Ehrman v. Union Central Life Insurance (35 Ohio St. 324, 1880)

White, J.

The ground of error relied on in this case is, that the agreement of October 13, 1871, entered into between the Home Mutual Life Insurance Company and the plaintiff, is unauthorized by the charters of the respective companies, and is therefore void; and that, as the plaintiff’s title to the note in controversy is derived through this agreement, the transfer of the note by the Home Mutual to the plaintiff is inoperative.

In applying the doctrine of ultra vires, in a particular case, regard must not only be had to the unauthorized agreement or transaction, but also to the relation which the litigating parties sustain to it.

Where there is an absolute or total want of power in a corporation to deal in respect to a given subject, it may be that acts done in the name of the corporation, in regard to such subject, would, as corporate acts, be void for all purposes and as against all persons.

But there is an obvious distinction between such a case and one where the corporation deals with a subject within the scope of its granted powers, but for a purpose, or in a mode not authorized by its charter. Thus, where property which the corporation, under certain circumstances, is authorized by its charter to acquire, is purchased, in a mode or for a purpose not authorized, it seems clear to us that the title of the corporation to the property can not be defeated by a party who is a stranger to the agreement by which the property was acquired, and who is not injured by the transfer.

A stranger to the agreement or transaction has no right to question its validity, whether it was entered into between corporations or natural persons. To obtain a standing in a court of justice to make such inquiry, a party must show that he is interested in the question, and that the execution of the agreement operates to his injury or prejudice.

The plaintiff' and the Home Mutual Company, at the date of the agreement of October 13,1871, were carrying on the business of life insurance under the act of April 16,1867, entitled “ an act for the incorporation and regulation of life insurance companies.” S. & S. 218.

The substance of the agreement between the companies was that the plaintiff purchased all the assets of the Home Mutual, an.d in consideration thereof agreed to assume its risks and to pay its debts. Among the assets was the promissory note of the plaintiff' in error, in controversy in this case, which was indorsed and delivered by the Home Mutual to the defendant in error, in pursuance of the agreement.

The agreement is set forth in full as part of the answer; but there is no averment that it has not been performed by the respective parties. In the absence of such averment, it will be presumed, in a case like the present, that the agreement has been performed, or at least that it has not been abandoned.

The validity of the note sued on is admitted. The only defense relied on is that the plaintiff, the purchasing company, has not.such a title to the note as will enable it to maintain the action.

According to the principles already stated, the fact that the agreement between the companies is unauthorized by their charters does not constitute a defense by the maker of the note. As a debtor, he is interested in paying the note only to a parky who is authorized to receive payment and to discharge him from liability. But while the validity of the transfer is insisted upon or adhered to by the parties to it, he has no interest in questioning the title of the purchaser, as payment to the latter will discharge his liability on the note.

The answer likewise states that the defendant, at the time of the making of the note, was, and that he still continues to be, a stockholder in the selling company. There appears, however, to be-no connection between the taking of the stock and the giving of the note ; and where such is the case, the fact'of Ms being such stockholder can not affect a recovery on the note, in the absence of any showing that the transfer of the note was to his injury or prejudice as a stockholder.

Having stated the principles upon which we rest our decision in this case, we deem it unnecessary to analyze and review the numerous authorities cited by counsel in this case, and in several others argued in connection with it. In regard, however, to the case of Straus v. Eagle Ins. Co., 5 Ohio St. 59, relied upon by the plaintiff in error, it is proper to say that, while we do not question the correctness of the decision in that case, there are expressions in the opinion apparently in conflict with the view we have taken. These expressions were subsequently qualified in the opinion in the case of White’s Bank of Buffalo v. Ins. Co., 12 Ohio St. 610 ; and of this qualification we approve.

In regard to the averment in the answer, that Cochnower was not the legal president of the company, for the reason that at the time of his election he was not a stockholder in the compauy, it is only necessary to say, without inquiry whether the objection, in a proper proceeding, would be valid or not, that being a de facto officer, his title can not be questioned in a collateral proceeding.

Judgment affirmed.

Okey, J.,

dissenting. In Massachusetts, “ it is the estabtablished law that the holder of a negotiable note may bring suit upon it, whether in law or in fact he be orbe not the real owner of it.” National Bank v. Porter, 125 Mass. 333, 339. In Minnesota, the suit must be brought by the real party in interest. There are exceptions to the rule, but a case like this would not be within them. Farmers’ and M. Bank v. Baldwin, 23 Minn. 198; First National Bank v. Pierson (Minn.), 16 Albany L. Jour. 319; s. c., Thompson’s Nat. Bank Cas. 637. This difference in the practice in those states was supposed, as will be seen in the eases cited, to be a sufficient explanation of a difference in holding upon the question whether a national bank purchasing a promissory note may maintain an action thereon, assuming the purchase to be one which it was not authorized by law to make. The statute of this state is like that of Minnesota. It is a sufficient defense in Ohio that the plaintiff is not the real party in interest. The answer in this case embraces that defense, and therefore it was error to sustain a demurrer to it.

