Case Name: Security Mutual Life Insurance Company v. The J. M. Schott & Sons Co.
Court: Hamilton County Circuit Court
Jurisdiction: Ohio
Decision Date: 1908-11-14
Citations: 11 Ohio C.C. (n.s.) 401
Docket Number: 
Parties: Security Mutual Life Insurance Company v. The J. M. Schott & Sons Co.
Judges: Giffen, J.; Swing, P. J., and Smith, J., concur.
Reporter: Ohio Circuit Court Reports (new series)
Volume: 11
Pages: 401–404

Head Matter:
CORPORATIONS WITHOUT AN INSURABLE INTEREST IN THE LIVES OF DIRECTORS.
Circuit Court of Hamilton County.
Security Mutual Life Insurance Company v. The J. M. Schott & Sons Co.
Decided, November 14, 1908.
Life Insurance — Insurable Interest — Corporations—Ultra Vires Acts by — Assent by Individual Directors not Equivalent to Action by the Board.
1. Tbe execution of a corporation note is unauthorized unless it is in furtherance, either directly or indirectly, of the purpose for which the company was chartered.
2. A corporation has no insurable interest in the lives of members of its board of directors who are not indebted to it.
3. But were this not true, policies for the benefit of the company, procured by the secretary and general manager on the lives of members of the board, without authority therefor by the board acting as a board, are void where the premiums are to be paid out of the company’s treasury; and an action by the company will lie for the cancellation of such policies and recovery of the premiums paid.
The brief of Herron, Catch & James, attorneys for plaintiff in error,
cited with reference to insurable interest: 50 O. S., 595; 63 O. S., 478; 3 Nisi Prius, 216; 94 U. S., 561.
That it is immaterial whether the beneficiary pays the premium : 94 U. S., 561.
That a creditor of a corporation has an insurable interest in the life of the manager of the corporation who is indebted to him in no way whatever: 72 N. H., 12.
That an insurance policy, .though valid in its inception, may be assigned to a person having no insurable interest in the life of the insured: 41 O. S., 323; 132 Fed., 444.
Where the business of a corporation is usually done without formal meetings of the board of directors, the necessity for such formal meetings is done away with: 41 O. S., 558; 174 U. S., 552, at 573; 11 Col., 551; 30 Vt., 159.
That a rebate does not invalidate a policy and, unless the policy itself is void, there can be no recovery of the premium already paid: 11 N. W. Rep., 660; 24 O. S., 67; 17 C. C., 531.
That statements in the nature of. promises, or approximations as to what a policy will yield, do not give rise to an action based upon fraudulent representation: 23 Fed., 438; 96 U. S., 544; 120 Mass., 495.
The brief of John J. Gasser cited'the following authorities: That a corporate act can only be exercised by a board as such, and not by members thereof not acting as a board: Young Lumber Co. v. Taylor Street Methodist Church, 5 Nisi Prius, 378 (Cuyahoga County Circuit Court); 1 Morawetz on Corporations, Section 531, and cases cited.
That there is no insurable interest where the persons insured are not indebted to the company and not under contract of employment, taken on life insurance: Section 249.
That a building association has no insurable interest in the lives of the stockholders: Bunyon, Life Insurance, 14-25; Trinity College v. Travelers Ins. Co., 113 N. C., 244; May on Insurance, Section 102a-107; Gilbert v. Sykes, 16 East., 157; Evans v. Jones, 3 H. & C., 77; Hartley v. Rice, 10 East., 22; O’Hara v. Carpenter, 23 Mich,, 410.
That policies are rendered void by the allowance of a rebate: 93 O. L., 348 (R. S., 3631-35, Sec. 12); also 3631-567, Sections 2, 3, 4; Tillinghast v. Craig, 17 C. C., 531; Urwan v. North Western Life Ins. Co., 34 Ins. Law Journal, 727; Mount & Wardell v. Waite, 7 Johns Rep.. (N. Y.), 433; Insurance Co. v. Pyle, 44 O. S., 31-32; Insurance Co. v. Wright, 33 O. S., 533; Metropolitan Life Ins. v.-, 33 Ins, Law Journal, 643; New England Mutual Life Insurance v. Swain, 34 Ins. Law Journal, 1016.
That the ' contract was entered into upon fraudulent representation and the premiums are therefore recoverable: 30 O. S., 656.
Fraud of the agent is fraud of the principal, etc.: Cooley, Brief on Insurance, Vol. 3, pp, 2849-50; Equitable Life Ins. Co. v. Maverick (Tex. Cir. App.), 78 S. W., 560; 183 U. S., 25; 4 Ins. Law Journal, p. 899; Tennessee Sup. Court, Dec. Term, 1874; Martin & Cline et al v. Aetna Life Ins. Co.; McCay v. New York Life Ins. Co., 124 Cal., 270; Beckwith v. Ryan, 66 Com., 589; U. S. Life Ins. Co. v. Wright, 33 O. S., 534-5.
Where a policy is void by reason of unintentional misrepresentation, an action, will lié to recover premiums paid: Insurance Co. v. Pyle, 44 O. S., 19; 183 U. S., 25; 33 O. S., 534.
Mr. Gasser also cited: Equitable Life Insurance v. Wavebrick, 78 S. W., 560; McArthur v. Home Life Insurance Co., 73 Iowa, 336; Agricultural Insurance Co. v. Montague, 38 Mich., 268 to 272; 46 Mich., 473; British Workmen Ins. Co. v. Cunliffe, 18 Times Law Reporter, 502; Washington Life Ins. Co. v. Menefees, 9 Ins. Law Journal (Old Series), 118; Franklin Ins. Co. v. People, 32 Ins. Law Journal, 455.
For the facts of this ease see .the opinion below, The J. M. Schott & Sons Co. v. The Security Life Insurance Co., 7 N. P.— N. S., 548.
Herron, Gatch & James, for plaintiff in error.
John J. Gasser, for J. M. Schott & Sons Co.
Benner & Benner, for the Brighton German Bank.
Bogers Wright, for A. Wolfsohn.
Smith, Simonton & Hawke, for C. B. Smith, -trustee.
Giffen, J.; Swing, P. J., and Smith, J., concur.
Affirming Schott & Sons Co. v. Security Mutual Life Insurance Co., 7 N. P.-N. S., 548.

Opinion:
The defendant in error, the J. M. Schott & Sons Co.,.was in.eorporated for the purpose of manufacturing cooperage, and unless the promissory note in suit was executed and delivered in furtherance of such purpose, either directly or incidentally, is unauthorized and void.
The insurant under each of the five policies was not indebted to the company, and under no obligation to it other than as stockholder, director or manager. The company was not investing surplus funds, but was incurring an obligation through its secretary and manager, without the assent of the board of directors, for the purpose of securing a policy of insurance for $5,000 on each of five directors, an object wholly foreign to its incorporation.
While it is true, as suggested by counsel, that each insurant might have taken out a policy, paid the premium, and made the corporation the beneficiary, yet in this' ease the applicant incurs no liability, and it is expressly agreed that the corporation shall pay all premiums, and did execute and deliver its note for the first two .annual premiums.
We think that the company had no insurable interest in its directors, and if it did that the secretary and manager was unauthorized 'to enter into the contract without the assent of the hoard of directors. Straus & Brother v. Eagle Insurance Company of Cincinnati, 5 O. S., 59; Ryan v. Rothwiler et al, 50 O. S., 595; Bradford Belting Co. v. Gibson, 68 O. S., 442.
Judgment affirmed.