author: Swing, J.

text:
    (First Circuit—Hamilton Co., O., Circuit Court
    Nov. Term, 1898.)
    Before Cox, Smith and Swing, JJ.
    GEORGE GUCKENBERGER, a taxpayer, v. JULIUS DEXTER et al.

      Refunding bonded indebtedness of Gineinnati — Authority of Sinking Fund Commissioners and of Trustees of Gin, So. Railroad—
    (1). Sec. 2729a, R. S., authorizes the sinking fund commissioners of Cincinnati to refund the bonded indebtedness of tne city at a lower rate of interest. The act of 1898, (93 O. L., 676) authorizes the trustees of the Cincinnati Southern Railroad by proper indorsement on the bonds and coupons of the city issued for the construction of that railroad to extend the time of payment thereof at a lower rate of interest. Held, that while the latter law does not use the word “refund, ” it provides a scheme by which the railway trustees may virtually refund these bonds.

      Same — Contract for refunding indebtedness■ of Gineinnati must be performable within reasonable time—
    (2). While the act of 1898 is the last expression of the legislature on the subject cf refunding these bonds, it does notin terms repeal sec. 2729a, R. S.. and the court holds that there is not necessarily any conflict between these laws, and that they may both stand, with each board having a right to refund these bonds, with the limitation that whichever board acts first and refunds the bonds, exhausts the power and thus deprives the other of the right to perform the same act. But any contract made by either board looking to the refunding of these bonds must have a reasonable operation with a view to respecting the rights of either to perform the same act, and therefore any contract of this kind to be binding, must notin its nature be prospective to an unreasonable time as to its fulfillment, and a contract entered into b.y the sinking fund commissioners to refund the bonded indebtedness of the city which is not to be performed within three, four or five years is held to be unreasonable and void.

      Same — Refunding by sale of bonds — Advertisement and competition required—
    (3). If the refunding of the bonded indebtedness of the city by the sinking fund commissioners under sec. 2729a, is to be accomplished by selling bonds of the city, sec. 2709, R. S., would apply which requires the sale to be to the highest and best bidder after the advertisement prescribed, and a contract for that purpose entered into by the commissioners without advertisement and without competition and not to the best bidder is void.

      Same — Increase of amount of indebtedness not permissible.

    (4). Sec. 2729a, R, S., providing that the aggregate amount of bonds issued by the trustees in refunding the debt of the city shall not exceed twenty-six million dollars, a refunding contract therefore which increases the bonded indebtedness by three million dollars beyond the aggregate amount of twenty-six million dollars, although at a lower rate of interest, is void.
    Error to the Court of Common Pleas of Hamilton county.

      (For decision in Common Pleas in this case, by Spiegel, J., see 5 Nisi Prius, 429.)

   Swing, J.

This is an action to restrain the defendants from performing a certain contract theretofore made by said defendant, trustees of the sinking fund of the city of Cincinnati, with Roberts & Company, bankers of New York city, concerning the refunding of $15,610,000 of the bonded debt of said city.

This contract is as follows:

“Agreement made this 15th day of June, 1898, between Roberts and Company, a corporation organized under tne laws of the state of New York, and doing business in the city of New York in said state (hereinafter called the bankers), parties of the first part, and the trustees of the sinking fund of the city of Cincinnati, in the state of Ohio, (hereinafter called the trustees) parties of the second part:
“Whereas, there are now outstanding approximately the following amounts of the following issues of bonds of the city of Cincinnati (hereinafter called outstanding bonds), that is to say,
“Cincinnati Southern R. R, 7% bonds maturing in 1902, say $494,000
“Cincinnati Southern R. R, 7' 3-10% bonds maturing in 1902, say 7,644,00
“Cincinnati Southern R. R. 6% bonds maturing in 1906, say 2,890,000
“Cincinnati Southern R. R. 7 3-10% bonds maturing in 1906, say 1,860,000
“Cincinnati Southern R. R. 7% bonds maturing in 1908, say 835,000'
“Cincinati Southern R. R. 6% bonds maturing in 1909, say 895,000
“Founding Floating Debt, 7% bonds maturing, in 1904 say 992,000''
“Total amount outstanding estimated at $15,610,000'
“And, Whereas, the trustees, by virtue of the powers now vested in them, and the legislation hereafter to be had amending or supplementing the .same, propose to refund the outstanding balances of the issues aforesaid, whatever the same may be, in Cincinnati consolidated sinking fund bonds (hereafter called refunding bonds), of the character described in sections 2729a and 2729b of the Revised Statutes of Ohio, or authorized by subsequent legislation; and
“Whereas, the bankers have proposed to purchase a sufficient number of said refunding bonds to refund said outstanding bonds upon the terms hereinafter stated:
“Now, therefore, this agreement witnesseth, that the trustees agree to sell and deliver to the bankers, and the bankers agree to buy and accept from the trustees, so many of the refunding bonds hereinafter described as can be lawfully issued and shall be necessary to be sold to provide for the refunding of the several issues of bonds above described, subject to the following reservations and conditions:
“1. All the refunding bonds to be tendered to and purchased by the bankers under this agreement shall be regularly and legally issued; shall bear date the 1st day of January or of July of the year in which they are so purchased by the bankers; shall be payable in the city and state of New York; shall bear interest at the rate of three and one-half per centum per annum, payable semi annually; and shall become due fifty years, and be redeemable thirty years from date. If coupon bonds, they shall be of the denominations of one hundred dollars, five hundred dollars,-and one thousand' dollars in such Jots of portions as the bankers may designate. If registered bonds, they shall be of the denomination of one thousand dollars, or such multiple thereof and in such lots or portions as the bankers may designate. The bankers may require that each delivery be made in coupon bonds or in registered bonds, or partly in coupon bonds and partly in registered bonds, in such proportions as they may designate; and all such coupon bonds shall be exchangeable for registered bonds at the demand of the holder thereof, if tendered in sums of one thousand dollars or a multiple thereof.
“2. For the refunding bonds thus to be purchased by the bankers, they shall make payment at the time of the delivery in the manner hereinafter provided, either in cash, or in outstanding bonds of the issues to be refunded. If said payment be in cash, it shall be the par value of the bonds thus paid for, with accrued interest until the time of such payment. If such payment be in outstanding bonds, the same shall be accepted by the trustees at prices which would yield or represent to the city of Cincinnati in annual return cf three and one-half per centum per annum upon the cost of said bonds to said city, said price and said annual return to be figured in accordance with ‘Price’s Stock Values’, the number of days, months and years in such computation to be the unexpired term between the date of the delivery of said outstanding bonds by the bankers to the trustee and the date of the maturity thereof. As it is probable that the larger part of the outstanding bonds delivered by the bankers tc the trustees will be delivered by them before maturity, and therefore, at a premium over and above the par value of said bonds, such premium may, at the option of the trustees, be paid in cash or in refunding bonds, or partly in each.
“3. The bankers may only purchase refunding -bonds for cash within ninety days next before the maturity of each of the issues first above mentioned, and then only to the amount of outstanding bonds maturing within said ninety days. Unless enough bonds of any issue to be refunded have been delivered to the trustees prior to ninety days before the'maturity of such issue to satisfy the trustees that means of payment of the outstanding bonds of such issue will be provided by the bankers in cash on or before maturity, the trustees shall be at liberty to take such proceeding to provide the required money as to them may seem necessary.
“All outstanding bonds above described as and when acquired by the bankers shall be by them promptly tendered to the trustees. Upon such tender by the bankers to the trustees of any of the outstanding bonds more than ninety days before the maturity of the bonds so tendered, the trustees shall accept the bonds so tendered, and pay the par value thereof, and the premium, if any, thereon, with refunding bonds and cash as above provided.
“If the bankers shall fail to deliver said outstanding -bonds under this contract to the trustees in amounts and at times as follows, viz: not less than .five hundred thousand dollars on or before the first day of January, 1899; not less than one million dollars, on or before the first day of July, 1899, not less than one million, five hundred thous- and dollars on or before the first day of January, 1900; not less than two million dollars on or before the first day ■of July, 1900; not less than two million five hundred thous- and dollars on or before the first day of January, 1901; not less than three million dollars on or before the first day of July, 1901, and not less than three million, five hundred thousand dollars on or before the first, day of January, 1902, then, and upon such failure, and at any time while the same continues, and notwithstanding a prior failure of similar nature may have been waived, the trustees may at their option, terminate this contract by giving thirty days written notice to the bankers of their election so to do; and such termination shall absolutely discharge and put an end to this agreement and the rights and liabilities of all parties and their assigns thereunder, and shall release the bankers and their assigns from all damages and claims for damages whatsoever, upon or arising out of this contract or any part thereof.
“4. In case the state of Ohio shall, on or before the first day of July, 1900, enact legislation authorizing the trustees to issue refunding bonds of said city of Cincinnati maturing fifty years after date without privilege of redemption at an earlier period, and payable both as to principal and interest in such kind of lawful money as the trustees may determine, for the purposes specified in section 2729a, of the Revised Statutes of Ohio, as the same now provides or may hereafter be amended, the trustees shall issue and deliver, and the bankers shall purchase and receive, refunding bonds maturing fifty years after date as aforesaid, and payable both as to principal and interest in gold coin of the United States, of or equal to the present standard of weight and fineness, and in other respects of the same character as the bonds described in article 1, and upon payment therefor in outstanding bonds or cash of a premium of one per centum of the par value thereof, in addition to the par value and accrued interest from the date of the bonds' until the time of such payment.
“5. All bonds deliverable by or to the trustees under this contract shall be received and paid for in either the city of Cincinnati or the city of New York, as may be elected by the bankers with reference to each delivery.
“6. On or before the first day of January, 1899, the bankers shall present to the trustees evidence satisfactory to the trustees that a sufficient proportion of this contract has been executed by the bankers or their assigns approved by the trustees, or has been assigned to and assumed by assignees similarly approved whose responsibility is satisfactory to said trustees, to assure the provision for that portion of the debt described herein which matures in the vear, 1902.
“On or before the first day of January, 1904, the bankers shall present to the trustees evidence satisfactory to the-trustees that the remaining part of this contract has been sufficiently executed by the bankers or their assigns, approved by the trustees, or has been assigned to and assumed by assignees similarly approved whose responsibility is satisfactory to the trustees to assure the provision for that portion of the debt described herein, which matures after-the first of January, 1904.
“If the bankers fail to present evidence satisfactory to the trustees in accordance with either of the two paragraphs-hereof next preceding, then, and in either such event, and at any time thereafter before such satisfactory evidence shall-have been presented, the trustees may at their option terminate this contract by giving thirty days wirtten notice of their election so to do to the bankers; and such termination shall absolutely discharge and put an end to this agreement, and the rights and liabilities of all parties and their •assigns thereunder, and shall release the bankers and their ■ assigns from all damages and claims for damages whatsoever upon or arising out of this contract or any part thereof.
“7. The bankers may assign to responsible parties, satisfactory to the trustees, this .contract as to all .of said bonds or any part or parts thereof, such assignees assuming and agreeing to perform all the stipulations of the bankers herein to the extent of the interest assigned to them respectively. Copies of every such proposed assignment shall be forthwith filed with the president of the trustees, and no such assignment shall take effect until the same shall have been approved by the trustees.
“8. The trustees contarct only in their official capacity, and in no event are they or any of them to be individually liable because thereof; and the bankers bind themselves, • their successors and assigns.
“In witness whereof, hereto, and to a duplicate hereof the parties of the first part have caused their name to be-signed by William Edward Coffin, their general manager, thereunto duly authorized, and the parties of the second part have caused the same to be signed by Julius Dexter, their president, the day and year first above written.
“Roberts and Company
“By W. E. Coffin,
“Greneral Manager.
“The Trustees of the Sinking Fund
“of the City of Cincinnati, by
“Julius Dexter,
‘ ‘ President. ’ ’

