text:
    CITY OF TRAVERSE CITY v. CITIZENS’ TELEPHONE CO.
    1. Telegraphs and Telephones — Franchise—Property—Power to Sell.
    A telephone company may sell its property, franchise and privileges to any other duly organized telephone company.
    2. Same — Franchise, Successor Bound by — Contractual Relations.
    Where a telephone franchise runs to the company, its successors and assigns, and the assignee of the franchise is recognized, the contention that it is a stranger to the franchise because it is not in express language nominated in the instrument of transfer, is not tenable.

    3. Same — Municipal Corporations — Use op Streets.
    The right of a telephone company under its primary franchise from the State to use highways within the State for extension of its lines does not release it from contractual obligations arising from a secondary franchise granted by the municipality in which it is operated and to which it succeeds by assignment.
    4. Same.
    The right conferred by general law upon telephone companies to use highways of the State as avenues of communication for their methods of transmitting messages and to establish their lines along them for that purpose does not confer the unrestricted right to invade cities and villages and erect their poles or string their wires where and as they may find it most economical or convenient.
    5. Same — Free Phones por Use op City — Consideration.
    A provision in a franchise granted a telephone company by a city for the use by the city of telephones furnished by the company free of charge is valid and is based upon sufficient consideration.
    €. Same — Rates—Regulation by Franchise.
    Although a franchise granted a telephone company by a city regulating charges is permissive only, it remains valid ■between, tbe parties where no application has been made to the proper governmental authority for relief.

    7. Same — Rates—Penalty fob Delinquents.
    Where a telephone franchise ordinance provides that all rates shall be paid quarterly in advance and makes no other provision as to time and terms of payment and is silent as to delinquencies and penalties, it is not a violation of the ordinance to make a reasonable additional charge in case the rates are hot paid before a later specified date.

    8. Same — Reasonable Penalty — Question for Railroad Commission.
    Whether a rate charged by a telephone company is reasonable and warranted in any particular case is primarily a question of regulation for the railroad commission under its power of general supervisory control over telephone companies within the State.
    9. Same — Franchise—Rates—Public Interest.
    Where a franchise ordinance regulating the charges and service to be furnished by a telephone company does not describe any particular kind of telephone system or service which should be installed or furnished, such ordinance should be given the permissible interpretation which best conserves the public interest.
    10. Same — Increased- Rate — Application to Railroad Commission.
    Under Act No. 206, Pub. Acts 1913, § 10 (2 Comp Laws 1915, § 6698), forbidding under a penalty the increasing of telephone charges by telephone companies under any circumstances whatever, except upon application to the railroad commission and a finding by such commission that an increase is justified, the filing of a purported schedule of rates by a telephone company does not operate to release it from its contractual obligations with a city as to charges where the commission is not shown to have been advised of an increase of rates.

      11. Same — Rates—Regulation by Railroad Commission — Equity —Injunction.
    In view of the statute committing to the railroad commission governmental supervision, control and regulation of telephone companies doing business in the State and providing for review of its action by appeal to the courts, equity courts will only assume jurisdiction in the first instance to exercise authority in exceptional cases for special purposes, and will enforce an existing contract obligation, which, under existing conditions, the offending party may not repudiate.
    Appeal from Grand' Traverse; Mayne, J.
    Submitted October 4, 1916.
    (Docket No. 35.)
    Decided March 30, 1917.
    Bill by the city of Traverse City against the Citizens’ Telephone Company for an injunction restraining defendant from charging excessive rates. From a decree for plaintiff, defendant appeals.
    Modified and affirmed.

      Travis, Merrick & Warner (John W. Patchin, of counsel), for appellant.

      George H. Cross, City Attorney, for appellee.

       On right to transfer or mortgage privilege of using streets for telegraph or telephone, or other quasi-public purpose, see note in 47 L. R. A. 87.

      The question of power of legislature to fix tolls, rates or prices particularly as to telephones and telegraphs, is discussed in a note in 33 L. R. A. 181.

      On right of public service corporation to exact charge in addition to maximum rental fixed by public for delay in rental, see note in 31 L. R. A. (N. S.) 329; 43 L. R. A. (N. S.) 63.

   Steere, J.

Plaintiff was incorporated as a city in 1895 by local act (Act No. 424) granting it a special charter, which, in relation to its streets, gave its council power to “regulate the use of the public highways, streets, avenues and alleys of the city, subject to the right of travel therein, * * * and to regulate, prohibit or license the use of telegraph, telephone, electric light and power poles or wires, over or under the streets.”

In 1898 the Northern Telephone Company was incorporated under the general telephone law and made application to the common council of Traverse City for a franchise to use its streets for poles, wires, etc., and to carry on a regular telephone business within the city, which was granted by an ordinance dated September 19, 1898, with a provision that it should be null and void, unless accepted within 30 days. On October 5, 1898, the Northern Telephone Company accepted the same in writing, and at once commenced the construction of its telephone system, which was put in operation with all convenient speed, and thereafter operated by said company in harmony with the provisions of s-aid ordinance until about August 1, 1900, when it sold its assets and business to defendant, the Citizens’ Telephone Company, and thereafter ceased to figure in the transactions involved here.

The franchise of September 19, 1898, which had been given to the Northern Telephone Company, “its successors and assigns,” and complied with by it while owning and operating the system, granted it (with specifications not material here) the right to use the streets, avenues, and alleys of the city for the construction and operation of a telephone system, and to place conduits in any of the streets, alleys, etc., if desired in lieu of pole lines; required it to furnish to the city free of charge seven telephones and for the school buildings in the city not to exceed six telephones on certain stated terms, and further provided:

“Sec. 4. Said grantee, its successors and assigns, may charge the following rates for the use of its telephones within the city limits when the subscribers shall enter into a written contract for the use of a telephone for a business place for a term of five years, twenty-four dollars ($24.00) per annum. When the subscriber shall enter into a written contract for the use of a telephone for a place used exclusively for a dwelling, for a term of five years, twelve dollars ($12.00) per annum.' For a term less than five years an additional charge of two dollars ($2.00) per year to these rates may be made. All rates to be paid quarterly in advance. Said grantee shall not, however, be required to put in a telephone for less than the rental of one-quarter of a year.”

Defendant was incorporated under the general State telephone law in September, 1898, with its main offices at Grand Rapids, Mich., and on July 24, 1900, bought out the Northern Telephone Company, taking over its property and business, including its exchange, toll lines, and contracts with subscribers. By the terms of their written contract of that date, providing for transfer of possession on August 1st, the Northern Company sold to defendant for a stated consideration its “telephone property in Traverse City,” and agreed to—

“execute or cause to be executed proper bills of sale satisfactory to first party, covering, all said property, being the Independent Telephone Exchanges at Traverse City, Suttons Bay, together with farmers.’ and toll lines, connecting therewith from Acme west to Traverse City as mentioned above, and also , lines in the county of Leelanau, together with all exchanges and toll line material and apparatus on hand, including poles, cross-arms, batteries,” etc.

On September 11, 1900, it executed to defendant a bill of sale of—

“all telephone toll lines, exchanges, telephone poles, wire and apparatus used or to be used in connection therewith, including all telephone property in the counties of Leelanau and Grand Traverse in said State of Michigan, belonging to the Northern Telephone Company, and now in its possession or the possession of said Citizens’ Telephone Company in said counties.”

