author: Mr. Justice Friend

text:
    People ex rel. Ernest Palmer, Plaintiff, v. Central Mutual Insurance Company of Chicago, Defendant. Henry G. Miller, Receiver of Central Mutual Insurance Company of Chicago, et al., Appellees, v. Central Mutual Insurance Company of Chicago, and Irving L. Block, Appellants.
    Gen. No. 41,490.

      Opinion filed January 22, 1942.
    Rehearing denied February 4, 1942.
    Myer N. Rosengaed, of Chicago, for appellants. Lloyd C. Whitman, of Chicago, for certain appellee.
    Beckman, Healy, Reid & Hough, of Chicago, for certain other appellee.
   Mr. Justice Friend

delivered the opinion of the court.

Irving L. Block, whose status or interest in this proceeding does not clearly appear of record, but who is characterized as a policyholder, joins in an appeal with the defendant, Central Mutual Insurance Company of Chicago, seeking the review and reversal of an order of the circuit court entered in a proceeding instituted by the attorney general, on request of Ernest Palmer, director of insurance, to liquidate the defendant company because of its alleged insolvency, which authorized and directed the receiver in that proceeding to spread and levy a 100 per cent assessment against its policyholders in an amount of approximately $5,000,000.

The liquidation proceeding had been instituted by petition of the attorney general filed January 8, 1937, pursuant to An Act in relation to delinquent insurance companies, etc., approved June 26, 1925, and subsequent amendments thereto (pars. 495-503e, ch. 73, Ill. Bev. Stat. 1935). Shortly thereafter, a decree was entered finding that the company was insolvent, that its liabilities exceeded its assets by approximately $500,000 as alleged in the petition, and that sufficient cause existed for the appointment of a receiver to take possession of its assets and to liquidate its business. Accordingly, Henry Gr. Miller was appointed as receiver by the director of insurance and at once qualified under his appointment. January 12, 1937, he had leave to employ as his counsel Lloyd C. Whitman, and thereafter the receiver and his counsel entered upon their respective duties, as appears from our opinion on another phase of this proceeding (Miller v. Central Mut. Ins. Co. of Chicago, 299 Ill. App. 194), and continued to serve in their respective capacities until shortly before the instant appeal came on for oral argument, when we were first advised that Boy D. Keehn had been substituted for Miller and that Whitman had been superseded by Beckman, Healy, Beid & Hough as solicitors for the receiver.

After the liquidation proceeding had progressed for some 16 months, the receiver in May 1938, filed a verified petition for an assessment against all policyholders who, January 31, 1935, to January 11, 1937, both inclusive, were holders of policies, in an amount of 100 per cent of the premiums stated in the policies. From the essential allegations of his petition, it appears that defendant company had, October 22, 1926, obtained a charter from the State of Illinois and was licensed to do business as a mutual insurance company under the Act of July 1, 1915 (An Act to provide for the organization and management of mutual insurance corporations, other than life, pars. 309-332, ch. 73, Hurd’s Ill. Rev. Stat., 1915-1916), and authorized to make contracts of insurance against loss or liability arising from the various kinds of casualty or hazard which may be the lawful subject of insurance, except life or fire; that it was provided, among other things, at paragraphs 388, 389 and 390 of the Act of 1915 (ch. 73, Ill. Rev. Stat. 1935), under which it was incorporated, (a) that every policyholder shall be a member of the corporation and entitled to vote; (b) that the by-laws of the company shall provide for a cash premium and may limit the contingent liability of the members to an amount of not less than one nor more than ten times the cash premium expressed in the policy, the maximum contingent liability to be plainly stated as part of each policy; (c) and that no corporation shall issue a policy for a cash premium without contingent liability unless it is possessed of a surplus of at least $100,000 and not less than the capital required of domestic insurance companies doing the same kind of business.

The petition further alleged that the corporation adopted by-laws pursuant to statute which contained, among others, the following provisions: Article III, that each policyholder shall be entitled to one vote, and that membership in the company automatically ceases upon termination of the policy by cancellation, lapse, forfeiture for nonpayment or otherwise; Article VIII, that the board of directors shall exercise all corporate powers not prohibited by statute or the by-laws, shall have power to prescribe when and how payment of premiums and assessments shall be made, when policies shall lapse or be subject to forfeiture, and how they may be reinstated; but that the directors shall have no power to issue policies not providing for a cash premium deposit nor shall they have power to waive the same, nor shall the contingent liability of any member be more than an amount equal to such cash annual premium deposit and which shall be expressed in the policy.

The receiver’s petition further alleged that defendant company engaged in business until January 11, 1937, and maintained its principal offices in Chicago; that it qualified in and issued policies to residents of some 16 States and the District of Columbia; that it issued 100,000 policies of insurance, in each of which it was provided that “The contingent liability of the assured hereunder is limited to one time the premium named herein and no more,” and “The assured is given and. hereby accepts notice that by virtue of this policy he is a member of the Central Mutual Insurance Company of Chicago.”

It is further alleged that July 1,1925, and since that time there was in full force and effect a legislative act entitled, “An Act in relation to delinquent insurance companies, etc.” (pars. 495-503e, ch. 73, Ill. Rev. Stat. 1935); that in July 1937, this act was repealed by another act of the legislature, entitled “An Act to revise the law relating to insurance and to repeal certain Acts therein named,” commonly known as the Illinois Insurance Code (pars. 613-1091, ch. 73, Ill. Rev. Stat. 1937 [Jones Ill. Stats. Ann. 66.676 et seq.]); that under section 1061 of this statute, found in ch. 73, Ill. Rev. Stat. 1937 [Jones Ill. Stats. Ann. 66.1124], it is expressly provided that the repeal of any law by the code shall not affect any rights accrued or established or any liability or penalty incurred under the provisions of any repealed law prior to the repeal; and that under par. 833 (ch. 73, Ill. Rev. Stat. 1937 [Jones Ill. Stats. Ann. 66.896]) every proceeding heretofore commenced under the act of 1925 shall be continued as if the act of 1925 had not been repealed.

Following these allegations, the petition recites the commencement of the liquidation proceeding in 1937, the entry of an order finding, among other things, that sufficient cause existed for the appointment of a receiver to take possession of the defendant’s assets and to proceed with the liquidation; that in February 1937, the court entered an order directing that claims be filed with the receiver, and publication of notice thereof to policyholders; that in pursuance to the order and notice, there were filed with the receiver, up to and including April 14,1938, 2644 claims, 29 of which were for unliquidated damage or loss in amounts not stated, but estimated at an aggregate of approximately $138,000; that taking into consideration these 29 claims, the total claims filed would aggregate some $4,500,000, classified approximately as follows:

loss claims ...........................$4,000,000

investigation and adjustment claims..... 240,000

commission and reinsurance claims...... 125,000

return insurance claims................. 95,000

miscellaneous claims.................... 92,000

Before filing his petition for assessment against policyholders, the receiver employed Conover & Green, consulting actuaries, auditors and accountants, especially experienced in insurance accounting work, to assist him in gathering information and data in connection with the assessment of policyholders, the proper claim reserve, the fair value of the assets, and the necessary rate of assessment. against .policyholders. Pursuant to the employment, the auditing firm made an exhaustive and detailed report dated April 21, 1938, which is used as the basis for the assessments sought. Their report indicated that the value of defendant’s assets, as of January 11, 1937, exclusive of any claim against London Lloyds under a reinsurance contract, aggregated $253,274.34; that the total liabilities of the company, estimated and stated as accurately as was practical at the time, were $3,272,667.44; that throughout the period from February 1, 1935, to January. 11, 1937, both inclusive, defendant was not possessed of assets equal to the unearned premium reserve and other liabilities, and that from time to time during this period there was a deficiency in assets and an excess of liabilities over assets of $4,000,000; that as indicated by the premium account on the books of the company as of January 31, 1935, and from February 1, 1935, to January 11,, 1937, there were outstanding and in force and effect policies of insurance written and delivered to 40,000 or 50,000 separate policyholders, residents of one or another of 16 States and the District of Columbia, in the aggregate of cash premiums equal to $5,372,138.20; that 20 per cent of these policies were issued to residents of Illinois and the balance of 80 per cent to residents of the other 15 States and the District of Columbia; that it will probably be impossible to locate 25 per cent of the policyholders; that one-half of 1 per cent will probably pay an assessment without suit; that a large percentage will be found to be financially irresponsible; that collection of assessment by suit will necessitate employment, at a large expense, of a great number of lawyers, in and out of the State, who would probably charge 25 to 33-J- per cent of the amount collected, as a contingent fee; that probably less than 20 per cent of the total assessment of $5,372,138.20 would prove collectible; and that in view of these circumstances, a 100 per cent assessment is indicated to be necessary. The petition asks that the director of insurance, defendant and all parties in interest be ruled to answer by a day to be fixed by the court, that the court approve and confirm the levy by the receiver and levy and authorize and direct the receiver to levy an assessment on all policyholders who on January 31, 1935, to January 11, 1937, both inclusive, were holders of policies, in an amount of 100 per cent of the premium stated in the policies, and that such other and further relief be afforded in the premises as to the court should seem meet.

