Opinion
No. 27884
Decided June 11, 1941.
Insurance — Defined — Primary purpose of statute to prevent unregulated or unlicensed insurance business — Section 665, General Code — Warranty relating to sale of commodity, defined — Warranty or guaranty against perils or inherent weakness in goods — Constitutes contract substantially amounting to insurance, when — Written warranty and adjustment agreement for faulty consctruction or malerials — Not contract substantially amounting to insurance — Principal not bound by representations of agents contradictory to written warranty, when — Quo warranto used with caution and discretion.
1. Insurance, in the common acceptance of the term, is a contract whereby a promisor, for a consideration usually called a premium, becomes bound to indemnify or compensate the promisee or one designated by him for loss or damage from stated causes in a definite or ascertainable amount.
2. Section 665, General Code, relating to engagement in the business of insurance, was enacted to protect the public, and its primary purpose is to prevent or discourage the unregulated and unlicensed from carrying on the general type of business described in the foregoing definition of insurance.
3. As it relates to the sale of commodities, a warranty may be defined as a statement or representation having to do with the kind, quality, variety or title of the goods sold.
4. A warranty or guaranty issued to a purchaser in connection with the sale of goods containing an agreement to indemnify against loss or damage resulting from perils outside of and unrelated to inherent weaknesses in the goods themselves, constitutes a contract substantially amounting to insurance within the purview of Section 665, General Code. ( State, ex rel. Duffy, Atty. Genl., v. Western Auto Supply Co., 134 Ohio St. 163, followed.)
5. A written warranty delivered to a purchaser, representing that the articles sold are so well and carefully manufactured that they will give satisfactory service under ordinary usage for a specified length of time, and providing for an adjustment in the event of failure from faulty construction or materials, but expressly excluding happenings not connected with imperfections in the articles themselves, is not a contract substantially amounting to insurance within the meaning of Section 665, General Code.
6. The representations and conduct of agents in direct contradiction to the terms of a written warranty may not be used against the principal in the absence of proof that such agents acted with the knowledge and acquiescence of the principal.
7. Quo warranto, being a prerogative writ of an extraordinary nature, is to be used generally with caution and discretion.
IN QUO WARRANTO.
Presented is an original action in quo warranto commenced by the Attorney General of Ohio, as relator, against The Standard Oil Company, an Ohio corporation, as respondent, under Section 12304 (4), General Code. It is submitted upon the petition, answer, reply and the depositions of six witnesses.
Relator claims in his petition and in argument that the respondent is unauthorizedly engaged in the business of insurance within the purview of Section 665, General Code, by reason of a certain warranty and adjustment agreement it delivers to the purchasers of its pneumatic rubber automobile tires at the time of sale, and the interpretation given such agreement by its agents, and asks this court to oust the respondent from enjoying the franchise and privilege of the insurance business within the state of Ohio.
The material part of the printed "Warranty and Adjustment Agreement" in issue, reads as follows:
"The Standard Oil Company (an Ohio corporation) hereby warrants to the above purchaser that the materials and labor incorporated into the tire listed hereon are of such quality that the tire may be expected to render service, if Atlas or Atlas Lug Grip brand, for a minimum period of twelve months from the date of purchase for passenger car service, or six months from the date of purchase for commercial car service; if Junior Atlas brand, for a minimum period of six months from the date of purchase for passenger car service, or three months from the date of purchase for commercial car service, provided same is used under usual conditions in such respective service, and The Standard Oil Company (an Ohio corporation) warrants the tire to give the purchaser satisfactory service under the usual conditions of wear and tear, except as hereinafter stated, during such respective minimum periods or time.
"If the tire fails to give the purchaser satisfactory service under any usual conditions of wear and tear, except as hereinafter stated, the liability of The Standard Oil Company (an Ohio corporation) under this Warranty and Adjustment Agreement is strictly limited either to repairing the tire without charge or to replace it with a new tire of same brand at its option. If so replaced, purchaser is to be charged and agrees to pay, if Atlas or Lug Grip brand, one-twelfth (1/12) of the current retail price if in passenger car service, or one-sixth (1/6) of the current retail price if in commercial car service, for each month or fraction thereof which has elapsed since the date of purebase; if Junior Atlas brand, one-sixth (1/6) of the current, retail price if in passenger car service, or one-third (1/3,) of the current retail price if in commercial car service, for each month or fraction thereof which has elapsed since the date of purchase.
