author: Matthews, P. J. Ross, J.,

text:
    Avey, Appellee, v. The Leather Products Co. et al., Appellees; The United States of America, Appellant.
    (No. 6162
    Decided December 14, 1942.)

      Mr. Francis A. Hoover and Mr. Fred T. Cramer, for appellees, receiver for The Leather Products Company.

      Mr. Calvin Crawford and Mr. Frederic W. Johnson, for appellant, United States of America.
   Matthews, P. J.

The only questions presented by fhis appeal are: (1) Whether the validity of a provision in a contract made with the United States of America is to be tested by applying the law of the •state of the forum or by the laws — statutory or non«tatutory — of the United States, and, the controlling •sovereign having been ascertained, and (2) What its law is on the subject.

The Leather Products Company entered into a contract with the United States on June 10, 1940, to deliver 15,000 pairs of “leggins, canvas, dismounted” to the Philadelphia .Quartermaster Department of the War Department, Philadelphia, Pennsylvania, in installments, to be completed by August 11, 1940, for $8,487.83. The contract consisting of the bid with schedules, letter of award, statement and certificate of award was a standard form used by the United States and was eighteen pages in length. This contract is not in the record, but it is agreed that the only provision in dispute is that relating to the rights' of the United States arising upon a failure of The Leather Products Company to deliver in accordance with the terms of the contract. That provision is:

“If the contractor refuses or fails to make delivery of the materials or supplies within the time specified, or any extension thereof, the actual damage to the government for the delay will be impossible to determine, and in lieu thereof the contractor shall pay to the government, as fixed, agreed, and liquidated damages for each calendar day of delay in making delivery, a sum equal to one-half of one percentum (% of 1%) of the price of each unit for each day’s delay after the date or dates specified for deliveries and the contractor and his sureties shall be liable for the amount thereof: Provided, however, that the government reserves the right to terminate the right of the contractor to proceed with deliveries or such part or parts thereof as to which there has been delay, and to purchase similar material or supplies in the open market or secure the manufacture and delivery thereof by contract or otherwise, charging against the contractor and his sureties any excess cost occasioned the government thereby; together with liquidated damages accruing until such time as the government may reasonably procure similar material or supplies elsewhere.”

The Leather Products Company defaulted completely and on August 12, 1940, the United States terminated the right to make delivery, which it is conceded it had the right to do under the law and the terms of the contract. Thereupon, with due diligence, the United States procured these articles elsewhere at as little cost as possible, but at an increased cost of $630.78 over the contract price. It is also admitted that one-half of one per cent of the contract price for each day of delay in securing the articles made necessary by the default of The Leather Products Company amounts to $1,917.66.

The Leather Products Company’s business is in process of liquidation by receivers appointed in this action by the Common Pleas Court of Hamilton county, Ohio. The United States was made a party to this action in the Common Pleas Court and presented both items for allowance by the receivers as valid claims, against The Leather Products Company, entitled to priority of payment from the assets of that company on distribution under the provisions of Title 31, Section 191 of the United States Code. Under the direction of the court, the receivers allowed and paid the item of $630.78, representing the difference between the contract price and the cost price which the. United States was obliged to pay, but disallowed the item of one-half of one per cent for each day of delay. It is from the disallowance of this latter item that this appeal was taken.

It is conceded that the contract was within the power of the United States. It is also conceded that the claim for recoverable damage resulting from its breach is entitled to priority under the act of Congress. These concessions, it seems to us, result from a recognition that the United States in making this contract was acting in its- sovereign capacity in pursuance of the authority delegated to it in the Constitution and as a corollary the concession must include the admission that it was acting within the national sphere, notwithstanding its agents were or may have been at the time within the territorial limits of a state. In Ableman v. Booth, 62 U. S. (21 How.), 506, 16 L. Ed., 169, the Supreme Court said:

“And although the.state of Wisconsin is sovereign within its territorial limits to a certain extent, yet that .sovereignty is limited and restricted by the Constitution of the United States. And the powers of the general government, and of the state, although both exist and are exercised within the same territorial limits,, are yet separate and distinct sovereignties, acting separately and independently of each other, within their respective spheres. And the sphere of action appropriated to the United States is as far beyond the reach of the judicial process issued by a state judge or a state court, as if the line of division was traced by landmarks and monuments visible to the eye.”

By Section 8, Article I of the U. S. Constitution, the-Congress is empowered to “raise and support” an army and “to provide and maintain” a navy and by the elastic clause in the same section is given power “to make all laws which shall be necessary and proper for carrying into execution” these powers. It, therefore, cannot be doubted that in making this contract, the United States was exercising power conferred upon it by the Constitution. Nor can it be doubted that to-permit the invalidation of a provision in such a contract by the application of any state law would be a direct interference by the state with the exercise by the United States of power delegated to it.

