Indemnity Co. v. Shovel Co.

• Decision Date: 24 February 1925
• Docket Number: 18731
• Parties: The London & Lancashire Indemnity Co. Of America v. The Fairbanks Steam Shovel Co.
• Court: Ohio Supreme Court

147 N.E. 329

112 Ohio St. 136

The London & Lancashire Indemnity Co. Of America v. The Fairbanks Steam Shovel Co.

No. 18731

Supreme Court of Ohio

February 24, 1925

Corporations - Ultra vires contracts - Estoppel to questions validity by accepting benefits - Unauthorized indemnity contract executed by secretary and treasurer.

1. When an ultra vires contract has been fully executed by one party thereto, and the other party has received the benefit of the contract, both parties being private corporations for profit the party which has received the benefit is estopped to question the validity of the contract.

2. Where the secretary and treasurer of a private corporation who is also a director thereof, without authority from its board of directors, and in consideration of the execution of certain bonds by a bonding company, executes a contract on the part of the corporation to indemnify the bonding company from loss upon the bonds, and the corporation retains the benefits of the execution of the bonds and does not, within a reasonable time after notice thereof, repudiate the contract of indemnity, the corporation is estopped to deny the validity of the contract upon the ground that the action of the secretary and treasurer in executing the indemnity agreement was without power to bind the corporation.

This case arises upon motion to certify the record from the Court of Appeals of Marion county, Ohio, which affirmed a judgment of the court of common pleas of Marion county.

The petition recites the corporate capacity of the parties, and avers that on or about the 12th day of May, 1916, the defendant applied to the plaintiff to become surety on two bonds for T. D. Hunt, for the faithful performance of a contract between T. D. Hunt and the McWilliams Bros.; that the contract was for the construction of certain ditches in connection with a drainage district in Crittenden county, Ark,; that the defendant company manufactured and sold dredges designed for the digging of drainage canals; that the defendant had entered into a contract with the said T. D. Hunt for the sale of one or more of its dredges to be used in performance of the contract between T. D. Hunt and McWilliams Bros.; that on or about the 12th day of May, 1916, C. W. Fairbanks, secretary and treasurer of the defendant company, entered into a contract in writing with the plaintiff, agreeing on behalf of the defendant company to indemnify and save harmless the plaintiff against any and all liability, loss, and costs in the event plaintiff became surety for the said T. D. Hunt that thereupon the plaintiff executed two separate bonds as surety for T. D. Hunt; that the indemnity agreement provided that any losses paid by the plaintiff on account of having executed the bonds, if paid in good faith, would be repaid by the defendant to the plaintiff; that the plaintiff paid to the obligee, to-wit, McWilliams Bros., and to plaintiff's attorney for fees and expense, all in good faith, and in discharge of its legal liability to pay on account of having executed the bond, a total of $2,854.85, for which amount it prayed judgment.

The answer admits the corporate capacity of the defendant and for the first defense denies all the other averments of the petition.

For its second defense, the answer pleads certain by-laws of the defendant company, which pro- vide that no contract or instrument in writing shall be binding upon the defendant company unless signed by the defendant in its corporate capacity and by both the president and treasurer of the company.

For its third defense, the answer recites the purpose for which the company was chartered, and then avers that the indemnity agreement executed by defendant to the plaintiff was beyond the power of the corporation to execute, and was therefore ultra vires and void.

By way of reply plaintiff says that the defendant company ratified the act of its secretary and treasurer in executing the indemnity agreement on behalf of the company.

The reply further avers that the secretary and treasurer of the defendant company represented to the plaintiff that he had full power to bind the defendant company; that the plaintiff was without knowledge of the matters and things set forth in the second defense of the answer; that the defendant was enabled to market its product, to-wit, dredges, by enabling its customer, Hunt, to give bond; and that the defendant received the benefits from the sale of the dredges to Hunt and is now estopped from claiming that the act of its secretary and treasurer in executing the indemnity agreement was without power to bind the company.

The case was heard in the court of common pleas without a jury, and the court of common pleas found on the issues joined for the defendant and against the plaintiff.

The Court of Appeals affirmed the judgment.

