Mansfield and Hahn, Trustees, v. Woods, Jenks & Co. [Superior Court of Cincinnati.] EXRX. OF ROBERT HAMILTON V. ROYAL INS. CO. For opinion in this case, see 4 S. & C. P. Dec., 437. See also Ib., 407. 106 MUTUAL INSURANCE. [Richland Common Pleas.] MANSFIELD & HAHN, TRUSTEES, V. WOODS, JENKS & Co. 1. A member of an insolvent corporation cannot, when called upon to pay his proportion of the indebtedness, set up that it was not properly organized to do business, or had not complied with the law. 2. After a party has had the benefit of the insurance, and the corporation becomes insolvent and goes in the hands of a receiver or trustee, a member cannot set up fraud as a defense after the rights of innocent creditors have intervened. WOLFE, J. The petition alleges that the Buckeye Mutual Fire Insurance Co. was incorporated under the laws of Ohio. That in February, 1891, under proceedings in the Supreme Court of Ohio, it was ousted from further doing business; that it was insolvent, with no assets except premium notes and contingent liability policies; that W. M. Hahn and Edwin Mansfield were appointed trustees by the Supreme Court to wind up the affairs of the company and to levy assessments and collect money sufficient from the members and policy-holders to pay its debts; that an assessment was levied against all persons holding policies during the year 1890 for losses and expenses occurring that year; that the total amount claimed against defendant on its several policies was $777.69, with interest since July 1, 1891. Defendant answers and sets up the following defenses: Second-Did not organize to do business on the contingent liability plan according to law. Third-False statements to the insurance commissioner as to the company's standing. Fourth-Company represented at issuing policies that one cash payment would end liability. Fifth-That company did business in other states without authority so to do. Sixth-That said company did business on both contingent liability and premium note plan, and that the same was illegal. Seventh-Defendant pleads a set-off for premiums paid and unearned. Eighth-Defendant pleads that the premium note sued on in the seventh cause of action was surrendered, and that all due on that policy was paid at that time. The reply is substantially a general denial. All the assessments sued on except one were on what is called the contingent liability-that is, there was a clause in the policy which makes the holder liable not to exceed five times the annual premium paid, which clause reads as follows: Richland Common Pleas. "And by an agreement by the assured created by accepting this policy to pay this company such further sum, if required, as may from time to time be assessed against the holder hereof, provided such calls. shall not exceed in the aggregate five times the annual premium on this policy." A jury was waived, and the cause tried to the court. Plaintiff offered proof tending to show the incorporation of the company, their appointment as trustees, the indebtedness, the assessment and notice thereof to defendant, the acceptance of the policies by defendant, and the amount due, and rested. The defendant then offered evidence to sustain all affirmative defenses except the eighth. The testimony being objected to, was excluded. The real question decided is whether or not, admitting the allegations of the answer to be true, it constitutes a defense to plaintiff's claim. In order to determine this question, it is necessary to ascertain the legal status of a person taking out and accepting insurance in a mutual company. Rev. Stat., sec. 3650 provides: "Every person who effects insurance in a mutual company, and continues to be insured, his heirs, executors, administrators and assigns, shall thereby become members of the company during the period of insurance, and shall thereby be bound to pay for losses and such necessary expenses as accrue in and to the company, in proportion to the original amount of his deposit note or contingent liability, etc. It was seen that under this law, as soon as defendant effected this insurance and accepted these policies, it became a member of the corporation, a stockholder of the corporation, and liable in the same manner as a stockholder of other corporations. The clause in the policy limits the liability not to exceed five times the annual cash premium paid on the policy. This is in accordance with sec. 3634. As the defendant effected insurance in the company and under the law became a member and a stockholder of the same, can it defeat this action, with any of the defenses herein set up? I think not, for two reasons: First-A member of a corporation cannot, when called upon to pay his proportion of the indebtedness, set up that it was not properly organized to do business, or had not complied with the law. Second-After a party has had the benefit of the insurance, and the corporation becomes insolvent, and in the hands of a receiver or trustee, a member cannot set up fraud as a defense after the rights of innocent creditors have intervened. As to the first proposition: In the case of the Trumbull County Mutual Insurance Co. v. Harner, 17 Ohio, 407, the defense was that plaintiff had not complied with its charter, and the court say: "A member of a mutual insurance company, when sued upon an