text:
    BANK OFFICIAL BECOMES SURETY FOR. SUMS OWING BY HIM OR. FOR. WHICH HE IS LIABLE.
    Circuit Court of Cuyahoga County.
    Frank B. Brown et al v. Frank H. Ginn, Assignee.

    Decided, April 11, 1907.

      Suretyship — One Promising to Pay a Definite Sum, Not a Surety as to Items Making Up that Sum — Corporation Agreeing to Sell Stock of Stockholder for Certain Amount, When Liable — Assignee of Contract Finishing it for Original Contractor May Compromise — Payments, How Applied on Claim Not Due.

    1. An officer of a banking institution who, to secure to the bank the payment of certain sums which he owes to the bank and other sums of the bank’s money which he has loaned illegally, executes an instrument by which he obligates himself to pay to the bank a certain sum, which is the aggregate of a number of items, does not thereby become a surety as to the note of a third party which was one of the items included, and he is not relieved from liability on his own obligation to the amount of the note by the failure of the bank to proceed against the maker of the' note upon written notice requesting it so to do.
    2. A corporation which agrees to sell a stockholder’s stock for him at the same price for which he is about to sell it through a broker, and which fails to sell it as. agreed or give him any notice of its failure so to do, thereby becomes liable to account to him for the sum for which it agreed to sell it.
    3. The assignee of a contract who agrees to finish the contract, pay the bills and account for the balance received, after payment of all expenses, may, in good faith, make certain repairs for which the contractor was not legally liable, where by so doing it avoids litigation and is enabled to reach an earlier settlement.
    4. Payments made on a claim bearing interest, but not yet due, should be so applied as to extinguish a part of the principal and the interest which has accrued on the principal extinguished.
    Marvin, J.; 'Winch, J., and Henry, J., concur.

      Affirmed without opinion, Ginn, Assignee, v. Brown et al, 80 Ohio State, 718.

   The plaintiff in error, Frank B. Brown, was secretary and treasurer of the Arcade Savings Bank Company, which company afterward merged with and transferred all its assets and business to the Euclid Avenue Savings & Banking Company.' The defendant in error, Frank IT. Ginn, is assignee in trust for the benefit of the creditors of said last named company. On or about the 15th of December, 1893, it was ascertained that Brown had made loans of money of the banking company in a manner not authorized by the directors of the company, and in violation of his duty as such secretary and treasurer, and for such ■misuse of the money of the company the bank claimed to hold him personally liable. To partially secure the indebtedness thus claimed by the bank against Brown, he executed and delivered to ITjenry W. S. Wood, an officer of said company, his promissory note for $5,000, secured by mortgage on certain real estate. Later, and about the 3d of March, 1894, upon a further examination of Brown’s transactions with the money of the banking company it was found that the total amount of the funds so misused by him was $21,824.07, which' included the $5,000 evidenced by the note hereinbefore mentioned. On the date last named, it was agreed between Brown and the banking company that he was liable to the company in said larger sum to evidence which he executed to the company a written instrument, reading as follows:

“1894, March 3. To F. B. Brown, Trustee, overdraft $ 3,770.60
To F. B. Brown personal, overdraft 151.05
To interest paid Chase and others since Aug. 3d, 1895 .......... 801.29
To F. B. Brown, special, after omitting Garson item, $350.00" and Russell and Rice $200.00 to be hereafter considered .......... 1,349.40
To shortage, as per books........ 10,644.46
To National Street Cleaning Co., overdraft.................... 158.14
To Sterling and Son............ 2,718.28
To W. G. Richardson............ 179.07
To Keyless Lock Co............. 349.43
To Philadelphia Dairy .......... 1,661.35
$21,824.07
“Cleveland, Ohio, March. 3, 1894.
“Due. the Arcade Savings Company, twenty-one thousand, eight hundred twenty four dollars and seven cents ($21,824.07), with interest at seven per cent, from March 3d, 1894. The above is subject to correction of all errors. Items not included in the above and not agreed upon are left for future liquidation.
‘ ‘ (Signed) Frank B. Brown. ’ ’

Afterwards Brown agreed with the banking company, that for the purpose of assisting in the payment of the indebtedness evidenced by the instrument last hereinbefore quoted, the bank should take upon itself the completion of certain contracts for street paving in the city of Cleveland, which had been undertaken'by J. L. and EL L. Sterling, and which said Sterlings found themselves unable to complete.

Certain laborers and material-men had filed attested accounts against the Sterlings for materials furnished and labor performed in connection with this street paving, and a part of the arrangement between Brown and the banking company was that these attested accounts should be purchased by the banking company and in so far as it exceeded the amount which the banking company was required to expend in purchasing these attested accounts and in completing the Sterling contract for paving should be credited on the indebtedness of Brown to the banking company. This street paving was practically completed in 1894, but by the terms of the contract between the Sterlings and the city a certain percentage of the amount to be paid .for the work was to be held until two years after the original completion of the work, to secure such repairs upon the pavements as should then appear as a result of any,failure to do all the work as it should have been done in the first instance.

In 1896 the banking company did work upon the streets in connection with this paving, to repair defects which it was required to make under the original -contract with the Sterlings, and a large amount of money came into the hands of the banking company for this work of completing the paving contracts. On the part of the banking company, however, it is claimed, that after applying all of the moneys received on the Sterling contracts, in excess of expenditures of the bank in connection with these contracts, there still remained due from Brown to the bank a large amount of money, to recover which, Ginn, as assignee of' the Euclid Avenue Savings & Banking Company, brought suit against Brown.

. Brown, by his answer, claims that the moneys received on the Sterling contracts were, after deducting all credits to which the banking company would be entitled for expenditures made by it, not only enough to pay all his indebtedness to the banking company, but should leave a considerable amount which should be paid to him. This necessitated an accounting on the part of the banking company of its receipts and expenditures in connection with the Sterling contracts, and the ease was referred to E. S. Cook, Esq., to hear the entire ease, state an account, and report his findings of law and.fact, together with the evidence to the court. This was done, and exceptions were filed both by Brown and the banking company to the report of the referee, and such exceptions were heard in the court of common pleas, in which some of the exceptions were sustaiued and others overruled, and a judgment entered for a considerable amount against Brown.

To this action of the court of common pleas both Brown and the assignee, Ginn, excepted, and Brown filed his petition in error in this court, and Ginn filed a cross-petition in error.

The matters brought to our attention on the part of Brown are:

First. An item spoken .of as the “Richardson notes.”

It appears that among the items included in the obligation entered into by Brown for the payment of $21,824.07 were certain notes made by W. H. Richardson for moneys of the banking company which Brown had loaned to him without authority. These notes amounted to $1,500. They are' not mentioned in the twenty-one. thousand dollar contract by name, but are included, as appears by the evidence, in the item designated “to shortage as per books $10,644.46.” Brown claims that he has the right to be credited with the amount of these notes for the reason that they were retained by the bank, and after their ma- ■ turity he served a notice in writing on the bank to proceed to collect the notes, which the bank failed to do or to make any effort to do. Brown says that Richardson was entirely solvent when notice was so served -upon the bank, and that if suit had then been brought by the bank against Richardson the amount owing by him upon these notes would have been collected.

Iiis claim for a credit for these notes, or more properly, a reduction of the amount of his indebtedness to the extent of these notes, is based upon Section 5833 of the.Revised Statutes of Ohio, which reads:

“A person bound as surety in a written instrument for the payment of money or other valuable thing, may if a right of action accrue thereon, require his creditor, by notice in writing, to commence an action on such instrument forthwith, against the principal debtor; and unless the creditor commence such action within a reasonable time thereafter, and proceed with due diligence, in the ordinary course of law to recover judgment against the principal debtor for-the money or other valuable thing due thereof, and to make, by execution the amount thereof, the creditor, or the assigns of such instrument, so failing to comply with the requisition of such surety shall thereby forfeit the right which he would otherwise have to demand and receive from such surety the amount due thereon.”

The court of common pleas held against the claim of Brown in this regard, for the reason that though there is a sense in which Brown may properly be said to have been a surety to the bank for the payment of these Richardson notes, yet he did not undertake in terms to become surety for notes, nor were these notes mentioned in the obligation which he assumed when he executed the twenty-one thousand 'dollar contract. The Richardson notes are nowhere mentioned in the contract. Brown took upon himself an original obligation to pay, among other items, an item hereinbefore mentioned, reading: “To shortage as per books $10,644.46.”

There was nothing in this item to indicate that the Richardson notes were included, though, as a matter of fact they were included, and so, if Brown had to pay this item, he would doubtless have been subrogated to the rights of the bank on the Richardson notes, yet it was an original obligation on his part - to pay that entire item. In coming to this conclusion it is not necessary to adopt the reasoning of the court of common pleas entirely, nor is it necessary to adopt the reasoning of the ease of Morrison v. Bank, 6 N. P., 7. And, although this remedial statute is to be liberally construed, it requires, as we think, a construction more than liberal to hold that Brown can be said to be in the language of the statute, “A person bound as surety in a written instrument for the payment of money.” lie was bound, as principal, for the payment of this entire amount of $10,644.46. If he paid it, as has already been said, he would be subrogated to the rights of the bank in the Richardson notes but not because he was bound in a written instrument in terms to pay those notes.