June 7, 1938, the Central Mutual Insurance Company moved to strike the receiver’s petition, praying for an assessment of its policyholders, setting forth the following reasons in support of its motion: (1) that the receiver (under the Act of 1925) had no power, right or authority to levy any assessment against policyholders of mutual insurance companies; (2) that the court had no jurisdiction or power to enter any order either directing the making of a levy or confirming a levy made by the receiver; (3) that the only provision for assessment in any of our legislative enactments prior to 1937 appears in the act of 1915 (Ill. Rev. Stat. 1915-1916, ch. 73, pars. 309-332), under which the defendant company was organized, and under that act the company is authorized and directed to levy an assessment, but only as a going institution, and its right so to do ceased when the petition was filed in the case at bar; and that there was no statutory provision for the levy of. any other kind of assessment other than by the company itself as a going concern; (4) that the court had no jurisdiction of the subject matter, or if it did have such jurisdiction, it exceeded its jurisdiction in entering the assessment order, thus rendering the order void; (5) that it appears from the petition that the claims against the estate had not been adjudicated, since the receiver had filed no report on claims, and therefore the petition was based upon mere estimates and did not allege sufficient facts upon which an assessment, as prayed, could be levied; (6) that any levy of assessment would be in violation of section 10 of Article I, section 2 of Article IV, and the 14th amendment to the Constitution of the United States, and also violative of sections 1, 2, 5 and 14 of Article II of the Constitution of the State of Illinois of 1870; (7) that under the provisions of the new Insurance Code of this State, which became effective July 1, 1937, any levy of assessment, if such levy could be made in the case at bar, could be made only under that act and not under the Act of 1925, and that under the new Insurance Code such assessment must be made by the director of insurance and cannot be made by a receiver.

The court overruled defendant’s motion to strike the petition and thereafter, in obedience to the order entered, defendant filed its answer, reserving all the points and issues made and raised by its motion to strike; and it also joined issue with the factual statements contained in the petition by putting the receiver to proof of the facts alleged. The cause was then referred to Leonard C. Eeid, one of the masters in chancery of the circuit court, whose report contained detailed findings as to the value of the assets and the amount of the liabilities of defendant company, and recommended that the receiver be permitted and directed to levy the assessment, as prayed for in his petition. After argument and hearing, defendant’s exceptions to the master’s report were overruled, the report was approved, and the receiver was authorized and directed to make an assessment; and it appearing from the order entered that the receiver thereupon made such levy of assessment by the filing of a written levy memorandum or demand, the levy so made was approved and confirmed.

Although defendant relies chiefly on the legal questions presented, it assigns as error (1) that the assessment was spread and levied prematurely and before “the probable liabilities over the reasonable value of the assets have been ascertained” and also (2) “that the assessment order [was] spread against all policyholders as a class, regardless of the type of policy held.” Its counsel says that he does “not propose . . . to challenge this evidence” adduced upon the hearing before the master, but takes exception only “to the method used at arriving at liabilities for the purposes of the assessment,” and that “if the method used by the Receiver’s auditor was the legal method, then we concede that the evidence discloses that the amount of the assessment is not challenged.” This requires brief consideration of the method employed by the receiver as a basis for the assessment. Paragraph 833, which became effective July 1, 1937, and superseded the Liquidation Act of 1925, under which these proceedings were originally instituted, provides that “Every proceeding heretofore commenced under ‘An Act in relation to delinquent insurance companies, associations and societies,’ approved June 26, 1925, . . . shall be continued as if said Act had not been repealed, but assessments against members or subscribers . . . may be made in accordance with section 207 [par. 819].” (Ill. Rev. Stat. 1937, ch. 73 [Jones Ill. Stats. Ann. 66.896].) Under paragraph 819 of the Insurance Code (ch. 73, Ill. Rev. Stat. 1937 [Jones Ill. Stats. Ann. 66.882]), the assessment is required to cover “the excess of the probable liabilities over the reasonable value of the assets, together with the cost of collection and probable percentage of uncollectibility thereof.” Defendant argues that in arriving at a definition of the words “probable liabilities,” account should be taken of the fact that creditors, in filing claims with receivers, are likely to seek amounts in excess of their actual losses; that in connection with suits commenced against assureds, the amount of ad damnum does not necessarily represent the recovery that will ultimately be made, and that it was incumbent upon the receiver, in the time that elapsed between the adjudication of defendant as insolvent and the filing of the petition for assessment, to ascertain what the actual liabilities were. The procedure indicated was manifestly impractical, unless it be conceded that the receiver should have delayed the assessment until further hearing's before the master, extending over long periods of time, perhaps years, would disclose actual liabilities; nor is such a procedure required under the authorities. In Lincoln Bus Co. v. Jersey Mut. Casualty Ins. Co., 112 N. J. Eq. 538, 165 Atl. 112, it was argued that to discount the collection of assessments of irresponsible members placed a burden upon solvent members not warranted by the statute as read into and forming a part of their contract to pay contingent liabilities, but the court affirmed a 100 per cent assessment upon a similar showing that it. would yield but a fraction of the liabilities, since most of the policyholders were either financially irresponsible or could not be found, and concluded by saying that “If the objectors’ assessment theory be adopted with respect to every loss which has been sustained, the amount realized from the assessment will not be sufficient to pay for the accounting services re: quired to levy the assessment. In an assessment as we have here, such an exactitude would defeat assessment. It is sufficient if the assessment is based upon a fair method of calculation, is equally applied, and is substantially correct. . . . The method proposed by the receiver is the only practical one and if any policy holder finds himself aggrieved he may bring on his complaint for adjustment on exceptions to the assessment.” (Italics ours.)

It must be conceded, of course, that probable liabilities and probable value of assets should be considered by the receiver so far as necessary to enable him, in good faith, to come to an honest conclusion as to the need of an assessment and the amount of assessment needed, but in this proceeding it was never contended that the estate in liquidation would pay its creditors any substantial percentage on their claims since, figured at best, there would be a deficiency in excess of $500,000. Defendant’s counsel evidently recognized the inherent difficulties in collecting the assessments and the probability that dividends to creditors would be negligible, for in opposition to the receiver’s motion to dismiss the appeal, while the case was here pending, he said that “The usual dividend declared in these types of cases is very small, if at all. Experience teaches that in most cases no dividend is paid.” Under the circumstances, we think the method employed by the receiver and the necessity for levying a 100 per cent assessment were amply justified.

The other contention, that the assessment order against all policyholders as a class, regardless of the type of policy held, was erroneous, is likewise untenable, since defendant was engaged in writing* only one class or kind of insurance, namely, automobile insurance, which included liability, property damage, collision, theft and fire insurance. Although incorporated to write other types, its business was confined only to the one class of insurance set forth.

The remaining and paramount question presented is whether the receiver had power to levy the assessment and the court jurisdiction to authorize and direct him to do so. It is first urged that the court had no power or jurisdiction to enter the order authorizing and directing the receiver to levy the assessment or, if such jurisdiction existed, the order of assessment was an excessive exercise thereof, beyond the powers of the court, and therefore void. This contention is predicated upon the fundamental rule that chancery courts, in bank and insurance liquidation proceedings, under the statutes are not vested with the usual broad powers of chancery courts, but are limited in jurisdiction to such powers as are conferred on them by statute and any additional powers that may be reasonably incidental to and inferred from the legislative grant. The same contention was made in the former appeal (Miller v. Central Mut. Ins. Co. of Chicago, 299 Ill. App. 194), wherein the jurisdiction of the court was challenged to pass upon the activities of the receiver in the liquidation of this same company pertaining to the entry of orders affecting matters of administration by the receiver. Counsel there relied chiefly on People v. Niehaus, 356 Ill. 104, People v. Peoria Life Ins. Co., 357 Ill. 486, and Republic Life Ins. Co. v. Swigert, 135 Ill. 150, all of which were insurance liquidation proceedings ; and these decisions áre again urged on this appeal as supporting defendant’s present challenge of the court’s jurisdiction. "We discussed and distinguished those cases in our former opinion and reached the conclusion, supported by other and more recent decisions of the Supreme Court of this State, that the powers of the chancellor are not so limited as defendant asserts, but should be sufficiently broad to permit the effective liquidation of the company in proceedings brought before the court for that purpose. Having entered the liquidation decree, the court should have power to control the execution of that decree by giving instructions to the receiver as important doubtful questions arise in the course of liquidation; and this power, we think, is necessarily inherent in the court whether the receiver, because of his appointment by the director of insurance instead of the court, is designated as an administrative or a judicial officer; for after his appointment he becomes an officer of the court, whether administrative or executive (People v. Marquette Nat. Fire Ins. Co., 351 Ill. 516). The provision of paragraph 503-b of the Act of 1925 (ch. 73, Ill. Rev. Stat. 1935), that the “poiuers of the court, in all cases arising under this Act, shall be the same as in ordinary proceedings in equity in this State . . . ,” adds force and authority to this conclusion. (Italics ours.)

The Liquidation Act of 1925 makes no provision for assessments by the receiver. Because of this omission in the statute and in harmony with its contention that the court had no jurisdiction over the receiver, except as specified in the statute or impliedly conferred on the court, and therefore no power to authorize or direct him to levy an assessment, defendant takes the position that the receiver could not act independently of the court and levy the assessment; and since the board of directors, which might have ordered a levy while the company was still doing business, was divested of its right to act by reason of the liquidation decree, which defendant says was “tantamount to a cancellation of the right to do business,” no levy could be made except by the director of insurance, who failed or refused to do so; and it is urged that even if the court had authority to direct the levy, the order should have provided that it be made by the director of insurance, as provided in paragraph 819' of the Insurance Code of 1937 (ch. 73, Ill. Rev. Stat. 1937 [Jones Ill. Stats. Ann. 66.882]), and not by the receiver.

