Case ID: ohio-st_41/html/0001-01.html
Source: Caselaw Access Project
Author: {"author": "Granger, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

National Bank of Washington v. Insurance Company.
    1. Although the charter of a life insurance company provided that its “ capital stock and funds shall be invested either in loans upon bonds and mortgages upon real estate of double the value of the debt secured, or in loans upon or purchase of United States stocks and bonds, bank stocks, or stocks and bonds issued by any of the States of this Union, or by municipal or other corporations,” a mortgage to such company, upon land in Ohio, made, acknowledged, attested, delivered, and recorded, as required by the statutes of Ohio, securing a promissory note, given in consideration of a loan of its funds made by the company, is valid; and, after condition broken, maybe enforced at the suit of the company.
    2. Section two of the act entitled “An act amendatory of and supplementary to an act entitled ‘An act to regulate insurance business in the State of Ohio,’” passed April 24, 1873 (70 Ohio L., 153), as amended February 20, 1874 (71 Ohio L., 12), did not prohibit such a loan by such a company.
    3. The fact that the company restricted its loans to its policy holders, and that the mortgagor contracted for a policy in order to obtain the loan, did not affect the validity of either note or mortgage.
    
      4. The charter being silent as to the rate of interest to be charged by the company on its loans, a stipulation for a rate higher than the maximum fixed by the usury laws of this State did not invalidate the note. The principal and interest thereon, at the legal rate, may be collected.
    5. Bank of Chillicothe v. Swayne, 8 Ohio, 280, and like cases distinguished.
    Error to the District Court of Fayette County.
    The Continental- Life Insurance' Company of Hartford, Conn., incorporated under a special charter by the legislature of that State, and holding a certificate of authority from the Ohio Superintendent of Insurance, was doing business in Ohio in 1874. The charter named the company, and, in the first section, provided: “and by that name shall be, and hereby are empo wered:to purchase, have, hold, possess, and enjoy, -to themselves and their successors, lands, tenements, hereditaments, goods, chattels, and effects of every kind, and the same to grant, alien, sell, invest, and dispose of, to sue and be sued, plead and be impleaded in all courts of justice, to have and use a common seal, &c.” Section'twelve of the'charter provided thus: “The capital stock and other funds of said corporation shall be invested, either in loans upon bonds and mortgages upon real'estate1' of double the value of the debt secured thereon, or in loans upon or purchase of United States stocks and bonds, bank stock or stocks and bonds issued by any of the States of this Union, or by municipal or other corporations, and the sáme may be called -in and re-invested under the provisions of this act.”
    A rule of the Company provided • that loans from their capital and funds should be made to-policy-holders only.-.
    Samuel C. Roberts, of Fayette County, Ohio, desiring a loan,- applied for and obtained a policy of insurance, in said Company, on his own life* to the amount of $10,000, paying the usual premium therefor. He then borrowed from the Company $10,000, for which, he gave his promissory note,-dated Jan-. 1, 1875, for $10,000, payable to the order of said Company, at its office in Hartford, Conn., five years after date, with interest thereon at eight per cent, per annum payable semi-annuálly. To secure this note he duly executed and delivered to the Company a mortgage upon his real estate in Fayette County,- Ohio, conditioned in the usual form. This was duly entered for record on the 7th day of January, 1875; at 3 o’clock p. m., and duly recorded.. At the time of the delivery of said note and mortgage, he also made and delivered ten other promissory notes, for $100 each, payable at intervals of six months ;• each one hundred dollar note falling due at the same time with an instalment of interest on the $10,000 note. These notes were however made payable to the order of the person who acted as agent of the Insurance Company. . They were nominally given as said person’s commission for procuring the loan for Roberta, but were actually intended to enable the Company to realize ten-per cent, on the loan.
    In November, A. d.,. 1876, said Roberts borrowed $19,794.18 from the First National Bank of Washington C. H., Ohio, and gave to the bank' his three notes, each for one-third of that sum, secured by a mortgage upon the land covered by the mortgage to the Insurance Company. The mortgage to the bank was duly entered for record on November 29, 1876.
    At November term, 1879, of Fayette Common Pleas, in a proper action for foreclosure, said court, having confirmed a sale of the mortgaged premises, made a decree, holding that the mortgage to the insurance company was a lien' prior to that of the bank, and ordering that the principal, and the legal interest due thereon, should be paid before any payment should be made to the bank. By proper pleadings the facts as hereinbefore stated were in issue. The bank contended: —
    That the mortgage and note were void:
    1. Because the charter authorized only loans upon bond and mortgage;
    2. Because illegal interest was stipulated for ;
    3. Because the Ohio Statute (71 Ohio L., p. 12) provided that “No company or corporation organized under the laws of any other State, or of the United States, or of any foreign government, doing a, banking, or any other kind of business,'in connection wRh insurance, shall do business in this State.”
    Upon appeal, the district court made substantially the' same decree as the common pleas had rendered. A motion for a new trial was overruled; a bill of exceptions containing all the evidence was made part of the record, and a petition in error filed in this court by the bank.
    
