Source: https://supreme.justia.com/cases/federal/us/177/260/
Timestamp: 2019-04-20 12:15:39+00:00

Document:
control the Secretary of the section by holding the section responsible for moneys collected, and requiring him to render an account and remit each month -- a matter over which the insured had no control -- he was thereby made the agent of the Supreme Lodge, and that the provision that he should be regarded as the agent of the insured was nugatory, and that the insured having made his payments promptly, his beneficiary was entitled to recover.
This was an action originally begun in the Circuit Court of Hale County, Alabama, by Josephine R. Withers, to recover of the defendant the amount of a certain certificate or policy of insurance upon the life of her husband.
The case was removed to the Circuit Court of the United States for the Middle District of Alabama, upon the petition of the defendant and upon the ground that the Supreme Lodge Knights of Pythias was a corporation organized by act of Congress, and hence that the controversy arose under the Constitution and laws of the United States.
The case was submitted to a jury upon an agreed statement of facts, and the court instructed a verdict for the plaintiff in the sum of three thousand dollars, the amount of the policy, with interest, upon which verdict a judgment was entered for $3,392.54. The case was taken by writ of error to the circuit court of appeals, which affirmed the judgment. 89 F. 160. Whereupon the defendant sued out a writ of error from this Court.
The facts, so far as they are material, are stated in the opinion of the Court.
June 29, 1894, 28 Stat. 96, as the successor of a former corporation of the same name, organized under an act approved May 5, 1870. The beneficial or insurance branch of the order is known as the endowment rank, which is composed of those members of the order who have taken out benefit certificates. Such members are admitted into local subordinate branches known as sections. The members of each section elect their own president and secretary. The endowment rank is governed by a Board of Control, whose officers are a president and secretary and whose place of business is in Chicago. The endowment rank is governed by a constitution and general laws enacted by the Supreme Lodge, and by rules and regulations adopted by the Board of Control and approved by the Supreme Lodge.
"I hereby agree that I will punctually pay all dues and assessments to which I may become liable, and that I will be governed, and this contract shall be controlled, by all the laws, rules, and regulations of the order governing this rank, now in force,= or that may hereafter be enacted, or submit to the penalties therein contained."
requirements of the laws in force governing this right shall render this certificate and all claims null and void, and the said Supreme Lodge shall not be liable for the above sum or any part thereof."
Withers was a member of section 432 at Greensboro, Alabama, of which one Chadwick was secretary. By the laws of the endowment rank, Withers was required to pay $4.90 monthly in accordance with his age and the amount of his endowment.
"SEC. 4. Monthly payments and dues of members holding certificates of endowment shall be due and payable to the secretary of section without notice, on the first day of each and every month, and a failure to make such payment on or before the tenth day of each month shall cause, from and after such date, a forfeiture of the certificate of endowment and all right, title, and interest such member or his beneficiaries may have in and to the same, and membership shall cease absolutely. In case of such forfeiture, membership may be regained by making application in the form prescribed for new applicants, the payment of required membership fee and surrender of the forfeited certificate. If approved by the medical examiner-in-chief and accepted by the Board of Control, a new certificate shall be issued, and the rating shall hereafter be at the age of nearest birthday to the date of the last application."
"SEC. 6. The secretary of the section shall forward to the Board of Control the monthly payments and dues collected immediately after the 10th day of each and every month."
"If such payment and dues are not received by the Board of Control on or before the last day of the same month the section so failing to pay, and all members thereof, shall stand suspended from membership in the Endowment Rank, and their certificates and all right, title, and interest therein shall be forfeited. Notice of such suspension shall be forthwith mailed by the secretary of the Board of Control to the president and secretary of such section."
their endowment, and whose warrant has been suspended, shall regain all right as a section, and any surviving members thereof (not less than five) shall regain full rights and privileges held previous to such forfeiture, if within thirty days from suspension of warrant said section shall pay to the Board of Control the amount of all monthly payments, assessments, and dues accrued upon said members."
"SEC. 10. Sections of Endowment Ranks shall be responsible and liable to the Board of Control for all moneys collected by the secretary or other officers from the members for monthly payments, assessments, or dues not paid over to the board within the time and manner prescribed by law. Officers of sections are the agents of members, and shall in no wise be considered as the agents of the representatives of the Board of Control or of the Endowment Rank or of the Supreme Lodge."
