Case ID: wis_149/html/0576-01.html
Source: Caselaw Access Project
Author: {"author": "TimliN, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Wolf, Respondent, vs. Gegenseitige Unterstuetzungs Gesellschaft Germania and others, Appellants.
    
      April 24
    
    May 14, 1912.
    
    
      Mutual benefit societies: Constitution and by-laws: How far contractual: Amendment: Assessment fund: Wrongful diversion of revenues: Injunction: Amotion of officers: Irregularity: Be--instatement: Bepayment of expenses of litigation: Equity: •Costs: Discretion: Appeal: Beview.
    
    1. The “constitution and by-laws” of a mutual benefit society provided that all moneys received from assessments, except three per cent, thereof, should be placed to the credit of a fund, established for the payment of benefit certificates and known as the assessment fund, and that the laws in regard to such fund should not be amended except in the manner therein provided. Provision was also made for the collection of additional revenues, to be placed in a general fund, to defray necessary expenses for management, benefits, or agitation. Held, that the provision in respect to the assessment fund was contractual and could be modified only by amendment in the manner prescribed, or by mutual consent.
    2. The society engaged an organizer, under a contract by which he was to receive as part of his commission seventy-five per cent, of the first twelve assessments of each new member he obtained, and at several, successive meetings of the general council a resolution was adopted providing that said seventy-five per cent, of the first twelve assessments should be carried into and credited to an agitation fund; but no amendment of the constitution and by-laws was otherwise attempted. This diversion of moneys from the assessment fund was acquiesced in for several years, but suit for an injunction was finally brought by members of the society. Held, that relief against future diversion of the fund was properly granted.
    5. Every corporation has at common law, as incident to its existence, the power of amotion. Generally this power is to be.exercised only for cause and after notice and hearing, but the statute, or the articles where the statute does not forbid, may provide otherwise.
    4. Where officers of a mutual benefit society, acting in good faith for what they deemed to be the best interests of the society, and under tlie advice of counsel, attempted to remove certain subordinate officers, but in so doing proceeded irregularly, without notice or bearing, they should not be required to repay to the society moneys expended by them out of the corporate funds for attorneys’ fees and other necessary expenses in unsuccessfully defending an action by the officers so removed to compel reinstatement.
    5. In an action against a corporation and its officers to enjoin a wrongful diversion of corporate funds and to recover moneys improperly paid out, judgment having gone in favor of the plaintiffs and the trial court in its discretion having awarded costs against such officers individually, the supreme court on appeal declines to review such discretion.
    Appeal from a judgment of the circuit court for Milwaukee county: Geo.' W. Bubnell, Judge.
    
      Modified and affirmed.
    