On taking possession of the property and assuming management of the system defendant continued the business as previously conducted, furnishing free telephones to the city and service to its. patrons at the same rates as before in harmony with the provisions of the existing franchise. As the business developed it extended its lines to new subscribers and exercised the right to place conduits in the streets and alleys. Changes and improvements were made in its system from time to time as manner of service changed and advanced in that means of communication. Its affairs were apparently conducted in a manner satisfactory to the city authorities and without shown complaints until about the time this bill was filed. Just when that was is not stated in the record as required by rule, but it is shown that “on reading and filing the bill of complaint in this cause,” a preliminary injunctive order, without date, was granted to plaintiff restraining defendant from collecting more than $12 per year rental for residence phones, and $24 per year for office or business phones, payable quarterly in advance, prohibiting it from enforcing a money penalty of 50 cents per quarter on residence and 75 cents on business phones for delinquency in payments when due, from disconnecting or removing phones for not paying the excess charges referred to, and from installing or leasing any “party line phone” until further order of the court. The bill of complaint was sworn to by the mayor of Traverse City on January 22, 1914. A lengthy answer without date or time of filing appears in the record and a replication dated April 13, 1914. An undated motion to set aside the restraining order, accompanied by an affidavit sworn to on March 18, 1914, was evidently presented and argued on or before July 30, 1914, at which time the court rendered a written opinion expressing the view1 that concurrent, if not exclusive, jurisdiction over the issues involved is given the Michigan railroad commission by Act No. 138, Pub. Acts 1911, and so far as possible all parties should be left to their statutory-remedy there provided; for which reason the injunction was “dissolved as to all new business,” but retained in force “so far as is necessary to protect the parties now holding contracts with said company,” continuing in effect rates' provided by the ordinance, and prohibiting collection or enforcement of penalties for deferred payments until further order of the court.

The case was heard on pleadings and proofs taken in open court, beginning March 18, 1915, and on February 4, 1916, a decree was rendered in .plaintiff’s favor granting the injunctive relief asked, with a concluding provision that nothing contained in the decree should be construed as preventing either party from applying to, or taking, other proper pleadings under the laws of the State before the Michigan railroad commission.

Without detailing the lengthy proceedings of the respective parties, it may be stated in brief that the scheme and purpose of plaintiff’s bill is to enjoin defendant from exacting rates in excess of those nominated in the franchise or enforcing a penalty against delinquent subscribers, and to compel it to furnish at the ordinance rates “individual lines,” as distinguished from “party lines,” to citizens desiring them. The essence of defendant’s answer is that it only bought the physical assets of its predecessor, is not á party to or bound by the franchise, but under the general laws of the State had and has the right to use the streets and alleys of the city under reasonable regulations promulgated by the common council as to the manner of such use, denies that its rates or methods of service are in fact in violation of the ordinance, points out that its alleged excess charges are only for extra, or special, service or appliances, claims the penalty imposed for default in payment is but a reasonable requirement, permissible and. essential to enforce prompt payment, and that the whole matter of rates and method of conducting its telephone business is for the State railroad commission, to which general control of all telephone lines within the State has been relegated by the legislature under Act No. 138, Pub. Acts 1911, and Act No. 206, Pub. Acts 1913 (2 Comp. Laws 1915, § 6689 et seq.).

While Act No. 138 is repealed by Act No. 206, a comparison of the two laws discloses that the latter serves, in effect, to re-enact and strengthen the former, much of it being verbatim, with added provisions enlarging the scope of the law and authority of the railroad commission. Section 19 of the act of 1911 required, as does section 21 of the law of 1913, that every company operating a telephone line within the State should file with the railroad commission a schedule of its rates, charges, and tolls, which must also be kept on file and accessible to the public in its principal place of business and at its exchange or toll station. On February 7, 1913, defendant filed with the railroad commission the following schedule of its rates in Traverse City:

Yearly
“Business: Rate.
Individual line — less than 5-year contract.......$26 00
Individual line — 5-year contract................ 24 00
Party line — selective .......................... 20 00
Extension telephone ........................... 8 00
Directory insertion — extra user combined...... 14 00
“Residence:
Party line — wall—less than 5-year contract...... 14 00
Party line — wall—5-year contract............... 12 00
Desk set in residence in place of wall telephone — extra ................................... 4 00'
“(Installed only on individual line).
Extension telephone — wall ..................... 6 00
Extension telephone — desk ..................... 8 00
“(Desk extension installed only on'individual line.)”

To this is added penalty charges for default in payment on or before the 25th day of the first month of the quarter, ranging from 25 to 75 cents, and a statement of charges on rural lines not material here. This schedule was not, as a matter of fact, the rates uniformly charged to all subscribers for like service. The same rates to all patrons which were in force when defendant took over the system were continued by it for some four or five years, during which time various improvements were installed, including a change from the common return to metallic circuits, after which new subscribers were charged $14 and $26, respectively, for residence and business phones, while old subscribers were continued at the former rates. The penalties for delinquency had been in force for several years prior to 1913. About January 1, 1914, defendant sent notice to its subscribers that its standard rates for residence phones upon party lines was $14 per year, with the explanation that:

“For the purpose of eliminating discriminations that now exist in connection with our residence service it will be neccessary for us to give you this kind of service, and charge you the regular rate for same, starting January 1, 1914.”

The fact that in its effort to escape the result of admitted discrimination in rates defendant was moved to choose that horn of the dilemma which revised its tariff upwards appears to have been the awakening grievance which actuated plaintiff to file this bill, and its standing in court as to the matters of which it complains must necessarily be based on contractual obligations arising out of the franchise granted to the Northern Company and assumed by defendant under its purchase of the Traverse City telephone system from the former. This franchise ran to the Northern Telephone Company, “its successors and assigns.” Of its right to sell its property, franchise, and privileges to any other telephone company organized under like laws, there can be no question. Michigan Telephone Co. v. City of St. Joseph, 121 Mich. 502 (80 N. W. 383, 47 L. R. A. 87, 80 Am. St. Rep. 520); Home Telephone Co. v. Railroad Commission, 174 Mich. 219 (140 N. W. 496). Defendant is the successor and assign of the Northern Telephone Company and the contention, that it is a stranger to the franchise because it was not in express, language nominated in the instrument of transfer from the Northern Company is not tenable under the undisputed acts, of recognition and other facts, shown. Mahan v. Telephone Co., 132 Mich. 242 (93 N. W. 629); City of Wichita v. Trust Co., 132 Fed. 641. Defendant’s, right under its primary franchise from the State to use highways within the State for extension of its lines does, not relieve it from contractual obligations arising from a secondary franchise granted by the municipality in which it is operated. Its obligations under that, franchise are the same as were its grantors. What those obligations are is the more important question.

Defendant’s, contention that the franchise, though applied for and accepted by the grantee, did not constitute a binding contract because it conferred no benefits, or additional rights in the use of plaintiff’s streets beyond that given by the State law, and was. therefore without consideration, is not well founded. The right conferred by the general law upon telephone companies to use highways of the State as avenues, of communication for their methods of transmitting messages and to establish their lines along them for that purpose does not confer the unrestricted right to invade cities and villages and erect their poles or string their wires where and as they may find it most economical or convenient. Michigan Telephone Co. v. City of Benton Harbor, 121 Mich. 512 (80 N. W. 386, 47 L. R. A. 104); Village of Jonesville v. Telephone Co., 155 Mich. 86 (118 N. W. 736, 130 Am. St. Rep. 562, 16 Am. & Eng. Ann. Cas. 439). While the municipalities. may not annul the general statute by arbitrarily refusing to permit the use of their streets to telephone companies, they may have under their charters, as in the instant case, controlling authority within reasonable limits, in the exercise of their police power, to direct upon which streets and in what manner the lines shall be installed, and may prohibit entirely the erection of poles on streets and in places which will injure or incommode the public. In Jonesville v. Telephone Co., supra, it is said:

“The mere fact that the route designated by the municipality is less convenient or involves on the part of the telephone company a larger expenditure is of no consequence so long as the company is not thereby prevented from reaching all those it desires to serve or who desire service from it.”

At the inception of its enterprise it was manifestly to the interest of the Northern Telephone Company to secure from the city an agreement defining how and where it might install its lines along the streets, both as to restrictions which would be imposed upon it and privileges granted in that particular. Its petition to that effect was favorably acted upon, and a 30-year franchise granted directly to it embodying satisfactory terms, which it accepted in writing. Definite authority was given without restriction of routes to either use the highways of the city for its pole lines, or, at its option, to place conduits in any of the streets, lanes, or alleys of the city in lieu of pole lines.