For over twelve years, Withers made his monthly payments as required by law to the secretary of the section, and the money was regularly remitted to the Board of Control at Chicago. His last payment was made prior to October 10, 1895, as required by section 4, for the dues of that month. As there were a large number of members in the section, and as their dues were not all collected until the latter part of the month, the secretary of the section did not send the money to the Board of Control until October 31, when he mailed to the secretary of that board a check covering all the amounts due by all the members of the section for that month. The letter did not leave the post office until the next day, and was received by the Board of Control November 4. No notice was ever mailed by the Board of Control to Withers notifying him of his suspension; but on November first, as required by section 6, the secretary of the Board of Control mailed to Mr. Chadwick, the secretary of the section at Greensboro, a notice of the suspension of all members thereof, with an intimation that the members of the section might regain their rights under certain conditions therein named. No notice was mailed to the president of the section. In view of the technical character of the defense, it is worthy of mention that the Board of Control did not strictly comply with its own regulation in this particular.
"Received of Section No. 432 one hundred and thirteen 30-100 dollars in payment of monthly payments and dues for October, 1895, on condition that all members for whom above payment is made were living at date of this receipt."
The insured was suddenly taken ill and died of an attack of cholera morbus on November 1, 1895. Proofs of death were waived by the defendant, which, however, refused to pay the amount of the certificate.
"officers of sections are the agents of the members and shall in no wise be considered as the agents of the representatives of the Board of Control of the Endowment Rank or of the Supreme Lodge."
It appears to have been the habit of the secretary, Mr. Chadwick, not to remit each payment as it was made, but to allow all the dues of each month to collect in his hands and to remit them together by a check covering the whole amount, about the close of the month. In this connection, he makes the following statement: "It had never been the custom of my office for me to send the money off by the twentieth of the month" (although section 6 required him to forward it immediately after the tenth).
August 29, 1895, September 28, 1895, October 28, 1895, October 31, 1895 -- all of which sums were accepted by the Board of Control."
"sections of Endowment Rank shall be responsible and liable to the Board of Control for all moneys collected by the secretary, or other officers, from the members for monthly payments, assessments, or dues not paid over to the board within the time and manner prescribed by law."
The question at once suggests itself, to whom does the money belong when paid to the secretary of the section? If to the insured, it was within his power to reclaim it at any time before it was remitted. If to the Board of Control, it was the duty of the secretary of the section to remit it. Why, too, should the Board of Control attempt to deal with it at all beyond requiring it to be paid them by a certain day? Section 10 is a complete answer, since that makes the sections responsible to the Board of Control from the moment the money is collected, and section 6 makes it the duty of the secretary to remit it at once.
remittance, through the fault of the person receiving it, did not reach the creditor until the following day.
The position of the secretary must be determined by his actual power and authority, and not by the name which the defendant chooses to give him. To invest him with the duties of an agent, and to deny his agency, is a mere juggling with words. Defendant cannot thus play fast and loose with its own subordinates. Upon its theory the policy holders had absolutely no protection. They were bound to make their monthly payments to the secretary of the section, who was bound to remit them to the Board of Control; but they could not compel him to remit, and were thus completely at his mercy. If he chose to play into the hands of the company, it was possible for him, by delaying his remittance until after the end of the month, to cause a suspension of every certificate within his jurisdiction, and in case such remittance was not made within thirty days from such suspension (sec. 6) apparently to make it necessary under section 4 for each policy holder to regain his membership by making a new application, surrendering his forfeited certificate, making payment of the required membership fee, undergoing a new medical examination, and paying a premium determined by his age at the date of the last application. In other words, by the failure of the secretary, over whom he had no control, to remit within thirty days, every member of the section might lose his rights under his certificate and stand in the position of one making a new application, with a forfeiture of all premiums previously paid. The new certificate would, of course, be refused if his health in the meantime had deteriorated, and the examining physician refused to approve his application. This would enable the company at its will to relieve itself of the burdens of undesirable risks by refusing certificates of membership to all whose health had become impaired since the original certificate was taken out, though such certificate-holder may have been personally prompt in making his monthly payments.
"one who undertakes to transact some business, or manage some affair, for another, by the authority and on account of the latter, and to render an account of it"
presupposes that the acts done by the agent shall be done in the interest of the principal, and that he shall receive his instructions from him. In this case, the agent received his instructions from the Supreme Lodge, and his actions were at least, as much for the convenience of the lodge as for that of the insured. If the Supreme Lodge entrusted Chadwick with a certain authority, it stands in no position to deny that he was its agent within the scope of that authority.
