American Indem. Co. v. Southern Missionary College

• Decision Date: 05 June 1953
• Citation: 195 Tenn. 513,31 Beeler 513,260 S.W.2d 269
• Parties: , 195 Tenn. 513, 39 A.L.R.2d 714 AMERICAN INDEMNITY CO. v. SOUTH. ERN MISSIONARY COLLEGE.
• Court: Tennessee Supreme Court

Page 269

260 S.W.2d 269

31 Beeler 513, 195 Tenn. 513, 39

A.L.R.2d 714

AMERICAN INDEMNITY CO. v. SOUTH. ERN MISSIONARY COLLEGE.

Supreme Court of Tennessee.

June 5, 1953.

Petition to Rehear Denied July 17, 1953.

McAllester & McAllester, Chattanooga, for appellant.

Wilkerson & Wilkerson, Chattanooga, for appellee.

NEIL, Chief Justice.

The American Indemnity Company issued a policy of insurance to the Southern Missionary College in the maximum amount of $4,000, indemnifying it against loss caused by safe-burglary or robbery occurring on the premises of the insured. The policy was issued under date of December 20, 1950, for a period of 3 years. Three endorsements were later issued, but they are not material to a determination of the issue involved in this controversy.

The Southern Missionary College, located at Collegedale, Hamilton County, Tennessee, was chartered as 'an eleemosynary corporation organized under the laws of Tennessee for the purpose of conducting an educational institution.' In connection with its educational activities and as a part thereof it carries on a limited industrial and mercantile program for the purpose of enabling students to work their way through school and 'to give them training in various practical crafts and employments and in order to make available services and commodities to its faculty and students, and, in some instances, to the public generally. Among such activities are the operation of a broom factory, wood-working shop, print shop, a dairy herd and a commissary or college store.' All its receipts and income inure to the sole benefit of the college.

In June and July, 1951, the officers and directors of the Southern Missionary College applied for a charter of incorporation under the laws of Tennessee to be known as 'Collegedale Mercantile Enterprises, Inc.', the same being a Tennessee corporation for profit. This charter was issued by the Secretary of State on July 11, 1951, and recorded in the Register's office of Hamilton County. The purposes of this corporation are set out in its charter as follows:

'The general nature of the business to be transacted by this corporation is the operation of a commissary or college store, including a fountain, the sale of books suitable and usable by students in said college, and others, the expedition of the purchase of automobiles by full time employees of the Seventh-Day Adventists Church, of this corporation, and Southern Missionary College, a public welfare, educational and religious corporation under the laws of the State of Tennessee, with its principal place of business at Collegedale, Hamilton County, Tennessee, a service station or garage, a college creamery to process, handle and dispense the production and distribution of milk produced from the herd of cows belonging to said college, and other sources, and to do such things as are incidental, proper and necessary thereto. All these things will be conducted on the campus of said college, and to the end of affording facilities to students who are working their way through college, and others connected with the college, and, to the end aforesaid, this corporation shall have the power and right to acquire, by purchase or otherwise, merchandise for re-sale, all necessary or proper equipment, fixtures, machinery, buildings and facilities for conducting the business, and/or to have such powers and to such things as are given and authorized under Chapter 5, Article 1, Sec. 3709, et seq., of the 1932 Code of Tennessee, and under and by virtue of any other laws pertinent to the business and objects of this corporation and relating to private corporations, and/or amendments thereto.'

The corporation was authorized to issue 1,000 shares of common stock of no par value and to begin business when $1,000 of its stock had been subscribed for. The Southern Missionary College subscribed for all the capital stock of the said 'Collegedale Mercantile Enterprises, Inc.' The consideration for said stock was the transfer to the Collegedale Mercantile Enterprises, Inc., by the Southern Mississionary College of all of the assets owned by the latter in connection with the commissary or college store, expediting the purchase of automobiles by full time employees of the Seventh-Day Adventists Church, the service station or garage, college creamery, etc. Officers and directors of the said Collegedale Mercantile Enterprises, Inc. were and are officers and directors of the Missionary College.