The agreement touching telephones free of charge for city use also involved recognized elements of a valid contract based upon a consideration to both parties. Of such an agreement it was said in City of Superior v. Telephone Co., 141 Wis. 363 (122 N. W. 1023):

“It is obvious that it was important for the telephone company to be able to afford its general customers facilities for communicating by telephone with the public offices. That opportunity could not operate otherwise than to render the service it offered in general more valuable than it would otherwise be and so attract customers and greatly extend its sphere of operations. That which it sought to obtain was then a legitimate basis for a contract.”

While plaintiff was not given by its charter express power to regulate rates, it had under its charter implied administrative authority to make permissive contracts as to them. A franchise of this nature, involving beneficial considerations to both municipality and the grantee, then accepted and operated under, becomes a binding contract, which neither party to it can disregard. 28 Cyc. p. 880.

Under the situation presented here, where no paramount governmental authority has acted or been appealed to, the argued question of whether this contract as to rates is permissive only and subordinate to reserved legislative authority to control and regulate rates or is inviolable under constitutional limitations is unimportant. Accepting it as permissive only, it remains valid between the parties until, such time as the reserved State control is asserted and interposed against it. The statute conferring controlling powers upon the railroad commission does not of itself abrogate the contract. City of Manitowoc v. Traction Co., 145 Wis. 13 (129 N. W. 925, 140 Am. St. Rep. 1056); Charleston Consolidated Railway, etc., Co. v. City Council, 92 S. C. 127 (75 S. E. 390). Here the State authority has not been exercised or appealed to. Neither party has made application to the railroad commission for relief.

Plaintiff is not entitled to injunctive relief against the penalty charges complained of. The ordinance provides for “all rates to be paid quarterly in advance.” It makes no other provision as to time and terms of payment, and is silent as to delinquencies and penalties. In such case it is not a violation of the ordinance, where rentals are payable in advance, to make a reasonable additional charge in case they are not paid before a later specified date. State, ex rel. MacMahon, v. Telephone Co., 59 Wash. 156 (109 Pac. 366, 31 L. R. A. [N. S.] 329). Whether such charge is reasonable and warranted in any particular case is primarily a question of regulation for the railroad commission under its power of general supervisory control over telephone companies within the State. Neither in this case is it shown that there are or will be any delinquents who might be wronged by the extra charge or that any primary injury has been suffered by any one. No case demanding equity cognizance and injunctive relief is made out in that particular. City of Owosso v. Telephone Co., 185 Mich. 349 (151 N. W. 1029).

Against plaintiff’s contention that citizens desiring telephones are entitled to individual line service at the ordinance rates, because a standard service in common use, and defendant is under contractual obligations to furnish the same when requested, it is urged that the ordinance did not specify the kind of service to be furnished, and at the time of its adoption the service in vogue was the now obsolete common return system by which many subscribers were placed on the same return wire, each subject to interference from others on the same return, and the selective party line service now in use is an improvement over and much superior to that-system; that the cost of individual line service with two copper wires running from the central exchange to each subscriber is prohibitive, and that quality of service, not used or known when the alleged contract was made, cannot be furnished at the rate specified without loss in the business and ultimate bankruptcy; and the schedule of rates filed by defendant with the railroad commission in compliance with statutory requirements fixes the only rates that may be lawfully charged, unless and until changed by the commission.

It is true that in its descriptive features the ordiance did not, for the protection of either party, prescribe any particular kind of telephone system or service which, should be installed or furnished. It did recognize and prescribe a different rate for “the use of a telephone for a business place” and for “a place used exclusively for a dwelling,” and between a five-year contract and a shorter period. The accepted ordinance ran for 30 years. The contract was then entirely executory, and presumptively the contracting parties contemplated the installation and maintenance of a system during that period reasonably adequate to furnish citizens of Traverse City, at the specified rates, efficient telephone service of the nature and quality generally in vogue while the contract was in force.

It is common knowledge, and was shown in this case, that since adoption of the ordinance many radical and beneficial improvements have been made by which telephone service has been rendered more practical, satisfactory, and efficient. Defendant showed that it had kept its system and service up with the progress of improvements as they developed and were generally adopted. It is said by its counsel, and is unquestioned, that no court would think of ordering a return to the old, long since discarded common return wire service generally in use when the ordinance was adopted, which itself was a radical improvement over the then obsolete ground return service which preceded it. To overcome defects in its system and increase demands for telephones by keeping up with the growing efficiency of the" service was clearly a business necessity and to the advantage of defendant, as well as a benefit to patrons whom it was required to serve impartially in its capacity as a public corporation. It may reasonably be assumed that this course was in contemplation of the contracting parties. Though questioned by plaintiff, it was fairly shown by defendant’s evidence that its present selective party line service is superior to the old common return service; but in construing the contract that cannot be taken as the test. It is the settled rule of construction that when a public utility contract of this nature contains scant words or provisions capable of varied meaning in the connection used, they should be given the permissible interpretation which best conserves the public interest.

The question of what kind of telephone service could be demanded under an ordinance in that respect as meager in details as this arose in the case of Chas. Simons’ Sons & Co. v. Telephone & Telegraph Co., 99 Md. 141 (57 Atl. 193, 63 L. R. A. 727). The court there said:

“Now, the ordinance here which constitutes the contract between the city of Baltimore and the appellee, in its fourth section, where provision is made for furnishing to the citizens telephone service at the rate of $48 for business places and $36 per annum for dwellings, uses the word ‘telephone’ generally, and does not specify any particular description of service to be furnished. The most natural and reasonable construction to be given, or meaning to be imputed, to the word ‘telephone’ as here used is the telephone with all improvements, equipments, and appliances essential in its operation to make it most effective in use.”

Of an Indiana statute, enacted in 1885, prohibiting individuals and companies operating telephone lines in that State from charging “as rental for the use of such telephones a sum exceeding $3 per month,” it is: said to have been the evident intention of the legislature—

“that where a telephone company was doing a general telephone business in this State, any person within the local limits of its business in a town or city should have the right to demand and receive a telephone and telephonic connections, facilities and service, the best in use by such company, and should only be liable to be charged and to pay $3 per month therefor.” (Central Union Telephone Co. v. State, 118 Ind. 194, 208).

In Chicago Telephone Co. v. Manufacturers’ Ass’n, 106 Ill. App. 54, involving an ordinance, granted in 1889, when the grounded line service was in vogue, providing that the grantee “shall not increase to its present or future subscribers the rates for telephone service now established,” the question arose as to whether the language used prevented the telephone company from “increasing its rates for telephone service generally during the term of the ordinance, or increasing its rates for that kind of telephone service which it furnislied at the time of the acceptance of the ordinance.” Of this the court said in part:

“The ordinance does not undertake to describe what the telephone service to be furnished by the defendant should be nor what appliances or apparatus should be furnished therefor. * * * We think that the reasonable construction of the language in question is, that it was intended thereby that the defendant should not, during the term of the ordinance, increase its rates, which it was, when the ordinance was passed, charging for telephone service. And by telephone service there was intended not only the particular service then being rendered, but as well any improvement of the telephone service which the company might thereafter adopt and put in use, whatever might be the appliances and instruments used to improve and make it more efficient and satisfactory than the service in use January 10, 1889. If, as is contended by the learned counsel for appellant, the rates fixed by the ordinance were intended to apply only to the telephone service then established, and in use when the ordinance was passed, it would follow that any improvement in the art which made necessary the addition of another wire, or any different instrument or appliance to use such improvement, if the company adopted and used such improvement, would allow the company, when it furnished a patron such instrument or appliance, to charge a rate without limitation. Such a construction, as it seems to us, would be unreasonable, and could not have been intended by the language used.”

