Case Name: White's Bank of Buffalo v. The Toledo Fire and Marine Insurance Company
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1861-12
Citations: 12 Ohio St. 601
Docket Number: 
Parties: White’s Bank of Buffalo v. The Toledo Fire and Marine Insurance Company.
Judges: Sutliee, C. J., and G-holson, Brinkerhoee and Scott, J J., concurred.
Reporter: Ohio State Reports, New Service
Volume: 12
Pages: 601–610

Head Matter:
White’s Bank of Buffalo v. The Toledo Fire and Marine Insurance Company.
1. An insurance company which is authorized by its charter “ to loan its funds and moneys,” to individuals or public corporations, on real or personal security, but is prohibited from using the same “ in the trade or business of exchange or money brokers,” may lawfully purchase a bill of exchange, drawn on and accepted by third persons, if it was bought in good faith, either as an investment, or to collect a debt previously due to said company.
S. In such ease it is competent to show by facts and circumstances, that the purchase of the bill, though prima facie within its corporate powers, was acquired by the company for an object or a purpose improper or forbidden to it.
3. If it appears that such assignment was not for the purpose of making a loan or collecting a debt, but to appropriate stock in said company belonging to one of the parties liable thereon, but not consenting to such assignment, to the payment of the bill for the benefit of the assignor, such a transaction is not within the corporate powers of said company and confers no right to have such stock subjected to its payment under the charter of the company.
4. And if the object of the company in such purchase was merely to subject the stock of a party to the bill not assenting to such transfer to its payment, the purchase of the bill for such an object would be an abuse of its corporate powers, and would not authorize the company to withhold its assent to an assignment of the stock previously made to a third person, though unknown to the company at the time they received the bill.
Error to the district court of Lucas county.
The Toledo Eire and Marine Insurance Company filed'its petition in the court of common pleas of Lucas county, against John S. Johnson and White’s Bank of Buffalo, to subject twenty shares of the capital stock of the company, standing in the name of John S. Johnson, to the payment of a bill of exchange, bearing date October 18, 1856, drawn by W. S. Johnson & Co., upon and accepted by John S Johnson, of Buffalo, for the payment of $1000 to the order of Ketcham, Berdan & Co., in fifteen days after date.
At the trial of the cause in the common pleas, a bill of exceptions was taken, of which the following is a copy :
“ This cause was submitted to the court, and from the testimony the court found the following facts to have been proven:
“ The plaintiff is a corporation duly incoporated by, and organized under an act of the general assembly of the state of Ohio, passed on the 2d day of February, A. D., 1848, entitled “ an act to incorporate the Toledo Fire and Marine Insurance Company.” Sections 5, 8 and 18 of said act of incorporation are as follows:
“ Sec. 5. That transfers of stock may be made by any stockholder' or his legal representative, subject to such restrictions as the board of directors shall, from time to time, make and establish.
“ Sec. 8. That it shall be lawful for said company to invest any part of their capital stock, money, funds or other property, in any public stocks in the United States, or this or any other particular state, and the same to sell and transfer' at pleasure, and again to invest the same, or any part thereof, as often as a due regard to the safety of its funds shall require ; or they may loan the same, or any part thereof, to individuals or public corporations, on real or personal security,, for such periods of time, and under su.ch restrictions and limitations as the directors for the time being shall deem prudent and best for the interest of said company; provided,, that it shall not be lawful for said corporation to use or employ any part of their capital stock, money or other funds in buying or selling goods, wares or merchandise, nor in the trade- or business of exchange or money brokers; nor shall said company issue or emit any bills of credit as a circulating medium of trade or exchange, nor in any manner engage in the business or operation of banking other than the usual-power to make deposits of money.
• “ Sec. 13. That the stock of this institution may be assigned and transferred on the books of the company in person, or by power of attorney; but no stockholder indebted to the company shall be permitted to make any transfer, or receive any dividend, until such debt is paid or secured to the satisfaction of the president and board of directors.
