Ross v. Knapp, Stout & Co. , 1898 Ill. App. LEXIS 70 ( 1898 )

Me. Justioe Bigelow

delivered the opinion of the court.

The declaration contains seven special counts on the decree of assessment, and also the common counts, and to it, and to each count, defendant demurred; the court sustained the demurrer and dismissed the case.

That the court erred in sustaining the demurrer to the common counts, and that for the error in doing so the judgment must be reversed, is conceded by defendant in error; but it is claimed that the error was unintentional, and as counsel on both sides earnestly request us to pass upon the demurrer to the special counts, we have concluded to do so.

The only question presented for our consideration is—is defendant in error bound by the decree appointing a receiver, and the subsequent proceedings, in making an assessment of the policy holders, to pay the liabilities of the insurance company ?

The contention of counsel for defendant in error is, that the entire proceedings are void, and hence no action can be maintained upon them. To sustain this contention, it is urged that there are but two methods of procedure by which the policy holders can be legally assessed to pay the debts of the insurance company. One is, by petition in chancery by the auditor of State, under a law entitled “ An act in regard to the dissolution of insurance companies, approved February 17, 1874,” in force July 1, 1874 (Hurd’s R. S. 1897, 916).

The other is by proceedings in equity, commenced and conducted under and in accordance with the provisions of section 25 of the general corporation act (Hurd’s R. S. 1897, 425).

The first section of the act of 1874 is as follows: “ That if the auditor of State, upon examination of any insurance company incorporated in this State, is of the opinion that it is insolvent, or that its condition is such as to render its further continuance in business hazardous to the insured therein, or to the public, or that it has failed to comply with the rules, restrictions or conditions provided by law, or has exceeded or is exceeding its corporate powers, he shall apply by petition to a judge of any Circuit Court of this State, to issue an injunction, restraining such company, in whole or in part, from further proceeding with its business until a full hearing can be had, or otherwise as he may direct. * * * He may, in all such cases, make such orders and decrees from time to time, as the exigencies and equities of the case may require, and in any case, after a full hearing of all parties interested, may dissolve, modify or perpetuate such injunction, and make all such orders and decrees as may be needful to suspend, restrain or prohibit the further continuance of the business of the company.”

Section 5 of the act provides for the appointment of a receiver of the company, upon certain contingencies, but no provision is made whereby a creditor of the company can require the State auditor to initiate proceedings against a company, and whether the auditor shall act or not, seems to be left to his discretion. Evidently the purpose of the law was, to give the auditor supervisory control of insurance companies, organized under the laws of this State, upon the assumed ground that the business of insurance is of a public nature, and the State should see to it that none but solvent, reliable, law-abiding insurance companies should be allowed to do business in the State, and that all others having their origin here should be exterminated.

It was not intended that the State should run the business of insurance, or become a collecting agency for creditors of insurance companies; but if, in protecting the public from being defrauded by them, such creditors are aided in securing their just claims, the aid is merely incidental to the main purpose of the law.

So far as appears from the pleadings in this case, the insurance" company is not insolvent, and we can not assume that it has done, or omitted to do, anything that would require the State auditor to institute proceedings to dissolve it. Since, then, a judgment creditor of the company can not, under the act of 1874, initiate proceedings against it, or require the auditor to do so, it can not, in our opinion, be held that the act provided a certain method by which the judgment creditor, in this case, could have collected his judgment.

As to the other method of procedure, so much of Sec. 25 of the act as is necessary to be- considered is as follows:

25. “ If any corporation or its authorized agents shall do, or refrain from doing any act which shall subject it to a forfeiture of its charter, or corporate powers, or shall allow any execution or decree of any court of record for a payment of money after demand made by the officer, to be returned ‘ no property found,’ or to remain unsatisfied for not less than ten days after such demand, or shall dissolve or cease doing business, leaving debts unpaid, suits in equity may be brought against all persons who were stockholders at the time, or liable in any way for the debts of the corporation, by joining the corporation in such suit; and each stockholder may be required to pay his pro rata share of such debts or liabilities, to the extent of his unpaid portion of his stock, after exhausting the assets of such corporation. And if any stockholder shall not have property enough to satisfy his portion of such debts or liabilities, then the amount shall be divided equally among all the remaining solvent stockholders. And courts of equity shall have full power, on good cause shown, to dissolve or close up the business of any corporation, to appoint a receiver therefor, who shall have authority * * * to sue in all courts, and do all things necessary to closing up its affairs as commanded by the decree of such court.”

The definition of “ stockholder ” as given by Webster is, “ one who is the holder or proprietor of stock in the public funds, or in the funds of a bank or other stock company.” To be a stockholder of an incorporated company, is to be possessed of the evidence that the holder is the real owner of a certain undivided portion of the property, in actual or potential existence, held by the company in its name, as a unit, for the common benefit of all the owners of the entire capital stock of the company.

The corporation created by law is thus a trustee of the stockholders, whose interest it is its duty to guard, and the stockholders have nothing to do with the property itself, except to select persons to manage and control it.

It is clear that defendant in error is not a stockholder of the insurance company, because the company has no capital stock; but when its property became insured by the insurance company, it, by virtue of section 2 of the charter of the latter, became a member of the insurance company, and that is all that it ever was.