    The appellant Gesellschaft is a Wisconsin corporation organized under ch. 86, Stats. (1898), as a mutual benefit society furnishing life and sick benefit insurance on an assessment plan to its members. It is formed without capital stock and for benevolent and charitable purposes, and, except such benefit insurance, no dividend or other pecuniary profits can he paid to members. The articles contain provisions for removal of members guilty of immoral conduct, neglecting or failing, to support their families, violating the constitution or by-laws, or guilty of acts or conduct calculated or tending to create discord among the members of the society. The society consists of a grand council or central verein and subordinate councils, and the charter members of the society, the officers thereof, and the representatives selected by subordinate councils for that purpose are members of the grand council or central verein. In addition to these articles of organization the society has what it calls “Constitution and By-laws,” and this instrument restates and amplifies the purpose and powers of the organization and contains numerous rules and regulations. Among these to collect an income from members as follows: Eor charters and supplies to a new branch, $100; death benefit certificates, each $1; a per capita tax of $1 per member per annum; and small fees for withdrawal cards, traveling cards, etc. This is followed by a provision that the central society may levy and collect additional revenues to defray the necessary expenses for management, benefits, or agitation. There is a death benefit or assessment fund to be paid monthly by the members, classified according to age and amount of benefit certificate. These appear to cover the resources of the organization. There is authority to establish and maintain a fund for the benefit of sick members of the society, to be known as the “General Sick Eund,” and thirty per cent, of the per capita tax is to be credited to this fund semi-annually. Also to establish and. maintain a fund for the payment of current and other expenditures of the association, to be known as the “General Eund,” and this fund is to be credited with all the income of the society, such as receipts for charters, goods, certificates, seventy per cent, of the per capita tax, and three per cent, of the receipts for assessments. Also to establish and maintain a fund for the payment of the benefit certificates, to be known as the “Assessment Eund,” and all receipts for assessments are to be placed to the credit of this fund with the exception of the three per cent.- above mentioned. This fund seems to be identical with what is sometimes called the mortuary fund of such associations. The association is authorized to establish and maintain a reserve fund, which is to consist of payments for the reserve fund made by members, but three per cent, of these payments may be credited monthly to the general fund. There is also this provision: “This Central Society may levy and collect additional revenues to defray the necessary expenditures for manage^ ment, benefits, or agitation. All such revenues shall be placed in the General Eund.” It is also provided that “the laws in regard to the assessment, reserve, sick benefit, and general funds shall not be amended, except by two thirds of the members of the Central Society present in an annual meeting or in a special meeting of the Central Society called for that purpose ; and all amendments proposed must be submitted in writing and communicated to all branch societies.”
    In the year 1905, at the annual meeting of the general council of the central society, there was a resolution adopted creating a new fund, to be known as the “Agitation Eund and the Holdman Eund.” This was done because it was found necessary to get in new members, and a solicitor or organizer named Holdman was engaged for that purpose by contract with the society. By this contract Holdman was to obtain new members for the society, and the latter was to pay him as part of his commission seventy-five per centum of the first twelve assessments of each new member which he obtained. This resolution was re-adopted or approved at each annual meeting thereafter for several years, but no amendment of the constitution and by-laws was otherwise attempted. By the resolution this seventy-five per cent, of the first twelve assessments was to be carried into and credited to the agitation fund.
    The circuit court, while not denying the power of the society to levy and collect additional revenues to defray the necessary expenditures for management, benefits, or agitation, held that under the foregoing by-laws or constitution this so-called agitation fund could not be created out of the moneys received for assessments, nor could the latter moneys, except three per cent, thereof, be diverted from the “Assessment Fund.” But as this had been done from 1905 to 1910 and acquiesced in by the corporation properly represented at its regular meetings and by members there properly represented, all such past transactions would not be disturbed, but an injunction should go against any future or further diversions of these assessments for such purpose.
    2. It appeared that certain officers of the corporation appellant had attempted to remove Weingart and Korn, who were members and subordinate officers of said society, on the ground that they had conducted themselves in an unworthy manner, but failed to proceed regularly upon, notice to Wein-gart and Korn. Tbe latter applied to the court for reinstatement by mandamus. They were reinstated, and the case is reported under the title of State ex rel. Weingcurt v. Board, etc. 144 Wis. 516, 129 N. W. 630, where the reinstatement was confirmed in this court upon appeal. The circuit court found that on or about March 17, 1909, without notice or hearing or cause, the defendant officers of the corporation appellant wrongfully and unlawfully suspended and removed Weingart and Korn from their offices as “guide” and “guard” of said corporation and that they were reinstated by the court. The defendant’s officers used and expended the corporate funds for the payment of attorney fees and expenses in said mandamus action to the amount of $1,957.79, in spite of written protests by several of the subordinate societies of the corporation. This sum defendant’s officers were required to pay back into the treasury. Costs were awarded against the defendant’s officers personally. Other claims of the plaintiff were disallowed. The defendants appealed from the judgment, and there are three questions only before this court for consideration: (1) Is the decree proper in so far as it enjoins further diversions of the assessments to the general or agitation fund ? (2) Ought the defendant officers be required to pay back into the corporate treasury the fees and expenses disbursed by them in the mandamus action mentioned ? ( 3 ) Were costs properly awarded against appellants ?
    
