Thomas v. Knights of Maccabees of the World

• Decision Date: 03 June 1915
• Docket Number: 12583.
• Citation: 149 P. 7,85 Wash. 665
• Court: Washington Supreme Court
• Parties: THOMAS v. KNIGHTS OF MACCABEES OF THE WORLD.

149 P. 7

85 Wash. 665

THOMAS v. KNIGHTS OF MACCABEES OF THE WORLD.

No. 12583.

Supreme Court of Washington

June 3, 1915

Department 1. Appeal from Superior Court, Pierce County; M. L. Clifford Judge.

Action by Jesse Thomas against the Knights of the Maccabees of the World. From a decree for plaintiff, defendant appeals. Reversed and remanded, with directions.

Reynolds Ballinger & Hutson, of Seattle, and Carlos S. Hardy, of Los Angeles, Cal., for appellant.

Jesse Thomas, of Tacoma, for respondent.

Geo. W Miller, of Chicago, Ill., amicus curiae.

CHADWICK J.

Jesse Thomas, respondent, then 38 years old, applied for and received a certificate of membership in the appellant order, a fraternal beneficiary association organized under the laws of the state of Michigan. The society was organized and commenced to do business as such in the year 1883. It is what is popularly known as a fraternal benefit association, having no other object than to promote social and fraternal intercourse among its members and to pay benefits in case of sickness or death. It is carried on by a lodge system having a secret ritual. It adopted and has maintained a representative form of government. Its subordinate or local bodies are called 'tents.' A state body, known as the 'Great Camp,' is made up of delegates elected by the 'Tents.' The Great Camp in turn elects delegates to a national council or assembly known as 'The Supreme Tent.' Each of these bodies have legislative powers, the Supreme Tent having a general revisory power over the acts of all subordinate bodies, as well as jurisdiction to make all changes in the substantive law of the order which in its judgment may be necessary for its preservation and well-being. At the time it was organized the society adopted a schedule of rates to be collected by assessment upon the membership, the fundamental thought being that the society would make an assessment upon the membership to meet each death loss as it occurred, and

'in case one assessment per month shall not be sufficient to pay the death and disability claims as they occur, then the Supreme Record Keeper is hereby authorized to levy such additional assessments as may be required from time to time to pay such claims.'

There seems to have been an assumption that it would not be necessary to levy more than 12 assessments per annum to meet the maturing obligations of the society. In the first three years of its existence only 18 assessments were levied. Thereafter assessments were levied with greater frequency, so that, notwithstanding an increase in rates, for example, from 60 cents per thousand at the time of organization (1883) for age 38, to 90 cents per thousand (1895) for the same age, the society was compelled, from time to time, to levy what is commonly known among fraternal insurance societies as 'double headers,' that is, two assessments at the same time.

Mr. Thomas joined the society in 1896. His rate was 90 cents per $1,000. The increased rates did not apply to members who had joined before they were adopted. The resources of the society, if that term is proper, seemed to be still inadequate to meet its obligations. The Supreme Tent, through its officers and members, and through a commission aided by the advice of an actuary who is said to be an expert in the line of insurance, investigated its affairs. Without going into their findings in detail it will be enough to say that they found that there were 234,000 members, with benefit certificates aggregating $375,599,000, with accumulated funds or so-called reserve, of $1,950,303. The commission also found and put into figures what their experience had made manifest, that the original rates were wholly inadequate to mature the outstanding certificates at 12 assessments per year. It found that although the then face value of the outstanding certificates was $375,599,000, the real value was no more than $123,597,104, and that the amount to be paid by the members (upon a basis of 12 assessments per year covering the term of their expectancy) to meet this insurance was $58,735,995, leaving a deficiency of $64,861,109, or, to state it in another way, the members not having met the current cost of their insurance must (if their certificates were to be matured, not of those who may die first, but the last as well as the first) adopt some plan to meet this deficiency, either by the accumulation of a reserve of $64,861,109, or to so increase the rates as to make each member meet the future current cost of his own risk.

