text:
    SCOVILL v. CITY OF YPSILANTI.
    Municipal Corporations — Ypsilanti Charter — Common Council —Duties—Taxation—Paving.
    Where the charter of the city of Ypsilanti (section 323) imposed upon the common council the duty to assess and levy taxes to raise funds for paving and other municipal purposes, the council could not evade its responsibility by calling a special election of the voters in a ward to determine the amount of a proposed pavement to be levied against the property owners and the amount to be borne by the ward as a whole.
    Appeal from Washtenaw; Sample, J.
    Submitted April 15, 1919.
    (Docket No. 10.)
    Decided October 6, 1919.
    Bill by Henry R. Scovill and others against the city of Ypsilanti to set aside a portion of a special assessment. From a decree for plaintiffs, defendant ap-. peals.
    Reversed, and bill dismissed.

      John P. Kirk, for plaintiffs.

      Floyd, F. Daggett (George J. Burke, of counsel), for defendant.
   Steere, J.

The city of Ypsilanti appeals from a decree of the Washtenaw county circuit court, in chancery, setting aside so much of certain special taxes levied by said city against plaintiffs’ property for paving purposes as exceeds 8% of the assessed valuation thereof.

Forest avenue and Huron street in said city, upon which plaintiffs’ specially assessed property fronted, were paved in 1916 at a cost of $1.80 per square yard. It is indicated in the record and appears from undisputed statements in the briefs of counsel that in 1915 a considerable amount of paving was done in the city, and its authorities took action that year for paving various highways within the municipality to an extent that the work could not be, or was not, all done that year, as certain paving was at the same time ordered for 1916. Amongst the various streets ordered paved were Forest avenue and Huron street from Cross street to the Lake Shore railroad. A resolution of the common council ordering this paving was adopted on August 17, 1915, and stated the estimated cost was $1.15 per square yard for the kind of paving to be laid upon those streets, specifications for which were on file with the city clerk. The paving done pursuant to such official action in 1915 was of the specified kind and laid at the proposed price of $1.15 per square yard. The resolution of August, 1915, ordering this paving stated: -

“Resolved further, that it is the purpose of the common council to assess the cost of the aforesaid paving in the following manner, to wit: One-fourth of the cost to be assessed against the city at large, 15% to be assessed against the highway districts in which the aforesaid streets are situated and 60% against the property fronting on the aforesaid streets according to frontage.”

The city of Ypsilanti contained five highway districts, each, having a special highway fund. The third ward of the city, in which the paving in controversy was done, constituted the 'third highway district. There was opposition to this paving by owners of property fronting upon these streets, particularly on Forest avenue. Remonstrances were filed with the city council and it is stated legal steps were contemplated by parties in interest to prevent the council proceeding with it the following summer as proposed.

The chief indicated objection was to the effect that in this instance the proportion of cost proposed to be imposed on the owners was. an excessive burden owing to the comparatively small value of the property which would have to pay the 60%. After consulting with the supervisor of that district and examining his assessment roll, a member of the council named Lathers called the matter up at a meeting of the council held March 20, 1916, and a resolution offered by him was adopted to submit to the electors of the third ward at the annual election to be held April 3, 1916, a question upon the subject propounded as follows:

“Shall the cost of paving levied against any property for the purposed Forest avenue and Huron street paving in excess of 8% of the assessed valuation of such property be borne by the ward as a whole? Yes.
“Shall the cost of paving levied against any property for the purposed Forest avenue and Huron street paving in excess of 8% of the assessed valuation of such property be borne by the ward as a whole? No.”

A further resolution was passed at that meeting on motion of Alderman Dawson directing the clerk to advertise for bids for paving said streets according to specifications then on file in the clerk’s office. The clerk was also instructed to have ballots printed for submission of the proposed question to the electors of the third ward and other requisite steps taken. Proper notice was given of the submission of this question, ballots in positive and negative form were prepared as directed, supplied at the voting precincts of the third ward and used by the electors voting upon the question.

The city records show that on April 6,1916, the common council met as a canvassing board and duly canvassed the vote upon this proposition, declaring the same carried by a majority of 18 votes. The tally sheets of that ward for that election showed a total vote of 287, of which 140 votes were cast in favor of the proposition and 122 against it, 25 of the electors not voting on that question.

The resolutions of the council authorizing such election and various steps taken by it and under its direction in that connection, including the canvass and determination of the council as to the result of the vote, were not thereafter reconsidered or rescinded by any resolution relating to that subject. Nor were those streets paved according to the specifications on file with the clerk at the time such proceedings were had, under which it is admitted bids were made at a price of $1.15 per square yard. A new city engineer was engaged in 1916, and the former plans and specifications for this paving were replaced by new ones calling for a different and more expensive pavement» By direction of the council at a meeting held July 17,1916, bids were advertised for construction of such1 pavement, to be filed with the clerk by August 7, 1916, and on that date a bid was accepted and contract let therefor, by resolution of the council, “at a price of 50c per cubic yard of excavation and $1.80 per square yard of pavement.” At a meeting of the council on August 21, 1916, the mayor interposed his veto to the contemplated paving of Forest avenue, but a resolution ratifying the proceedings taken and authorizing the paving was passed over his veto by a vote of 9 to 1. The pavement proposed and acted upon prior to the special election was specified to be of two course concrete while that authorized by the council on July 17, 1916, and subsequently constructed, was a pavement of five inches of concrete and a two-inch wearing surface of asphalt. After this pavement was laid a resolution was passed by the council providing that 25% of its cost should be paid by the city at large, 15% by the third ward and 60% by the owners of property fronting on the street paved, which is testified to be the usual and customary apportionment for cost of paving streets adopted by the council throughout the city. Concededly this imposes upon the property owners a special tax for the improvement several times greater than it would be on a basis of 8% of the assessed valuation of their taxed property.

It is plaintiffs’ contention that the council by its resolution of March 20, 1916, fairly submitted to the voters of the third ward the question of paving the two streets at an election regularly held and duly noticed, with the purpose and object fully set forth in the resolution appointing such election, that such proceeding is authorized by statute and the council bound by the result, which determines the method of assessing and collecting the special tax. In substantiation of this position reference is made to section 2924, 1 Comp. Laws 1915 (1 Comp. Laws 1897, § 3008), being section 2 of chapter 6 of Act No. 215, Pub. Acts 1895, providing for incorporation of cities of the fourth class, which is as follows:

“Special elections may be appointed by resolution of the council, and held in and for the city, or in and for any ward thereof, at such times and place or places' as the council shall designate; the purpose and object of-which shall be fully set forth in the resolution appointing such election.”

For defendant it is contended that the submission of that question to the electors of the third ward was at most for advisory purposes in the nature of a “straw vote,” as generally talked and understood at the time, the result not legally binding upon that council or its successors, that the section under which it is claimed to be of legal force antedates by many years section 323 of the special charter of Ypsilanti, which is strictly local in character, regularly adopted by the electorate pursuant to constitutional authority and provisions of the home rule act. This section took effect April 10, 1913, and is as follows:

“Section 323. The common council shall have power to assess and levy a tax to pay the expenses of making, grading, paving, opening, widening and repairing streets, lanes and alleys, and for the construction of and putting curb stones, curbing, gutters and culverts therein and other local improvements, upon the lots, premises, lands and tenements in said city, which, in the opinion of the common council of the said city, are benefited by such improvement, or by a general tax, or part by local or special tax, as said common council may deem proper, provided, however, that no more than 25% of the said improvement shall at any time be assessed by the general tax of the city.”

The only legal question which this scant record and counsel’s briefs present and discuss is whether the city council by appointing and holding this so-called special election, and its result, is shorn of the discretionary taxing and assessing power conferred upon it by the city charter and bound to the course indicated by the proposition submitted to the electors of the third ward and affirmed by a majority of those voting on the question, but not by a majority of those voting at that election.

The authority to order and direct paving and other improvements of the city’s highways, and the power of taxation to raise funds for that and other municipal purposes rests in the city council. The council cannot by resort to a “special election” under the statute referred to shirk that duty, delegate its authority and divest itself of, or restrict, its taxing power conferred by charter, in the absence of some express provision to that effect. We are cited to no precedent to support the.proposition that it can, beyond this general statute authorizing the council to appoint special elections by resolution. A “special election” not otherwise qualified in its authorization, is generally recognized to be, and defined as, an election to fill a vacancy in some office arising by death of the incumbent or other disqualifying cause, or an election for some particular emergency. (Black’s Law Dictionary.) There was no vacancy in office or emergency in the case, or anything out of the ordinary. Lathers, the alderman who bethought this plebiscite, testified that when he talked with members of the council about assessing the cost in a different manner than had been customary, “the objection was raised at once that it had never been done that way, and of course we wanted the opinion of the people of the ward,” and stated he had said to Mr. Gaudy (a supervisor) and Mr. Worden (an alderman) “that in offering the resolution, I did not consider it binding on the council, that I had supposed it was a straw vote.” When asked if he offered it with the object in view of having the ward pay all over 8% of the assessed valuation, he replied, “I don’t think that was quite my object,” but had he remained on the council it was his intention “to have some proposition of that sort.” Under shown conditions and the usual custom as to those special assessments the question prepared by him and submitted is indicated to have been somewhat uncertain if not misleading. His attention being called to the custom of requiring the city at large to pay 25% of the cost of paving, he said, “Yes, I meant that part should stay exactly as it was.” Mr. Gaudy, the supervisor of that district and an active witness for plaintiffs, who had expounded his views upon the subject and stated that it was part of the charter for the city to pay 25%, was asked and answered:

“Q. You think they intended the 25% should be paid by the city at large?
“A. Certainly, they always have. I don’t know why there should be an exception in this, case.”