      M. J. Williams, for plaintiff in error.
    I. We claim that the note and mortgage set up by the Continental Life Insurance Company are void, constituted no valid lien upon the property, and consequently are not entitled to be paid out of the proceeds of the sale.
    The said insurance company is, and at the time of the transaction and the taking of said note and mortgage, was a foreign corporation, incorporated by and organized under the laws of the State of Connecticut, and located therein, and Avas so incorporated and organized as a life insurance company only, and for no other purpose. As such, it had no corporate power or capacity to enter into said transaction, or to take said note and mortgage. The New York Firemen's Insurance Co. v. Ely, 5 Conn., 560, followed and approved in N. Y. Fireman's Ins. Co. v. Bennett, 5 Conn., 574; Fuller v. Plainfield Academic School, 6 Conn., 545; The Philadelphia Loan Company v. Towner, 13 Conn., 248; Bank of Chillicothe v. Swayne, 8 Ohio, 257; Bonham v. Taylor et al., 10 Ohio, 108; Creed v. The Commercial Bank, 11 Ohio, 489; Head & Amory v. The Providence Ins. Co., 2 Cranch, 127; Dartmouth College v. Woodward, 4 Wheat., 636; Grezzler v. The Corporation of Georgetown, 6 Wheat., 597; Bank of U. S. v. Owens et al., 2 Pet., 527; Miami Exporting Co. v. Clark, 13 O. R., 1; Bartholomew v. Bentley, 1 Ohio St., 37; Bank of Wooster v. Stevens et al., 1 Ohio St., 233; Vanetta v. State Bank, 9 Ohio St., 27; Kilbreth v. Bates, 38 Ohio St., 187.
    