But it is contended that the further language of said section 25 to wit, “or liable in any way for the debts of the corporation,” embraces policy holders of mutual insurance companies, and hence defendant in error was a necessary party to the proceedings for the appointment of a receiver for the company. There might be force in the contention, were it not for the following language in the same sentence, viz., “and each stockholder may be required to pay his pro rata share of such debts or liabilities to the extent of the unpaid portion of his stock, after exhausting the assets of the corporation,” which leaves little, if any, doubt that the legislative intent was to embrace stockholders only of companies having a capital stock. Any other construction put upon the language of the section would, in our opinion, be forced and unnatural, and should not be resorted to.

Another reason why the view already expressed is the true view to take of the intent of the section, is the well known fact that stockholders of corporations are usually not a numerous body of persons, and commonly reside at or near the place where the company is located, and hence can be easily reached by process of the courts, while policy holders of a mutual insurance company are usually a numerous class of persons, and widely scattered, many residing in different States, and to require them to be severally made parties to the proceedings to collect a debt from the company, or even for the purpose of winding it up, would be to require an impossibility, since there is no way by which nonresidents can be brought into court, and personal judgments or decrees rendered against them, without actual service of process upon them, within the confines of this State.

The cases relied upon to support the view that policy holders of a mutual insurance company can not be bound by the proceedings of a court of equity, appointing a receiver and assessing them, unless they are personally made parties to the proceedings, and so have had their “ day in court,” are Chandler v. Brown, 77 Ill. 333; Chandler v. Dore, 84 Ill. 275; Chestnut v. Pennell, 92 Ill. 55; Lamar Ins. Co. v. Gulich, 102 Ill. 41; and Farwell v. Great Western Telegraph Co., 161 Ill. 532. Chandler v. Brown was a case unlike the case we are considering, as the Lamar Insurance Co., of which Chandler was the receiver, was a stock company, and the proceedings were admittedly begun under the twenty-fifth section of the corporation act. The company was by decree declared to be insolvent, and “ its affairs were ordered to be adjusted and closed up,” while in this case the company was not insolvent, and the proceedings were not begun for the purpose of winding it up, but the bill was simply a creditor’s bill, brought under section 49 .of the chancery act, and all it sought was that the court of chancery should assess the premium notes of the policy holders, which the directors of the company bad neglected to do as required by section 6 of the charter of the company. Chandler v. Dore is exactly like Chandler v. Brown. The points decided in Chestnut v. Pennell are that a decree against an insurance company for a fire loss is not evidence in an action against a stockholder of the company for the same loss, and again reiterates the points decided in Chandler v. Brown. Lamar Insurance Co. v. Gulich was a case brought by the insurance company for the use of its receiver on a note or bond given by Gulich to the insurance company for ten shares of its stock, and it was held that the case was governed by Chandler v. Brown.

In the case of Wincock v. Turpin, 96 Ill. 135, the court, in referring to section 25 of the corporation act, said, “ but that section only applies to corporations organized under that chapter. It does not apply to or embrace bodies created by special charter.”

In the case of Great Western Telegraph Company v. Gray, 122 Ill. 630, the court, in referring to the case of Chandler v. Brown, said : “ The decision was one merely upon that section 25—what it provided—and is not to be taken as authority to govern in any other case than in one arising under that section. There was no purpose to depart from the well established, general rule, that a court acquires jurisdiction to appoint a receiver of corporate assets by service of process upon the corporation. The stockholder is represented in his interest as such, by the presence of the corporation.” Citing Morawetz on Corp., Sec. 822; Ward v. Farwell, 97 Ill. 593; Sanger v. Upton, 91 U. S. 56.

In Farwell v. Great Western Telegraph Co., supra, the court reviewed the Gray case, and held that the court had been deceived in deciding the ease upon an alleged state of facts that had no existence; but as we understand the court the Gray case was properly decided; if the facts had been as alleged in the declaration—or, otherwise stated, if, in the Gray case, the proceedings for the appointment of a receiver and an assessment of the stockholders had been commenced before the enactment of the general incorporation act of 1872, the demurrer to the declaration or the assessment should have been overruled, notwithstanding the stockholders were made parties to the proceedings under which the receiver was appointed and the assessment made.

In view of what was said in the Farwell case, we are inclined to the opinion, that, in cases begun since July 1, 1872, the method provided by section 25 of the general corporation act, for appointing a receiver and assessing the stockholders of a corporation, organized for a pecuniary profit and possessed' of a capital stock, supersedes all other methods excepting the proceeding authorized to be commenced by the State auditor against insurance companies; but we find it unnecessary in disposing of this case, to adjudge that question.

The Superior Court of Cook County is a court of superior general jurisdiction, and its proceedings can not be attacked collaterally except for the entire lack of jurisdiction, and we hold that section 25 of the general corporation act, entitled “An Act Concerning Corporations,” approved April 18,1872, and in force July 1,1872, does not apply to mutual fire insurance companies organized under the laws of this State, and that the proceedings of the Superior Court of Cook County, in appointing a receiver and making the assessment of defendant in error, as declared on in this case, are valid, and that the court erred in sustaining the demurrer to the declaration and dismissing the case.

The judgment of the court is reversed and the cause remanded.