In Graves et al., Commrs., v. New York, ex rel. O’Keefe, 306 U. S., 466, 83 L. Ed., 927, 59 S. Ct., 595, 120 A. L. R., 1466, the Supreme Court in speaking of the nature of action by the United States said: “As. that government derives its authority wholly from powers delegated to it by the Constitution, its every action within its constitutional power is governmental action.” The distinction between governmental and proprietary action which is so important in considering municipal action does not exist in the national sphere. And in any view and in any sphere, the purchase of supplies for the military establishment of any government would be governmental action.

We, therefore, conclude that in making this contract the United States was acting in its sovereign capacity in a domain as distinct from any state domain “as if the line of division was traced by landmarks and monuments visible to the eye.”

As the transaction took place outside the jurisdiction of the state government neither the validity of the contract nor any provision thereof can be determined or affected by any state law written or unwritten. The validity of the contractual provision here in question must be determined by the applicable laws of the United States, whether that law be in the form of acts of Congress or the pronouncements of courts of the United States.

By nothing we have said do we mean to imply that the United States could not expressly incorporate state law into its contracts, and, perhaps, under certain circumstances, there might be an incorporation by implication, but no such implication can arise to overthrow an express term of the contract which negatives any such intent. Congress has, in certain instances, adopted or incorporated the state law. It did this in the Bankruptcy Act by providing that the bankrupt should be entitled to the exemptions allowed by the law of the state of his residence. But, in such instances, the state law becomes operative in the national sphere. because of the affirmative act of Congress and not by virtue of the action of the state.

But it is said that Erie Rd. Co. v. Tompkins, 304 U. S., 64, 82 L. Ed., 1188, 58 S. Ct., 817, 114 A. L. R., 1487, holds that there is no substantive federal common law and that federal courts, when their jurisdiction is invoked because of diversity of citizenship, must enforce the substantive common law of the states as construed by state courts. We believe counsel have missed the import of that case. The Supreme Court was considering there the nonstatutory law applicable to an incident wholly intrastate and, therefore, coming within the reserved power of the states. Swift v. Tyson, 41 U. S. (16 Pet.), 1, 10 L. Ed., 865, had held that in determining the applicable law to such an incident the' federal courts had the authority to decide for themselves what the general nonstatutory law of the state was without reference to what the state courts had determined such law to be. And it was that usurpation of power that the Supreme Court denounced and overruled in Erie Rd. Co. v. Tompkins, supra, saying: “We merely declare that in applying the doctrine, this court and the lower courts have invaded rights which in our opinion are reserved by the Constitution to the several states.”

It is true that the Supreme Court in the Erie Rd. Co. case stated that, “there is no federal general common law,” but the limited import is clear from the fact that such statement was made in a diversity of citizenship case and also by this language which immediately followed : ‘ ‘ Congress has no power to declare substantive rules of common law applicable in a state whether they be local in their nature or ‘general,’ be they commercial law or a part of the law of torts.” Certainly, in the national domain Congress can and has done all these things.

As Swift v. Tyson, supra, announced a doctrine that constituted an invasion of the reserved power of the states hy the federal judiciary, the doctrine advanced here, if adopted, would constitute an invasion by the state judiciary of the power delegated to the United States and would be a direct interference with the exercise of such power by the United States. That there is no more justification for an invasion of the federal domain by the state judiciary than there is for an invasion of the state domain by the federal judiciary is clear from the authorities. .

The decisions of the Supreme Court since Erie Rd. Co. v. Tompkins, supra, show conclusively that there was no intention to surrender the national domain to the rule of the state of the forum.

■ In Royal Indemnity Co. v. United States, 313 U. S., 289, 85 L. Ed., 1361, 61 S. Ct., 995, the question was as to the measure of damages for breach of a bond taken by a United States collector of internal revenue to secure the payment of a tax. The Supreme Court held, as stated in the syllabus:

“In the absence of an applicable federal statute, it is for the federal courts to determine, according to their own criteria, the appropriate measure of damage, expressed in terms of interest, for delayed payment of a contractual obligation of the United States.”

