State ex rel. Taylor v. Beneficial Protective Association, Inc.

• Decision Date: 30 September 1939
• Docket Number: 6673
• Citation: 60 Idaho 587,94 P.2d 787
• Parties: STATE ex Rel. J. W. TAYLOR, Attorney General, Respondent, v. BENEFICIAL PROTECTIVE ASSOCIATION, INC., a Corporation, Appellant
• Court: Idaho Supreme Court

94 P.2d 787

60 Idaho 587

STATE ex Rel. J. W. TAYLOR, Attorney General, Respondent, v. BENEFICIAL PROTECTIVE ASSOCIATION, INC., a Corporation, Appellant

No. 6673

Supreme Court of Idaho

September 30, 1939

INSURANCE-BENEFIT ASSOCIATIONS-STATUTORY REGULATIONS, VIOLATIONS OF-QUO WARRANTO.

1. At common law, leave to bring quo warranto proceeding to inquire into authority by which corporation exercised its franchise was granted upon application of attorney general, and the court, in its discretion, directed notice of such application to be given to the corporation or to its officers previous to granting such leave, and the court could hear the corporation in opposition thereto.

2. It was not necessary for attorney general to file an application to bring quo warranto proceeding to inquire into authority by which benefit association exercised its franchise, nor to give association an opportunity to show cause why proceeding should not be commenced, since common-law proceeding by information in nature of quo warranto was abolished by statute. (I. C. A., secs. 9-602 to 9-609, 29-157.)

3. Under statute providing for organization of benefit associations for issuing mutual assessment benefit insurance issuance by association of "premier certificates" which provided for a level premium, in addition to regular certificates, and maintenance of a separate fund for paying death claims on "premier certificates," violated authority conferred by statute upon association. (Sess. Laws 1933, chap. 110, secs. 5, 8.)

4. The loan of money of benefit association to its officers on open account and on unsecured notes, though made for purpose of securing interest on unused funds of association, was not authorized by statute permitting association to loan funds it may have on hand, since loan was in violation of officers' fiduciary relation to association. (Sess. Laws 1933, chap. 110, sec. 4; I. C. A., sec. 29-141.)

5. In quo warranto proceeding to inquire into authority by which benefit association exercised its franchise, a decree which specifically enjoined association from collecting funds for benefit of association in guise of dues, issuing certificates which provided for a level premium, and making loans of its funds to any of its officers and directors and which commanded that association maintain but one fund from which all claims for benefits shall be paid, was not subject to objection that it was too general. (Sess. Laws 1933, chap. 110.)

APPEAL from the District Court of the Fifth Judicial District, for Bannock County. Hon. D. H. Sutphen, Presiding Judge.

Proceeding in quo warranto by the State of Idaho, on relation of the attorney general, Hon. J. W. Taylor. Affirmed.

Judgment affirmed with costs to respondent. Petition for rehearing denied.

Merrill & Merrill, for Appellant.

The complaint in this action is insufficient to support the judgment rendered. (Sec. 29-157, I. C. A.; chap. 110, 1933 Sess. Laws; secs. 40-717, 40-2351, I. C. A.; Fletcher's Cyclopedia, Corporations, vol. 5, sec. 3243, p. 5015, 1st ed.; sec. 70-116, I. C. A.)

When an association is chartered under a legislative enactment it derives implied powers from those expressly granted and unless there is express prohibition in the statutes against the accomplishment of a particular objective, such entity may accomplish all the legitimate objects of its creation. (14 (a) C. J. 252, secs. 2086, 2091; Fletcher's Cyclopedia Corporations, vol. 6, sec. 2486, pp. 191 to 198; Hope Mutual Life Co. v. Weed, 28 Conn. 51, 63; Todd v. Citizens Gas Co., 46 F.2d 855, 866.)

J. W. Taylor, Attorney General, and R. W. Beckwith, Assistant Attorney General, for Respondent.

The state may govern insurance business and the attorney general has inherent power and authority to see laws enforced. ( Intermountain Lloyds v. Diefendorf, 51 Idaho 304, 5 P.2d 730; Hosmer v. Mutual Reserve Ins. Co., 139 Kan. 472, 32 P.2d 505; secs. 29-157, 29-160, I. C. A.; State v. Taylor, 59 Idaho 724, 87 P.2d 454; Howard v. Cook, 59 Idaho 391, 83 P.2d 208.)

Mutual insurance companies cannot levy assessments in advance of losses incurred, except where such authority is specifically granted by statute. (Cookson v. Prudence Mutual Life Ins. Assn. of California, 113 Cal.App. 543, 298 P. 856; Smith v. Republica County Mutual Fire Ins. Co., 82 Kan. 697, 109 P. 390; Hobza v. State Farmers Ins. Co. of Omaha, 125 Neb. 776, 252 N.W. 214.)