      Under the well-settled law of Connecticut, and of Ohio, this Continental Life Insurance Company is as absolutely powerless to enter into the transaction, or take the note and mortgage in question, as if it was directly prohibited.
    Besides, the transaction contravenes and is in direct conflict with the settled policy of this State.
    On the 24th day of April, 1873, the legislature of this State passed an act (which took effect at its passage) entitled “ An act amendatory of and supplementary to an act entitled ‘An act to regulate insurance companies doing an insurance business in the State of Ohio, passed April 27th, 1872,’” the second section of which reads as follows: —
    “No company or corporation, organized under the laws of any other State, or of the United States, with authority to do a banking, or any other kind of business, in connection with insurance, shall do business in this State.” See Ohio L., Vol. 70, pp. 147, 153.
    On the 20th day of February, 1874, by an act which was that day passed and took effect, the foregoing section was amended so as to read as follows: —
    “ No company or corporation, organized under the laws of any other State, or of the United States, or of any foreign government, doing a banking business or any other kind of business in connection with insurance business, shall do business in this State.” Ohio L., Vol. 71, p. 12.
    These statutes show that the pronounced policy of our legislation is to discourage and prevent foreign insurance companies doing business, as such, in this State, from exercising any banking privileges or powers, or being involved in any kind of business whatever, except the legitimate business of insurance.
    II. The power to loan money on note and mortgage is nowhere conferred upon the Continental Life Insurance Company by its charter.
    The provision of the charter “that the capital stock and other funds of said corporation shall be invested in loans upon bond and mortgage,” does not expressly or impliedly confer the power to loan and mortgage. . On the contrary, it impliedly excludes such power. Bartholomew v. Bentley, 1 Ohio St., 41; N. Y. Fireman's Insurance Co. v. Ely, 5 Conn., 560.
    Bonds and notes, are essentially different instruments, and the rights and liabilities of the parties thereto aré materially and substantially different. .
    The word “ bond,” ex vi termini, imports a sealed instrument.: Bouvier’s Law Dictionary, Tit. Bond; 1 Bald., 12; 2 Porter, 19; 1 Blackf., 241; Harp., 484; 6 Vt., 40.
    .A bond imports a consideration.. The .existence of a consideration is conclusively presumed. An obliger is not •allowed to prove want of consideration. 1 Parsons on Contracts., 354, and note S., and- cases, there .collected.
    A bond, like .all other, instrumentamade under seal, can only be varied or modified by an instrument of the .same character. Addison on Contracts, Sec. 362-3. . -
    A bond taken for a note or simple contract debt, merges it in the bond, becanse it is.'of a-higher nature, while .a note taken for a note or simple -contract debt, does' not. McNaughten v. Partridge, 11 O. R., 232.
    A declaration on a. bond and mortgage would not be supported by a. note and mortgage, and vice versa. • The variance would be fatal. Avery v. Lattimer et al., 1 W. L. J., 310.
    The foregoing are some of the material differences between a bond ” and a promissory note:. Others may suggest themselves.
    III. The insurance company had-no. authority to'loan money on bond and mortgage in the State- of- Ohio. -..
    
    The charter is an act of the Legislature of the .State of Connecticut. -As such it can have- no operation or effect beyond the territorial limits of that State. McGregor v. Covington & Lexington R. R., 1 Disney R., 509 ; Goodsill v. Brig, St. Louis, 16 O. R., 179; Woodward v. M. S. & N. I. R. R., 10 O. R.
    
      
      Sayler & Sayler, and Maynard & Hadley, for defendant in error.
    1. The company had corporate- capacity -to , make the loan in Ohio.
    The authority of the company- as given to it-by its charter to loan money is general so far as the question- of territory in which it may make loans. Green's Brice’s Ultra Vires (2d Ed.), 65; Bank of Augusta v. Earl, 13 Peters, 587, 590 ; Relfe v. Rundle, 103 U. S., 226; Silver Lake Bank v. Nutt, 4 John., Ch., 370; Bard v. Poole, 12 N. Y., 495 ; Christian Union v. Yount, 101 U. S., 352; Ins. Co. v. Wilcox, 8 Ins. Law Jour., 815.
    The mere fact that a note was taken instead of :-a:bo.nd is of no moment in- the case.
    The power given by the charter is to loan money on real estate security. . Whether it be by a note rand mortgage, or by a- bond and mortgage, or by -a mortgage alone, is of no material difference. The intention of the,charter is without doubt to require the company to make its investments in mortgages. If the intention is complied with, .it is all that is necessary.
    The'rule of statutory construction that a thing which ¡is within the intention of a. statute is ,as much within the statute as if it were within the letter, and a thing which is within the letter of the statute is ,not within the- .statute unless it be within the intention of the' makers, is .equally applicable to all written instruments. Northwestern Mutual Life Ins. Co. v. Gridley, 100 U. S., 615 ; Ins. Co. v. Dhein, 43 Wis., 421.
    The act complained of was not the exercise of banking privileges. Ins. Co. v. Ely, 2 Cowen, 697; Bank v. Baker, 15 Ohio St., 87; Corwin v. Ins. Co., 14 Ohio, 12.
    The- loan was not void by reason of the legislation, referred to by counsel for plaintiff, in error.,.- But -it -certainly cannot be claimed that.the Continental Life ¡Insurance Company had authority to- do a' banking,business in connection with-life insurance; , and .therefore the .act of April 24th, 1873, cannot be applicable to this case. But that act was repealed, and the act of February 20th, 1874, was in force at the time the mortgage was recorded. But the Continental Life Insurance Company did not do a banking or other kind .of business in connection with insurance. The testimony shows that it is and was an insurance company, engaged exclusively in life insurance, and that under the powers contained in its charter it loaned its money as investments of its surplus capital. The statements made by the plaintiffs’ attorney, in his brief, that it did .a banking business, are entirely without foundation, except in his own imagination. Therefore, this law does not apply to this case.
    But these laws do not declare that the acts done by such prohibited companies shall be void. They do no more than require that the insurance commissioner shall not give a certificate of authority to such' a company to do business in Ohio, or if such company is doing business, to require him to revoke the authority. If such company is doing business in the State, then all its acts are valid. The Union Mutual Life Insurance Company v. McMillan, 24 Ohio St., 67; Lamb v. Bowsir, 7 Bissell, 372; Clay Fire and M. Ins. Co. v. Huron S. & L. Co., 31 Mich., 346; Hartford Live Stock Ins. Co. v. Mathews, 102 Mass., 221; Ehrman v. Teutonia Ins. Co., U. S. Dis. Court, E. D. Ark., 9 Ins. Law Journal, 393; American Ins. Co. v. Wellman, 9 Ins. Law Journal, 422.
    The fact that the agency of a foreign insurance company fails to take out a license according to law, will not prevent the company from maintaining or defending suits. Columbus Ins. Co. v. Walsh, 18 Mo., 229.
    Now we submit that, if a contract made by an insurance company not having authority to do business in the State, is valid as against the company, it must be binding as against the other contracting parties, otherwise there would be no mutuality in the contract. And the same principle applies, of course, to a contract of loaning money as to a contract of insurance.
    
