author: Johnson J.

text:
    The State v. The Standard Life Association.
    1. Corporations organized under the laws of Ohio, are of two classes : 1st. Those organized for profit, which must have a capital stock owned by stockholders. 2d. Those organized for purposes other than for profit, consisting of members associated together for a lawful purpose. To the second class belong corporations formed under the provisions of section 3630 of the Revised Statutes for the mutual protection and relief of its members, and for the payment of stipulated sums of money to the family or heirs of deceased members.
    2. Corporations formed for this purpose, though not subject to the provisions of chapter 10, title II. of the Revised Statutes, relating to life insurance companies, on the mutual or stock plan, are subject to all the general provisions of chapter 1 title II., which apply to corporations . formed for purposes other than profit.
    8. After such a company or association has been organized and incorporated, the members thereof are those mutually engaged in promoting the purposes of the organization, and who, by virtue of their relation to the corporation are entitled to the mutual protection and relief provided, or whose family or heirs are, in case of death, entitled to the specific relief provided for them.

      4. The members of such a corporation are the elective and controlling body, authorized to elect trustees and prescribe regulations for the government of the same, not inconsistent with the laws of the state. Heither the incorporators nor the trustees first elected are authorized to adopt a by-law or regulation providing that they shall hold office during life, and in case of vacancy, to fill the same by appointment.
    5. Trustees are charged with the duty of faithfully executing the trust which the law and regulations impose on them. They are entitled to a reasonable compensation for the service rendered; but any plan or scheme by which money is collected from members by assessment or otherwise, with a view to their individual profit, and beyond what is necessary to defray the reasonable expenses of executing the trust, is a breach of trust.
    6. A certificate of membership in such a corporation by which the member in consideration of his payment of a membership fee, annual dues and a pro rata assessment with his fellow members to pay a sum of money to the family or heirs of a deceased member, in consideration of which the association at his death stipulates to pay to his family or heirs a sum of money, graduated by the number of members in his class, is a contract of life insurance.
    7. Such a contract of insurance to pay in case of a member’s death “ to himself or assignees,” “ to his estate,” “to his executors or administrators,” or to any person, whether a relation or not, who is not of his family or heirs, is against public policy, and void.
    Quo Warranto.
    Tbo object of this action is, to oust the defendant, a corporation organized under section 3630 of tbo Revised Statutes, from its franchise to do business, as an insurance company, on the co-operative or assessment plan, as authorized by said section. Tbe ground alleged is, misuser of its corporate privileges, and the exercise of rights and privileges not conferred by law. Among other things it is specified as grounds for the judgment of ouster, that this company has issued certificates of membership for the payment of stipulated sums of money for the member’s benefit, instead of the benefit of his family, or heirs as the law authorizes; that it has issued such certificates to very aged and infirm persons without regard to their prospects of life; that.it has issued them for the benefit of cousins, sons-in-law,- and other relatives who are not of the family or heirs of such member; that it has delayed the approval of proofs of death, and making the proper assessments to pay in case of death ; and that it has treated others than the family or heirs as beneficiaries, making assessments against them, and looking to them and not to the member for payment.
    The answer puts in issue these allegations, and avers that the defendant is doing a business authorized by law, upon the following plan:
    The Standard Lire Association or America, having been duly organized under the late stringent laws of Ohio, invites special attention to the following plan of Insurance:
    Divisions.
    There are four separate and distinct Divisions, and two classes in each division, one insuring for $2,000 and one for $3,000 each, on a basis of one thousand members, and the return of all assessments paid up to the time the certificate becomes a claim. Not more than $5,000 will be issued on any one life, and to 'secure this amount, two applications' will be required.
    Medical Examination.
    Applicants for membership in the Preferred Division will be required to pass a thorough medical examination by some competent physician, and none but good risks will be accepted under any circumstances. All applications must be signed by the applicant, indorsed by the agent, and will undergo .a careful examination by the Medical Director.
    Membership Pee.
    The membership fee, as per table of rates, is paid but once, and must accompany the application, and will be returned if applicant is rejected.
    Assessment ror Expenses.
    An assessment for expenses, not to exceed amount named in table of rates, will be made annually, on the first day of .January or Jifly, as indicated by the certificate of member-

      Assessments.
    Upon the death of a member, the surviving members in his class, whose certificates are in force at date of such death, will be required to pay an assessment, as per table of rates, which remains the same through life.
    Table oe Rates.
    PREFERRED DIVISION.
    Membership Pee, $15.00. Expense Assessment, $5.00.
    Age. Ass. Age. Age. Ass. Age. Ass.
    20 $3 00 30 . $3 50 40 00 50 . $5 00
    21 05 31 . 55 41 10 51 . 5 10
    22 10 32 . 60 42 20 52 . 20
    23 15 33 . 65 43 30 53 . 30
    24 20 34 . 70 44 40 54 . 40
    25 25 35 . 75 45 50 55 . 50
    26 30 36 . 80 46 60 56 . 60
    27 35 37 . 85 47 70 57 . 70
    28 40 38 . 90 48 80 58 . 80
    29 45 39 . 95 49 90 59 . 90
    30 50 40 . 00 50 00 60 . . 6 00
    In this Division there is only one class, which is for 3,000.
    Table oe Rates.
    FOR AGED PEOPLE ONLT.

      Hazm'dous JDvoision.

    For $2,000. Por $3,000.
    Membership Pee, $12.00. Membership Fee, $15.00.
    Expense Assessment, $4.00. Expense Asssessment, $5.00.
    Age. Assessment. Age. Assessment.
    61.......$2 00 61 .......$3 00
    62 .......2 15 62 ....... 3 20
    63 ....... 2 35 63 ....... 3 50
    64 ....... 2 50 64 ....... 3 75
    65 ....... 2 75 65 ....... 4 00
    66 ....... 2 90 66 ....... 4 25
    67 ....... 3 00 67 ....... 4 50
    68 ....... 3 35 68 ....... 5 00
    69 ....... 3 75 69 5 50
    70 ....... 4 00 70 ....... 6 00

      Extra Haza/rdous Division.

      For $2,000. For $3,000.
    Membership Fee, $12.00. Membership Fee, $15.00.
    Expense Assessment, $4.00. Expense Assessment, $5.00.
    Age. Assessment. Age. Assessment,
    71 .......$2 00 71 .......$3 00
    72 ....... 2 15 72 ....... 3 20
    73 ....... 2 35 73 ....... 3 50
    74 ....... 2 50 74 ....... 3 75
    75 ....... 2 75 75 ....... 4 00
    76 ....... 2 90 76 ....... 4 25
    77 .......' 3 00 77 ....... 4 50
    78 ....... 3 35 78 ....... 5 00
    79 ....... 3 75 79 ....... 5 50
    80 ....... 4 00 80 6 00

      Special Hazardous Dimisión.

    For $2,000. For $3,000.
    Membership Fee, $15.00. Membership Fee, $25.00.
    Expense Assessment, $6.00. Expense Assessment, $8.00.
    Age. Assessment. Age. Assessment.
    81 .......$2 35 81 .......$3 50
    82 ....... 2 75 82 4 00
    83 ........ 3 00 83 ....... 4 50
    84 ....... 3 35 84 ....... 5 00
    85 ....... 3 75 85 ....... 5 50
    86 ....... 4 00 86 ....... 6 00
    The Association claims the right to do business on this plan, and denies that it has misused its corporate power in any of the particulars named.
    The facts developed by the evidence on the hearing and from the books of the company, so far as necessary to be stated, will be found in the opinion, in connection with the several points considered.

      George K. Hash, Attorney General, and J. F. Oglevee, for the plaintiff.

      W. J. Gilmore and George B. Ohey, for defendant.
   Johnson J.

This association was incorporated September 1, 1880. The record of the company shows that seven persons, to wit, D. R. Johnston, W. H. Carter, J. B. Netseher, Jerry Shank, Geo. W. Cole, S. W. Anderson and John F. Wood, met on that day in Mansfield for the purpose, as is stated, of organizing an association “ to furnish mutual protection and relief to its members,” under section 3630 of the Revised Statutes; Mr. Anderson was made chairman of the meeting, and he thereupon presented a plan of operations, which was unanimously adopted. What that plan was, does not appear from the record of the company, but is subsequently disclosed in the proceedings and acts of the association.

At the same meeting, those present drew up, and five of them executed, articles .of incorporation, which were subsequently authenticated and filed with the secretary of state, under which they became a body corporate.

Before adjourning, and of course before they had become incorporated, these seven persons proceeded to elect themselves “officers and trustees” of the association fqr one year, giving to each an office, and also appointed an executive committee from among themselves. It appears that by-laws were also adopted, but the record of the trustees is silent as to their provisions. This record and the books of the association show they proceeded to transact business as a corporation soon after.

The certificate of incorporation, after stating the name and place of business, states the purpose of the association to be, “ to receive money, either by voluntary donation, or contribution, or to collect the same by assessment of its members, and to distribute and appropriate the same to the families or heirs of its deceased members, in such manner as may be prescribed by the rules and regulations of the association, not inconsistent with the laws of Ohio, and so as to carry out the objects and purposes of the association as above expressed.” The section of the Revised Statutes authorizing such a corporation is as follows:

“ Seo. 3630. A company or association may be organized for the mutual protection and relief of its members, and for the payment of stipulated sums of money to the families or heirs of the deceased members of such company or association, and may receive money, either by voluntary donation or con-, tribution, or collect the same by assessment on its members, and may distribute, invest and appropriate the same in such manner as it may deem proper; but the aggregate sum stipulated to be paid to the family or heirs of any member at his decease shall in no case exceed seven thousand dollars, nor shall any assessment on account of the death of any member be made against any surviving member exceeding one-fifth of one per centum stipulated to be paid to such survivor at his decease ; and such association shall not be subject to the proceeding sections of this chapter.”