With such interpretation of this question by city officials who claim to have given the matter special attention and are presumed to have a better understanding of it than the casual voter, it is not an unreasonable inference that the question failed to convey a clear understanding to the electors of the proposed method of paying for the paving. The wisdom or purpose of propounding the question in that form to the electors of the ward is not altogether clear, but it is clear in our opinion that neither such course nor the answering vote could operate to suspend the provisions of a city charter imposing upon its legislative body the exclusive duty to apportion, assess and levy such special taxes according to its independent, final judgment, “as said council may deem proper,” in the manner and within the limits prescribed. The council at no time by any resolution or order changed its original determination of August 17, 1915, as to the method of apportioning and assessing the cost of paving those two streets. It subsequently decided upon a different and better pavement, as is claimed, and after the same was laid directed that the cost should be apportioned and assessed as originally proposed, and as was customary.

The city of Ypsilanti was early incorporated by legislative enactment and its special charter has been perfected by revision and amendment from time to time. It was revised as early as. 1877, extensively amended by Act No. 400 of the Local Acts of 1881, and further amended in certain particulars at several sessions of the legislature since then. . As amended in 1881 full plenary power and discretionary authority is conferred upon the common council by sections 164, 165 and 166 in the matter of paving and improving its streets, and determining within specified limits the apportionment of costs therefor. The more recent section 323, before quoted, is along similar lines and but slightly changes, or modifies, the older provisions, amongst other things making plain that not more than 25% of such improvements can be imposed upon the city at large. Along similar lines and under the same sub-title (Cost of Improvements Special Assessments) as chapter 24 of the general law for incorporation of cities of the fourth class (1 Comp. Laws 1915, § 3106 et seq.), sections 199 to 224 of defendant’s. charter prescribe in detail, with the usual safeguards for notice, review, etc., the proceedings for levying and collecting special assessments. Nowhere amongst these many provisions on the subject, nor anywhere in the charter, is there any authority for the council to delegate its legislative powers and relieve itself of the duties imposed upon it by the fundamental law of the municipality, as is claimed to have been done here.

That being the only question fairly presented for determination by this record, the decree of the lower court is reversed and plaintiff’s bill of complaint dismissed with costs to defendant.

Bird, C. J., and Moore, Brooke, Fellows, Stone, and Kuhn, JJ., concurred.

The late Justice Ostrander took no part in this decision.


source: Caselaw Access Project

author: Kuhn, J.

license: Public Domain

text:
    KELLEY v. PARR.
    Fraud — Accounting—Evidence—Sufficiency.
    On a bill by stockholders of a corporation against the general manager,' a capitalist who financed the operations, and a company which purchased assets of the corporation, charging bad faith and responsibility for Its losses, the conclusion of the court below that plaintiffs had failed by proper proof to maintain their charges, held, supported by the record.
    Appeal from Grand Traverse; Mayne, J.
    Submitted April 25, 1919.
    (Docket No. 45.)
    Decided October 6, 1919.
    Bill by Walter >N. Kelley and another against William W. Parr and others for an accounting. From the decree rendered, plaintiffs appeal.
    Affirmed.

      Farm, C. Gilbert, for plaintiffs.

      Hawley & Eldred, for defendants.
   Kuhn, J.

This is a bill for an accounting, filed by two of the stockholders of the South Side Company, of Traverse City, against William W. Parr, the general manager of the company, Thad B. Preston, who had financed the corporation under an agreement whereby he held its stock in trust as security, with a certain supervision over its management, and the Brown Lumber Company, which had come into possession of certain of the assets of the South Side Company after the latter ceased operations.

In the year 1909, a prior corporation, known as the South Side Lumber Company, of Traverse City, was insolvent and in the hands of a receiver. Plaintiff Kelley and defendant Parr had been stockholders in this corporation and connected with its management. In the summer of 1909, Kelley, Parr and others organized a new corporation, under the name of the South Side Company, to take over the assets of the insolvent company, and this new corporation entered into the following agreements with defendant Preston for the furnishing of money and credit to it by said Preston, viz.:

“Memorandum of agreement, made and entered into this 20th day of July, A. D. 1909, between the South Side Company, a corporation of Traverse City, Michigan, and T. B. Preston, of Ionia, Michigan.
“Witnesseth, that whereas, the first party has this day entered into an agreement with John F. Ott, The Traverse City Iron Works and James Cameron, wherein and whereby it is provided and mutually agreed between the parties that in case the said Ott, The Traverse City Iron Works and Cameron purchase upon their bid of eighty-two thousand dollars ($82,000) the properties of the South Side Lumber Company now being advertised for sale by J. O. Crotser, receiver, upon said bid, and the court allows the said second party hereto the sum of four thousand dollars ($4,000) for attorney fees, costs and expenses, then and in that case the said first party to this agreement will pay to the said Ott, The Traverse City Iron Works and Cameron, or to the receiver, the said sum of eighty-two thousand dollars ($82,000) cash for said property as of April 1, 1909, and
“For that, whereas, the said first party hereto require, for the purpose of carrying out its agreement with Ott and others a large sum of money, which it desires said second party to this agreement to furnish to it,
“Therefore, it is mutually agreed as follows:
“First. The said second party agrees to furnish the money necessary, to wit: The sum of eighty-two thousand dollars ($82,000), with which said first party shall pay the purchase price of said properties, provided the same is struck off to said Ott and others, and said sale is confirmed by the court, and title thereto is transferred to said' first party hereto, upon the following conditions:
“(a) That the court allows the said second party four thousand dollars ($4,000) for attorneys fees, costs and expenses in the matter of a bid made by said second party for said property, which said bid and the confirmation thereof, was set aside by the court, for the purpose of accepting the bid of said Ott and others, at the sum of eighty-two thousand dollars ($82,000).
“(b) That said first party execute and deliver to said second party its promissory notes for the sum of twenty-eight thousand dollars ($28,000), or such other sum as said second party is required to pay for said property, over and above the sum of fifty thousand dollars ($50,000), to be paid and secured as hereinafter provided, which said notes shall become due and payable as follows:
“Five thousand dollars ($5,000) October 15, 1909; five thousand dollars ($5,000) December 15, 1909; five thousand dollars ($5,000) August 15, 1910; five thousand dollars ($5,000) September 15, 1910; five thousand dollars ($5,000) October 15, 1910; five thousand dollars ($5,000) December 15, 1910; provided the amount of thirty thousand dollars ($30,000) is required; and provided further, that whatever sum is required upon settlement with the receiver, over and above said sum of fifty thousand dollars ($50,000), then, and in that case, the said first party shall give to said second party its promissory notes or the cash, which said notes shall be due and payable as above provided, in an amount equal to the amount due said second party; and all shall be paid on or before the 15th day of December, 1910, with interest at the rate of six (6) per cent, semi-annually.
“(c) The first party shall also execute and deliver to said second party a mortgage securing bonds to the amount of fifty thousand dollars ($50,000), which shall be due and payable as follows: •
“Five thousand dollars ($5,000) August 15, 1911; five thousand dollars ($5,000) September 15, 1911; five thousand dollars ($5,000) October 15, 1911; five thousand dollars ($5,000) December 15, 1911; five thousand dollars ($5,000) August 15, 1912; five thousand dollars ($5,000) September 15, 1912; five thousand dollars ($5,000) October 15, 1912; five thousand dollars ($5,000) December 15, 1912; five thousand dollars ($5,000) August 15, 1913; and five thousand dollars ($5,000) September 15,1913, which said bonds shall bear interest at the rate of six (6) per cent, semi-annually.
“(d) The said first party shall also execute and deliver to said second party its promissory notes as follows:
“Five thousand dollars ($5,000) October 15, 1913; five thousand dollars ($5,000) due December 15, 1913; five thousand dollars ($5,000) August 15, 1914; five thousand dollars ($5,000) October 15, 1914, bearing six (6) per cent, interest, payable semi-annually.
“Second. The said second party hereto agrees to furnish the said first party a line of credit to the extent of twenty-five thousand dollars ($25,000), said line of credit, however, and the cash furnished, not to exceed the sum of seventy-five thousand dollars ($75,-000), in the aggregate, at any one time.
“Third. The said first party shall pay to said second party in cash, all such sums as may be due and payable for accumulated interest upon any moneys which said second party has had in his hands for the purpose of carrying out the former contract in relation to the purchase of said properties, and upon certified checks deposited or otherwise, and will also save harmless the second party from any and all damages, losses or expenses which he may be to in any way from the fact of depositing with the First National Bank of Traverse City and the Peoples Savings Bank of Traverse City, two certified checks under certain conditions, for the purpose of purchasing the claims of said banks against the said South Side Lumber Company. Said second party agreeing, however, that he will not at any time pay to said banks anything upon said checks in settlement or otherwise, except upon the written consent of the said first party hereto.
“In witness whereof, the parties hereto have set their hands and séals the day and year first above written.
“South Side Company,
“Walter N. Kelley, President. (L. S.)
“T. B. Preston." (L. S.)
“Memorandum of agreement, made and entered into by and between the South Side Company, a corporation, of Traverse City, Mich., and Thad B. Preston, of Ionia, Mich., witnesseth,'
“Whereas, the second party has advanced certain moneys for the purpose of paying the purchase price of the properties now owned by the South Side Company-and purchased of J. C. Crotser, receiver for the South Side Lumber Company, with the understanding that the stock of the said South Side Co. should be issued in trust to the said Preston and held by him as collateral security for the fulfillment of all obligations of payment made by the South Side Co. to the’ said Preston and to the Union Trust Co., as trustee, therefore it is mutually agreed between the parties hereto, and the president and secretary of the said South Side Co. are to issue to said Preston the certificate of stock for forty-nine thousand nine hundred and fifty dollars ($49,950), as trustee; said stock to be held by said Preston until all obligations of said South Side Co. are fully paid to him and to the bondholders under the bond mortgage this day executed and delivered to the Union Trust Co., and when all of such obligations and indebtedness is paid and satisfied in full, said Preston agrees to surrender said stock, and thereupon the president and secretary of said company shall cancel said certificate and issue certificates to the following parties:
W. N. Kelley ................................ $25,500
W. W. Parr .................................. 9,000
Mary E. Lowell .............................. 2,500
M. G-. Vivian ................................ 500
E. L. Montague .............................. 509
Ralph Case .................................. 1,000’
J. O. Crotser ................................ 1,000‘
Treasury ..................................... 9,950
“South Side Co.,
“By Walter N. Kelley.
“Thad B. Preston.
“September 13th, 1909.”

