141 Ky. 606 | Ky. Ct. App. | 1911
Opinion op the Court by
Affirming.
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
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 Nos. 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 conection 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 en
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. Prom this judgment, both parties have appealed.
The Commonwealth finds authority to support the action brought by it in section 2971 of the Kentucky Statutes, 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 Constituí ion, 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, providing’:
[j, .. -“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*611 a longer period than five years under penalty of es-cheat.”
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 Darthmouth College v. Woodward, 4 Wheaton, 519, 4 L. Ed., 629; and have since been followed by all the courts of this country, and are now irrmly fixed as a fundamental part of its jurisprudence. Planters Bank v. Sharp, 6 Howard (U. S.), 301, 12 L. Ed., 447; Mississippi & Missouri R. Co. v. McClure, 10 Wallace (U. S.), 511, 19 L. Ed., 997; Bier v. McGehee, 148 U. S., 137, 37 L. Ed., 397; Lapsley v. Brashears, 4 Litt., 46; Berry v. Ransdall, 4 Met., 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 contract, 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 exceptions to this general rule
When the charter provision relied on is tested by these established rules, it is not difficult to decide that the corporation was not granted the right to hold any real property not “needful to transact and manage the business of insurance” for any length of time. Under its charter the corporation had the authority to hold such real estate as was “needful to transact and manage the business of insurance,” and it has the same right now. Neither the Constitution nor the statute takes from it any authority in this particular that its charter conferred. When the charter was granted it was against the public policy of the State to confer upon a corporation the power to hold'and own real estate not needful or necessary to enable it to carry on the business for which it was created, and such a grant of power is against the public policy of the State now except as authorized by the constitution. In this respect there has been no substantial change in the law. The language of the charter is not broader than the language of the Constitution. There is little or no difference between the meaning of the words “heedful to transact and manage the business of insurance” and the words “proper and necessary for carrying on the business of insurance.” If property is necessary to enable an insurance company to carry on its business, so it is needful in the transaction and management of its business. Possibly some refined distinction might be pointed out between the meaning of the words used in the charter and the words used in the Constitution, but there is no substantial or practical difference between them.
Equally untenable is the argument in reference to lots Nos. 1,2, 3, 4, and 6, that as the insurance company had the right to lend money upon real estate security, it also had the right to purchase the property upon which it had a lien to save itself from loss, and consequently the
“An insurance company may purchase, own and hold such real estate as is necessary for the convenient transaction of its- legitimate business, and, for a period not longer than five years, such other real estate as shall have been mortgaged to it in good faith by way of security for loans previously contracted for money due, or as shall have been conveyed to it in satisfaction of debts previously contracted in the course of its business, or as shall have been purchased at sales upon judgment in its favor. ’ ’
It will be observed that this section does not enlarge or limit the authority to hold real estate conferred by the Constitution. It merely declares in effect that an insurance company may hold indefinitely such real estate as is necessary for the transaction of its legitimate business, and for a period not longer than five years other real estate acquired in the manner pointed out in the section. Similar provision will be found in section 582 regulating
It is further said that the taking of the property forfeited by the judgment appealed from was without due process of law, and in violation of the Fourteenth Amendment to the Constitution of the United States. These contentions have been adjudicated adversely to the position taken by counsel in Louisville School Board v. King, 127 Ky., 824; Commonwealth v. Louisville Property Co., 121 S. W., 399; Commonwealth v. Thomas, 140 Ky., 789; Commonwealth v. Louisville Property Co., 139 Ky., 689. In these cases the arguments presented by counsel upon this branch of the ease were so fully considered that it is not necessary to extend this opinion in reiterating the reasons that influenced the court to reject them. It is sufficient to say that the property was not taken without due process of law, that the taking of it does not violate the Fourteenth Amendment to the Constitution of the United States, and that the State had the power to give to the school board the property taken.
It is also argued that the State is estopped to main
Prom what we have said, the conclusion naturally follows that as lots Nos. 1, 2, 3, 4 and 6 were acquired more than five years before the institution of the action, and that at no time within five years was either of them needful or necessary to carry on the business of insurance in the present or in the future, that the State had the right and authority to escheat them.