The reports are by no means barren of cases turning upon the proper construction of this so-called "agency clause," under which the defendant seeks to shift its responsibility upon the insured for the neglect of Chadwick to remit on the proper day. In some jurisdictions, it is held to be practically void and of no effect; in others, it is looked upon as a species of wild animal, lying in wait and ready to spring upon the unwary policyholder, and in all, it is eyed with suspicion and construed with great strictness. We think it should not be given effect when manifestly contrary to the facts of the case, or opposed to the interests of justice, wherever the agency clause is inconsistent with the other clauses of the policy, conferring power and authority upon the agent, he is treated as the agent of the company, rather than of the policy holder. The object of the clause in most cases is to transfer the responsibility for his acts from the party to whom it properly belongs, to one who generally has no knowledge of its existence. It is usually introduced into policies in connection with the application, and for the purpose of making the agent of the company the agent of the party making the application, with respect to the statements therein contained.
"upon which the defendant builds. . . . But if the insured is to be now bound as having thus contracted, there must be mutuality in the contract. No man can serve two masters. If the procurer of the insurance is to be deemed the agent of the insured, . . . he may not be taken into the service of the insurer as its agent also, or, if he is so taken, the insurer must be bound by his acts and words, when he stands in its place and moves and speaks as one having authority from it, and pro hac vice at least, he does then rightfully put off his agency for the insured and put on that, for the insurer. . . . Nor will it hold the plaintiff so strictly to the contract he made as to permit the defendant to ignore it and take his agent as its agent, and yet make him suffer for all the shortcomings of that person while acting between them and while under authority from the defendant to act for it."
So in Sprague v. Holland Purchase Ins. Co., 69 N.Y. 128, the insured signed a blank form of application, which was filled up by the company's agent without any knowledge or dictation of the insured. There were false statements therein, occasioned by the mistake or inadvertence of the agent. The policy contained the agency clause, as well as the condition that the application must be made out by the defendant's authorized agent, and it was held, using the language of the court in the Whited case, that the latter clause "swallowed down" the former, and that there was no warranty binding upon the plaintiff.
the condemnation of courts whenever it is relied upon to work out a fraud, as it is in this case. The policy might as well say that the president of the company should be deemed the president of the assured. . . . Such a clause is no part of a contract. It is an attempt to reverse the law of agency and to declare that a party is not bound by his agent's acts. Whether one is an agent of another is a question of mixed law and fact, depending on the authority given expressly or impliedly. And when a contract is in fact made through the agent of a party, the acts of that agent in that respect are binding on his principal."
"to the proposition that the offer [that the agent made his own valuation of the property] was incompetent, because Laubach was the agent of the assured in filling up the application and forwarding it to the company. He was not the agent of the assured. The latter had not employed him for any purpose. He was the agent of the defendant company, and as such called upon the assured and solicited a policy, and having obtained his consent, proceeded to fill up the application for him to sign. As to all these preliminary matters, the person soliciting the insurance is the agent of the company."
fact the assured does not see the policy until after it is executed and delivered to him. In many instances, it is laid away by him and never read, especially as to the elaborate conditions in fine print. Grant that it is his duty to read it, his neglect to do so can bind him only for what the company had a right to insert therein. He was not bound to suppose that the company would falsely assert, either by direct language in the policy or by reference to a bylaw, that a man was his agent who had never been his agent, but who was, on the contrary, the agent of the company. Notwithstanding this was a mutual company, the assured did not become a member thereof until after the insurance was effected. Hence, a bylaw of the company of which he had no knowledge, and by which he was not bound, could not affect him in matters occurring before the granting of the policy. . . . And even a bylaw of a mutual company which declares that black is white, does not necessarily make it so."
Similar cases are those of Eilenberger v. Ins. Co., 89 Pa. 464, Susquehanna &c. Ins. Co. v. Cusick, 109 Pa. 157, and Kister v. Lebanon Mut. Ins. Co., 128 Pa. 553.
an innocent party in the transaction, or should it fall upon the company, who alone enabled Puschman to successfully consummate the contract of insurance by placing in his hands the policy for delivery? The street broker was not the agent of the plaintiff for any purpose. If the evidence be true, he had no authority to act for her or bind her in any manner whatever by what he might do in the premises, and while he may not have been in fact the agent of the company, still the company, by placing the policy in the hands of the street broker for delivery, is estopped from claiming that the payment made to him upon delivery of the policy is not binding upon the company."
In Indiana, it is also held that a recital in the policy that the broker obtaining an insurance is the agent of the insured is not conclusive upon that subject. Indiana Ins. Co. v. Hartwell, 100 Ind. 566. In North British &c. Ins. Co. v. Crutchfield, 108 Ind. 518, the agency clause was held to be absolutely void as applied to a local agent, upon whose counter signature the validity of the policy, by its terms, was made to depend.
