Sharpe v. Savings and Loan Co.

"Marion F. Baker, in his lifetime, was a member of the FraternalMystic Circle, a mutual protective association, organized and incorporated to transact the business of life insurance on the assessment plan.

"The association issued a certificate to Baker for the payment of $3,000, to be paid to his father, the plaintiff, after the former's death, and upon the production of satisfactory evidence of such death. Marion F. Baker died March 2, 1894.

"The plaintiff sues to recover the $3,000. The allegations of the petition are, that Marion F. Baker was without default in the performance of all the conditions which he was required to do as a member of the association; that proofs of his death were presented, as the laws of the circle, and of the state, required, but the defendant has wholly refused and still refuses to pay the $3,000, or any part of it. Judgment is prayed for.

"There is also a prayer for a receiver. It is the application for the appointment of a receiver that has been heard, and is now to be decided.

"The charges upon which the exercise of this extraordinary power is invited and asked, are: (1) That the defendant is insolvent, or in imminent danger of insolvency; (2) that its funds are in danger of being lost or materially injured.

"In the whole armory of equity jurisprudence, one of the most formidable weapons is a receivership. When there is a contest, a very strong case, a case which, upon the facts, stands out in persuasive clearness, must be proved, before this weapon will be drawn.

"Some of the old-fashioned rules which were controlling, when the power of appointing a receiver was exercised, should not be forgotten.

"(1.) There must be a reasonable probability that the plaintiff who askes for the receiver will ultimately succeed in obtaining the general relief sought for by his suit. Owen v. Homan, 3 Mach. & G. 378.

"The evidence must leave this reasonable probability free from any rational doubt.

"(2.) The power being a delicate one, it must be circumspectly exercised.

"(3.) The appointment of a receiver must be essential to the preservation of the property sought to be impounded in the hands of the receiver, and essential to the obtaining of the relief. If the plaintiff can obtain the general relief for which he sues, without a receiver, no appointment will be made.

"(4.) The premises which will authorize the conclusion that the appointment should be made, must clearly be proved. Being in imminent danger of insolvency, and loss of, or material injury to funds in this case, one or all of them must be clearly proved.

Cuyahoga Common Pleas.

"(5.) The appointment will not be made merely because it will not cause evil to any one. Blondheim v. Moore, 11 Md. 365.

"There are some rules that are peculiar to the exercise of this power over corporations.

"The jurisdiction which a court of equity may lawfully exercise over the affairs of ordinary business corporations, in the absence of a statute bestowing extraordinary power, is sharply defined and clear cut.

"At the instance of a stockholder, the company itself having refused to move, that court may depose or restrain, the officers or directors of a corporation, when it appears that, as agents or trustees of the stockholders, they either have committed, or meditate the commission of acts tantamount to a breach of trust. Such acts may consist of fraudulent dealings with the corporate property or funds, or in leading the corporation into enterprises which are beyond the scope of its chartered powers.

"But a court of equity is not vested with power to adjust and de termine controversies among stockholders or directors of a corporation touching the proper and judicious mode of conducting the corporate business, as it may do when such controversies arise between the members of an ordinary partnership. It has been said that such corporations are, in a certain sense, legislative bodies. When the directors or stockholders meet in convention, as it were, a convention duly called, they are endued with legislative power sufficient to settle all disputes which affect their business interests or policy, and courts of equity uniformly decline to interfere with their settlement.

'They always refuse to entertain the application of a stockholder, to control the officers of the corporation, or to take the corporate property from their charge through the instrumentalities of a receiver, as long as they neither have done, nor threaten to do, any fraudulent or ultra vires acts, and as long as they keep on the windward side of the by-laws of the corporotion, which have been prescribed for their gov

ernment.

"When a stockholder is discontented with the business policy of, or the methods by which, the corporation is managed, he must seek a remedy within the corporation, and in accordance with the mode prescribed by its charter and by-laws, and not by an appeal to the courts, there being neither fraud or ultra vires.

