Sachs v. Ohio Nat. Life Ins. Co.

• Decision Date: 21 March 1945
• Docket Number: No. 8550.,8550.
• Citation: 148 F.2d 128
• Parties: SACHS et al. v. OHIO NAT. LIFE INS. CO.
• Court: U.S. Court of Appeals — Seventh Circuit

148 F.2d 128 (1945)

SACHS et al. v. OHIO NAT. LIFE INS. CO.

No. 8550.

Circuit Court of Appeals, Seventh Circuit.

March 21, 1945.

Sidney W. Mandel, Millard C. Eiseman and Lawrence J. West, all of Chicago, Ill., for appellant.

Karl Edwin Seyfarth and Benton Atwood, both of Chicago, Ill., for appellee.

Before MAJOR and KERNER, Circuit Judges, and BRIGGLE, District Judge.

MAJOR, Circuit Judge.

This appeal is from a decree of the District Court, entered November 19, 1943, dismissing plaintiffs' suit for want of equity. The action, commenced January 3, 1942, sought enforcement of a Re-insurance Agreement entered into November 19, 1930, between the Ohio National Life Insurance Co. (defendant) and the American Old Line Insurance Co., by which, it was alleged, the former became liable for the constitutional (Illinois) super-added liability on 1398 shares of bank stock owned by the latter.

Much litigation has preceded the instant suit in an effort by plaintiffs as creditors and depositors of the Roseland State Savings Bank, an Illinois banking corporation, to enforce this liability. In our view, it is unnecessary to relate in detail this previous litigation. It is sufficient to observe that it was first sought to enforce this liability against the Ohio National in an amended complaint filed in the state court July 3, 1935. This cause was removed to the United States District Court, where a summary judgment was entered against the plaintiffs. This judgment was reversed by this court. Sachs et al. v. Ohio National Life Insurance Co., 7 Cir., 116 F.2d 113. On remandment, the defendant moved to dismiss the action for lack of jurisdiction over the subject matter. This motion was allowed by the District Court, from which no appeal was taken. The present action reasserted substantially the same cause of action and was dismissed by the District Court on the ground that the action was barred by the statute of limitations. Sachs v. Ohio Nat. Life Ins. Co., D.C., 44 F. Supp. 552. Upon appeal, this court again reversed and remanded the cause for trial on the merits. Sachs et al. v. Ohio National Life Insurance Co., 7 Cir., 131 F.2d 134. Thereupon the cause was referred to a Master who, after extensive hearings in which both documentary and oral testimony were introduced, recommended the dismissal of the complaint for want of equity. The court by its decree approved the recommendations of the Master, and from this decree the instant appeal comes.

Numerous issues are presented, but inasmuch as we are of the view that the court's action in dismissing the complaint was proper, we shall only consider the reasons assigned by the Master and the court: (1) the plaintiffs, not being parties to the Re-insurance Agreement, could not maintain an action thereon as third party beneficiaries, and (2) the parties to the Re-insurance Agreement did not intend that the defendant should assume the bank stockholders' liability.

At the time the Re-insurance Agreement was made, defendant was an Ohio corporation engaged in the life insurance business under the laws of that state, and the American Old Line was an Illinois corporation engaged in the same business under the laws of Illinois. The Roseland State Savings Bank was organized in 1909 under the banking laws of Illinois for the purpose of doing a general deposit and banking business in Chicago. It continued in such business until July 3, 1931, when it was placed in liquidation.

Plaintiffs cite and rely upon a number of cases, including several from Illinois, which have sustained the right of a third party beneficiary to maintain an action upon a contract made for the benefit of such party. The crucial question in the instant case, as in all such cases, is whether the contract relied upon was made for the benefit of third parties. As applied to the instant situation, the question is whether the Re-insurance Agreement was made for the benefit of plaintiffs as creditors of the bank — if so, they are entitled to maintain the instant action, otherwise they are not.

