Case ID: ohio-np-ns_4/html/0104-01.html
Source: Caselaw Access Project
Author: {"author": "Snediker, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

ASSESSABLE POLICIES OF INSURANCE ON THE MUTUAL PLAN FOR. STREET RAILROAD COMPANIES.
    [Common Pleas Court of Montgomery County.]
    Theodore W. Stone, as Receiver, etc., v. The C., D. & T. Traction Company.
    Decided, April 16, 1906.
    
      Insurance — Casualty Policies for Protection of a Street Railway Company — Written on the Mutual Plan — Recovery by Receiver of Assessments by Suit — Contract not Ultra Vires — Powers of Corporations — Section 323-9' — Pleading.
    1. A mutual casualty association, incorporated under the laws of a foreign state providing for the incorpora Ocn and regulation of insurance companies, for the purpose of carrying on business as an accident insurance company, and insuring its members on the mutual assessment plan against personal injury, disablement or death resulting from traveling or general accidents, or from the pursuit of any trade or business, and against injuries of every nature and description to persons or property, causing loss, damage or liability, is sufficiently empowered to write an assessable policy of insurance on the mutual plan, for a street railroad company in Ohio, absolving it against “injuries of every nature and description to persons or property, causing loss, damage or liability.” On such casualty association becoming insolvent, its receiver, duly appointed by court, may maintain an action against said street railroad company to recover an assessment ordered by court to be levied on tbe members of said association, for the purpose of paying losses and expenses and otherwise liquidating the affairs of said mutual casualty association; and the plea that said contract is ultra vires on the part of said association, can not be urged on demurrer to a petition for such recovery, as the contract is not on its face beyond the scope of the power of the corporation by which it was made, and a proper showing to support the application of such doctrine must be made by the defendant by way of answer.
    2. Corporations in Ohio are expressly authorized to do all needful acts to carry into effect the objects for which they are created, and accordingly they may become members or stockholders of a mutual insurance association or company for the purpose of their own proper protection; and a contract so entered into is not ultra vires, but valid, the general rule against incorporated companies purchasing shares in other companies notwithstanding.
   Snediker, J.

This action is brought to recover an assessment alleged to be due from the defendant to the plaintiff as receiver, on a certain policy of insurance providing against liability for injury to, or death of, persons arising by reason of casualty occurring in, upon, about or by reason of the street railroad or its equipment.

The petition recites that the defendant, the C., D. & T. Traction Company, is a corporation under the laws of Ohio, and that there is due the plaintiff, as aforesaid, the sum of $1,528.35 upon the following cause of action, to-wit: On the 31st day of March, 1896, the Electric Mutual Casualty Association of Philadelphia, Pa., of which this plaintiff is receiver, was duly incorporated under, an act of the General Assembly of the commonwealth of Pennsylvania, approved the 1st day of May, 1876, together with its various supplements providing for the incorporation and regulation of insurance companies for the purpose of carrying on business as an accident insurance company, and insuring its 'members on the mutual assessment plan against personal injury, disablement or death, resulting from traveling or general accidents, or from the pursuit of any trade or business, and against injuries of every nature' and description to persons or property causing loss, damage or liability; and thereupon duly entered upon the business for which it was incorporated and continued in the exercise of its rights and franchises, with its home, first, at Scranton, and afterwards at Philadelphia, until the 7th day of May, 1900, when this plaintiff was appointed receiver thereof.

On or about the 22d day of June, 1896, the Dayton Traction Company, an Ohio corporation, made application to said Mutual Casualty Association for an assessable policy of insurance on the mutual plan, and the said Mutual Casualty Association duly issued and delivered to the said Dayton Traction Company, a policy, No. 128, which policy remained uncanceled until the 22d day of June, 1897.

The petition further recites that the policy was issued on a basis of two per cent, of the gross traffic receipts of the defendant, and that in no event the total amount of premium and liability of any member of the association was to exceed five per cent, of the gross traffic receipts of the insured.

The premium due on policy No. 128 — which is the policy above referred to — was two per cent, of $50,945.04, which was the amount of the gross traffic receipts of the defendant during the life of the policy. Of this amount the defendant has paid the sum of $600, leaving a balance of $418.90 still due and unpaid.

The petition then goes on to recite the appointment of the receiver, and further says, that on the 20th day of July, 1903, the court ordered that an assessment be levied on the members of the association who have held assessable policies for the purpose of paying losses and expenses.

The petition further recites that under and by virtue of said order of the court, said policy held by the Dayton Traction Company was assessed the sum of $1,528.35.

The plaintiff further says that the C., D. & T. Traction Company is a corporation under the laws of Ohio, formed by the consolidation of the following corporations, viz.: The Southern Ohio Traction Company, the Cincinnati North-Western Railway Company, the Miamisburg & Germantown Traction Company, and the Hamilton & Lindenwald Electric Company; and that the said Southern Ohio Traction Company was formed by the consolidation of the Cincinnati & Hamilton Electric Street Railway Company, the Cincinnati & Miami Valley Traction Company, and the said Dayton Traction Company, and plaintiff claims the amount of the assessment heretofore referred to.

