involve any change in the manner of doing business. Before and after its adoption one class of certificates requires stipulated premiums at stated intervals, while another exacted the payment of an assessment for each death. Evidently the amendment has reference to these different plans of raising the money to meet losses. Other sections point out the care to be taken of the moneys received and the method of keeping the accounts: ...
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