But I do not place this dissent alone or principally upon such narrow ground. It appears from the answer that the contract between the insurance companies was entered into, not merely without authority of law, but in direct violation of statutes prohibiting it. The Home Company undertook to transfer all its property and business to the Central Company by a single and entire contract. The contract embraced real estate. The statute specifies the circumstances under, and purposes for which, such corporations may hold real estate, and it appears from the answer that the real estate attempted to be purchased was not within that provision. The same statute provides that “ it shall not be lawful for any company to purchase, hold, or convey real estate in any other ease or for any other purpose.” 69 Ohio L. 153, § 12.

In a larger sense, however, the statutes prohibited the contract. They provide that such company may “ make insurance on the lives of individuals,” show what business may be done in connection therewith, how policy holders shall be secured, how the funds of the company shall be invested, how the company may reinsure, and how it may be wound up. The whole act negatives the claim that the self-destruction attempted in this case was authorized. Indeed, the opinion has not been expressed by any member of this court that the contract was lawful, in the sense that either company could have enforced its execution as against the other. At the same time, it is asserted, in the opinion of the majority, that it does not appear that the contract has been rescinded. That, however, is not material, for it does not appear that the contract has been executed. There can be no presumption that an illegal contract has been performed. If the company wished to rely upon the fact that the contract had been executed, a reply instead of a demurrer to the answer would have been proper.

There is a well-known distinction between a mere abuse of the power delegated to directors and the absence of power in the corporation itself. The directors of a corporation may be authorized to receive the indorsement of a promissory note in a particular way, or on a particular consideration, and this authority may be abused. Or a corporation, authorized to receive the indorsement of a promissory note, may enter into a single and entire agreement, expressly prohibited by its charter, by which agreement a promissory note, among other things, is received. The distinction between these eases is important, but it is disregarded in the decision of this case. According to many authorities, the corporation receiving the note, in the instance first mentioned, may recover upon it. But I humbly submit that no case other than this can be found, in England or America, where a recovery has been permitted in the latter case. The title acquired by such an agreement is no better than if the company had been, in terms, prohibited from receiving the note. The transfer was “ void for all purposes and as against all persons.”

The principles I have stated are so distinctly asserted and ably vindicated in Straus v. Eagle Ins. Co., 5 Ohio St. 59, that the citation of other authorities seems almost a work of supererogation. As being in entire harmony with that decision, I will refer, however, to the following cases, most of which have been decided since it was announced : Farmers’ and M. Bank v. Baldwin, supra; First National Bank v. Pierson, supra; Smith v. St. Louis M. L. Ins. Co., 2 Tenn. Ch. 742; Hood v. N. Y. & N. H. R. Co., 22 Conn. 502; Hays v. Ottawa, etc., R. Co., 61 Ill. 422; Madison Plank R. Co. v. Watertown Plank Road Co., 7 Wis. 59; Board, etc. v. Lafayette, etc., R. Co., 50 Ind. 85 ; Pearce v. Madison, etc., R. Co., 21 How. 442; E. A. Railways v. E. C. Railway, 73 Eng. Com. L. 775; Toomey v. L. B. &. S. C. Railway, 91 Eng. Com. L. 146; Ashbury Railway, etc. v. Riche, L. R., 7 Eng. & Ir. Appeal, 653. And see Richardson v. Sibley, 11 Allen, 72; Widoe v. Webb, 20 Ohio St. 431.

There is a remark of the judge delivering the opinion in White's Bank v. Ins. Co., 12 Ohio St. 601, 610, wholly unnecessary to the decision of that case, which is claimed to qualify something said by Ranney, J., in Straus v. Ins. Co.. Precisely what the supposed qualification is, or why it was suggested, is not very apparent. But I am satisfied that Straus v. Ins. Co., being founded on correct principles, will withstand all the assaults made upon it.

The rule that the charter of a corporation must be strictly construed, has been enforced in this state for many years. The statute now provides that “ corporations may be formed . . . for any purpose for which individuals may lawfully associate themselves, except for dealing in real estate, or carrying on professional business ” (Rev. Stats., § 3235), or banking (Const., art. 13, § 7). It is probable that the number of corporations organized in any year hereafter will greatly exceed that of any preceding year. In my opinion this is not a time when we should relax the strict rule upon this subject, which has operated so well in this state in the past. As this decision is in direct conflict with that rule, I dissent from it.

This case was considered in connection with others involving supposed rights under the same or a similar contract. Without entering a formal dissent in any of them, this dissent applies to every case where the same infirmity was set up and the judgment or modification is in favor of the company. In some of them additional reasons for the view I have taken will be found to exist.