German Ins. Co. v. Commonwealth

• Decision Date: 18 January 1911
• Citation: 133 S.W. 793,141 Ky. 606
• Parties: GERMAN INS. CO. v. COMMONWEALTH, to Use of LOUISVILLE SCHOOL BOARD. [d] COMMONWEALTH, to Use of LOUISVILLE SCHOOL BOARD, v. GERMAN INS. CO.
• Court: Kentucky Court of Appeals

133 S.W. 793

141 Ky. 606

GERMAN INS. CO. v. COMMONWEALTH, to Use of LOUISVILLE SCHOOL BOARD. ^[d]

COMMONWEALTH, to Use of LOUISVILLE SCHOOL BOARD, v. GERMAN INS. CO.

Court of Appeals of Kentucky.

January 18, 1911

Appeal from Circuit Court, Jefferson County, Chancery Branch, First Division.

Action by the Commonwealth of Kentucky, for use of the Louisville School Board, against the German Insurance Company. From the judgment both parties appeal. Affirmed on both appeals.

James C. Poston, Lawrence S. Poston, and Wallace A. McKay, for the Commonwealth.

O. A Wehle and Wehle & Wehle, for German Ins. Co.

CARROLL J.

These two escheat cases involve questions of public interest, and grow out of an attempt on the part of the commonwealth for the benefit of the Louisville school board to forfeit certain real estate owned by the insurance company, upon the ground that it had owned and held the property for longer than five years, in violation of the Constitution and statutes made in pursuance thereof.

The facts are these: The German Insurance Company was incorporated by a special act of the General Assembly of this state in 1854, and under this charter--subject to modifications made by the general laws of the state--it has continuously carried on the business of insurance. In 1897 the company became the purchaser of certain lots in the city of Louisville described in the record as lots Nos. 1, 2, 3 4, and 6. Some of these lots are unimproved, others have cheap buildings upon them, they are worth about $8,000, and have never been at any time occupied or used by the insurance company in the conduct of its business, which it has always carried on in a building situated some two miles from the location of these lots.

In 1895, and for many years previous thereto, and when this action was instituted, the insurance company and the German Insurance Bank, an institution owned and officered by practically the same persons who control and manage the insurance company, occupied together a building on the corner of Second and Market streets in Louisville, which was owned by the bank. In 1895 the insurance company purchased the property known in the record as lot No. 5, for $18,500. This lot is situated on Second street, immediately adjoining the building owned by the bank and occupied by it and the insurance company, being only separated from the bank building by a wall. There is no opening from the bank building into the building on lot No. 5, and this building has never been used or occupied by the bank or the insurance company, but has always been rented out by the insurance company. For answer and defense to this suit, which was brought in 1908, the company in one paragraph set up that it had been compelled to buy lots 1, 2, 3, 4, and 6 under judicial proceedings instituted in its behalf for the purpose of enforcing the collection of mortgage debts owned by it which were a lien upon these lots. And that it only purchased these lots in an effort to save its debt, and that although it had made diligent efforts so to do, it had been unable to sell these lots or any of them at an adequate or reasonable price or a price that would protect it from loss, and for this reason only, it had and was holding them, and intended to and would sell them when it could obtain a fair price. That having acquired the lots in this way, its holding for the purpose and with the intention stated was not in violation of the Constitution or statutes.