u On the 10th day of October, 1856, W. S. Johnson & Co., was an association of persons- then transacting business at Toledo, in the state of Ohio, under that firm name, and on' that day said W. S. Johnson & Co. made their draft or bill of exchange on J )hn S. Johnson, one of the defendants, a copy- of which appears in the petition of the plaintiff. Said bill of exchange was presented to John S. Johnson, at Buffalo, in the state of New. York, on the 12th day of October, A. D. 1856, for acceptance, and was duly accepted by him. The bill was duly protested for non-payment, at Buffalo, on the 28th day of October. W. S. Johnson & Co. and John S. Johnson failed and became insolvent on the 27th day of October, which fact, on the same day, came to the knowledge of the plaintiff, and said Ketcham, Berdan & Co., the then owners of said bill. On the 28th day of October, A. D. 1856, Valentine H. Ketcham was one of the members of said firm of Ketcham, Berdan & Co., and the president of the plaintiff. Simeon Fitch was at the same time the secretary of the plaintiff. On the same day, Ketcham, Berdan & Co, were bankers at said Toledo, and had on deposit, to the credit of the plain tiff, a larger amount of money than ten thousand dollars, for which they were indebted to the-plaintiff, payable on demand. On the same day, said Ketcham, Berdan & Co., acting by said Ketcham, without the knowledge or consent of said Johnson, transferred, indorsed and assigned said bill, so accepted by said Johnson,'to the plaintiff, and at the same time the plaintiff, in consideration of said .transfer, gave said Ketcham, Berdan & Co. credit for the sum of one thousand dollars, the amount of said bill, and also the further sum i>f eighty-one cents, the notary fees and expenses for the protest of said draft. Said Ketcham and Fitch alone acted in said transaction. They acted under a by-law of said company, of which the following is a copy: 1 The general business of the company shall be conducted by the president and secretary; but in all matters relating thereto they shall at all times be subject to the order.and direction of the board of directors.’
“ The plaintiff is now the holder and owner, so far as such' transaction could make it the owner, of the draft, and has been such since the 28th day of October, A. D. 1856.
“ On the. 15th day of January, A. D. 1855, said John S. Johnson became the owner of twenty shares of fifty dollars each of the capital stock of the plaintiff, for which a certificate was issuel to him, a copy of which is given in the answer of said White’s Bank. On the 3d day of April, 1856, said John S. Johnson, being indebted to said White’s Bank in the sum of ten thousand dollars, to secure the payment of the same, and also as security for further advances, transferred and assigned said certificate of stock to said bank, with authority to cause the same to be transferred on the books of the company. The indebtedness of said Johnson to said bank is still unpaid, and further advances were made subsequently by said bank, upon the faith of said security, to an amount greater than the value of said stock, and said bank has no other security for said indebtedness. Said stock has never been transferred upon the books of the plaintiff, and no notice of any assignment thereof to said White’s Bank was ever given to said company, previous to the 29th of October, A. D. 1856. On that day, the cashier of said bank wrote a letter to said Ketcham, Berdan & Co., inclosing said certificate, and'requesting them to cause it to be transferred to said bank on the books of the company.’ This letter was forwarded to said Ketcham, Berdan & Co. by mail, and-was received by them on the 30th or 31st of October. On the 31st of October said Ketcham, Berdan & Co. returned said certificate by mail, notifying said bank that the company declined to make the transfer, as they claimed to have a lien upon the stock, for thet payment of the bill. The company .did, in fact, refuse to make such transfer on the 31st of October.
“ The plaintiff purchased said bill from said Ketcham, Berdan & Co., relying on said stock as security for the payment of the same, and had no notice at the time of said purchase that said stock was not held and’ owned by said Johnson. W. S. Johnson & Co. are insolvent. Ketcham, Berdan & Co. are solvent. The dividends declared upon said stock since the 28th day of October, A. D. 1856, are as stated in the petition. The plaintiffs have no other security than said stock for the payment of said bill of exchange. Ketcham, Berdan & Co. indorsed the bill to the plaintiff, but no steps have been taken by the company to charge them as such indorsers.
“ Upon this state of facts so found, the plaintiff asked the court to give judgment in its favor in accordance with the prayer of the petition, but the court refused such request, and did give judgment for the defendants. To this aotion of the court the plaintiff excepted.”
After judgment in the court of common pleas the insurance company filed its petition in error in the district court. At the April term, 1860, of the district court, the judgment of the common pleas was reversed, and a judgment rendered by the district court ordering a sale of the stock, and an application of the proceeds to the payment of .the amount due upon the bill.
To reverse this judgment of the district court the present petition in error has been filed.
The errors assigned are, “ that judgment was rendered by the district court in favor of the defendant in error, and that the said district court refused to affirm the judgment of the court of common pleas.”