It is claimed by the plaintiff that in making this contract the said trustees exceeded their authority in that, by it, the bonded indebtedness of the said city is increased over three millions of dollars, and that in fact, the contract really contemplates a sale of the bonds by the trustees rather than a refunding. And further, that by the contract the Cincinnati Southern Railway Trustees are deprived of the right ta refund the bonds issued by the city for the building of said railway, which by the law of 1898 (93 O. L., 672), they are authorized to do.

The right to make this contract is claimed by said trustees by virtue of section 2729a, Revised Statutes, which' section is as follows:

“The sinking fund commissioners in cities of the first grade of the first class, for the purpose of refunding the-bondea debt, exclusive of street improvement bonds, of the city for which such trustees act, at a lower rate of interest, and for the purpose of buying, the fee simple of real estate held by the city under perpetual leases, wherein is secured to-the city the option to buy the fee simple at a fixed price, and where the money to buy can be procured at a smaller rate of interest on the price than is represented by the stipulated rents, shall have power to make and issue the bonds of such city, with coupons or registered, due fifty ■ years, and redeemable thirty years from date, bearing interest at a rate not greater than five per centum per annum, payable semi annually, to an aggregate amount not exceeding twenty-six millions of dollars, to be known as — ■——consolidated sinking fund bonds.
“The bonds shall be signed by the president of the trustees of the sinking fund, countersigned by the auditor of the city, and have the seal of the city issuing them affixed.”'

This section, with the limitations imposed by it,undoubtedly gives the sinking fund trustees full authority to refund the bonded indebtedness of said city. The act of April: 25th, 1898, supra, section 2, is as follows:

“The trustees of the said railway are hereby authorized1 by a proper endorsement or stamping on any of the outstanding bonds, and the coupons thereof, issued under the-act to which this is supplementary, to agree to an extension-of time of payment of said bonds for a period not to exceed forty years from the maturity thereof, upon the holders of. such portion of said bonds, as said trustees may agree with, agreeing to reduce the interest thereof to such rate as said trustees shall fix, not exceeding three anda half per centum per annum; and said trustees are hereby further authorized" to cause to be engraved, printed and attached to such bonds,such additional coupons as may be necessary to evidence the interest to be paid for the extended time of payment of said. bonds. Any expense incurred by reason of the extension aforesaid shall be paid by the city treasurer, upon the order of the board of trustees of such railway out of any income derived from said railway. ” ,

While this act does not use the word “refund”, but uses the phrase,“extend the time of payment”, it provides a scheme by which the railway trustees may virtually refund the bonds of said city issued for the construction of said railway; and while this is the last expression of the legislature on the subject of refunding these bonds,- it does not in terms repeal section 2729a, supra, and we are of opinion that there is not necessarily any conflict between them, and that they may both stand, with each board having a right to-refund these bonds, with the limitation that whichever board acts first and refunds the bonds exhausts the power and thus deprives the other of the right to perform the same act. Both bodies can not do the same act, but either may.

It is apparent then, that it is of first importance to ascertain whether by this contract, the sinking fund trustees have in a proper manner provided for the refunding of these particular bonds, for it will be noticed, that all the bonds provided for in the contract, except nine hundred and ninety-two thousand dollars, are Southern Railway bonds; for it would seem evident, if both boards are to have the right to refund these bonds, any contract made by either, looking to the refunding of these bonds, must have a reasonable operation with a view to respecting the rights of either to perform the same act, and it seems to us clear, that any contract of this kind to be binding, must not in its nature be prospective to an unreasonable time as to its fulfillment. It would be reasonable to hold that it would not be absolutely necessary that the contract should be executed before it would be protected, for it might be that a contract of such, magnitude, and necessarily somewhat complex, at the best requiring considerable time for performance, should be given considerable time for performance, for it would hardly be probable that a contract concerning this amount could be performed in a few days,or even a few weeks. At the same time, a contract which is not to be performed within three, four or five years would seem to be unreasonable as to time. When it is considered if the contract is valid and it does not ■■actually refund any bonds, but merely provides for what may be done, that it in effect, takes away from the other boárd the right to perform the same duty, it would be 'difficult to see how the equal right of each board to refund, .■granted by the legislature, can be maintained if either ¡bo.ard may forestall the other by making a contract to refund at an unreasonable and distant period.

It thus becomes important, in this view,to ascertain,first, what each part has agreed to do by this contract. The contract recites that the sinking fuhd trustees propose to refund the bonds theretofore enumerated, and that the bankers propose to purchase a sufficient number of refunding bonds to refund said outstanding bonds, and then follows the following provision: “That the trustees agree to sell and deliver to the bankers, and the bankers agree to buy and accept from the trustees * * * subject to the following conditions.” Then follows certain provisions in regard to the place of payment, denomination and character of bonds. Then follow these provisions:

“For the refunding bonds thus to be purchased by the bankers, they shall make payment at the time of delivery either in cash or outstanding bonds of the issues to be refunded. If said payment be in cash, it shall be the par value of the bonds * * * If such payment be in outstanding bonds, the same shall be accepted by the trustees at prices which would yield or represent to the city of Cincinnati, an annual return of three and a half per centum per annum upon the cost of said bonds to the said city ■'* * * as it is probable that the larger part of the outstanding bonds delivered bj the bankers to the trustees will be delivered by them before maturity.”

Article 3, of the contract provides that the bankers may only purchase refunding bonds for cash within ninety days next before the maturity of each of the issues first above mentioned, and then only to the amount of outstanding bonds maturing within said ninety days, and if this is not done, the trustees may proceed as to them may seem necessary to provide the required money.

‘‘All outstanding bonds described as, and when acquired by the bankers, shall be by them promptly tendered to the trustees. Upon such tender by the bankers to the trustees of any of the outstanding bonds more than ninety days before the maturity of the bonds so tendered, the trustees shall accept the bonds so tendered, and pay the par value thereof, and the premium, if any, thereon with refunding bonds or cash as above provided.”

In this article it is provided that if the bankers shall fail to deliver bonds at certain times and to certain amounts, the trustees may, at their option, terminate the contract. The bondb to be tendered in this provision is commencing with January 1st, 1899, and concludes January 1st, 1902, covering a period of three years, within which time, three million, five hundred thousand dollars is in contemplation of delvery at least, The sixth article provides that on or before January 1st, 1904, the bankers shall present to the trustees evidene satisfactory to the trustees that the remaining part of this contract has been sufficiently executed by the bankers for that portion of the debt which matures after January 1st, 1904.

It will thus be seen that this contract in any event, may run, if the hankers so desire, for a period of five years, provided they comply with the purchase of outstanding bonds in the amounts therein specified, and whether or not a bond is delivered to the trustees more than ninety days before the maturity of the debt due in 1902, the contract may continue until that time, if the trustees do not terminate the contract. For it will be noticed that the bankers do not agree to turn in any outstanding bonds at any time. All the bankers agree to do is:

“And the bankers agree to buy and accept from the trustees so many of the refunding bonds hereinafter described as can be lawfully issued and shall be necessary to be sold to provide for the refunding of the several issues of bonds above described, subject to the following reservations and conditions. ”

The next provision that they agree to do is, to turn over to the trustees promptly any outstanding bonds (hat they may have purchased, but the bankers nowhere agree to purchase any outstanding bonds. If the bankers do not deliver to the trustees the bonds at the time, and in the amounts therein specified, the trustees may terminate the contract, but the trustees may not exercise this privilege; and if they should not, this contract would be in force for more than three years and a half and not a bond be refunded, for the bankers have not agreed to deliver a single outstanding bond before that time. This statement in the contract, that, “As it is probable that the larger part of the outstanding bonds delivered by the bankers to the trustees will be delivered by them before maturity”, comes far short of being an agreement to deliver any bonds. Ninety days before the maturity of the debt due in 1902, the bankers have agreed to buy from the trustees the bonds necessary to be issued to redeem the bonds due ninety days thereafter, and it is possible that this may include all the bonds then about to mature. The effect of such a contract would be, that for three and a half years not a bond would be refunded. It is no answer to this to say, that it is not likely to occur. It is sufficient to say that it may occur. This leaves out of view the further provision of the contract which, as to certain bonds, extends the life of the contract certainly to January 1st, 1904 and possibly until ninety days before the maturity of the debt due in 1909.