      Louis G. Bohmrich, for the appellants,
    contended, inter alia, that a by-law could be set aside without formal repeal. 3 Clark & Marshall, Priv. Oorp. 1951,1955; Myer v. Poe, 79 Ark. 465, 95 S. W. 1005 ; Att’y Gen. v. Middleton, 2 Yes. Sr. 327; Union Bank v. Bidgely, 1 liar. & G. 324; People ex rel. Muir v. Throop, 12 Wend. 183; Germania I. M. Go. v. King, 94 Wis. 439, 69 N. W. 181; Buck v. Troy A. Go. 76 Yt. 75, 56 Atl. 285; Stafford v. Produce B. B. Go. 16 Ohio O. C. 50; Marsh v. Mathias, 19 Utah, 350, 56 Pac. 1074; Henry v. Jackson, 37 Yt. 431; Blair v. Metropolitan Sav. Bank, 27 Wash. 192, 67 Pac. 609. As to the liability of defendants to refund corporate funds expended in good faith in litigation, they cited Kanneberg v. Evangelical C. Oong. 146 Wis. 610, 131 N. W. 353; North Hudson Mut. B. & L. Asso. v. Childs, 82 Wis. 460, 52 N. W. 600; McElroy v. Minnesota P. H. Co. 96 Wis. 317, 71 N. W. 652; Interior'W. Co. v. Prasser, 108 Wis. 557, 84 N. W. 833; Pixley v. W. P. B. Co. 33 Cal. 183; National Bank v. Earl, 2 Okl. 617, 39 Pac. 391; Hodges v. New England 8. Co. 1 R. I. 312; Spering’s Appeal, 71 Pa. St. 11; State Journal P. Co. v. Madison> 148 Wis. 396, 134 N. W. 909; Brown v. DeYoung, 167 Ill. 549, 47 N. E. 863.
    Eor the respondents there was a brief by Quarles, Spence & Quarles and Walter H. Bender, attorneys, and J. V. Quarles and W. H. Bender, of counsel, and oral argument by J. V. Quarles and W. H. Bender.
    
    They cited, among other cases, Johnson v. Mutual Q. B. & L. Asso. 66 N. J. Law, 683, 51-Atl. 150; Mutual A. & I. Soc. v. Monti, 59 N. J. Law, 341, 36 Atl. 666; Nat, Grand Lodge v. Watkins, 175 Pa. St. 241, 34 Atl. 602; Thibert v. Supreme Lodge, 78 Minn. 448, 81 N. W. 220; Metropolitan S. F. A. Asso. v. Windover, 137 Ill. 417, 27 N. E. 538; Van Atten v. Modern B. of Am. 131 Iowa, 232,108 N. W. 313; 1 Thomp. Corp. (2d ed.) § 1016; Hoch-reiter’s Appeal, 93 Pa. St. 479, 484, 485; Bagley v. Beno Oil Co. 201 Pa. St. 78, 81, 50 Atl. 760, 56 L. R. A. 184; National Council v. State Council, 27 App. Cas. (D.. C.) 1, 12, 18; Deuble v. Grand Lodge, 66 App. Div. 323, 72 N. Y. Supp. 755; S. C. 172 N. Y. 665, 65 N. E. 11, 16; Torrey v. Baker, 1 Allen, 120; Flaherty v. Portland L. B. Soc. 99 Me. 253, 59 Atl. 58; Baltimore & O. B. Co. v. Baltimore & O. E. B. Asso. 77 Md. 566, 26 Atl. 1045; McConnell v. Combination M. & M. Co. 31 Mont. 563, 79 Pac. 248; Davis v. Memphis City B. Co. 22 Fed. 883; Harbison v. First P. Soc. 46 Conn. 529.
   TimliN, J.