"A person whose relation to the corporation is that of a creditor, and not of a stockholder, has no right to redress, in or out of the corporation, merely because he is dissatisfied with the business policy or the methods of its management. It is none of his business what these

methods and policy are."

Reading again this paragraph from the opinion by Judge Pugh:

Sharpe v. Savings and Loan Co.

"(4.) The premises which will authorize the conclusion that the appointment should be made, must be clearly proved. Being in imminent danger of insolvency, and loss of, or material injury to funds in this case, one or all of them must be clearly proved."

The object of the receiver, of course, is to hold the funds, say against their being dissipated while this plaintiff is pursuing his remedy.

There is no allegation in the petition that this board of directors is about to waste this money or fraudulently conspire to remove the funds and place them beyond the reach of the corporation or the stockholders, or that they are about to do any act outside of the powers that are vested in them by the constitution and by-laws of the state. It is the same allegation that they have established a statement that they have suffered a loss and an impairment of capital stock of $10,000, but he says that they have got $30,000 in bank which they can easily use to pay this claim if they are amind to. They are evidently, then, in funds to make this plaintiff good, able, competent, and have $31,000 with which to pay $800. There is not an allegation that that $30,000 is liable to be put beyond the reach of an execution as soon as judgment is obtained. There is no allegation that they are liable to misuse that fund, and the business of such corporation such that it must be wound up or else imperil the property.

In view of the fact that it is only an ancillary proceeding to simply hold the property until the plaintiff can show that he is entitled to $800, the court is asked to appoint a receiver over this institution. The extent of it, the number of stockholders, and the amount of its properties, of course, are not yet in evidence before the court. I will have to decide this question simply on the allegations of the petition.

Now, if plaintiff sues simply as a creditor, the same as if he held the promissory note that they have promised to pay, then the authorities are all agreed that he is not entitled to a receiver. The great weight of authority is, that only will a receiver be appointed over a corporation at the suit of stockholders when that power is given to a court by statute. So decided in Waterbury v. Union Express Co., 50 Barb. 157, a case with a brief attached thereto, is carried in Neall v. Hill, 16 Cal. 145 [76 Am. Dec. 508], the court of New York holding under a statute similar to but not exactly the same as ours, providing that a certain minority,-one-third of the stockholders, may apply for winding up a corporation, or that quo warranto proceedings on the law side of the court may be decided by an attorney-general, or that a majority of the directors may apply for a receiver to wind it up. The court of New York held a dissenting opinion, however, that only can a court of equity get jurisdiction by following the statute.

I am of the opinion, however, that a stockholder standing alone can with proper allegations, make a case by which he is entitled to a receiver, but it would have to be one that would satisfy a court that a

Cuyahoga Common Pleas.

corporation was about to dissipate its funds and put them beyond his reach, either fraudulently misappropriating its property or proceeding ultra vires to its destruction, so that it would be necessary for the court to intervene or else leave the party without any remedy. Surely the allegations of this petition do not go to that extent. On the contrary, they say that the corporation has got thirty thousand odd dollars worth of property, which it could, if necessary, devote to paying this $795.80. Plaintiff has to rely on the simple allegation that it is insolvent, in that in January last they published a statement that they had suffered a loss of $10,000. Now, can a court see from that alone that it is plain that this Institution is in peril or in danger of dissipating its property, squandering this $31,000 so that unless the court reaches out and takes charge of this property, this plaintiff is going to be without remedy? Certainly not. It would be a sufficient answer to say that since he asks a personal judgment here for $700, the remedy is open, if any substantial part of these facts he says that he fears to be true, and the consequence he fears will result, will enable him to have an attachment and work out his remedy where he has started and planned his case by asking personal judgment, for asking a receiver is only ancillary to the real remedy, and the real remedy is only a judgment for $795.80. He asks three things-a judgment for $786.80, he asks for a receiver, and he asks to wind up the business of the corporation. But, having retired as a stockholder, the receivership prayed for and the winding up asked are both of them ancillary alone to the relief prayed, which is the recovery of $795.