The attitude of the director of insurance with respect to a levy is disclosed by a letter which he wrote to defendant on November 28,1936, some six weeks before the liquidation proceeding was filed. It appears that prior thereto defendant had submitted to the directors a plan for rehabilitation of the company, and for the reasons assigned by the director in his letter he exercised the discretion vested in him by the statute of relieving the company of levying an assessment and allowing it to proceed with its plan. Obviously, the directors did not exercise their right to levy an assessment because they were trying to work out a plan for reorganization when the liquidation proceeding was instituted in January 1937. Thereafter, they became powerless to act. The record is silent as to why the director of insurance did not order a levy after the petition for liquidation had been filed and before the court ordered and approved the levy by the receiver; but it is fair to assume that having appointed a receiver in pursuance of the liquidation decree, who had assumed possession of the assets’ and was proceeding before the master to disclose probable liabilities and the probable value of assets for the purpose of recommending the levy of an assessment, the receiver should be allowed to proceed with the responsibility of petitioning the court to direct or authorize the levy at the appropriate time. Defendant insists that under the Code of 1937 “the assessment, if one could be levied, should have been levied by the director of insurance and not by his employee [the receiver].” But even under that code the director of insurance had no power to make a levy without the court’s sanction. Paragraph 819 of that code provides that in the event of an order directing the liquidation of any company which has issued assessable policies of insurance “the Director may, with leave of court, at any time during the pendency of the proceeding, levy such assessment ... to the same extent that such assessment . . . might have been levied by the board of directors. ...” (Italics ours.) The plain import of this provision vests the court with power to order the director to act and leaves the director powerless to make the levy except “with leave of court.” It would thus seem that even under the Code of-1937, which supplied the omission of the Liquidation Act of 1925 to expressly provide for a levy by either the court, the receiver or the director of insurance, the director had to invoke the court’s leave to levy an assessment, thus placing the responsibility and discretion with the court where the liquidation proceeding, was instituted.

The ultimate question is whether the court had the power to direct and approve the levy by the receiver under the Liquidation Act of 1925. If such power was vested in the court, it becomes of secondary importance whether the receiver could make the levy of his own accord because he had petitioned the court in the alternative (1) to either recognize a levy to be made by him, or (2) that the court make the levy, or (3) that the court authorize and permit him to do so; and the order entered “authorized and directed [him] . . . to make an assessment” and to make demands on all policyholders within the period fixed by the order. The receiver in open court thereupon presented and filed the levy which the court ratified and approved. Moreover, if the court had the power to order or direct the levy, and in the absence of any provision in the statute specifying whether the director or receiver should invoke the court’s authority to that end, the court could certainly order or authorize the receiver, who was appointed by the director and was acting as his representative in liquidating the insolvent company, to proceed with the levy.

Although we find in this State no case where a direct defense was made to a petition for assessment under similar circumstances, there are decisions here and elsewhere which recognize the power of the courts to authorize and direct levies by receivers which were upheld as valid in suits later brought by the receivers to recover against policyholders. Prior to the enactment of recent statutes, contract or policyholders in mutual insurance companies were ordinarily required to execute so-called premium notes which were not payable at any specified time but were given in lieu of payment of premiums so that the board of directors could make a call at any time for the pro rata share of the losses. Although the amount specified in the premium note was certain, it merely fixed the maximum liability and the call or assessment might be for a lesser amount. The contingent liability of the policyholder, which was evidenced by the note, has in more recent legislation been fixed by statute, incorporated in by-laws and provided for in the policy. In Rand McNally & Co. v. Mutual Fire Ins. Co. for use of Parker, 58 Ill. App. 528, which was decided as early as 1895, the defendant Band, McNally & Co. was sued at law by Thomas Parker, who had been appointed receiver of the insurance company under liquidation proceedings instituted by the State auditor in pursuance of the statute. Defendant there executed a note for some $1,500, promising to pay the insurance company “by installments, at such time as the directors . . . may order and assess for the losses and expenses of said company, pursuant to its charter and by-laws.” This note expressed defendant’s contingent liability as a member policyholder and when the insurance company became insolvent, the receiver brought suit to enforce payment. It was held that “A receiver having-been appointed, the court exercises at its discretion the powers of the board of directors as well as such additional authority as is conferred by statute.”

Later, in Clark v. Lehman, 65 Ill. App. 238, suit was brought at law to collect on an assessment which the chancellor, in a parent suit to dissolve the Masonic Benevolent Association, ordered and directed its receiver to make against surviving members of the association. In sustaining the action the court said that “He [the receiver] succeeded to all the rights of action which had accrued to the association, and we think the court had full power to clothe him with the authority possessed in the first instance by the secretary of the association, of notifying the members that they were liable to pay the assessments in question. [Citing 20 Amer. & Eng. Ency. of Law, pp. 286-290.] ”

In Western Mfrs. Mut. Ins. Co. v. Hutchinson Cooperage Co., 92 Ill. App. 1, decided in 1900, a judgment creditor of the insurance company having brought suit, a receiver was appointed who filed a petition for an assessment, and the court directed him to make it. On notice and demand the Hutchinson Cooperage Company failed to pay and the receiver thereupon sued in assumpsit. In approving the order for assessment the court said: “By the act incorporating the company, the directors were authorized to levy assessments for the payment of losses and expenses, and by the bylaws, which were made a part of the contract of insurance, the directors were given the same power. If the directors had made the assessment in question the expense of spreading and collecting it would have properly been included. The directors did not perform this duty and a court of equity, through its receiver, was compelled to do it for them. In such case the court exercises at its discretion the powers of the board of directors of the company. [Citing Rand McNally Co. v. Mutual Fire Ins. Co., 58 Ill. App. 528.] ” It is significant that under the by-laws of the company it was there provided that whenever cash funds became insufficient for payment of losses, expenses and maintenance of the insurance reserve, it should be the duty of the board of directors to collect an assessment, while in paragraph 393 of the Act of 1915, under which defendant in the case at bar was incorporated (Ill. State Bar Stats. 1935, ch. 73 [Jones Ill. Stats. Ann. 66.324]), it is similarily provided that when the company’s assets are not equal to the unearned premium reserve and other liabilities, it shall make an assessment upon its members to provide for such deficiency.

It is conceded, of course, that the directors could have levied the assessment before the company’s insolvency, but they failed to do so. We find in 32 C. J., sec. 107, title Insurance, page 1043, cited in receiver’s brief, numerous cases decided in New York, New Jersey, Pennsylvania, Ohio, Wisconsin, and three decisions in Illinois, which hold that, acting under the authority and sanction of the court, the receiver of a company has the same power to make assessments as had the directors before insolvency. One of these cases is Western Mfrs. Mut. Ins. Co. v. Hutchinson Cooperage Co., 92 Ill. App. 1, hereinbefore discussed. In another case, Ross v. Knapp, Stout & Co., 77 Ill. App. 424, decided in 1898, the charter of the insurance company provided that all persons insured should be members of the company and bound by its by-laws; that premium notes might be received as the directors should require for payment of losses and expenses, and that the directors might levy an assessment upon the premium notes of policyholders at any time they deemed it necessary for payment of losses and expenses. A judgment creditor filed a class suit, making the company defendant, and a receiver was appointed by the court, who, on petition, had leave to make an assessment, notify individual members of their respective shares of the assessment and make demand therefor. In a suit by the receiver the defendant demurred, the trial court sustained the demurrer and dismissed the case, but the Appellate Court sustained the receiver’s action and reversed and remanded the case accordingly. In the third case cited, Western Mfrs. Mut. Ins. Co. v. Rowell Elevator Co., 94 Ill. App. 16 (1901), the court sustained recovery in an action at law on the same assessment involved in a like proceeding against Hutchinson Cooperage Company, on authority of the decision in Ross v. Knapp, Stout & Co., 77 Ill. App. 424.

In Swing v. American Glucose Co., 123 Ill. App. 156, it was held that a decree entered in a proceeding to liquidate a mutual insurance company, making an assessment upon the members of the company, if binding upon the resident members thereof, is, likewise, binding upon the nonresident members. The court’s conclusion was there predicated upon the principle that the stockholders and members of a corporation are an integral part thereof, are represented in court by the corporation, and a decree against the corporation is not open to collateral attack by stockholders or members when sued upon an assessment so made by a court having jurisdiction of the corporation. It will be recalled that in the case at bar many thousands of the policyholders to be assessed are nonresidents of Illinois, and this decision, citing numerous other cases, relies on the principle usually invoked in proceedings of this character. One of the cases cited in the Swing case is Hawkins v. Glenn, 131 U. S. 319. In discussing the relationship between stockholders and the corporation the court pointed out that under the charter of the company a call could be made only by the president and directors, that, in the situation of the company’s affairs it was a duty to make it; that failing the discharge of that duty by the president and directors, creditors could set the powers of a court of equity in motion to accomplish it; and that “Executing in that regard a corporate function for a corporate purpose, it is difficult to see upon what ground it could be held that the court could not order an assessment operating upon stockholders, who would be bound if the president and directors had ordered it. ... A stockholder is so far an integral part of the corporation that, in view of the law, he is privy to the proceedings touching the body of which he is a member.” In Lincoln Bus Co. v. Jersey Mut. Casualty Ins. Co., 112 N. J. Eq. 538, 165 Atl. 112, decided in 1933, the court said that in levying an assessment upon policyholders, the receiver acts in the place of the directors, under the direction of the court. The defendant’s by-laws in the case at bar authorize its directors to exercise the company’s power to levy assessments, and par. 393, ch. 73 of the Ill. Rev. Stat. 1935, under which it was incorporated, makes it mandatory on the board, when the corporation is “not possessed of assets at least equal to the unearned premium reserve and other liabilities,” to make an assessment “upon its members liable to assessment, to provide for such deficiency.”