That in February, 1913, defendant filed a purported schedule of its rates in ostensible compliance with the requirements of the act of 1911, did not operate to release it from these contractual obligations. The act which had long been in effect when the schedule was filed required it to file, not a proposed schedule, but a “schedule of rates, charges, and tolls made, charged, and collected.” At that time, for years before and continuing thereafter until this bill was filed, old. subscribers were charged one price and new subscribers another for the same kind of service. The circumstance that its charges were discriminatory, and in avoidance of such illegality it filed a schedule increasing in part the rates it was actually charging, of which the commission is not shown to have been advised and upon which it took no action, did not serve to relieve the situation or establish legal rates. It was an attempt to increase some of its rates, or charges, without authority from the commission. Section 10 of the act of 1913 forbids it, under a penalty for so doing, from increasing any of its charges “under any circumstances whatever, except upon application to the commission, and a finding by such commission that such increase is justified.”

The fundamental, affirmative, and negative principle of general application under which equity is impelled to take jurisdiction in any of this class of controversies is thus stated in 5 Pomeroy’s Equity Jurisprudence, § 263:

“Wherever a right exists or is created, by a contract, by the ownership of property or otherwise, cognizable by law, a violation of that right will be prohibited, unless there are other considerations of policy or expediency which forbid a resort to this, prohibitive remedy.”

This record presents a case where, in the absence of any appeal to or any action taken by the railroad commission, complaint is made of and injunctive relief asked against defendant for violation of its contract obligations. As this case now stands we „are impelled to conclude that such obligations, with continuing violation of them, are disclosed, under circumstances which bring the contention within the rule established in City of Monroe v. Railway, 187 Mich. 364 (153 N. W. 669), where it was strenuously contended by defendant that relator could only resort to the railroad commission for relief, and this court said:

“On the contrary, it seems wholly reasonable that it [defendant] should perform its contract obligations until relieved therefrom by competent authority.”

In view of the statute committing • to the railroad commission governmental supervision, control, and regulation of telephone companies doing business in the State, and providing for review of its action by appeal to the courts, equity courts will only assume jurisdiction in the first instance to exercise such authority in exceptional cases for special purposes, and, while various other matters are mooted in the record, this opinion is directed and limited to the one question of enforcing existing contract obligations which-under existing conditions the offending party may not repudiate.

The learned circuit judge rightfully took pains to make plain in his decree that it went no further than as above indicated, and provided that it should not be construed as prohibiting either party from making application to or taking such other proceedings before the railroad commission as was proper, and it might be advised.

As herein indicated, the decree will be modified to eliminate restraint from imposing and collecting penalty charges for delinquency in payment, and otherwise stand affirmed, with costs to plaintiff.

Kuhn, C. J., and Stone, Ostrander, Bird, Moore, and Brooke, JJ., concurred. Person, J., did not sit.


source: Caselaw Access Project

author: Steere, J.

license: Public Domain

text:
    CAVANAUGH v. MICHIGAN CENTRAL RAILROAD CO.
    Judgment — Res Judicata — Pleading—New Trial.
    In an action against a railroad company for damages for personal injuries sustained in a crossing accident due to plaintiff’s horse becoming frightened at the blowing of the whistle of defendant’s train, and stopping on the track and refusing to go ahead until too late, the decision of the Supreme Court, in a former action upon the identical facts, that the blowing of the whistle was not a negligent act is res adjudicata, although the blowing of the whistle was not specifically charged as negligence in the first action, but the negligence relied upon was the excessive speed of the train operating concurrently with the sounding of the whistle which frightened the horse, since a determination that the blowing of the whistle was an innocent act was essential to sustain the legal conclusion arrived at and was consequently necessarily involved in the case, whether pleaded or not.
    Error to Kent; Brown, J.
    Submitted October 23, 1916.
    (Docket No. 21.)
    Decided March 30, 1917.
    Cáse by Bert Cavanaugh against the Michigan Central Railroad Company for personal injuries. Judgment for defendant on a directed verdict. Plaintiff brings error.
    Affirmed.

      Lombard, Hext & Washburn, for appellant.

      Wilson & Johnson (Stuart E. Knappen, of counsel), for appellee..
   Steere, J.

A review and reversal of this case on a former trial is found reported in 175 Mich. 156 (141 N. W. 539), where a statement of its nature and essential facts renders it unnecessary to detail them at length here. In outline, plaintiff sustained injuries on the morning of April 24, 1910, in a highway crossing accident on defendant’s tracks in the suburb of! the city of Kalamazoo. He was riding alone in an inclosed box-topped milk wagon drawn by a single horse, driving southwesterly along a street which intersected defendant’s tracks somewhat diagonally, and, having satisfied himself by looking and listening as he approached the crossing that it was safe to proceed, he drove on, but when his horse was just stepping upon the first eastbound track a train appeared coming from the west around a curve. Thinking he had ample time to get across, he attempted to proceed, and would have crossed in safety had not his horse become frightened at the danger alarm the engineer sounded as the train approached, and stopped upon the track, dancing up and down and refusing to go ahead until just as the train reached them, when it sprang forward, too late to avoid the engine striking the rear wheel of plaintiffs milk wagon, demolishing it, and seriously injuring him.

On the first trial the danger signals blown by the engineer were not specifically charged as negligence, the negligence principally relied on apparently being the excessive speed of the train operated concurrently with sounding the whistle which frightened the horse, and the case was submitted to the jury upon that theory, the trial court charging:

“The act of blowing the whistle was not negligence, as I have said, and if that act was the sole cause of the injury, the defendant would not be to blame, and plaintiff cannot recover. If, however, the defendant was guilty of negligence in running its train at a higher rate of speed than 10 miles an hour at the time of the accident, and that fact, with the other fact of blowing the whistle, together produced the injury, the defendant would be liable for any such acts, and the running of the train at a high rate of speed would be the proximate cause.”

Plaintiff had testified that he would have got across the track safely were it not for the terrific blowing of the whistle by the engineer, which so frightened his horse that it stopped and refused to go ahead, thus preventing him from getting over the track and out of danger in time. . Referring to this, defendant requested the court to charge that:

“According to plaintiff’s testimony, the blowing of the whistle was therefore the proximate cause of the injury. The blowing of the whistle was not a negligent act, and therefore the plaintiff cannot recover, and your verdict must be no cause of action.”

The request was refused, although the court told the jury that the act of blowing the whistle was not negligence. If it was not negligence, the frightening of the horse was not chargeable to a wrongful .act, and this court said in the majority opinion:

“If plaintiff’s horse had been frightened by a newspaper blowing about its head or feet, or if the delay in passing over the track had been occasioned by any other cause not chargeable to a wrongful act of defendant, the principle involved would be the same. * * * He [plaintiff] did not cross it in safety, because, having passed upon the track into a place of danger, his' horse refused to proceed. It was the frightened horse and its performance, and not the speed of the train, which was the proximate cause of the plaintiff’s injury.”

In their application made to this court for a rehearing upon that decision, which was denied, plaintiff’s counsel said in part: •

“The defendant was responsible for the fright of the horse. The fright of the horse was produced solely by the conduct of defendant. The defendant was committing a negligent act at the time (excessive speed of train), which continued and concurred in producing the injury. Without the negligent act the injury would not have occurred. The defendant being the author of both the innocent and the negligent act, the two concurring, must be held responsible for the result.”

And they now say:

“It must be borne in mind that we, too, were bound, in view of the pleadings, to consider for the purposes of that trial, and the judgment there appealed from, that the act of blowing the whistle was not negligence.”

It is claimed by defendant that admissions of this nature in connection with the position taken by plaintiff’s counsel upon the first trial estopped him from claiming upon the second trial that blowing the whistle was. a negligent act. On the first trial plaintiff had not counted upon blowing the whistle as negligence, and assumed for the purpose of argument that it was not; but we are unable to find by an examination of the >record of that trial any direct admission of plaintiff's counsel that it was innocent, and it is said in their brief upon that appeal:

“While the plaintiff has not alleged in his declaration that the blowing of the whistle in the manner in which it was blown was a negligent act, we cannot and do not concede that it was not a negligent act in view of the circumstances and conditions existing at the time.”

Before the case was again brought to trial, plaintiff was allowed to amend his declaration by adding to the charges of negligence previously made an allegation of duty to refrain from blowing the whistle in such manner as to frighten the horse, causing it to stop while on the track, and a violation of that duty.