Mr. Charles S, Druggan and Messrs. Justice, Young & Mouser, for plaintiff in error.

Mr. William P. Moloney, for defendant in error.

ALLEN J.

The principal contentions made in this action by the defendant in error were that the execution of the indemnity contract was beyond the corporate powers of the defendant corporation, and that the secretary and treasurer was unauthorized to make a contract of indemnity on behalf of the defendant corporation. The defendant in error therefore urges, and the lower courts held, that the contract of indemnity which is the basis of the action was invalid.

Consideration of these points requires some review of the admitted facts.

Throughout the course of this opinion the plaintiff in error will be called the plaintiff and the defendant in error the defendant.

The uncontroverted testimony shows that the application for the bonds was made to one C. H. Bancroft, the agent of the indemnity company, authorized to write surety and fidelity bonds for the said company; that this application was made by Charles W. Fairbanks, secretary and treasurer of the Fairbanks Steam Shovel Company, on or about May 16, 1916; that C. H. Bancroft never met T. D. Hunt, the principal upon the bonds, at any time, and that at the time of the application for the bonds Charles W. Fairbanks executed an indemnity agreement, signed, "The Fairbanks Steam Shovel Company, by C. W. Fairbanks, Treasurer," in which the Fairbanks Steam Shovel Company bound itself to indemnify the surety company against any and all liability and loss, of whatever nature or kind it might at any time sustain, in consequence of its having given and executed bonds on behalf of T. D. Hunt, the contractor; that C. H. Bancroft, on behalf of the indemnity company, did in fact execute two bonds in the respective sums of $10,600 and $23,000 as surety for the faithful performance by Hunt of certain contracts with ones McWilliams, a contractor in Arkansas. The record shows that at the time these bonds were issued a contract had been made between the Fairbanks Steam Shovel Company and T. D. Hunt for the sale of two dredges, one of which was shipped from Marion, Ohio, to Hunt prior to the execution of the bonds, and one upon May 31, 1916. The record further shows that at the time the said bonds were applied for and issued neither of these two dredges had been paid for.

Defendant claims that C. W. Fairbanks signed the indemnity agreement without any representation of his authority in the matter. It is true that the oral testimony upon this point was conflicting; Bancroft, the agent of the indemnity company, saying that such a representation had been made by Fairbanks, and Fairbanks denying this statement. However, the execution of the indemnity agreement by Fairbanks is not controverted, nor is it controverted that this indemnity agreement was signed "The Fairbanks Steam Shovel Company, by C. W. Fairbanks." When Fairbanks executed his signature in this particular form, he represented himself to be authorized to sign on behalf of the company. The sig- nature constituted a representation to that effect.

The uncontroverted testimony of Bancroft further shows that the bonds would not have been executed by the indemnity company without the execution of the indemnity agreement by the secretary and treasurer, purporting to be on behalf of the Fairbanks Steam Shovel Company.

These facts constitute an inducement and a substantial consideration for the issuing of the bonds. 13 Corpus Juris, 320, note 44, and cases cited. The indemnity company had no acquaintance whatever with Hunt. It appears in the record, and is undisputed, that the indemnity company knew nothing of Hunt's financial status. The dredges had not been paid for. Hunt had valuable contracts with McWilliams, which, if executed, would have him the funds to carry out his contracts with the Fairbanks Steam Shovel Company.

Fairbanks applied for bonds to be issued in behalf of Hunt by the indemnity company, and these bonds would not have been issued unless the indemnity agreement had been executed. If the agreement had been properly evidenced by resolution of the directors, authorizing its execution, there would have been no doubt that there was consideration ample to support the indemnity agreement and to justify in that regard a judgment in favor of the indemnity company.

Defendant claims that in this instance no benefit was received by the corporation. "Benefit" is defined by Bouvier's Law Dictionary; among other definitions, as being an "advantage." It was an advantage to the defendant in this case to have the bonds executed for one of its customers. It was a detriment to the bonding company to execute the bonds, and it constituted a valuable consideration when the bonding company assumed the liability thereupon. The actual benefit to the shovel company may have been remote. However, the fact that the bonding company took action...