The foregoing statement of facts is the basis for a bill in the Chancery Court to recover on the insurance policy referred to. The bill alleges that on the night of January 19, 1952, and while the policy was in full force and effect the complainant, Southern Missionary College 'sustained a loss from burglary of $5,880.82 in cash taken from the safe in the college store, located on the premises of insured, and damage to property in the approximate amount of $339.55.' It is charged that the defendant was duly notified and after an investigation refused payment. The bill also seeks to recover a penalty of 25% on the ground that the defendant's refusal to pay was in bad faith.

The American Indemnity Company demurred to the bill upon the following grounds:

'1. The Defendant, American Indemnity Company of Galveston, Texas issued a policy naming the Southern Missionary College as the named insured and in the declaration attached to the policy stated that it is an educational institution and, therefore, said policy did not cover any other person, except the Southern Missionary College.

'2. The Collegedale Mercantile Enterprises, Inc., a separate and distinct entity was chartered July 11, 1951 and said burglary occurred from the office of the Collegedale Mercantile Enterprises, Inc. and said loss was not the loss of the complainant.

'3. The petition shows on its face that the money was stolen from the college store which was a part of the corporation known as Collegedale Mercantile Enterprises, Inc., chartered July 11, 1951, and was a separate and distinct entity from the Southern Missionary College, and the Southern Missionary College, Inc. sustained no direct loss as a result of the burglary of the college store.

'4. The policy issued to the Southern Missionary College, Inc. provides that the Defendant would indemnify the complainant for all direct loss of money from its premises but the petition on its face shows that the loss was sustained by Collegedale Mercantile Enterprises, Inc. and not from the premises of the Complainant, and from the premises of the Collegedale Mercantile Enterprises, Inc.'

The Chancellor overruled the demurrer and granted a discretionary appeal to this Court.

The assignments of error reflect the theory of the appellant, (1) that 'the policy did not cover any other person except the Southern Missionary College'; (2) 'The burglary occurred from the office of the Collegedale Mercantile Enterprises, Inc. and the loss was not the loss of the complainant'. The contention made in the third and fourth assignments is that the corporations are separate and distinct entities and the policy, made an exhibit to the bill, did not insure any loss that was suffered by the Collegedale Mercantile Enterprises, Inc.

The undisputed factual issue is, as stated by the Chancellor in his opinion: 'The complainant held all the stock of the subordinate corporation and controlled its activities through the same personnel as it had done before its procurement of the charter of the subordinate corporation.' The stockholders and directors of the parent corporation and the subordinate corporation were identical. The latter was wholly owned and controlled by the complainant. The demurrer admits the foregoing facts to be true; also that all benefits from any and all business activities carried on by Mercantile Enterprises, Inc. belonged to the complainant.

We think the two corporations are separate entities, but their existence as such is a mere fiction of the law. The subordinate corporation does the bidding of its parent down to the minutest detail. The domination of the parent over its offspring was so complete as to make them practically indistinguishable except in name. There can be no other reasonable conclusion from the admitted facts but that Mercantile Enterprises was an agency or instrumentality of the complainant, and all property including the money burglarized was in reality the property of the latter, subject of course to the claims of creditors of the former.

The great weight of authority supports the proposition that a corporation will be regarded as a legal entity and will not be ignored by the courts except 'where it is used as a blind or instrumentality to defeat public convenience, justify wrong, or perpetrate a fraud'. In support of the foregoing appellant's counsel cite Majestic Co. v. Orpheum Circuit, 8 Cir., 21 F.2d 720, and numerous other cases. Our own cases are to the same effect. Thus in Fidelity Trust Co. v. Service Laundry Co., 160 Tenn. 57, 22 S.W.2d 6, 7, there appears the statement that a corporation 'has an existence separate and distinct from that of the owners of its capital stock; * * *. But it is also recognized by the courts that this separate and distinct existence of a corporation is fictitious in its nature, created and entertained for purposes incident to the conduct of the business of the corporation and the management and control of its property, and that many special circumstances may arise in which such separate and distinct existence will be disregarded.' To the same effect is Nashville v. Ward, 84 Tenn. 27, 30-31, and other cases cited in the opinion. The Court of Appeals dealt with this question (opinion by Felts, J.) in Tenn. Consol. Coal Co. v. Home Ice & Coal Co., 25 Tenn.App. 316, 156 S.W.2d 454, 458, and held that under the proven facts a subordinate corporation became the 'agency or instrumentality of the parent'. (Certiorari denied.) See also 7...