It will be noticed that this section authorizes such corporation for the mutual protection and relief of its members, and also for the payment of stipulated sums of money to the family or heirs of deceased members. The certificate of incorporation is silent as to furnishing mutual protection and relief to members. It limits the scheme, so far as relief is concerned, to the distribution of its funds to the family or heirs of deceased members.

It does not purport, therefore, to afford any relief or protection to its members, but only to provide for their family or heirs after their decease. It is in no sense, therefore, according to the charter, a mutual aid association to members, but a mutual insurance company of members, for the benefit of the family or heirs of members.

It has issued what are termed certificates of membership, but the real nature of the contract is that of insurance.

The so-called member, for in fact he is not treated as a' member of the corporate body, contracts to pay an admission fee, and annual dues of specified amounts, and a stated assessment for each death in the class to which he belongs, in consideration of which, the company agrees to pay his beneficiary named the assessment collected (less the deductions stated hereafter), not exceeding the amount of insurance named in the certificate, which is either $2,000 or $3,000.

In Commonwealth v. Wetherbe, 105 Mass. 119, it was held, that such a contract was one of insurance, whatever be the terms of payment of the consideration by the assured, or the mode of payment of the sum to be paid in the event of loss, and although the object of the insurer, in making the contract, is benevolent and not speculative.

It was further held in that case that it was none the less a contract of mutual insurance because the amount to be paid is not a gross sum, but one graduated by the number of members, nor because a portion of the premiums are to be paid upon uncertain periods of the death of members, nor because in case of non-payment of assessments the contract provides no mode of enforcing payment thereof, but merely declares the contract forfeited.

From the specific terms of the charter, as well as from the tenor of certificates of membership, the contract entered into is one of insurance on the lives of members, and not one for the mutual protection and relief of its members.

Whether it is competent to become a corporation for that single purpose when the statute authorizes such corporations for the double purpose of mutual protection and relief of its members, and also for life insurance for the benefit of the family or heirs of such members, is a question we need not now stop to answer, as the petition admits that the association was duly incorporated.

Section 3630 provides, however, that these corporations shall not be subject to the preceding sections of the chapter, relating to life insurance companies on the mutual or stock-plan.” Chapter 10, sections 3587 to 3629 Rev. Stat.

This leads to the inquiry, to what extent they are regulated by law, and to what extent such associations may adopt their own rules and regulations %

Though not subject to the provisions relating to life insurance in chapter 10, they are subject to the general provisions relating to corporations found in chapter 1 of title 11 of the Revised Statutes.

That chapter provides for two classes of corporations, (1) those for jprofit which must have a capital stock, and (2) those not for profit, which need not have such capital stock.

If it is of the first kind, its name must begin with ££ The,” and end with Company,” and in eacli kind the place of business and purpose for which it is formed must be stated in the certificate. R. S. § 3226. By section 3240, a majority of the'subscribers to the articles of incorporation of a corporation, other than for profit, may elect not less than five trustees, who shall hold their offices till the. next eléction, or until their successors are elected and qualified. In the case at bar, the incorporators elected seven trustees for one y.ear.

By section 3246, unless the regulations otherwise provide the annual election for trustees or directors shall be held (this section applies as well to corporations not for profit as those for profit), on the first Monday in January of each year. It further contemplates that the elective body consists of the ££ members ” of the corporation in those not for profit, and the stockholders,” in those for profit.

Section 3249, provides that every corporation may adopt a code of regulations for its government, not inconsistent with the laws of this state.

Section 3250, authorizes the trustees, or directors of a corporation, to adopt a code of "by-laws for their government, not inconsistent with the regulations of the corporation, or the constitution' and laws of the state, and may change them at pleasure; but section 3251 requires that regulations may be adopted or changed by the assent in writing of two-thirds of the stockholders, or, if there is no capital stock, of the members, or by a majority of the stockholders or members at a meeting held for that purpose,- of which due notice is given.

By section 3252, a corporation, by its regulations, when no other provision is specially made in this title, may provide, 1st. Eor the time, place, &c., of meetings; 2d. The number of stockholders, or members, to ’ make a quorum; 3d. The time for the election of trustees or directors; 4th. The duties and compensation of officers; 5th. The mode of filling, and tenure of all offices, other than trustees or directors; and 6th. The qualification of members, when the corporation is not for profit.

By section 3261, the trustees of corporations, other than for profit, are made personally liable for all debts by them contracted.

These are the chief provisions of the statute relating to corporations other than for profit.

We are of opinion, 1st. That associations incorporated for the purposes named in section 3630, are corporations other than for profit, and hence any plan or scheme which is intended to earn profits for its trustees managers or agents, is in violation of law.

2d. That the members of such a corporation, and not the incorporators nor the first board of trustees, elected by them, are the elective body. These members, and not the trustees or incorporators, are authorized to elect trustees, and adopt regulations for the government of the corporation, in the transaction of its business. Hence the trustees are the chosen agents of the members. They have no authority to adopt or alter regulations, nor to prescribe their terms of office, though they may make by-laws for their government and change them at pleasure.

The facts in this case show, that this association has been .organized, and is doing business in direct violation of these provisions of law.

I. The members of the corporation have had no voice in the election of trustees or in the management of its affairs. The incorporators, at the first, meeting to organize, elected themselves trustees for one year. At the end of that year these same trustees re-elected themselves; the meeting, as the record shows, was the annual meeting of the trustees, and all being present.

On January 25, 1882, they adopted a new code of “bylaws, rules and regulations by which they provided, that they should hold office d/wri/ng Ufe, and in case of vacancy by death or resignation, or x’emoval for good cause, which could be done by a majority vote, such vacancy should be filled by the remaining trustees. Thxxs they arrogated to themselves all authority. They made regulations, and conducted the whole bxxsiness, on the theox-y that the members had no voice. They were under no obligations, to become members, and most of them were not.

They thus became a perpetual body, invested with all the franchises and powers which the statute vested in the members.

II. The plan upon which the business has been done, was to make money for these trustees and their agents.

These self-constituted trustees clothed themselves with supreme and perpetual power and then proceeded to manage this self-imposed trust for their own interest, and at the expense of their over-confiding members or thei'r speculative beneficiaries. I am aware this is a serious charge, but it is not made without the most convincing evidence taken from the books and papers of the company.

The statute contemplates the organization of associations for mutual protection and relief of members, and for the payment of stipulated sums to the family or heirs, of its deceased members. They are authorized to receive donations and voluntary contributions for such relief and protection, also to raise by assessment of its members sums of money to be appropriated to the family or heirs of a deceased member. By the table of rates, and under the pretense that they were providing for the necessary and reasonable expenses of administering the trust, they have collected from the so-called members, by assessment and otherwise, or, quite as often, from some beneficiary, having no insurable interest in'such member but who is induced by speculation, large sums of money, beyond the amount that was paid, to the family or heirs, or that is required to pay the expenses of the trust. From the date of organization, September 1, 1880, to-April 15, 1882, the association received the following sums from members, or specula-' tive beneficiaries.

Admission fees,........$11,829 26
Annual dues, “ Expense fund,” . . . 12,035 00
Death assessments collected, .... 75,928 05
Weekly benefit fund,...... 90 00
Total receipts, $99,882 31
From .this there has been paid to beneficiaries, ............$29,289 56
Add assessments not due, to be paid to beneficiaries,..........24,439 00
Amount of assessments returned to members, ....... 1,457 20
Total disbursed to members, and beneficiaries . out of assessments,........ 55,18576
Leaving balance for “ expenses,” .... $44,696 55

The above $99,882.31 paid by members, is exclusive of amounts which they paid to agents, as admission fees, and which they retained as commissions. These admission or membership fees, as appears by the table of rates, were from $12 to $25, according to age and amount of insurance. From a statement taken from the books of the company it appears that 5,552 members have been admitted, classified thus:

Preferred Division, age 20 to 60, 1st class Hazardous Division, age 61 to 70, $3,000 2,000 policy 259 301 u
2d “ “ ’ “ “ “ 3,000 827 u
1st “ Extra “ “ 71 to 80 2,000 1,029 u
2d “ “ “ ' “ “ 3,000 2,062 a
1st .Special “ “ 81 to 86 2,000 510 u
2d “ “ “ “ “. 8,000 565 u
Assuming that the agents collected the full amount of membership fee, authorized in each case, it amounts to,......... ,955 00
From this deduct the amount paid the company as per above statement,........ 11,829 26
Amount paid by members and retained by agents, $73,125 74
Add amount received by the company, as above, 99,882 31
Total amount paid by members, . . . . $173,008 05
Thus the $55,185.76 which was appropriated plated by the statute, cost the members or their beneficiaries $173,008.05. as contemspeculative
Of the $44,696.55, which came into the hands of .the association there was, expenses, . . . $7,662 83
Paid for collections,........• . . 7,712 75
To J. B. Netscher, President,...... 2,188 49
Jerry Shunk, Treasurer (resigned), . . . 140 00
Geo. W. Cole, (successor to Shunk) 1,938 49
J. W. Craig, Medical Examiner,..... 2,291 49
W. H. Carter, Secretary,...... 7.173 49
S. W. Anderson, Managing Agent, . . . 7.173 49
Other salaries,.......... 3,025 50
Total salaries,...........$23,931 15

That these so-called salaries were only .so in name, and a mere device, in lieu of a division of profits, is plain.

There is a by-law which provides that the “ expense fund ” shall be created by the payment of membership fees, annual dues, and any residue left of an assessment after payment of beneficiary claims,” and that it shall he used in defraying expenses and salaries of officers, and “ any other claim that shall receive the approval of the executive committee.”