Upon the second trial, now here for review, no testimony was introduced. At conclusion of the opening statement of plaintiff’s counsel to the jury, defendant’s counsel moved for a directed verdict on the ground that, conceding all the stated facts to be true and proven, plaintiff would not be entitled to recover because estopped from setting up the blowing of the whistle as an act of negligence, it being inconsistent with the position taken on the first trial; that the statute of limitations had run against the action as then pleaded, and by the prior decision of this court, in the same case, blowing the whistle in the manner and under the circumstances shown is not in law a negligent act, for which reason that question is res adjudicaba.

In answer to an inquiry by the court whether it was expected to prove upon the second trial precisely the same facts as appeared upon the first, plaintiff’s counsel said:

“In this case there is not a change of fact anywhere. This same thing (referring to blowing the •whistle), and the same proofs will be in this trial that were in the other. We, simply through misapprehension of the law applicable to it, failing to charge the act as a negligent act. We proved the act. It is the same thing, with the only exception we charge it now as negligence.”

After listening to the arguments of counsel upon said motion, the court reviewed at some length the questions raised, expressing views thereon with reasons therefor, and directed a verdict in defendant’s favor, for reasons assigned in granting the motion, saying to the jury in part:

“It will not be necessary for me to state to you in detail the reasons why under the law the motion made by the defendant in my judgment is correct, but one point that they raise is that the former trial in this case, so far as this case is concerned, is res adjudicaba, * * * and that the law -as announced by the Supreme Court as the law in this case finally disposes of the case.”

It is contended for plaintiff that the former opinion “nowhere contains any assertion that the blowing of the whistle was not negligent”; that it had not then been declared upon as such or put in issue by the pleadings, and was not res adjudicaba, because only matters in issue become such by rendition of judgment.

The facts in this case are conceded to be identical with those appearing in the former record. While not there declared upon, all the facts as to blowing the whistle were before the court, with the assertion in counsel’s brief, “We cannot and do not concede that it was not a negligent act.” The court was not acting under admissions of counsel for the sake of argument or dealing with a hypothetical case, but with the facts disclosed by the record, in finding that the fright and performance of the horse, attributable to blowing the whistle, was occasioned by a cause not chargeable to a wrongful act of defendant. A determination that it was an innocent act was. essential to sustain the legal conclusion arrived at. That question was necessarily involved in the case, whether pleaded or not. After full consideration and discus-, sion, both when first presented and on application for a rehearing, it was determined adversely to plaintiff by a majority opinion, which the trial court correctly construed. In this view of the case the other questions raised become unimportant.

The judgment is affirmed.

Kuhn, C. J., and Stone, Ostrander, Bird, Moore, and Brooke, JJ., concurred. Person, J., did not sit.


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    DAYTON v. IMPERIAL SALES & PARTS CO.
    1. Trade Names — Words and Phrases — Names.
    The word “Imperial,” considered hy itself, is a generic word, adjective in its nature, most commonly used as signifying imposing size, appearance or excellence, and primarily free to the use of all for whatever it may imply.
    2. Same — Names — Imitation of Name — Unfair Competition — Good Faith — Injunction.
    While any persons may legally engage in the business of repairing and supplying new parts of automobiles and may specialize in a particular make or model and so advertise, they may not, under an imitative, assumed name, benefit themselves to the injury of a rival to whom the imitated name belongs, and it is unnecessary to wait until a name that tends to breed confusion and mislead the public and likely to be used to that end is actually used in the business before seeking injunctive relief, and it is immaterial that the name is assumed in good faith.
    3. Same — Exclusive Right to Use of Name.
    Even though neither a copartnership organized for the purpose of engaging in the sale of automobile parts, after purchase of the right to use the words of the trade-name from an insolvent corporation engaged in the sale of automobile parts, nor a corporation formed to engage in a similar business, can acquire the exclusive use to the words, the copartnership purchasing the right to use such words could, by first adopting and appropriating as its trade-name a special or distinctive arrangement and combination of those words, acquire an exclusive right to the name so formulated.
    4. Same — Imitation of Name — Unfair Competition — Injunction.
    Where one corporation unlawfully imitates the trade-name of another corporation, the use of such imitating name should be enjoined, instead of allowing the use of the offending name with a disclaimer.
    Appeal from Jáckson; Wiest, J., presiding.
    Submitted October 12, 1916.
    (Docket No. 143.)
    Decided March 30, 1917.

      Bill by Edwin J. Dayton and Winfield S. Grant, copartners as Imperial Automobile Parts Company, and another, against the Imperial Sales & Parts Company and others for an injunction restraining defendants from using the name “Imperial” in carrying on their business, and other relief. From a decree for defendants, plaintiffs appeal.
    Modified and affirmed.

      Harry C. Howard, for appellants.

      Wilson & Cobb, for appellees.
   Steere, J.

This injunction bill was filed- by the Imperial Automobile Parts Company of Jackson, Mich, “(and the Standard Motor Parts Company joined as coplaintiffs herein),” to restrain the Imperial Sales & Parts Company, of Jackson, from resorting to unfair competition in trade by soliciting, advertising, and doing business in Imperial automobile repair parts under its present name, which is charged to have been assumed in close imitation of that of the Jackson plaintiff with a design to deceive and mislead prospective customers of the latter to patronize defendants’ company unwittingly.

The Imperial Automobile Company, a corporation formerly established in the city of Jackson, Mich., became financially embarrassed after manufacturing several thousand of its automobiles and went out of business. Its affairs were wound up at the instance of creditors and its assets disposed of. When in active operation it ran in connection with, and auxiliary to, its manufacturing business a repair parts department, or business, equipped with appliances and material adapted to such use. In the process of liquidation this was separately advertised for sale on October 2, 1915, as the “Repair Parts Business” of the Imperial Automobile Company. On October 15, 1915, the Standard Motor Parts Company of Detroit, Mich., bought the same for $38,000. The purchase included all machinery of the Imperial Automobile Company not then under lease, office furniture, material, parts, etc., too numerous to mention — included the name “Imperial, and all mail rights connected with it,” but excluded “car manufacturing rights.” When the purchase was made, the Imperial Automobile Company, or those in charge of its assets, still continued the repair parts business,, although the manufacture of Imperial automobiles was a thing of the past.

Plaintiffs Dayton and Grant, who were interested in the Detroit parts company, almost immediately took over the Jackson purchase under some arrangement not disclosed in .detail, and, thus equipped, proceeded to organize a copartnership and run a repair parts business at the Imperial Automobile Company’s former plant in Jackson under the name “Imperial Automobile Parts Company,” properly qualifying to do business under such assumed name by filing the requisite record of organization' with the clerk of Jackson county, showing names and addresses of the partners, etc. Letters and trade circulars were sent out by them under that name as early as November 1, 1915.

Defendants Redfield and James Beadle were old employees of the Imperial Automobile Company and were employed for a time by plaintiffs — Beadle about six weeks and Redfield near two months. In the latter part of December, while yet in plaintiff’s employ, they planned and arranged to organize a corporation for the purpose of engaging in the same line of business under the name “Imperial Sales & Parts Company.” Defendant Haehnle, a brewer of Jackson who furnished the financial backing, testified that he first proposed the project and subsequently indorsed the note of Karlene Beadle for her stock; her name being put in the articles of incorporation at suggestion of James Beadle, her father. The incorporators of record consisted of defendants Haehnle, Redfield, and Karlene Beadle. James Beadle took no stock in his own name, but was made general manager. Just when they perfected the organization is not clear, but Redfield testified:

“I think the Imperial Sales & Parts Company did the first business on New Year’s Day.”