To this petition a general demurrer has been filed. The points urged on behalf of the demurrer are:

First. That the petition shows on its face that the contract of the insurance company was ultra vires and void on its part.

Second. That the petition shows that the contract of the traction company in becoming a member of said Mutual Casualty Association is ultra vires and void on its part.

As to the first point, the plaintiff is a Pennsylvania corporation, controlled and governed in its operations by the laws of that state, and it does not appear from the petition how far the contract is affected by those laws. The only recourse the court has is to a general interpretation of that clause reciting the purposes of incorporation, above set out in full. We refer particularly to the latter part thereof, which says: “And against injuries of every nature and description to persons or property causing loss, damage or liability.”

This seems to us sufficiently general to cover such liability as is here alleged to have been incurred.

Beach, in his “Modern Law of Contracts,” at Section 965, says:

“Corporations are the creatures of law, and they can only exercise such powers as are granted by the law of their creation. An express grant, however, is not. necessary. In every express grant there is implied a power to do whatever is necessary or reasonably appropriate to the exercise of the authority expressly conferred. ’ ’

In the 96 U. S. Rep., in the case of Railway Co. v. McCarthy (page 267), the court say:

“When a contract it not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within their powers. The doctrine of ‘ultra vires,’ when invoked for or against a corporation, should not be allowed to prevail where •it would defeat the ends of justice or work a legal wrong.” (Citing 22 Cal., 620; 29 N. J. Eq., 542; 63 N. Y., 62.)

In 5 Fla., case of Southern Life Insurance & Trust Company v. Lanier, the syllabus recites:

“Where a grant of power is clearly defined, and no mode is prescribed for its exercise, it is for the corporation to adopt such mode as, in its judgment, will secure the purposes contemplated. ’ ’

In Thompson on Corporations, Section 5641, the rule is laid down that—

“It is a general principle of law that every corporation has, by necessary implication, the power to do whatever is necessary to carry into effect the purposes of its creation, unless the doing of the particular thing is prohibited by law or by its charter. ’ ’

We are not informed by a reading of this petition that the contract sued on is beyond the corporate power of the plaintiff. If it is prohibited to make the contract by the laws of Pennsylvania, or otherwise limited by its charter, those facts may be relied on by the defendant in its answer.

As to the second point (that the petition shows that the contract of the traction company in becoming a member of said Mutual Casualty Association, is ultra vires and void), the principal' contention is that the defendant, the street railroad or traction company, had no right to enter into a contract of membership in a mutual company such as this defendant is.

The petition alleges the defendant to be an Ohio corporation, and with respect to it as such, the law is always before us. Section 3239 of the Revised Statutes provides that—

“Upon said filing of the articles of incorporation, the persons who subscribed the same, their associates, successors and assigns, by the name and style provided therein, shall thereafter be deemed a body corporate, with succession, and power to sue and be sued; and contract and be contracted with, acquire and convey at pleasure, all such real or personal estate as may be necessary and convenient to carry into effect the objects of the incorporation, to make and use a common seal, the same to alter at pleasure, and to do all needful acts to carry into effect the objects for which it was created.”

The question then is: Is the acquiring of such insurance the purchasing of such share in the Mutual Company a needful act to carry into effect the objects for which the corporation was created?

It doesn’t appear on the face of this petition that it was not. Here again, we must apply the general rules of construction. Morawetz, in'his work on Corporations, Section 432, says:

“No rule can be stated for determining, in all cases, whether or not a corporation may purchase shares in another company. Shares are, in reality, the interests belonging to the associates or part owners of the corporate concern; but in many instances they have a fixed value, and are dealt with as tangible property. The right to purchase and hold shares, therefore, depend upon the precise character of the shares and the circumstances of the case.”

Following Section 432, Morawetz says, in Section 433:

“A corporation can not, in the absence of express statutory authority, become an incorporator by subscribing for shares in a new corporation; nor can it do this indirectly through persons acting as its agents or tools. The right of forming a corporation is conferred by the incorporation laws only upon persons acting individually, and not upon associations; moreover, it would, under ordinary circumstances, be in violation of the charter of an existing company to subscribe for shares in a new company and assume the resulting liabilities.”

In commenting on this latter section, the Supreme Court of Ohio, in the 46 O. S., case of Railway Co. v. Iron Company, at page 49, says:

“We think it well settled as a result of decisions in this state, as well as elsewhere, that an incorporated company can not, unless authorized by statute, make a valid subscription to the capital stock of another; that such subscription is ullra vires and void.”

Then follows the Section 433 of Morawetz, as I have already recited it.