The next matter to which Brown takes exception in the judgment of the court of common pleas is connected with 30 shares of the stock of thé banking company owned by Brown. These 30 shares had been pledged by Brown to the Produce Exchange Bank, to whom he delivered a certificate to secure an indebtedness of his to said last named bank.

The certificates for these shares had printed or engraved upon them a statement that they were pledged to the bank which issued them for any indebtedness which such bank might hold against the holder of these shares, and it was claimed on the part of the banking company that it, therefore, had a lien on these shares of stock superior to the lien of the Produce Exchange Bank.

Brown being desirous of availing himself of this stock for the purpose of paying so far as he could his indebtedness to' the banking company, negotiated with the Produce Exchange Bank, and it was agreed some time in 1901, between Brown and the last named hank, that upon payment to it of $2,700 the indebtedness of that bank against Brown should be canceled and the stock released. Brown thereupon authorized a brokerage firm in this city to sell the stock, which was worth about 35 per cent, above par. Brown communicated to Stewart, an officer of the banking company, who had charge of its business, the fact that he had made this agreement with the Produce Exehánge Bank for $2,700 and tliat his stock was in the hands of the broker for sale. Stewart told him that the banking company could sell the stock for him and that if he would authorize them to make the sale, they had a customer who- would take the stock at 35 per cent, above par, and that it would be better for him (Brown) to let the banking company make the sale, as he would thereby save the commission of the broker. To this Brown agreed, and the referee finds as a fact, that Brown was never notified that this sale had not been made. Brown says he supposed it had been made, and that he had been credited on his indebtedness to the banking company to the amount of these shares, above the $2,700 for which they were pledged to the Produce Exchange Bank. The court of common pleas held against the claim of Brown in this regard. In this we find error.

We think Brown ivas entitled to a credit upon his indebtedness to the banking company to the entire amount of these shares at 35 per cent, above par. If the bank had done what Stewart agreed with Brown to do, he would have had the benefit of these shares at .the price named. True, $2,700 of the amount would have been paid to the Produce Exchange Bank, so that it would not have come into Brown’s hands, but his indebtedness to that last named bank would have been paid; whereas by the course pursued Brown was left with the indebtedness to the Produce Exchange Bank still upon him. We .think Brown had a right to rely upon the banking company making this sale at. the stipulated price, or, upon failure to sell, to notify him forthwith, so that he might have made a sale, and failing to give him such notice, as the «referee finds was the ease, we hold that Brown was entitled, as above stated, to the amount of these shares at 35 per cent. abovQ par.

Another item of the judgment of the court of common pleas complained of by Brown is with reference to 26 shares of stock which Stewart, representing the bank, reported to Brown that he had sold at the rate of 102, and for which Brown was given credit only at the rate of 300. This amounting to $52 should have been allowed to Brown.

Brown further complains that in making up the accounts between the bank and himself the court of common pleas erred in allowing a credit to the bank of $2,400 paid to TIenry AV. S. AVood, for superintending the work done by the banking company in the completion of the Sterling paving contracts. The referee had allowed on this claim $2,500. The evidence fairly shows that an agreement ivas made by the bank with AVood, which agreement was assented to by Brown, that AVood should be paid at the rate of $200 per month for his services in superintending this work. Under the evidence, we think it is fair to say that the entire time spent by AVood in 1894 and 1895 was substantially twelve months, and we affirm the judgment of the court of common pleas on this item.

Another item complained of by Brown is that there was allowed to the bank -$525 for work done in connection with the finishing up and completing the repairs of the pavements in 1896; it being claimed on Brown’s part that to this extent (that is $525) this work was rendered necessary by injury to the pavements done by the city in putting in sewers and other improvements and therefore the Sterlings would not have been bound, and therefore the banking company was not bound to have made these repairs. From the evidence, it seems reasonably clear that Brown’s claim in regard to this fact is well founded, but it appears further that there was a considerable amount of money due from the city on these contracts. That to get this money without litigation with the city the bank was compelled to do this work, which really should have been done by the city. As a matter of fact the bank did make the expenditure, and, as we think, was fairly justified in making it, rather than to be at the expense of litigation with the city, and to be out the money which was owing upon the paving contracts. That being so, the banking company might well have yielded on this point rather than to have been at the expense of litigation with the city, and it was really in the interests of Brown . himself. AVe find no error in the judgment of the court of common pleas in this regard.

By his cross-petition in error the assignee raises the question of whether the court of common pleas was right in its holding in reference to a claim against one George Worden, trustee. The facts in connection with this claim as found by the referee are somewhat complicated, but from them we conclude that Worden, acting as a trustee for the bank, received money which should have been applied to the complétion of the Sterling contracts, a part of which was not thus applied, and to the extent that it was not so applied, the bank and not Brown should be the loser; that is, that Brown should be entitled to a credit for the amount of such excess. We concur, therefore, in the finding of the court of common pleas in this regard, and if it becomes necessary, in order to ascertain this amount, to re-refer the ease, it will be done. It is probable, however, that the parties can, upon this finding, agree upon the amount thus to be charged to the bank.

Another matter complained of is the one of applying credits given Brown in the accounting. ’The instrument for twenty-one thousand dollars and over sued upon is spoken of as a due bill, and but for the arrangements made subsequent to the execution and delivery of the instrument, was due and payable forthwith, that is, upon demand, and so to the extent that payments were made upon it prior to the contract between Brown and the banking company in reference to the Sterling contracts, whenever a payment was made upon it in excess -of the interest which had accrued at-the time of such payment, it was proper to.add to the principal indebtedness the interest which had thus accrued at the time of such payment and then deduct therefrom the payment and compute interest on the balance at 7 per cent, until the' time of the next payment. But, after the arrangement was made in reference to the Sterling paving contracts, the effect was to postpone the time when the dividend evidenced by this contract matured, and, as no interest would become due until the maturity of the principal indebtedness, it was not proper to pursue the course which was proper to pursue prior to the making of the agreement with reference to the Sterling contracts. Therefore, the payments made should have been applied in reduction of the principal and the interest which had accrued upon such amount of the principal as was then paid. That is to say, if the payment was made of $535 at the end of oné year, $500 of such payment should have been allowed in reduction of the principal and the remaining' $35 should have been applied in payment of the interest which had accrued on the $500 of principal. In short the rule should have been adopted which is given in Miami Export Company v. Bank of the United States, 5 Ohio Reports, at page 260; the third clause of the syllabus reads:

“Payment made on an installment bearing interest, but not due, should be so applied as to extinguish a part of the principal and the interest which has accrued on the principal extinguished.”

On September 29, 1894, subsequent to the giving of the twenty-one thousand obligation, Brown gave another note which reads:

“$6933.46 Cleveland, Ohio, Sept. 29,1894.
‘ ‘ On demand after date, I promise to pay to the order of the Arcade Savings and Banking Company, six thousand, ninte hundred and thirty-three dollars and interest at 7 per cent.
“Value received. E. B. Brown.”

This note was not for an additional indebtedness, but as a further security for the indebtedness evidenced by the twenty-one thousand dollar contract. To the extent of this note 7 per cent, was to be paid on the indebtedness, even though a part of this note may have been made up of the interest which had already accrued, and to the extent that this requires a modification of the rule already stated in reference to the computation of interest, it will be modified, and not otherwise.

In this case we feel this court should proceed to enter a judgment 'which should have been entered in the court below, and when the proper computations shall have been made and accounts stated as indicated in this opinion, such judgment will be entered here.


source: Caselaw Access Project

author: By the Court

license: Public Domain

text:
    DISSOLUTION OF CORPORATIONS.
    Court of Appeals for Richland County.
    In Re Application to Dissolve The Mansfield Railway, Light & Power Company.
    Decided, January Term, 1914.

      Corporations — Dissolution of a Public Utility Company — May be Decreed if for the Best Interest of the Stockholders and Not Injurious to the Public Interest — Question Largely One of Fact — Full Investigation Required to Reach a Determination.

    1. Under favor of Section 11938 of the General Code of Ohio, a corporation may be dissolved: “When a majority of the directors, trustees or other officers having the management of the concerns of a corporation, or stockholders representing not less than one-third of the capital stock of a corporation, organized under the laws of this state, discover that the stock, property and effects of the corporation have been so far reduced, by losses, or otherwise, that it would not be able to pay all just demands for which it is liable, or to afford a reasonable security to those who deal with it, or deem it beneficial to the interests of the stockholders that the corporation be dissolved; or when such directors, trustees, or other officers are authorized by a majority of the stockholders to apply for a judgment as hereinbefore provided, or when the objects of the corporation have wholly failed, or are entirely abandoned, or their accomplishment is inpracticable, they may apply by petition to the common pleas court in which the principal place of conducting the business of the corporation is situated for its dissolution pursuant to the provisions of this chapter.”
    2. Under Section 11943, General Code of Ohio, it. is provided: “When report is made, if it appears to the court that the corporation is insolvent or that its dissolution will be beneficial .to the stockholders and not injurious to the public interest or that the objects of the corporation have wholly failed or been entirely abandoned, or that it is impracticable to accomplish such objects, a judgment shall be entered dissolving the .corporation and appointing one or more receivers of its estate and effects. The corporation thereupon shall be dissolved.”