The promissory notes provided for in subdivision (d) of the first paragraph of the above agreement of July 29, 1909 (aggregating $20,000), represented the agreed compensation of Mr. Preston. For some additional assistance later rendered, this amount was increased to $22,500.

The bond issue of $50,000 contemplated by subdivision (c) of said paragraph was arranged through the Union Trust Company, and the bonds were sold with Mr. Preston’s guaranty or indorsement.

A Mr. J. J. Corcoran was appointed by Mr. Preston to represent him in the company and was made treasurer. He countersigned checks, approved purchases, and watched the conduct of the business, but took no active part in its management.

The operations of the South Side Company resulted in loss. In February, 1912, its planing mill at Traverse City burned. It was fully covered by insurance, which was collected, but the affairs of the company were then in such condition that it did not seem advisable to rebuild, and from that time the efforts of the management were directed to winding up the affairs of the company so as to save, if possible, something for the stockholders. The company, however, proved to be insolvent.

Plaintiff Kelley was the president of the company, and at the outset was in charge of its logging and lumbering operations. Later, Mr. Preston, being dissatisfied with the results obtained, insisted on the removal of Mr. Kelley and the substitution of Mr. Parr as general manager. The latter remained in charge to the end.

Plaintiffs’ case, briefly stated, is this: It had been the custom of the company to issue financial statements from time to time, copies of which were furnished to plaintiff Kelley. In June, 1912 (after the fire), the following statement was issued:

“Statement (June 1, 1912).
South Side Company, Traverse City, Mich.
Assets.
Cash—
Interest fund ........................... $50.00
Grand Rapids Natl. City Bank.......... 1,234.61
First Natl. Bank, pay roll .............. 100.00
Notes receivable .......................... 721.62
Accounts receivable—
Customers .............................. $17,575.02
Sundry debtors ......................... 730.27
Prepaid expenses at Trav. City............ 481.28
Inventories—
Wholesale lumber .............. $7,883.08
Retail lumber .................. 2,206.21
Retail lath .............. 109.52
Retail shingles ................. 404.83
Doors and windows ............ 1,374.35
Posts and columns ............ 191.17
Box factory lumber ............ 798.03
Carp, shop material ............ 1,718.25 14,685.44
Steubenville box factory account .......... 4,871.23
Plant, Traverse City—
Real estate ................ 4,550.00
Furniture and fixtures ..... 402.33
Horses, wagons and harness 763.30
■Tula timber ................. 14,597.0-1
Tula cutover lands ........... 5,000.00
Tula Investment ............. 3,720.61
McManus contract ........... 23,472.81
Investment at Hiawatha—
Current cash .................. $31.67
Prepaid expenses ......1....... 1,675.70
1910 lumber ................... 478.56
1911 lumber ............•....... 7,735.87
1912 lumber ................... 20,935.81
Old shingles ................... 193.40
Old posts and poles ............ 16.25
Equipment ..................... 2,667.89
Timber........................ 4,633.51 38,368.66
Contract with W. W. Parr ................ 625.87
$131,950.06
Liabilities.
Mortgage bonds ........................... $10,000.00
Land contracts payable ................... 11,144.38
Accrued interest on land contracts.......... 255.00
Notes, payable ......................... 47,725.62
Accrued interest on notes payable.......... 667.80
Accounts payable ......................... 14,618.97
Reserve for bad debts ..................... 304.38
Hiawatha logs ............................ 2,767.5^1
Capital stock.............................. $50,000.00
Loss and gain this year, Trav. City........ 2,837.63
Loss and gain this year, Hiawatha......... 3,050.10
Loss and gain previous years at Trav. City.. 19,150.89
Loss and gain previous years at Hiawatha.. 24,906.36
$131,950.06”

To the above detailed inventories were appended. About a year later Mr. Kelley was furnished with the following statement:

“June 6, 1913.
5/10/13 5/10/13 ,
Assets Liabilities
Cash ............................. $39.60
Notes receivable ................. 461.42
Accounts receivable .............. 18,325.76
Tula Lumber Company .......... 19,339.95
Geo. Henderson contract ......... 100.00
Bark at Tula .................... 2,000.00
Note payable ................... $39,500.00
Accounts payable .............. 2,224.39
$40,266.73 $41,744.39”

It is plaintiffs’ claim (1) that no substantial loss could have occurred subsequent to June, 1912, because the company’s operations ceased at about the time of the fire in February, 1912; and that inasmuch as the June, 1912, statement, after making gain and loss adjustments, shows the capital stock unimpaired, while the statement of June, 1913, shows an entire disappearance of the capital fund, with liabilities in excess of assets, there must have been in the meantime a dissipation of the property of the corporation entirely unaccounted for.

(2) That if defendants claim the losses occurred at Tula and Hiawatha, defendants Parr and Preston should be held personally responsible for these losses for mismanagement. That, among other things, defendant Parr, after assuming the management, had released one McManus from a logging contract under which, the Tula operations could have been conducted at a profit to the company, and entered into a new arrangement with him which resulted in a heavy loss to the company.

(3) That the following checks, drawn by the company to defendant Parr, are wholly unaccounted for, viz.:

“Jan. 16, 1910, Check No. 567................ $1,958.45
Aug. 31, 1910, Check No. 1048............... 2,460.27
Feb. 7, 1911, Check No. 1396.............■.. 1,436.10
Aug. 12, 1911, Check No. 1724............... 2,206.10
May 8, 1912, Check No. 1726............... 3,117.27
$11,178.19”

(4) That the Brown Lumber Company, in which Mr. Preston and Mr. Parr were the principal stockholders, had come into possession of certain of the assets of the South Side Company, particularly a working contract, known as the “Durant-Dort contract,” and other lines of business properly belonging to the South Side Company and its stockholders.

(5) That Mr. Parr continued to draw a salary of $250 per month, fixed by his employment contract, after the company had ceased operations, and that he claimed his salary in full during the entire term of the contract.

Plaintiffs ask for an accounting of these matters; that Mr. Parr and Mr. Preston be charged personally with the losses at Tula and Hiawatha; that Mr. Parr repay to the company the amount of the checks paid to him and unaccounted for; that the Brown Lumber Company account to the South Side Company for the contracts and property taken over; that the salary of Mr. Parr cease as of June 1, 1912; and that the defendants account to the stockholders for the net value of the South Side Company as per statement of June 1, 1912.

In reply, defendants submit a more complete statement of facts, which, in the main, seems to be well substantiated by the record, and which is not questioned or denied by any reply brief on the part of the plaintiffs. The matters involved were gone into fully on the hearing in the lower court, there being nearly 500 pages of testimony in the printed record, besides voluminous exhibits. Such of the facts as serve to answer the plaintiffs’ charges follow.