It would seem that the first plan was manifestly not feasible. The Supreme Tent adopted the only other alternative; that is, a general increase of rates. These were adopted at the session of 1904. We shall refer to them only in so far as they affect Mr. Thomas. The rate for age 38 was increased to $1.65 per thousand for each assessment. Respondent was given an option to re-rate and carry his certificate, without medical examination, at that rate at his attained age of 46 years. This he did not do. Had respondent done so his monthly assessment would have been $1.65. In all other respects his certificate would have been as before. It was also provided that all members who did not elect to re-rate and who should thereafter attain the age of 55 should pay an assessment of $3 per month. Not having elected to re-rate, in 1904, at his attained age of 46 at the rate of $1.65, respondent was notified, when he had attained the age of 55 (1913), that he would thereafter be required to pay assessments at the rate of $3 per month. He began this suit to enjoin the collection of the new rate, or, in the alternative, if the court could not enjoin the new rate, he asks that the contract be rescinded as for fraud, and that he recover all sums theretofore paid to the society. From a decree enjoining the collection of the new rate the society has appealed.

Respondent rests his case solely upon his contract. He says:

'Fortunately the questions involved are few and simple, not going beyond the elementary law of contracts.'

The contract calls for a whole life certificate with certain endowment features after 70 years at an assessment rate per $1,000 of 90 cents. The society had adopted and published a constitution and by-laws in which the rates were published. A copy had been put into respondent's hands at the time his membership was solicited. The section fixing rates provides, among other things, that:

'He [the member] shall pay the same rate of assessment thereafter so long as he remains continually in good standing in the order.'

It is contended that this provision in the general law of the society entered into and became a part of the contract, and is in terms a specific assurance or guaranty that the rates will not be raised in the future, and because of its mention of rates it will not be overcome by a so-called general provision on the face of the certificate that the member 'will comply with the laws of the order now in force or that may hereafter be adopted.' This contention of respondent was upheld in Wright v. Maccabees, 196 N.Y. 391, 89 N.E. 1078, 31 L. R. A. (N. S.) 423, 134 Am. St. Rep. 838, and Smythe v. Supreme Lodge K. of P. (D. C.) 198 F. 967, and although his findings covered a wide range, it is the essence of the holding of the trial judge. In the Wright Case the whole contention of respondent is stated as follows, quoting from Ayers v. A. O. U. W., 188 N.Y. 280, 80 N.E. 1020:

'While the defendant may doubtless so amend its by-laws, for instance, as to make reasonable changes in the methods of administration, the manner of conducting its business, and the like, no change can be made which will deprive a member of a substantial right conferred expressly or impliedly by the contract itself. That is beyond the power of the Legislature as well as the association, for the obligation of every contract is protected from state interference by the federal Constitution.'

This holding is sustained by many New York cases which are referred to and freely quoted by the writer of the opinion. It may be fairly said that all cases holding as do the New York cases do so upon the theory that the society and the members are contracting parties, the one assuming to pay a certain sum in event of certain contingencies, in consideration of intermittent payments by the other pending the happening of the event. Of necessity, then, our first inquiry must go to the character and nature of the contract or certificate.

It is elementary that a contract must have parties, a promisor and a promisee. We cannot assure ourselves that respondent bears or has ever borne the one relation to the society to the exclusion of the other. The society is not organized for profit and from the nature of things is no more than its membership, in whom all rights and all obligations are mutual. The so-called Tent, Great Tent, and Supreme Tent are not separate entities, any more than a legislative assembly is an entity distinct from the people of a commonwealth. It is an institution for convenience only, a vehicle for the collection and disbursement of funds necessary to meet the mutual obligations of the members. Barrows v. Mutual Reserve Life Ins. Co., 151 F. 461, 81 C. C. A. 71. Peterson v. Manhattan Life Ins. Co.,

244 Ill. 329, 91 N.E. 466, 18 Ann. Cas. 96. The membership of such societies speak in mutual conclave through selected representatives, whose voice is their voice and whose act is their act.

'Every member, in fact, stands in the peculiar situation of being party of both sides, insurer and insured.' Korn v. Mutual Assurance Society, 6 Cranch, 192, 3 L.Ed. 195.

The latest expression to this effect is found in Hartman v National Council of Knights and Ladies of Security (Or.) 147 P. 931, where it is...