A sound, well-defined and often repeated theory underlying the collection of assets by receivers of mutual insurance companies and stockholders’ liability, dates back to the frequently quoted case of Relfe v. Rundle, 103 U. S. 222. The proceedings there were predicated upon a Missouri statute which was similar, in many respects, to the Illinois Liquidation Act of 1925. A contest arose between Eelfe, the superintendent of insurance for the State of Missouri, who, together with a receiver appointed by him, was seeking to recover certain assets in the hands of an ancillary receiver appointed in Louisiana. Eelfe sued for possession of these assets and it was held that they belonged to him. The underlying theory upon which his rights were upheld has been followed in many of the current decisions and appears in the following excerpt from the court’s opinion:

“Eelfe is not an officer of the Missouri State court, but the person designated by law to take the property of any dissolved life insurance corporation of that State, and hold and dispose of it in trust for the use and benefit of creditors, and other parties interested. The law which clothed him with this trust was, in legal effect, part of the charter of the corporation. He was the statutory successor of the corporation for the purpose of winding up its affairs. As such he represents the corporation at all times and places in all matters connected with his trust. He is the trustee of an express trust, with all the rights which properly belong to such a position. He is an officer of the State, and as such represents the State in its sovereignty while performing its public duties connected with the winding up of the affairs of one of its insolvent and dissolved corporations. His authority does not come from the decree of the court, but from the statute. He appeared in Louisiana not by virtue of any appointment from the court, but as the statutory successor of a corporation which the court had in a legitimate way dissolved and put out of existence. He was, in fact, the corporation itself for all the purposes of winding up its affairs.”

Defendant’s counsel seeks to minimize the force of the foregoing cases and others cited and discussed in the receiver’s brief by arguing that in all of them the policyholders were sued for an assesment after the entry of the order making the levy; that in no instance was the challenge made to the receiver’s application for the assessment; that this constituted a collateral attack, and if it had been made upon the original application, “the story undoubtedly would have been different.” While it is true that these cases arose in suits brought by the receiver after assessment had been authorized by the court, we find in that circumstance no reason for invoking a different rule of law governing the authority of the court or the power of the receiver in administering the levy. Some of the decisions sustain the authority of the court because, on appointing a receiver, it assumes control of the affairs of the company and exercises at its discretion the functions and power of the company’s directors, as well as such additional authority as may be conferred on it by statute; others hold that the court appointing a receiver directs assessments to be made under its authority, with its approval, to pay the liabilities of the company, costs and expenses; and still others are to the effect that, acting under the authority and sanction of the court, a receiver has the same powers to make assessments as had the directors before insolvency. The salient fact that policyholders have contingent liabilities, contractual in their nature, assumed by them when they became members, fixed by statute, by-laws and policies, which constitute assets of the company to be collected in the course of liquidation, underlies the various theories upon which the courts have upheld assessments, whether levied by the directors of insurance, receivers or liquidators, under the court’s direction. Being assets which pass to the receiver, he is delegated to deal with them “in his own name as receiver or in the name of such company, as the court may by order direct, and as such receiver [he] shall be vested by operation of law with title to all of the property, contracts and rights of action . . . as of the date of the order so directing liquidation” (par. 498, ch. 73, Ill. Rev. Stat. 1935). Because of these circumstances, the levy of an assessment on policyholders is nothing more nor less than the exer-. cise, by the receiver, of contractual rights vested in him by the liquidation decree, and amounts to no more than a demand for payment of the contingent liability which they assumed; and the levy is, in essence, a demand by the receiver of the assets in liquidation, title to which was vested in him, for payment of this liability. The mere fact that the power and duty of levying assessments is lodged by statute in the board of directors, and not in the receiver, should not defeat the levy when application is made to a court of equity for the necessary relief, because the directors failed to act. “He was, in fact, the corporation itself for all the purposes of winding up its affairs.” (Relfe v. Rundle, supra.)

Defendant’s counsel says that he has found no reported decisions where a direct attack was made on an assessment levied by the receiver. Since the case was argued orally, the substituted counsel for the receiver filed a supplemental brief, wherein we find two such appeals in the same liquidation proceeding (Commonwealth ex rel. Schnader v. Keystone Indemnity Exchange, 335 Pa. 333, 6 A. (2d) 821, and 338 Pa. 405, 11 A. (2d) 887). The pertinent section of the Pennsylvania statute (Art. V, par. 206, of title 40 (Insurance), Purdon’s Pennsylvania Statutes 1936) contains provisions similar to the Illinois statute pertaining to mutual insurance companies. The first appeal was brought to construe the provisions of certain policies which not only did not contain the usual contingent liability provision required by the Pennsylvania statute, but did provide that no assessment should he made. Nevertheless, the court held that this specific provision of the policy could not defeat the levy of an assessment, because “These contingent liabilities were assets on which it was the duty of the statutory liquidator to realize.” The second appeal involved the question whether the assessment could include estimated administrative costs, collection expenses and other obligations, and it was held that such items could be estimated and included in the assessment. Subsequent to these two appeals the insurance commissioner of Pennsylvania sued policyholders of the Keystone Company in the State of Maryland for an assessment on their policies, and recovery was allowed in Maryland. (Taggart v. Wachter, Hoskins & Russell, Inc. (Md.), 21 A. (2d) 141.) The court there cited Belfe v. Bundle, supra, and three other United States Supreme Court decisions holding that the receiver or liquidator takes title to the assets and has the right to sue thereon.

In one of the cases cited by the receiver, the Supreme Court of Maine, in Pink v. Town Taxi Co., Inc. (Me.), 21 A. (2d) 656, upheld an assessment on the ground that policyholders had contracted the obligation by reason of their membership, and that the right of the assessment arises from the very nature of a mutual insurance company. The court said: “The insured in a mutual company holds his policy guaranteeing indemnity against loss ‘with a specific and limited fund out of which that indemnity is to be made good. ... In another aspect he is a member of the corporation, made so by the very nature of the contract, and so declared by law. ... In this relation, he is an insurer, and is affected by another and very different class of obligations.’ [Citing Hill v. Baker, 205 Mass. 303.]

“ ‘It follows from the very definition of mutual insurance that all who insure . . . are members of it, with all the rights and subject to all the liabilities of membership; . . . .’ [Citing 21 Am. & Eng. Eney., Second Edition, pages 264 and 265].” And the court concluded by saying that “As insurers they must bear their proportion of necessary assessments, not because they promised in so many words in the contract of insurance to pay assessments, but because they saw fit as policyholders to become members of a mutual insurance corporation operating under the assessment plan. ’ ’

We are of opinion that there is abundant precedent to support the order for a levy of assessment, and it is therefore affirmed.

Judgment affirmed.

Scanlan, P. J., and Sullivan, J., concur.


source: Caselaw Access Project

author: Mr. Presiding Justice Wolfe

license: Public Domain

text:
    Barbara Rule, Appellee, v. Allen Rule, Appellant.
    Gen. No. 9,693.
    Opinion filed January 27, 1942.
    James E. Davis, of Galesburg, for appellant; Armor H. Moreland and Lucien S. Field, both of Galesburg, of counsel.
    M. E. Nolan, of Oquawka, for appellee.
   Mr. Presiding Justice Wolfe

delivered the opinion of the court.

On the 28th day of November 1939, a decree of divorce was entered in thé district court in Elko, Nevada, in favor of the defendant, Allen Bule, and against the plaintiff, Barbara Bule. The decree, among other things, ordered the defendant to pay to the plaintiff in weekly instalments, alimony in the sum of $17.50 for her benefit, and for the support of their minor children. The present action was started by Barbara Buie against Allen Buie in the circuit court of Knox county, Illinois. The defendant now lives in Knox county. After setting forth the final equity decree for alimony entered in the State of Nevada, the complaint alleged that the defendant failed to pay alimony, which had become due and payable prior to the institution of this action. The plaintiff prays for a judgment for the amount of accrued unpaid alimony, and for all future monthly instalments, as they become due, in accordance with the provisions of the Nevada decree, and that the decree of the Nevada court for alimony, be established here as a foreign judgment, and be enforced by appropriate equitable remedies, as is usual in such case's.