No good purpose could be served in analyzing the numerous cases relied upon by the respective parties as to the rule in Illinois. It is quite apparent that each case depends largely upon its facts. We shall merely state the rule as announced in a few of the leading cases. In Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252, 257, 178 N.E. 498, 501, 81 A.L.R. 1262, the court stated the rule thus: "The rule is settled in this state that, if a contract be entered into for a direct benefit of a third person not a party thereto, such third person may sue for breach thereof. The test is whether the benefit to the third person is direct to him or is but an incidental benefit to him arising from the contract. If direct, he may sue on the contract; if incidental he has no right of recovery thereon."

Again, in Fleming v. Dillon, 370 Ill. 325, 333, 18 N.E.2d 910, 914, 120 A.L.R. 1218, the court stated: "If one person, for a valuable consideration, makes a promise to another for the benefit of a third person such third person may maintain an action upon the promise, without proof of any consideration flowing from the third person for whose benefit the promise is made."

This court, in Vilter Mfg. Co. v. Loring, 7 Cir., 136 F.2d 466, considered the right of a third party beneficiary to recover, and after an analysis of the Illinois cases, on page 468 stated: "One may be a direct beneficiary under a contract of guaranty, or he may be a mere incidental beneficiary. If he belongs to the former class he may recover, but if to the latter he may not. * * * (Citing cases.) From these decisions we think it is clear that one claiming as a beneficiary may not recover under such a contract unless it may be concluded from the instrument that the parties thereto regarded him as a person primarily interested and that they desired and intended to secure to him personally the benefits of its provisions."

It has been held in numerous other cases that incidental benefits to third persons resulting from a contract to which they are not parties are insufficient to permit such third parties to sue on the contract. Searles v. City of Flora, 225 Ill. 167, 172, 80 N.E. 98; Seefeldt v. Wilgen, 193 Ill. App. 315, 317, 318; Reconstruction Finance Corporation v. Teter, 7 Cir., 117 F.2d 716, 728; Tilney v. City of Chicago, 7 Cir., 134 F.2d 682, 683.

Thus, before recovery can be had by a third party beneficiary, it must be shown that the contract was made for his direct benefit, or as sometimes stated primarily for his benefit, and that it is not sufficient that he be a mere incidental beneficiary. Furthermore, such a contract must be strictly construed in favor of the person against whom such liability is asserted.

This brings us to a consideration of the facts, for the purpose of determining if the Re-insurance Agreement was made for the direct or primary benefit of the creditors of the bank. Inasmuch as both the Master and the District Court have found against the plaintiffs on this issue, it would be more accurate to state that we examine the facts with a view of ascertaining if the record affords any rational basis in support of such finding. If so, the finding of the lower court must be accepted by us. In this connection, it is pertinent to observe that the two officials, one of the defendant and the other of the American Old Line, who conducted the negotiations which culminated in the Re-insurance Agreement, both gave oral testimony which, if accepted, completely dispels plaintiffs' theory that the Agreement was for the benefit of the bank creditors. In fact, their testimony is to the effect that the bank stock was considered as an asset rather than a liability and that there was no intention on the part of either of the parties to the Agreement that it was for the benefit of the bank creditors, and that there was no intention on the part of either of the parties that defendant should or did assume any liability on account of the ownership of such stock by the American Old Line. Plaintiffs do not dispute but that this oral testimony supports the lower court's decree, but it is urged that it is inconsistent with the documentary proof and should, therefore, not be accepted. We agree with plaintiffs that the documentary proof, if inconsistent with the oral testimony, is controlling, but as we view the matter it is not inconsistent. In fact, the documentary proof, considered in the light of the circumstances and conditions which surrounded the parties, is of little, if any, benefit to plaintiffs' theory.

The creditors of the bank, or any liability which might arise from ownership of stock in the bank, are in no way mentioned or suggested in the Agreement, and a careful study of its provisions leaves little room for doubt but that it related solely to the insurance business. Its title, "Re-insurance Agreement," so indicates. The introductory clause is significant. It provides: "The American Old Line Insurance Company, * * * hereinafter called the `Insurer,' and the Ohio National Life Insurance Company, * * * hereinafter called the `Re-insurer,' hereby enter into a re-insurance agreement for re-insurance by the Re-insurer of the policies of the Insurer upon the following terms and...