Baker &¡ Collins, for plaintiff in error.
M. B. &¡ B. Waite, for defendant in error.

Opinion:
Peck, J.
The only question we deem it necessary to consider, is, whether the Toledo Eire and Marine Insurance Company, by the acquisition of the dishonored acceptance of John S. Johnson, one of its stockholders, in the manner and under the circumstances detailed in the bill of exceptions, made him a debtor of the corporation, in the sense contemplated by the 13th section of its act of incorporation ?
It is too well settled to be disputed at this time, that the powers and capacities of a corporation are derived solely from its charter, which, like every other statute, is to be construed as an entirety, and with a view to ascertain the intention of the legislature, and if practicable, to harmonize its various provisions; and if upon a fair construction of its charter, the power to do the act or to make the contract under consideration, is not expressly given, nor clearly implied from the granted powers, the power can not be said to exist.
The counsel for defendant in error claim, that the acquisi tion of the acceptance by the insurance company was within its corporate powers, 1. As being a loan under section 8 of its charter, which empowers the company, among other investments "to loan its moneys, funds', or other property, or any part thereof, to individuals or public corporations, on real or personal security." ' 2. That, as a necessary incident to the powers expressly granted, the company had the right to receive such paper in payment of a debt due to it, and that, as shown by the evidence, the bill in question was received in part payment of moneys due.to the company on its deposit account with Ketcham, Berdan & Co.
The insurance company could, doubtless, have acquired a valid title to the acceptance in either these forms, if the real object of the acquisition was a loan of its money, or the collection of a debt. The validity of the transaction, depends more on its sv,batanee than its form, and it is not so much a question as to what the company might have done as what it did, in fact, do. ¡If it was received for the benefit of the company, and in furtherance of its legitimate objects, it was a valid transaction, simply because it was done in the course of its proper business, and in furtherance of the objects for which it was created;; but if it was a mere device, resorted to by the officers of the company, not for the benefit of the company itself, but for the individual>, benefit of one or more of the officers, or of third persons, it was an act outside of the legitimate business of the company, and not warranted by its charter.
The 18th section, which prohibits assignments of stock by stockholders in the institution, until all debts due from them to the company are paid or secured to its satisfaction, must be held to refer to such debts only, as were contracted or incurred in the proper business of the company, and in pursuance of its charter. It was designed as a protection to the company, against attempted evasions of liability by its stockholders, to be applied as the interests of the institution might require, and not to be used for the individual benefit of third persons, whether officers of the company or otherwise.
If, therefore,, it is fai ly deducible from the facts found by the court and stated in the bill of exceptions, that the object of the transaction by which the insurance company became the owners and holders of the acceptance of Johnson, was to secure an application of the stock to the payment of that acceptance, for the individual benefit of one of its officers or of third persons, it was a transaction without the' proper business of the company, unwarranted by its charter, and a perversion of its corporate powers.
In section 267 of Angelí & Ames on Corporations, the learned commentators, speaking of a corporation other than a banking company, which may receive notes in the course of its business, remarks, that in such cases, " evidence may be admitted in the one case in favor and in the other against the corporation, to impeach the notes, by showing that they were issued for another purpose, or received in a course of business improper or forbidden to.it" See also 2 Cowen (N. Y.), 644, 678.
The circumstances connected with the assignment of the bill by Ketcham, Berdan & Co., to the defendant in error as found by the court below, are substantially as follows: On the day said assignment was made, Johnson, the acceptor of the bill, as appeared from the books of said insurance company, was the owner of twenty shares of its capital stock fully paid, which shares, without the knowledge of the insurance company, he had previously .assigned for value to the plaintiff in error, with authority to transfer the same on the books of the company. At 'that time Johnson was not, in any way, indebted to said insurance company, and if the assignment, with authority to transfer the same, had been presented on that day, and prior to the alleged purchase of the bill, the company could have interposed no legal objection to-its transfer upon its books.