Redfield was the bookkeeper of the Imperial automobile company and continued as such during its period of liquidation, and while working for plaintiffs was also in his former employment in that capacity, each company paying one-half of his salary. While also in plaintiffs’ employ, he had access to their books and records. Beadle had been purchasing agent for the Imperial Automobile Company, which made an assembled car. While in plaintiffs’ employ he got up schedules and lists for them of the different material and parts purchased or manufactured by the old company for use in its different models and of the names of persons he knew were owners of cars, giving directions to girls doing the clerical work as to how to get the names from the books and put them on cards. It is charged by plaintiffs that these two defendants took lists and obtained special information as to customers of plaintiffs and persons owning Imperial automobiles, by reason of their employment. Those defendants absolutely deny this, asserting they took away no memoranda and availed themselves of no information derived from their employment with plaintiffs.

Defendant De Lamater, who was president of the Imperial Automobile Company for some time and officially connected with a bank in Jackson, was charged with being interested in the defendant Imperial Sales & Parts Company and conspiring to furnish his co-defendants with information relative to plaintiffs’ business. This he denied under oath, asserting he had no interest in the defendant company, and explained clearly the scant circumstances from which the charge was claimed to be inferable. We agree with the trial court that plaintiffs wholly failed in establishing any legal culpability as to him.

Plaintiffs filed their bill on January 18, 1916, obtaining an order to show cause why an interlocutory injunction should not issue, and restraining defend-, ants, interim, from using the name “Imperial,” advertising or in any manner' conducting the business under the name complained of. Defendants filed an answer on January 24, 1916, at the same time moving that the restraining order be vacated, which motion was granted, as it appeared to the court from defendants’ answer that they proposed to carry on business in such a manner as not to mislead or confuse, and to state in their advertising matter that they were in no way connected with the Imperial Automobile Company or with plaintiffs.

Defendants testified at the hearing, and there was no proof to the contrary, that prior to January 18th they had done no general business, printed no stationery, nor circulated any advertising literature, and showed that thereafter they printed upon their corporate stationery, in the upper left-hand corner, in red, the statement, “This company is in no way connected with the Imperial Automobile Parts Company,” and upon the only circular letter which they sent out:

“Let us mention one fact: That we are not connected in any way with the Imperial Automobile Company, which has discontinued the manufacture of automobiles, the Standard Motor Parts Company, the Imperial Automobile Parts Company or any other person, firm or corporation.”

It is not unreasonable to surmise that the injunction suit quickened them to adopt this disclaimer, and we do not disagree with the expressed view of the trial court that:

“It is not necessary to find that defendants in selecting a name for the corporation so similar to that of plaintiffs' company deliberately planned on confusion of names as an asset, although the evidence leads dangerously close to such a conclusion.”

The court decided, however, that, analogous to the rule stated in Allegretti Chocolate Cream Co. v. Keller, 85 Fed. 643, if this disclaimer was perpetuated and emphasized by carrying with defendants' corporate name so near to it as to challenge attention whenever and wherever used in trade, the statement that it was in no way connected with the Imperial Automobile Parts Company, it would serve the purpose of ample warning against confusion, and granted the injunction asked for unless this was done, with costs.

Appellants complain that the trial court, after having substantially agreed with their contention and stated in substance that defendants only adopted the disclaimer “to save the day in a lawsuit,” and that plaintiffs were entitled to relief, failed to grant any adequate relief; while defendants cry out against impugning their motives and sincerity of purpose, in going “further than other courts have gone in cases involving similar facts” by compelling them to carry and advertise the name of their rival upon their stationery and advertising matter in close connection with their own.

It is evident that “Imperial,” considered by itself, is a generic word, adjective in its nature, most commonly used as signifying imposing size, appearance, of excellence, primarily free to the use of all for whatever it may imply, and counsel for plaintiffs state that they are not complaining of the unlawful use of it as a trade-mark, but of unfair competition in trade, resulting from its imitative use in name-combination and the disloyalty of employees. The latter grievance,' though charged in the bill, is but incidentally involved and scarcely a matter for injunctive relief. The scheme of the bill is purely unfair competition in trade arising through the adoption by defendants of not only the word “Imperial," which through its previous adoption, and adaptation by plaintiffs’ grantor to a named article of its manufacture was used with an expansive meaning, but particularly, and in that connection, to the assumption of a trade-name closely imitating that of plaintiffs, leading to confusion and tending, because of its similarity, to be taken by the public for that of plaintiffs. Of this the learned circuit judge said in his opinion:

“The word ‘Imperial’ standing alone may imply no more than superiority, but in the case at bar the word as used by the plaintiffs in their assumed business name and the defendant corporation in its business name was clearly intended and used in.its expansive and earned business sense, and as such it must be held to extend in its meaning and to stand in the trade as relating to a particular make of automobile known by that name, and for which the parties hereto were prepared to supply parts.
“The word ‘Imperial’’ had acquired a trade significance and served to identify the business of plaintiffs with a particular make of automobile, and was therefore of value in trade solicitation and as a means of directing attention to plaintiffs’ company.
“Plaintiffs, recognizing this trade value of the word, employed it in assuming their business name. Defendants, also recognizing the trade value of the name ‘Imperial’ and knowing that plaintiffs had assumed it in their trade-name, employed the word in naming their corporation.
“The word ‘Imperial’ had acquired a secondary meaning in the automobile parts business, and the name Imperial Sales & Parts Company was selected by defendants for this reason. There is a misleading and studied similarity between the names Imperial Automobile Parts Company and Imperial Sales & Parts Company, well calculated to confuse the public into mistaking one for the other. The same purpose actuated both plaintiffs and defendants in selecting their trade-names, but with plaintiffs the field of selection was open, while in the case of defendants fair dealing demanded that they steer clear of taking a name so similar to that of plaintiffs that it would be well calculated to lead the public into the mistaken belief that in buying parts of the corporation they are dealing with plaintiffs.”

Unquestionably defendants or any one else may legally engage in the business of repairing and supplying new parts to old automobiles as freely as they can go into the grocery business. It is also true that there is no law against their specializing in any particular make or model and so advertising, but they may not under an imitative, assumed name benefit themselves to the injury of a rival to whom the imitated name belongs, and it is not necessary to wait until a name that tends to breed confusion and mislead the public, likely to be used to that end, is actually used in the business of a defendant. Nims on Unfair Competition & Trade-marks, § 226. Even if the name was assumed in good faith without any intention to mislead the public and unfairly interfere with plaintiffs’ trade, the defendants, having knowledge of all the facts, are held to the same responsibility. Charles S. Higgins Co. v. Soap Co., 144 N. Y. 462 (39 N. E. 490, 27 L. R. A. 42, 43 Am. St. Rep. 769). In this case defendants certainly had full knowledge of the facts.

The claim of defendants that plaintiffs were, like themselves, beginners and not long enough in the business to have acquired any good will, is not tenable. They not only obtained an established .and going business, including all good will, mail rights, stock, equipment, organization, etc., in its repair parts business which the Imperial Automobile Company had built up and could convey, but with that • start had been doing business under their partnership name, making lists of owners of Imperial cars, sending them circulars advising of the continuation of the business under the changed ownership and name, from October until this bill was filed on January 18th. In selecting a trade-name for that particular business they naturally recognized the importance of “Imperial” as a master word in advertising value and placed it at the head when devising their trade-name. When later defendants adopted a trade-name, they not only did the same thing, but used the same words in the same order, except that they substituted “Sales &” for “Automobile” in the center of the name. Granting that neither party can acquire exclusive use of any one of the words employed in plaintiffs’ trade-name, they could, by first adopting and appropriating as their trade-name a special or- distinctive arrangement and combination of those words, acquire an exclusive right to the name so formulated. A misleading simulation of the name as an entirety, not the use of a particular word, is the gist of the wrong complained of by plaintiffs.

We think the conclusion of the trial court that the circumstances disclosed in this record entitled plaintiffs to relief is fully in harmony with well-established rules, and find direct support in People’s Outfitting Co. v. Outlet Co., 170 Mich. 398 (136 N. W. 599), and authorities there cited; but we are unable to conclude that the permitted use of the offending name with a disclaimer affords appropriate or full relief in a case of this kind, where the defendant is doing business under a purely assumed trade-name and is found to have unlawfully imitated that of plaintiffs.