      Rush, Taggart Karr, for plaintiffs.

      Cummings, McBride <& Wolfe, contra.
   By the Court

This action for the dissolution of the Mansfield Railway, Light & Power Company was made under favor of Section 11938 of the General Code of Ohio, and was tried in the court of common pleas at its September term, to-wit, December 30, 1912, and it was decreed that said corporation be dissolved and its property be sold as prayed for in the petition.

Proceedings in error were prosecuted to the court of appeals and were heard at the January term, 1914.

The necessary parties were brought into said proceeding and issue with the petition was joined by separate answers of the parties in interest and the cause ivas heard in the said Court of Common Pleas of Richland County, upon the record that was made of the testimony, and exhibits taken by the master commissioner, appointed by the court of common pleas for that purpose, and such proceedings were had in said action that the court of common pleas, at the September term, to-wit, December 30, 1912, decreed that said corporation be dissolved and that its property be sold, as prayed for in the petition.

Motions for new trial were filed by the respective parties in interest, complaining of the decree, Avhieh motions Avere ovex-ruled and exceptions taken by the respective parties complaining of said judgment and decree.

The case has been submitted both by oral argument and by briefs filed by the respective parties, and, in addition to the briefs filed, the opinion of the court beloAV, rendered by Judge EdAAdn Mansfield, has been submitted to us for consideration. After a very careful examination of the opinion and the synopsis of the.testimony made by the court, Ave think it would be a task of supererogation to undertake to add to or improve the analysis made by the judge in said opinion.

Therefore, aa’c adopt the opinion of said court of common pleas, filed hereAvith, as the judgment of this court, and affirm the judgment of the court beloAV, AAdth costs, without penalty. Exceptions for the respective parties who may desire to prosecute error to this judgment of affirmance. Remanded to the court of common pleas for further proceedings acqording to law.

The opinion of Judge Mansfield is as follows, to-wit:

In the Court of Common Pleas of Richland County, Ohio.

In re Application to Dissolve The Mansfield Railway, Light & Power Company.

This action for the dissolution of the Mansfield Railway, Light & Power Company is filed under favor of Section 11938 of the General Code, which provides:

“When a majority of the directors, trustees or other officers of a corporation or stockholders representing not less than one-third of the capital stock of a corporation, organized under the laws of this state, discover that the stock, property and effects of the corporation have been so far reduced by losses or otherwise, that it will not be able to pay all just demands for which it is liable, or to afford a reasonable security to those who deal with it, or deem it beneficial to the interests of the stockholders that the corporation be dissolved; or when such directors, trustees, or other officers are authorized by a majority of the stock, holders to apply for a judgment as hereinafter provided, or when the objects of the corporation have wholly failed, or are entirely abandoned or their accomplishment is impracticable, they may apply by petition to the common pleas court of the county in which the principal place of conducting the business of the corporation is situated for its dissolution pursuant to the provisions of this chapter.”

Subsequent sections prescribe the necessary procedure, the appointment of a master and the filing of the master’s report containing the evidence, exhibits and proof adduced under the allegations of the petition together with a statement of the property, effects, debts, credits and engagement of the corporation and all other matters pertinent to the inquiry and by Section 11943, General Code, it is provided:

“When report is made if it appears to the court that the corporation is insolvent or that its dissolution will be beneficial to the stockholders and not injurious to the public interest or that the objects of the corporation have wholly failed, or been entirely abandoned, or that it is impracticable to accomplish such objects, a judgment shall be entered dissolving the corporation and appointing one or more receivers of its estate and effects. The corporation thereupon shall be dissolved.”

The applicants predicate their right to the dissolution of the corporation in question wholly upon the ground that it will be for the best interest of the stockholders of the company, and if the facts in this case warrant a finding to that effect and a dissolution will not be injurious to the public interest, then under Section 11943 of the General Code, a dissolution should be awarded. So in this investigation two principal questions are to be determined from the record, first, will a dissolution of the corporation be for the best interest of the stockholders of the company; if it would, then the further inquiry, Avould such dissolution be injurious to the public interest.

I have read the record in this case tAvice, some parts of it three or four times, also gone carefully over the several exhibits, the record and exhibits making more than 1,000 pages, in order that I might acquaint himself with the full scope of the inquiry before the master and ascertain the contention made by the various parties. Bat for the purposes of this opinion only such matters Avill he taken up for anaiviss as appear pertinent to the issue raised by the pleadings of the parties.

The Mansfield Railway, Light & Power Company Avas organized in March, 1903, for the purpose ostensibly to succeed and take over the property of the Citizens Electric Railway, Light & PoAver Co„, Avhich latter company for some year prior thereto was the oAvner and operating an electric railway in this city and furnishing electricity for light and power purposes. The charter of the nerv company provided for an authorized capital of one million dollars, and the plant of the old company, that is, the Citizens Electric Light and PoAver Co. and its property rights and franchises were purchased by the new company for a consideration of $1,417,000; $1,000,000 of which Avas to be paid for in stock of the new company and presumably distributed pro rata between the members of the old company and $417,000 of bonds of the neAv company. At the time of the purchase to take care of $417,000 of the bonds to proAdde further credit for the new company and to secure certain indebtedness of tbe old company a total bond issue of $1,000,000 was authorized by the new company and this bond issue was distributed as follows;

For immediate use $450,000
To be retained in the treasury to be sold for the betterments and improvements . 350,000
To take care of $200,000 of outstanding consolidated bonds of tbe old company 200,000

All of these bonds are now outstanding with the 'exception of $58,000 of unsold bonds, of the $350,000 provided for betterments and of those sold the sum of $286,000 was received, they having been sold for less than par under the arrangement entered into at the time of their issue and the money disbursed for the purpose of making improvements and betterments.

All bonds bearing five per cent, interest due semi-annually on the first day of April and October of each year, all the bonds being due on April 1, 191.8, and were secured by mortgage upon the real estate property and franchise of the company.

By article four of the mortgage or trust deed given to secure the mortgage it was provided;

“A reserve fund shall be created and maintained for acquisition, reneweals, replacements, improvements and betterments of the property of the company but not for ordinary repairs which shall consist of and be maintained by setting aside by the railroad company, if as and when the same is earned over and above the fixed charges of the sum of $10,000 on the 15th day of July, in each and every year until the maturity of the bonds herein provided for, this fund shall be used for the purpose above set forth in addition to the amount derived by the issue of bonds and any sum left in said reserve fund may be applicable to the payment of said bonds.”

On the 16th day of November, 1906, such proceedings were taken by the stockholders by which the articles of incorporation were amended, by which amendment it was provided that the capital stock of the company common and preferred shall be $1,000,000 consisting of 6500 shares of common stock of the par value of $100 each, the holders of the preferred stock shall be entitled to a dividend of six per cent, per annum payable quarterly on the first day of February, May, August and November of each year out of the surplus profits of the company for each year in preference to all other stockholders and such dividends shall be cumulative.

It is further provided that after five years from the date of issue the preferred stock may be redeemed at $115 per share, and the holders therof shall not be entitled to vote except in ease of default in the payment of any two dividends, in which event the right to vote shall immediately accrue and continue as long as any dividends are unpaid.

At the meeting ei’eating and authorizing the issuing of preferred stock it was further provided that said preferred stock issue be issued to the holders of the common stock up to the amount of 35 per cent, of the common stock and the amount of' common stock so exchanged shall be surrendered and canceled.

In pursuance of said amendment and resolution of the stockholders meetings and board of directors making provisions for said preferred stock and its distribution, each of the common stockholders exchange the percentage of their holdings named for preferred stock and caused to be canceled the common stock for which the preferred stock was exchanged. On said 16th day of November, 3906, the board of directors declared a quarterly dividend of 1% per cent., payable on the first day of February, 3907, and each quarter thereafter for the year 1906, dividends were paid on the preferred stock.

Prior to the 1st day of August, 1907, the Cleveland & Southwestern Electric Railway Company was organized. It operated an electric railway extending from Bueyrus by way of G-alion and Crestline to Mansfield, Ohio, its tracks terminating near the west corporation line of what is known as Spring Mill street, and from thence into this city it ran its cars over the tracks of the local company. On the east of the city the South-' western owned a line running from this city east by the way of Ashland and Seville to Cleveland, Ohio, both of these lines were in operation and running over the tracks of the Mansfield Railway Light & Power Company under an amicable arrangement between them. The local company in each instance .owning the tracks and controlling the right-of-way and franchise within the city or near the corporate limits.