The defendant filed a motion to strike the plaintiff’s complaint and stated that under the statutes of the State of Illinois giving full faith and credit to foreign judgments, that only relief at law is recognized, and the courts of this State have no power to enforce a decree in equity entered in a foreign jurisdiction; that the said suit seeks only equitable relief; that by said complaint, said suit is not one in debt declared upon a decree of a foreign jurisdiction. The court overruled defendant’s motion to strike. The defendant stood by his motion and refused to plead. A hearing was had on the verified complaint (for want of answer), and a decree was rendered in favor of the plaintiff. It is from this decree that the appeal is prosecuted.

The court held that the divorce decree between the parties of the State of Nevada be given full faith and credit by this court, and that the provisions for the payment of alimony for the support of the minor children of the parties, as provided in said decree, be adopted and confirmed by the ICnox county court, as a basis for the decree in said court the same as if originally entered in that court. The court further found that the defendant was in arrears in his payment of alimony in the sum of $423.75 and that the defendant was in default in said payments. It is further ordered and decreed that the defendant pay to the plaintiff, the sum of $17.50 on Saturday of each week for the care, máiiitenance, education and support of the minor children belonging to the plaintiff and defendant; that said payments are to continue until the minor child, John Rule, shall reach the age of 21 years, when the payments are to be reduced to $8.75 until the minor child, Robert Rule, shall reach the age of 21 years, as was provided in the Nevada decree; that if the Nevada decree is modified by the district court of the county of Elko and State of Nevada, then upon a showing to the Knox county court, the present decree should be modified accordingly.

The question before us has not been passed upon by our Supreme or Appellate Courts. The decisions in other courts are not in harmony. We have reviewed these decisions and have determined what we consider would be the better rule to announce as the law in this case. This being a case of first impression, we feel at liberty to adopt that rule which, in our judgment, best conforms to the principles of equity, and which tend to the furtherance of justice. A number of courts have adopted the view that alimony due under a decree of a foreign court is merely a debt, collectible only by execution upon a judgment recovered locally upon the foreign decree, and, the remedy at law for its enforcement being complete and adequate, equity has no jurisdiction to undertake its enforcement by contempt or other equitable relief. On the other hand there is considerable authority supporting the proposition that a decree for alimony represents more than a debt; that its basis is the obligation of a husband to support his wife and children, which is a matter of public concern, whether the cause of action arises in the State where the decree is rendered, or in another State to which the parties have moved; that the urgency for its effective enforcement is equally as great in one State as in another; therefore, it should be enforced by the same remedies as are applicable to domestic decrees for alimony. In this view the courts of one State will enforce a foreign decree for alimony, or, more accurately speaking, a local judgment based on a foreign decree for alimony will be enforced by equitable remedies, as by contempt proceedings against the defendant for not complying with the judgment of the court, as is customary in the enforcement of local decrees for alimony.

In the case of Fanchier v. Gammill, 148 Miss. 723, 114 So. 813, the parties to the suit procured a divorce in the district court at Reno, Nevada, in which the husband agreed and was ordered to pay to the wife, alimony at the rate of one hundred dollars per month. He was in arrears in the payment of alimony in the sum of eight hundred dollars. The ex-wife brought suit against her former husband in the State of Mississippi. In her bill, she prayed that the courts of Mississippi would establish and enforce the Nevada divorce decree for alimony by and through the court of equity of that State. The Supreme Court of Mississippi, in passing upon the merits of the controversy, uses this language: “It is our view that, on account of the character of a judgment for alimony, which rests, to some extent, upon public policy, in requiring a husband to support his wife and children, due to the sacred human relationship, and that they may not become public charges and derelicts, the decree for alimony, with the extraordinary power of enforcement by attachment and contempt proceedings, should be established and enforced by our equity court, which has full and sole jurisdiction of all matters of divorce and alimony; because to hold that a foreign judgment for alimony can be enforced in this state only by execution, the same as judgments at law, would be to impair or to deprive a foreign judgment for alimony of its inherent power of enforcement by attachment and contempt proceedings. Thus, as we view it, to so hold would be to disregard the ‘full faith and credit’ clause of the federal law, which we interpret to mean that the judgment, with its peculiar right of enforcement, as one for alimony, should be established and enforced by the equity courts of our state in the same manner, and to the same extent, as it could have been enforced by our court if originally obtained in our state.

“A judgment or decree for alimony carries with it a special power and right of enforcement not given in judgments at law. There is a difference between a judgment for money or property and that of á decree for alimony; and the decree for alimony, because of such difference in the character of the obligation, may be enforced by more efficient and effective means than those given to the enforcement of judgments at law. Why should this extraordinary right of enforcement, due to the character of the judgment, be destroyed and annulled in its power, when it is attempted to be established and enforced in our state upon a decree rendered in a foreign state? An insolvent husband would become immune from the alimony decree if such was the law. It would amount to a partial sterilization of the force of the judgment for alimony.

“There can be no sound reason for such a view. We should not hold that all foreign judgments are alike when it comes to enforcing them in our state, and that execution on a judgment at law is the only method that can be prosecuted, even though such foreign judgment be one for alimony; that such judgment cannot be enforced by proceedings to attach or cite defendant before the court to show cause why he should not be punished for contempt in failing to carry out his obligation to pay alimony to his wife, as solemnly decreed by a court of competent jurisdiction. Such a view is not the better one; and, while there may be respectable authority to support it, we decline to follow it and shall adopt that rule which allows the enforcement of a foreign decree for alimony in the same manner that it could have been enforced, if originally obtained here, to wit, by attachment and contempt proceedings in the chancery court of our state.”

The Supreme Court of Iowa held that where the court of the State of Washington had personal jurisdictions of the parties to a divorce proceeding and has rendered a decree requiring the defendant husband to convey land in Iowa to the wife and the husband prevents the Washington court from enforcing compliance with the order by leaving the State and going to the State of Iowa, an Iowa court may render a decree in personam, against the husband requiring him to convey the land to his wife. Matson v. Matson, 186 Iowa 607, 173 N. W. 127.

The Supreme Court of California held that where a judgment for alimony due the plaintiff under a decree of a sister State was in form, a money judgment, a judgment obtained thereon in California, was in fact an alimony judgment, and hence was enforceable to the same extent and by the same legal methods which are applicable to a judgment originally rendered in California and which makes provision for alimony payments. Bruton v. Tearle, 7 Cal. (2d) 48, 59 P. (2d) 953; Creager v. Superior Court of Santa Clara County, 126 Cal. App. 280, 14 P. (2d) 552; Morrow v. Morrow, 40 Cal. App. (2d) 474, 105 P. (2d) 129.

The Supreme Court of South Carolina announced the rule that a decree for alimony granted by a foreign court in a divorce proceeding, may be established and enforced by and through the equity courts of South Carolina, and that they may assume jurisdiction thereof, and there is no necessity that resort should be made to an execution on a judgment recovered locally on a foreign decree. This was allowed, although divorces from the bonds of matrimony are not allowed in the State of South Carolina. Johnson v. Johnson, 194 S. C. 115, 8 S. E. (2d) 351; Johnson v. Johnson, 196 S. C. 474, 13 S. E. (2d) 593, 134 A. L. R. 318. In the case of German v. German, 122 Conn. 155, 188 Atl. 429, the Supreme Court of the State of Connecticut decided that a New York resident could bring an equitable action in the superior court in the State of Connecticut to enforce a New York decree for alimony against a Connecticut resident as regards past due payments, and the Connecticut court could give any appropriate remedies applicable in an action brought to it in its capacity as a court of equity.

The Supréme Court of Washington in the case of Shibley v. Shibley, 181 Wash. 166, 42 P. (2d) 446, decided that a wife is entitled to recover unpaid alimony payments pursuant to a modified decree entered by a court of another State, where, by the law of that State the decree was final, since judgments for alimony were not subject to modifications as to sums already accrued, notwithstanding the fact that the court of the other State upon stipulations of husband and wife, had once modified the decree as to past due payments of alimony.

In the case of Cousineau v. Cousineau, 155 Ore. 184, 63 P. (2d) 897, the plaintiff had procured a divorce in the State of California and had been granted alimony by the decree of the court. The defendant was in arrears in the payment of the alimony. The plaintiff started suit in the State of Oregon to establish the California decree as an Oregon decree. The Supreme Court of Oregon held that the plaintiff was entitled to establish and enforce the decree of the California court for alimony, and for the custody and support of the child of the parties in the same manner as the California court, and to render favorable to the plaintiff the remedies of a court of equity for the enforcement of the decree when established as to future payments, as they accrued, as well as overdue payments of alimony.

In the case of Miller v. Miller, 186 Okl. 566, 99 P. (2d) 515, the wife obtained a divorce decree in the State of New Jersey on service by publication, and without an attempt to determine what alimony, if any, she should receive. The Supreme Court of the State of Oklahoma held that she could maintain a suit in the State of Oklahoma in a subsequent action to determine the amount of and recover permanent alimony.

These courts have announced and adhere to the rule that a divorce decree in one State can be established as a foreign decree and enforced in their local courts. We are aware that the highest courts of several of the other States have announced a contrary rule. This rule, in whole or in part, is in effect supported by cases from the States of Massachusetts, Michigan, New Jersey, New York and the District of Columbia, but we think the principle of equity and justice are best promoted by the rulings which have been announced in the cases reviewed herein and should be followed.

■ The decree of the circuit court of Knox county should be and is affirmed.