On a cursory examination this — being a broad statement of the rule — would seem to determine the whole matter adversely to such holding of shares, were it not for a case found in the 8th Circuit Court Reports, page 591, Smith v. Newark, Somerset & Straitsville R. R. Co. et al. In that case Judge Jenner, of Licking County Circuit Court, in rendering the opinion, says:

“It is urged that the charter of the B. & O. Co. does not authorize it to own stock in another corporation; that it can not legally hold this Drexel, Morgan & Co. stock; that whatever it may have done or attempted to do in the purchase of that stock was ultra vires and void. In R. R. Co. v. Iron Co., it is held by the Supreme Court (46 O. S., p. 44) that ‘an incorporated company can not, unless authorized by statute, subscribe to the capital stock of another; a subscription so made is ultra vires and void.’ Reading this proposition of the syllabus in connection with the quotation of Morawetz, p. 49, cited in support of it, we think it is clear that the Supreme Court only intended to hold that- a corporation can not be an original subscriber, or one of the incorporators of another eomporation. ’'

And in another case in the 14th Circuit Court Reports, at page 13, Norwalk Savings Bank v. The Metal Spinning & Stamping Co., Judge King of the Huron County Circuit Court says:

“We think this corporation (referring to the Metal Spinning 6 Stamping Co.), might lawfully become a member of the loan company for the purpose of borrowing money for any use that it had; but if it did not have that power expressly or by law, still, having borrowed the money and received its benefits, and having contracted and agreed to pay it back, and also agreed that it should be a lien upon its property, that contract a court of equity will execute and they will not listen to the plea of the manufacturing corporation after it had used the money — much less that of another general creditor — that the corporation originally had no power to borrow.”

And in the 40 O. S. (p. 274), case of Larwell v. Hanover Savings Fund Society, Judge Dickman, in rendering the opinion, says: (

“In the case of Bank of Chillicothe v. Town of Chillicothe, 7 Ohio, 31, it was held that where a town corporation is invested with the powers-usually conferred upon such bodies, a contract for borrowing money for tbe use of tbe town is obligatory, and binds the corporation for re-payment, although no express power to borrow money be given in the law of incorporation. Hitchcock, J., in delivering the opinion of the court, in words of great force and adapted to the case at bar, says: ‘The language of the defendants to the plaintiffs is in substance this: “True, you loaned to us this money; you did it at our earnest solicitation; we have used it for our own benefit; but we have no poAver to borroiv, Ave violated our charter in so doing, and avc will take advantage of this, our oivn wrongful act, to protect ourselves from the payment of that which is your honest due.” No rule of decision Avhieh Avill lead to such manifest injustice ought to be adopted Avithout careful examination and much deliberation.’ The attempt of a corporation to avoid the payment of its debts, by setting up its usurpation of poAver or the plea that a contract which'it has deliberately made, and of Avhieh it has received the full benefits, is void for want of corporate poAier to make it, does not commend itself to favorable consideration. The tendency of the courts, based upon the strongest principles of justice, is to enforce contracts against corporations, although in entering into them they may have transcended their chartered powers, when they have received the consideration and the benefit of the contract. And it seems to be noAV the Avell established rule that Avhere a contract, not illegal, has been executed and fully performed on the part either of the corporation or of the other contracting party, neither Avill be heard to object that the contract and such performance Avere not Avithin the legitimate poivers of the corporation.” (Citing 29 O. S., 330; 4 DeG., M. & G., 19; 5 McG., 131; 63 N. Y., 62; 55 Ill., 413.)

In the 63d N. Y. the court says:

“The plea of ultra vires as a general rule Avill not prevail, Avhether interposed for or against a corporation, Avhen it avíIÍ not advance justice, but on the contrary will accomplish a legal wrong. ’ ’

In the ease at bar, the pleading shows that the contract was one for insurance, a necessary and needful property of the defendant in carrying on its business.

Plaintiff further shows that the contract Avas executed on the part of the casualty company, and that the mutual feature of the company is limited, as far as any recovery against the shareholder is concerned, to a definite amount of five per cent, of the gross traffic receipts of the assured.

Rowe & Shuey, for plaintiff.

W. G. Shepherd and Shotts c& Millihin, for defendant.

Taking these averments together with the law given, 'we believe this, together with the first ground of the demurrer, not well taken, and the same are hereby overruled.

In concluding, permit me to quote Section 7619 of Thompson on Corporations, relative to the defense of ultra vires:

“A corporation can not avail itself of the defense that it had no power to enter into the obligation to enforce which the suit is brought, unless it pleads that defense. This principle applies equally where the defendant intends to challenge the. power of its officer or agent to execute in its behalf the contract upon which the action is brought, and where it intends to defend on the ground of a total want of power in the corporation to make such a contract. Under the codes of procedure, which proceed upon the principle that the office of pleading is to require each party to disclose to his adversary the real ground of his action or defense, it is not necessary to plead the,defense of ultra vires, but facts must he set out showing that the instruments Avere issued or the acts done contrary to law. ’ ’

Let an entry be drawn in accordance with this ruling of the court.