On August 1, 1907, the Cleveland & Southwestern Company purchased 5056 shares of the common stock of the Mansfield Company, .this purchase giving it a majority of all the outstanding stock and controlling interest in the company. At a special meeting of the Mansfield Company held on the 23d day of September, 1907, by resignation of certain members of the board of directors vacancies were created and filled by the selection of persons representing the interest of the Southwestern Company, giving to the Southwestern a majority of the board of directors and the preferred stockholders a minority representation on the board. On the 10th day of June, 1907, prior to the acquisition of the Southwestern of the common stock of the company at a stockholders meeting for the purpose .of selecting a board of directors and transacting other business more than 6000 shares were represented of which S. N. Ford1 was a holder and voted 528 shares, Thomas N. Latham 2275 shares, Reid Carpenter 2785 shares, and Rush Taggart by Reid Carpenter proxy 526 shares. All of this apparently was common stock as it would appear that the stock purchased by the Southwestern on the 1st day of August, 1907, must have come from the holdings of stock represented at said meeting; and when the deal was made of the sale to the Southwestern for a price of $125,000 for the 5050- shares the selling parties must have known that the control was passing into the hands of that company and they as interested parties in that deal at least ought not to be heard to complain or raise the question that such purchase of the Southwestern was illegal or that such purchasers should be precluded from exercising lawful rights as such stockholders in the management of the corporation and the selection of the agents to carry on its business.

Upon the other hand in the purchase of the common stock the Southwestern people are hardly in position to question the adequacy of price they paid for the stock or its value at the time they purchased it nor the value of the business or plant in which they ■ were purchasing an interest. They undoubtedly knew what they were purchasing, must have known the classes of stock outstanding, that one>-third of it was preferred stock. They were men of experience in that class of securities, were at that time operators of electric railways, were experienced in large business transactions and affairs, so they are in no position to complain of the value of the stock they were purchasing any more than the minority could complain of surrendering control under such purchase. They both must have known the new condition that would result from such transactions, the selling parties that control were to pass to the purchasers and the purchasers that they were securing that control subject to the limitations provided for the' benefit of the preferred stockholders.

As hereinafter referred to the Southwestern interests are now questioning the integrity of the preferred stock, claiming that it is not entitled to any preference in distribution of dividends or otherwise over the common stock. Whatever may be the merits of that contention so far as this cause is concerned it does not appear but what it was rightfully issued under the statute and that the holders thereof are bona fide. Prima facie without any showing to the contrary it appears to be a valid issue .of stock and must therefore be presumed to be a valid issue and he treated as such in the disposition of this case at least so far as now concerns the main question at issue.

So then we approach the analysis of the facts of this case, first, that the acquisition of the common stock of the Southwestern which gave it control, as legal, and second, that the outstanding preferred stock is a legal issue.

It is very apparent that the purchase by the Southwestern was not with the expectation of returns by way of dividends on the stock they had purchased, for if their contention is true that the earnings of the company were not sufficient for the purpose of declaring dividends on the preferred stock it would be hard to conceive of what value it would be to the new purchasers of the common stock upon the basis of a mere investment.

It is very clear from the evidence that it- had not such value, that under the most favorable management after taking qare of necessary improvements and maintenance and dividends on the preferred stock it would bo uncertain whether the common stock would ever reach a dividend basis. So taking that fact, into consideration with the price that the Southwestern paid for it, it is clear the purchase was not made with much hope of dividends from such source, if the integrity of the preferred stock be maintained, but on the contrary to secure control for the purpose of making the local company an integral part of the Southwestern system. But such purpose in itself would not be illegal providing the control so exercised would not work a hardship .upon the corporation itself or be injurious to the minority stockholders.

The Southwestern was the larger and more important company. Its combined lines represented a large and complete system of electric railways and a conservation of this larger interest would naturally draw in its direction the greater attention of those placed in a dual relation to each company. Wherever and whenever duties are to be exercised by one who is placed in a position to decide between possible and conflicting interest it is naturally to be supposed that decision will follow the greater interest even though no fraud is practiced or intended, It is.a most delicate situation even for the fairest minded men to get into and human experience has taught us that the greater favor follows the greater interest, and this is true whether actions result from the individual or a combination of individuals, when the number represents a class whose interests are mutual, AVhere there are no conflicting interests there can be no valid objection to the majority of a board of directors of one corporation being in control or constituting the board of another corporation, but where there are conflicting interests, then the minority are entitled as of right to have the acts of the majority most closely scrutinized in reference to such conflicting interest and every inference and intendment should be resolved against the majority exercising control under such circumstances.

Under such circumstances members of a board can not occupy a neutral position, their interest must always be a partisan one and a partisan on behalf of that company which they are serving in the capacity of directors.

In the very nature of things they would not be expected to exercise that partisan interest which would respond to their full duties as members of a board looking to the interest of the company, if at the time they were called upon to formulate action their interests in a larger corporation were in conflict with those of the corporation which they were then acting.

There is no dispute but that the company is and has for some years been in a fairly prosperous condition; it is solvent and has met its obligations from time to time to its creditors and upon Ihe whole its management by local executive officers has been as good and business like as could reasonably be expected with the equipment and plant furnished for the purpose of operation, and there is no complaint that the moneys expended for improvements and betterments whether out of the earnings or from proceeds from sale of bonds, but that such betterments and improvements were proper and necessary in the due prosecution, upkeep and extension of its lines, and it would seem that under ordinary conditions and harmonious action upon the part of the several interests represented on the board of directors that the future of the company would be bright and much value added not only to the service it coidd render to the public but also to its capital.

But it is contended that the general policy of the company has been determined by the control of interests that are antagonistic to the general welfare and prosperity of the company and the rights of the minority, and that dissensions of a grave and serious character have arisen between the minority and majority as to the proper, judicious and internal management of the company, and that the majority in control have gone to the extent of exercising their power to the sacrifice of the rights of the minority and to impair the value of their securities. If internal dissensions arise between the stockholders and such differences are of such a grave character that the natural and logical result tend to destroy or impede the efficient management of the corporation in carrying out the purpose for which it was created or if the dissensions or difference between stockholders brought to the very doors of the controlling board of the corporation was of that grave character and importance that the security of the stockholders became imperiled resulting in loss to them in the diminution of the value of their stock securities or of returns justly due them by way of dividends or other profits and benefits arising from the relations to the corporation as stockholders, then such dissensions and lack of harmony undoubtedly would afford a valid sufficient reason if clearly shown, to warrant a dissolution of the corporation, and this would be true even though at the time of the application for dissolution, the corporation appeared to be in a prosperous condition and otherwise carrying out the purposes for which it was organized.

The.property, plant and franchises of the company on the 1st day of January, 1911, as shown by the book value was $2,-177,809.33. The original price paid for the company was $1,-417,000. Since then there has been expended for betterments out of the sale of bonds $286,000, making a total of $1,703,000. Deducting this amount from the book value January 1, 1911, would leave $414,809.33, -which would represent the added value to the property of the company during that period of time outside of the disbursements made from the sale of bonds. This added value of course, may have come from the application of earnings of the company during that period for the purpose of betterments or from the natural increase of value to the property of the company itself; that the greater part of it came from the earnings is very apparent from the evidence.

It is contended however, that in many instances items were charged to capital account which ought to have been charged to income account, and that the total of such amounts after de- • ducting proper credits would reduce the book value $134,997.55, or that the book value instead of being carried at the figure of $2,117,809.33 should be $1,982,811.78, and it is also claimed that during this period of years that nothing has been charged off for depreciation, and that on account of the character of the equipments necessary in that line of business, that the depreciation is a considerable figure each year. Upon the other hand it is contended that the machinery and equipments have been maintained at a high standard of efficiency, and that all expenses for such maintenance has been charged to operating expenses and not to capital account, and that therefore depreciation really is a negligible quantity.

But for the purposes of this case as will hereafter appear the court does not deem it important to analyze the respective contentions of the parties in the above respect.

The above figures are exhibited simply to show that the company has had a growth and a valuable one, and that it is in a fairly prosperous condition and that it has a property of value which should naturally invite the business attention of all persons having stock interest in it.

• The petitioners for dissolution represent 3024 shares of preferred stock and 562 shares of common. The Southwestern represents 5050 shares of common stock and 476 shares of preferred stock, and 888 shares of common are held by other stockholders who are not parties to the suit by way of petition or by answer unless they are represented as such by the company in its answer.