And in D’Oench, Duhme & Co., Inc., v. Federal Deposit Ins. Corp., 315 U. S., 447, 86 L. Ed., 956, 62 S. Ct., 676, the question presented was whether the state law applied to a note taken by the Federal Deposit Insurancé Company as collateral to secure a loan made to a state hank. In discussing this subject, Mr. Justice Jackson, in a concurring opinion, at page 468 et seq., said:

“Although hy congressional command this case is to he deemed one arising under the laws of the United States, no federal statute purports to define the corporation’s rights as a holder of the note in suit or the liability of the maker thereof. There arises, therefore, the question whether in deciding the case we are bound to apply the law of some particular state or whether, to put it bluntly, we may make our own law from materials found in common-law sources.

“This issue has a long historical background of legal and political controversy as to the place of the common law in federal jurisprudence. As the matter now stands, it seems settled that the federal courts may not resort to the common law to punish'crimes not made punishable by act of Congress; and that, apart from special statutory or constitutional provision, they are not bound in other fields by English precedents existing at any particular date. The federal courts have no general common law, as in a sense they have no general or comprehensive jurisprudence of any kind, because many subjects of private law which bulk large in the traditional common law are ordinarily within the province of the states and not of the federal government. But this is not to say that wherever we have occasion to decide a federal question which cannot be answered from federal statutes alone we may not resort to all of the source materials of the common law, or that when we have fashioned an answer it does not become a part of the federal nonstatutory or common law.

“I do not understand Justice Brandeis’s statement in Erie Rd. Co. v. Tompkins, 304 U. S., 64 at 78, that ‘There is no federal general common law,’ to deny that the common law may in proper cases be an aid to, or the basis of, decision of federal questions. In its context it means to me only that federal courts may not apply their own notions of the common law at variance with applicable state decisions except ‘where the constitution, treaties, or statutes of the United States (so) require or provide.’ Indeed, in a case decided on the same day as Erie Rd. Co. v. Tompkins, Justice Brandéis said that ‘whether the water of an interstate stream must be apportioned between the two states is a question of “federal common law” upon which neither the statutes nor the decisions of either state can be conclusive.’ Hinderlider v. La Plata Co., 304 U. S., 92, 110.

“Were we bereft of the common law, our federal system would be impotent. This follows from the recognized futility of attempting all-complete statutory codes, and is apparent from the terms of the Constitution itself.”

It is true that most of these cases originated in fed: eral courts, but that cannot limit the consequence of the determination that as to federal subjects there is a great reservoir of common law upon which the courts draw to decide issues not controlled by federal statutes, and that the rules announced in so doing constitute a part of the laws of the United States, no matter what the name may be by which they are designated. Being a part of the federal law, it is the sworn duty of all judges both state and federal to enforce it as a part of their obligation to support and defend the Constitution of the United States under the authority of which such rules of law are promulgated.

Counsel for the receivers oppose to this reasoning the argument that whether the provision is a penalty or one for liquidated damages depends upon interpretation and the application of inferences or presumptions governed by the law of the forum and that this provision would be stigmatized as a penalty under Ohio law and enforcement denied. Assuming such would be its fate if controlled by Ohio law, and aside from the fact that the meaning of the provision is so clear that no interpretation is necessary or permissible, we do not understand that where constitutional power is involved a state is permitted to restrict federal power and enlarge state power by the simple process of denying the existence of the facts upon which the federal power is based. When the states in the exercise of their reserved powers have strained at the limitation imposed by the due process clause of the 14th Amendment of the U. S. Constitution, the United States Supreme Court has not accepted the state court’s findings of fact. Sterling, Gov., v. Constantin, 287 U. S., 378, 77 L. Ed., 375, 53 S. Ct., 190.

And where the exercise of reserved power collides with the limitation on such power against its use to . impair the obligation of contracts (Section 10, Article I, U., S. Constitution), the United States Supreme Court protects the contract which it finds to exist, notwithstanding the state may deny its existence, and the state court may have so decided. Irving Trust Co. et al. Exrs., v. Day, Exr., 314 U. S., 556, 86 L. Ed., 452, 62 S. Ct, 398, 137 A. L. R., 1093.

For stronger reasons, a state rule is ineffective to restrict the. United States in the exercise of power delegated to it which is declared by the Constitution itself to be the supreme law of the land. On this general subject, see Richardson v. Commr. of Internal Revenue, 126 F. (2d), 562, 140 A. L. R., 705, and annotation at 717.