The fault with this contract is, that it does not refund any bonds. If valid and binding, it may tie the hands of the Southern Railway Trustees, so that they may not refund these bonds for a period of more than three and one-half years, and yet not a single bond be refunded. It seems to us that this is an unreasonable exercise of the right to contract with reference to the refunding of these bonds. For while not refunding any bonds, the sinking fund trustees have.prevented the Southern Railway Trustees from exercising an equal if not a better right given them by the law. For this reason we think this contract invalid as to the bonds given for the construction of the Southern Railway.

Section 2709 provides that:

“All sales of bonds other than to the sinking fund of any municipal corporation shall be to the highest and best bidder after thirty days’ notice in at least two newspapers of general circulation in the county where such municipal corporation is situated, setting forth the nature, amount, rate of interest and the length of time the bonds have to run, and the time and place of sale.”

We are of opinion that this section applies to the action of the sinking fund trustees under section 2729a, if the refunding of the bonded debt under that section is accomplished by merely selling bonds to raise money in order to pay outstanding bonds when they mature, The language of the section is broad and comprehensive. It is, “all sales of bonds” and there can be no reason why this section should not apply to a sale of bonds which is necessary in order to refund a debt, any more than it would be in order to raise money to meet any ofher obligation, The sale to the highest bidder after proper publication is necessary to the protection of the public. It is as requisite in one case as in the other. As to the wisdom of such a law there can be no question. Therefore, if this contract is a sale of bonds for the purposes of raising money to pay the outstanding bonds, and the refunding scheme is carried out in this manner, the contract can not stand.

What is the contract? The contract recites:

“Whereas, the bankers have proposed to purchase a sufficient number of such refunding bonds * * * Now therefore, this agreement-, witnesseth, that the trustees agree to sell and to deliver to the bankers, and’the bankers agree to buy and accept from the trustees.’’

Evidently the contracting parties thereto thought the contract made was simply a contract to sell by the one party and a contract to buy by the other.

The fact that the contracting<parties undesrtood it to be a sale of bonds, would not necessarily make it such, provided what they did actually agree to do was not a contract to buy and sell bonds; but we are inclined to hold that the provisions of the contract relating to the buying by the bankers of outstanding bonds and delivering the same to the trustees, and receiving in return'*bonds of the city, is not a sale of bonds. But the defect in the contract is, that there is no agreement that any number of bonds will thus be refunded, and at the furthest it would not be more than one-half of the bonds to be refunded, and in fact, it is possible that all the bonds, might, under this contract, be taken ninety days before the maturity of outstanding bonds, which, we think would be nothing else but a sale of bonds, and therefore this contract can not stand by reason of section 2709,

Under this contract it is possible that the interest bearing debt of the city may be increased by over three million dollars. Can this lawfully be done? Section 2729a supra, provides that the aggregate amount of bonds issued by the trustees in refunding the debt shall not exceed twenty-six million dollars. The reason for this limitation becomes apparent when it is known that the bonded debt of the city at the time of the passage of this law was about twenty-six million dollars, including the bonds of the city then held by the sinking fund trustees. Therefore, if the entire debt of the city had then been refunded, there could have been no material increase in the interest bearing debt by reason of this limitation.

Peck & Shaffer and F. Hertenstein, for Plaintiff.

Lawrence Maxwell, J. B. Foralcer, and Kinkead of Corporation Counsel, for Defendant.

The last expression of the legislature on the debt created by the Southern Railway construction, supra, provides the manner in which these bonds may be refunded. The word' used is “extended”, but it is in effect a refunding scheme. By the terms of this act there can be no increase in the interest bearing debt. It would hardly be reasonable to suppose that if these two boards are given the same right to perform the same duty, that in regard to so important a matter as the. increase of the bonded debt, bearing interest, that one might increase it when the other could not.

Taking these two acts together we are forced to the conclusion that the Southern Railway bonded debt can not be increased by any refunding scheme by either board, which-increases the interest bearing debt, and for this reason also the contract is invalid.


source: Caselaw Access Project

author: Caldwelí., J.

license: Public Domain

text:
    (Eighth Circuit—Cuyahoga Co., O., Circuit Court
    Dec. Term, 1898.)
    Before Hale, Caldwell and Marvin, J J.
    SEYMOUR F. ADAMS, JESSE H. MORLEY and JOSEPH COLWELL, as Executors of the last Will and Testament of MOSES C. YOUNGLOVE, Deceased, Plaintiffs, v. JOSEPH C. SHIELDS, as Treasurer of Cuyahoga County, Ohio, Defendant.

      Earnings of corporation not property of stockholders until dividend declared—
    (1). The net earnings of a corporation are the property of the corporation until such time as a dividend is declared, dividing the surplus among its stockholders.

      Same — Scrip certificates—
    (2). Issuing scrip certificates to the stockholders of a corporation, redeemable in the future in stock of the company, for surplus earnings, is not a division of the surplus in money, or a promise to pay money among the stockholders. In such case the corporation continues thereafter to be the owner of such surplus, and the stockholders gain nothing more than a promise to have stock in the future for the surplus.

      Same — Certificates taxable by corporation, not by stockholders—
    (3). Such scrip certificates, while outstanding, represent to the owner of the same, the share he will be entitled to in the surplus capital of the corporation. And if the company be an Ohio corporation, and returns and pays taxes on all its capital in Ohio, then such scrip certificates are not to be listed for taxation in Ohio, and are not taxable.

      False tax return — What constitutes—
    (4). Under sec. 2781, Revised Statutes of Ohio, the taxpayer does not make a false return, or evade making a return, of his property, where he withholds such property from his list on the honest belief that the same is not taxable, coming to such belief upon the advice of eminent attorneys at law.

      County auditor's power to correct false tax returns—

    (5). The county auditor has not jurisdiction to act under sec. 2781, unless there has been a false return, or a return evaded within the meaning of the law.
    Error to the Court of Common Pleas of Cuyahoga county.
   Caldwelí., J.

The plaintiffs brought this action to enjoin the defendant from collecting the taxes on certain property that belonged to Moses C. Younglove in his life-time and at the time of his death, and since his death to the said executors of his estate, which taxes, it is claimed, were by the county auditor placed upon the county tax duplicate without warrant of law.

The facts of the case are mostly admitted, and there is no serious controversy as to any of them.

April 13, 1892, Moses C. Younglove died testate. At 4he time of bis death, and for many years prior theieto, he had resided in Cleveland, Ohio.

The executors of the estate, the plaintiffs in this action, are residents of Cuyahoga county, Ohio, and have there resided at all times during their trust.

Moses C. Younglove, on the day before the 2nd Monday •of April in each of the following years, was the owner of and held scrip certificates in the Cleveland Gas Light & 'Coke Company, as follows:

For 1887 11,233 shares of the par value of ' $112,230.
[t 1888 19,021 “ 190,210
“ 1889 19,026 “ 190,260
“ 1890 22,147 i i Q i Í “ 221,470
“ 1891 25,580 c ( a “ 255,800
“ 1892 25,580 í ( i i “ 255,800

During none of these years did Mr. Younglove include in his return of his property for taxation, any of said scrip •certificates, nor did the executors return them for the year 1892.

The county auditor, after proper notices to the executors and after hearing testimony, decided to tax the certificates for each of the years before named and for the amount before named, as owned each year by Mr. Younglove or his estate; and the auditor, on August 15, 1893, entered for taxation an amount equal to the par value or amount of said scrip certificates of indebtedness, increased by a penalty of fifty per cent, of the same for the respective years, and multiplied the same by the rate of taxation for said years. These entries were carried into the auditor’s book as provided by law, and were placed on the county treasurer’s ■book for collection, and the auditor gave the treasurer the ■certificates provided by law.

The county treasurer was about to proceed to collect the ’taxes and this added increase by his fifty per cent, penalty, 'when this action was brought to restrain such a collection,

■ The Cleveland Gas Light & Coke Company is a corporation incorporated under an act passed February 6, 1846, with a capital of forty thousand dollars, divided into shares of ten dollars each. <

On March 17, 1894, this act was amended and the capital increased to sixty-five thousand dollars.

The capital was, after years, increased, until 1871 there were 75600 shares, face value $756,000.

In 1893, by authority given, the stock was increased to $3,00,000, divided into shares of $100 each.

The Cleveland Gas Light & Coke Company was an Ohio corporation, having its business and property wholly within Cuyahoga county, Ohio.