The petitioners set forth in their application for a dissolution of the corporation several specific acts which they claim are of such a character which tend to show that a dissolution of the company would be beneficial for the best interests of the stockholders. I do not understand that they rely upon any one specific act, but taking all the acts complained of together which they claim have been sustained by the evidence or inferences deduced therefrom are sufficient to warrant a dissolution of the corporation on the ground that it would be for the best interests of the stockholders of the company. I do not think that a too limited meaning should be given to the word “stockholders” as used in the statute; that is, a dissolution of a corporation might not be for the benefit or the best interests of the stockholders who own a controlling interest in it, and yet that controlling interest might so direct the affairs of the corporation that the minority would greatly suffer, and if it would be for the-benefit of the minority to have it dissolve and a situation that gave rise to such conclusion resulted from the unwarranted acts of the majority or the prosecution of a policy incompatible with rights of share holders, the majority could not take advantage of the technical objection that the dissolution was not for the benefit or best interests of all stockholders.

In other words I take it under the letter and spirit of the statute, it was the intention of the Legislature to give to minority stockholders a certain remedy for their protection by causing the company to be dissolved in cases where the same appears reasonably necessary for their ultimate protection and for their best interests, especially in a ease where the majority who assumes to control the interests of a company without a just regard for the rights of the minority seek to direct its affairs in the interests of another company in which the minority are not concerned and to their prejudice.

' A court of equity has no authority to dissolve a' corporation. Dissolution of a corporation can only be accomplished in the legal method provided by statute, and it seems the Legislature by the terms of statute, fairly construed, has provided a means to accomplish that end, when the necessity arises, for the protection of minority stockholders. A court of equity might intervene in such cases by the appointment of a trustee to vote the stock of the majority, or directly determine. wrho should represent such majority, so long as conflicting interests existed between two companies, but the method provided by statute is more easily applied and certain and as just as any remedy equity could afford.

Going to the direct issue involved in this controversy and that is, are the acts and conduct of those representing the majority of the common stock and the effect of such acts and conduct on the interest of the minority or of the stockholders generally of the local company of such a grave character as would warrant an order of dissolution under the statute. This brings-us then to a consideration of the specific acts complained of in the petition and their relation and connection with each other and these claims will now be taken up for analysis.

On the 23d day of September, 1907, after the acquisition of the common stock by the Southwestern the new board of directors composed of four members selected by the Southwestern and three members by the minority assumed the direction of the affairs of the company, and at this meeting by unanimous vote of the board it was ordered that the company build 1,800 feet of track and necessary apparatus on Grace street from Wayne street to Central avenue, 800 feet of this to be in the city limits to be paid for by the local company and 1,000 feet by the Southwestern. The building of this track constituted the connecting link between the city company and the Southwestern.

It appears it was a fair and just arrangement between the two companies with mutual benefits to both companies and with no advantage of one over the other and involving no conflicting interests. It was a contract which the parties might lawfully enter into, absolutely fair and just to each and which both the minority and majority represented on the board were all of one opinion, so no importance can be attached to this act of the board "or of the part taken by the majority in such arrangement as to sustain the claim of petitioners:

Another contention made by the petitioners is that a very important part of the business of the city company is over the Shelby line which forms a part of this property; that this line through this connection with the Big Four Railroad furnishes the most direct and desirable way to Cleveland, that when the Southwestern built its line into the city it offered a new and direct line from this city to Cleveland, and- since the construction of the latter line much of the traffic which theretofore went by the way of Shelby has been diverted over the Southwestern, and that the city company’s income has suffered thereby. Petitioners say they have no right to complain of a competitor controlling its affairs. But the evidence does not disclose that the income of the city company has suffered by reason of these additional facilities to reach Cleveland; additional facilities would undoubtedly invite increased traffic and perhaps the Southwestern may be used by many in preference to the Shelby line, but these are natural conditions which, appeal to the traveling public to suit their own purposes.

There is no testimony showing that the Southwestern by interference, solicitation or otherwise diverted traffic from the Shelby line to its line. It appears from the evidence that the officers and agents in charge of the joint ticket office sell tickets to passengers over such line and route designated by the passenger without solicitation on the part of such officers. On the other hand it is apparent that from increased earnings of the local company since the building of the Southwestern into the city that the latter company has been a feeder into the city lines and undoubtedly the city lines in some measure have been a feeder to the Southwestern; all taken together have given our citizens additional facilities and advantages.

It may be true that many people use the Southwestern to reach Cleveland, for reasons personal to themselves, who formerly used the Shelby line to reach the same destination, but this would be true whatever the relation may be between the two companies; and it is not to be' inferred the diversion of such traffic was caused by reason of the interest of the Southwestern when easily accounted for on other just and reasonable grounds in the- absence of proof of activity on the part of the Southwestern or their agents to accomplish that end. The two companies are not in the strict letter of the word competitors so far as traffic between terminal and intermediate points are concerned. The interurban points reached by the Southwestern are not reached by the lines of the city company; to do so traffic must rely upon connections with companies in which the city company has no relation. It is not claimed that the Southwestern infringes upon the city company in its business of local fares, so then in the above respect there can be no such competition, as would prevent legal acquisition by the Southwestern of stock in the local company or such competition that it could be said that their rights in that respect were antagonistic.

■ But there is, however, another consideration and that is the Southwestern traffic passes into and through the city over the tracks and lines of the city company; ont of this situation many conflicting interests necessarily arise, growing out of the privilege to be accorded to the Southwestern in that use and the corresponding burden on the track and the equipment of the city company.

The determination of these rights are important to each company, not only as to compensation to be made by one company to the other for the use,of the track and the burden placed on its equipment, but also in the creation of increased facilities to take care of the growing traffic and interferences that naturally arise growing out of the arrangement of schedules for the operation of the different cars.

In the adjustment of these differences and in the entering into a contract determining the respective rights of the parties in the enjoyment of the privileges and rights thereunder the parties to such contract should be placed in such relation that they can deal with the subject at arm’s length. The local company surely should have the right to dictate the terms and conditions of such an arrangement by a board moved wholly by a consideration of the best interests of the local company without such action being influenced out of the consideration for the welfare and business interests of the Southwestern, which situation it would be hard to conceive could exist where the majority in control of. the local board would be in the hands of the representative of the Southwestern, and in coming to this conclusion it is not necessary to impugn the motives of good faith of the majority but simply to yield to the logical conclusion that in all points of differences that became material to the interests of the local company antagonistic to the Southwestern that naturally the doubts or favors, if we may call them such, would be resolved by the majority for the benefit of the Southwestern. That this very situation arose between these companies is in a measure amply sustained by the evidence. The record discloses that in February, 1909, the representatives of the Southwestern presented a contract to the board of the local company providing and defining terms upon which the Southwestern might run its cars over the city lines arranging for traffic and stringing high tension lines on the poles and equipment, containing other provisions generally regulating matters in that respect between the two companies. Upon presentation of this contract to the board the minority secures a delay of action and pending that delay obtained an injunction against the company from entering into the contract, which injunction is still in full force and effect.

It is contended by the defendants that the delay in question was not secured by the minority in good faith; that the majority when action was delayed intended to take up the discussion of the contract in good faith looking to a reasonable arrangement and fair contract between the parties; that when the contract was submitted blank spaces were left for the purpose of inserting a reasonable amount to be paid by the Southwestern for the privilege it was to receive under the terms of the contract and before that opportunity was given to them the action of the court was evoked to enjoin any further action on their part.

Without entering into a discussion of the merits or demerits of the contract in question it is sufficient for the purpose of this analysis to say that the minority were objecting to the contract for the reason as they claimed that the contract was in material respects grossly,unfair and unjust to the local company, and that it would give to the Southwestern permanent rights which the local company ought not to concede. From this situation it appears that there was a marked difference between the contention of the minority and majority and under these conditions how could the majority as members of the local board, but in reality representing the Southwestern whose rights and interests were to be protected and conserved by an engagement covering a period of years, act upon the contract free from bias and prejudice. It would be natural and reasonable and without impugning their good faith and honesty of purpose,to conclude that upon all doubtful questions material to the rights of either that their voice and vote would be in favor of that contention which would best inure to the benefit of the larger interest which they represented.

In other words, by the mere relation of these parties and the many ways in which a conflict of interest might naturally arise between the minority and the majority it would appear very clearly that the latter in representing the interests of the local company should be disqualified from exercising control or directing the entering into engagements in which the interests of both the majority and the minority might be greatly different and vitally present and so long as such relations exist with the same conditions prevailing, and surely this situation does not work for the best interest and welfare of thé local company. It is a condition always present necessarily resulting from the situation of the two interests conflicting in their nature and must in a more or less degree seriously militate against the interests of the local company.

Another illustration: on the 29th of January, 1908, at a special meeting of the board of directors' of the local company at which all the members were present, two resolutions were passed by unanimous vote which in a sense mark the beginning of the contention’ between the minority and the Southwestern interests, although at the time of their passage no lack of harmony, so far as the record appears, then existed between them. The first of these was a resolution expressing it as a sense of the board that additional power equipment was necessary in order to protect the interests of the company and also to sell power to the Cleveland and Southwestern, provided that a satisfactory contract would be made for the sale of power to the Southwestern, and it was further provided that a committee consisting of Mr. S. N. Ford, F. E. Myers and Reid Carpenter have in charge the installation of this additional power, and equipment to the plant with full power to act ixx the matter. Of the members of this committee Mr. Myers was the only one who had any Southwestern interests, Mr. Carpenter and Mr. Ford being preferred stockholders. Tn other words if a„ distinction is to be made in this connection the minority stockholders had a majority representation on this committee.