Affirmed.


text:
    Carrie A. White et al., Appellants, v. Locomotive Engineers Mutual Life and Accident Insurance Association et al., Appellees.
    Gen. No. 9,709.
    Opinion filed January 27, 1942.
    Leo P. Baird, of Galesburg, for appellants.
    Hardy, Hardy & Witherell, of Galesburg, for appellee.
   Mr. Presiding Justice Wolfe

delivered the opinion of the court.

On November 1, 1937, the Locomotive Engineers Mutual Life and Accident Insurance Association, incorporated, under the laws of the State of Ohio as a fraternal benefit society, issued its life insurance policy for $1,000 to Murry E. White. The insured died on June 13, 1940, while the policy was in force. Carrie A. White, Mable J. Hager and Ruth A. White, the beneficiaries named in the policy, brought suit on the policy on December 17, 1940. The complaint is in the usual form used in a suit on a life insurance policy.

The defendants filed an answer and a counterclaim. In the counterclaim it is alleged that the defendants issue life and accident policies to its.members, and admit to membership only persons engaged in one or more crafts or hazardous occupations in the same or similar lines of business, namely, locomotive engine men; that its entire membership is derived from members of the Brotherhood of Locomotive Engineers, a labor organization; that from the time the policy was issued, until the death of Murry E. White, the insured, was a railroad engineer, which is a hazardous occupation; that he was a member of the Brotherhood of Locomotive Engineers Division 644; that on October 14, 1940, the circuit court of Knox county entered final judgments against the defendant in two garnishment proceedings, one for $287.36, with costs of $4.20, in favor of the beneficiary, Carrie A. White, and the other for $249.92, with costs of $2.80, in favor of the beneficiaries, Mable Hager and Ruth A. White; that both proceedings were brought for the use of E. M. D. Bracken, Frank B. Carson and Hannah Harper, as administrators of the estate of Daniel S. Robinson, deceased; that in each garnishment proceeding it was claimed that the amounts for which the judgments were entered were due the beneficiaries, 0or judgment debtors, as proceeds of the policy sued on. The substance of the prayer for relief of the counterclaim is, that the defendants be-allowed set-offs for the amounts of the judgments entered in the garnishment proceedings.

The facts alleged in the counterclaim are admitted by the plaintiffs in their reply, and in a stipulation entered into by the parties to this suit.

The defendants did not appear in the garnishment proceedings. Upon default of the defendants, final judgments were entered against it for the amounts stated above. Upon motion of the defendants, the above-named administrators were made parties defendant to this suit. It is conceded that it was the duty of the defendants as garnishees to have interposed, in behalf of the beneficiaries, any statutory exemption of the proceeds of the policy in their favor who were the judgment debtors in the garnishment proceedings. (Rumbold v. Supreme Council Royal League, 206 Ill. 513.)

In their reply the plaintiffs stated: (1) That on July 1, 1937, the defendant as a fraternal benefit society, was under and by virtue of Article XVII of the Ulinois Insurance Code, authorized to do business in the State of Illinois, and in pursuance of such authorization did on November 1, 1937, in the State of Illinois, enter into the contract of insurance set forth in the complaint. (2) That under and by virtue of section 313 of Article XVII of the Insurance Code [Jones Ill. Stats. Ann. 66.988], the money to be paid by any society authorized to do business under said article is not liable to attachment by trustee, garnishee, or other process, and shall not be seized, taken, appropriated or applied by any legal or equitable process, or operation of law, to pay any debt or liability of a certificate holder or any beneficiary named in a certificate, or any persons who have any right thereunder.

The defendants made a motion to strike the para-, graph of the reply which alleges that the money to be paid by the defendants to any beneficiary was exempt from garnishment. The court sustained the motion. It was admitted by the parties that $137.94 was primarily due the Brotherhood of Locomotive Engineers Division 644, out of the proceeds of the policy. The court entered judgment that the plaintiff, Carrie A. White, take nothing by her suit and that the plaintiffs, Hable J. Hager and Buth A. White have and recover from the defendants, the amount of $324.78. The plaintiffs have appealed from this judgment.

The determination of the question whether the interests of the beneficiaries in the proceeds, or fund, of the policy were exempt from the garnishment, depends on whether there is a statutory enactment of the State of Illinois which exempts the fund from the writ of garnishment. (Mineral Point R. Co. v. Barron, 83 Ill. 365; Roche v. Rhode Island Ins. Ass’n, 2 Ill. App. 360.)

It is contended by the plaintiffs that the defendants, not having denied, by any pleading, the allegation of plaintiffs’ reply, that the defendants were authorized to do business in the State of Illinois under Article XVII of the Insurance Code, the provisions of the sections of the article are binding on the defendants. Secondly, that a proper construction of the sections of Article XVII, hereafter quoted, exempt the proceeds of the policy from garnishment.

Article XVTI of the Illinois Insurance Code provides for the management and control of fraternal benefit societies authorized to do business in this State, excepting such societies as the article exempts from the provisions of the article.

Section 308 of Article XVII [Jones Ill. Stats. Ann. 66.983], so far as pertinent to this decision, is as follows: “Exemption of Certain Societies. (1) Nothing contained in this article shall be so construed as to affect or apply to . . . (a) Orders, societies or associations which admit to membership only persons engaged in one or more crafts or hazardous occupations, in the same or similar lines of business.”

Section 313 of the code is as follows: “Funds Exempt from Legal Process. The money or other benefit, charity, relief or aid to be paid, provided or rendered by any society authorized to do business under this article shall not be liable to attachment by trustee, garnishee, or other process, and shall not be seized, taken, appropriated ór applied by an legal or equitable process, or by operation of law to pay any debt or liability of a certificate holder or of any beneficiary named in a certificate, or of any person who may have any right thereunder.”

In this case the parties, by their pleadings, could not change the provisions of the code, nor does the motion of the defendants to strike part of the reply admit as a fact a situation or condition which is legally impossible. (Louisville & N. R. Co. v. Palmes, 109 U. S. 244, 3 Sup. Ct. 193, 27 L. Ed. 922; Owen v. Baggett, 77 Fla. 582, 81 S. E. 888; Murphy v. Bjelik, 87 Ore. 329, 169 Pac. 520.) The allegation of the reply that the defendants were authorized to do business in the State of Illinois under Article XVII rests on the plaintiffs’ construction of the article that foreign fraternal benefit societies exempted under clause (a) of sub-section 1 of section 308 of the code are authorized to do business in this State under the Article XVII. This construction of the article was not admitted by the motion to strike. (McPhail v. People ex rel. Lambert, 160 Ill. 77.) Foreign fraternal benefit societies must comply with Article VI of the Illinois Insurance Code, to transact business in this State. (Section 108, Article VI— Illinois Insurance Code [Jones Ill. Stats. Ann. 66.-783].)

The language of section 308 of Article XVII of the code is plain and positive. “Nothing contained in this article shall be so construed as to affect or apply to . . . (a) Orders, societies or associations which admit to membership only persons engaged in one or more crafts or hazardous occupations, in the same or similar lines of business.” The legislature has declared in Article XVII the construction to be placed thereon. The purpose of construing a statute if not plain, is to ascertain the intention of the legislature and all other rules of statutory construction must give way to this cardinal rule.

The judgment of the circuit court of Knox county is affirmed.

Affirmed.


text:
    Parish Bank and Trust Company, Appellant, v. Wennerholm Bros, and Gus Wennerholm, Appellees.
    Gen. No. 9,711.
    Opinion filed January 27, 1942.

      W. J. Parish and Y. A. Parish, both of Momence, for appellant.
    Eva L. Minor, of Kankakee, for appellees.
   Mr. Presiding Justice Wolfe

delivered the opinion of the court.

On April 28, 1939, the circuit court of Kankakee county entered a judgment in favor of the plaintiff, the Parish Bank and Trust Company, against the defendants, Wennerholm Bros., and Gus Wennerholm, on a complaint on a promissory note, executed by the defendants, and containing a warrant of attorney to confess judgment. On May 19, 1939, the defendants filed a motion to open the judgment, accompanied by an affidavit setting forth that the note had been paid before the judgment was entered. The motion was allowed and the parties submitted the issues made by the complaint, motion and affidavit for trial by the court without a jury. The court entered judgment vacating the confessed judgment and the plaintiff has appealed.

Wennerholm Bros., was the firm name of a partnership composed of Gus Wennerholm and his brother, August Wennerholm, who operated a public garage and bought and sold automobiles. For about 20 years the partnership had been a customer "of the plaintiff, borrowing money on its notes, and selling at a discount, the promissory notes taken by the firm in payment of automobiles sold by it. The notes thus sold to the plaintiff were indorsed by the partnership and until they were paid, there remained the contingent liability of the partnership for the full payment of the notes. It appears in evidence that on September lá, 1935, Wennerholm Bros., was indebted to the plaintiff to the extent of $2,775. This amount being apparently ■made up of the sum of the amounts due on notes held by the plaintiff against the partnership and an additional $675 borrowed on that date by Wennerholm Bros., from the plaintiff. The amount of contingent, or indirect liability of the partnership to the plaintiff, does not appear as of September 14, 1935.