      The Continental Life Insurance Company is authorized by its' charter to invest its funds in loans upon mortgage securities, but there is no limitation as to the rate of interest for which it may contract. Therefore, under the terms of its charter, it may contract for any reasonable rate of interest. There is no prohibition as to the rate, and, therefore, so far as its charter is concerned, there can be no illegality in any contract it may make as to the rate of interest. 14 Ohio, 6.
    It will be noticed that all of the Ohio cases, in which the contracts of corporations are held void, turn on the prohibition or limitation contained in the charters. Had there been no prohibition, the reason of the decisions would have failed, and as there is no limitation or prohibition in the charter of the Continental Life Insurance Company, we submit that these cases are not in point.
    These Ohio decisions are against the prevailing authorities in the other States, and of the United States Courts; and the court, in Rock River Bank v. Sherwood, 10 Wis., 238, referring to the cases of The Bank of U. S. v. Owens, 2 Pet., 527; Bank of Chillicothe v. Swayne, 8 Ohio, 252 ; Creed v. The Commercial Bank, 11 Ohio, 489; Spaulding v. Bank of Muskingum, 12 Ohio, 544, and Orr v. Lacy, 2 Douglas, as cases holding that a usurious contract made by a corporation is void, says: “ I am not prepared to follow these decisions. In my judgment, the reasoning in these cases is clearly and successfully and completely answered by the opinions given in the Commercial Bank of Manchester v. Nolan et al., 7 How. (Miss.), 508, and McLean, assignee, etc. v. The Lafayette Bank et al., 3 McLean, 587.” And, therefore, while these Ohio cases are the law of Ohio, they should be kept strictly within their limits, and should not be applied to the charter of corporations having no limitations or prohibitions. That the supreme court of Ohio recognizes this distinction between charters containing prohibitions and charters containing no prohibitions, is, we. think, fully demonstrated-by the case of Corwin v. Urbana and Champagne Ins. Co., 14 Ohio, 6, given above, and may also be seen by the language of, the court in the case of Ehrman v. Insurance Company, 35 Ohio St., 337.
    The loan and securities are .valid ,to -the amount, of the principal, with legal interest. Farmers and Traders' Bank v. Harrison et al., 57 Mo., 503; Farmers' Nat. Bank v. Deanny, 91 U. S., 35; Littlewort v. Davis, 50 Miss., 403; Vansands v. Middlesex Co. Bank, 26 Conn., 145; Rock River Bank v. Sherwood, 10 Wis., 231; Quinsigamond Bank v. Hobbs, 11 Gray, 251; 33 Pa. St., 33, 38; 33 Vt., 346.
   Granger, C. J.