A great deal of testimony was taken on this branch of the case as to whether or not the adoption of the resolution if carried' into effect by a committee would have taken such a business investment under the circumstances as would have produced reasonably certain profitable returns to the company, and further whether the carrying out the authority to equip would not have placed an additional financial burden upon the company which it ought not in good business judgment have entertained.

The petition charges in substance that the purpose of this resolution and authority to act by the committee was for the installation of a power plant more for the service and convenience of the Southwestern than the local company, and that it was not necessary under the circumstances and would so deplete the earnings of the company by its installation and necessary equipment as would not only preclude the payment of dividends on the preferred stock but would add an unnecessary financial burden on the company inuring only to the benefit of the Southwestern interests, and to the great disadvantage of the other stockholders.

Tn pursuance of the authority imposed by the committee Mr. Myers and Ford visited Pittsburg with a view of purchasing a plant for such purpose from the 'Westinghouse Company, and after much dickering finally procured a proposition from the Westinghouse Company at a satisfactory figure, providing the Westinghouse Company would give a guarantee that the plant- and power machinery would come up to the representations and would be of utility expressed in the proposition or offer of sale. Nothing further was done with reference to this contract except that a blank form of contract seems to have been mailed by the Westinghouse people but it never came' into the hands of either of the committee. About this time there was some testimony tending to show that an engineer of the Southwestern presented some plans showing the neeessary changes to be made in the power plant building in order to meet the improvement of the plant, but these plans were never presented for adoption or were they ever acted upon by either the board or the committee. The AVestinghouse Company submitted this contract for sale of said machinery about the fourth of April, 1908, and thereupon certain minority stockholders brought on behall; of themselves and all other stockholders of the company an action to enjoin the company and its officers from entering into said contract and upon the filing of the petition an injunction was allowed by the court.

The charter of the local company was broad enough to permit it to engage in the production of current for all the purposes named in the resolution so that the contract would not be of an ultra vires character whether or not it was the intention of the company to execute it in its entirety, it is hard to to glean from the testimony. Mr. Ford the president of the company and who was a member of the committee substantially says that he was not in favor of it for the reason that the character of the engine to be furnished in his judgment was not suitable to the location of the plant, and no guarantee was furnished as contemplated. Mr. Carpenter took very little part in the transaction and nothing further was done by Mr. Myei’s.

It appears however that at the time of the proposed .installation of additional power that it was the judgment of the entire board that additional equipment was necessary to take care of the present demands of the company in order that proper service might be rendered to the public, and that at the time or during any of the time covered in the taking of testimony in this case up to the time it was submitted, that the company had little, if any, reserve power to meet the contingency of break downs or accidents, so that it would seem that the provision for power and authority to install the same was rather a just and proper one. But it is contended that the proposed equipment involved an expenditure of money largely in excess of the reasonable demands of the company, that the cost of equipment would be $100,000, when a much less expenditure would answer all -requirements of the business of the local company. But I think the proof cearly shows that at an outside figure $60,000 would have covered all the expense necessary to install and equip the machinery and appliances and necessary changes in order to make it effective for the purpose provided by the resolutions. This equipment at that expenditure would undoubtedly have furnished a power plant taking into consideration other facilities and a pror duetion of electricity largely in excess of the damands of the local company, with a reasonable factor of reserve for emergencies, and this excessive power it was contemplated would be used in furnishing under the terms of the resolution power to the Southwestern.

Here then was the situation; by authority of this resolution a local company was providing a power plant with a capacity double the amount -necessary to take care of its business with a reasonable factor of safety for emergency, and this excess of power was to be sold to the Southwestern for the operation of its lines. Leaving out of consideration whether or not the company was justified as a good business proposition under the circumstances to make the additional investment necessary to provide the amount for sale to the Southwestern, it still presents a proper inquiry as to the conditions that might be well apprehended if the power plant was enlarged for all the purposes provided by the resolution. Following the installation of the plant a contract must necessarily he entered into fixing the character of service to be rendered and price of current to be paid by the Southwestern and it would be a contract of no small importance for it involves practically current sufficient in quantity to operate both the Crestline -and G-alion as well as the Ashland line; in fact it was contemplated that one-half the current produced by the installation was to be sold to the Southwestern.

As a business proposition it must be presumed in fact it would be the duty of the board of directors to make such an arrangement for the sale of this current as would provide a reasonable profit to the company. Upon the other hand the Southwestern would be interested in securing the most favorable terms for. its benefit. Here again arises an intolerable situation, the minority impotent by reason of their lack of control and majority restrained in their freedom of action on behalf of the best interest of the company by reason of the conflict of the greater interest in the Southwestern. In such important matters it is very plain every action of the members of the board should be untrammeled from the consideration of personal interests other than those for the benefit of the company and absolutely free from any obligation or duty that the individual members owe to another corporation. But further at the time the resolution was passed no contract -or agreement specifying the terms and conditions upon which current was to be furnished to the Southwestern was entered into. In other words the local company was about to expend thousands of dollars in the installation of an equipment which to a large extent would be an unreasonable expenditure unless a profitable contract could be made after it is installed with the Southwestern. Herein lies the vice of the proposition, in the opportunity it afforded to the majority in control to force upon the local company a contract for current at a rate that might be unprofitable. For if after the local company had made an investment .for that purpose the representatives of the Southwestern on the board of the local company could not agree with the minority upon a reasonable contract or if they forced by reason of being in the majority an unreasonable contract to the disadvantage of the local company the mere fact that a court of equity would enjoin the carrying out of a contract unreason-. able in its- terms could not relieve the situation, for there would remain that part of the investment to be carried without return to the company to the extent it exceeded that reasonable demands- of the company, for the reasons that it must be remembered that the only available consumer of this excess amount of current was the Southwestern.

It is contended, however, that the claim oE the petitioners in the above respect comes with little force for the reason that the application for the dissolution of the company was not filed until the 19th day oE. March, 1909, some fourteen months after the passage of the resolution to enlarge the equipment for additional power, that in the interim the Southwestern wholly abandoned any purpose to secure power from the local company and that in December, 1908, it laid the foundation for a power .plant at Elyria, Ohio, and. by May, 1909, had it fully installed and connected with high tension lines to supply power to the Ash-land line and the lines west of Mansfield, and that at times since such installation it had furnished current to the local company in case of emergency arising from breakdown or o^her causes in its plant and equipment. But the relation existing between the majority and minority concerning any particular transaction must be measured by the circumstances surrounding the parties at the time and not by subsequent conduct that in all probability resulted from the necessities of the case in one particular instance to create sufficient power along its own lines for the use of its system of railways. The consummation of the proposed contract has been enjoined by the court, which in itself forced the Southwestern to provide other means to provide current, so the claimed abandonment is more referrable to the necessities of the case rather than for any other reason.

Reference might also be made to another matter of not so much importance but as indicating the influence of the Southwestern in directing the policy and internal affairs of the company, and that is, for something over a year the local company furnished the Southwestern with current, that growing out of this service credits accrued in favor of the local company in the sum of $16,000, that although these bills were due practically at the expiration of every thirty days they were not paid when due and were carried by the company for practically a whole year. It is not claimed that the delays in payment were caused by any serious misunderstandings as to the amounts or of the items making up the account from time to time or any other serious controversies. In fact there is- no reason given for failure to pay promptly, except perhaps that the Southwestern could use the money and the accommodation seems to have been extended' for that reason. All these accounts, however, had been paid before the testimony was concluded in this ease, so that the claim in this respect standing by itself would not, as I have said, come with very much force, but taken in consideration with all other circumstances it forms a link in a chain of circumstances which indicate the control and direction of the affairs of the local company in favor of the Southwestern, and not for the single purpose of guarding the interests of the local company and the stockholders that of right are entitled to. that protection.