In Boetcher v. Hawkeye Ins. Co., 47 I. 253, it was held that, if the assured had the right to believe the soliciting agent was the agent of the company, the insertion of a clause in the policy providing that he was the agent of the assured constituted a fraud upon the latter, of which the company could not take advantage.
See also Kausal v. Minnesota &c. Ins. Asso., 31 Minn. 17, in which the act of an insurance agent in making out an incorrect application was held chargeable to the insurer, and not to the insured, notwithstanding the insertion of an agency clause in the policy.
"The verbiage of this condition is not candid; it seems to have been used with studied design to obscure the real purpose. It is a snare, set in an obscure place, well calculated to escape notice. It is not written or printed on the face of the policy. It is not so much as alluded to in the application; nor is the agent in his printed instructions enjoined to inform those with whom he treats of it. . . . Its inevitable effect is to greatly weaken the indemnity on which the assured rely. It is inconsistent with the acts and conduct of the insurance companies in sending abroad all over the land their agents and representatives to canvass for risks. It is an effort by covenant to get the benefits and profits which these agents bring them, and at the same time repudiate the relation they sustain to them, and to set up that relationship with the assured, and that, too, without their knowledge and consent. It is not a limitation or restriction of power, but the dissolution of the relationship with themselves and the establishment of it between other parties."
after his death. It was held that, in view of all the provisions of such constitution, the benevolent object of the corporation, and the fact that the several groves are at least, as much its agents to collect and pay over the dues of their members, as they are agents of the latter, in case of a member whose dues have been fully paid to his grove at the time of his death, the amount of insurance might be recovered, notwithstanding a default of the grove in paying over such dues to the defendant.
The agency clause was also once before this Court in the case of Grace v. American Central Ins. Co., 109 U. S. 278, in which a clause in the policy that the person procuring the insurance to be taken should be deemed the agent of the assured and not of the company, was held to import nothing more than that the person obtaining the insurance was to be deemed the agent of the insured in the matters immediately connected with the procurement of the policy, and that, where his employment did not extend beyond the procurement of the insurance, his agency ceased upon the execution of the policy, and subsequent notice to him of its termination by the company was not notice to the insured.
In the following cases, the officers of the subordinate lodge, or conclave, were treated as the agents of the Supreme Conclave in the matter of granting extensions of time for the payment of assessments: Whiteside v. Supreme Conclave, 82 F. 275; Knights of Pythias v. Bridges, 15 Tex.Civ.App. 196.
personally in any particular to comply with any laws of the order, present or future. The only failure was that of the secretary of the section, who, to say the least, was as much the agent of the order as he was of Withers, although the latter is sought to be charged with his dereliction by a clause inserted in the general laws, long after the certificate was issued. The decisive consideration is this: Chadwick was the agent of the defendant, and of the defendant only, after the receipt of the money from Withers. Under section 10, he then became responsible for it to the Board of Control. In rendering his monthly accounts and paying over the money he acted solely for the defendant. From the time he paid the money to Chadwick the insured had no control over him, and was not interested in its disposition. Unless we are to hold the insured responsible for a default of this agent, which he could not possibly prevent, we are bound to say that his payment to this agent discharged his full obligation to the defendant. That it should have the power of declaring that the default of Chadwick, by so much as one day (and it did not exceed four days in this case), to pay over this money, should cause a forfeiture of every certificate within his jurisdiction, is a practical injustice too gross to be tolerated.
Without indorsing everything that is said in the cases above cited, we should be running counter to an overwhelming weight of authority were we to hold that the agency clause should be given full effect regardless of other clauses in the certificate or the bylaws, indicative of an intention to make the officers of subordinate lodges agents of the supreme or central authority. We should rather seek to avoid, as far as possible, any injustice arising from a too literal interpretation, and only give the clause such effect as is consistent with the other bylaws and with the manifest equities of the case. We are therefore of opinion that in this case the secretary of the section was in reality the agent of the Supreme Lodge from the time he received the monthly payments, and that the insured was not responsible for his failure to remit immediately after the tenth of the month.
v. Knights of Pythias, 168 Mass. 397, in which a different conclusion was reached upon a similar state of facts. In that case, plaintiff put his right to recover upon the theory that the mailing of the remittance was a compliance with the requirement of section six that such payments and dues should be received on or before the last day of the month. This position was held by the court to be untenable. It was said that the money must have been actually received at the office of the Board of Control before the end of the month. The question of agency was not considered, and the trend of the argument is so different that the case cannot be considered an authority upon the propositions here discussed. The cases of Peet v. Knights of Maccabees, 83 Mich. 92, and McClure v. Supreme Lodge, 59 N.Y.Supp. 764, are not in point.

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