The temptation to increase the residue of an assessment by settling with the beneficiary at the lowest possible figure, is very great, and the power of the executive committee over this fund to pay any other claim, than expenses and salaries ” (what other legitimate claim there could he is hard to imagine), is too great to secure the faithful administration of a trust, and so the sequel proves.

Another device to create an expense fund appears from the books.

The certificates of membership, as they were originally issued, expressed on their face, that 20 per cent, collected on death assessments was to be deducted to pay the expense of' collection. This caused complaint, owing, as the minutes show, “ to a wrong construction,” so it was struck out, and the bylaw was so amended as to provide that the beneficiary should receive $3 for each member that paid his assessment not exceeding the amount of the policy.- New certificates, with the 20 per cent, clause struck out, were ordered to be issued in lieu of the old ones.

How this change served to allay complaints and increase the expense fund at the same time, appears from two cases, taken at random from the books, one before and one after the change. February 8, 1881, a certificate pf membership on the life of Hannah Lowe, for $3,000 in the extra hazardous class, was issued, loss payable to her nephew, by name. She died within thirty days.

The death assessment realized,.......$397 25
20 per cent was deducted for the expense fund, . . 79 45
Balance paid to the nephew,........$317 80
After this change in the by-laws, Sarah Getz, a member, died.
The death assessment realized,.......$1,616 90
Per centage deducted, over 30 per cent., was, . . 488 90
Balance paid to beneficiary,.......$1,128 00

I have examined numerous entries on the books showing that over thirty per cent, has been deducted from death assessments which were collected of members. It is no surprise, therefore, that about 45 per cent, of the amount received by the company went to other purposes than for the benefit of the family and heirs of members, or that $55,000 of insurance received by members cost them $173,000.

As before stated, the sum collected on death assessments was,.............$75,928 05
The amount paid to beneficiaries and members, . 55,185 76
Excess of assessments collected over amount paid, $20,742 29

When we remember that there had been collected from admission fees, $11,829.60, from annual dues $12,035.00, making an aggregate of $23,054.16 to the credit of the “ expense fund,” a sum surely large enough to defray the expenses of this association if the trust had been faithfully and economically managed, we can but declare, that this deduction of thirty per cent, to increase that fund was a gross breach of. trust.

That the exorbitant sums which the trustees voted to themselves, with such unanimity, as the record shows, were not in fact by way of compensation for services rendered, but rather as a division of this illegal gain, appears from the books and records of the association. The compensation or salary of the trustees was not prescribed by any by-law or regulation, but was left to be fixed by themselves from time to time.

The ledger shows the salaries paid up to September 1, 1881, at a much lower rate than afterwards. In January, 1882, the following salaries from September 1881, to February 1, 1882, were allowed and paid :

J. B. Netscher, Pres’t, 5 mos. at $100, .... $500.00'
G. W: Cole, Treasurer, 5 mos. at $50, .... 250.00.
J. W. Craig, Med. Ex., 5 mos. at $25, $125 00
3,282 examinations of appl. at 10 cts., 282 20
- 407' 20
"W. H. Carter, Sec’y, 5 mos. at $300 per mo., . . 1,500 00
S. W. Anderson, “ “ “ . . 1,500 00
Total,..........$4,1.57. 20

At the same time they unanimously voted themselves $873.49 each as “ additional salaries for services rendered,’’'equal to $4,367.45. Their respective salaries for the remaining seven months of the year was fixed at $100 per month for the president, vice-president and treasurer, an increase of lOCIper cent, over preceding five months, and $300 per month for the secretary and general manager. .They were paid at these rates for February and March, and on March 30,1882, they again voted themselves an addition thereto of $600 each, which was paid, as follows:

J. B. Netscher, Pres’t, 2 mos salary, $200 .
additional salary, . 600 equal to $800
Gr. W. Cole, Treas., . . , 200
additional salary, . . 600 “ 800
J. W. Craig, Med. Ex’r, 200
additional salary, . . 600 “ 800
S. W. Anderson, Manager, . 600
additional salary, . . 600 “ 1,200
W: H. Carter, Secretary, 600
additional salary, . . 600 “ 1,200
Ain’t for two months’ services ($28,800 per year), $4,800

These “ additional salaries ” alone amounted to $1,473.49 for seven months, and the aggregate for these seven months was $13,324.65. As the “additional salaries” are voted equally to each trustee, without regard to regular salaries or to apparent services rendered, the conclusion is irresistible that it was a division of profits.

Thus in the form of “ salaries,” or “ additional salaries,” these trustees were exacting from members or beneficiaries to pay themselves at the rate of $22,842.24 per annum for the whole board, and at the rate of $5,440 per annum to the .secretary and general manager.

III. The plan upon which this association is conducted is ¡against public policy, leads to speculation or gambling on the lives of aged and infirm people, and is a deception and a fraud on those for whose benefit it is intended.

Although it was held in State ex rel. v. Central Ohio Mutual Relief Ass., 29 Ohio St. 399, that such associations were not authorized to issue certificates providing for the payment of money in case of death of a member to others than th.e family or heirs, yet this association has been continually engaged in such transactions, as the following statement will show.

In 236 cases “children” were named as beneficiaries; in 1,998 cases “sons;” in 967 “daughters;” in 33 “brothers;” in 22 “sisters;” in 60 “grandchildren;” in 146 “nieces;” in 375 “nephews;” in 313 “sons-in-law;” in 45 “heirs;” in 23 '“ estate;” in 167 “ self;” in 2 “ father;” in 42 “ cousins;” in 37 “ daughters-in-law;” in 27 “ step-sons;” in 59 no relation ; in others to brothers-in-law, sisters-in-law, executor, &c.

Again, the statute gives the right to assess members to raise the money to pay to the family or heirs of deceased members. In a large majority of cases, the beneficiaries or others were recognized by the company as the persons to pay such assessments; indeed it is not certain but that in some cases the member had no knowledge of the application made in his or her behalf. Memberships were issued indiscriminately, without regard to age or prospects of life. It is published in the circulars or “ leaflets,” which are distributed to the public, that “ applicants for membership in the Preferred Division,” (that is, between 20 and 60 years of age)- “ will be required to pass a thorough medical examination by some competent physician, and none but good risks will be accepted under any circumstances.”

Why no medical examination is required or was had in case of people over 60 years of age, is easy to understand in view of the scheme as carried out.

Yet the by-laws provide, that applicants must be of “ sound mind and body.”

The sincerity of this rule may well be doubted when a medical examination. is dispensed with. Memberships were issued to persons between 20 and 60 years of age inclusive, 259; from 60 to 70, 1,128; from 71 to 80, 3,091; from 81 to 86, 1,074; thus only 259 out of 5,552 members accepted, were subjected to any medical examination.

The applications on file show, that some if not many of them were at the time, and had been for years, not of sound body, and some died shortly after they were insured for the benefit of others than heirs or members of the family.

As a fact the agents of the company, the medical examiner of applications, the trustees and the beneficiaries, were each and all, under the plan adopted, directly interested in obtaining the worst risks possible to secure; an old and decrepit person with one foot in the grave ” and the other soon to follow, was a much more profitable member than a sound one.

In such a case at least eighty per cent, of the admission fee went to the agent, who could more readily earn it when no examination was required, and the balance .went to the “ expense fund.” The sure prospect of an early death, stimulated the affectionate regard of sons-in-law ” and others, not members of the family or heirs, to advance this fee, and assume the risk of paying death assessments that might happen before the subject of their insurance should die, when they would receive, in the shape of an assessment, their reward for having selected the most dangerous risk. The more risks of this kind, the more assessments out of which the trustees deducted from 20 to 30 per cent, to pay themselves large salaries and additional salaries. This is in violation of all sound principles of life insurance, the two material .elements of which are, the rates of mortality of its risks, and the expenses of management. It is essential to the success of all life insurance, and to the value of insurance to the policy holder, that these factors be reduced to the minimum by care in selecting risks and by economy of management, but in such a company as this, the nearer the grave the better the risk, those having a reasonable prospect of an early demise alone are wanted. As is said in a recent Report of the Commissioner of Insurance of Pennsylvania: “ This is worse than lotteries, faro tables and other forms of gambling, denounced as immoral and punished by fine and imprisonment. It is gambling in human life, and furnishes strong incentives to worse crimes. It is using the‘name of life insurance as a convenient cloak for lotteries, in which greedy gamblers cheat one another, with stakes upon the lives of venerable paupers.”

It does not fall within the province of the court to discuss the relative merits of the different plans of life insurance, as between the old line systems and those formed on the cooperative or mutual assessment plan. It is enough to know that the statutes of Ohio authorize each plan, and each doubtless has its merits if properly administered, and demerits if not. "Whatever be the system, it is the highest duty of the courts to see that the trust is faithfully administered.

This is especially true in the co-operate or mutual assessment plan, where there is no reserve or surplus fund, and where the assessments to pay benefits are. collected directly from the members, who generally do not understand the mysteries of life insurance management.

These associations doubtless had their origin in the friendly and benevolent organizations and fraternities claiming like affiliation and purpose. These and other organizations, having for their object the mutual aid, benefit and relief of their members, or their families or heirs, when honestly and economically administered as a sacred trust, and not with a view to profit, are worthy the protection of law.

Beneficence and charity are justly claimed as cardinal graces, and should be fostered and encouraged; but the protection of the people from fraud and imposture, acting under the name of these virtues should meet with speedy condemnation.

Counsel for the corporation make an appeal to the court in behalf, it is said, of the 4,295 members, to spare the corporate life of the association and simply oust it of certain franchises which it has abused. In support of this it is said that these members have paid in their money, all of which they will lose if judgment of ouster as prayed for is entered. This assumes, among other things, that there is no individual liability of the trustees for their unauthorized acts. How this is we have not now to determine.