June 17th, 1873, the board of directors of said company adopted the following resolution:

“Whereas, the earnings of profits- of this company amounting to more than $151,200,have, from time to time, been invested in the extension of the company’s works, and providing additional facilities for production and distribution made necessary by the increased demand for gas, and in that manner a large addition has been made to the value of the property of the company by withholding from the stock-holders monies which have been fairly earned, and but for the above-mentioned expenditures would have been paid to them; and,
“Whereas, upon’ a fair and just estimate of the property of the company, it has been in this manner increased in value over the amount of the present capital stock by at least the said sum of $151,200; and,
“Whereas, the stock-holders desire to realize without impairing the property of the company or profits which have been thus invested, and to make them more available;
“Now therefore, it is resolved, that a dividend from the profits of the company thus invested, of $2 for each share of the present capital stock of the company, to be paid pro rata to holders thereof in scrip after the form following, which scrip shall entitle the respective holders thereto to all the privileges and advantages'declared and expressed there-

The form of the certificates of scrip used in the different issues of the same is as follows:

“The Cleveland Gas Light & Coke Company.
“June 17th, A. D. 1873.
“No, of Shares.
“No.of scrip.
“This is to certify that. and.heirs or assigns will be entitled, upon the surrender nf this certificate, to shares of ten dollars each of the capital stock of this company, whenever and so soon as such capital shall be increased one hundred and fifty-one thous- and and two hundred ($151,200) or more,above the present amount thereof; and until such increase is made and this certificate surrendered for conversion, dividends from the earnings of the property or frona the proceeds of the sale of its property, whether made in money or in scrip, shall be paid to the owner of the certificate apoearing as such upon the books of the company, pro rata, with and the same as to the owners of the shares of the capital stock; provided, however, that if at the time of the increase of the capital stock there shall exist legal disability which will prevent the conversion of this certificate into stock, there shall be paid to the owner thereof upon demand and its surrender, .the par value in money of the shares as herein provided for. This certificate is transferable only at the office and upon the books of the company.
“Witness the corporate seal of the company and the signatures of the president and secretary, at Cleveland, this .... day of.. 18. .,
.. . President”
Secretary. ”
“Seal of Company.
(There was printed on the back of it this language:)
“For value received the undersigned. assigned and transferred unto.all.right and title to the scrip certificates of the Cleveland Gas Light & Coke Company and do hereby constitute and appoint “.true and lawful attorney for and in “.name and behalf to make and execute all necessary acts of assignment, transfer and surrender.required 1 by the terms of said scrip certificates, and the regulations and by-laws of that company.
“In witness whereof, I have hereunto set.hand and seal this.day of.,18. . . .
“Sealed and delivered in the
“Presence of.
.Seal.”

The Cleveland Gas Light & Coke Company made nine issues in all of scrip certificates. The company from year to year used the profits of the company in extending its plant, mains, etc., and then gave out to the stock-holders the scrip certificates, which the stock-holders retained until February 14th, 1893, and then they were exchanged for .stock,

On January 22, 1874, the board of directors passed the •following resolution:

“Whereas, the earnings and profits of this company amounting, in excess of all previous dividends, to more than :$90,730., which amount has been invested in the property •of the company, increasing the value of the same by at least that amount; and,
“Whereas, stockholders desire to realize without impairing the property of the company or profits which have thus been invested, and to make them more available, and for that purpose they have this day hereunto duly authorized this board:
“Therefore resolved, that a dividend from the profit of the company one dollar on each share of the present stock and scrip $1, amounting in all to 90,120 shares, to be paid pro rata to the holders of said stock and scrip respectively, in scrip, to be known as scrip No. 2, bearing this date, to be issued in the same form and manner in all other respects as that known as scrip No. 1, as shown in the records of this company, on the 17th óf June, 1873, and bearing that date; .said scrip like the former shall entitle the respective, holders thereof to all the privileges and advantages declared and expressed therein.”

At the time said scrip certificates known and numbered 3, 4, 5, 6, 7, 8 and 9 were issued, the board of directors of said company passed and placed on their minutes a resolution similar in all respects to the one foregoing, except that each successive resolution provided for issuance of scrip upon all issues of scrip theretofore made, and the capital' stock.

Aside from the portion of the net earnings of the said' company, used by it as afore stated and for which it issued scrip certificates, other portions of the net earnings of the-company, not used in extending its property, were from time to time divided in money among the stock-holders as-dividends.

Tüe Cleveland Gas Light & Coke Company at all times during the years of the issuing of said scrip certificates and down to the time of the commencement of this action returned from year to year to the proper officer what purported to be a list of its capital stock and all its property, and paid all taxes assessed thereon. A short time before said the Cleveland Gas Light & Coke Company issued said scrip certificates the first time, the directors of the same applied to Morrison R. Waite, of Toledo, Ohio, and Judge Rufus P. Ranney of Cleveland,Ohio,for advice and counsel as to whether the company could issue scrip certificates; to give the company a proper and legal form of certificates, and as to whether the form by them furnished would, under the laws of Ohio, be the subject of taxation. The directors of the corporation were, by these eminent jurists, advised as to the form of certificate and that the scrip certificates-would not be, under the laws of Ohio, taxable.

The purpose of the corporation in issuing scrip certificates instead of shares of stock for portions of net earnings of the company by it used in the extension of mains, etc., was, that it could not issue such stock without legislative permit, and if such permit were obtained, it would be after the new state constitution which would subject the company to the laws under-the new constitution, and for certain reasons it did not wish this at that time.

The questions of law for determination in this case are: Are the scrip certificates taxable under the laws of Ohio? And had the auditor, under the facts of the case, authority of law for placing the tax and penalty on these tax certificates in the year 1892 for the years 1887, 1888, 1889, 1890, 1891 and 1892?

The auditor did this under section 2781 of the Revised Statutes, which is as follows:

“If any person whose duty it is to list property or make a return thereof for taxation, either to the assessor or county auditor, shall in any year or years make a false return or statement, or shall evade making a return or statement, the county auditor shall for each year, ascertain as near as possible, the true amount of personal property, monies, credits’and investments that such persons ought to have returned or listed for not exceeding the five years next prior to the year in which the inquiries and corrections provided for in this and the next sections are made; and to the amount so ascertained as omitted, for each year he shall add fifty per centum, multiply the omitted sum or sums, and as increased by said penalty,by the rate of taxation be-longng to said year or years, and accordingly enter the same on the tax lists in his office, giving a certificate therefor to the county treasurer who shall collect the same as other taxes.’’

Counsel for defendant claim that the scrip certificates are mere evidences of indebtedness,or certificates of indebtedness, in which the company agrees to pay in money, and, as such, are mere bonds of the company, and hence taxable under section 2746, Revised Sattutes, which reads:

“Personal property of every description, monies and credits, investments in'bonds, stocks, joint stock companies, or otherwise, shall be listed in the name of the person who was the owner thereof on the day preceding the second Monday of April, in each year; but no person shall be required to list for taxation any share or shares of the capital stock of any company, the capital stock of which is taxed in • the name of such company,”

They further claim that they are not shares of stock, as the corporation had no authority to issue them as stock, nor did they intend to do so, and, though they may be in some respect like shares of stock, yet not being stock, they are not exempt,

Counsel for plaintiffs claim that the scrip certificates represent shares in the capital of the company, and the company being an Ohio corporation paying taxes on it,its property in this state, there is no authority of law for requiring these scrip certificates to be listed for taxation.

They also claim that neither Mr. Younglove nor the executors of his estate, either fraudulently or negligently made a false return or evasively withheld the return of the scrip for taxation, and hence the auditor had no jurisdiction to act under section 2781.

The surplus or earnings of a corporation belongs to the corporation and the corporation must list the same for taxation and pay the taxes thereon. The corporation ceases to be such owner, and is relieved from the taxes thereon only when if declares a dividend out of such surplus and pays it out to the stockholders. The dividend may be declared by the corporation and, instead of paying the money, it may issue to the stockholders scrip certificates of indebtedness. This is sometimes done where the money representing the surplus is loaned out at the time the dividend is declared, or is, for any other reason, hot available at the time the dividend is declared. Scrip certificates of this nature are certificates of indebtedness; they are promises to pay,and usually fix the time for payment and bear interest; if not paid when due, the holder may sue on them to recover. The company, by issuing such certificates, appropriates the money to pay its declared dividend to its stockholders. It gives up its right to retain the money as its own. On the other hand, if the corporation appropriates its surplus to its own uses, invests it in its plant and business’ in such a way that the investment must be permanent, and then announces' such investment to its stockholders and issues to them scrip certificates'in which it promises that it will at some time in the future issue to such stockholders a certain amount of stock if the law then permits such issue, the result is entirely different. The corporation does not in any way change its situation; it still owns, holds and controls as its own, the entire surplus. It has not declared, by word or act, any intent of giving up, ‘at the time, nor in the future, to the stock-holders any part of the surplus; it makes no promise to pay; it has done nothing to change its relation or the stockholder’s relation to the surplus. The stockholder gains nothing; he is no richer after he gets his scrip than he was before; he has no more nor no less than he had in the company; he gets no promise of any . more. All that the company has parted with is a promise to issue stock. All he gains is a promise to be given stock.

The certificate accomplishes nothing beyond this.

It is easy to be misled by the fact that the owners of the-scrip certificates can borrow money on them. Suppose the scrip had never been issued, and Mr. Younglove had gone to the directors and had them certify by a letter to him, the amount of the surplus and what part of it would go to him,, either in money or stock, when the surplus should be divided, he could have taken his letter to any bank in Cleveland, and, on the.information in it contained, he could have borrowed money by pledging his prospects of sharing in any future distribuation of such surplus.

No one would for a moment contend that such a letter would be property, even if it contained a positive agreement to give Younglove his pro rata in stock in the future, at the option of the company.

The scrip has no value in and of itself beyond its promise' to issue stock; hence a pledge of it can be no security beyond that promise.

June 17, 1873, the Cleveland Gas Light & Coke Company passed a resolution reciting the facts, that a surplus had been earned and invested in its works the same as its original capital, by which the value of the property had been largely*increased, and which earnings, if not thus used, would have been used for dividends, and as the holders of the stock desired to realize without impairing the property of the company, or the profits which have been thus invested, and to make them more available therefor it resolved that from the profits a dividend of two dollars for each share of the present capital stock to be paid pro rata to the holders thereof in scrip after the form following, which scrip entitled the respective holders thereof to all the privileges declared and expressed therein.

This resolution declares a dividend in scrip of two dollars, on each share, but how the scrip is to be paid, is not stated! in the resolution but, for terms and manner of payment, refers to the scrip certificate.