Defendants have cited numerous authorities which it is claimed are against the contention made by the petitioners, the most notable one perhaps being, In the Matter of the Franklin Telegraph, 119th Mass., 447, in which case the syllabus is as follows:

“Under the general statutes, chapter 67, Section 35, authorizing this court for reasonable cause to decree a dissolution of a corporation upon petition by a majority in number or interest of the members, it is no ground for the dissolution of a telegraph company that it leased its lines to another company at a less rent than it might have obtained, fraudulently intending to give the benefit of the lease to the second company in which the majority was interested, if after the filing of the petition for dissolution the lease is canceled by vote of the directors of both companies. ’ ’

It seems by the record in that case the only complaint made by the petitioners was the fact of the lease having been entered into fraudulently for the benefit of the second company. After the filing of the petition, the board of directors of both companies met and canceled the lease; and this was followed by an answer to the petition setting up the fact of such cancellation, and the whole question was then raised by demurrer to the answer. It is apparent by this answer that the whole and only cause of complaint had been removed, and for all that appears there were no business relations other than that between the companies from which there might arise a conflict of interest. The telegraph company, in other words, was left in the same position by the cancellation of the lease as it was prior to its execution, without any acts or facts alleged showing any other or further relation in operation or management of the two lines or the exercise of control which might result in possible conflict between them. So, if in this case, the only contention made by the petitioners rested upon the carrying out of the Westinghouse contract, and that was the sole and.only relation that the two companies had with each other, that is if they were to be treated in their relation simply — the local company as a proclucer of electricity and the Southwestern as the consumer— and growing out of that relation they contracted with each other, and even though such contract was fraudulently secured by the majority for the benefit of the Southwestern, yet if by the termination of such contract the two companies were restored to their former state, then we would have a case substantially paralleled to the one above cited; but here in this case as already suggested, it was the purpose of the majority in securing control of the local company to make it an integral part of its general system; and in pursuance of that policy relations of an important and grave character were constantly arising in which the interests of the two companies were antagonistic, so that the relation between the two companies in the case at bar are entirely different from the facts disclosed in the ease referred to.

But further, complainants do not rest their claim upon any one of the alleged material facts set forth in their petition, but rather xipon all the facts taken together as tending to show the actual relation existing between these two companies and the attitude of the majority in the exercise of control in the local company. So I take it that the case in the 119 Mass, is not applicable to the facts as disclosed in this ease.

Now going to the question of dividends on the preferred stock. I have referred to the passage of two resolutions: by the board, of directors at its special meeting in January, 1908. The first as to the installation of new machinery I have disposed of; the other, that of deferring dividends on preferred stock will now be taken up. This resolution provided in terms:

“That the preferred stock dividends of this company due February 1, 1908, be deferred on account of the present financial condition, also in consideration of the new machinery which this company is obliged to install at its power plant in order to take care of its present and increasing business. ’ ’

Prior to the adoption of this resolution on November 16, 1906, appears the first act of the board of directors with reference to the declaration of dividends on preferred stock. The act of the board at that time recited as follows:

“That a dividend of one and one-half percent, upon the preferred stock of the company is directed, payable February 1, 1907, to shareholders of record at the close of business on January 20, 1907, this dividend to be for the quarter ending February 1, 1906, to be paid by check of the company from funds to be placed in the hands of the treasurer for that purpose prior thereto and to be signed by the treasurer. ’ ’

On the same date is found the following resolution:

“Resolved, that a special deposit account known as the dividend account of this company be opened with the Western German Bank of Cincinnati, Ohio, and that the company immediately deposit to the credit of such account the sum required to pay the dividends declared at this meeting on the preferred stock of the company, and that thereafter, beginning on the 20th day of January, 1907, the officers of this company are directed to deposit to the credit of such funds monthly an amount sufficient to accumulate in said funds the amount required for subsequent quarterly dividends until otherwise ordered by the board of directors ”

Under the above resolution passed November 16, 1906, dividends were paid quarterly for 1hc year 1907, the dividend due November 1 of that year being paid after the Southwestern had acquired a controlling interest in the company; and in January following the resolution first above noted deferring the payment of dividends was passed, and the majority of the board have ever since refused the payment of any dividend on preferred stock. The complainants charge that the earnings of the company have been sufficiently over and above the expense of operation and other proper charges in the careful business management of the company to more than liquidate the dividends claimed to be due from time to time, and that the majority in withholding dividends was not justified on the ground that earnings were insufficient for that purpose or that there would not be funds on hand for such purpose, if the direction, of the board under the former resolution had been carried out; and they charge that the attitude of the majority in control of the company in this respect was prompted by a desire to build up the value of the common stock to the prejudice of the preferred stock and give the benefit of the earnings to the Southwestern.

And it is further charged by the complainants that additional investments in the way of permanent improvements have .been made and paid for out of the earnings of the company which are properly chargeable to capital account, and which should have been paid for out of the proceeds of unsold bonds; that in disbursing the earnings for such purpose and building up the capital stock account from the earnings rather than‘from the sale of bonds held for such purpose, the majority did it for the very purpose of repudiating the obligation of the preferred stock and enhancing the value of the common stock.

Upon the other hand there is a contention on the other side that in the distribution of earnings of the company, and in their application for the liquidation of bills arising for maintenance, improvements and betterments that the company has in many instances, prior to the time of the acquisition of stock by a majority, charged to capital account many thousands of dollars which ought to have been in good business judgment charged to maintenance, and if this had been done properly as contended by the majority that the profit of the company would not appear at any of the periods in question sufficient to warrant the payment of a dividend on any other stock of the company.

The majority also contend that taking into consideration the character of its business, its contingent liabilities resulting from the accidents and its obligations to the city in the way of street improvements and other contingencies that the amount of cash reserved at all times should not be less than $35,000, and that reserve with the unsold bonds should be reserved to meet the contingencies of that character and to provide a proper working capital for the company; that to do so is to exercise a sound business judgment not only to maintain the credit of the company but practically the life of the corporation itself.

The larger part of the record in this case is taken up with the testimony as given by witnesses testifying on this subject. The balance sheet and schedule of receipts and disbursements covering the period from the organization of the company , to and including the year 1911 have been introduced, together with a complete analysis of the accounts of the company covering practically the same period by expert accountants, with criticisms upon the various entries concerning the distribution and the applications of the earnings of the company from time to time during such period.

It is very apparent that th'e differences in policy as to the distribution of the earnings respectively advocated by the minority and majority arises and grows out ’of their respective interests peculiar to the different classes of stock. It may be that the policy of the majority is the sounder one of. the two, that is, the financial strength of the company would be enhanced by conserving all of its earnings for the purpose of distribution in betterments and cash reserve, rather than distributing any part of them in dividends to the stockholders, yet the ultimate object of every corporation for profit is to distribute its surplus earnings, not inconsistent with good business management, among its stockholders according -to their respective rights. Whether or not the court under the facts in this ease, if that question was the only one to be determined, should order the board to pay a dividend upon the preferred stock might present a very serious question, but the determination of that question is merely incidental to the main issue here involved and therefore not necessarily material .to the ultimate question presented by the whole record.

It does appear however that, up to the time of the actual exercise of control upon the part of the majority, dividends were paid upon the preferred stock as provided in a resolution of November 16, 1906, and that funds necessary to pay the same were caused to be deposited in the depository designated for that purpose from time to time. The dividend due February 1, 1907, was deferred on account of the general financial condition and the probable expense of installation of additional power, but no further action was taken by the board that appears of record for deferring payments of subsequent dividends, nor does the record disclose any reasons therefor. The board simply failed to act, and it was this failure upon the part of majority, which in effect finally culminated in refusal to distribute earnings to the preferred stockholders, that lay most of the foundation for the trouble, and discussions between the two classes of stockholders.

It is claimed by the petitioners that the attitude of the majority in withholding dividends under the circumstances was not that dividends might not properly have been paid, but because the majority intended a repudiation of any preferential rights specified in the terms of the contract of the preferred stock. If dividends were deferred by the act of the minority in the exercise of sound business judgment, unaccompanied with any other act or motive indicating a purpose to secure advantage over the minority, the conservation of the earnings under such circumstances would not lay the foundation for complaint in this action or even in the direct action to compel h distribution of the earnings; but if back of the act itself ijhere was a motive and a purpose to ignore and repudiate the claimed preferential contract of the minority, and deferring dividends ivas simply a means employed to effect a repudiation, then the act itself should be closely scrutinized and every act and inference should be resolved against the majority for the protection of the minority. In order to ascertain the attitude of the representatives of the Southwestern on the local board to the preferred stock, it is not necessary to speculate on the motives that may have actuated their conduct in regard to other transactions hereinafter referred to, for it appears by the record that the Southwestern interests holding common stock openly assert that the so-called preferred stock is not entitled to any preference, either by way of dividend or otherwise, and by joint answer of the four representatives of the Southwestern on the local board of directors in the ease of Kleybolte & Co. et al v. The Mansfield Railway, Light Power Company, in which case is sought by mandatory order to compel the board to declare a dividend on the preferred stock and which answer was introduced as a part of the evidence in this case, they say:

“They admit that said stock aforesaid three thousand five hundred shares are called and denominated preferred stock and six thousand five hundred shares are called and denominated common stock but they deny that any of .said stock is- entitled to any preference of any kind over and above'the common stock.”

By clear and unmistakable language by this answer the majority are saying to that class represented by the minority in the management of this company, any right you claim by way of preference on stock held by you will be ignored; you will be relegated simply to the rights of common stockholders and as to assets and dividends your holdings will be treated by us as such.