This is not the case of exceptional excess of corporate power. The whole plan of operations, and their practical exemplification, manifest a carefully formed purpose'to make money for the trustees. It is a speculative insurance company, in a most objectionable form. To prolong its existence and thus enable the trustees to continue in such business, would be a failure of duty on the part of the court.

Judgment of ouster.

Okey, C. J., took no part in the decision of this case.


source: Caselaw Access Project

license: Public Domain

text:
    The State ex rel. Attorney-General v. The Middleburg Mutual Aid & Life Association.
    Quo Warranto.
   This case presents tbe same questions as tbat of State ex rel. v. Standard Life Association, just decided. The relation charges the same acts of misuser except more specifically.

The proof establishes that the corporation is formed on the same plan, and is doing the same kind of business. The only difference that is worthy of note is, that the trustees, called the profits realized from death assessments, and regularly distributed to themselves, by that name, and did not attempt to disguise the same under the name of “salaries,” or “additional salaries.”

Judgment of ouster.

Okey, O. J., took no part in the decision of this case.


author: "White, J.

text:
    Bundy v. Iron Co.
    A stockholder in a manufacturing corporation indorsed notes of the company in consideration that the payment of the notes should he secured and the indorser protected by mortgage on the property of the company. Through mistake the mortgage was made by the stockholders in their own names instead of in the name of the corporation. A subsequent mortgage was made in the name of the corporation to its creditors, and recorded, which, by its terms, was subject to the first. Held:

    1. That the mortgage by the stockholders was a good, equitable mortgage against the corporation, which, independently of our statute, could be enforced against subsequent judgment creditors.
    2. That the second mortgage operated to give priority to the first both as against parties claiming under the second mortgage and those claiming liens under judgments subsequently rendered.
    3. An express acceptance of the second mortgage by the mortgagees is not required. The acceptance may he implied from circumstances. Nor is it necessary that all the mortgagees should accept the mortgage ; part may accept though others refuse to do so.
    Error to District Court of Jackson county.
    The defendant in error, tlie Ophir Iron Company, was a manufacturing corporation, incorporated under the laws of Ohio, and consisted of tens stockholders including H. S. Bundy, the plaintiff in error. December 3, 1874, the company being in embarrassed circumstances, applied to Bundy for assistance, and thereupon, at the request of, and for the sole benefit of said company, Bundy endorsed the two certain promissory notes of the company of $5,000 each, one of them dated December 5, 1874, and the other dated January 1, 1875; and both payable to the order of Bundy in four months after their respective dates. To secure the said Bundy against said indorsements, and to save him harmless on account thereof, the company undertook to execute to Bundy a mortgage upon its real estate, which, excepting the description, is as follows :
    “Know all men by these presents, that Robert Hoop, George Hoop, "William T. Washam, Rufus Hunseger, Harrison IT. Gilliland, James Harper, D. Wayland Evans, Samuel Baker and John Garrett, the grantors in this instrument, and who, together with IT. S. Bundy are the sole members and stockholders in the Ophir Iron Company, a corporation duly organized. under the laws of the state of Ohio, having its principal place of doing business in Jackson county, in the state aforesaid, in consideration of ten thousand dollars paid by said H. S. Bundy to said Ophir Iron Company, the receipt whereof is hereby acknowledged, do hereby grant, bargain, sell, and convey to the said H. S. Bundy, his heirs and assigns forever, all the right, title, interest and estate, legal and equitable, of the aforesaid grantors in and to the following lands and tenements of the said Ophir Iron Company, situate in the county of Jackson,” &'c.....“to the only proper use of the said H. S. Bundy, his heirs and assigns forever. Provided, nevertheless, that whereas the said Ophir Iron Company has execubed to the said H. S. Bundy, and payable to his order at the First National Bank, of Jackson, Ohio, its two certain promissory notes of $5,000 each, one dated December 5, 1874, the other dated January 1, 1875, and both due, respectively, four months after the respective dates thereof, and which said notes the said H. S. Bundy has indorsed, and thereby has become the security of the said Ophir Iron Company for the payment of the said notes. Now, if the said Ophir Iron Company shall pay said promissory notes so indorsed by the said H. S. Bundy, as well as any and all renewals thereof, either in whole or in part, together with all interest and discount of the same, and hold and keep the said H. S. Bundy harmless, by reason of any liability he may have incurred or may incur by having indorsed said notes, ór by indorsing any renewals thereof and thereby becoming the security of the said Ophir Iron Company or otherwise, then these presents shall be void ; otherwise, to be and remain in full force and virtue in law. In witness whereof, the said grantors have, hereunto set their hands and seals, this 3d day of December, in the year of our Lord 1874.”
    It is signed with the individual names and sealed with the individual seals of the nine persons named as grantors in the granting clause, by whom, as grantors, it is also acknowledged as their voluntary act and deed.
    This mortgage was, on December 5, 1874, delivered to the recorder of Jackson county, and by him on the same day duly recorded.
    The record shows that one of the by-laws of the Ophir Iron Company requires a l’ecord to be kept by the secretary, of every business transaction, and that there is no record of any resolution or other action of the stockholders or directors, authorizing the execution of a mortgage to H. S. Bundy.
    The said notes were, after the execution and delivery of the mortgage, discounted by the company, and the proceeds, in gdod faith, used for the benefit of the company. April 17, 1875, after the first note was due, and had been taken up by Bundy, and before any judgments were rendered, the company being pressed by their creditors, some of whom had suits then pending, on which judgments were afterwards rendered, and in order to secure equality among their unsecured creditors, executed a second mortgage upon the same premises as those described in the mortgage to Bundy, in due form, and duly executed by the corporation through its president, to the other defendants in error, who are now claiming as judgment creditors, and some eighty others, (not including Bundy), “and such other creditors of Ophir Iron Company as may not be included' in the (list of grantees named) above.”
    This mortgage expressly recites that it is made “ subject, however, to a mortgage in favor of Hezekiah S. Bundy for the sum of $10,000, of record in said county of Jackson in the record of mortgages,” and was filed for record April 19, 1875, and recorded April 22, 1875.
    At the May Term, 1875, of the Jackson county common pleas court, Lewis Wald & Co., and other creditors of the corporation obtained judgments against'it, which took effect as liens upon the land described in the mortgages from May 24, 1875.
    The company having failed to pay the notes indorsed by Bundy, and he having paid them, and the company refusing to repay him, on August 13, 1875, Bundy commenced his action in the common pleas court of Jackson county to foreclose his mortgage, making Lewis Wald & Co., and other creditors of the company parties, who filed answers and cross petitions setting up their respective claims. At the May Term, .1876, of that court, the court found that the lien of Bundy under his mortgage was prior to the liens of all the defendants therein, except the lien of Charles Walden and Peter Pickrel & Co., and that the proceeds of the sale (the property having been, by the consent of all parties, sold during the pendency of the suit), being insufficient to satisfy the costs of suit and these three liens, it was unnecessary to determine the priorities of the other defendants.
    On appeal to the district court that court found that the mortgage of Bundy was invalid as against the subsequent creditors of the company.
    This proceeding is prosecuted by Bundy to reverse the judgment of the district court.

      The further facts necessary to an understanding of the case will be found in the opinion.

      W. W. Johnson, with whom were John T. Moore, Porter Du HaJway and J. £. Foraker, for plaintiff in error :
    I. This was a suit in equity, and in equity at least, if not in law, the mortgage to Bundy is a valid lien, prior to that of all subsequent judgment creditors, with or without actual notice. It is admitted in the pleadings and appears in the proofs, that the contract to give this mortgage, was a corporate contract ; that all the stockholders agreed to it; that it was made in good faith, to relieve the company from embarrassment and enable it to prosecute its business; that the money realized was received by the company and went to its benefit, and that the corporation undertook to fulfill it; but it now appears that, technically, the corporate name was not used in the granting clause of the mortgage. The stockholders were unanimous in their assent to this contract, and in their endeavor to perform this contract, and as such stockholders and for the corporation, they individually made this mortgage. It will not be doubted that if this were an action by Bundy against the corporation alone, to enforce this mortgage, equity would grant the relief he asks. These judgment creditors, by their judgments and levies, acquired no greater interest as against Bundy’s mortgage than the corporation had. His mortgage had become absolute before the judgments were rendered, and these judgments only attached to the equity of redemption, and not to the fee.
    II. In this state there is no general statute prescribing the form and mode in which a corporation shall execute a deed or mortgage. The act relating to the execution of deeds does not in terms apply to corporations. Shehan v. Davis, 17 Ohio St. 580.
    III. In a manufacturing corporation, under 'the statutes of Ohio, the fundamental law vests the powers conferred by the charter 'in the stockholders. The directors and other officers are always subject to their control, and are but the agents of the stockholders, who are principals. We ask special attention to this distinction between the powers of stockholders under our statute, and their powers when the charter, as is generally the case, vests the powers conferred in boards of directors or other officers. An examination of the cases shows that the respective powers of directors and other officers and of stockholders depends upon the fundamental law of the corporation. If the management of affairs are by this fundamental law committed to a board of directors, or trustees, they alone have the power to manage its concerns and may exercise their discretion without being subject to the control of the stockholders, except for a breach of trust. But in manufacturing corporations in Ohio the fundamental law only vests the general management of the corporate business in the directors, and this, subject always to the control of the stockholders. Here the power of the directors to manage the corporate bsuiness are general, but not sole or exclusive, but always subject to the control of stockholders. They are the controlling authority, and may make all lawful contracts, and bind the corporation in defiance' of the directors. So far as I know, the attention of the courts and the bar has not been called to this important feature of the law, as to these manufacturing corporations. It is so important, and of such direct bearing upon the point under discussion, that I beg to extend the argument. The statute (1 S. & C. 301-303) provides the steps to be taken by persons to become a body corporate. When these steps are taken it is provided that these persons and their associates and assigns shall be a body corporate, and they and their successors and assigns shall have and exercise the corporate powers conferred by the statutes. Here the corporate powers are directly vested, not in a board, but in the corporators and stockholders. The next section (1 S. & C., 301) provides for the organization of the company and for a board of directors, and defines their powers. “ The directors shall have the general management of the affairs of the company, .... subject always to the control of the stockholders.” It is provided that these directors shall be elected at an annual meeting, held for that purpose, “ and for the transaction of such other lawful business, as the stockholders may deem necessaiy and proper.” Looking, then, “ to the law of the creation of the company,” to learn “ on whom the governing or controlling power has been conferred,” to quote from Judge Gholson, we find that the general management is vested in the directors, president, superintendents, &c., but that the corporate power is primarily in the stockholders, and that this management by the officers is governed and controled by the stockholders. They are the principals, representing the corporate entity; the directors are their agents, to carry on the corporate business. Among the corporate powers, is one to make contracts. That the company could, under the circumstances, borrow money and give this mortgage, will be conceded. Hayes v. Gallion Gas L. Co., 29 Ohio St. 330. That the corporation was bound by its notes and contract with Bundy cannot well be disputed, and the discussion is narrowed down to this: was the giving of this mortgage by the stockholders on the company property, to secure a company debt, incurred for its benefit and the money used in paying its. debts and running up stock, binding in equity on the corporation ? It was the unanimous act of all the stockholders, within the scope of corporate authority, and for the benefit of the company. These stockholders undertook to bind, not themselves, but the corporation. They covenanted that the company should pay these notes, and save Bundy harmless, and if it did not do so, they further covenanted that this mortgage should become absolute against the corporation. It is a well known rule of construction, in cases of contract made by an agent, that it will be so construed as to give it effect, either upon the principal or agent. Abbey v. Chase, 6 Cush. 54; Ellis v. Pulsifer, 4 Allen, 165; Field on Corporations, § .211. It is a corollary from this rule, that when the principal has received the benefit of the contract he will be liable on it. We claim, therefore, that this mortgage was the act of the corporation, by the stockholders, and that in equity it is a valid lien on its property, paramount to subsequent judgment liens — and this, independent of any subsequent ratification. But should the court think that, technically, the legal title of the land was not conveyed but remained in the corporation, we then claim:

      IY. That the corporation, subsequently and prior to any judgments, ratified and confirmed this mortgage, and thereby made it a corporate obligation as fully as if originally made in its name, 1st. By receiving and using the money thus obtained ; 2d. By express words in its second mortgage, duly and formally executed in the corporate name.
    1. By receiving and using the money raised on this mortgage. Mayor v. Bay, 19 Wall. 468; Angel and Ames on Corp. § 304, and cases cited; Field on Corporations, §§ 207-208 and cases cited; Allegheny v. McGlurhcm, 14 Fa. St. 81; Olcott v. Tioga B. B. Go., 28 N. Y. 546.
    2. It was expressly ratified by the corporation in the second mortgage : This instrument was duly made and acknowledged by the corporation. It was made for a lawful purpose, and was a commendable act; i. e., to secure equality. It conveys to all its creditors this same property, “subject, however,” to Bundy’s mortgage. This corporate act is a solemn recognition and ratification of the previous mortgage.
    Y. We deny that this second mortgage was never accepted. We deny that any express acceptance was necessary; and we claim that its legal effect was not only to ratify the first, but to convoy this estate for the equal benefit of all creditors, and that no creditor or part of the creditors could disregard or ignore it and thus obtain a preference.
    1. If any express acceptance was necessary, it was so accepted by at least three of the creditors, Stroud, Anthony and the Webster Fire Brick Company. Their sworn answers were filed, setting up this mortgage and claiming under it. The fair presumption is, that all the creditors who have not by word or act dissented have assented.
    2. We deny that any formal acceptance was necessary, and claim that this mortgage, being for the equal benefit of the company, then much embarrassed and in fact insolvent, took effect from delivery to the recorder for record, and its acceptance will be presumed in the absence of proof to the contrary. The second mortgage is subject to the first, and the judgments are subject to the second. Coe v. Railroad Co., 10 Ohio St. 374; Bercaw v. Cockerell, 20 Ohio St. 166.

      Wilby (&■ Wald, and C. A. Atkinson, for Louis Wald & Co.:
    I. The mortgage to Bundy is in no sense the act of the corporation, but as to it is absolutely void. It does not purport to be the deed of the corporation. It is the deed of nine persons conveying their rights, &c. The corporation is not named as grantor. 2 Savigny, System des heutigen Roemischen Rechts, 347; Ward v. Ins Co., 7 Paige, 294; Harris v. Mfg. Co., 4 Blackf. 267; Cabot Bank v. Morton 4 Gray, 156, 159; Gashwiller v. Willis, 33 Cal. 1, 19; Gorham v. Gilson, 28 Cal. 479; Wheelock v. Moulton, 15 Vt. 519. As already remarked, what the mortgage to Mr. Bundy grants and conveys, is not the title of the corporation to the property, but is in terms expressly the title of the nine individual stockholders thereto. They had absolutely no title, properly speaking, to the land. What they owned was personal property, shares of stock in the corporation, not realty. The limit of their -right was, upon the dissolution of the corporation, and after the payment of the debts of the corporation, and not before, to have the proceeds of the corporation’s property, in the proportion that their shares of stock bore respectively to the entire stock, paid to them. This was the utmost which they could by the deed convey to Mr. Bundy. They profess only to convey their right title and interest; nemo plus juris quam habet dare potest.
    II. But apart from any principle peculiar to the Jaw of corporations, there is another reason why this mortgage cannot be foreclosed against the corporation. This mortgage is under seal; it is not executed by the corporation ; the corporation is nowhere mentioned as a party to it. It is a general rule of both law and equity, applicable to corporations and natural pei’sons alike, that those persons only can sue or be sued on an instrument under seal who are parties to it. The cases to this effect are so numerous that there is embarrassment in choosing which to refer to. A recent case strongly in point, decided by the court of appeal in chancery is In re International Contract Co., Pickering's Claim, L. R., 6 Ch. App. 525. And see Lessce of Anderson v. Brown, 9 Ohio, 151; Hatch v. Barr, 1 Ohio 390.
    Of the very many cases in the reports which hold that no one can be sued on an instrument under seal, who has not executed it as a party, we cite: Beckam v. Drake, 9 M. ife W. 95, per Parke, B.; Lord Southampton v. Brown, 6 B. & O. 718; Huntington v. LLnox, 7 Cush. 371, 374, per Shaw, O. J.; Lessee of Clarke v. Courtney, 5 Pet. 319, 350; Elwell v. Shaw, 16 Mass. 42; Brimley v. Mann, 2 Cush. 337; Stinchfield v. Little, 1 Greenl. 231; Zóller v. Afe, 1 Neb. 439; v. McElroy, 1 Sneed, 341; LLall v. Cockrell, 28 Ala. 507; City of Providence v. Miller, 11 R. I. 272; Furni/ual v. Coonibes, 5 M. & Or. 736.
    III. It is claimed, however, that the corporation ratified the act of the nine stockholders so as to make the mortgage signed by them its own. To this we reply that no ratification could make that instrument the deed of the corporation. Story on Agency, § 251, a; Wilson v. Tumman, 6 M. & Gr. 236; Vere v. Ashbey, 10 B. C. 288, 298; Collins v. Swan, 7 Robertson (N. Y.) 623, 633; Sanderson v. Griffith, 5 B. & C. 909; Roby v. Cossitt, 78 Ill. 638. Ratification simply supplies the want of previous authority. If authority existed previously, ratification is superfluous. If a man acts expressly on his own behalf, and not in the name of another, there can be no authority to act on behalf of that other to be supplied by ratification. Here the stockholders do not profess to act on behalf of the' corporation; they expressly and solemnly under their seals convey not the corporation’s but their own right, title and interest in and to the land. Here is no want of previous authority to be supplied by ratification; if the conveyance of their right and title were a thousand times confirmed and ratified, it would still be the conveyance of their, and no one’s else right and title. If I without authority from B., quit-claim his interest in Blackacre to C., B. can by ratification make my act his own; but if I quit-claim to C. my own interest in Blackacre, it is clear that here is nothing upon which a ratification by B. can operate.
    IY. The alleged ratification moreover consists in the fact that on April 17, 1875, the corporation executed, and on April 22 caused to be recorded a mortgage of the property-embraced in the former mortgage, and containing the clause, “Subject, ho-wever, to a mortgage in favor of Hezckiah S. Bundy, for the sum of $10,000, of record in the said county of Jackson.” It does not say a mortgage “executed by the stockholders of this company.” Moreover, there is not any evidence in the record to show that the mortgage here referred to is the same one which is now sued upon; there is nothing to show what mortgage is meant. Non constat, but that there was a prior mortgage by the company which has been paid. But further, this so-called second mortgage was not assented to by any of the mortgagees. True, three of them did assent thereto, after we had obtained liens on the land by taking judgment, but such assent cannot relate back to our injury. The doctrine of relation is a fiction, applicable only when demanded by considerations of justice, and not admitted when it will defeat the intervening rights of third persons. Cook v. Tullis, 18 Wall. 332. The mortgage to Mr. Bundy herein sued on is void as to us as not complying with the requirements of section J106 and section 4133 of the Revised Statutes. Under the former a mortgage of lands is required to be signed and sealed by the grantor or maker, and such signing and sealing must be acknowledged by the grantor or maker, in the presence of two witnesses, who shall attest the signing and sealing, and subscribe their names to the attestation, and such signing and sealing must be acknowledged by the grantor or maker, before the proper officer; and under the latter it is of no effect until delivered to the recorder of the proper county for record. “A series of authoritative decisions have been made in this State, holding that such mortgages only as were signed, sealed, witnessed and acknowledged, in accordance with the first section of the act first above referred to, were entitled to be recorded; and that none but mortgages so executed and so delivered for record or recorded could have any effect whatsoever, either at law or in equity, as to third parties, whether such third parties had notice of the defectively executed mortgages or not.” Strang v. Beach, 11 Ohio St. 283, 288; White v. Denman, 1 Ohio St. 110; Erwin v. Shuey, 8 Ohio St. 510; Fosdick v. Barr, 3 Ohio St. 471. The mortgage sued on was never signed, sealed or acknowledged by the corporation as grantor. The so-called second mortgage never took effect as a mortgage at all, and was not entitled to record, because there was but one party to it, the corporation; the purported mortgagees never accepted but on the contrary dissented from it. But even were it entitled to record, the statement in it that it was subject to a prior mortgage for §10,000 to TIezekiak S. Bundy of record in the county, could not operate as a signing, sealing and acknowledgment by the corporation as grantor, and a recording of such prior mortgage.
   "White, J.