The first section- of its, charter granted to the insurance company power to. possess and invest effects of every kind, and to su.e. and be sued in all courts of justice. This grant of power clothed the company with capacity to make the loan and take the mortgage and note from Roberts. Did section twelve take away, this capacity? The object of that section is plain. The safety of policy holders required safe investments by the company. This section was intended primarily-for the protection of policy holders and stockholders. No word in it. directly concerned either governmental policy, or community, or third parties; but, as .a whole,, it prevented the pompany from doing a banking business. ,Well-settled;rules require that the courts shall construe its provisions, so as to promote the legislative intent, if this can reasonably be done. The plaintiff in error, insists that because the officers of the company did not literally obey the- legislative direction, and take a bond instead of a. note, therefore the company cannot enforce any lien under the mortgage. This construction would souse a. section intended to secure policy holders and stockholders from loss, by reason of bad investments made by the officers of the company, as to make sure a loss of the .entire principal invested, because of an error in the form of the evidence.of investment taken by those officers. . Counsel support this claim by Ohio cases from Bank of Chillicothe v. Swayne, 8 Ohio, 280, to Kilbreth v. Bates, 38 Ohio St., 187. Ohio policy as to banks and their powers and privileges. is. clearly stated and enforced in these cases.- Peculiar dangers to the community were supposed to lurk in such corporations. But we can find no evidence of like fears touching insurance, companies that make no attempt to.-exercise banking powers. Legislation has labored to secure, .policy holders and stockholders from losses by the frauds and misconduct of company officers and agents-. It seems,to .us that this current of Ohio authority furnishes no reason for not applying to section twelve of this Connecticut charter the rule,of construction before stated; to wit, that which.will give effect to the legislative intent. -

We think that, by taking the note and mortgage, the company substantially complied with ..the charter.- The investment had nothing of the nature of a banking-transaction. Although the. note.was not under seal, it was so worded that, prima facie, it. imported a , consideration. Under Ohio practice and pleading, precisely the same form of petition, or cross-petition, enforces fore closure, or asks for a personal judgment on. the note, as would be used if a bond had been taken.

Since Judge Hitchcock decided The Bank of Chillicothe v. Swayne, a radical change has. occurred in the relation of corporations to the State and to the people. -Then, and theretofore, special charters granted to-persons.-named, -and to such others as they associated with themselves; gave special powers and rights, that, as a rule, were beyond legislative control: only in the rare cases .where the power to amend, alter, or repeal was expressly reserved,- could the legislature modify, limit, or take away power-once granted. In those days a- corporation was a monopoly. It was necessary to strictly construe the grants made, in order-to protect the interests of the State and of people generally. But now the legislature has far more power over .corporations than over individuals. It may alter, or repeal, all acts granting corporate power, it may impose new conditions of its exercise. It can mould the statutes as experience or legislative caprice may dictate. There is no longer reason to hesitate to apply to the language of acts of incorporation precisely the same rules of interpretation as are applied to like words in any contract or statute. -

This charter was granted in Connecticut. Counsel for the bank cite N. Y. Fire Ins. Co. v. Ely, 5 Conn., 573. In that case the third, or granting, section authorized “ loans on bottomry, respondentia, or mortgage of real estate.” The act there in question was a simple discount of a note. Moreover the sixteenth section of that charter expressly prohibited such transactions by the company. But years afterwards, in 26 Conn., 157, in Vansands v. Middlesex County Bank, the Supreme Court of Connecticut, applying a statute that declared “ no bank shall make any loan or discount on pledge of its own stock,” say “ the directors of banks whose exclusive business it is to make loans and discounts, and perhaps the banks of which they are the agents, might be amenable to the courts for a violation of this law, if they should disregard its prohibition, as they clearly would be to the legislature; but there would seem to be no sufficient reason why the loan or pledge should be declared void. Especially is it questionable whether it can be • treated as invalid, in the absence of any provision in the act declaring that the loan or pledge shall be void, or imposing any punishment .for its violation. There is therefore much reason for the claim that the act is only directory.”

