Taylor v. Order of Sparta

Opinion by

Mr. Justice Potter,

The bill in this case was originally filed against The Order of Sparta, which is an unincorporated beneficial association, and as such does not constitute a legal entity, against which suit may properly be brought: Maisch v. Order of Americus, 223 Pa. 199. Realizing that the bill had not been properly filed, counsel for plaintiffs moved to amend by adding as defendants the names of three of the chief officers of the association as representing themselves and all others having the same interest. The bill should have been framed in this way in the first instance. The amendment was allowed, subject to exception, and counsel for defendants then asked for a postponement of the trial, which was granted. When the case was again called, the hearing proceeded without objection. The parties whose names were added were set forth in the bill and in the answer as the chief officers of the order. One of them, W. F. Lester, signed and swore to the answer which he made, in his individual capacity. Another, Robert A. Welsh, was present in court during the trial and was the first witness examined. The same counsel appeared for the association and for the individual defendants. It is suggested that the original bill was a nullity, as no real defendant was named, and that it was not therefore capable of being amended. Technically this objection is well founded. But if it had been sustained^ and the bill dismissed, a new bill could at once have been filed, and served on defendants. The result would have been a short delay, and if this would have been of any advantage to defendants, it would have been nothing more than that which they had by means of the motion for a postponement, which was granted by the trial judge. In asking for delay, and in agreeing to the date for hearing, which it was also agreed should be final, and by appearing for defendants and taking part in the trial, we think counsel for defendants should fairly be held to have waived all technical objections to the regularity of the amendment.

The findings of fact and conclusions of law of the trial judge, confirmed by the court below, were with one exception favorable to the defendants. It wa's held that the order was not to be regarded as a copartnership, and that the amendments of 1907 and 1915 to the constitution and by-laws of the order were binding upon every member, and that they had the legal effect claimed by defendants. The decision followed Chambers v. Supreme Tent of Knights of Maccabees, 200 Pa. 244, and Suckling v. Artisans’ Order of Mutual Protection, 35 Pa. Superior Ct. 199, and is in accordance with the distinction pointed out in Marshall v. Pilots’ Assn., 206 Pa. 182, 183, between cases where changes in by-laws were made after the member had acquired special rights as a creditor, and those where the changes had been made before such rights accrued.

The only finding against defendants was that the Order of Sparta is insolvent, and it is upon this finding that the decree is based. Admittedly the Order of Sparta is a beneficial association, and not an insurance company, and its contracts with its members are not insurance policies. They fall within the line of decision in Com. v. Equitable Beneficial Assn., 137 Pa. 412; Northwestern Masonic Aid Assn. v. Jones, 154 Pa. 99; Fischer v. American Legion of Honor, 168 Pa. 279; Blair v. Supreme Council Legion of Honor, 208 Pa. 262; Ogle v. Barron, 247 Pa. 19. It was held in Marcus v. Heralds of Liberty, 241 Pa. 429, and Helmbold v. Independent Order of Puritans, 61 Pa. Superior Ct. 164, that the contracts issued by the defendant associations were insurance policies, and not benefit certificates. In the present case, however, the contracts of plaintiffs were unquestionably benefit certificates. But in determining the solvency of the order, the trial judge applied a rule which would require the creation and maintenance of a reserve fund substantially like that required of life insurance companies. He said that as applied to the present case, “solvency does not necessarily mean the mere ability to pay the amount of the certificates of certain members who may die in the present, but does not provide the means for the establishment and maintenance of a fund which will secure and guarantee the payment of all the certificate holders when the certificates mature by the death of each one of such certificate holders.” We know of no warrant for holding a beneficial association to so high a standard. As it is not an insurance company, and its contracts not insurance policies, the ordinary rule for determining .solvency should be applied. In the recent case of Com., ex rel., v. Tradesmen’s Trust Co. of Philadelphia, 237 Pa. 316, the syllabus, which follows substantially the language of the opinion by Mr. Justice Stewart, (p. 319) reads": “Insolvency, in its legal sense as dealt with by the'law regulating banks, trust companies and kindred corporations, exists whenever such an institution, from any cause, is unable to pay its debt in the ordinary or usual course of its business.” It is evident that the Order of Sparta is not insolvent in this sense. It has thus far met its obligations, and it does not appear that it has any outstanding liabilities due and unpaid. It has a substantial balance in its treasury and it has shown by uncontradicted expert testimony that during the current year it can raise sufficient money from assessments to meet the probable death claims during that period and leave a surplus over. The trial judge was evidently of opinion that the order would eventually not be able to carry out its contracts with, its members, and he held that while it may not be technically insolvent at this time, it is, in the language of the bill, “decadent” and bound to become actually insolvent within a short space of time. The evidence tended strongly to support this conclusion. In the original constitution of the order, provision was made for a permanent fund which was to be formed by diverting a specified sum from each assessment collected, which was to be used for the payment of the assessments levied upon members in good standing who had belonged to the order for twenty-five consecutive years, and who were by the same section exempted from other liability for assessments. It is conceded that the scheme for a permanent fund was. a failure, and that by a subsequent amendment to the constitution, the permanent fund was abolished, and it was provided that the members who were on that fund, should be required to pay assessments the same as other members. But the defendants now assert their belief,- that the permanent fund having been abolished, and the constitution having been amended as stated, the order will soon regain its prosperity through increased receipts from assessments, and the addition of new and younger members. They claim at any rate the right to test their new plans without interference, especially as their testimony shows that the order will be able to meet all obligations likely to fall due for more than a year to come.