The controversy in this case is between Bundy, claiming as first mortgagee, subsequent judgment creditors, and creditors claiming under the second mortgage.

Two questions arise for consideration: (1) Whether the execution and record of the mortgage of December 5,1874, to Bundy give him priority ? and, (2) If not, does the recognition of the first mortgage in the second, of April 17, 1875, have that effect?

As to the first question: The consideration upon which Bundy indorsed the notes as surety of the corporation, was that the latter should give him a mortgage upon its property, conditioned that it would pay the notes at maturity, and save him harmless on account of his indorsements. The execution by the stockholders of the first mortgage was the attempted fulfillment of the agreement on the part of the corporation.

The Opliir Iron Company was incorporated under the act of April 12,1858, providing for the creation and regulation of manufacturing companies. S. & C. 301, 304. Under that act the directors of the company are required to be stockholders ; and while it is declared “ the directors shall have the general management of the affairs of the company,” yet they are made “subject alwmys to the control of the stockholders” in reference to such management.

The mortgage to Bundy now in question, not being made in the name of the corporation, cannot, as against it, be regarded as a legal mortgage; but it is a good, equitable mortgage against the corporation. And if such direction were necessary, it might be considered as equivalent to a direction by the stockholders to the proper officers to make a mortgage in the name of the corporation to Bundy. But such direction was not necessary from the stockholders. The directors, under the agreement by which they obtained Bundy’s indorsements of the notes of the corporation, were bound to secure him by the mortgage of the corporation. This they failed to do, by sheer mistake, in the form of executing the mortgage, which it was competent for a court of equity to correct; and which it was their duty to correct without the action of the court. Clayton v. Freet, 10 Ohio St. 544.

If it were not for our statute on the subject of mortgages, this equitable mortgage would prevail over all lien-holders and other claimants, except bona fide purchasers, for value. But it has been held, in a long series of decisions, that a mortgage has no effect, under the statute, either in law or equity, as against subsequently acquired liens, until its execution according to the statute, and its delivery to the recorder of the proper county for record. Strang v. Beach, 11 Ohio St. 283; Bercaw v. Cockerill, 20 Id. 163.

But such execution and delivery for record are not required as between the original parties or their heirs. Bloom v. Noggle, 4 Ohio St. 45; Sidle v. Maxwell, Id. 236.

The second question is: Does the recognition of the first mortgage in the second have the effect to give it priority ?

We think this question must be answered in the affirmative. The second mortgage was executed in due form by the corporation, and was made expressly subject to the mortgage to Bundy. Hence, all subsequently acquired liens that are subject to the second mortgage are necessarily also subject to the first. Coe v. Railroad Co., 10 Ohio St. 374; Bercaw v. Cockerill, 20 Id. 166.

It is, however, claimed on behalf of some of the judgment creditors that the second mortgage was not accepted by the mortgagees. In. the first place it may be said that no express acceptance is necessary. The assent of the mortgagees may be implied. Less than a fourth of the mortgagees filed answers in the case, and three of these, as already remarked, claim under the mortgage. The remainder of the answering defendants make no reference to the second mortgage; but set up their judgment liens, and claim that such liens are paramount to the first mortgage, thus ignoring the existence of the second. It is not necessary to the validity of the second mortgage that all the mortgagees should accept under it or assent to it. It is made to. the creditors severally to secure their respective claims; and those who accept it are entitled to its benefits without regard to those who decline to take under it. The refusal of some to accept cannot defeat the rights of those who do accept; and, if it takes effect as to any of the mortgagees, it inures to their benefit and to the benefit of the first mortgage.

From the testimony in the bill of exceptions, it appears that the plaintiff, Bundy, saw a number of the creditors and told them that he had a mortgage of record securing him the ten thousand dollars above referred to, and that unless an extension could be obtained with the consent of all the creditors, the company would execute a mortgage,- subject to his, upon all its lands, in behalf of all its creditors, so that they would all stand alike. That several of the creditors with whom he conversed said that would be the right way to do; that none of the creditors objected to having the second mortgage issued as above stated; that none consented, and none knew of its execution. The effect of this evidence, as we understand it, is that none knew of the execution of the mortgage at the time it was made, or expressly consented to its execution otherwise than by stating that it would be the proper thing to do in case the extension was not obtained. In another part of his testimony, as reported, he is said to have stated that “none of the creditors ever recognized or claimed under the mortgage.” This language is ambiguous, and is certainly inaccurate in one respect, for at the time of the trial several of the creditors had filed answers in which they recognized and claimed under the second mortgage. The probability is that the witness means no more than this, that none of the creditors with whom he conversed after the execution of the mortgage declared their recognition of it, or that they claimed under it. At any rate, from a consideration of the whole evidence, we think that the assent of a large part of the creditors must be presumed, upon the principles laid down in Mitchell v. Ryan, 3 Ohio St. 377.

Whether Bundy does not stand in such relation to the second mortgage, as to entitle him to insist upon it, both as against the corporation and -the subsequent judgment creditors, without reference to its acceptance, may admit of question. But it is a question that need not now be considered. Upon the case as made in the record; the court erred in denying to Bundy the priority to which he was entitled. The judgment must therefore be reversed; and the cause is remanded for further proceedings.

Judgment accordingly.

Johnson, J., being formerly of counsel did not sit in the case.


author: Okey, C. J.

text:
    Stone v. Viele.
    Where a contractor for paving a street has failed to perform his contract, so that there is “a substantial defect in the improvement,” rvithin the meaning of Revised Statutes, § 2289, and an assessment against the abutting lots has been placed on the tax duplicate, and the county-treasurer is taking the necessary steps to sell such lots, under authority of the duplicate, the owners of such property may, in an action against the treasurer and the municipal corporation, enjoin such proceeding, unless it appear that it would be inequitable to do so. Secs. 1777, 1778, Rev. Stats., have no application in such case.
    Error to the District Court of Summit county.
    On December 20, 1881, Nelson B. Stone commenced an action in the court of common pleas of Summit county, against Henry C. Yiele, treasurer of that county. The cause was appealed to the district court, where a demurrer to the petition was sustained on the ground that sufficient facts were not set forth to constitute a cause of action, and the action was dismissed by the court. The question arising on the petition in error filed by Stone in this court is, therefore, whether the petition of Stone filed in the court below contains facts sufficient to constitute a cause of action against Yiele.
    The action was brought by the plaintiff in his own behalf and in behalf of other designated persons, and it is stated in substance in' tlie petition that the following are the facts: The plaintiff and the persons so named are owners of lots abutting on East Market street, between the original west line of the corporation of Middlebury -and the east line of High street, in Akron, which is a city of the third grade of the second class. On June 27, 1881, the city council having determined to pave, gutter and curb with stone the part of East Market street above mentioned, to the width of thirty feet, and having taken the proper preliminary steps, assessed in due form upon the abutting lots three dollars and sixty-two and one-half cents on each front foot thereof, being the estimated cost of the work and materials, payable in five annual installments, and, under appropriate resolutions, the council authorized the city to, and it did issue its bonds, and the proceeds thereof,. $40,854.56, were placed in the hands of the defendant, as treasurer, for the purpose of paying for the improvement. Notice having been given, the bid of the Austin Elag-stone Company was accepted, and on August 16th 188Í, a contract was entered into in due form, between the city and the company, by which the company agreed to furnish the material and do the work according to the plans and specifications, and to the acceptance of the street committee and the civil engineer, at specified prices.
    The contract contained, among others, the following stipulation: “ The party of the second part further covenants and agrees that all of said material shall be of the best of their several kinds and qualities, and that all of said work shall be performed in a thorough and workmanlike manner, and that all of said work, labor and materials shall be subjected to the inspection and approval of the city civil engineer; and in case any of such material and work shall be rejected by the said engineer, as defective or unsuitable, then the said material shall be removed and replaced with other materials, and the said work shall be taken down and done anew, to the satisfaction and approval of the said city engineer, at the cost and expense of the said party of the second part.”
    The terms of the contract as to work and material were not complied with, and the repeated protest of the civil engineer, and his orders that portions of the pavement should be taken up and relaid, were disregarded. The agents of the company, after laying one hundred feet of the pavement, informed the civil engineer and city council that the company did not intend to construct the pavement in accordance with the terms, conditions or specifications of the contract; and, with respect to that part of the work, it is' alleged that the pavement was ‘ ‘ comparatively worthless.” It is also alleged that at this point the committee on streets- entered into a parol contract with the company for the construction, by the company, of a pavement of an entirely different character, and of greatly inferior quality to the one contracted for originally; and that, under this agreement, two thousand feet of pavement have been constructed, the same being “greatly inferior to and in no wise corresponding with the one contracted for by the said city council.” Against all this action, the plaintiff and those for whom he sues have repeatedly protested to the company and the city council. No part of the remaining portion of the work has been completed.
    The plaintiff further avers that the clerk of the city has certified the assessment to the county auditor, who has placed the same on the tax duplicate for collection by the defendant in the usual mode. The plaintiff and those in interest with him are ready to pay, and have tendered all taxes due on their lots, but they are unwilling to pay this assessment or any part of it. They, therefore, pray that the defendant, as treasurer, may be restrained from proceeding to collect the assessment.