An addition of the column headed “liabilities” in the statement of June 1, 1912, will show that the total is incorrectly given as $131,950.06, and that it should be $187,438.04. The “assets” column is correctly added. Had the two columns balanced, as they purported to do, the gain and loss items would have indicated profits. As it is, it is doubtful what they were intended to show. Counsel seem to take it they represent losses. If so, the statement would show the capital fund more than exhausted at that date. Eliminating these items, the liabilities would still exceed the assets, and the value of the capital stock would appear on the face of the statement to have then been only $44,466.00. The statement, however, carries as assets the amounts invested in the Tula operations and a portion at least of the actual investment at Hiawatha. The testimony of the accountant shows most convincingly that there was a loss of upwards of $26,000 at each of these places. These losses, though for the .most part sustained prior to the date of the statement, had not then been fully ascertained, nor had proper entries been made on the books to indicate same. It is clear, therefore, that the statement cannot be given the interpretation and weight that plaintiffs claim for it. Mr. Becker, the accountant selected by the plaintiffs to go over the books and papers of the company and make a transcript and report thereon, testified as follows:

“So far as the entries in the books are concerned and the transactions there recorded, there is nothing irregular about the books in any way. The books and records are all complete as far as there is any records. There is a debit and credit for each transaction. * * *
“Q. Then you take, Mr. Becker, the accounts we have with Tula and Hiawatha and you find from the books of the company that there was a material loss to the company because of those operations, didn’t you?
“A. Yes, sir. I gained some evidence as to when this loss occurred and have undertaken to show when that occurred. * * *
“Q. Are you able to give from your statement the amount of the loss at Hiawatha, the total amount, for all the operations there I mean now?
“A. I think I am, yes.
“Q. Well, just give us that.
“A. The total loss at Hiawatha, on the whole, was $24,518.84. In addition to the above are the accounts, insurance, taxes and railroad.
“Q. Yes, isn’t it a fact that that should be added to the loss of that operation?
“A. That may be possible; I don’t know if there is any income from those accounts. If these were added it would bring the loss up to the figures shown here, that I made, showing the loss at Hiawatha at $26,573.04. My statement also shows a loss at Tula and that loss was $26,119.19. * * *
“Q. Well, you have determined the amount of the loss at the two places?
“A. Yes, the Tula and Hiawatha from the books and tickets, $52,693.03, I think that is the amount. * * *
“Q. As I understand it, witness, you did this: You took the aggregate of what was actually spent, say at Tula—
“A. Yes. * * *
“Q. Including the sales, railroad and everything?
“A. Yes, sir.
“Q. And you found that they had expended at Tula this $26,000 and some dollars more than they had gotten?
“A. Yes, sir.
“Q. And that is where you got your loss?
“A. Yes, sir, that is the idea.”

Bearing on the question of mismanagement, and responsibility for same, the following facts appear:

Besides the planing mill, real estate and stock of lumber at Traverse City, the property purchased from the receiver consisted of a few contracts for the sale of planing mill products; also sawmill, logging outfits, camps and equipment at Hiawatha, Schoolcraft county; and a contract for the purchase of 1,080 acres of timber land at Tula, Gogebic county, on which latter there was unpaid, 'when turned over by the receiver, about $22,000, of which the company then paid $5,000, the balance remaining an obligation against the lands and against Mr. Preston personally. At the outset, plaintiff Kelley, the president of the corporation, was given charge of the logging and lumbering operations in the Upper Peninsula, and Mr. Parr was put in charge of the office and the Traverse City plant.

In the fall of 1909, plaintiff Kelley went to Hiawatha, and, after looking over the ground, made the following report to Mr. Preston:

(South Side Company Letterhead.)
“Hiawatha, Mich., Nov. 5th, 1909.
“T. B. Preston,
“Ionia, Mich.
“Dear Sir: Have been here this week and have covered the situation very thoroughly and everything is progressing very satisfactory and from present indications we are going to get our logs in at a less cost than we figured on. The weather has been very favorable and we have a good class of laborers and we are getting the timber on skids at a very reasonable cost. If we have a favorable winter this will enable us to get the logs in at less than we expected and the quality of timber is better than what we have cut here during the past two years. We are figuring on putting in and manufacturing about five million feet of lumber here this coming season that will be made up about as follows:
White pine .. 200.000 ft.
Norway pine 1.000. 000 ft.
Hemlock ..... 500.000 ft.
Hardwood ---- 3.000. 000 ft.
Cedar shingles 7.000. 000 ft.
“It will cost us about the following amount to camp us until May 1st, 1910:
Logging ................................... $25,350.00
Manufacturing to May 1st,................. 6,000.00
General expense ........................... 2,500.00
Hauling lumber ........................... 2,250.00
Hauling shingles .......................... 700.00
To May 1st.............................. $36,800.00
“We have $19,184.23 of lumber and shingles on hand here so that we will need to get from Traverse City end about $............to carry this operation through.
“Very truly,
“Walter N. Kelley.”

Operations were begun, and in January, 1910, Mr. Kelley reported the situation as follows:

“South Side Company,
“Manufacturers, Wholesale and Retail Dealers.
“Hiawatha, Mich., January 29th, 1910.
“T. B. Preston,
“Ionia, Mich.
“Dear Sir: This operation is in good shape, the logging is in fine condition. We have our full amount of logs cut and about one-half of them hauled. The winter conditions could not have been much better had we ordered it, the snow is quite deep but not so as to make it bad or expensive logging. Everything has been very favorable and we will be able to get our logs in at the estimated cost, and as the lumber prices are improving in all probability we will be able to make a better showing than the figures I gave you. Our mill has not got down to business yet. My calculation was based on cost of manufacturing, $3, but it has cost us $8.24 up to date, but we must get this cost down below the $3.00 mark and there is no reason why we can’t. We will have all our logs into the mill yard by March 10th. We have cut the following amount of logs up to January 22d.
January 22nd scales of logs.
Norway pine .................'......,.... 1,006,294 ft.
White pine .............................. 224,939 ft.
Spruce .................................. 251,600 ft.
Balsam .................................. 198,400 ft.
Tamarack ............................... 325,000 ft.
Hemlock ................................ 438,168 ft.
Hard maple ............................. 1,436,277 ft.
Beech ................................... 123,629 ft.
Birch .................................... 191,422 ft.
Cedar ................................... 470,413 ft.
Total ................................ 4,666,142 ft.
“Have cut enough to make full five million since above date.
“We have on hand here of last year’s dry lumber the following:
1,278,492 ft............................value $17,092.31
Shingles, 2,535 M............;.......value 4,373.55
$21,565.86
“We are now hauling this out and will be able to get it all out within the next sixty days. It will require the following amount of money to carry us until May 1st:
For logging ................................ $5,000.00
For manufacturing lumber .'................ 4,500.00
For shingles ............................... 2,280.00
For hauling lumber and shingles .......... 2,500.00
For general expenses ...................... 500.00
$14,780.00
“Will be required at the following dates:
March 15th ................................ $6,760.00
April 15th ................................. 4,760.00
May 15th .................................. 3,260.00
$14,780.00
“The pay roll for February 15th amounts to $7,-800.00, at which time it will be necessary to use our full line to clean up the payment, interest and pay roll, and you will notice that we will be in shape to take care of ourselves in nice shape by moving our lumber and shingles as there is $21,465.86 to pay $14,-780.00 with. We have orders on our books to take this lumber just as fast as we can ship it.
“Hoping that everything is satisfactory to you,
“I am yours truly,
“Walter N. Kelley.”

It appears from the testimony that, as a matter of fact, the logs referred to in the above letter were not scaled at all, but merely estimated; that the estimate was 4,200,000 feet instead of 5,000,000, and that the lumber that was shipped to the company therefrom amounted to only 3,903,700 feet, when it should have overrun the log scale. In the spring of 1910, plaintiff began the construction of a’ 3-mile spur track into the mill at Hiawatha, estimating the cost, in his report to the company or Mr. Preston, as about $1,000 per mile. The actual cost proved to be $6,000, the grading and ties having cost about $4,000 and the railroad company’s bill for laying ties and iron being $2,000. Mr. Kelley also reported that he had 2,000,000 feet of lumber for shipment to the W. E. Williams Company, at Traverse City. There proved to be but 1,-200.000 feet. When this fact was discovered, Mr. Preston at once ordered Mr. Parr to go to Hiawatha and look the stock over. He found 1,000 cords of wood which was worthless, there being no market for it; that the shingles on hand were less than the estimated amount and of poor quality; that the lumber fell short of plaintiff’s estimate by many thousand feet; that the Norway and white pine were badly stained and damaged; that some 40,000 feet of hardwood logs and 150,000 feet of softwood logs had been left in the woods over summer, with the result that the worms had spoiled the pine logs and the hardwood had become dozy and would make only cull lumber. In the fall of 1910, Mr. Kelley proposed commencing lumbering operations at Tula. Mr. Parr objected on account of lack of funds and doubtfulness of the results. Mr. Preston, having advanced the entire amount agreed under the contract, had stated that he would not furnish any more money. Mr. Kelley, however, appealed to him, representing that $3,000 would be sufficient to put the operations at Tula where they would take care of themselves, and Mr. Preston finally agreed to advance from $3,000 to $5,000 for that purpose. It appears that the receiver of the old South Side Lumber Company had entered into a contract with Foster & Ayers (subsequently known as the Tula Lumber Company) to manufacture the logs at Tula into lumber and other products, and this contract was assumed by the South Side Company upon taking over the assets. Foster & Ayers, in reliance upon the contract, had constructed a mill at Tula to carry out this contract. Upon Mr. Kelley’s recommendation, a contract was entered into by the South Side Company with one Isaac Lurya for the purchase „by him of the lumber manufactured at Tula, in which contract Mr. Lurya agreed to advance certain sums of money each month for lumber cut during the previous months, and the company by said contract became bound to .sell the lumber to him, Mr. Preston guaranteeing performance by the company. Mr. Kelley also hired one Blue to manage the operations at Tula. After Mr. Blue had expended about $2,500 with little apparent result, Mr. Kelley discharged him and entered into a contract with one George McManus, to do the work at,,a certain fixed price. Mr. Kelley himself spent only four days a month at Hiawatha and Tula during the entire period of his management of these operations. In February, 1911, because of the unsatisfactory situation at both Hiawatha and Tula and other alleged instances of poor management on plaintiff’s part, Mr. Parr became dissatisfied, tendered his resignation as an officer and manager of the company, and notified Mr. Preston and the company that he would take with him what were known as the “Steubenville” or “Pope Tinplate” contract and the “DurantDort” contract, which he claimed to control personally, and which were the South Side Company’s most valuable assets. Mr. Preston thereupon sent for Mr. Parr, Mr. Corcoran and plaintiff Kelley to meet him at Ionia. Plaintiff claims he did not get any such notice. At any rate he reached Ionia the day after Mr. Parr and Mr. Corcoran were there, and found that he had been removed as manager of the logging and lumbering operations, and that Mr. Parr had been put in full charge, the following contract having been made with him:

“The South Side Company, manufacturers, wholesale and retail dealers in lumber, lath, shingles, doors, mouldings, box shooks, 515 Lake Ave. Tel. Bell 390: Citz. 308.
“Traverse City, Mich., February 16th, 1911
“Contract for Service.
“This contract, entered into between the South Side Company, a corporation doing business in Traverse City, Michigan, party of the first part, and William W. Parr, resident of Traverse City, Mich., party of the second part.
_ “The party of the first part agrees to hire, and does hire, the said W. W. Parr, party of the second part, as general manager of the South Side Company for the period of time that T. B. Preston is financially interested in said company, at an annual salary of three thousand dollars. ($3,000), payable two hundred fifty dollars ($250) per month.
“The South Side Company,
“By J. J. Corcoran, Treas.
“G. E. McMichael, Sec.
(Signed) “W. W. Parr, party of the second part.”

It appears that the season was very unfavorable for the logging operations at Tula, and Mr. McManus soon found that he could not carry out his contract without heavy loss to himself, and accordingly refused to proceed with the work. Upon investigation, Mr. Parr found that he was financially irresponsible and that the company would have no remedy against bim. He was a very competent man for the work. The company being under contract for the output of lumber and for the manufacture of the logs into lumber, and Mr. Preston having become personally liable for the carrying out of these contracts, it was impossible to avoid a loss by discontinuing the logging operations. Mr. Parr, therefore, hired Mr. McManus, at $75 a month, to superintend the work, and continued the operations at Tula, the result of which proved to be a heavy loss to the company.

The “Steubenville contract,” above referred to, also known as the “Pope Tinplate Company contract,” was a very profitable one. The contract was first made in 1906 between Mr. Parr (then with the South Side Lumber Company) and Mr. Hannen,'the manager of the Pope Tinplate Company, but no boxes were manufactured until 1907. In October, 1907, the South Side Lumber Company failed, but the receiver continued the contract during his receivership, through Mr. Parr, whom he retained, and who controlled the contract, which was renewed from year to year. The benefit of this contract passed to the South Side Company upon their purchase of the assets. At the time of the making of the original contract between Mr. Hannen and Mr. Parr it was verbally agreed that Mr. Hannen should receive one-half of the net profits on the business done under the contract after the South Side Company had taken a profit of $1.50 per thousand on each thousand feet of lumber used in the manufacture of the tin-plate boxes. In consideration thereof Mr. Hannen was to oversee the manufacture of the boxes at Steubenville, Ohio, and keep a faithful account of the number of boxes made and thereby relieve the South Side Company from the expense of employing and keeping a man at Steubenville to care for its interests. Under this agreement the money was to be paid by Parr to Hannen in cash and no record kept. This verbal agreement with Mr. Hannen was called to the attention of the circuit judge during the receivership of the South Side Lumber Company and was approved and ordered to be complied with by said court. It was also understood by Mr. Kelley, Mr. Parr and Mr. Corcoran and was thoroughly discussed at the time that Mr. Kelley and Mr. Parr were endeavoring to enlist the, services of Mr. Preston in the affairs of the company. No receipts were taken from Mr. Hannen at the time the payments were made to him, but during the trial Mr. Parr obtained from him, and introduced in evidence, the following:

“Steubenville, Ohio, Nov. 6, 1914.
“Received from W. W. Parr' in total eleven thousand one hundred seventy-eight dollars and eighteen cents ($11,178.18), my due as per verbal agreement, to look after the manufacture of tinplate boxes at Steubenville, Ohio, for the South Side Lumber Company.
(Signed) “George W. Hannen.”

Immediately after the planing mill fire, Mr. Parr tried to rent the W. E. Williams plant at Traverse City in order to carry out the “Steubenville” and “Durant-Dort” contracts, but the Williams people refused to rent it. After some further efforts to hold these contracts, Mr. Parr finally turned them over to the Brown Lumber Company, which in the meantime had been acquired by Mr. Preston and himself. Its plant not being equipped for that kind of work, it became necessary for the Brown Lumber Company, at some expense, to enlarge and further equip its plant for that purpose, and new contracts were thereupon made by the Steubenville concern and the Durant-Dort people with the Browh Lumber Company.

On June 1, 1912, the lumber and most of the personal property of the South Side Company remaining at Traverse City after the fire were purchased by the Brown Lumber Company, the sale being made on the basis of the prices shown by the January inventory, $15,448.74. It is the claim of defendant Parr that plaintiff was fully advised of this transaction and consented to same — in fact, that he was the first to suggest that it be done. Plaintiff admits that he asked Mr. Parr why the Brown Lumber Company didn’t buy up this property, but denies that he was fully informed of, or consented to, this sale.

In the winter of 1912-1913 the Brown Lumber Company purchased logs at Hiawatha, and the South Side Company gave to one Eckstrom the use of the mill there for paying the taxes and keeping the mill in repair. The taxes amounted to some $350, being not only upon the mill, but upon a considerable quantity of real estate, the taxes on which the South Side Company was obligated to pay until 1917. Early in 1914 the mill was sold to Mr. Eckstrom for $1,000, which the testimony indicates was a good price therefor.

In November, 1912, the Tula Lumber Company bought the timber at Tula from the South Side Company. This, with the foregoing sales, practically closed out and disposed of all the property of the South Side Company. It is the claim of the defendants that the company is insolvent, without sufficient money or property to cover its remaining indebtedness. It 'appears that Mr. McManus has brought suit against the company, claiming some $11,000, and that the receivers of the Pere Marquette Railway Company have also commenced a suit for $966.86, levying an attachment upon the remaining real estate of the company — a barn and fifteen lots at Traverse City, assessed at $2,500. Mr. Preston has been paid in full, but may incur some loss in connection with debts of the company. He testified:

“At any rate, I have been paid the original $50,000 represented by these bonds, or repaid that amount with the interest accruing; I have been paid whatever is represented by those notes to make up this purchase price, and I have been paid notes representing my bonus, $22,500.”

And again:

“Q. Are you in any way obligated because of the debts of the company?
“A. I am obligated to McManus of Frankfort, the one who took the contract up at Tula, or worked for us up at Tula.”

After a full hearing, the circuit judge filed a written opinion, in which, after stating certain facts, he concludes as follows:

“I have carefully examined the testimony and cannot find any evidence that would justify me in holding defendants responsible for the loss at Tula and Hiawatha. In my opinion the parties were mistaken in the possibilities of the proposition. These lands were formerly before the court in the case of the South Side Lumber Co. and the court advised by experienced operators that a heavy loss would likely result from operating them. This opinion was one of the reasons why the receiver recommended a sale of the lands. This fact may not be material, yet it explains and justified the actions of the receiver. The fact that there was a loss is not sufficient to hold the defendants responsible. Their responsibility for it has not been shown.
“The transfer of the remaining assets to the Brown Lumber Co. presents a different question. The affairs of the company had to be closed and the property sold. The testimony is conflicting upon the question of the consent of plaintiff to the transfer. I do not find that any property was transferred at less than others would have paid for it. If defendants’ action was detrimental to plaintiff’s rights, the testimony fails to show wherein better results could have been reached had a different course been pursued. His loss, if any, is not so itemized that the court can point out wherein plaintiff was injured. I find no evidence from which I can determine the amount of damage, if any, sustained by plaintiff.
“Defendant Parr was. employed to manage the business of the company at a salary of $3,000 per year and was to stay as long as Mr. Preston was interested in the company.
“Mr. Parr claims he is entitled to his services up to the present time at the rate of $3,000 per year. My opinion is that at the time of the conclusion of the business at Tula and Hiawatha, which business at these points was finally closed about the first of January, 1915, that Mr. Parr should receive full pay up to January 1st, 1915, and as he has had more or less business of the company to look after since that time, he should be paid for his services what they were worth, and in my opinion $100 per month since January 1, 1915, would be a reasonable and fair compensation for his services. Plaintiff not to be charged with this amount. Decree may be settled upon notice."