The certificate certified that — ■—, his heirs and assigns', will be entitled to so many shares of ten dollars each of the capital stock of the company, whenever and so soon as such capital stock shall be increased $151,200 or more. Then it provides for dividends on the scrip the same as on the stock when future dividends of money or stock are declared. Then it provides that, if at the time of the increase of the capital stock, there shall exist any legal disability which will prevent the conversion of this certificate into stock, there shall be paid to the owner thereof, upon demand and its surrender, the par value in money, of the shares, as therein provided for.

In this resolution and scrip, there is no promise to pay the dividend in money except upon a condition which never arose, There was a condition precedent to any promise tu pay money. The scrip being redeemed by the issue of stock when the condition precedent did not exist, the promise to pay money is now to be considered as if never made.

The entire plan and arrangement as set forth in the preamble to the resolution show there was no intent to pay money. Hence it follows, the scrip can not be called certificates of indebtedness and, therefore, can not be in the nature of a bond of the company. If a bond at all of the company, for any thing, it is only for future stock, and, as such, it is not, within the statute, enumerated as taxable property.

Suppose this last statement to be incorrect and that such a bond is contemplated by the statute, then does it follow, because only investments in stocks in domestic corporations that pay tax on the corporate property are exempt, that this scrip not being stock, can not be exempt? This must depend upon the intent and purpose of the statute.

The policy of the legislature is to tax investments in the stock of foreign corporations, but not to tax such investments in domestic corporations, where the corporation pays taxes on all its capital stock. Why this distinction? It is not intended as a gratuity, or a charity. It is on this basis: for the purpose of taxation, the former kind of stock is considered a distinct kind of property as distinguished from the corporate property, while in the latter a (domestic company) investment in stock is not, as property, considered distinct from corporate property. If a domestic corporation has paid the tax on its property, it has, within the meaning of the tax law, paid the tax on the investment in its stock. This is certainly the meaning of the law, and the only reason for making the exemption. It follows most conclusively that investments in the stock of a domestic corporation, within the meaning of the statute, means investments in the capital or corporate property of the company. •

This, then, being the intent and meaning, it matters not how such investment is evidenced. We need not, when we have the object itself, hunt for the shadow. It is not important whether the shadow be a certificate of stock, or a scrip certificate for stock, for the object itself is invested in the capital stock, and the scrip being evidence of the investment, it is not taxable.

It has been urged that the scrip certificates are property, are assignable, may be separated in ownership from their parent stock, and thus become a distinct and independent class of property. Suppose this is all true, does it follow that it is not exempt from taxation?

The certificate, under any ownership, does no more than to represent a promise to issue stock, and this promise reflects upon it its value and, as before said, the property, whatever it is, within the meaning of the tax list, is the investment in the corporation property, and is not taxable.

It has been held by the highest courts of other states and the federal courts, that a scrip certificate, which does not promise to pay money but only a dividend in stock, and shows that the corporation retains as its own the surplus, will not relieve the corporation from paying taxes on the surplus:

People’s Gas Light Co. v. Assessors, 16 Hun, 196; People ex rel. v. Assessors, 76 N. Y., 202; Dutton v. Bank, 53 Kas., 454; Sun Mutual Ins. Co. v. Mayor of New York, 8 N. Y., 250; Bailey v. R. R. Co., 22 Wall., 604; Same v. Same, 106 U. S., 109.

If the company is not relieved from payment of tax on this surplus, then, if right in what I have said before, the scrip owner need not pay.

The plaintiff’s claim that neither Mr. Younglove nor they as executors of his estate, made false return or statement; nor did they evade making a return within the meaning of section 2781, even if these scrip certificates were taxable. This proposition is to be determined by the facts in the case, bearing upon this question, and the construction of this section by the supreme court. This section has repeatedly been before the supreme court for construction.

In Ratterman v. Ingalls, 48 Ohio St., 468, and in Probasco v. Raines, 50 Ohio St., 379, that court held that fn order that a return be false under section 2781, it must appear that the one making the return, either designed to mislead or deceive the assessor,or that he at least was guilty of culpable negligence; that the'word “evade” in the statute means “to avoid by fraud or contrivance,” It would seem to follow that where there is no false return or evasion under this section, there is no authority under this section to correct or make the return either as to the regular tax or penalty.

It only remains to determine under the facts of the case, whether Mr. Younglove or his executors had an honest belief founded upon good and sufficient authority, for not returning the scrip certificates for taxation.

The corporation,before issuing the scrip certificates, took the advise and counsel of Morrison R. Waite, of Toledo, Ohio, (who was thereafter the Chief Justice of the United States), and Judge Ranney of Cleveland, Ohio. The proof shows that these eminent attorneys advised the directors of the corporation, of which advice Mr, Younglove had full knowledge before the certificates were issued, that these certificates would not be taxable under the laws of Ohio.

There was no material change in the law under which this advice was given, and the law, that existed during the time of the issuing of these certificates.

Mr. Younglove, upon this advice, believed these tax certificates were not taxable, and, after his death,the executors who had the same information, believed the same, as is testified in this case.

Aside from this, a large amount of these tax certificates issued in Cleveland by the gas company, were used freely in the banks of the city of Cleveland. It was a matter of public notoriety. It is much more than likely that the taxing officers of the county knew of the existence of these certificates, and knew that they were not returned for taxation. It is not an unreasonable conclusion in this case to draw, that all parties had full knowledge as to the existence of the certificates, and that all have for years acquiesced in their non-taxability.

Judge W. W. Boynton, and Squire, Sanders & Dempsey, for Plaintiffs.

Peter Kaiser, Judge J. M. Jones, and Gen. E. S. Myers, for Defendant.

If Mr. Younglove relied upon this advice and counsel that I have stated, and for this reason did not return his tax certificates in the honest belief that they were not taxable, then he was not guilty of making a false return or evading a return under section 2781.

This being true, the auditor had no right to make the assessments in question against the estate of Mr. Younglove, being entirely without jurisdiction as before stated.

The injunction is allowed and made perpetual.


author: Maevin, J.

text:
    (Eighth Circuit—Cuyahoga Co., O., Circuit Court
    June Term, 1898.)
    Before Hale, Marvin and Caldwell, JJ.
    THE EUREKA FIRE & MARINE INSURANCE COMPANY v. J. L. BALDWIN.

      Fire insurance policy — Waiver of proof of loss — May be shown on averment that insured complied with conditions—
    Where, in a suit on a fire insurance policy requiring proof of loss forthwith,it appeared that the proof had only been made nine months after the loss, while the petition averred generally compliance with all conditions, Held: Evidence of proof of waiver of that condition, by the company, will be admissible at the trial, although no such waiver is specially alleged in the petition.

      Occupation of house — What will amount to—
    Where the policy contains a provision that it shall be void if the house becomes unoccupied, and it appears that since the last tenant left the house, the son of the owner, who was employed during the night in a R. R. yard, slept in the hous6 during every day, the house will not be considered unoccupied within the meaning of the policy.

      Same — What question for court and what for jury—

    What constitutes occupation of a house is a question of law for the court. Whether the facts shown will amount to occupation within the meaning of the law is a question for the jury.
    Error to the Court of Common Pleas of Cuyahoga county.
   Maevin, J.

This suit was brought by J. L, Baldwin against the Eureka Eire & Marine Insurance Company upon a policy of insurance which had been issued to J. L. Baldwin, the property insured being a house, and that house burned on the 16th of May, 1894.

The petition sets out the fact of the issuing of the policy, with a copy of the policy; sets forth the fact of the fire, and alleges that all the conditions to be performed upon the part of the insured, have been performed.

The result in the court of common pleas was a verdict and judgment in favor of Baldwin, and that, upon motion for a new trial, was sustained and proper exceptions taken.

The first question *in this hearing, is as to the ruling on the evidence which- was offered and admitted for the purpose of showing that one of the conditions of the policy had been waived. The policy contained the condition that proofs of loss, if one should occur, should be made to the Insurance Company forthwith. Perhaps the word is either “forthwith”, or “in reasonable time” — in any event,- the word or words used mean within a reasonable time, as construed by the courts. There is no claim that that condition was complied with. Nine months or thereabouts elapsed after the fire before proofs of loss were made, and it is urged, that evidence to show that that condition was waived by the Company, which was claimed by the assured, was inadmissible under that petition; that if the plaintiff below relied upon the waiver of the condition regarding proofs of loss, that that should have been pleaded. And there is not any question that that is the better way to plead.

There is a case which is cited to us and which we have examined, the case of Levy v. Peabody Insurance Co., 10 W. Va., 560, where this exact question was raised, and the court there held that where the petition set out that all of the conditions required to be performed by the assured, had been performed, the assured might show a waiver of those conditions.

There is a case, Pennsylvania Fire Insurance Co. v. Dougherty, 102 Pennsylvania State, 568, where the same proposition is announced, but a reason is there given, which, perhaps, does not make that case exactly applicable to this case; but in support of the opinion announced in that case, the court cites the case of the Ben. Franklin Insurance Co. v. Flynn and Hamm, 98 Penn. St., 627. In that case, the pleadings set out a waiver on the matter of proof of loss, and the evidence varied materially from the allegations of the petition; that is, from the allegations of the petition in reference to the waiver'. The allegation was in these words:

“And plaintiffs further say, that notice of loss, preliminary proofs, and all conditions in said policy to be performed and kept by plaintiffs, were waived by defendant, to-wit: On the seventeenth day of July, A. D. one thous- and eight hundred and seventy-eight, said defendant denying all liability for said loss, and pretending said policy and risk had been cancelled and terminated previous to said loss, when in truth and in fact the same had not been cancelled’or terminated, but was still in full force and obligatory on defendant.”