      Hall c& Waters, E. W. Stuart and W. W. Boynton, for plaintiff in error.

      C. 8. Cobbs and E. P. Green, for defendant in error.
   Okey, C. J.

Admitting that the plaintiff was not without a remedy, the defendant insists that relief should have been sought by requesting the city solicitor to bring suit (R. S. § 1777), and that on his failure to comply with the request, there would have been a right of action at the suit of the plaintiff. R. S. § 1778. But these sections have no application. Section 550, of the municipal code of 1869, as aineuded in the revision (R. S. § 2289), provides that in an action by the city (R. S. §§ 2286, 2294, 2303), to enforce an assessment, “ a substantial defect in the construction of the improvement shall be a complete defense.” Doubtless the same rule would apply in a suit by the treasurer to collect the assessment. 77 Ohio L. 13; R. S. §§ 1102, 1103. But a treasurer may collect taxes or assessments by distraining goods and chattels (R. S. § 1095), or he may sell the lands upon which taxes or assessments have been levied, the duplicate having the force of an execution. (R. S. § 2870); and the latter, it is fair to say from the averments of this petition, was the mode intended to be pursued by this defendant. Where the proceeding is by distraint, or the treasurer is proceeding to sell under the authority conferred by the duplicate, the provision of section 2289, above quoted, will' not in terms apply; but by confining it to actions brought by the city or the treasurer, we would place upon the provision a construction which is wholly unwarranted. Such a construction would enable the city and treasurer to render the provision wholly nugatory. We are satisfied that whether a question alises upon that provision at law or in equity, the rule ought to be the same (31 Ohio St. 450), and that where the treasurer, as here, is enforcing an assessment of the character claimed, without suit, he may be restrained. True, it is a well known maxim, that he who seeks equity must do equity, but wTe are unable to say, looking to the averments of this petition, and giving to them the liberal construction required (R. S. §5096), that relief should be denied by the application of that rule.

It is urged that the improvement contemplated in the proceedings of council, and contracted for between the city and the company, was entirely abandoned, and, hence, that the assessment is illegal and may be enjoined. R. S. pt. 3, tit. 1, div. 7, cli. 13. No doubt an assessment not based on proper preliminary steps is illegal. R. S. § 2261 et seq.; Folz v. Cincinnati, 2 Handy, 261. And where proceedings for an improvement are abandoned, and a contract for a new and wholly different improvement is substituted for the former contract, without the proper preliminai-y steps, an assessment against abutting lots, to pay the cost of such new improvement, would be equally illegal. "Whether the petition presents such a case, we need not now determine.

We are of opinion that the petition is sufficient, and that the district court erred in sustaining a demurrer to it, and in dismissing the action. The treasurer was a necessary party, and, as to him, a cause of action was stated. But we are also of opinion that it is the duty of the court to require the city to be made a party, and that a failure to comply with such order would be ground for dismissing the action. R. S. §§ 5013, 5311. The ground upon which we reverse the judgment does not relate to the legality of the assessment. We assume for this purpose that it was not illegal. The question finally to be determined on this branch of the case is whether there was such a departure from the contract in the performance of the work, as to afford ground of relief against the enforcement of the assessment, and upon that question the city is plainly interested and should be heard.

We purposely abstain from laying down any rule by which to determine what is a “substantial defect” within the meaning of section 2289, or what will constitute an abandonment of the preliminary steps and the contract for the construction of the work, and the substitution of a new contract. These matters can be more properly considered in a case like this, when all the facts are ascertained.

Judgment reversed.


author: Oket, C. J.

text:
    Catoir v. Watterson.
    A person engaged in the traffic in intoxicating liquors who, under protest, paid into the county treasury the sum required of a dealer in liquors by the terms of the act of April 5, 1882 “more effectually to provide against the evils resulting from the traffic in intoxicating liquors ” (79 Ohio L. 66), may maintain an action to recover back the sum so paid.
    Error to the Court of Common Pleas of Cuyahoga county. Reserved in the District Court.
    Daniel Catoir, being engaged and desiring to continue in the traffic in intoxicating liquors in Cleveland, a city of the first class, executed a bond and paid to Moses G. Watterson, Esq., treasurer of Cuyahoga county, $300, in accordance with the requirements of the act of April 5,1882, ■“ more effectually to provide against the evils resulting from the traffic in intoxicating liquors” (19 Ohio L. 66), which act is set forth at large, amis, 199. At the time he paid the money (May 2, 1882), he informed the treasurer that he would bring an action against him to recover it back, on the ground that the act was unconstitutional; and, accordingly, he brought such action in the court of common pleas of Cuyahoga county. • A demurrer was sustained to a petition setting forth these facts, and the action was dismissed; and thereupon Catoir filed a petition in error in the district court, which court reserved the cause for decision in this court.
    The cause was argued in connection with other causes involving the constitutionality of the above mentioned statute. The names of counsel and abstracts of their arguments will appear in the preceding case of The State v. Hipp, ante, 199.
   Oket, C. J.

In The State v. Hipp, ante, 199, we held the act in question to be, in effect, a license law, and hence in conflict with the section of the constitution which provides, that “ no license to traffic in intoxicating liquors shall hereafter be granted in this state.”

The further question is now presented, whether one who has paid, under protest, money into the county treasury, in pursuance of the requirements of the act, may maintain an action against the treasurer to recover it back. Considered without regard to the decisions of this court in relation to actions of this character, the proposition thus presented for our determination is one of difficulty. The cases upon the subject are not in harmony (2 Dillon’s Mun. Corp. [3d. ed.] §§ 939, 947; 7 Wait’s Act. & Def. 403; Roscoe’s N. P. Ev. [14ed.] 554; Cooley on Taxation, 565, et seq.), but we are relieved from any extended examination of them. Baker v. Cincinnati, 11 Ohio St. 534, is direct authority that this action may be maintained, and that case is in harmony with Stephan v. Daniels, 27 Ohio St. 527, where the subject is fully considered. And the principle here asserted seems to be just. Indeed, it would be difficult to find substantial reason for holding that one who observed the forms of the statute by paying money into the treasury, should be left in a worse condition than one who treated the act at all times as a mere nuliity.

If the facts are as stated in the petition, the plaintiff is entitled to recover. The judgment will be reversed, the demurrer to the petition overruled, and the cause remanded to 'the court of common pleas for further proceedings.


author: Longworth, J.

text:
    Norman v. Shepherd.
    A mortgage deed, in other respects valid, written upon two sheets of paper attached one to the other, the latter of which contains the testatum clause, the signatures and seals of the mortgagors and witnesses, and the certificate of the officer taking the acknowledgment, is not invalid under section 1 of the act of February 22, 1831, 1 S. & O. 460. (Winkler v. Higgins, 1 Ohio St. 599, distinguished.)
    Error to the District Court of Coshocton county.

      Spangler <& Pomerene, for plaintiff in error.

      Nicholas & James, and John A. Buchanan, for defendants in error.
   Longworth, J.

In this proceeding we are asked to review a judgment of the district court affirming a decree of the court of common pleas wherein a certain mortgage, alleged to be invalid as such, from Nathan H. Shepherd and wife to Joseph Shepherd, was held to be a lien upon the land thereby sought to be incumbered, prior to the lien of a judgment in favor of David Norman subsequently rendered. The court of common pleas, upon the hearing,-found the facts and law separately, and the only question presented for our consideration is whether, upon these facts, the instrument referred to is in law a valid mortgage. If so, it is not disputed but that, as a lien, it precedes the judgment. The finding of facts explains itself and is as follows:

“ And the court do find that the mortgage deed set forth in the petition of the said Joseph Shepherd was and is written on two separate and distinct sheets of legal-cap paper, which two sheets of paper are attached together by artificial means consisting of two brass paper-fastenings. That the granting clause of said mortgage deed is on the first page of the first sheet of the paper so attached; that the description of the land contained in said mortgage deed commences on -the first page of the first sheet so attached, and continues through all. Of the second page of said first sheet, and part of the third, page of said first sheet so attached. That the condition of said mortgage deed commences on the fourth page of the first; sheet of paper so attached, and covers all of.said fourth page: of said first sheet, and all of the first and second pages oL the second sheet so attached. And the court also finds that the date of the said mortgage deed, the signatures of the grantors of said mortgage deed and their seals annexed thereto, and, the signatures of the witnesses and the certificate of acknowledgment of the notary public with his notarial seal affixed,, are all on the third page of the second sheet of paper so. attached.
“ And the court further finds that the said mortgage deed so-as aforesaid, written on the two sheets of paper as aforesaid, found and attached together by means of said two brass fastenings as aforesaid found, was on the 5th day of June, a. d. 1876, delivered to the recorder of said'Coshocton county, to be by him entered on record, and was on the 30th clay of June, a. D. 1876, by said recorder duly recorded in mortgage record No. 13, pages 293, 294, and 295, of the mortgage records of said Coshocton county.”

The sole question here is whether the fact that the mortgage was written upon two sheets of paper attached in the manner described rendered it invalid as a mortgage. We think the court below properly decided that it did not.

