Polk v. Mutual Reserve Fund Life Ass'n
207 U.S. 310 (1907)

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U.S. Supreme Court

Polk v. Mutual Reserve Fund Life Ass'n, 207 U.S. 310 (1907)

Polk v. Mutual Reserve Fund Life Association of New York

No. 45

Argued November 11, 1907

Decided December 2, 1907

207 U.S. 310

Syllabus

Where there is a reserved power in the legislature to alter, amend, or repeal charters, a law permitting mutual life associations to reincorporate as regular life insurance companies is not unconstitutional as impairing the obligation of the contracts existing between such associations and their policyholders, or as depriving such policyholders of their property without due process of law. Wright v. Minnesota Mutual Life Insurance Co.,193 U. S. 657.

The legislative power to alter, amend and repeal charters is equally effectual whether it be reserved in the original act of incorporation, the articles of association under a general law, or in the constitution of the state in force when the incorporation under a general law is made.

Under the power to alter, amend, and repeal charters reserved in the Constitution of 1846 of New York, Chapter 72 of the Laws of 1901 does not impair the obligation of contracts existing between mutual life associations and their policyholders, nor in this case did the reincorporation of such an association as a regular life insurance company deprive its policyholders of their property without due process of law.

In this case, the Circuit Court of Appeals for the Second Circuit certified certain questions of law upon which it desired instruction. Such part of the statement accompanying the questions as we find material and the questions themselves follow:

The above-named appellants filed their bill in equity in the United States Circuit Court for the Southern District of New York, praying for the appointment of a receiver of both defendants, the winding up of both defendants, an accounting to ascertain the interest of complainants and all other policy holders of Mutual Reserve Fund Life Association in the assets of Mutual Reserve Life Insurance Company, and the marshaling

Page 207 U. S. 311

and distribution of said assets. A final decree was entered by the circuit court sustaining a demurrer of the defendant to the amended bill of complaint and dismissing the bill. From that decree the complainants have appealed to this Court.

The amended bill of complaint alleges the existence of the following facts:

The complainants became members and policyholders of the said association respectively on various dates from 1886 to 1900. The policy of each complainant is made a part of the bill and also the application for insurance of two of the complainants. The material provisions of the policies and applications are hereto annexed as Exhibits 1 and 2. Said association became a corporation organized and existing under the laws of the State of New York. It was originally organized in 1881 under the corporate name of Mutual Reserve Fund Life Association of New York, under Chapter 267, Laws of 1875, entitled "An Act for the Incorporation of Societies and Clubs for Certain Lawful Purposes." The original certificate of incorporation stated the objects and business of the company to be

"the mutual benefit of ourselves and all others who may become members of the society, by providing benefits for families and others dependent upon such members by means of voluntary contributions to meet exigencies occurring from time to time, and to provide a fund for the common and exclusive benefit of all members."

In 1883, the association reincorporated under Chapter 175, Laws of 1883, entitled "An Act to Provide for the Incorporation and Regulation of Cooperative or Assessment Life and Casualty Insurance Associations and Societies." Its amended charter or certificate of incorporation, filed in 1883, after reciting the desire of the corporation to reincorporate under said act of 1883, provided:

" First. We do hereby express our intention to form an organization for the transaction of life insurance upon the cooperative or assessment plan."

"* * * *"

" Fourth. The mode and manner in which the corporate

Page 207 U. S. 312

powers granted are to be exercised are by issuing certificate of membership, policy, or other evidence of interest to, and promise or agreement with, its members, whereby, upon the decease of member, money or other benefit, charity, relief, or aid is to be paid, provided, or rendered by said corporation or association to the legal representative of such member, or to the beneficiary designated by such member, which money, benefit, charity, relief, or aid are derived from voluntary donations, or from admission fees, dues, and assessments, or some of them, collected or to be collected from the members thereof or members of a class therein, and interest and accretions thereon, or rebates from amounts payable to beneficiaries or heirs, and wherein the paying, providing, or rendering of such money or other benefit, charity, relief, or aid is conditioned upon the same being realized in the manner aforesaid, and wherein the money or other benefit, charity, relief, or aid so realized is applied to the uses and purposes of said corporation or association, and the expenses of the management and prosecution of its said business."