Now, it does seem to the court that on these allegations a receivership should be denied; but when he shall have sent the execution, the sheriff shall have sought to make on execution that money, then fails to get it, he will be entitled to a receivership to enforce the execution; but, under these allegations as made, the court is of the opinion, as has been stated in many cases, that it would be a gross abuse of discretion for the court to place a receiver over this property, which would destroy the corporation, necessarily wind it up, break up its business, and imperil the rights of others that are not made known here, and under this petition, would be proceeding without authority.

Under the petition as it now stands, therefore, the objection to the testimony will be sustained on the petition, and the application will be dismissed.

Murphy v. Benevolent Association.

BENEFICIAL INSURANCE.

[Superior Court of Cincinnati, Special Term, 1902.]

ELIZABETH M. MURPHY, TRUSTEE, V. POLICEMEN'S Benevolent ASSOCIATION ET AL.

1. RULES Of BeneficiaL ASSOCIATION GOVERN DISTRIBUTION OF PROceeds of POLICY.

Where a beneficial association has been organized under Sec. 3630 Rev. Stat. the scope and extent of the power conferred upon an insured with reference to the beneficiary and with reference to the fund to be distributed must be sought in the rules and regulations of the association.

2. BENEFICIARY IN BENEFIT INSURANCE POLICY ENTITLED TO PROCEEDS IN PREFERENCE TO APPOINTEE Under a Will.

Equity relieves against the defective execution of powers where the intention is manifest and good conscience and the justice of the case demand it. Hence where a member of a beneficiary association, by whose constitution the death fund is to be paid to the family or "whoever the deceased may have elected," has designated his minor grandson the beneficiary of an insurance policy therein, the guardian of the latter will be entitled to the proceeds thereof in preference to a trustee appointed by a will subsequently executed to apply the proceeds to the benefit of such beneficiary.

Rogers Wright, for plaintiff, cited:

While it is true that usually a change of beneficiary must be made as prescribed by the charter, etc., of a benefit association, yet where the association voluntarily pays the money into court the conflicting claimants cannot take advantage of the failure to comply with the rules. Manning v. Ancient O. of U. W., 5 S. W. Rep. 385 [86 Ky. 136, 137; 9 Am. St. Rep. 270]; Hainer v. Legion of Honor, 43 N. W. Rep. 185 [78 Ia. 245]; Herschl v. Clark, 47 N. W. Rep. 78 [81 Ia. 200]; Kimbell v. Lester, 59 N. Y. Supp. 540 [53 App. Div. 27]; affirmed, 167 N. Y. 570; Martin v. Stubbins, 18 N. E. Rep. 657 [126 Ill. 387, 404; 9 Am. St. Rep. 620]; Supreme Council v. Capella, 41 Fed. Rep. 1; Splawn v. Chew, 60 Tex. 532; Union Frat. League v. Walton, 34 S. E. Rep. 317 [109 Ga. 1].

As to the question of whether the rules of the society must provide for the change of the beneficiary in order to make such change valid. Presbyterian M. A. Fund v. Allen, 106 Ind. 593, 596; Martin v. Stubbins, 18 N. E. Rep. 657 [126 111. 404; 9 Am. St. Rep. 620]; Masonic M. B. Soc. v. Burkhart, 10 N. E. Rep. 79; [110 Ind. 192]; 11 N. E. Rep. 449; Supreme Council v. Priest, 9 N. W Rep. 481 [46 Mich. 429]; Durian v. Central Verein, 7 Daly 168; Arthur v. Beneficial Assn., 29 Ohio St. 537.

Where the benefit society contracts to pay to a certain person or class and gives by its constitution the power to the insured to elect or appoint the beneficiary, but provided no specific form or way to change the beneficiary, change of beneficiary has been held valid. Durian v. Central Verein, 7 Daly 168; Masonic Ben. Assn. v. Bunch, 19 S. W. Rep. 25 [109 Mo. 560]; Gambs v. Insurance Co., 50 Mo. 44, 45; Barton v.