The Allegretti Case, which was approved and followed by the trial court in granting relief here, involved an unfair use of his own name by a defendant. Having there found that the “younger Allegretti had endeavored to create a confusion as to the identity of the chocolate creams manufactured by himself and by the complainant respectively,” the court referred to the case of Baker v. Sanders, 80 Fed. 889 (26 C. C. A. 220), as containing a “convenient rule applicable to cases of this kind,” and said “such rule may be followed here.” In the Baker Case, a suit was brought by the proprietors of the original “Baker’s Chocolate” Company to restrain one W. H. Baker from using his own name in the manufacture and sale of chocolate in such manner as to unfairly benefit by the reputation of complainant’s commodity. Of the situation thus presented, the court said:

“The complainant is entitled to relief against further use of a title which causes confusion, provided such relief can be granted without depriving W. H. Baker of the right to use his own name in connection with the chocolate business. * * *
“ ‘The doctrine is equally well settled that equity will direct how a man shall use his name in his purpose to denote his own individuality. He will not he allowed to so use his own name as to work an injury to another having the same name, nor to perpetrate' a fraud upon the public.’ ”

To meet such a situation, the rule referred to was formulated so as to grant complainant relief without depriving defendant of his inherent right to use his own name in connection with the chocolate business. No question of any defendant’s own name arises here.

The generally recognized and customarily granted relief in cases of this kind, and that to which plaintiffs are reasonably entitled where the offense is established, is restraint from further use of the imitating name. Plaintiffs are entitled to such relief.

The decree of the court below will be modified ac-. cordingly, and, so modified, stand affirmed, with costs in this court to plaintiffs.

Kuhn, C. J., and Stone, Ostrander, Bird, Moore, and Brooke, JJ., concurred. Person, J., did not sit.


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    CADWELL v. PENINSULAR STATE BANK.
    X. Bailments — Gratuitous Bailee — Banks and Banking.
    An officer of a bank witb whom was deposited preferred corporate stock under an arrangement with the corporation and purchaser by which .the purchaser was to pay for same when sold and was to have as a bonus a certain number of shares of common stock likewise deposited, such officer to account to the corporation for the price of the preferred stock when sold and to such purchaser for the shares of common stock, is merely a gratuitous bailee where he neither asked, nor was promised, nor received any compensation or payment of any kind for his acts in protecting the rights of the subsequent purchaser of such common stock from another person.
    2. Same — Good Faith — Negligence—Gross Negligence.
    Where a contract of bailment is for the sole benefit of the bailor, the bailee is only required to act in good faith, and he is consequently responsible for nothing less than gross neglect.
    3. Same.
    A gratuitous bailee with whom money was deposited for the purpose of paying for stock held by him for another was not guilty of gross negligence in paying the money to the supposed owner of the stock where he had no knowledge that the stock belonged to another person, and the supposed owner, upon inquiry, informed him that the stock belonged to him.
    Error to Wayne; Davis, J., presiding. '
    Submitted October 9, 1916.
    (Docket No. 73.)
    Decided March 30, 1917.
    Assumpsit by E. B. Cadwell and Howard Brooke, copartners as Edwin B. Cadwell & Company, against the Peninsular State Bank and John H. Johnson on the common counts. Judgment for defendants on a directed verdict. Plaintiffs bring error.
    Affirmed.
    /. O. Murfin, for appellants.

      Donnelly, Lyster, Brennan & Munro, for appellees.
   Steere, J.

Plaintiffs Cadwell and Brooke were engaged, during the year 1910, in the brokerage business in the city of Detroit as partners under the firm name of Cadwell & Co. The Peninsular State Bank, defendant, was a corporation engaged in the banking business in said city, and defendant Johnson was its president. In May of that year plaintiffs sent their certified check for $785 to Johnson to apply on a purchase of 10 shares of General Motors Company stock in his hands or under his control, which they claim he paid to the wrong party, to their loss and contrary to instructions. They subsequently brought this action in assumpsit to recover from him that sum.

In the spring of 1910 one H. W. Watson, of Flint, Mich., made an arrangement with the General Motors Company, by which he subscribed for 600 shares of its preferred stock at $100 per share, with the understanding he should market it in the city of Detroit, paying for the same as sold. With the preferred stock, as sold by the company to him, went a bonus of 20 per cent, common stock, or 120 shares. With the assistance of his brother-in-law, C. C. Hyatt, a broker of Detroit, Watson sold this block of stock in Detroit, mostly to brokers on a bonus basis of 15 per cent, common stock. This left SO shares of common stock which belonged to him. For the convenience and protection of both parties, it was arranged that a block of stock of the amount subscribed for by Watson should be sent to defendant Johnson and held by him, he to procure of the Motors Company from time to time certificates for the requisite number of shares of stock according to sales made by Watson, and deliver them when paid for to purchasers as Watsoii directed, it being understood and agreed between the parties that Johnson should account to the Motors Company for the stipulated price of the preferred stock when sold and to Watson for the remaining 30 shares of common stock which would belong to him after the other was sold. Hyatt testified that for assisting in selling this stock Watson agreed to give him one-half, or 15 shares, of the common stock which would remain to Watson. Of this, if true, Johnson was not advised by Watson and had no knowledge.

The preferred stock, with its 15 per cent, bonus of common stock, was all sold or contracted for by April 23, 1910. Plaintiffs had previously purchased some of the preferred stock, over which at first there had been some misunderstanding and delay owing to the certificates first sent out being marked as not transferable. On April 23d they were solicited by Hyatt to buy 10 shares of the common stock yet in Johnson’s hands, which he claimed to own and they agreed to buy provided he furnished an order from Watson for its delivery to them. He then procured the following memorandum from Watson:

“I agree to deliver to the account of E. B. Cadwell & Co. for the account of C. C. Hyatt ten shares of General Motors stock, as soon as the stock certificates are delivered to me.”

Brooke, who conducted the business for plaintiffs, testified that he saw Johnson that afternoon and showed him this “order and agreement” from Watson, and asked him “if he would deliver the stock upon that order” as he did not care to make a contemplated payment to Hyatt until he learned from Johnson that it “would be forthcoming when properly transferred,” to which the latter replied “he would deliver it on Mr. Watson’s order.” On May 7, 1910, plaintiffs wrote Watson as follows:

“May 7, 1910.
“Mr. Harry F. Watson,
“Flint, Michigan.
“Dear Sir: Under date of April 23d you gave us your written agreement to deliver us 10 shares common stock of the General Motors Company as soon as your application of the stock now in was delivered to you, said stock being for the account of Mr. C. C. Hyatt. We understand that this has been delivered to you, and we hereby make demand upon you for said delivery. Yours,” etc.

Brooke testified that Johnson had said if any action by him was desired to “put the matter in the shape of a letter so he would have his instructions,” in compliance with which requirement he dictated and sent the following letter, with check inclosed:

“May 9, 1910. '
“Mr. J. H. Johnson, President,
“Peninsular Savings Bank,
“City.
“Dear Sir: In further reference to our recent purchase, through you, of General Motors stock, we take the liberty of inclosing herewith a copy of an agreement signed by H. W. Watson, for the delivery to us of ten shares of common stock of General Motors Company, for the account of C. C. Hyatt, upon which you will note that we have advanced to Mr. Hyatt $250, the total purchase nrice of the ten shares being $1,035.
“We inclose herewith our certified check for $785 payable to your order, being the balance due on this purchase, and beg to ask that- before this matter is closed and any portion of the money or stock is delivered that you will see we are protected in the delivery of this ten shares of common stock.
“For your information, beg to advise that Mr. C. C. Hyatt has informed us that the ten shares in question is the portion of the common stock now in your hands to be delivered to Mr. Watson, being the part of the unsold bonus common stock accompanying the preferred, in excess of the 15 per cent, which was delivered with said preferred. Thanking you for your courtesy and attention to this matter, we remain,” etc.