On September 14, 1935, two promissory notes were prepared by the plaintiff, each for $2,775, and one of them is the note entered into judgment confessed on April 28, 1939. We shall designate the note, on which judgment was confessed, as note one, and the other as note two. Note one was payable on demand and signed by Wennerholm Bros., and by Bus Wennerholm. Note two was payable on October 14,1935, and signed by Wennerholm Bros. Note one was payable on demand and contained a warrant of attorney to confess judgment at any time after its date. Note one contained no terms concerning a pledge, while note two referred to note one as being pledged to the plaintiff as collateral security for the payment of note one, and all other liabilities of Wennerholm Bros., to the plaintiff. The words of note two relative to the alleged-pledge now pertinent to be considered, are as follows: “We hereby deposit with and pledge to said Bank as collateral security for the payment of the above note and all other liabilities of the undersigned and of any of each of the undersigned, (if more than one) to said Bank, or the legal holder of this note (whether direct or contingent, joint or several heretofore or hereafter contracted and howsoever and whensoever acquired by said Bank or legal holder) the following property, the value of which is $-, viz-. Wennerholm Bros. Demand Note-$2,775.00.”

It was the understanding of the plaintiff and Wennerholm Bros., that note two was to be paid in monthly instalments of $100. During October 1935, Wennerholm Bros., paid $100 on note two, executed a new note for $2,675, and took up note two. Payments of various amounts were made by the partnership on note two, from time to time, and upon each payment a new note was given by it for the balance then due, and the immediate successor-note to note two was taken up and canceled.

By the process of partial payments, and the renewal of notes, the plaintiff held the renewal note of Wennerholm Bros., dated December 20, 1937, for $500 due in 30 days after its date. On January 1, 1938, August Wennerholm withdrew as partner from the firm of Wennerholm Bros., and the business of Wennerholm Bros., was continued by the Wennerholm Sales and Service, a partnership composed of Gfus Wennerholm and his son, Edward Wennerholm, who had been acting as the manager of Wennerholm Bros., since September 1934. On January 28, 1938, the Wennerholm sales and Service signed the final and twenty-sixth renewal note, payable to the plaintiff on February 28,1938, and took up the note dated December 20, 1937. Each of the renewal notes contained the terms of the pledge stated in note two, which have been above quoted.

On January 17, 1938, Edward Wennerholm signed a financial bank statement, which, it may be fairly and justly inferred from the evidence and exhibits in the record, was given to the plaintiff prior to January 29, 1938. In this statement, showing the assets and liabilities of Wennerholm Sales and Service, Edward Wennerholm stated that the partnership of Wennerholm Sales and Service was composed of Gfus Wennerholm and Edward Wennerholm. On January 29, 1938, the plaintiff accepted notes of Wennerholm Sales and Service to the aggregate amount of $4,017 and credited the direct liability account of Wennerholm Bros., with the amount, leaving the total direct liability of Wennerholm Bros., to the plaintiff on that date as $1,700, as is shown by the ledger sheets introduced in evidence by the plaintiff. The indirect liability of Wennerholm Bros., to the plaintiff on January 29, 1938, as shown by the liability sheet, was $19,507. On January 29, 1938, the plaintiff opened a new liability sheet in the name of Wennerholm Sales and Service, and the direct and indirect liabilities of Wennerholm Bros., was carried forward to the new sheet against Wennerholm Sales and Service.

Edward Wennerholm testified that his father, Gus Wennerholm, withdrew as a partner from the firm of Wennerholm Sales and Service on the first day of March 1938. Officers of the plaintiff testified that the first knowledge which they had that Gus had withdrawn as a partner was in May 1939, when Edward Wennerholm testified as a bankrupt in bankruptcy proceedings. Whether the plaintiff knew it or not, on April 1, 1939, Edward Wennerholm was the sole owner of Wennerholm Sales and Service. On April 1, 1939, the indirect liability of Wennerholm Sales and Service to the plaintiff was $3,923.09, the direct liability was $2,230. On April 1, 1939, Edward Wennerholm gave to the plaintiff a note for $4,650, signed by himself and Wennerholm Sales and Service. This note was due May 1, 1939, and secured by a pledge of five $1,000 U. S. Government Bonds. This note appears in the record as plaintiff’s exhibit 9. The amount of the note was added to the direct liability of Wennerholm Sales and Service on plaintiff’s liability sheet, making the direct liability $6,880 on April 1, 1939. On April 4, 1939, the amount of the note was deducted from the direct liability leaving the direct liability on April 4, 1939, as shown by the liability sheet, $2,230. It does not appear in evidence what was the consideration for the note", nor who owned the bonds on April 1, 1939. On May 2, 1939, Edward Wennerholm filed a petition in bankruptcy. We are informed by counsel for plaintiff that, “On May 2, 1939, the bank disposed of the $5,000.00 in bonds and applied the proceeds in payment of the $4,650.00 note, marked the note paid but still retained possession of it. A credit memo for the balance over was attached to the other notes of the firm.” The note dated April 1, 1939, also contained the terms of the pledge found in note two, above quoted, and included note one as subject matter of the pledge, thus: “5M U. S. Treasury 2%% Bonds due 1953. Wennerholm Note 2775. Indirect Sept-14-1935-Signed Wennerholm Bros., and Gus Wennerholm.”

It is also stated by counsel for the plaintiff that, “Shortly before May 2, 1939, when bankruptcy proceedings were filed, the plaintiff took judgment by confession on the $2,775.00 note signed by Gus. That was on April 28, 1939. On that date the indirect liabilities of Wennerholm Sales and Service were $3,705.18 and the direct liabilities $6,880.00, making a total of $10,585.18. On the date judgment was entered, the bank held plaintiff’s Exhibit 9, a collateral note for $4,650.00 dated April 1, 1939, signed by Wennerholm Sales and Service and pledging $5,000.00 in U. S. bonds and the $2,775.00 note signed by Gus as security for all obligations of Wennerholm Sales and Service, using the identical language as was used in the collateral note signed by Wennerholm note September 14, 1935.”

Basing its contention on circumstances and facts appearing in evidence and the inference to be drawn therefrom, it is urged by the plaintiff that Gus Wennerholm was a partner of the firm of Wennerholm Sales and Service on April 28, 1939, and during all the time in question. The plaintiff then states: ‘ ‘ The issue, then,, as we see it, is, did the bank on April 28, 1939, the day the judgment was entered, hold the Gus Wennerholm note “(note one) ” as collateral security for all indebtedness owed by Wennerholm Sales and Service to the bank at that time.”

The contract of pledge also contained the following: “In case said Bank or the legal holder of this note shall at any time hereafter be of the opinion that said property (including all substitutes therefor and additions hereto) is worth less than or has declined below the value above stated, or in case the undersigned or any or either of the undersigned (if more than one) shall fail to furnish additional security satisfactory to said Bank or legal holder whensoever called for, or shall fail to pay at maturity or any time thereafter the above note, or such other liabilities, or shall be or become insolvent, or shall die, or a judgment or decree be entered against the undersigned, or any or either of the undersigned (if more than one), then and in each and every such case or contingency full power and authority is hereby given to said Bank or legal holder to sell, assign and deliver said property and all substitutes therefor, and additions thereto, or any part thereof, at any time and from time to time, at any Broker’s Board, or at public or priváte sale, at the option of said Bank or legal holder, without advertising the same, or making protest, or demanding payment, or giving any notice of any kind to anyone, and said Bank or legal holder may be a purchaser at said Broker’s Board, or public sale or sales; and after deducting from the proceeds of any sale or sales, all costs, expenses and reasonable attorney’s fees incurred in and about such sale or sales or the protection or collection or conversion of said securities, or the collection of the above note or such other liabilities, the residue of such proceeds shall be applied upon the above note and such other liabilities, whether then due or not due, as and in the proportion said Bank or legal holder of the above note may deem best returning the surplus, if any, to the undersigned. ’ ’

As a general rule one personal obligation of a debtor cannot become a pledge, or collateral security for another obligation of the same debtor. (49 C. J. 903, sec. 21.) The rule, or principle, is well expressed in 21 Ruling Case Law 903, sec. 5.

“In a true sense one personal obligation of a debtor proper cannot become the subject-matter of a pledge or collateral security proper, or in the sense of pledged collateral, for the security of another obligation of the same debtor, for the reason that a debtor’s own personal obligation is no part of his personal property, and cannot be the subject of such a pledge — is a liability and not an asset. Thus the individual note of one partner given to a firm creditor, and payable at maturity of a firm debt, is merely a promise by one partner to pay the firm debt, is not a collateral security for the debt, and the creditor is not barred from suing the firm because of his laches in not collecting the note before the maker’s insolvency. This does not mean, however, that two evidences of the same debt may not outstand, the one as collateral to the other. On the contrary, it has generally been held that a note which has collateral securities attached, or a lien incident may be treated as collateral to another note of the same person, and both the note and its collateral, or lien enforced so far as to preserve the creditor the benefit of the collateral or lien.” The following cases support the above text: Tyner v. Stoops, 11 Ind. 22, 71 Am. Dec. 341; Mercantile Factors’ Corp. v. Warner Bros. Pictures, 215 App. Div. 530, 214 N. Y. Supp. 273; International Trust Co. v. Union Cattle Co., 3 Wyo. 803, 31 Pac. 408, 19 L. R. A. 640; Jones v. Third Nat. Bank of Sedalia, 13 F. (2d) 86; Dibert v. D’Arcy, 248 Mo. 617, 154 S. W. 1116; In re Waddell-Entz Co., 67 Conn. 324, 35 Atl. 257; Dies v. Wilson County Bank, 129 Tenn. 89, 165 S. W. 248. See also Hallowell v. Blackstone Nat. Bank, 154 Mass. 359, 28 N. E. 281, 13 L. R. A. 315; Norfleet v. Pamlico Insurance & Banking Co., 160 N. C. 327, 75 S. E. 937.