As I have heretofore intimated, there is nothing in this record, adduced for the purpose of this hearing, any evidence that would warrant a finding to sustain the claim of the majority in this respect. Prima facie 'in determination of the ultimate question here, the claim of the preferred stockholders as such must be sustained, whatever claim may be asserted by the majority on the question of final distribution of the proceeds of the assets of the company among its stockholders. Here then we have this situation : a public corporation engaged in a fairly prosperous business, capable by efficient management of producing earnings sufficient to take care of necessary operating expenses, meet interest upon its bonds, provide for additional improvements each year as required by the terms of its mortgage to the bond holders, discharging in fact all its obligations as they severally fall due, and enhancing the value of its security to its bond holders, and over and above all such charges showing a net profit from $20,000 to $30,000 per year, with a valuable plant and franchise, with no question raised as to its credit and with $58,000 of unsold bonds in its treasury applicable for any needed permanent improvements and betterments as occasion might arise. But notwithstanding this most valuable situation it clearly appears from the evidence that the plant of the company is without practically any reserve power, that in case of serious breakdown or accident the company is left helpless to move its cars, necessarily impairing its revenues and discommoding the public and in many instances not rendering the service which it would be able to render if proper means were employed out of the credit and resources now available to, provide a proper and complete equipment.

On the one side of this situation stand the preferred stockholders, not objecting to any reasonablé improvement but say-mg that permanent improvements which are properly chargeable to capital should be paid for from the proceeds of bonds in the treasury for that purpose. On the other side the common stockholders, represented by majority in interest, say that such improvements are and should be properly paid out of the earnings of the company and the unsold bonds remain intact. If the policy of the preferred stock be adopted it would enhance the possibility of dividends to them, if the policy of the majority be put into effect it would enhance the value of the common stock and would substantially in the end accomplish their purpose of equalizing the value of the common stock with the preferred stock.

This situation presents what might be very properly called an irrepressible conflict between these different interests, a contention which the record shows in several instances has brought the various phases of the matter into court, finally, culminating in this action — with a situation in which the preferred stockholders watch Avith.a jealous care every act of the majority, and the majority exercising every power in their control to carry out what they claim is a sound business policy. Whatever may be the. merits or demerits of the claims of the respective parties it is evident that this contention bodes no good to the success of the company. That its very effect is to retard improvement and prevent freedom of the board in acting upon essential matters pertaining to its management without embarrassment, bias or prejudice. In the meantime perhaps needed improvements are taken care of by mere make shift, service is not what it should be, and the public itself becomes a sufferer to a greater or less extent. This condition it AA'ould seem AA’ould almost Avarrant an action in quo warranto on behalf of the state to dissolve the corporation, for if the stockholders by -their attitude toward each other create such a contention between themselves that conditions arise therefrom, that the corporation is unable to perform its public duties reasonably, it AA'ould seem that the state Avould have a right to interfere to the extent of compelling harmonious action for the benefit oE the public or dissolving the corporation itself. •_

Internal dissensions between stockholders of that grave and serious character which naturally interfere with or retard its management in the legitimate prosecution of its business or reasonable discharge of its duties to the public, necessarily affects the interests of all stockholders of the corporation to their prejudice and would warrant the court under the statute in dissolving the corporation.

So without determining the merits or demerits of the claim of the minority or majority respectively as to whether the financial condition of the company would or would not justify the payment of dividends, it is by reason of other considerations' referred to apparent that it is to the interests of the stockholders that it be dissolved. The house is hopelessly divided against itself, the breach is too wide, the interests too several and conflicting, the control so positive and subversive to the larger interests represented in that control, that possibility of harmonious action on any well defined policy for the benefit of the company seems remote and uncertain, threatening the interests of the stockholders as a class, impairing the value of their stock and indirectly affecting the service which the company owes the public.

■Therefore, it clearly appears to the court that the best interests of the stockholders of this corporation would be conserved by a dissolution of the corporation.

This then brings us to the next question, which is, would the dissolution of this corporation be injurious, to the public interests ? A distinction might be made as between a purely private corporation and a quasi public corporation, that is one in the first instance engaged in business for the private - gain to its members without any responsibility to the public in exercising its charter rights, and that of a corporation operating for private gain but which in furnishing its service owes a direct- duty to the public. But notwithstanding this distinction, I take it that the same facts that would warrant a dissolution of a private corporation would apply with equal force tb a quasi public corporation, except that if it was detrimental, to the public, under the limitations provided by the statute no dissolution could be made. In this case however that question is not of controlling force, for the reason that if a dissolution was ordered the right of the public would be protected by the appointment of a receiver with fulbpower and authority to preserve and operate the property and maintain the service until the property passes under an order of sale to a purchaser who would take all the franchises and rights, good will and property which the present company now possesses and enjoys.

This case upon its presentation was quite fully argued orally by counsel. Subsequently exhaustive briefs were furnished by counsel to the court upon the various questions involved in this controversy, and the court has endeavored to make a thorough investigation of the authorities cited by the respective counsel, but inasmuch as the question to be determined was one more of fact than of law, very little if any reference has been made in this opinion to the several cases cited or to their application to the case at bar. To have done so would simply have added the length to this opinion which perhaps is longer than necessary to indicate the basis upon which the decree in this case is to be made, but the analysis naturally followed in the development of the several questions raised by the record and argument of counsel.

For the reasons above stated a decree may be taken dissolving the corporation. Upon its dissolution a receiver will be appointed and the costs of this proceeding will be adjudged against the company. The stenographer and master will be allowed fees in the amount recommended by the master, the same to be taxed as part of the costs.


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    INJURED THROUGH THE CARELESSNESS OF A DRUNKEN DRIVER.
    Circuit Court of Cuyahoga County.
    Henry Flandermyer v. Helena Urbanowitz et al.

    Decided, February 11, 1907.

      Joint Tort Feasors — Drunken Companion Not Liable for Carelessness of a Driver.

    An intoxicated person is not liable for an injury caused by the negligent driving of a horse and buggy by a drunken companion with whom he had spent the day riding and drinking; they are not engaged in a joint undertaking.
    Marvin, J.; Winci-i, J., and Henry, J., concur.

       Affirmed without opinion, Urbanowitz v. Flandermeyer et al, 79 Ohio State, 450.

   Helena Urbanowitz, a minor, by lier next friend brought suit against Henry II. Flandermyer and Henry Wolkensdorfer, charging that the defendants by their negligence on the second day of May, 1905, on Clifton street, in the city of Cleveland, drove a.horse attached to a buggy in such wise as to collide with and greatly injure her, and she prays for judgment against them.

The facts are that on the day named Flandermyer and Wolkensdorfer started out together with a horse and buggy belonging to said Wolkensdorfer. They drove about the city of Cleveland, stopping at various places to drink intoxicants until they both became intoxicated. At the drinking places where they stopped each treated the other to liquor. All of the driving was done by Wolkensdorfer, the owner of the horse and buggy. Flandermyer rode with him in his buggy. Flandermyer had no control of the turnout in any wise. Wolkensdorfer drove as a drunken man would be likely to drive and, by his careless and negligent driving, drove against and injured this girl. Flandermyer was in no condition to have bettered the manner of driving if he had interfered. As a matter of fact he did not interfere.- In the court below a recovery was had against both Flandermyer and Wolkensdorfer, and it is urged here that this judgment should be sustained, because Flandermyer is not excused from the performance of any duty by reason of his intoxication. Suppose this to be true, what duty did he owe to this girl for the failure to perform which he would be liable in damages to her if she was injured? It may be that if one sees another in a place of peril from which he can rescue such other, and he fads to do it, he may become liable. On this we express no opinion; but even though that be true, yet if the party who sees the one in peril and who is thus in peril through no fault of his, is too drunk to render assistance, it can hardly be claimed that he thereby becomes liable for the injury to such other person. Suppose a child falls into a pool of water in the presence of a bystander, through no fault of such bystander but under such circumstances as that the bystander, if in possession of all his faculties could readily rescue the child, and he does nothing to effect such rescue, possibly he would be liable in damages. Can it be said that if such bystander is so drunk that he is without the power to rescue the child, he should be held liable in damages for failure to make the rescue ?

Time, for any injury inflicted by himself upon the child his drunkenness is no excuse, but can it be held that his failure to rescue the child because of drunkenness is not excused?

The court in this ease charged the jury that if the defendants were engaged in a joint enterprise, then the act of each was the act of both, in so far as the acts were performed in pursuance of this joint enterprise.

Tf the facts had warranted such a charge as this, the law was doubtless properly stated, but it had no application to this case. These parties were not in contemplation of law engaged in a joint enterprise simply because Flandermyer was riding with Wolkensdorfer in Wolkensdorfer’s buggy and-they each contributed to the drunkenness of the other, so that they both became drunk, and Wolkensdorfer negligently drove his horse to the injury of this child.

The judgment of the court of common pleas against Flandermyer is reversed, because the verdict was against the evidence, and because the charge was misleading, in so far as it discussed the liability of those engaged in a joint enterprise. The motion for a new trial should have been sustained on' both of these grounds.