Now, the evidence, introduced in support of the waiver, differed very much from that alleged in the petition, but the court says, on page 636:

“Then we have an objection to the proofs offered to establish the waiver, for that the declaration alleges that waiver to have occurred in a manner different from that set forth in the offer of proof. JBut as the narr. without the special clause, the subject of controversy, would have sustained the offer, we may treat this part of it as sur-plusage. We understand, indeed, that by the strict rules of pleading, if an allegation is made in the declaration which may be material in the trial, though immaterial in the pleadings, it must be proven as laid. But in our times, the severe rules of pleading find but little encouragement,”

And cites authorities in support of that.

A large number of cases are reported, in which, where suit is brought upon commercial paper and the endorser is sought to be held, and the allegations of the petition are that notice has been properly served upon the endorser, the evidence may be permitted and recovery may be had upon showing that notice was waived by the endorser:

Taunton Bank v. Richardson et al., 5 Pickering, 444; Camp v. Bates, 11 Conn., 492; Windham Bank v. Norton et al., 22 Conn., 219; Raney v. Baron, Adm’r., 1 Fla., 327; Blakely v. Grant, 6 Mass., 388; these are all and each upon that proposition, that where the suit is brought, as I have said, upon commercial paper, you may plead notice to prove waiver.

The case of the Home Insurance Co. v. Lindsey et el., 26 Ohio St., 348, is a case to which our attention was called. The second clause of the syllabus reads:

“In an action on a policy of insurance which contains a condition that, in case of loss, proof of the loss shall be made and delivered to the insurer within thirty days after the loss occurred, the petition of wnich does not allege performance of such condition, or a waiver on the part of the insurer, is bad on demurrer.”

This case is not directly in point upon the case that is before us here. Here there was an' allegation of performance.

We are cited by counsel for plaintiff in error, to the case of Mehurin & Son v. Stone, 37 Ohio State, 49. In that case a suit was brought upon a building contract, and there was a departure on the part of the plaintiff in the work that was performed for the defendant under the contract. The petition alleged that the contract had been fulfilled on the part of the plaintiff. On the trial it was sought on the part of the plaintiff, to show that certain alterations in the work had been consented to by the defendant, and that thereafter a strict compliance with the contract had been waived, and the court there held that under the allegations of the petition that there had been performance of the contract, it was not competent to show a waiver. The third clause in the syllabus in the case named, reads: “Evidence tending to show that the defendant waived the performance of certain of the conditions of the contract by the plaintiff, is not admissible. The court, on page 58 in the opinion, say:

“A waiver, by one party to an agreement, of the performance of a stipulation in his favor, is not a performance of that stipulation by another. It is an excuse for non-performance, and as such should be pleaded” (citing cases). “An exception to this rule is said to prevail in actions by an indorsee against the indorser of a promissory note, where evidence of a waiver of demand and notice is held admissible and sufficient to support an allegation that demand was made, and notice given.”

It will be observed that in the case last read, the suit was upon a contract, and it was alleged on the part of the plaintiff that he had performed, on his part, all that was to be performed; that was a building contract; that the thing for which he was entitled to recover, was the performance of the labor and the furnishing of the material which, by the contract, it was agreed should be done. Whereas, in the case at bar, although the furnishing of the proofs of loss is a condition precedent to recovery, it is not the thing, nor any part of the material thing which makes the Insuranoce Company the debtor of the assured; the debt accrues because of something else, to wit: the issuing of the policy and the occurrence of the fire, and although proof of loss is a condition precedent to recovery, it is not the proof of loss which is the thing for which recovery is sought.

It seems to us, that this is more nearly akin to the case of commercial paper. And upon the authority of the case in West Virginia, to which attention is called, and the Pennsylvania case, we hold, that there was no error on the part of the court in admitting evidence to show waiver of proofs of loss.

But it *s said that the evidence is not sufficient to establish a waiver, when admitted.

It is conceded that if the Insurance Company denied all liability under the policy, that would be a waiver of proofs of loss.

That proposition is established by a large number of cases and authorities:

May on Fire Insurance, sec. 459, (citing a large number of authorities); Portsmouth Ins. Co. v. Reynolds, Adm’r., 32 Grattan; The Aetna Fire Ins. Co. v. Sparks, 62 Ga., 187: all these sustain the proposition just announced.

But was there a waiver ? Was there a refusal to pay ? Does the evidence establish such denial of liability, so as to constitute a waiver of proofs of loss? The agent of the company, who solicited the insurance and through whom the policy was issued, was G. C. Napes. After the fire Mr. Baldwin called on Mapes. Mapes went to the place where the fire had occurred, and another agent, by the name of Bohm, whom Mapes says was the special agent of the company, and was an adjuster, went there, and after that Mapes wrote a letter to Baldwin; it reads:

“Oollinwood, 0., Agency, May 26th, 1894.
J. L. Baldwin, J
Dear Sir:- Special Agent Bohm says that the vacancy of the house would spoil the policy, and that the company would not be liable for payment., He also requested me to cancel the policy on the other house, as it is vacant and might share a like fate. The premium for the time yet to run would be $3.00, for which I enclose my check, Please send up the policy by first mail
“Respectfully yours,
“G. C. Mapes, Agent.”

By virtue of section 3644, Revised Statutes of our state, Mapes was the agent of this company. He says in his testimony, that Bohm was the special agent and adjuster, and that he, Mapes, wrote this letter after consultation with Bohm. We think that there was a waiver on the part of the company. We are not prepared to say that the jury found wrongfully on the matter of waiver in any event.

But there was another condition in this policy, and that condition reads:

“If the premises become unoccupied without the assent of the Insurance Company, the policy shall become void. ”

In the written portion of the policy, in the description of the premises, are these words:

“On the one and one half story frame shingle roof building and its additions adjoining and communicating, occupied and to be occupied by tenant as a private dwelling, situate on the North side of North Depot St., at Nottingham, Cuyahoga Co., O.”

The clause which I have just read, is the description of the.premises in the policy. There is no dispute as to wbat the facts are about the occupancy of that building. At the time the policy was issued, a tenant of the owner, with his family, lived in the building. They moved aut about April, the 18th or 19th, and thereafter, up to the time of the fire, a son of the plaintiff who was employed in the railroad yards during the night, slept in this house during the day, going to the house about ten o’clock in the morning and leaving it about five o’clock in the afternoon,and the undisputed evidence is that this occurred every day. The family of the plaintiff' — -of the owner of the house — lived in the house adjoining this house. Water was used ■ from this house, by the family going into this house to get it, and thát happened substantially daily, perhaps several times a day.

The son of the plaintiff who slept, in the house, had his bed there and things necessary for his sleeping in the house; aside from that, the house was not occupied.

The court left to the jury the question of whether the house was occupied or unoccupied. Though I am not authorized to speak for the court, for myself I do not understand that where there is no dispute as to the facts, there is any work for the jury to do. It seems to me that the court should have said whether the house was occupied or unoccupied. However, did the jury find right? The jury found specially that the house was not unoccupied. We think that the jury found right that the, house was not unoccupied. We have examined the cases, not only those cited to us in briefs of counsel, but others, and, without taking the time to go over all the cases cited, we think that there are cases more nearly akin to the case now being considered than those cited on the part of the plaintiff in error, the effect of which is, to hold that this house was occupied at the time of the fire.

I call attention to the case of the Phoenix Insurance Co. v. Abraham Tucker, 92 Illinois, 64. Without taking time to read more than the seventh clause of the syllabus and a short extract from the opinion, I should say that the syllabus which I am about to read, seems to sustain the position that it was proper to leave to the jury the question as to whether the house was occupied, even where there wa3 no dispute as to the facts of how the building was used.

“7, "What is meant by the term‘vacant and unoccupied,’ in a policy of insurance, as working a forfeiture of the policy, is a question of law; but whether a house was, at the time of.a loss, vacant and unoccupied, within the meaning of the policy, is a question of fact for the jury. ”

It does not fully sustain the proposition; but, however that may be, as I have said, we think the jury did not find wrong. On -page 71 of the opinion, the court uses this language: .

“The object of courts, when enforcing a provision in a policy like this, should be to endeavor to so construe it as to give effect to what might reasonably be supposed to have been the intention of the parties when they consented to it. It will hardly be contended that such a condition requires that the assured, or some of his family, should be actually in the house all the time.”

In this case there was the provision that the policy should be void if the building should be unoccupied.

In the case last cited the assured had lived in the house, and was living there at the time the policy was issued. He thereafter moved with his family, but left part of the furniture in the house, and he himself slept in the house for a time. His son or son-in-law moved his goods into the house to arrange it to live there, but they were not staying there all the time when the fire occurred. It was held that the house was not unoccupied.

Our own Supreme Court, in Moody v. Insurance Co., 52 Ohio St., 21, in the opinion delivered by Judge Williams, says:

“What constitutes vacancy or non-occupancv of a building, is a question of law; but whether a building is vacant, or unoccupied, or not, within the meaning of the law, is a question of fact for the jury. To constitute occupancy of a dwelling-house, it is not essential that it be continuously used by a family. The family may be absent from it for health, pleasure, business or convenience, for reasonable periods, and the house will not, on that account, be considered as vacant or unoccupied. In the case of the Insurance Company v. Kiernan, 83 Ky., 468, it is held, ‘that the condition in a policy on a house described as occupied as a family residence, containing a condition ' that it shall become void if the house ‘shall become vacant or unoccupied,’ the words ‘occupied as a family residence’ must be regarded as but a representation as to the then use of the house, and the condition is but an undertaking by the insured that the house shall not be without an occupant during the time covered by the policy; and the condition is not broken or violated or the policy become void ‘upon the house ceasing to be occupied’ as a family residence, it continuing to be occupied by one person, who had access to the entire building for the purpose of caring for it.”

B. B. Lee, for Plaintiff in Error.

J. F. Herrick, and P. P. McClure, for Defendant in Error.

The court says there that the jury did not find wrong in that case in finding that the house was not unoccupied.