In another paragraph, dealing with lot No. 5, it averred that the building on Market street in which the business of the bank and the insurance company was conducted, had become inadequate for the increasing demands of the two corporations, and that in 1895 the insurance company purchased the adjoining lot with the intention and for the purpose of erecting upon it an office building for the company, but that, soon after its purchase of this lot, the bank purchased a lot fronting on Market street, adjoining its building, and erected on it a building to be and which was used in connection with its other building, and by the acquisition of this new building sufficient room was obtained to accommodate the present business of both corporations, and consequently, it became unnecessary for the time being for the insurance company to erect on its own lot a building to be used by it in the conduct of its business. It further averred that it had never abandoned the intention of erecting its own building upon the, lot bought, and that it intended to, and would be obliged, in the near future to do so, as the business of the corporations was increasing to such an extent that other accommodations must soon be obtained by it. And so its holding of this lot under these circumstances was permitted by the Constitution. In another paragraph it averred that under its charter of 1854 it was empowered to lend its money upon real estate security and "to hold, acquire, use and enjoy, or sell, transfer, convey by deed or otherwise, any real, personal or mixed estate needful to transact and manage the business of insurance," and that as its right to hold real property under its charter was not limited to five years, this charter right could not be abrogated or impaired by subsequent legislation or constitutional enactment. In other paragraphs it presented other defenses that will be noticed in the opinion. Upon hearing the case, the chancellor, now Judge Miller of this court, adjudged that lots Nos. 1, 2, 3, 4, and 6 had escheated to the commonwealth, but that lot No. 5 had not. From this judgment, both parties have appealed.

The commonwealth finds authority to support the action brought by it in section 2971 of the Kentucky Statutes (Russell's St. § 850), reading: "So much real, personal or mixed property in the city, which, from alienage, defect of heirs, failure of kindred, or other causes, shall escheat to the commonwealth of Kentucky, shall vest in the board for the use and benefit of the schools. Said board may, in the name of the commonwealth, for the use and benefit of the public schools of the city, by its president, or other officer to be designated by it, enter upon and take possession of said property, or sue for and recover the same by an action at law or in equity, and without office found; ***" and relies for recovery upon section 192 of the Constitution, reading: "No corporation shall engage in business other than that expressly authorized by its charter, or the law under which it may have been or hereafter may be organized, nor shall it hold any real estate, except such as may be proper and necessary for carrying on its legitimate business, for a longer period than five years, under penalty of escheat;" and section 567 of the Kentucky Statutes (Russell's St. § 2153) providing: "No corporation shall engage in business other than that expressly authorized by its articles of incorporation or amendments thereto; nor shall any corporation, directly or indirectly, engage in or carry on in any way the business of banking, or insurance of any kind, unless it has become organized under the laws relating to banking and insurance; nor shall any corporation hold or own any real estate, except such as may be necessary and proper for carrying on its legitimate business, for a longer period than five years under penalty of escheat."

We will first take up the question raised by counsel that to take this property under the law of escheat would be a violation of its charter rights. It must be conceded at the outset that if this contention is well founded the case for the state must fail, as it is well established that the state cannot by either constitutional provision or legislative enactment impair the obligations of a contract.

It is equally well settled that a charter granted by the state is a contract between the state and the parties to whom it is granted. These principles were settled by the Supreme Court of the United States in the early and celebrated case of the Trustees of Dartmouth College v. Woodward, 4 Wheat. 519, 4 L.Ed. 629, and have since been followed by all the courts of this country, and are now firmly fixed as a fundamental part of its jurisprudence. Planters' Bank v. Sharp, 6 How. 301, 12 L.Ed. 447; Mississippi & Missouri R. Co. v. McClure, 10 Wall. 511, 19 L.Ed. 997; Bier v. McGehee, 148 U.S. 137, 13 S.Ct. 580, 37 L.Ed. 397; Lapsley v. Brashears, 4 Litt. 47; Berry v. Ransdall, 4 Metc. 292; Hamilton v. Keith, 5 Bush. 458.

We have in section 19 of the Constitution of the state a clause declaring that "no law impairing the obligation of contracts, shall be enacted." But this provision can only be relied upon or be effective when private contracts or legislative enactments of the state are called in question as it does not and could not apply to changes made in the Constitution of the state, and so, when in the Constitution of the state it is attempted to impair the obligations of a contract to which the state is a party, the Constitution of the United States must be invoked to protect the contract, and reliance had on that provision in section 10 declaring that "no state shall *** pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts. ***" And it is this provision of the federal Constitution that the insurance company depends upon to protect from impairment by the Constitution of the state what it insists is a contract between it and the state, and to save its property from forfeiture under the clause of the state Constitution before cited, and the statute made to carry it into effect. It may also be here noted that although the Constitution of the United States forbids any state from impairing by Constitution or law the obligations of a contract, there is yet the exception to...