"The existence and corporate powers of the association under the name of Mutual Reserve Fund Life Association of New York continued from that time unchanged until April 17th, 1902. On that date, a declaration and amended charter of the said association was filed under and pursuant to the provisions of Chapter 722, Laws of 1901, which act was an amendment of § 52 of Chapter 690, Laws of 1892, known as The Insurance Law of the State of New York. This amended charter of 1902 was adopted and filed pursuant to a resolution of the board of directors of the said association, adopted by more than a majority of said board. The declaration and amended charter was duly certified by the Attorney General of the state to be in accordance with the requirements of law, and the state Superintendent of Insurance issued his certificate of the filing of such declaration and amended charter, and consented to the transaction of the business of insurance by the said Mutual Reserve Fund Life Insurance Company as

Page 207 U. S. 313

in said amended charter provided. The material provisions of said declaration and amended charter are as follows:"

" This is to certify that the Mutual Reserve Fund Life Association, a corporation originally organized under and by virtue of Chapter 267 of the laws of 1875, and reincorporated and transacting business under Chapter 175 of the Laws of 1883 of the State of New York, and the laws amendatory thereof and supplementary thereto, has duly accepted the provisions of the act of the legislature of the State of New York, being Chapter 690 of the Laws of 1892, known as 'The Insurance Law,' and the amendments thereto, and in conformity with the same has duly adopted the following amended charter:"

"Article I"

" The name of the corporation shall be 'Mutual Reserve Life Insurance Company.'"

"* * * *"

"Article III"

" The business of the company shall be insurance upon the lives or the health of persons and all and every insurance appertaining thereto, the making of endowments, and the granting, purchasing, and dispensing of annuities, such kind of insurance being authorized under subdivision of section 70 of 'The Insurance Law.'"

"Article IV"

"* * * *"

" SEC. 4. The present bylaws of the corporation, which form part of its contracts with its members, shall continue to be the bylaws of the company unless or until the same shall be revised or amended in the manner therein provided."

"* * * *"

"Article VI"

" SEC. 1. The company shall have no capital stock, but shall be a mutual company."

"* * * *"

"Article VIII"

" The company shall be entitled to have and enjoy all the

Page 207 U. S. 314

rights, privileges, and provisions of existing laws which might be included in the charter and enjoyed by it, if it were originally incorporated under 'The Insurance Law' of this state."

"The consent of the policyholders to this amendment of the defendant's charter was not obtained, and no meeting of policyholders was called for that purpose. The complainants had no notice of said amendment until June 2nd, 1902, on which date complainants received the following notice:"

"Note Change of Name"

" Make checks and money orders payable to Mutual Reserve Life Insurance Company."

" On April 17, 1902, Mutual Reserve Fund Life Association reincorporated as a mutual level premium company, under the title of Mutual Reserve Life Insurance Company. Attention is called to this change of name and to the accompanying report of the recent examination of the corporation by the Superintendent of Insurance of the State of New York, which shows a surplus over liabilities of $466,885.48."

" This reincorporation, while insuring the stability of the company, makes no change in your policy."

"Charles W. Camp, Secretary"

"The bill suggests no irregularity or defect in the procedure by which the amendment of the charter in 1902 was affected other than that the consent of the policyholders was not obtained."

"It is further alleged that said company was organized about the 17th of April, 1902, by the then officers and directors of the respondent Mutual Reserve Fund Life Association, without authority from and without the knowledge or consent of complainants or the other members and policyholders of said association, and without corporate action by said members and policyholders, and that complainants and the other members of the association were not advised of the organization of the company until on or about June 2, 1902, when they received a printed slip notifying them that the said association

Page 207 U. S. 315

had reincorporated under the name 'Mutual Reserve Life Insurance Company.'"

