142 Mass. 403 | Mass. | 1886
In January, 1882, the plaintiff company voted to discontinue its stock department, and to redeem and cancel its guaranty capital stock; and has now, under the Pub. Sts. c. 119, § 94, applied to this court to determine upon what “ just and equitable terms and conditions,” and in what manner, this may be accomplished.
At the time of the passage of the St. of 1854, e. 76, authorizing the company to make insurance “otherwise than on the mutual principle,” it was the intention of the Legislature to empower it to transact business upon the stock principle, in
Since its guaranty capital was paid in, the company has kept separate accounts of the business carried on in the stock and mutual departments, and of the receipts and expenditures in each. None of the assets or earnings of one department have been applied to payment of losses or dividends of the other. The dividends to shareholders have been paid from the earnings of the stock department. None of the earnings of this department have been paid as dividends to the holders of policies issued by
The by-laws which the company passed in anticipation of raising the guaranty capital were, in some respects, without authority of law. Article 4, which provided that, before the subscription books were opened, the directors should determine the rate per cent of the semiannual dividends, and that the rate thus fixed should not be reduced without the written consent of each and every shareholder, was in direct conflict with the Rev. Sts. c. 37, § 15. The dividends were to be made on profits, and depended on profits, and were to be made as to the directors appeared advisable. The company had no authority to establish them in the arbitrary manner attempted by this by-law.
Article 10 directed the manner in which the funds of the company arising from premiums or assessments, or from any other source, should be appropriated. By this article the funds were to be appropriated to the payment, first, of expenses; secondly, of losses by fire; thirdly, dividends on the guaranty capital, and to make good any reduction in the amount of said capital; and fourthly, return premiums and dividends on policies upon the mutual principle, as they shall expire. The Revised Statutes, c. 37, § 31, made provision for the appropriation of the funds of mutual companies in a different manner. This article of the by-laws contemplated no distinction between the two departments, and no division of their interests or funds.
Soon after the company was organized under its new plan, the St. of 1856, c. 252, was passed. It provided, in § 36, that “all business and all investments' on account of the stock department of such [namely, mutual] companies shall be separately kept,”
The plaintiff contends that the guaranty capital was practically a loan by the shareholders to the company, to enable it to carry on the stock business. Mutual fire insurance companies were required to have a guaranty capital before they could insure. The charter of the Berkshire Life Insurance Company contained a similar provision. In Commonwealth v. Berkshire Ins. Co. 98 Mass. 25, it was held that this guaranty capital was a liability; that it was in no proper sense a capital of the company; that the shares did not, as in stock corporations, represent aliquot fractional interests in the property and franchise; and that it was a liability rather than a part of the assets of the company. It was decided in this case that the corporation, a mutual insurance company, was not liable to a tax on its unredeemed guaranty stock, upon the ground that the fund stood as a security for the payment of losses upon policies; that it was tantamount to a debt due from the corporation, for the ultimate payment of which provision was constantly made; that the stockholders had no interest in the business of the company beyond the payment of their stipulated dividends, and the maintenance of the sinking fund out of which their stock was eventually to be redeemed. The court said: “ By the St. of 1864, c. 208, §§ 1, 5, a return is required from, and a tax imposed upon, ‘ every corporation having a capital stock divided into shares; ’ which is computed on ‘ the excess of the market value of all the stock of each corporation ’ ‘ over the value of its real estate and machinery.’ The return is also required to be made ‘by the stock department of stock and mutual insurance companies.’ These are companies which under one charter unite two separate branches of business, the stock department doing a stock business, and the mutual department a mutual business, each independent of the other, with distinct interests, and constituting two companies under one corporate organization.” And the provision in the act to include the stock department" of stock
In the case at bar, the company has regularly paid the tax upon its guaranty capital and charged it to the stock department. It is to be assumed that this would not have been paid by the company, unless it was done in compliance with the provisions of law, especially after the decision, in 1867, of Commonwealth v. Berkshire Ins. Co., ubi supra. We think that there is a marked distinction between the guaranty capital referred to in the case cited, and the guaranty capital of a company doing business upon the stock plan, and that the capital of the latter is not a debt, and cannot be construed as a loan to the company to enable it to carry on the stock business.
The plaintiff contends that, in acquiring the fund, the company made certain promises set forth in the by-laws and votes of the directors; that the risks and liabilities were all upon the side of the corporation; that the subscribers and shareholders differed in no respect from every lender of money; that there was a written contract between the subscribers to the fund and the capital, and by that contract the rights of the parties thereto must be determined; that by this contract, as shown in the bylaws and votes, the shareholders were to take the dividends upon their stock as guaranteed to them, without any liability for losses; and that, if the capital should be reduced, it was to be repaired by the mutual department.
We have been referred to several statutes passed subsequently to the creation of the guaranty fund, for the purpose of showing that it has been the policy of legislation to keep the stock and mutual departments of companies organized to do business upon both plans distinct from each other, and not to subject mutual policy holders to any liability for losses in the stock department, or for any impairment of the guaranty capital. The St. of 1878, e. 141, § 2, provides that “the mutual policy holders shall not be entitled to participate in the profits of the stock department, nor shall they be liable to assessment to repair any deficiency in the guaranty capital arising from losses in said department; but said deficiency shall be repaired from the^ reserve fund of said department, and, if said fund is not
If the business of the stock department was not sufficient to authorize dividends to be declared to the stockholders, there was no provision of law by which the members of the mutual department could be assessed for the purpose of making it up to them. The company had no right given it by statute to pledge its assets to the payment of dividends, or of deficiencies in the capital of the stock department. The statutes which regulated assessments prescribed also the manner of appropriating the funds so raised.
We think that this was not a contract between the subscribers to the guaranty fund and the company. The statute authorized the corporation to form the stock department. This department was to transact a stock business independently of the mutual department. Its interest was distinct and separate. The laws governing it were those which governed stock companies. The two had one controlling head, but in all other respects they
The surplus which the plaintiff now contends should be decreed to the company“was derived from the stock department, from the profits of its business conducted under the guaranty capital, and from the gains of its profitable investments. Under the Rev. Sts. e. 37, § 15, the directors of the company, if it had appeared to them advisable, could have distributed the entire surplus among the stockholders as dividends. There is no provision of law by which it can be decreed to the mutual department of the company. Under § 38 of the same chapter, to which we have already referred, the mutual department was required by law to account for the accumulations of the stock department to each holder of a mutual policy'as it expired, if the proposition contended for by the plaintiff is correct. And if the court should now decree that the mutual department of this" company is entitled to any share in these accumulations, all the mutual policy holders during the thirty years that the guaranty capital has been in existence would be entitled to their, proportionate share in the same.
The shareholders have deposited money and created the guaranty fund upon their own risk. If the business had been unsuccessful, they would have been the losers. The mutual department, notwithstanding its by-laws and votes, could not have been compelled to contribute to make good their losses. The surplus stands credited to the stock department, and it seems to us to be just and equitable that, in winding up the affairs of this department, this surplus, together with the guaranty capital, should be distributed among the shareholders of the fund, according to their several shares.
Decree accordingly.