Mrs. Kate C. Bailey v. Sovereign Camp, Woodmen of the World, 116 Tex. 160

Mr. Chief Justice FLEWELLEN delivered the opinion of the court. On July 25, 1923, plaintff in error filed suit in the District Court of Dallas County, Texas, against defendant in error on a beneficiary certificate issued by the defendant in error to her deceased husband, James F. Bailey, in favor of plaintiff in error as beneficiary. The case was tried before the court without a jury on October 9, 1923, and judgment was rendered in favor of plaintiff in error for §1,514.66, with legal interest thereon from January 25, 1923, and costs.

On appeal the Court of Civil Appeals at Texarkana reversed and rendered the case in favor of defendant in error. Mrs. Bailey thereafter, and within the proper time, filed her application for writ of error herein, which was granted by this court on March 24, 1926, because of an apparent conflict between the decision of the Court of Civil Appeals in this case and prior decisions of the Court of Civil Appeals at Waco in the case of Sovereign Camp, Woodmen of the World, v. Hines, 273 S. W., 927; and the Court of Civil Appeals at San Antonio in the case of the Maccabees v. Johnson, 273 S. W., 612.

The essential and controlling facts agreed upon in the trial court are fully set out in the opinion by the Court of Civil Appeals, not yet reported (277 S. W., 782), and will not be repeated. Mr. Bailey was a member in good standing in defendant in error’s order up until midnight of May 31, 1922. Failing to pay his May assessment during the said month of May, he became automatically suspended. He could only become reinstated and entitled to the protection and benefits of his certificate by complying with the requirements contained in said certificate and the by-laws of the order.

It is well settled that fraternal benefit societies have the right and authority to enact by-laws and to make such by-laws, as was done in this case, a part of the contracts of insurance, and that the same are binding upon the insured. Wirtz v. Sovereign Camp, W. O. W., 114 Texas, 471, 268 S. W., 438, and authorities therein cited. Under the by-laws of the order, Mr. Bailey could have become reinstated within ten days after default by paying all arrearages and dues, and being in good health at the time of such payment and so remaining for thirty days thereafter.

Bailey paid his May assessment by posting a money order on June 10, 1922, the tenth day, but said money order was not received by the local clerk at Fort Worth until June 12, 1922, the- twelfth day, two days after the expiration of the ten-day period. The dues, therefore, were not paid within the ten-day -period, because the payment was of the date when received by the agent of the defendant order, in this instance the clerk of the local camp at Fort Worth.

The rule of contracts that when an offer is made by mail and accepted by mail, the acceptance is effective and the contract binding when the acceptance is dropped in the post office or mail box, has no application here. The rule of contracts is based upon the theory that the person making , such an offer constitutes the mail service as his agent by adopting that means, and that when the acceptance has been placed in the mail it has been placed with the agency selected by the person making the offer and is constructively in the latter’s hands.

This rule, if .sound at all, is not to be extended beyond the law of contracts. The defendant order in this case clearly had not constituted the mails as its agency for the collection of assessments due. Therefore, such assessments are to be considered paid only upon receipt of same by the local clerk or other authorized agent designated to receive them.

Therefore, the ten-day provision of the by-laws has no application in this case; and Bailey’s reinstatement and plaintiff in error’s right to recover depend solely upon that provision of the by-laws permitting reinstatement after the ten-day period had expired and before the expiration of three months, which right is determined by Sec. 66, Subd. (

b) of the by-laws above referred to. In this case, Bailey paid his. arrears and dues after the ten-day period had expired. Upon receipt of said arrearages and dues on June 12, 1922, the defendant order did not have to accept same, and Bailey had no absolute right to make such payment after the expiration of the ten-day period without also-furnishing a written statement and warranty of good health and non-use of intoxicants as provided in Sec. 66, Subd. (

b) of said by-laws. This brings us to a well settled rule in the law of insurance, which is as follows: When, under a policy of insurance, a forfeiture has been worked and the insurer has knowledge of the existence of facts which constitute the forfeiture of the certificate or policy, any unequivocal act done after, the forfeiture has become absolute, which recognizes the continued existence, of the certificate or policy, or which is wholly inconsistent with a forfeiture,' will, constitute a waiver thereof. See Calhoun v. The Maccabees (Com. App.), 241 S. W., 101, and cases therein cited.

The discussion of this question in that case by Presiding Judge McClendon of the Commission of Appeals is thorough and wholly satisfactory. We do not repeat it, but merely make reference to said opinion and the authorities therein cited. Under the rule announced above, in order to bring about a waiver of the forfeiture, three conditions of facts are necessary. First. The insurer must have knowledge of the facts constituting the forfeiture of the certificate. Second. The forfeiture must be complete and absolute. Third.

There must be some unequivocal act on the part of the insurer which recognizes the continuance of the policy, or which is wholly inconsistent with the forfeiture. In this case it is undisputed that the insurer did have knowledge of the facts constituting the forfeiture.

When Bailey failed to pay his assessment during the month of May and within ten days thereafter, the local clerk at Fort Worth knew that the dues had not been paid and that Bailey’s benefit certificate had become forfeited, and that reinstatement could only become effective by the furnishing of a written statement and warranty, as provided in the by-laws, in addition to the payment of said dues.