On the same date Johnson replied as follows:

“Detroit, May 9, 1910.
“Messrs. E. B. Cadwell & Co.,
“Detroit, Mich.
“Gentlemen: We beg to acknowledge yours 9th inst. in re General Motors stock of H. W. Watson. We also have your certified check, $785, in connection therewith.
“We will make every effort possible to protect you in this matter, but of course cannot promise definitely as Watson may have assigned his rights to a third party. We will keep you promptly advised of his moves. '
“Very truly yours,
“J. H. Johnson, President.”

Two days later plaintiffs wrote Johnson two letters as follows:

“Detroit, May 11,1910.
“Mr. J. H. Johnson, President,
“Peninsular Savings Bank,
“City.
“Dear Sir: Under the advice of our attorney, we are sending you formal notice in connection with the ten shares of General Motors common, which we would ask. you to attach to your files in connection with the matter. We are also writing Mr. Watson asking him to settle the matter by the end of this week.
“Yours very truly,
“E. B. Cadwell & Co.”
“Detroit, May 11, 1910.
“Mr. J. H. Johnson, President,
“Peninsular Savings Bank,
“City.
“Dear Sir:.Referring to your favor of May 9th, in connection with our purchase from H. W. Watson of 10 shares of General Motors common stock, we beg to advise you that we will not recognize the validity of any transfer or assignment by Mr. Watson to a third party, of this stock, and further, that we will take steps to protect our. rights against any such claim of ownership by a third person. We will appreciate it if you will keep us advised of any developments as indicated in your recent letter, and in the meantime beg to remain,
“Yours very truly,
“E. B. Cadwell & Co.”

A certificate for 10 shares of stock bought from Hyatt by plaintiffs as stated was delivered to them by Johnson on June 1st, and the $785 check received was credited to Watson, who had told Johnson the stock belonged to him, and, when asked about the $250 advanced to Hyatt, said:

“I will settle that with Hyatt. Give me that check of $785, and deliver the stock to Cadwell.”

In due course of business and time Johnson accounted to and settled with the General Motors Company for the preferred stock and Watson for the surplus 30 shares of common stock, as it had been arranged he should do.

A couple of years later Hyatt made a demand on plaintiffs for the $785 which he claimed was yet due him for the 10 shares of stock he sold them, and later brought an action against them in which he recovered judgment for the same. Brooke testified that he first heard the-money had not been paid to Hyatt when this demand was made, and Johnson testified that he did not know of any claim that the money belonged to Hyatt until Brooke so informed him at about that time. Watson died April 7, 1913, and this action was begun October 14, 1914. At conclusion of the testimony the trial court held plaintiffs had failed to make out by their proofs a prima facie cause of action, and directed a verdict for defendants.

Johnson testified, and it is not disputed, that he neither asked, was promised, nor received any compensation or payment of any kind for what he was to do or did in this matter for plaintiffs. His testimony and the circumstances attending the transaction stamp him as a gratuitous bailee in that connection, or one acting without charge for the sole benefit and accommodation of the party whose property he receives in custody, involving the lowest degrees of responsibility in the triple division of neglects in bailments. Of the responsibility involved in such cases, it is said in Jones on Bailments (1836), p. 21:

“In contracts which are beneficial solely to the owner of the property holden by another, no more is demanded of the holder than good faith, and he is consequently responsible for nothing less than gross neglect.”

In National Bank v. Graham, 100 U. S. 699, it is held that gross negligence on the part of a gratuitous bailee amounts in legal effect to fraud. In Cooley on Torts (2d Ed.), p. 753, it is said, in discussing the degrees of bailment:

“While if it were for the benefit of the bailor exclusively, the bailee is chargeable only with such slight care as a man of common sense, however inattentive, would give to his own affairs.”

While various legal points are raised and argued, we think the controlling question in this case is whether, by the standard of negligence applicable to a gratuitous bailee, there is any testimony in the record from which a jury could legally find gross negligence on the part of Johnson in paying the money in question to Watson, under his then knowledge of the situation and the instructions given him in plaintiff’s letter of May 9th, which it is claimed he violated. Brooke in so asserting and construing the letter testified that it “specially stated for whose account the money was deposited by (with) Johnson,” and when asked, “So, if there is. anything specific, it is in this letter, isn’t it?” he answered, “Yes, but you must consider the whole letter, and not part of it,” saying later in explanation:

“We wanted Mr. Johnson to see that the stock was delivered to us for the money which we had paid, which he agreed to do when Hyatt and Johnson and I went in the bank.”

The weakness of this contention is that nowhere in conversation or correspondence did plaintiffs specifically direct Johnson as to whom the money should be paid,, nor tell him Hyatt owned the 10 shares of stock, but in their solicitude to secure its delivery to them emphasized that feature of the transaction and so wrote that he would naturally and might reasonably infer they sought his aid to get it, not from Hyatt, but from Watson who yet owned it. Johnson’s answer to their letter of May 9th indicates that he so understood it. The stress of that communication is to secure for them delivery of the stock, and such is the burden of their two letters of May 11th, as well as the talk on April 23d, of which Brooke testified:

“We wanted to be sure we got the stock. That was practically the substance of my conversation with him. * * * I knew it would be delivered through the bank. I knew Mr. Watson was the party who was supposed to have the right to sell and make delivery of the stock, either he or on his order.”

That this thought was paramount in his mind runs through the letters and is emphasized by his testimony in the suit between Hyatt- and plaintiffs, where he answered as follows:

“Q. And you asked that Mr. Johnson would see that you were protected in delivery of the ten shares of common stock?
“A. Yes.
“Q. So the stock would be delivered to you on the $785, is that the reason? ■ * * *
“A. We had paid $250, and could not get the stock.
“Q. You wanted to be protected on the $785?
“A. We had no interest in the money — we wanted the stock.”

In that portion of the letter of May 9th, referring to the inclosed check, plaintiffs say:

“We beg to ask that before this matter is closed and any portion of the stock is. delivered, that you will see we are protected in the delivery of this ten shares of common stock.”

For his information they state:

“Mr. C. C. Hyatt has informed us that the ten shares in question is the portion of the common stock now in your hands to be delivered to Mr. Watson.”

And on May 11th, referring to their letter of May 9th, they say:

“In connection with our purchase from H. W. Watson of ten shares of General Motors common stock, we beg to advise you that we will not recognize the validity of any transfer or assignment by Mr. Watson to a third party of this stock.”

Johnson in his trusteeship was receiving money for the stock in his custody as sold, obtaining certificates therefor, and accounting only to the General Motors Company and Watson. He states:

“I did not deal with the purchasers at all. All I had to do, if their checks came in, was to direct a certificate to be made out and delivered. Deals with persons were made by Mr. Watson or his agents so far as I know.”

Hyatt, called by plaintiff, testified:

“I never had any discussion with Mr. Johnson in regard to the ten shares of stock which I claim I sold Cadwell & Co.”

Johnson had the custody of 30 shares of common stock for which he was accountable to Watson only, and had told plaintiff he would deliver the 10 shares to them on Watson’s order. Plaintiff’s letters fairly indicated they were buying the 10 shares from Watson, and when in their letter of May 9th they sent him their check in payment of the balance for these 10 shares without any specific directions as to whom he should pay it, “with a copy of an agreement signed by H. W. Watson for the delivery to us of ten shares of common stock of General Motors Company for the account of C. C. Hyatt,” to whom the check was not made payable and of whose relation to the transaction Johnson was not advised, it cannot be said that, as the matter was then understood by and presented to him, he failed to exercise the slight degree of care required of a gratuitous bailee, or was guilty of gross negligence, in assuming the money was for Watson, who so asserted and on whose order he acted, or in paying it to him in order to release for plaintiffs the stock which they were importuning him to secure for them.

In its entirety this record fails to furnish testimony from which a jury could legally find evidential support for a verdict, based on failure to exercise such slight degree of care as even the most inattentive and thoughtless never fail to take of their own concerns, and which must amount to gross negligence, in legal effect fraud, to constitute a violation of the gratuitous bailment disclosed.

The judgment is affirmed.

Kuhn, C. J., and Stone, Ostrander, Bird, Moore, and Brooke, JJ., concurred. Person, J., did not sit.