assessment upon his deposit note to pay a loss occasioned by fire, cannot set up as a defense that he and his associate corporators have neglected to comply with the provisions of the charter." Again, on page 408, the court say: "The objection in this instance is urged by one of the corporators and one of the insured, and we doubt not, had he sustained loss by fire, he would have as strenuously insisted upon his policy as he now opposes the payment of the amount assessed upon his deposit not to pay a loss occasioned by fire to his neighbor Mansfield and Hahn, Trustees, v. Wood, Jenks & Co. we consider a corporator when called upon to respond to the obligations of the corporation to be estopped from denying its existence. in order to escape responsibility." In the case of The Newburg Petroleum Co. v. Weare, 27 Ohio St., 344, the court say: "Persons entering into a contract with such foreign corporations concerning property or rights in property appropriate to its business in Ohio will be estopped, after dealing with said corporation, recognizing by their acts its validity, and receiving the benefits of the contract, from denying the power of the corporation to make the contract in an action on the contract." See also: May on Insurance, sec. 552, p. 884; Lucas v. The Greenville, etc., Association; 22 Ohio St., 339. The case of Rundle v. Kennan, 48 N. E. Rep., 511, holds that even if the company agreed in writing that there would be no further liability, and there was nothing in the contract making the assessed liable, yet when the law provides that every person effecting insurance in the company shall be a member, he is liable to future assessments for losses and expenses. I conclude the law to be well settled, that a member of a corporation. when sued by it to pay claims due a third party, cannot set up that it did not comply with the law in making the contract; but even if a defense of this kind could be made against the company, it cannot be made against the trustee of an insolvent corporation, when attempting to collect money enough to pay claims held by insured third parties. Where the policy holder has been induced to become a member by the fraudulent representations of the company, the contract is not void, but only voidable as between the assured and the company, and where he retains the contract until the rights of innocent parties have intervened, he certainly is too late to avoid the contract, and is estopped from so doing. When the receiver or trustee of an insolvent corporation sues to recover the amount unpaid on subscription, it is then too late to plead that the subscription was induced by fraudulent misrepresentations. Taylor on Private Corporations, sec. 523. "Where the rights of innocent third persons have intervened, and it is essential to their protection that a contract, otherwise vitiated by fraud and therefore voidable, should be sustained, equity requires that such contract be upheld." Dettra v. Kestner, Sup. Ct. Penn., ante 625. See also opinion of Judge Buchwalter in Mansfield & Hahn v. Cin. Ice Co., ante 617. As to the defense that the premium note described in plaintiff's seventh cause of action had been surrendered, the court find that no settlement for defendant's proportion of losses had been made. Judgment is accordingly rendered for plaintiff on each cause of ac tion for the whole amount therein claimed. Skiles & Skiles, and Lewis Brucker, for plaintiff. Jenner & Tracy, for defendant. Summit Common Pleas. 112 112 MECHANIC'S LIENS. [Summit Common Pleas, January Term, A. D. 1893.] CREECH & LEE v. P., A. & W. R. R. Co. et al. Section 3, 86, O. L., 120, passed March 20, 1888, (Sec. 3231-3, Revised Statutes), is void, because in contravention of the constitution, in this, that it attempts to place a limitation upon the judicial power of the state, and deprives a party of his property without remedy by due course of law. Hearing on motion to strike out irrelevant matter in petition. VORIS, J. We are asked in substance to give judicial effect to the three first. sections of the act passed March 20, 1888, Ohio Laws, vol. 86, p. 120, being Rev. Stat., 3231, 1, 2 & 3, Smith & Benedict edition. As we construe the act, we think that our determination of sec. 3, will cover the ground sought by counsel to be adjudged by the court. This statute undertakes to provide a speedy-might say heroic remedy for claims asserted by persons who perform common or mechanical labor, or furnish material for a railroad. It provides that such party shall have the first, immediate, and absolute lien on the whole of the property-this comprehensive term being used in the remedial parts of that statute wherever it is sought to apply the remedy, as I remember. Sec. 3-"Any construction company, contractor, mechanic, laborer, or person contributing supplies or material to any work named in section one (1), of this act, shall at the time of filing the sworn statement of account as provided in section two (2) of this act, file a good and sufficient bond of indemnity for an amount equal to the amount claimed, which bond shall be approved by the probate judge, and shall be so conditioned as to save and protect the defendant in any case arising under this act and shall then be entitled to a decree of the common pleas court, enjoining and prohibiting the