The clerk of the local camp was also the agent of the defendant order, and the order is charged with the knowledge secured by him in the scope of his agency, and knowledge and notice acquired by the local clerk in the performance of his duty are as a matter of law imputed to the principal. See Calhoun v. the Maccabees, supra, and authorities therein cited. Therefore, the defendant order was charged with the knowledge imputed to it by law that Bailey had forfeited his certificate and he had not made payment for reinstatement within the ten-day period.

The forfeiture became complete and absolute under the certificate and policy when Bailey failed to pay his dues during the month of May, 1922, and when he did not make payment within ten days; and he could only be reinstated by complying with the requirements of a written warranty, or by a waiver of the forfeiture. ' This brings us to the question as to whether or not there was an unequivocal act by the insurer recognizing the existence of the policy and benefit certificate, and which was wholly inconsistent with the forfeiture.

The defendant order accepted the dues and premium upon Bailey’s certificate on the 12th day of June, 1922, and accepted same without requiring a written warranty, a thing they were not forced to do. Nothing could be more inconsistent with the forfeiture of an insurance policy or certificate than the acceptance and retention of the premium paid for the protection afforded by the policy, as was done in this instance. In. the case of Supreme Lodge v. Wellenvoss, 119 Fed., 671, 56 C. C.

A., 287, Judge Day, while a member of the United States Circuit Court of Appeals, wrote concerning forfeiture of insurance policies as follows: “Conceding the right of a society to pass a judgment of this character, which shall work a forfeiture of the contract of insurance, as well as terminate the social and fraternal rights of the member, are there no limitations upon the exercise of this right ? Forfeitures are not favored in the law, and he who would insist upon the exercise of the right must act in strict accordance with the terms of the contract which gives the privilege.

It has been repeatedly held in ordinary contracts of insurance that the receipt of a premium after the accruing of a cause of forfeiture of which the company has knowledge is a waiver of the right to insist upon it. Insurance Co. v. Raddin, 120 U. S., 196, 7 Sup. Ct., 500, 30 L. Ed., 644.

We perceive no good reason why the general principles of the law governing forfeiture should not apply to the insurance contracts of benefit associations.” The time has not come in this State when an insurance company, whether fraternal or otherwise, can, with knowledge that a policyholder has forfeited his right of protection, voluntarily accept and retain the premium which the insured has paid, as was done in this instance, without also keeping in full force and effect the liability of said insurance company under said policy.

Particularly is this true where the premium is retained with the knowledge of facts constituting a forfeiture and returned only after the death of the insured. One who places his bets after the dice are thrown is sure to win. It is too evident for words that had Bailey lived no forfeiture would have been "claimed or sought. But Bailey died, and the premiums were returned. Insurance companies cannot so gamble on the lives of their policyholders. Having accepted the wager in accepting the premiums, the order was bound by the consequences.

The law, as we have stated it, is supported by the decisions of this court (see Calhoun v. The Maccabees, supra, and the cases therein cited), and by the Courts of Civil Appeals at San Antonio and at Waco (see The Maccabees v. Johnson, 273 S. W., 612, and Sovereign Camp W. O. W., v. Hines, 273 S. W., 927). We are inclined to follow the law as expressed in those cases. This case clearly illustrates the rule which we have laid down.

If Bailey had paid the money within ten days after he became automatically suspended, the defendant Order, by accepting it, could not have been said to have committed an unequivocal act inconsistent with the forfeiture, because it would have had no option but to accept the money.

But after said ten-day period, it did not have to accept the money without the written warranty provided in the by-laws concerning good health and the non-use of intoxicants; and when it did accept the money with knowledge of the forfeiture, it waived the requirement of good health at the time of reinstatement, and this also necessarily waived the requirement that the insured remain in good health for thirty days thereafter. See Sovereign Camp, W. O. W., v. Hines, supra. Therefore, in this instance, we hold that the defendant Order clearly waived the forfeiture.

This decision is not in conflict with, nor does it seek to overrule the doctrine announced in Sovereign Camp, W. O. W., v. Jackson (Civ. App.), 264 S. W., 289, and other decisions cited in defendant in error’s brief, holding that the local clerk has no authority to waive the provisions of the by-laws or conditions of the contract. The rule as laid down in those cases is well established and is sound, growing out of Art. 4846, R. S., 1925, and is firmly entrenched by a long line of decisions.

Those are not cases in which the forfeiture had become absolute and the order had thereafter committed any unequivocal act inconsistent with the forfeiture. In those cases a waiver was sought, based upon the act of the local clerk before any forfeiture had occurred, seeking to excuse the insured from the performance of certain provisions of the contract of insurance. In no case was it shown that the order had, after the forfeiture, recognized the continuance of the contract by any act whatsoever.

We are of the opinion that the judgment of the Court of Civil Appeals should be reversed and that the judgment of the District Court should be affirmed, and it is so ordered. We concur in the opinion herein rendered. W. H. Ward, Special Associate Justice. John D. Cofer, Special Associate Justice.