The trial judge found éxpressly that there was neither allegation nor proof of fraudulent conduct, dishonesty or intentional mismanagement, on the part of the officials of the order. The unintentional mismanagement consisted only in following the scheme of operation which was established by the constitution of the order, for which the officers were not more responsible than any of the other members. It is suggested in the argument of counsel for appellants that a large majority of the members are not dissatisfied with the new assessments. The beneficiary certificates of the order recite an express agreement by each member “to accept the same, subject to such laws, rules, regulations and decrees as may now exist or may hereafter exist or be adopted by the said Great Senate of Sparta.” Each member also signed' an acceptance in which he agreed to pay all assessments required of him. This would apparently bind the members to the payment of assessments to an amount sufficient to meet any obligations that may be incurred. We know of no power in the court to revise these rules and regulations of the order, which have been adopted in accordance with its constitution. The rule seems to be as stated in Niblack on Voluntary Societies, Section 22, p. 44, where it is said: “In respect to the by-laws of an unincorporated society, the court has no visitorial power, and may not determine whether they are reasonable or unreasonable.” A case much like the present, is Crombie v. Order of Solon, et al., 157 Pa. 588. There the plaintiff, a certificate holder in a beneficial association, filed a bill to prevent further exercise of its powers by the association or disbursement of its funds. The paper books in that case show that in granting an injunction, the judge in the court below said: “I am decidedly of opinion that the sooner the affairs of the order are wound up the better. I do not think it possible to carry out the scheme proposed in the constitution and regulations. The hopes and prospects held out to members can never, in my judgment, be realized. The circulars and certificates sent out to members and to induce new members to join, are chimerical and illusive. Sooner or later the scheme will fall and end disastrously.” This court, however, reversed the court below, and dismissed the bill mainly upon the ground that the averments, which denied by a responsive answer, had not been overcome by proof. But Mr. Justice Mitchell said (p. 590) : “It is doubtful if the bill presents any cause of action beyond the dissatisfaction of a member of the minority with the policy of the adminstration of the party in control.” And he added: “That the whole scheme of the Order of SolOn is utterly worthless, impracticable and certain to end in disaster, is no more the fault of the defendants than of the plaintiff.” This language is appropriate to the case at bar. Complainants here must be held to have known and assented to the provisions of the constitution which “were in force at the time of their admission to the order, and to have anticipated the possibility of changes and alterations therein, which might thereafter be lawfully made.

We find nothing in the record to justify the conclusion that the Order of Sparta is at the present time insolvent, under the law applicable to fraternal, beneficial associations. Such societies cannot be held to the rigid rules which are used to safeguard insurance contracts. To do so, would practically mean to prohibit their formation, or existence. We do not see that the court is justified in appointing receivers, and in winding up the business of the association, merely because its scheme of operation seems to the court to be impracticable, and likely to end in insolvency. This is particularly true, where as here, it appears that the association has no unpaid indebtedness, and has lawfully amended its constitution so as to permit of the employment of new methods which have not yet been tested, and where but a small minority of the members have expressed dissatisfaction with present conditions and prospects. The opinion of the learned trial judge in this case, shows that it is the result of great industry, and painstaking care in its preparation. But the findings of fact, and conclusions of law were mingled with a discussion of the questions involved in such a way as to be somewhat confusing. The value of the opinion would have been greatly increased, and the labor in reviewing the case would have been much lessened, if the findings of facts and conclusions of law had been stated in separate and numbered clauses, followed with a discussion of the questions involved, under a separate head. This is the correct equity practice, as pointed out in Hastings Water Co. v. Boro, of Hastings, 216 Pa. 178, 181, and cases there cited. Upon the whole case here presented our conclusion is, that the court below erred in granting an injunction and in appointing receivers.

The decree is reversed, and it is ordered that the bill be dismissed. The costs of this appeal to be borne by appellants in their capacity as executive officers of the Order of Sparta.