The consideration of note, one, signed by Wennerholm Bros., and by Gtus Wennerholm, was represented by note, two, signed by Wennerholm Bros. It is true that a creditor may hold two notes of his debtor for the same debt, one note being collateral to the other, but the creditor may make only a single proof against the debtor and have but one satisfaction. Upon full payment of note two, note one was discharged, not having been the subject matter of a pledge in the true sense. (Dies v. Wilson County Bank, 129 Tenn. 89, 165 S. W. 248.) Under the evidence presented, the trial court properly held the note sued on had been paid.

The appellant contends that the affidavit filed in support of the motion to set aside the confessed judgment, did not have verified or certified copies of all papers attached to the affidavit upon which the appellees relied, as provided by Supreme Court Rule No. 26. The attorney for the appellant made a motion to strike the appellees’ motion to open up the judgment, because it did not have the papers relied upon for their defense attached. The court overruled the motion to strike. The appellant objected to the introduction in evidence of the renewal notes, which tended to prove the payment of note No. 2. The allegation of the motion to open up the confessed judgment, is that note one was paid. Technically, we do not think that the appellant has properly presented this question to this court for review, as the record does not contain the affidavit to which the plaintiff’s motion to strike is addressed. On page 2, of the record, we find the judgment. On page 6, we find the motion to set aside the judgment and for leave to plead; on page 7, is the affidavit of Edward Wennerholm, in support of his motion to open the judgment. On pages 11, 12, and 13, we find another affidavit signed by Edward Wennerholm, which was filed on the 12th day of July, 1939. On page 14, of the record, is the order of court, that the motion of the plaintiff to strike the defendants’ affidavit is allowed and leave granted to the defendants to file a new affidavit in support of their motion to open the judgment, and for leave to plead thereto, by July 17, 1939, at 10 o’clock a.m. On the same page there is a notation, “New affidavit is presented and filed by the defendants.” On page 18, of the record, we find the motion of plaintiff to strike the affidavit of the defendants, because there is not attached to said affidavit, sworn certified copies of all papers upon which said defendants herein, intended to rely, and that said motion of defendants did not comply with the statute. On page 19, is the order of court overruling the plaintiff’s motion to strike the affidavit of the defendants, and the order opening the judgment and giving each side of the litigation 10 days ’ time to file further pleadings if they so desire.

As before stated, we think that with this state of the record, that technically there is nothing for this court to pass upon, but assuming that the clerk, in arranging the files, should have placed the order of court contained on page 14, before the affidavit, as contained on pages 11, 12 and 13, and that the. motion to strike the affidavit of the defendants, as contained on page 18, of the record, related to this affidavit of the defendants, then the trial court did not err in overruling plaintiff’s motion to strike, because there is nothing in the affidavit of defense that would show the court that the defendants had any writings of any kind to prove their defense of payment. The affidavit says that the note was paid, and then enumerates the amounts which were paid at different times. Whether they were paid by cash, checks, or by renewal notes, does not appear.

It is also insisted by the appellant that it was reversible error for the court to admit in evidence the renewal notes produced by the defendants. Technically, it was probably error for the court to admit these notes in evidence. However, we do not see how the plaintiff could, in any possible manner, be prejudiced by admitting in evidence canceled notes that had been prepared by themselves, and signed by and then paid by the defendants. The plaintiff does not contend that these notes were not executed and paid by the defendants. How the plaintiff could be surprised, or not ready to meet the issues, as presented by these canceled notes, we are unable to see. We do not think, under the facts presented in this case, that it was reversible error for the court to admit the canceled notes of the defendants in evidence.

It is claimed by the appellant that over their objection, the trial court admitted evidence of payments made by the appellees to the appellant, after the date of the original judgment was entered, to-wit, April 28, 1939. The appellant itself is the first one to commit this error, if it is considered an error to admit such evidence. On page 41, of the abstract record page 117, we find in the cross-examination of Edward Wennerholm, conducted by Mr. Varnum A. Parish, attorney for the appellant, concerning the payments that he had made to the appellant bank; that after the testimony in regard to the payment of a note secured by • bonds, Mr. Parish asked the witness, “Ton do not mean that all obligations of Wennerholm Sales and Service have been paid, do you?” To which the witness replied, ‘ ‘ Practically so. ” Then the question was asked of the witness, “What do you base your statement on?” The witness proceeded to answer, “That my liability was secured by mortgages on horses, new cars and used cars.” The attorney then asked him, “Do you know anything about the claim filed in the bankruptcy Court?” The witness answered, “I do.” He then stated that the bank had received approximately $3,300 as payment on the account, and about $5,200 on the sale of Government Bonds, which was applied on the note of $4,500, which is plaintiff’s exhibit No. 9. The other testimony in regard to payments after judgment, were relative to this same note, brought out by cross-examination of Mr. Parish, one of the officers of the appellant bank. If there were any errors committed, the plaintiff himself invited it by the cross-examination of one of the defendants, and the introduction in evidence of the exhibit No. 9. Under the circumstances, as revealed by the evidence in this record, the court did not commit any error by the introduction of this evidence.

We find no reversible error in the case, and the judgment of the trial court is hereby affirmed.

Affirmed.


text:
    Farmers’ State Bank, McNabb, Illinois, Appellant, v. Dora Mae Kidd, Administratrix of Estate of James Lloyd Kidd, Deceased, Appellee.
    Gen. No. 9,715.
    Opinion filed January 27, 1942.
    Walter D. Boyle, of Hennepin, and George W. Hunt, of Peoria, for appellant.
    Horace B. Brown and Merville L. Brown, both of Princeton, for appellee.
   Mr. Presiding Justice Wolfe

delivered the opinion of the court.

The Farmers’ State Bank of McNabb, Illinois, filed its complaint in the circuit court of Putnam county, stating that by reason of an equitable assignment certain funds in the hands of Dora Mae Kidd, administratrix of the estate of James Lloyd Kidd, deceased, belonged to the bank. The complaint was amended and upon motion of the defendant the same was dismissed at the cost of the plaintiff and this appeal is prosecuted.

The complaint alleged, among other things, that the bank had paid certain checks drawn by James Lloyd Kidd, in his lifetime, under an agreement with Kidd that certain horses and mules which he purchased with the funds procured from the bank would be shipped by him to a commission firm in St. Louis, and that he would direct the proceeds of said sale to be delivered to the appellant bank; that said horses and mules were shipped by Kidd to the commission firm in St. Louis, and sold by the commission firm; that Kidd directed the proceeds of said sale to be sent to the appellant. It is further alleged that Kidd died before this was done and the commission firm sent the proceeds to Dora Mae Kidd, the administratrix of the estate of James Lloyd Kidd, deceased.

It is claimed by the plaintiff that the facts as set forth in their complaint, show an equitable assignment of the funds by Kidd, to the appellant bank. Whether there was an equitable assignment is the only question involved in the appeal. In the case of Hibernian Banking Ass’n v. Davis, 295 Ill. 537 the Supreme Court was considering whether the contract between the parties to the suit created an equitable mortgage, and on page 544 we find the following language: “While it is true that it does not require express words to create an equitable mortgage where the intention to create such a lien is evident, yet it must clearly appear from the instrument or the surrounding circumstances at the time of entering into the same, .that the maker of the instrument intended that the property therein described is to be held, given or transferred as security for the obligation. (3 Pomeroy’s Eq. Jur. — 3d ed. — sec. 1235.)

“Plaintiffs in error urge that these instruments at least constitute an assignment of the fund arising from the sale of the building. Counsel, however, lose sight of the difference between an actual assignment or appropriation of the fund and a mere promise or agreement to pay out of a certain fund when it shall be collected or recovered. It is only where there is an actual appropriation of the fund that an equitable assignment arises. It does not arise from a promise to pay out of a certain fund when such shall be created. Story v. Hull, 143 Ill. 506; Cameron v. Boeger, 200 Ill. 84.”

Our courts have held that an agreement to pay out of a particular fund is not an assignment of such fund or any portion thereof. To constitute such an assignment, the assignor must not retain control over the fund >and the transaction must be such that the fund holder may safely pay the assignee. Bromwell v. Turner, 37 Ill. 561; Bell & Howell Co. v. Spoor, 225 Ill. App. 256; Cameron v. Boeger, 200 Ill. 84.

The only case cited by appellant to support their contention is Lewis v. Braun, 356 Ill. 467. We do not think that the facts in the Lewis case are the same as in the present case. The majority opinion states the law applicable to such cases. The facts in the two cases are so different that the law does not apply to the case at bar. In the present case we think the only agreement, as alleged in the complaint, was that Kidd agreed to pay the bank out of a particular fund, namely, out of the proceeds of sale from the horses and mules, but at all times he retained control over the fund. Therefore, under the law there was no equitable assignment of the proceeds of the sale.

The judgment of the circuit court will be affirmed.

Affirmed.