Hamburg-Bremen Fire Ins. Co. of Hamburg, Germany, v. Ohio Valley Dry Goods Co.'s Trustee

• Decision Date: 14 October 1914
• Citation: 160 Ky. 252,169 S.W. 724
• Parties: HAMBURG-BREMEN FIRE INS. CO., OF HAMBURG, GERMANY, v. OHIO VALLEY DRY GOODS CO.'S TRUSTEE. FIREMAN'S FUND INS. CO., OF SAN FRANCISCO, CAL., v. OHIO VALLEY DRY GOODS CO.'S TRUSTEE. NORTHERN ASSUR. CO., OF LONDON, ENGLAND, v. OHIO VALLEY DRY GOODS CO.'S TRUSTEE.
• Court: Kentucky Court of Appeals

169 S.W. 724

160 Ky. 252

HAMBURG-BREMEN FIRE INS. CO., OF HAMBURG, GERMANY, v. OHIO VALLEY DRY GOODS CO.'S TRUSTEE.

FIREMAN'S FUND INS. CO., OF SAN FRANCISCO, CAL., v. OHIO VALLEY DRY GOODS CO.'S TRUSTEE.

NORTHERN ASSUR. CO., OF LONDON, ENGLAND, v. OHIO VALLEY DRY GOODS CO.'S TRUSTEE. ^[d1]

Court of Appeals of Kentucky.

October 14, 1914

Appeal from Circuit Court, Muhlenberg County.

Separate actions by the Ohio Valley Dry Goods Company's trustee against the Hamburg-Bremen Fire Insurance Company, of Hamburg, Germany, against the Fireman's Fund Insurance Company, of San Francisco, Cal., and against the Northern Assurance Company, of London, England. Judgment for the plaintiff in each action, and the several defendants appeal. Affirmed.

Flexner & Gordon, of Louisville, J. S. Laurent, of Nashville, Tenn La Vega Clements and Ben. D. Ringo, both of Owensboro, and T J. Sparks, of Greenville, for appellants.

E. B Anderson, of Owensboro, Taylor & Eaves, of Greenville, and W. E. Aud, of Owensboro, for appellee.

MILLER J.

On January 25, 1910, S. T. Burns, Charles Cohn, F. T. McIntyre, William Rowland, and John McLemore incorporated the Ohio Valley Dry Goods Company for the purpose of doing a general merchandise business in Owensboro, Ky. Of the capital stock of $25,000, divided into shares of the par value of $100 each, Burns subscribed for 5 shares, Cohn for 124 shares, McIntyre for 40 shares, Rowland for 80 shares, and McLemore for 1 share. The corporation began business about February 1, 1910, in a storeroom located on West Second street, in Owensboro. The stock of goods was insured by three policies, one policy having been issued by each of the three appellant fire insurance companies, on March 3, 1910, on June 20, 1910, and on August 21, 1910, respectively. One of the policies insured the company against loss by fire in the sum of $1,000, while the other two were for $2,500 each, making a total insurance of $6,000.

The corporation having become insolvent, several of its creditors filed their petition against it in the United States District Court in Louisville on November 30, 1910, seeking to have the company adjudged a bankrupt; and on the same day, or the day following, the store was closed permanently and ceased to do business. On the night of December 7, 1910, the stock of goods was almost wholly destroyed by fire. A week later, on December 14th, the company was adjudged a bankrupt, and on January 3, 1911, the appellee, J. R. Laswell, was appointed and qualified as the trustee in bankruptcy. Upon the failure of the insurance companies to pay the loss as provided by their policies, the trustee brought these three actions, which were heard together, and resulted in a verdict and judgment for the trustee for 62 per cent. of the policies, aggregating $3,720, against the three companies. The insurance companies appeal, and urge five grounds for a reversal.

1. It is first contended that the Ohio Valley Dry Goods Company never had a legal existence as a corporation, for the reason that Charles Cohn was at all times the sole and unconditional owner of the property insured. In organizing the corporation, all the statutory requirements were complied with. Furthermore, upon this branch of the case we think it sufficient to say that, if there had been any technical defects in the organization of the Ohio Valley Dry Goods Company, the appellants are in no position to defend upon that ground. Section 566 of the Kentucky Statutes provides as follows:

"No corporation organized under this chapter shall be permitted to set up or rely upon the want of legal organization as a defense to any action against it; nor shall any person transacting business with such corporation, or sued for injury done to its property, be permitted to rely upon such want of legal organization as a defense."