Had the corporation proceeded to amend its “Constitution and By-laws” in the manner there provided for amending the same, so as to repeal existing regulations and create in their stead new rules and by-laws providing for the payment of a percentage of the first twelve assessments to be paid by a new member as a commission for obtaining that member, such action might be within the corporate power and not violative of the corporate contracts with its members, because the assessments on such new members would necessarily have to be loaded so as to include this cost, unless they were much too high in the first place. But under the circumstances appearing in this case, with the “Constitution and By-laws” forming a compact between the corporation and its members, to be modified, if at all, only in the mode and to the extent and by the authority there agreed upon, the corporation could not disregard its obligations to preserve the “Assessment Eund,” less three per cent., for the purpose for which it was collected. There was another mode provided for raising the money necessary to pay the expense of obtaining new members and this mode should have been followed. The action of the grand council or central verein was by resolution, and did not purport, as we understand it, to establish a permanent modus, but left the “Constitution and By-laws” in force and attempted to legalize and approve their disregard. • The only question before us is upon the prospective effect of such action of the grand council. We are satisfied that it does not authorize future and further disregard of the constitution and bylaws. Such corporation has the power to amend or repeal its by-laws and in many cases to suspend their operation in an emergency. The law treats this subject with liberality. But this power of amendment, repeal, or suspension cannot be carried so far as to authorize a breach of contract by the corporation. To attempt the suspension or repeal of a by-law in some forbidden way might be a breach of contract, even though the power of repeal might have been otherwise lawfully exercised. The by-law here disregarded was contractual. The Gesell-schaft in effect said to its members: all sums derived from assessments except three per cent, shall be held in a fund and not otherwise disbursed than for the payment of benefit certificates, and this condition shall continue until changed by amendment in the manner provided for amending the by-laws. To this the holders of the benefit certificates assented when they became members. Thereby not only a by-law but also a contract was created, which could be modified only by proceeding to modify it in the manner there stipulated or by subsequent mutual consent The proceedings of the central verein were not in the nature of an amendment or attempt to amend the by-law, but rather a suspension thereof for the time being. We think the relief granted by the learned circuit judge against future diversion of this fund in such manner and under such authority was well within the law and must be upheld. Flaherty v. Portland L. B. Soc. 99 Me. 253, 59 Atl. 58; Baltimore & O. R. Co. v. Baltimore & O. E. R. Asso. 77 Md. 566, 26 Atl. 1045; Mutual Aid &. I. Soc. v. Monti, 59 N. J. Law, 341, 342, 36 Atl. 666; Bagley v. Reno Oil Co. 201 Pa. St. 78, 50 Atl. 760, 56 L. R. A. 184; Thibert v. Supreme Lodge, 78 Minn. 448, 81 N. W. 220, 47 L. R. A. 136.

2. Upon the second point made by appellants, the learned circuit court, in its opinion disposing of the case, stated that were the question an open one he might be disposed to accept the views of appellants’ counsel with reference to the right of defendants to reimburse themselves out of corporate funds in their hands for their expenses incurred by them in unsuccessfully defending a mandamus action for reinstatement by two officers removed by defendants. But he considered that the decision of this court in State ex rel. Weingart v. Board, 144 Wis. 516, rather bound him to the contrary conclusion. In this we think he was in error. To the case last cited the corporation was not a party and costs could not have been adjudged against it. The decision as to costs in that case had relation to the issues presented by that case and the parties there before the court. The attempted removal was arbitrary, in that it was made without notice of the charges and opportunity for hearing and defense. But this does not necessarily imply bad faith toward the corporation in making the removal or in defending the cause. It does not even necessarily imply bad faith toward the persons removed. There was a fundamental error of procedure, and for this in that case the re-lators were reinstated. Every corporation has at common law, as incident to its existence, the power of amotion. 2 Kent, Comm. 298; Neall v. Hill, 16 Cal. 145, 76 Am. Dec. 508. Generally this power can be exercised only for cause and after notice and hearing, but the statute, or the articles where the statute does not forbid, may provide otherwise. O’Dowd v. Boston, 149 Mass. 443, 21 N. E. 949; People ex rel. Gere v. Whitlock, 92 N. Y. 191. But grants of such power are strictly construed. State ex rel. Graham v. Chamber of Commerce, 20 Wis. 63. The appellants, in the matter of such attempted removal, acted upon advice of an attorney at law. They apparently believed such removal to be in the interest of the corporation. The corporation, if it did not ratify the disbursement, recognized the good faith of the officers attempting to make the removal by offering the aid of the association to raise the money to cover such disbursements. We refer to the resolutions of August 13, 1910. We think the case in this respect is ruled by North Hudson Mut. B. & L. Asso. v. Childs, 82 Wis. 460, 52 N. W. 600. See, also, Spering’s Appeal, 71 Pa. St. 11; Hodges v. New England S. Co. 1 R. I. 312, 53 Am. Dec. 624.

3. The costs of this suit in equity might, in the discretion of the circuit court, have been awarded against the corporation solely or against the other defendants, or both, or denied to the plaintiffs. The learned circuit court, in the exercise of such discretion, awarded costs in favor of the plaintiffs and against the defendants, who were officers of the corporation. We perceive no ground for reviewing such discretion.

■No other questions, we think, merit attention.

By the Court. — Tbe judgment of the court below is modified by eliminating therefrom all provisions authorizing the recovery from the defendant’s officers of $1,957.79 with interest, and as so modified affirmed; the appellants to recover costs in this court.