From the decree entered in accordance with this opinion, plaintiffs have appealed.

A reading of the record is satisfying to us that the plaintiffs have failed by proper proof to show any evidence of bad faith on the part of the defendants in their dealings with reference to the matters here involved, and we are therefore of the opinion that there is no merit in the claims of the appealing plain tiffs and that the conclusion of the learned trial judge was a just and equitable one, considering all the facts in the case, which have been set up above at some length so that the claims of the various parties might be understood. His decree will therefore be affirmed, with costs to the defendants.

Moore, Steere, Brooke, Fellows, and Stone, JJ., concurred. Bird, C. J., did not sit.

The late Justice Ostrander took no part in this decision.


author: Steere, J.

text:
    ADDISON v. W. E. WOOD CO.
    Master and Servant — Workmen’s Compensation Act — Construction — Total Incapacity — Loss of Foot.
    Where an employee in the course of his employment sustained an injury to his leg, resulting in total incapacity for about a year, when his foot was amputated, he is entitled, under section 9, part 2, of the workmen’s compensation act (2 Comp. Laws 1915, § 5439), to compensation as for total incapacity up to the time of the amputation, and from that time, under section 10, part 2 (2 Comp. Laws 1915, § 5440), to the specific compensation provided therein for the loss of a foot, without any deduction for payments made during the period of total incapacity.
    As to application and effect of Workmen’s Compensation Acts generally, see notes in L. R. A. 1916A, 23 and L. R. A. 1917D, 89.
    Certiorari to Industrial Accident Board.
    Submitted May 1, 1919.
    (Docket No. 35.)
    Decided October 6, 1919.
    Frank Addison presented his claim for compensation against the W. E. Wood Company for injuries received in defendant’s employ. From an order denying a petition to discontinue payments under an award, defendant and the Zurich General Accident & Liability Insurance Company, Limited, insurer, bring certiorari.
    Affirmed.

      Kerr & Lacey, for appellants.

      George G. Hunter, for appellee.
   Steere, J.

On November 5, 1915, Frank Addison, appellee, suffered an accident while in the employ of defendant W. E. Wood Company, causing a comminuted fracture of the middle third of both bones of the lower right leg. It is undisputed that the injury arose out of and in the course of his employment, and resulted in at least temporary total incapacity for work.

The customary course of proceedings under the workmen’s compensation law was followed promptly and on December 3, 1915, appellant insurance company, representing as insurers the Wood Company, entered into an agreement with Addison for incapacity compensation, on a form prescribed by the industrial accident'board, “at the rate of $10 per week during disability,” which was filed with and approved by the board.

Immediately after the accident Addison was taken to a nearby hospital for emergency treatment. Dr. A. C. Hall, a specialist in traumatic surgery, acting in behalf of appellants, at once took charge of the case and later removed the injured employee to Harper hospital where he was furnished all needed medical and hospital services, medicine, etc., for approximately one year, during which time he was under Dr. Hall’s care and treatment with all expenses borne by defendants, receiving in addition thereto $10 per week from the insurer as provided in their agreement, and a further $5 per week contributed by the W. E. Wood Company. He became dissatisfied with the medical services of Dr. Hall, and, declining to permit further treatment of his injury by him, selected another physician who immediately transferred his patient to a different hospital and soon thereafter amputated the injured member at a point sufficiently below the knee to class the loss as that of a foot. This amputation was performed without the knowledge or consent of appellants, whose medical advice had been that amputation was not necessary. Defendants, however, continued to pay Addison the statutory compensation of $10 per week and $5 per week extra for some time during which negotiations were had and a tentative agreement reached as to compensation, as defendants contend, which Addison later refused to recognize, the details of which may be omitted, and on July 10, 1918, defendants filed with the industrial accident board a petition to be relieved from paying further compensation beyond two weeks, setting up, which is undisputed, that compensation had already been paid by them under the act for 123 weeks and two additional weeks’ compensation tendered with a request for a final receipt for payment on a basis of the loss of a foot, which claimant refused to accept or sign. After hearing the parties the board made an award upon the theory that for the period of 541/3 weeks after the accident and prior to the amputation Addison was entitled to receive compensation at the rate of $10 per week for total incapacity, and after the amputation further compensation for 125 weeks at the same rate on the basis of the loss of a foot, making a total of 179J/3 weeks. From this defendants appeal by certiorari, asking an interpretation of the workmen’s compensation act on that proposition.

To summarize the salient facts which raise the question: Addison suffered an accidental injury under which he was paid compensation for total incapacity at the rate of $10 per week for 54 1/3 weeks. Necessarily the payments during that time were under the provisions of section 9, part 2, of the act (2 Comp. Laws 1915, § 5439), as he had lost no members and was totally incapacitated for work. His foot was then amputated and payments at the rate of $10 per week were continued until he had been paid and tendered compensation for 125 weeks, the compensation specified in section 10 (§ 5440) for loss of a foot. The industrial accident board awarded compensation for total incapacity during the 541/3 weeks plaintiff was disabled without loss of any member, and after the operation continued compensation during 125 weeks more for loss of a foot.

For defendants it is contended that the one injury which plaintiff sustained resulted in the loss of a foot, entitling him as specifically provided in section 10 to 125 weeks’ compensation for such loss, to be computed from the date of the injury as provided in section 3 (§ 5433), the exact time when the foot was amputated having no material significance.

Plaintiff’s counsel acquiesces in the award, being “inclined to believe that the board was correct in its interpretation,” but, with a reservation directed to the proposition of total incapacity to the maximum period under section 9, also says:

“We are not certain that the industrial accident board arrived at the correct decision in this matter, in awarding compensation to applicant for 541/3 weeks as for disability, and for 125 weeks for loss of a foot. We are quite certain that if the board! erred at all it erred to the prejudice of applicant.”

Part 2 of the act (commencing at section 5431, 2 Comp. Laws 1915) deals with the subject of compensation. Section 4 of that part (§ 5434) provides:

“During the first three weeks after the injury the employer shall furnish, or cause to be furnished, reasonable medical and hospital services and medicines, when they are needed.”

This section is but incidentally pertinent as it is undisputed that the employer furnished or caused to be furnished to the injured employee what was required in that particular for not only the first three weeks after the injury, but almost a year longer.

The controversy directly involves the construction of sections 9 and 10 of part 2, which are necessarily to be considered both with reference to their relations with each other and the general purpose of the act. First dealing in the matter of compensation with the subject of total incapacity, without particularizing as to the nature of the injury, the legislature provided:

“Sec. 9 (2 Comp. Laws 1915, § 5439). While the incapacity for work resulting from the injury is total, the employer shall pay, or cause to be paid as hereinafter provided, to the injured employee a weekly compensation equal to one-half his average weekly wages, but not more than ten dollars nor less than four dollars, a week; and in no case shall the period covered by such- compensation be greater than five hundred weeks, nor shall the total amount of all compensation exceed four thousand dollars.”

Then passing to the s.ubject of partial incapacity it further provided:

“SEC. 10. (5440) While the incapacity for work resulting from the injury is partial, the employer shall pay or cause to be paid as hereinafter provided, to the injured employee a weekly compensation equal to one-half the difference between his average weekly wages before the injury and the average weekly wages which he is able to earn thereafter, but not more than ten dollars a week; and in no case shall the period, covered by such compensation be greater than three hundred weeks from the date of the injury. In cases included by the following schedule the disability in each such case shall be deemed to continue for the period specified, and the compensation so paid for such injury shall be as specified therein, to wit:”

The section then continues with 16 short specifying sub-paragraphs declaring what “shall be” the compensation, measured by weeks and average weekly wages, for loss of various named members, the 14th being, “For the loss of a foot, fifty percentum of average weekly wages during one hundred and twenty-five weeks”; while the last provision of this section directly relating to loss of named members differentiates the two by relegating a double loss to the provisions of the immediately preceding section, which is devoted exclusively to total incapacity, as follows:

“The loss of both hands, or both arms, or both feet, or both legs, or both eyes, or of any two thereof, «ball constitute total and permanent disability,, to be compensated according to the provisions of section nine.”