"The amended bill then alleges that, at the time of the organization of said company, the association was, and for a considerable time had been, insolvent, its liabilities being in excess of the value of its assets by a large amount, and that the insolvency of the association was known to the officers and directors thereof, and that the officers and directors, headed by Frederick A. Burnham, president of the association, well knowing the insolvency of the association, devised the scheme for the incorporation of the respondent Mutual Reserve Life Insurance Company, and procured legislation intended to authorize the same with the object and for the purpose of secretly and fraudulently"

"depriving complainants and the other members and policyholders of respondent association of their membership rights and privileges, and of abridging the same, and that, by their said course in the premises said officers and directors sought and intended to defraud the complainants and the members and policyholders of said association generally, and sought and intended to deprive them of their rights as members and policyholders, or cause a forfeiture of the same."

"Complainants in their amended bill allege"

"that said law, Chapter 722 of the Laws of New York of 1901, if its effect and meaning be such as to authorize the pretended reorganization and reincorporation of the respondent association by the officers and directors thereof without due notice to and without the knowledge and consent of complainants or any of the members and policyholders of respondent association . . . , is in contravention and violation of section 10, Article I, of the Constitution of the United States, which prohibits any state from enacting a law 'impairing the obligation of contracts,' and complainants invoke and rely upon said provision of the Constitution of the United States, and say that, under said provision of the Constitution of the United States said law is unconstitutional, invalid, and void."

"And complainants further

Page 207 U. S. 316

allege that said law of the State of New York, if given the construction, meaning, and effect aforesaid, is in contravention and violation of those provisions of the Constitution of the United States and of the State of New York which provide that 'no person shall be deprived of his property without due process of law,' in this -- that they deprive the complainants and the other members and policyholders of respondent association of their vested rights and privileges and of their property rights under their contracts and agreements with respondent association without due process of law, and complainants, as citizens and residents of the State of Tennessee and nonresidents of the State of New York, invoke the provisions of Article XIV of the Amendments to the Constitution of the United States, and, upon advice of counsel, allege and charge that said law of the State of New York, if given the force, meaning, and effect aforesaid, is in violation of those clauses of the Fourteenth Amendment to the Constitution of the United States, which provide that"

"no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States, nor shall any state deprive any person of life, liberty, or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws."

The circuit court of appeals desires instruction upon the following:

"Questions"

"1. Does the amended bill of complaint disclose that any contract obligations between complainants and the defendant Mutual Reserve Fund Life Association were impaired by the incorporation of the Mutual Reserve Life Insurance Company in 1902, pursuant to the provisions of Chapter 722, Laws 1901, of the State of New York, and the transfer to said company of the assets, properties, and membership of the Mutual Reserve Fund Life Association?"

"2. Does the amended bill of complaint disclose and show that Chapter 722, Laws of 1901, of the State of New York, was

Page 207 U. S. 317

in violation of Article I, section 10, of the Constitution of the United States, as impairing the obligations of a contract between the defendant Mutual Reserve Fund Life Association and complainants, insofar as it authorized the reincorporation of said association as the Mutual Reserve Life Insurance Company?"

"3. Does the amended bill of complainant disclose that Chapter 722, Laws of 1901, of the State of New York, is in violation of the provisions of Article XIV of the Amendments to the Constitution of the United States in this -- that the reincorporation of the Mutual Reserve Fund Life Association as the Mutual Reserve Life Insurance Company, and the changes in the charter powers and franchises of the corporation, have the effect of depriving complainants of their property without due process of law, and of their vested contract rights and privileges, and of their property rights under their contracts and agreements with respondent association?"

"4. Does the amended bill of complaint disclose that Chapter 722, Laws of 1901, of the State of New York, was in violation of those provisions of Article XIV of the Amendments to the Constitution of the United States, which provides that no state shall make or enforce any law which shall abridge the privileges or immunities of the citizens of the United States, nor shall any state deprive any person of life, liberty, or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws? "

Page 207 U. S. 320

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