There is no rule of law requiring a deed to be written entirely upon one sheet of paper, unless it be found in the first section of the act of February 22, 1831, 1 S. & O. 460, which requires the certificate of the ofiicer taking the acknowledgment to be “ on the same sheet on which such deed, mortgage, or other instrument may be printed or written.” Under this statute this court decided in Winkler v. Higgins, 9 Ohio St. 599, where the certificate of acknowledgment was upon a separate strip of paper attached to the deed by a wafer, with the officer’s seal upon it, that there was a failure to comply with the terms of the statute, and, in that case, it was said, “ The facility with which such a certificate of acknowledgment might be removed from one instrument and attached to others would greatly impair the public security against intentional frauds.”

This remark has no application to the case before ns. Here the certificate of acknowledgment is found upon the sheet containing the testatum clause, the signatures and the seals; and is inseparable from it without mutilation. True, this sheet does not contain upon itself a complete mortgage deed, but it is also true that neither does the other sheet which precedes it and to which it is attached. No such fraudulent use could be made of such an instrument as is suggested in Winkler v. Higgins, the possibility of which it was the intent of the statute to avoid.

Indeed, it may be said that no fraudulent use of any kind could be made of this paper without actual forgery, and that this crime would be as easily perpetrated by writing a whole mortgage as half an one. In fine, we do not think that the case falls within the •principle of Winkler v. Higgins or the requirement of the statute. Undoubtedly, where fraud is alleged, the fact that such an instrument is not drawn upon a a single sheet might be a significant, or, under certain circumstances, an all-important factor in the determination of the issue. Nothing of the kind is claimed here.

Judgment ajrft/rmed.


author: McIlvaine. J.

text:
    Iron Company v. Murray.
    1. The right to a mechanic’s lien for labor or materials furnished for the erection or repair of a building may be waived by an agreement either expressed or implied.
    2. Where no contract is shown except such as is implied from the running of mutual accounts between the parties for many years, with semiannual settlements, a mechanic’s lien cannot be asserted on such accounts, the items of which, generally, were furnished for current repairs upon machinery attached to a rolling-mill, while other items did not relate to repairs of the machinery or building.
    Error to the District Court of Scioto county.
    The original action was brought in the court of common pleas, by Murray, Moore & Co. to recover against the Portsmouth Iron Company a judgment for $1,695.44 and interest for a balance due on an account, and to enforce a mechanic’s lien which was alleged to have been secured under the'statute.
    The main issue in the case was as to the validity of the mechanic’s lien, and the only objection to the validity of the lien related to the nature of the contract upon which the account was based. The account consisted of many items, furnished at many different dates between January 1, and July 1, 1870. The items principally were for repairs on machinery in defendants’ rolling-mill, but some of them were not of that character. A bill of the items was attached to the plaintiff’s petition, amounting to $3,495.62, from which was deducted a counter bill of $1,899.18, leaving the balance of $1,695.44.
    On appeal to the district court, the only testimony offered, on the trial, was to the following effect: That the charges specified in the bill attached to plaintiffs’ petition, were furnished between January 1,1870, and July 1, 1870, and were for work done on said rolling-mill of defendant mentioned in their petition; that plaintiffs were carrying on a foundry and machine works in Portsmouth, and defendant, the Portsmouth Iron Company, was carrying on a rolling-mill in the same place; that in January, 1868, mutual accounts were opened between plaintiffs and defendant, and during the year 1868 and 1869, up to and including January 1, 1870, it was the custom of the parties to make semi-annual settlements and strike the balance, and which ever way the balance should be found, a promissory note was given for the same, payable in four months, but no settlement was made, or note given or offered July 1, 1870, nor at any other time, for the' account sued on; that sometimes such balance was in favor of the plaintiffs, and sometimes in favor of defendant; that prior to 1868, for some years the firm of Arms, Brown & Co. (the immediate predecessors of defendant) carried on said rolling-mill and kept an account with plaintiffs of the same character, and it had been customary to make settlements semi-annually on the first day of January and July of each year, as had been done since 1868; that no contract at any time had been made either with said Arms, Brown & Co. or said Portsmouth Iron Co., in advance, for any definite or specified job of work, but from time to time, as occasion required, the foreman of said Portsmouth Iron Co. would leave an order, or call for such work and materials as were required to keep up repairs on said rolling-mill and machinery. No new job of work was done, either in constructing new machinery as such, or in making any new improvement of any kind, but the character of the work done was simply in supplying such pieces of machinery as became broken, or worn out, from time to time, and in keeping up general ordinary repairs as called from time to time, as specified in the dates of said bill of work. That the items of said account mentioned in said petition, were for work done in repairing machinery attached to and constituting a part of the rolling-mill of the Portsmouth Iron Company, situated on said real estate mentioned in plaintiff’s petition.
    On this testimony a decree was rendered in favor of the plaintiffs below.

      W. A. Hutchins, for plaintiffs in error:
    In no proper sense, was there a “ performing labor, or furnishing materials, or machinery, for erecting or repairing any house, mill, manufactory or other building or appurtenance, by virtue of a contract, or agreement, with the owner thereof.” 1 S. & C. 833; Choteau v. Thompson, 2 Ohio St. 114; Beckel v. Pettigrew, 6 Ohio St. 247; Horton v. Carlisle, 2 Disney, 184. No lien attached, for: 1. There was no contract or agreement such as is contemplated by the statute. 2 Ohio St. 12é. 2. There must not only be a contract, but it must have reference to a definite job of work for “ erecting or repairing,” &c. 3. It will be observed that the items of the account running through the six months are separate and distinct, and are also days and weeks apart, and, as plaintiffs below say, there was no contract about it, further than that the foreman of the Iron Works, in keeping up ordinary repairs would, as he needed, send orders for what he wanted. It therefore follows that if any such contract was made as the law contemplates they were separate and distinct contracts, having reference to the work done from time to time under each separate order. The lien, therefore, was not perfected within four months from the completion of most of the jobs of work, and can only have reference to the work done on'the 2éth day of June, 1870, under the last order.

      Moore & Pfewmrm, for defendants in error:'
    It is true that in order to acquire the lien provided for the labor must be performed or materials furnished “ by virtue of „ a contract or agreement with the owners of the building or mill.” But what is meant by this requirement? Two things seem to be embraced:
    First. The contract must be with the owner of the building. The part_y doing the work or furnishing the materials must not be simply a volunteer. Choteau v. Thompson, 2 Ohio St. 124. He must be under the immediate employment of the owner, and have the right to look directly to him for his pay. Neither a volunteer nor the employee of some other party than the owner can assert this lien. Sub-contractors, &c., are provided for otherwise under the lien law. But a mere general employment, even by the owner, or a general purchase of materials or machinery, is not enough. “ The contract mentioned is one that has reference to the purpose for which the work is to be done or materials furnished, namely, the erection, alteration or repair of the building, mill,” &c. 2 Ohio St. 124.
    Second. The employment of the labor and the procurement of the materials must be for the purpose named in the law; but it is not necessary that the contract should be very definite as to the particular building to be constructed or repaired. Nor is it essential that the materials procured for a purpose embraced by the law shall be so used. Choteau v. Thompson, 2 Ohio St. 124, 125; Beckel v. Pettigrew, 6 Ohio St. 251. That the work has been done or materials furnished for the purpose named in the law “ may be proved by evidence of an express agreement, or by proof of circumstances from which the purpose may be inferred. A tacit understanding may be as good as an express one.” 2 Ohio St. 125. In respect to the contract required by the law in order to acquire a lien, if the two elements are embraced, that is to say, if the employment or purchase is by the owner, and the purpose of the employment or purchase is to erect, alter or repair a mill, &c., it is enough. This court has never required more. It is not necessary that the contract shall have reference to a definite job of work for “erecting, repairing,” &c.; nor that it should contemplate a specific improvement. If the employment or purchase is not general or for general purposes, but is for the specific purpose of erecting, altering or repairing a house, mill, &c., however general or indefinite the particular work to be done or the use to be made of the materials so obtained in the erection, alteration or repair, &c., may be, the lien can be taken. This is the obvious import of the doctrine established, and the logical result of the reasoning of this court in the Choteau case. And that ruling has never been disturbed. Nor is it necessary that there should be between the parties any contract or understanding that a lien should be taken. We submit that under the ruling of this court in the Choteau case, the items for repairs made and materials furnished for the same, running through a period of six months, constitute but one account, and can be so treated in acquiring the lien.
   McIlvaine. J.

Section 3181 of the Revised Statutes provides that a person who performs labor or furnishes machinery or material . . . for erecting,n altering, repairing or removing a house, mill, manufactory or other building . . . by virtue of a contract with the owner or his authorized agent, shall have a lien,” &c.

While it is plain to our minds that the contract, which is made essential by this statute to the existence of a mechanic’s lien, may be either .express or implied; and, further, that it is not necessary that the contract should stipulate for such lien, or, even, that the labor or material should be furnished with an existing intention to perfect a lien on the property; nevertheless, we are satisfied that if such labor or material bo furnished upon an understanding or agreement, either expressed or implied, that no such lien will be asserted, then the right to assert it is waived and cannot be enforced against a subsequent purchaser or lienor.

The understanding between these parties, as evidenced by a long continued usage and mode of dealing between them, namely, to open and run mutual accounts between them in relation to their respective lines of business, and at the end of every six months to adjust the balance and execute a note for the same payable in four months, was inconsistent with the right to perfect a mechanic’s lien for labor or materials furnished, there being no showing of any contract other than such as may be implied from their mode of dealing with each other.

The several items embraced in the mutual accounts between these parties, upon which the alleged lien is claimed to be based, were undoubtedly furnished in reference to this understanding and constituted simply a running account between the parties, based solely upon the personal responsibility of the debtor. Some items in the account were, others were not, within the scope of the statute, which circumstance strongly tends to show that credit was given on the personal responsibility of the Iron Company and in pursuance of the previous understanding of the parties, which was entirely too vague and indefinite to constitute a contract within the meaning of the statute.

Judgment reversed aznd ecmse remanded.