At that time the bill was the property of the payees, Ketcham, Berdan & Co., and all the parties liable thereon, the drawers and acceptor, had failed and become insolvent on the preceding day, which fact was then well known both to the payees and the insurance company. Ketcham, Berdan & Co., at the time, were bankers in Toledo, and had on de posit, to the credit of the insurance company and subject to its checks, upward of $10,000. Ketcham, the senior partner, was also president of the insurance company, and, as •such, in connection with its secretary, authorized to conduct the business of the company, subject to the order and direction of the board of directors. Under these circumstances, the bill, then due, and of persons known to be insolvent, was indorsed by Ketcham, for Ketcham, Berdan & Co., and was taken and received by Ketcham as president of the insurance company, in conjunction with its secretary, and a credit given on the books of the company to Ketcham, Berdan & Co., who then were, and still are, perfectly solvent, for the face of the bill, and the costs of protest. No money was paid to Ketcham, Berdan & Co., but the deposit of the insurance company with them was lessened to that extent, and no steps were subsequently taken by the insurance company to charge Ketcham, Berdan & Co., as indorsers. On the second or third day thereafter, the certificate of stock and its assignment to the plaintiff in error, was presented to said insurance company, and the company refused to permit the transfer to be made on its books.
This statement of the facts, found by the court, shows that the real object of the parties, was to reach and appropriate the stock to the payment of the acceptance held by Ketcham, Berdan & Co., so far as it might go, and not the negotiation of a loan, or the collection of a portion of the deposit account. It was not to obtain a loan of money. None was asked for, and none was received. It merely added one item to a large running account, which, for aught that appears, still remains open and unsettled. It could not be for the purpose of collecting a small portion of its deposit with Ketcham, Berdan & Co., who then were, and, as the court find, still are solvent, and no doubt seems to have been entertained of their solvency at that time.
The fact, that no steps were subsequently taken to fix the liability of Ketcham, Berdan & Co. upon their indorsement, also shows that the assignment, inter partes, was not regarded as a transfer of the real interest in the bill. All the other parties upon it were insolvent, and the value of the stock was-uncertain; and, owing to the hazards of the business, liable-at any moment to become worthless. The par value of the stock did not exceed the face of the bill, and if the transfer was real, ordinary prudence would have required that .the liability of - the only parties upon it who were solvent, should have been secured to guard against ultimate loss. But if, notwithstanding the assignment, Ketcham, Berdan & Co. were the-real owners of the bill, there was no occasion to take any steps against them.
It-is apparent, we think, that it was nothing more than an. effort by Ketcham, Berdan & Co., with the aid of the insurance company, to obtain an advantage in the anticipated struggle over the effects of an insolvent debtor, an effort, in which the insurance company, without being interested in the result, was quite willing to aid.
If we are correct in this, the defendant in error had no-power or capacity, under its charter, to receive an assignment of the bill for any such purpose, and its actual reception, created no debt in its favor, which the company could enforce by a sequestration of his stock. It was an effort by the insurance company to secure, for a friend, an undue advantage over the other creditors of an insolvent debtor. It-was an attempt, by a third person, without the consent of the insolvent debtor, to prefer one of his creditors over the others.. No such power as this can be fairly inferred from the charter of the defendant in error, and it is also a. gross perversion of the 13th section of the act.
If, however, the purchase of the bill by the company was-not for the individual benefit of a third person, but for the purpose of subjecting Johnson's stock, without his consent, to its repayment, and thereby relieve the company from an insolvent, or it may be, an undesirable stockholder,- we can not but think that such a purchase, for such, an object, would be a clear abuse of its corporate powers, and in fraud of Johnson's rights. It would be an act of bad faith toward one equally interested with the other stockholders in the joint funds, to employ them for the purpose of depriving an em 'barrassed stockholder, without his consent, of all interest in the present, and the future fortunes of the corporation.
In Straus & Brother v. The Eagle Insurance Company, 5 Ohio St. Rep. 59, it was held, that the purchase of a note by an insurance company, organized under a similar charter, if made for the purpose of using the note as a setoff to a claim for- a loss arising under one of its policies, was an abuse of its corporate powers, and that the note could not be used for that purpose. The court, indeed, say in that case, that " the contract" (i. e., the indorsement) "is void, and the instrument a nullity;" but while we concede that there was such an abuse of power, as should prevent the relief asked, we' are not prepared to hold, where the indorsement is one which, und'er certain circumstances, the company might lawfully •accept; in other words, where there was a mere abuse and not a total want of power, that such indorsement would be null and void for all purposes and as against all persons.
Judgment of the district court reversed, and of the common pleas affirmed.
Sutliee, C. J., and G-holson, Brinkerhoee and Scott, J J., concurred.