This disposes of the errors assigned in the case for which it is sought to reverse it, and entertaining the views we do, the judgment of the court below is affirmed.


author: Summees, J.

text:
    (Second Circuit—Fayette Co., O., Circuit Court
    Nov. Term, 1898.)
    Before Shearer, C. J., Summers and Wilson, JJ.
    BARCLAY v. SALMON.

      Change of venue — Bias, etc. of judge — Statutes construed.

    (1). It is not necessary to incorporate an affidavit of the interest, bias or prejudice of a judge, made and filed as provided in section 550, of the Revised Statutes, into a bill of exceptions in order to bring it before a reviewing court, but it is sufficient to file it with the petition in error.
    (2). It is not necessary in such an affidavit to state facts showing interest, bias or prejudice, but merely to aver interest, bias, prejudice or other disqualifying fact.

      (3). The right to file such recusation is not limited to cases in which all of the judges of a subdivision are so disqualified, but exists in every cause or matter, pending before the court of common pleas in any county, which may come before a judge so disqualified.
    Error to the Court of Common Pleas of Fayette county.
   This suit was brought before a justice of the peace by Salmon as receiver, and afterward appealed to the court of common pleas. In his amended petition he avers, in substance, his appointment and qualifying as receiver in a certain action in said court, and his authorization to bring this suit; that by the order appointing him the defendants, to the action m which he was appointed, were directed to deliver to him possession of certain real estate, and he to take possession, rent the same and collect the rents; that prior to the date of his appointment the defendant, Barclay, had rented a part of said premises for a cash rental; that Barclay refused to surrender possession to him and, against his objection and protest, planted the same in corn and was about to remove the same; that he, Simon, is the owner of the corn and entitled to the immediate*possession thereof; that the defendants have wrongfully detained from him the possession of said corn to his damage in the sum of one hundred dollars, for which, and for the recovery of said corn, he prays judgment.

To this amended petition a general ^demurrer was filed and overruled.

February 6th, 1898, Barclay filed anjaffidavitjin which he says that he has good reason to believe andjdoes verily believe that the Honorable H. B. Maynard, one of the judges of said court of common pleas, has a bias for the plaintiff and a prejudice against the defendant1 to said cause, and is therefore disqualified to^preside^at the trial of said cause, or to conduct, or hear, or determine any of the proceedings therein.

February 7th, 1898, the following proceedings were had, as appears from the transcript of the journal entries:

“This day came the plaintiff and his attorney, and thereupon it appearing to the court that the defendant John Barclay, heretofore filed herein his affidavit, assigning that Hon. H. B. Maynard, the presiding judge of this court, is disqualified from presiding at the trial of said cause, for the reasons stated in said affidavit, and the court, the said judge named in said affidavit presiding, being of the opinion that said affidavit is not sufficient, and that the alleged ground of disqualification does not exist, order that said trial proceed; to which said order of the court the said defendants and each of them except, and against the protest of said defendants, said trial proceeded, the said judge named in said affidavit presiding thereat, and the defendants refused to participate in said trial.”

A jury was impaneled and sworn and returned a verdict for the plaintiff; a motion for a new trial was filed in due time, assigning among other grounds,

“1. Because of irregularity in the proceedings of said court, in that the judge presiding at said trial assumed to proceed and conduct said pretended trial notwithstanding the disqualification of said judge so to proceed;’’ and
“6. Because all of the proceedings of said court and jury constituting said pretended trial were and are wholly illegal and a palpable invasion of the statutory rights of said defendants, ”

The motion for a new trial was overruled, judgment entered, and in due time a petition in error was filed in this coqrt assigning as error the overruling of the demurrer to the amended petition and the action of the judge in presiding at the trial. No bill of exceptions was taken.

Summees, J.

Several questions are presented: Srst, does the petition state a cause of action; second, is a bill of exceptions necessary to bring the affidavit before this court; and third, the sufficiency of the affidavit.

The averment of ownership in the amended petition is based upon the facts stated, for otherwise they are not pertinent, and they are not sufficient to constitute the receiver owner of the property sought to be replevied.

It does not appear that Barclay was a party to the suit in which the receiver was appointed, or that he took the lease Us pendens. It does appear that Barclay rented the land for cash prior to the appointment'of the receiver, and this precludes a presumption in support of the judgment that the entire crop was rent.

This conclusion requires a reversal of the judgment, and a3 the remaining questions are not likely to arise in the new trial, they wall might be left unanswered did not the statute require this court to pass upon all the errors as. signed.

Is a bill of exceptions necessary? In this state it seems to be well settled that affidavits filed in support of a motion cannot be considered by a reviewing court, even when copied into the record by the clerk, unless made part of the record by a bill of exceptions. Sleet v. Williams, 21 Ohio St., 82; Goldsmith v. The State, 30 Ohio St., 208; Schultz v. The State, 32 Ohio St., 276. But it is not necessary in order to bring the motion before the reviewing court, to include it in the bill of exceptions, although it is not required by section 5334, of the Revised Statues, to be made a part of the record. Section 550 of the Revised Statutes, authorizes the filing of an affidavit of the fact of the interest, bias or prejudice of the judge, not in support of some motion or application, but as an original paper in the case, and upon its being so filed and the fact noted upon the trial docket, whether true or not, it disqualifies the judge to act in that case, and if he does act, it is one of the original papers which may be filed with the petition in error to exhibit the error complained of, under section 6716, of the Revised Statutes.

This distinction is illustrated in the cases of Sleet v. Williams, 21 Ohio St., 82 and Garner v. White, 23 Ohio St., 192. In each case a motion was made to discharge the attachment because the affidavit, upon which the writ issued, was insufficient, and because it was untrue. Affidavits were filed in support of the motion, In neither case was there a bill of exceptions, and in each case the supreme court passed upon the sufficiency of the affidavits upon which the writ of attachment issued, and in each case refused to pass upon the questions sought to be made by the affidavits filed in support of or against the motions to discharge.

But it is contended that the statute does not authorize the filing of an affidavit except when all the judges in the subdivision are interested or biased. If this is so, then the mare filing of an affidavit of interest or bias, in the absence of a showing that all the judges'of the subdivision were interested or biased, would not bar the judge from sitting, but the fact would have to be proven, and a bill of exceptions would be necessary to bring the evidence into the record.

Brewer J., in City of Emporia v. Volmer, 12 Kas., 475, 478, says:

“The statute is silent as to the manner of establishing the fact. It declares simply that the change shall be made when the fact exists. The fact must exist. The court must find the fact to exist. If the judge’s personal knowledge is altogether ignored, it will often place him in a position of being compelled to find that to be a fact which he knows not to be a fact, — a fact, too, which carries with it something of an imputation upon himself. If it were to be determined by simply the affidavit of the defendant, there would be almost numberless changes of venue. Every defendant closely pressed would seek delay in this manner. A change of venue is a wrong to the public, unless the necessities of justice to the defendant require it. It works delay. It causea expense. It endangers a prosecution. A defendant is easily persuaded of the prejudice of the judge. Adverse rulings convince him of the fact, as shown by the case of Burke v. Mayall, 10 Minn., 287, (Gill 226). It seems to us, therefore, that this is the true rule; that such facts and circumstances must be proved by affidavits, or other extrinsic testimony, as clearly show that there exists a prejudice on the part of the judge toward the defendant, and unless this prejudice thus clearly appears, a reviewing court will sustain an ovrruling of the application on the ground that the judge must have been personally conscious of the falsity or non-existence of the grounds alleged. It is not sufficient that a prima facie case only be shown — such a case as would require the sustaining of a challenge to a juror. It must be strong enough to overthrow the presumption in favor of the trial judge’s integrity, and of the clearness of his perceptions.”

But, as will appear from the interpretation given section 550 in the consideration of the remaining question, the provision for filing an affidavit is not limited to cases in which all of the judges of the subdivision are disqualified, •

It is contended that the affidavit is insufficient because it does not state the fact of bias, but merely that the affiant believes the judge has a bias; and further that it does not state any facts showing bias.

“An affidavit is a written declaration under oath made without notice to the opposite party.”

Revised Statutes, sec. 5262,

It is the fact of interest or bias, set forth in an affidavit by a party or his counsel, that disqualifies, and not his belief. In proceedings in attachment, sec. 5522, Revised Statutes provides that the clerk shall make an order of attachment when there is filed in his office an affidavit of the plaintiff showing, among other matters, the existence of any one of the grounds of attachment. In Coston v. Paige, 9 Ohio St., 397, it is decided that,

‘‘The ground for an attachment may be stated in the affidavit in the language of the statute, without specifying more particularly the facts intended to be alleged’’.

And in the following cases, that such an affidavit is insufficient'when made merely on belief. Dunlevy & Co. v. Schartz, 17 Ohio St., 640; Garner v. White, 23 Ohio St., 192; Endel v. Leibrock, 33 Ohio St., 254. And as bearing on the question see, Campbell v. Hall & Co., 1 Kas., 488; Atchison v. Bartholow, 4 Kas., 124; Thompson v. Higginbotham, 18 Kas., 42.

At common law, and in this state until a very recent date, -only interest required a change of venue or disqualified a judge', and the facts upon which the interest arose had to be set out. Knaggs v. Conant, 2 Ohio 26; State ex rel. v. Winget, 37 Ohio St., 153.

The statute is very broad. The truth of the fact set out Is not subject to inquiry, at least not in that case, and to hold that a party or his counsel can disqualify a judge to sit whenever he can bring himself to believe that the judge h*as a prejudice against him or a bias for his adversary, by making merely such a recusation, might be to open wide the fioor to very grave abuse. One case has come before us at this term in which a party and his counsel had come from a distance to be present at a trial, and in which on the morning the case was set for trial such an affidavit was filed. No provision is made for notice or for costs in case of continuance or to guard against abuse.