operation, use or occupancy of the property created in whole or in part by the party or parties asking for said injunction; and the said injunction shall not be dissolved until the court is satisfied that the claim has been adjusted and paid in full.” Section 2, provides that, "When it shall be deemed necessary for any such parties to secure their claims against any railroad for work done or material furnished, they shall file a sworn, itemized statement within thirty days after said work was performed, or material furnished, showing the balance due and claimed for labor or material furnished, with the recorder of the county or counties within which said work was done, or material furnished," etc. It is alleged that section three of this act is in violation of the constitution, in this that the legislature undertakes by it to control and restrain the judicial discretion of the court, when called upon to determine the rights of the parties growing out of the provisions of the act. That is, instead of being an act within the legislative power of the general assembly, it is the assertion on its part, of judicial powers, and deprives the court of the judicial discretion to determine the rights of the parties, making it obligatory upon the court, upon the ex parte claim, affidavit and bond being filed, and approved as provided for in the first and second sections of this act, to judicially decree that the party so asserting such claim, shall then be entitled to an injunction enjoining and prohib 112 Creech & Lee v. Railroad Co. et al. iting the operation, use or occupancy of the property, created in whole or in part by the parties asking such injuction. Is section three subject to this imputation? If the practical effect of the act is to deprive the owner of his property without remedy by due course of law, or if fairly construed, it so encroaches upon the judicial power of the state, it should be declared void, so far as it has such effect. That the injunction provided for, deprives the owner of his property, cannot be successfully controverted. Does it do this without the remedy of judicial procedure; that is, by due course of law? The act, as we construe it, does enforce a method of judicially depriving the adverse party of the operation, use and occupancy of his property, without a judicial trial and the determination of the rights of the contending parties. The allowance, continuance and dissolution of the injunction provided for by the act, are essentially judicial acts, and exclusively such, and imply an exercise of the highest powers of the judicial office; -åre denominated the extraordinary powers of the court. What could be higher than when the injunction prohibits the operation, use or occupancy of a railroad system by its owner, with no specific mode provided for its operation, use or occupancy pending the injunction, which may be prolonged, by virtue of this section, until chaos overwhelms its business operations? What semblance of a hearing, defense or adjudication is provided for, or admissible under this act? The act does not give an answer. Must the court grope its way in darkness, or sua sponte, create a power by which to judicially operate the system until the statutory conditions may have been satisfied? The act is mandatory upon the court, the ex parte jurisdictional conditions named in the act having been complied with, to decree the injunction, "enjoining and prohibiting the operation, use, or occupancy of the property created in whole or in part by the party asking for the injunction; which injunction shall not be dissolved until the court is satisfied that the claim has been adjusted and paid in full." This is the language of the act. This statutory procedure is wholly ex parte, and arbitrarily entitles the claimant to the injunction and its condemnatory consequences, and excludes the court making the decree from the exercise of any discretion in the matter of allowing, or dissolving the injunction; in effect, commanding a specific decree at the hands of the court, the adverse party having had no day in court, no hearing, no opportunity to make a defense, no judicial determination of the rights of either party, and no remedy against this arbitrary procedure, until the court is satisfied that the ex parte claim has been adjusted and paid as aforesaid, during all which time, the railroad company cannot have the operation, use or control of its railroad. How long a time that may be, is a significant question, more readily asked than correctly answered. The ordinary modes of litigation are not so exceedingly energetic that we can say that justice will be speedily adjudged. They are long enough at best. But during the time the adjustment is progressing, it makes no difference whether it is a claim of great or trifling moment, whether, in justice, it has any existence at all or not, the decree provided for in section three must go forth, suspending the functions of the railroad, until the court is satisfied of the adjustment and payment as provided in this section. Such an exercise of judicial powers is but an absurdity; the court held powerless to relieve the adverse party from such a hazardous injunction as the one provided for in this section, and during the whole time it may take for the court to become satisfied by some mode of |