It is admitted that the appellants made this contract of insurance with the corporation, and for a valuable consideration; and, that being true, they will not be permitted to now say that the corporation with which they dealt is not a corporation. They conceded that fact when they issued the policies of insurance to the corporation. This rule is too well established to need discussion; the citation of a few of the leading decisions upon the point will be entirely sufficient. Lail v. Mt. Sterling Road Co., 13 Bush, 33; Johnson v. Mason's Lodge, 106 Ky. 838, 51 S.W. 620, 21 Ky. Law Rep. 493; Cumberland, T. & F. Co. v. Louisville Home T. Co., 114 Ky. 892, 72 S.W. 4, 24 Ky. Law Rep. 1676; Calor Oil & Gas Co. v. Franzell, 128 Ky. 715, 109 S.W. 328, 33 Ky. Law Rep. 98, 36 L.R.A. (N. S.) 456; 10 Cyc. 245-284.

2. Assuming, however, that the Ohio Valley Dry Goods Company had a legal existence as a corporation, it is contended such existence was suspended when Cohn acquired the ownership of all the capital stock, and that this acquisition constituted such a change of title and interest as avoided the policies. The minutes of the corporation show that at the first meeting of the incorporators, held on February 1, 1910, Burns was elected president, Rowland vice president, and Cohn secretary and treasurer. Burns acted as president until March 25, 1910, when he resigned and was succeeded by Cohn, who also acted as treasurer. On November 1, 1910, Cohn resigned as president and treasurer, and E. D. Hodges was elected to fill both offices. In the meantime, Cohn had acquired all the stock of the corporation, and it is contended that this sole ownership of the capital stock transferred to Cohn the title to the stock of merchandise, thereby bringing about such a change of title and interest as to avoid the policies under that provision thereof which provides for a nullification of the policies in case of a change of title or interest in the goods insured.

In support of this contention appellants rely upon Louisville Banking Co. v. Eisenman, 94 Ky. 83, 21 S.W. 531, 1049, 14 Ky. Law Rep. 705, 19 L.R.A. 684, 42 Am.St.Rep. 335, and Louisville Gas Co. v. Kaufman-Straus Co., 105 Ky. 159, 48 S.W. 434, 20 Ky. Law Rep. 1069. In Louisville Banking Co. v. Eisenman, supra, it was held that, where one person became the owner of all the shares in a corporation, it operated as a dissolution of the corporation to the extent that it suspended the exercise of the rights under the franchise until the owner transferred the stock in good faith, so as to maintain an organization under the statute.

From January 26 to March 25, 1910, the stockholders were Burns, Charles Cohn, McIntyre, Rowland, and McLemore. From March 25 to November 1, 1910, the stockholders were Charles Cohn, McIntyre, Rowland, McLemore, and Ben Cohn; and after November 1, 1910, the stockholders were Hodges, Rowland, McIntyre, McLemore, and Ben Cohn. But if we are to take the testimony of Hodges upon this question, Cohn owned none of the stock after November 1, 1910, because Hodges says that Cohn sold him all of the stock on that day. The answer does not contend that Hodges owned all the stock at the time of the fire, but that Cohn owned it.

Speaking by the record, however, the stock was outstanding in the stockholders above named, although Rowland had never paid for his 80 shares. Furthermore, assuming the fact to be as claimed by appellants, and that Cohn did become the owner of all the stock, we do not agree with appellants that this operated as such a change of title and interest as to avoid the policies. The clause in the policies making this provision for a forfeiture evidently refers to actual changes made by the owner of the goods, and not a mere technical change that may arise as a matter of law. At all times up to the appointment of appellee as trustee the title to the insured goods, as well as the possession thereof, was in the corporation. It will hardly be contended that Cohn or Hodges individually, could have maintained an action to recover the purchase price of goods sold during the period in question. The title...