It is further contended that the filing of an affidavit was unauthorized because it does not appear that all of the judges of the subdivision were disqualified. The law of 1860, (57 O. L,, 5) is not materially different from that of 1855, (53 O. L., 25), and was carried into the revision of 1880 as section 550, So much of it as is material to the question under consideration is as follows:

“In every instance where a judge of the court of common pleas is or shall be interested in the event of any cause, proceeding, motion, or matter pending before the said court, in any county of his district, * * * on affidavit of either party to said cause, * * * or his counsel, showing the fact of such interest, it shall be the duty of the clerk of said court to enter upon the docket thereof, an order directing that the papers and all matters belonging to said cause” shall be transmitted to the clerk of the court of common pleas of an adjoining county)’ of another subdivision, where practicable,of the same district; where not,then toan adjoining county of another district.”

It will be noticed that the section, as it then was, provided for a change of venue in every case where the fact of the interest of the judge is shown by the affidavit of 3ither party or his counsel. In 1885, (82 O. L,, 24.) the section was amended to read:

“When a judge of the common pleas court is interested in any cause or matter pending before the court in any county of his district, or is related to either or any party to such causes or is otherwise disqualified to sit in such a cause or matter, and there is no other judge in the same-subdivision who is not disqualified, on affidavit of either party to such cause, or matter, or his counsel, showing”;, etc.

Here is the first material change in the law. It will be noticed that not only does interest in a cause disqualify a judge to sit, but also relationship or any other disqualification that is shown by affidavit of a party. Another important change is that the venue is not to be changed in every instance an affidavit is filed, but only when no other judge in the same subdivision is not so disqualified. The clause ‘‘and there is no other judge in the same subdivision who is not so disqualified,” was not intended as a limitation of the cases in which an affidavit is authorized, but of the cases in which the venue is to be changed. Prior to this amendment every case, in which it was shown by affidavit that the judge had an interest, was to be taken out of his jurisdiction; by the amendment he is, by implication at least, disqualified to sit not only in cases in which he is shown by affidavit to have an interest, but in every case in which his interest, relationship or other disqualification is shown by affidavit of a party or his counsel, and some other judge of the subdivision, who is not so disqualified, is to sit, or, if there is none, the case is to be sent to another county. A mere transposition of the clause so that it will immediately precede the clause prescribing the duty of the clerk will make plain the legislative intent.

This fault in the frame work of the section has been, as we shall see, carried in the amendments into the section in its present form.

Another source of confusion is that the section does not in express terms, as does the section in relation to judges of the circuit court, disqualify the judge, but does so only by necessary implication. The reason is that originally the statute in every case provided for a change of venue,so that it was not necessary to declare the judge disqualified, and, instead of redrafting the section and in express terms disqualifying the judge, the section has been from time to time amended until now it in no instance provides for a change of venue, but only for a judge who is not disqualified.

The section was again amended in 1887 (84 O. L., 129), so that interest in the event of the cause was the only ground of disqualification. In 1888, (85 O. L., 267), the section as it was in 1885, was restored verbatim et literatim. In 1889, (86 O. L., 363), the section was again amended and as so amended, is still in force. It is as follows:

“Section 550. When a judge of.the common pleas court is interested in any cause or matter pending before the court in any county of his district, or is related to, or has a bias or prejudice either for or against, either or any party to such cause, or is otherwise disqualified to sit in such cause or matter, and there is no other judge in the same subdivision who is not so disqualified, on the filing of an affidavit of either or any party to such cause or matter, or of his or her counsel, setting forth the fact of such interest, bias or prejudice or disqualification, the clerk of the court shall enter the fact of the filing of such affidavit on the trial docket in such case, and forthwith notify the supervising judge or if he be disqualified as aforesaid, a judge of some other subdivision who is qualified, of the district, who shall proceed in the same manner as provided in section 469, of the Revised Statutes of Ohio, to designate and assign some other judge of the district not so as aforesaid disqualified, to hold the court and try the cause where the same is pending; and it shall thereupon be the duty of the judge so assigned, to proceed and try such cause,”

Previous to this amendment the section provided that on affidavit showing the fact of interest the clerk should act. Whether or not it was then necessary to state the facts which showed the fact of interest it is not necessary to consider, for now it is sufficient to file an affidavit setting forth the fact of such interest, bias, etc.; that is, aver such interest, bias, etc. And when such an affidavit is filed the duties of the clerk are ministerial, and not judicial, see State v. Shaw, 43 Ohio St., 324, and he should enter the fact of the filing on the trial docket, and thereupon the judge is disqualified to sit in such cause or matter, and if there is no other judge in the same subdivision who is not so disqualified, the clerk should forthwith notify the supervising judge, or, if he be so disqualified, a judge of some other subdivision of the district who is qualified,

The affidavit not setting forth the/api of bias or prejudice, but merely the defendant’s belief of such fact, was insufficient to disqualify the judge, and there was no error in his sitting in the trial of the case. But the judgment must be reversed for error in overruling the demurrer to the amended petition, and said demurrer is sustained and the cause remanded to the court of common pleas for such further proceedings as may be authorized by law,

John Logan, for Plaintiff in Error.

Humphrey Jones, for Defendant in Error.


author: Haynes, J.

text:
    (Sixth Circuit—Lucas Co., O., Circuit Court
    Oct. Term, 1898.)
    Before King, Haynes and Parker, JJ.
    THE KILBOURNE & JACOBS MANUFACTURING CO. v. NATHANIEL P. GLANN et al.

      Bond of contractor for government work — Obligation to pay for “materials’’used in the work —Scrapers not “materials” within meaning of bond.

    The provision in a bond given by a contractor for work to be done for the U. S. Government, whereby he is bound to “make full payment to all persons supplying him labor or materials in the prosecution of the work,” does not cover scrapers or any other tools or implements furnished such contractor for the performance of the work.
   Haynes, J.

This action was brought in the court of common pleas by the Kilbourne & Jacobs Manufacturing Co. against Nathaniel P. Glann as principal,and H. P. Glann and William G. Gardinier, as sureties, upon a bond that had been entered in-bo by Nathaniel P. Glann with one N. L. Roberts, First Lieutenant of the Nineteenth Infantry, acting assistant quartermaster of the United States. The original agreement was that Nathaniel P. Glann was to fill the river front at Fort Wayne, Mich.; to furnish and lay drain tile, and furnish and put in earth from outside of the reservation, all in accordance with the plans and profiles on file in the office of the constructing quartermaster. The United States require that there should be a bond given, and in pursuance of that a bond was given, as I have stated, So far as this case is concerned, that portion of the bond that is material is this: “That the said Glann shall make full payments to all persons supplying him labor or materials in the prosecution of the work provided for in said contract.”

The plaintiff says further — ■

“That on the 3d day of September, 1896, it sold and delivered to said defendant Nathaniel P. Glann, 24 square bowl wheel scrapers at the price of $35 each, and for the total sum of $840. That said scrapers were purchased by said defendant for the express purpose of being used, and were used, in the performance and prosecution of the work agreed to be done by him under the contract with the United States aforesaid. The plaintiff says that the said defendant has not paid the purchase price of said scrapers, nor any part thereof, although frequently requested by the plaintiff to do so.”

Therefore he brings his suit, and asks judgment for $840.

A demurrer was interposed to that petition by the defendants, and that demurrer was sustained, and the plaintiff not desiring to plead further, judgment was entered upon the demurrer in favor of the sureties in the case.

The question argued here, and the real question in the case is, whether or not these scrapers come within the designation of “materials” that were furnished in the prosecution of the work. No authorities are cited by counsel for plaintiff in error supporting his position that they are materials, although he says that he has been informed that there are certain decisions of courts of the United States that would sustain that position, but he has been unable to find those •cases. In the brief that he has filed the cases cited largely go to support the position that plaintiff had the right to bring this suit upon this bond directly, upon which there is no question made here. Then he cites a case in 14 Pac. Rep. 466—Parkinson v. Alexander—wherein the supreme court of Kansas say:

“Under the statute, laborers and material men furnishing work or materials in the construction of a railroad, are so protected that they may recover against the obligors on the bond, where a bond is given by the contractor in pursuance of the statute, or against the railroad company where no bond is given, for everything furnished by them which goes into the construction of the railroad, whether such laborers and material men are employed by the contractor or by a sub-contractor; but persons furnishing only provisions or goods which do not go into the construction of the railroad, are not so protected, unless such goods or provisions are furnished to the contractor himself.”

That seemed to throw a, little confusion into the case, but we have got now ihe case itself. It is found reported in 37 Ks. page 110. Turning to the statute of that state, it provides that—

‘‘Whenever any railroad company shall contract with any person for the construction of its road or any part thereof, such railroad company shall take from the person with whom such contract is made a good and sufficient bond, conditioned that such person shall pay ail laborers, mechanics, and material men, and persons who supply such contractor with provisions or goods of any kind, all just debts due to such persons, or to any person to whom any part of such work is given, incurred in carrying on such work, etc.”

The action was brought by men who had furnished goods o the sub-contractor or to the men employed by the subcontractor, to be applied on the amount that was coming to these men for their work, the sub-contractor charging up these goods as so much money paid to the workmen. The court held in that case that these goods so furnished did not come within the statute, nor were they materials furnished for the construction of the railroad. To that extent the case is against the position taken by the plaintiff. In the case at bar we are clearly of the opinion that the word ‘‘materials” does not cover the scrapers in question any more than it would cover the mules or horses that drew-them, or any other tools or implements that were used in making the excavation or filling that was there made. They are' not materials which went into the construction of the work, or that were used in the prosecution of the work. For this reason we sustain the judgment of the court of common pleas, and the judgment will therefore be affirmed at the costs of plaintiff in error.

E. W. Tolerton, for Plaintiff in Error.

B. B. Kinkade, for Defendant in Error.