“Permanent disability” in the connection used can signify in its application no more than a. conclusive presumption of total incapacity for work as a result of the injury during the maximum number of weeks for which compensation may be awarded under the provisions of section 9. “Disability” and “incapacity” are of like import as found in this act, which does not cover injuries having no tendency to impair the earning capacity of the employee. The purpose and scope of the legislation is directed and limited to providing a measure of compensation, not full but certain, to those incapacitated for work by industrial accidents, to be paid without regard to any of the legal liability tests of the employee’s or employer’s negligence, assumption of risk or negligence of a fellow-servant. Such award is based on loss of earnings only, rated by previous average weekly wages, a percentage of which is to be paid during a fixed number of weeks made by the act definitely determinable as the facts are found, and limited at longest to 500 weeks. Loss of members is only recognized and provided for as the same relates to impairment of earning capacity for a definite time. Even if the injury results in death of the employee, continuation of a percentage of deceased’s average weekly wages during a maximum period of 300 weeks is the basis and limit of the award to his dependents.

As applied to the facts in the instant case it is manifest that plaintiff’s condition before amputation of his foot entitled him to weekly compensation from the date of his injury for continuing total incapacity under section 9. During that time he had lost no member, and section 10 had no application. Upon the amputation of his foot by a physician of his own selection, Addison’s theretofore indeterminate total incapacity, only cognizable under the general provisions of section 9, took definite classification under a specific provision of the succeeding section (10), which is devoted to partial incapacity and specified compensation for loss of named members, the maximum period mentioned in said section being 300 weeks. His disability before that time ¡entitled him to weekly compensation for total incapacity resulting from the accident, to be “computed from the date of his injury.” It was so computed and paid, as required by sections 3 and 9, to the maximum amount of weekly compensation authorized by the act until amputation took place. Not until then was the loss of his foot an element in the case. Defendants did not and could not pay him weekly compensation up to that time for the loss of a member which he had not lost. After such loss his disability from the accidental injury resulting in incapacity for work concededly continued, but from that time came squarely under the schedule of losses in section 10. The statute does not in direct words anywhere specify that weekly compensation for loss of a foot or other member must be computed from the date of the injury. Section 3 only requires in general terms that compensation for disability caused by an industrial accident, which continues for 8 weeks or longer, shall be so computed. It was so computed by the board, payable weekly on the maximum basis of half wages through consecutive weeks until terminated by the conclusive presumption which the legislature saw fit to apply to the disability resulting from the injury in its final form. Under section 9 the law does not concern itself with the kind or character of the injury sustained, beyond the inquiry whether it has caused total incapacity to work and earn wages. If total incapacity has resulted, whether temporary or permanent, that section covers the case until further developments. Its application may be terminated by the maximum period of payment fixed by the statute being reached, by death, full recovery, or such recovery that the injured employee is only partially incapacitated for work, or by the loss of a member. • When partial incapacity or single loss of a member as provided in section 10 eventuates, the latter section applies and controls, while a double loss of specified members would remain under and be compensated according to the provisions of section 9 as before pointed out. Section 10, as the last utterance upon the subject to which it relates, controls against any inharmonious provisions of section 9. That such was the legislative intent is indicated by the express provision in section 10 excluding double loss of members from its cognizance and placing such incapacity under the provisions of section 9.

It is within the spirit of the law and does no violence to the wording of the sections under consideration to construe them as authorizing compensation for existing total incapacity resulting from any injury to a member while medical skill is attempting to restore and save the same, and until such time as developments have proved amputation necessary, followed by compensation for the loss of such member during the period fixed by the act after such loss becomes an actuality cognizable under the schedule in section Í0. When the schedule provisions of section 10 become applicable, the actual extent and duration of incapacity resulting from the specified injury yield to the indisputable presumption expressly declared in the statute by the legislature, which only obtains in case the member is in fact gone or lost. Packer v. Olds Motor Works, 195 Mich. 497.

Counsel contend that this construction is at variance with Limron v. Blair, 181 Mich. 76, wherein it is said that if the injured employee “is in fact disabled by the loss of a foot, or otherwise, for a greater period than 125 weeks, compensation continues until disability is removed, or the maximum of compensation is paid.” That case involved total disability due to other injuries as well as the loss of a foot. In connection with the language stressed by counsel it is also said:

“If one of the results of the accident is the loss of a foot, the period of total disability is 125 weeks, although it may be in fact only 6 weeks. The period is not extended because, as a result of the accident, the employee was in fact totally disabled for a period of 125 weeks, or for any shorter period. * * * The statute speaks in terms of disability. * * * It does not provide a specific indemnity for the loss of a member in addition to compensation for disability. The aim of the statute is to afford compensation if the employee is disabled. When the period of disability ends, compensation ceases.”

Manifestly this means the period of disability as fixed and defined by statute, not necessarily the full period of actual disability in fact which may be and sometimes is for life. The disability in terms of which the statute speaks is disability or incapacity for work as recognized, defined and limited by the various provisions of the act. While the statute does not provide specific indemnity for' loss of a member in addition to compensation for otherwise caused disability, when an existing disability is, or becomes, defined by and limited to the loss of a member, its thereafter duration and degree, as specified in section 10, are conclusively determined and fixed as total disability,. or incapacity for work, during a period of 125 weeks, although it may be in fact only 6 weeks or for life, but if the injured employee is also in fact “otherwise” disabled, compensation could continue until such disability is in fact removed, or in contemplation of law terminated by reaching the maximum time or amount authorized. To construe the law in this class of cases as limiting compensation to 125 weeks for the loss of a foot would, be to retroactively cover under section 10 a period of total disability during which under existing facts the section had no application, and to deny relief under section 9, which, until the member was actually lost, did directly and exclusively apply; while to hold under section 9 that weekly compensation could be awarded for total disability from the date of the injury until the maximum limit of 500 weeks’ time or $4,000 compensation was reached, if total disability in fact continued, would be to entirely ignore section 10, which concededly was applicable after the foot was amputated and thereafter defined by statutory presumption the resulting period of total disability and weekly compensation therefor.

The award made by the board in this case does not impose concurrent payments for separate injuries, or disconnected from earning power for any specific injury causing physical impairment. It provides compensation payable weekly for a fixed time during which the employee is actually or presumptively disabled, not any portion of it for loss of a member as such, but, so far as that loss is involved, based on a presumed disability or total impairment of earning capacity for a stated number of weeks after such loss.

We conclude that the construction of the act by the industrial accident board as applied to the facts in this case is permissible within the wording, spirit and inferable intent of the law considered in all its provisions.

The award is therefore affirmed.

Bird, C. J., and Moore, Brooke, Fellows, Stone, and Kuhn, JJ., concurred.

The late Justice Ostrander took no part in this decision.


author: STONE, J.

text:
    CENTRAL SAVINGS BANK & TRUST CO. v. STOTTER.
    1. Bills and Notes — Bona Fide Holder — Notice—Banks and Banking.
    A bank -which, discounts a note for a customer, crediting the proceeds thereof to his account, is not a tona fide purchaser for value, unless such credit was drawn upon before the maturity of the note, and before notice of facts invalidating it in the hands of the payee.
    2. Same — Evidence of Fraud — Admissibility—Directed Verdict.
    Where, in an action upon promissory notes by the transferee thereof, there was proof of fraud in the inception, and upon the record the plaintiff failed to establish its tona fide holding, the court below was in error in striking out the evidence of fraud and directing a verdict for plaintiff.
    Error to Wayne; Mandell, J.
    Submitted June 13, 1919.
    (Docket No. 44.)
    Decided October 6, 1919.
    Assumpsit by the Central Savings Bank & Trust Company against Isadore J. Stotter and others on certain promissory notes. Judgment for plaintiff on a directed verdict. Defendants bring error.
    Reversed.

      Sid A. Erwin {Samuel Shimans, of counsel), for appellants.

      Franje D. Andrus, for appellee.
   STONE, J.

This case was brought here to review a judgment for the plaintiff, upon a directed verdict. It is an action on three promissory notes executed by the defendants to one Luther B. Watson on September 8, 1916, due six months thereafter. The plaintiff claims to be a bona fide holder for value of these notes. The notes were indorsed over by Watson, the payee, to the plaintiff on February 26, 1917. They were due March 8, 1917. The plaintiff sent these notes, on February 26th, to the German National Bank of Cincinnati to be forwarded by the latter to the First and Old Detroit National Bank for collection. And the loose leaf discount sheet of the plaintiff shows that these notes were entered on the discount sheet on February 28, 1917.

In 1915 said Watson, the payee, and Robert Wachman, one of the makers, as co-partners, were dealing in certain automobile accessories in the city of Detroit, under the name of the Jiffy Starter Company and the Evapco Company. Subsequently, both of these companies were incorporated, and at first they interested Sid A. Erwin, one of the appellants herein, and later they interested Isadore J. Stotter, the other appellant. At this time, Mr. Schulte, the president of the plaintiff, Mr. Hermes, the secretary and treasurer of the plaintiff, and Mr. Schweikart, a director, held stock in the Jiffy Starter Company- — Mr. Hermes owning 150 shares, Mr. Schulte 100 shares, and Mr. Schweikart 175 shares. At the time the notes in suit were indorsed over to the bank, these three men were still connected with the bank in the capacities above described.