Corporations are prohibited from making loans to their officers in Idaho. (Secs. 29-141, 66-401, I. C. A.; Riley v. Callahan Min. Co., 28 Idaho 525, 155 P. 665; Nelson v. Jones, 38 Idaho 664, 224 P. 435, 38 A. L. R. 85; Weil v. Defenbach, 31 Idaho 258, 170 P. 103; 13 Am. Jur., sec. 998, p. 951, 952.)

HOLDEN, J. Ailshie, C. J., and Givens and Morgan, JJ., concur. Budge, J., sat at the hearing but did not participate in the decision.

OPINION

HOLDEN, J.

--The 1933 session of the legislature passed an act entitled "An act providing for the organization of benefit associations; providing for a minimum membership fund and bond necessary before authorization to do business; providing for the amount and method of collecting membership fees, annual dues and assessments, and a fund for the payment of benefits to members or beneficiaries of members; providing conditions of issuance, revocation and status of certificates of membership; providing certain exemptions; providing for the regulation thereof by the bureau of insurance; providing fees to be paid by said association; prohibiting foreign benefit associations doing business in this state; providing penalties for violations; and repealing all acts in conflict therewith." (Chap. 110, Sess. Laws 1933, p. 171, approved February 28, 1933.)

In January, 1934, appellant Beneficial Protective Association, incorporated under the provisions of chapter 110, supra. Immediately following its incorporation, appellant, hereinafter called the "Association," began issuing what may be termed mutual assessment benefit policies in accordance with the provisions of that chapter. Later on, however, it commenced to issue, and is still issuing, what are denominated "Premier Policies" and "Service Policies," and two funds have been maintained for the payment of benefits arising under the policies so issued by the Association.

About three years after incorporation certain of the officers of the Association began borrowing corporate funds on unsecured promissory notes and on open account. A. Y. Satterfield, Vice-President and General Manager, borrowed the following amounts on his unsecured notes: October 5, 1936, $ 1,400; November 23, 1936, $ 2,000; December 14, 1936, $ 800; April 12, 1937, $ 1,800; June 5, 1937, $ 1,000. September 30, 1935, George C. Yates and R. S. Satterfield, Secretary-Treasurer of the Association and a son of A. Y. Satterfield, borrowed $ 2,500 upon an unsecured note. R. S. Satterfield and George C. Yates borrowed on open account, without written evidence of the indebtedness, $ 2,000; R. S. Satterfield, on open account, $ 792; A. Y. Satterfield, on open account, $ 202.10. February 1, 1937, W. P. Whitaker, President of the Association, borrowed upon an unsecured note the sum of $ 500.

August 5, 1937, the State of Idaho, on the relation of J. W. Taylor, Attorney-General, filed a complaint against the Association, in which it was alleged, among other things, that: The Association exercised authority, not conferred upon it, in violation of said chapter 110, in that it had issued and had outstanding, large numbers of certificates providing for a level premium, denominated "Premier Certificate"; that in pursuance of the provisions of the Premier Certificate the Association allocated 70 per cent of the premiums to the benefit fund for the payment of claims and had maintained for that purpose a separate benefit fund distinct from the benefit fund maintained for the purpose of the retirement of claims arising under policies conforming to the provisions of chapter 110; that the Association maintained two separate benefit funds for the payment of death claims, one for the payment of claims arising under level premium certificates, and the other for payment of claims arising under assessments under contracts conforming to the provisions of said chapter 110; that the Association had abused the authority conferred upon it by chapter 110 to "loan such funds as it may have on hand" in that it had loaned funds to certain of its officers; that chapter 110 authorized the creation and maintenance of but one fund, to wit: "A fund for the payment of claims for benefits" and that in disregard of such limitation and in excess of the powers conferred upon it by chapter 110, the Association had created and maintained two separate funds for the payment of claims, to participation in which some members of the Association were admitted and others were not, and that the Association was not operating upon a mutual basis, as provided by said chapter; that on July 1, 1937, there was outstanding death claims against the Association amounting approximately to $ 18,350 and a deficit in the fund for the retirement of claims in the sum of $ 10,754.29; that the Association was insolvent; that the action was brought by the authority of section 29-157, I. C. A.

August 21, 1937, the Association demurred to the complaint upon the ground it did not state facts sufficient to constitute a cause of action. October 16, 1937, the demurrer was overruled.

The Association filed its answer January 6, 1938. It alleged it had issued a limited number of Premier Certificates, but denied that the certificates provided for a level premium or that such certificates violated the provisions of chapter 110; it also alleged that from the dues paid, as provided in the Premier...