"This Warranty and Adjustment Agreement does not cover punctures, tires ruied in running flat, tires injured or destroyed by fire, wrecks or collisions, tires cut by chains, or by obstruction on vehicle, theft, clincher tires, tubes used in any form, or tires used in taxicab or common carrier bus service.
"This Warranty and Adjustment Agreement does not cover consequential damage.
"No agreements or understandings regarding the subject-matter of this Warranty and Adjustment Agreement other than those expressed herein shall be deemed to exist or to bind any of the parties hereto.
"Alterations or erasures in this Warranty and Adjustment Agreement will render it void.
"Countersigned: [Name The Standard Oil Co. of the particular dealer (Ohio) making the sale]. By [Facsimile signature of a company official]."
As a part of his case, relator offers the depositions of five witnesses, each of whom resides in a different Ohio city and each of whom is affiliated in some manner with competitors of respondent in the sale of automobile tires. Certain of these witnesses deposed that they had bought tires from the respondent's dealers and thereupon received a warranty and adjustment agreement. Taken collectively, the depositions tend to prove that respondent's dealers, during the course of negotiations and as an inducement to the consummation of the tire sales, represented that the agreement protected the purchasers of the tires against such hazards as cuts, bruises, wheels out of alignment and blowouts, and stated that if the tire wore out during the period stipulated in the agreement, such contingency was within the coverage of the warranty.
It further appears from the depositions that four of the tires so purchased were deliberately injured to such an extent as to render them unserviceable, and in each instance a new tire was delivered by respondent's dealer to replace the damaged one upon the payment of a price determined according to the length of time the impaired tire had been in use, as provided in the agreement.
One tire was cut by being driven against a curb; another was gashed by being run over a glass bottle; another was pierced by being driven over a metal plate with a spike in it; and the tread of the fourth was broken in a manner not described.
Mr. Thomas J. Herbert, attorney general, and Mr. David M. Spriggs, for relator.
Messrs. McAfee, Grossman, Hanning Newcomer, for respondent.
As indicated in the statement of the case, the Attorney General contends that the respondent, in connection with sales of its automobile tires, enters into an agreement with the purchasers of such tires, constituting either a contract of insurance or a contract substantially amounting to insurance within the meaning of Section 665, General Code, and that respondent, not having obtained a certificate from the state Superintendent of Insurance authorizing it to do an insurance business, should be made to desist from the practice.
The relator also contends that such agreement, coupled with its practical interpretation by the respondent's dealers or agents, brings the present case within the decision of State, ex rel. Duffy, Atty. Genl., v. Western Auto Supply Co., 134 Ohio St. 163, 16 N.E.2d 256, 119 A. L. R., 1236.
Section 665, General Code, provides:
"No company, corporation, or association, whether organized in this state or elsewhere, shall engage either directly or Indirectly in this state in the business of insurance, or enter into any contracts substantially amounting to insurance, or in any manner aid therein, or engage in the business of guaranteeing against liability, loss or damage, unless it is expressly authorized by the laws of this state, and the laws regulating it and applicable thereto, have been complied with.
"No person, firm, association, partnership, company and/or corporation shall publish or distribute, receive and print for publication or distribution any advertising matter wherein insurance business is solicited unless such advertiser has complied with the laws of this state regulating the business of insurance, and a certificate of such compliance is issued by the Superintendent of Insurance.
"Whoever violates the provisions of this section with reference to advertising, shall be deemed guilty of a misdeameanor and upon conviction thereof, shall be fined not less than one hundred dollars nor more than five hundred dollars for each offense."
"Insurance," as that term is commonly understood, is a contract whereby a promisor, for a consideration usually called a premium, becomes bound to indemnify or compensate the promisee or one designated by him for loss or damage from stated causes in a definite or ascertainable amount. There can be little doubt that the primary purpose of the quoted statute, although broad in language, is to prevent or discourage the unregulated and unlicensed from carrying on within the borders of Ohio the general type of business described in the foregoing definition of insurance, thus protecting the public from surrendering its money in exchange for questionable or worthless pieces of paper denominated insurance policies.