The remaining question is the right of the State to escheat lot No. 5. It will be observed that the insurance company purchased this lot thirteen years before this suit was brought, and that during this time it had not used or occupied it in the transaction of any of its business. This being so, it is insisted for the Commonwealth that as the constitutional provision is plain and mandatory and the right to escheat this property accrued long before the action was brought, the insurance company cannot interpose any defense that will defeat its forfeiture. While it is argued for the insurance company that it is only such real property as the corporation did not acquire for the purpose of, and that was not necessary for its use in conducting its business, and which it has held for more than five years without the intention of so using it, that becomes subject to escheat. It will at once be noticed that there is a marked distinction between these respective contentions as applied to the facts of this case. If the position of the Commonwealth is correct, then there is no escape from the conclusion that the property must be forfeited. On the other hand, if the Constitution permits a corporation to acquire real property in good faith for the purpose of using it to carry on its business, and to hold such property with the intention in good faith of using it for such purpose, and it will be necessary for such use when devoted to it, then the constitutional provision is satisfied, although it may be more than five years after its acquisition before it is first applied to the use for which it was purchased and held. If this is the proper construction, the time during which the corporation holds real property that is or may be necessary in the conduct of its business without putting it to a proper or necessary use in carrying on its legitimate business, is not the controlling question. The time for which the property is held is not the test of the right to hold it, but it is the purpose for which the property is acquired, and the ever present intention of devoting it to a use that will be proper and necessary in carrying on its legiti
A corporation organized for business purpose®,' and with the power to carry on business enterprises, should be allowed the same liberty within the scope of its charter rights and subject to the limitations imposed by law as would be permitted to an individual engaged in a similar business. It is not the purpose of the Constitution or the law to place in the way of the success of corporations unreasonable obstacles or to hinder them from acting as prudent business men would act under like or similar circumstances. Plaving this view of the privileges that corporations should enjoy, we do not think the Constitution should be so construed as to deny a corporation the opportunity to look forward to the time when its needs in the conduct of its business will be greater than at present or to deprive it of the right to prepare in advance for conditions that it. may reasonably expect will come up in the future. If a corporation was not allowed to carry into execution plans that the good judgment of its officers believe to be essential to its growth and prosperity, it would discourage people from investing their money in these agents that are so indispensable to the business of the State and country. From these considerations and others that might be mentioned, we conclude that the time limitation imposed by the Constitution was not intended to deny a corporation the right in good faith to acquire real estate for a proper and necessary future use in the transaction of its legitimate business, and hold the same for a longer period than five years, if it is so held with the intention in good faith of devoting it to a proper and necessary use and it will be necessary for such purpose when so used. It is
*622 “There is nothing in the Constitution, charter of the association, or statutes placing any limitation upon the character of a building which a corporation may erect as a home in which to conduct its business. A corporation conducting a business of the character of that in which appellant is' engaged, naturally expects its business to grow and expand from time to time, and, in building a home, it would be exercising but a shortsighted judgment if it did not make provision for the future by building a home large enough to take care of its expanding business, and hence, even if it should build a house larger and roomier than its present needs or interests require, it would be acting clearly within the exercise of its corporate right and power. The limitation which the statute imposes is that it shall not own more real estate than is necessary for the proper conduct of its business, but it does not attempt to place any restriction or limitation upon the right of the corporation or association as to the character of building it shall erect on said real estate; and, while the Constitution and the statutes provide that no corporation shall engage in any business other than that expressly authorized by its charter, we are of opinion that, in renting out the unoccupied and unused portions of the building so erected, the association could not be said to be engaged in any other business than that authorized by its charter. The renting of the unused portions of the building is a mere incident in the conduct;of its real business. We would not say that a building association might embark in the business of building houses and renting or leasing them, but there is quite a difference in building or renting a house in which to conduct its own business and leasing the unused portion thereof for the time being, or until such time as they may be needed by the association, and in building-houses for the purpose of renting or leasing them. * * * To hold otherwise would be to charge most of the banking- institutions, trust companies, and other corporations, * * * doing-business in the State, and especially in the large cities, with violating the law; for it is well known that there are few of such institutions that do not, at times, rent out or lease the unneeded portions of the building- occupied by them as homes. ’ ’
There is no difference in substance or results between the right to buy and hold for longer than five years property that will be needed in the future conduct of the business but that is not actually used within five years
Both propositions fully recognize the right of a corporation to hold and own under certain conditions more property than is in actual use in the necessary conduct of its business, and the right to anticipate and prepare for the demands of the future. We are also satisfied that the conclusion reached in the Driver case, as well as •the result in the case before ns, is not out of harmony with the spirit or intention of the Constitution or statute. Any other rule than the one we have laid down in these cases would be unwise, as well as impracticable from a business standpoint. Almost every well established and successful business corporation in tbe State would be in a continual state of apprehension if its holding of real estate was confined under pain of escheat to the quantity in actual and necessary use by it. In many places and in many businesses, corporations could not successfully conduct their affairs if this limitation was placed upon their power to hold such property, and no useful purpose would be accomplished by imposing such restriction. The public policy of the State as expressed in the Constitution and statute does not demand the rigid enforcement of limitations that would obstruct and retard the growth of these enterprises and prevent them from successfully meeting the purposes of their creation. When a corporation is allowed to acquire and hold only so much real property as is necessary to carry on its business, or as in the exercise of a reasonable ju'dgment will be necessary for such purpose in the future, there need be no fear that it will exceed the hounds of its authority by acquiring proprty that the State may forfeit. An instructive case upon tbe questions we have considered is People v. Pullman Palace Car Co., 175 Ill., 125; 64 L. R. A., 366.
Upon tbe whole ease, we are satisfied with tbe correctness of tbe judgment appealed from, and so it is affirmed on both appeals.
Whole court sitting, except Judge Miller.