The transactions which led to the giving of the notes sued upon were as follows : During the early part of September, 1916, Watson and Wachman were attempting to raise money to enlarge the business, and Mr. Stotter was talked of as a “prospect” to buy part of the treasury stock, which at that time amounted to approximately $10,000. Mr. Stotter at that time purchased $5,000 worth of this $10,000 stock, paying at that time $2,500 in cash on the purchase price. In the latter part of August, or the early part of September, 1916, Wachman suggested to the appellants •that they (meaning himself and the two appellants) should get rid of Watson, and that it would be a good thing to take up his stock, and also the stock of the officials of the plaintiff bank. Prior to that time Watson and Wachman had been representing to Stotter and Erwin the very profitable business they were doing; that they were doing a business of about $400 or $500 a day, with the profits in excess of $100 a day. Watson, in September, 1916, represented that the assets of the Jiffy Starter Company and the Evapco Company were in the neighborhood of $30,000 with only current bills owing, for the purpose of inducing the appellants to purchase the stock of Watson, his wife, and that of the officials of the plaintiff. He produced a list of alleged accounts, aggregating $17,-058.30, and an assignment of a claim for $3,000 which the Jiffy Starter Company was supposed to have against another concern. Arrangements were then made to purchase said stock at the rate of $7.50 a share. Watson claimed that he would have to go down to Covington, Kentucky, and get the stock of the bank officials. He brought the stock back indorsed in blank, and Stotter went to the First and Old Detroit National Bank, and paid Mr. Watson about $8,000 in cash, and he and Erwin, the other appellant, and defendants Wachman and White, executed and delivered to Watson the three notes in suit, — balance of the purchase price. About a week or ten days after this transaction, to wit: about September 21, 1916, the appellants became suspicious of the solvency of the Jiffy Starter Company and the Evapco Company, and, upon investigation, found that both concerns were in a serious financial condition; that there was no money on hand; and a Mr. Isenhart was put in charge, and upon investigation it was found that the list of accounts receivable, upon the strength of which the stock was purchased, were not bona fide, and that the $3,000 account never existed. It was found that the total assets of both companies amounted to $847 only. The representations of Watson, as to the worth of the accounts receivable, were also made in the presence of Mr. Hart, vice president of the First and Old 1 Detroit National Bank. Mr. Schulte, the president of the plaintiff, testified that Watson purchased his stock, as well as the stock of the other officials of the plaintiff at $7.50 a share; that they had paid $5 a share and that they made $2.50 a share; and that the company never declared a dividend, but that he never knew that the company never made a profit. The plaintiff bank claims to have discounted these notes on February 26, 1917, and either permitted Watson to draw against the amount of said discount or to have applied it in payment of an antecedent debt. Upon direct examination Mr. Schulte, the president of the plaintiff, testified that Watson was a customer of the bank, and had been doing business with it for 12 years, and that at the time it discounted the note it gave him credit in the usual manner of banking; and that the notes were placed to the credit of Watson. He testified:

“When I took the notes from Mr. Watson I did not know that there were any equities existing in the favor of the makers as against the payee. I took the notes in the usual course, and discounted them and gave Mr. Watson credit for them.”

On cross-examination he testified:

“Q. Did you give him full credit for the face of the notes?
“A. I discounted them.
“Q. How much money did you pay him on that occasion?
“A. The full face of the note.
“Q. How — in cash?,
“A. I gave him credit on his account.
“Q. What was the state of his account at that time —did he owe you money?
“A. He owed us money.
“Q. How much?
“A. I could not give that. I cannot say whether he owed us $2,000 at that time or not. He was given credit for that amount, whether it was for payment of his note that he might have paid it later — I don’t know if that is the amount of his note or not. I don’t know whether he owed that amount or not. He may have owed the bank more.” * * *

Upon being recalled he testified:

“When we received these notes we placed them to the credit of Mr. Watson, the payee, the full amount of these notes to his credit. As a matter of fact, the notes themselves were not discounted; they were placed to his credit — the whole thing, the whole amount, including the interest up to that date. We allowed Mr. Watson to check against that account, and he did check against it. He had the full benefit of the entire amount.”

The witness also testified that he could not state what Mr. Watson’s account was on February 27th.

It is stated by defendants’ counsel that neither defendant Wachman nor White defended the suit, and, as we understand it, only the defendants Stotter and Erwin have appealed. The trial court received the testimony relating to the transactions leading up to the giving of the notes, against the objection of the plaintiff, and with the understanding that it would be stricken out, if defendants did not bring knowledge or notice to the plaintiff of the fraud of the payee of the notes. At the close of the testimony the court struck out such testimony and directed a verdict for the plaintiff for the full amount of the notes, to wit, $2,313.43.

By their brief counsel for appellants contend:

(1) That the plaintiff did not, as matter of law,, sustain the burden of proof, that it was a bona fide holder for value of the notes in suit. (Assignments of error Nos. 7 and 9.)

(2) That the question of the plaintiff’s bona fides should have been left to the jury. (Assignments of error Nos. 3, 4 and 5.)

(3) That the court erred in striking out the testimony of Erwin and Stotter, as to the fraud committed by Watson in the procurement of the notes in suit; in permitting Schulte to refresh his recollection from a loose leaf ledger sheet of the bank; and in the exclusion of exhibits 14 and 15. (Assignments of error Nos. 1, 10 and 12.)

In support of their first proposition appellants call attention to sections 54, 57 and 61 of the negotiable instruments law, being sections 6093, 6096 and 6100, 2 Comp. Laws 1915, and claim that where it is shown that negotiable paper is. of fraudulent inception, the burden of proof is on the holder to establish his bona fides, citing Detroit Nat. Bank v. Union Trust Co., 145 Mich. 656; Thompson v. Village of Mecosta, 127 Mich. 528, and Mace v. Kennedy, 68 Mich. 389.

It is contended that the plaintiff did not sustain the burden of proof that it took the notes in good faith and for value. And counsel say:

“Carefully scrutinizing and examining the entire testimony of the plaintiff, both on direct and cross-examination, it is impossible to gather definite information as to just what the plaintiff gave up for these notes. What was the nature of the antecedent debt? Was the antecedent debt due at that time? Perhaps, if the nature of the antecedent debt were disclosed, it would be found that it was no debt at all, and therefore that the plaintiff gave no consideration for these notes. If, on the other hand, we proceed on the assumption that the payee, Watson, drew against the discount, are we not entitled to know the nature and amounts of his drafts, and the dates thereof, and in this connection it is very important to note that the alleged discount was entered on the books on the 28th day of February, eight days.before the notes were due. Did Watson exhaust this alleged discount when the plaintiff bank was informed of the protest of these notes, presumptively about nine or ten days later?”

It is the claim of the plaintiff that:

(1) The notes in suit were regularly executed by defendants and delivered to payee Watson, who negotiated and transferred them to the plaintiff for a valuable consideration before maturity.

(2) That there was nothing on the face of the notes to cast any suspicion on their character.

(3) That plaintiff received said notes in due course, and without knowledge of any infirmity in the title of the payee.

And the line, of cases beginning with Bostwick v. Dodge, 1 Doug. 413; Outhwite v. Porter, 13 Mich. 533, and ending with Drovers’ Nat. Bank v. Potvin, 116 Mich. 474; Armstrong v. Stearns, 156 Mich. 597, and Hakes v. Thayer, 165 Mich. 476, are cited.

The infirmity in the plaintiff’s case, as it appears to us, is that it does not appear from this record when this account to the credit of which these notes were placed was drawn upon or exhausted; whether before or after the maturity of the notes, or before or after notice of the fraud, or protest. We have searched in vain for such evidence.

In Drovers’ Nat. Bank v. Blue, 110 Mich. 31 (64 Am. St. Rep. 327), it was held that a bank which discounts a note for a customer, crediting the proceeds thereof to his account, is not a bona fide purchaser for value, unless such credit was drawn upon before the maturity of the note, and before notice of facts invalidating it in the hands of the payee. In that case Justice Hookee, speaking for this court, said:

“The testimony shows that no money or valuable thing passed at the time of the purchase. A mere credit was given by the bank for the note — a promise to pay, in other words; and there is nothing to show that this credit was ever drawn upon, or that the account of which it became a part was exhausted before the maturity of the note, or before notice of the fraud. This did not show the bank to be a purchaser for value, within the rule” — citing áuthorities.

The converse of the rule is stated in Fredonia Nat. Bank v. Tommei, 131 Mich. 674, where it was held that a bank which discounts a promissory note, crediting the proceeds to the indorser’s account, which becomes exhausted before the maturity of the note, is a purchaser for value, notwithstanding the indorser subsequently has deposits equal to the amount of the note.

Section 56 of the negotiable instruments law (2 Comp. Laws 1915, § 6095) provides that where the transferee receives notice of any infirmity in the instrument, or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount theretofore paid by him.

We are of the opinion that upon this record the court erred in holding that the plaintiff was a holder for value, as matter of law, and in striking out the testimony of the said defendants, and in directing a verdict and judgment for the plaintiff.

The judgment below is reversed and a new trial granted, with costs to appellants.

Bird, C. J., and Moore, Steere, Brooke, Fellows, and Kuhn, JJ., concurred.

The late Justice Ostrander took no part in this decision.