Laws regulating and supervising those engaged in the business of insurance were enacted chiefly in the interest of the people to make it as certain as possible that the fund created by their contributions would be held, managed and disbursed in a prudent and proper manner.
With these observations as a background, we turn to a discussion of what is a warranty and what is a contract possessing features of insurance. Relating to the sale of commodities, a warranty has been defined as a statement or representation having to do with the kind, quality, variety or title of the goods sold. On the other hand, a number of courts have announced the rule that if the vendor of goods guarantees them against hazards disconnected with defects in the articles themselves, such guaranty is equivalent to a contract of insurance.
This was the view taken in State, ex rel. Duffy, Atty. Genl., v. Western Auto Supply Co., supra. The "guarantee" under examination in that case, which is different in phraseology from the "warranty and adjustment agreement" now before us, was held to constitute a contract "substantially amounting to insurance" because it contained an agreement to indemnify against loss or damage resulting from perils outside of and unrelated to weaknesses inherent in the tires.
As we read the instant warranty, the seller represents to the purchaser that the materials and labor incorporated into its tires are of such quality that the tires will render satisfactory service for a designated period of time under the usual conditions of wear and tear, and that if the tires fail because of faulty construction or materials, repairs will be made free of charge or new tires substituted at a reduced price based on the length of time which has elapsed since the original purchase. Then follows a specific list of tire injuries, not ordinarily associated with faulty construction or materials, and other items for which the seller disclaims any responsibility whatsoever.
We find difficulty in construing this agreement as more than a representation that the tires being sold are so well and carefully manufactured that they will give satisfactory service under ordinary usage for a specified number of months, excluding happenings disassociated from imperfections in the tires themselves.
Relator stresses the statements and conduct of respondent's agents as testified to by the witnesses in the depositions mentioned. Assuming the admissibility of such testimony, it discloses a course of conduct in direct contradiction of paragraphs three and five of the warranty and adjustment agreement, and proof is lacking that the respondent knew about or approved such actions. A principal, whether a corporation or natural person, may not be bound beyond the apparent or ostensible authority of the agent.
It need hardly be said that we are living in a highly competitive age. If the manufacturer or distributor of a certain brand of automobile tires can advantageously issue a warranty of the kind involved in this case for the benefit of customers and without additional charge, his competitors are at liberty to do likewise, and if their tires are of equal or better value, they should also be able to interest buyers and profit from increased sales. Furthermore, they may exercise their ingenuity and devise other methods, within the law, to attract prospective purchasers and stimulate a desire and demand for their product.
In the event dishonest or deceitful practices should develop, remedial legislation could be passed by the Legislature to eliminate the evils, or relief might be had from another source on the ground that unfair trade practices were being pursued.
Certainly, Section 665, General Code, was not designed to apply to purely commercial transactions connected with which warranties are made for the purpose of inducing sales and creating good will, and that section should be invoked with discrimination in the merchandising field.
In conclusion, it is not our intention to overrule the case of State, ex rel. Duffy, Atty. Genl., v. Western Auto Supply Co., supra, or abandon the principles there applied. We do think, however, the doctrine of that case should not be extended.
"* * * quo warranto is a prerogative writ to be employed to shield the sovereignty of the state from invasion and to prevent the abuse of corporate powers. * * * It is quite obvious that it should not be resorted to at the instance of a competitor, for the purpose of preventing competition." State v. Dayton Traction Co., 64 Ohio St. 272, 280, 60 N.E. 291. Being of an extraordinary nature, it is to be used generally with caution and discretion, and in the public interest. 33 Ohio Jurisprudence, 1029, Section 76.
The relator, in our opinion, having failed to make a case against the respondent, the judgment of ouster prayed for is denied.
Writ denied.
WEYGANDT, C.J., TURNER, WILLIAMS, HART and BETTMAN JJ., concur.
MATTHIAS, J., not participating.