Although the court did not in that case directly decide whether the words then under consideration were merely “ directory,” the opinion plainly indicates that such a provision as the one now before us would not be so construed in Connecticut as to make void either mortgage or note.

Counsel upon both sides have industriously collated the authorities.- It is apparent that the modern cases do not follow the harsh strictness of the earlier decisions. In different States different distinctions are drawn: the grounds of departure from the old rule are variously stated. For myself, I am content to say that the maxim, “ Where the reason of the law ” (the common law, — and our rules of construction are common-law rules) “fails, the law fails,” is a sufficient ground. The corporation of to-day in Ohio is so different from the corporation of Judge Hitchcock’s day, that it would not be exaggeration to say that the two are wholly unlike; that is, in their relations to the legislative power.

We think, then, that neither under the law*of Connecticut, nor under that of Ohio, is the note and .mortgage of the insurance company invalid because of the terms of the charter.

Proceeding to the second objection, we find no provision in the charter limiting the rate of interest to be stipulated for, or received by, the company. The general usury law of Ohio applies alike to such artificial persons and to natural persons. The note is not void. Only legal interest can be collected upon it. It is unnecessary to cite cases on this point.

The third claim is based upon section two (2) of the Act entitled, “An act amendatory of and supplementary to an act entitled, ‘An act to regulate insurance companies doing an insurance business in the State of Ohio’” (70 O. L., 153), as amended by the act of February 20, 1874 (71 O. L., 12). It reads thus:

“ Section 2. No company or corporation organized under the laws of any other State, or of the United States, or of any foreign government, doing a banking or any other kind of business in connection with insurance, shall do business in this State.”

A note running for five years, drawing interest payable semi-annually, and secured by mortgage on real estate, made and given for a loan of money made by mortgagee to mortgagor, is not such a note as belongs to “ banking business.”'- Owing to' circumstances a banking house sometimes may make such a loan, but when it does so it engages in a transaction outside of “banking business.” This is too well known to require further remark.

In making such 'a loan, did the company “ do any other kind of business ” within the purview of said section?

It is a necessary part of'insurance business to make payment of policies, when the money thereon becomes due. Would the'care of-that money be “doihg any other kind of business ”? '■ Would the deposit of that money in some bank, upon certificates of deposit drawing interest, be such “other business”? Is the placing of that money in the hands of the policy holder in his lifetime, upon his secured promise to pay interest thereon, “ such business ” ?

Is not the care of the money required to pay policies a necessary part of the insurance business itself? Is not the lawful investment of that money* so'that its interest will pay taxes and commissions, and strengthen the company, et part of the insurance business itself?

The act: containing' said section- 2' (see 69 O. L., 141), recognizes this fact. ■' The first section authorizes the company “ to carry on the business of insurance.” Under that simple general power, the legislature supposed that the company could make investments' of its capital. The act nowhere 'expressly "grants power to invest. Section 6 recognizes the power as impliedly granted by section 1, and proceeds to limit it by making it “unlawful to invest” otherwise than said section 6 provides. This section is very similar to section 12 'of the Connecticut Charter. Is not this a legislative construction ? . “ To carry on insurance business ” implies the power to make investment of the moneys required to pay policies.

Moreover, section 18, of'the same act (69 O. L., p. 156) requires each'foreign company to'have at least $100,000 of its capital invested in bonds and mortgages on unincumbered real estate in this State, or in other, specified securities. If the making of loans and the taking of mortgages be “any other kind of. business .in- connection with ‘insurance,’ ” section 2 seriously conflicts with section 18. We think this objection also unfounded.

■ Under objections two and three, or under one of them, the bank urges that the rule of the company under which loans are made to policy holders only, invalidates this note or mortgage-. We are unable to understand why this should be so. Such a rule tends to increase the legitimate business of the company, and also to secure the loan itself. We think the judgment of the district court giving prior payment to the insurance' company was right.

Judgment affirmed.

Martin, J'., did not sit iii this case.