However, as already indicated we regard the rule as to penalties as a rule of law, and whether, and to what extent, they will be enforced dependent upon public policy declared by courts, and the Legislature or administrative action based on legislative authority. And in jurisdictions where the distinction depends on whether the circumstances show that the provision was inserted in the contract as the result of a genuine effort to calculate and make certain the recoverable damage, there is room for resort to inferences and presumptions. . But neither the United States nor any state is bound by the common-law measure of damages for breach of contract and either is therefore free to change the rule by enlarging the recoverable damages, and a stipulation in a contract providing for the consequences of a breach must be judged by such new rule. And' even under the common-law measure of damages where articles are purchased for a specific purpose to the knowledge of the vendor, the recoverable damages are enlarged by that fact. Therefore, in this case the damages under the common-law rule would include the damages resulting to the public by reason of the army being inadequately equipped. Such damage would be impossible of calculation. The parties would have a right to také that fact into consideration and provide a liquidated sum for the breach.

Now what is the federal rule as to contractural provisions of this sort?

In approaching the answer to this question, it must be borne in mind that we are not presented with an ambiguous or doubtful, contractual provision. The language is clear. The damage recoverable is stated in unequivocal terms.. In case of default, The Leather Products Company agreed to pay the difference in cost and also one-half of one per cent of the price of each unit for each day of necessary delay in obtaining the goods from other sources by the United States. The provision is not in the alternative. Both are recoverable if the intent as expressed is carried out.

If the provision is to fail it must be because of the impact of some overpowering rule of public policy' and this public policy must be a public policy of the United States, and at the threshold of the inquiry we are confronted with an anomaly. It is difficult to see that an act authorized by the United States, as this provision in the contract was, can be against the public policy of the United States. If the provision had been by express act of Congress, within its constitutional powers, no court could refuse to apply it because of some conflicting view of public policy. Likewise, as in this case, where the provision was inserted by an administrative officer within his authority, it is equally difficult or impossible for the court to denounce it as against public policy. The courts are not the policy-making department of the government.

Many instances could be given of the law-making body authorizing a recovery of a specific sum without reference to any actual damage, and other instances could also be given of such body authorizing the recovery of double or treble the actual damages. Courts have enforced these laws without question. Whether a surety on a bail or recognizance in a criminal prosecution shall pay the entire penalty is subject to the will of the Legislature. The whole doctrine of exemplary or punitive damages is a recognition of the power of the sovereign authority to impose a liability beyond the actual damage. There is no juristic impossibility in incorporating a recoverable penalty in a contract any more than there is in the inclusion of 'a provision for liquidated damages. The courts may be, and have been, reluctant to enforce penalties where the situation permits the exercise of discretion, but where there is no such liberty, courts should not, and have not, shrunk from enforcing the law.

In the case at bar there is ample basis in fact for holding that the damage to the United States caused by delay in obtaining supplies for the military department is incalculable and therefore the proper subject of contractual stipulation and that the provision in this contract is not disproportionate to conceivable damage. We do not place our decision solely on that ground, however. The parties, one of which is the United States, have denominated the damage as liquidated damages, and that should end the inquiry. In the “Fair Labor Standards Act of 1938” (52 Stats, at L., 1060, Section 16; Title 29, Section 216, U. S. Code) the employee who was not paid for overtime in accordance with the act was given the right to recover an additional amount, and this amount was denominated “liquidated damages” in the act. In was argued in Floyd v. DuBois Soap Co., 139 Ohio St., 520, 41 N. E. (2d), 393, that the state court had no jurisdiction because this was a penalty under another name, to recover which the United States Court is given exclusive jurisdiction by Section 256 of the Judicial Code (Title 28, Section 371, U. S. Code). After discussing the subject and citing authorities, the court said:

“While a court of equity will determine whether an amount denominated liquidated damages in a private contract is in fact a penalty, such interpretation is not permissible where the legislative body has provided that a prescribed or ascertained amount shall be considered liquidated damages to be recovered by a private person.”

We see no reason for not applying the same rule to a public contract in which the parties have agreed in unmistakeable terms that the amount should be considered liquidated damages.

Counsel for the receivers rely on certain federal cases which we will notice.

In Commercial Casualty Ins. Co. v. United States, 83 Ct. Cl., 367, the contract contained alternative provisions on the subject of damages, i. e., to allow the contractor to complete the work and recover the liquidated damages or terminate his right and recover the excess cost. The United States elected in effect to terminate the contract and complete the work itself, and the court held that it was only entitled .to the excess cost. The court construed the provisions of that contract to provide for alternatives and based its decision on its finding in that regard. In the case at bar if the contractual provision were the same, we would reach the same conclusion, but the contract here as clearly provides for both elements of recovery as the contract there provided for a choice between two provisions.

A similar provision for alternative relief was provided in the contract which was construed in Fidelity & Casualty Co. of New York v. United States, 81 Ct. Cl., 495. There was no provision for cumulative relief before the court.

It is clear that the contract construed in United States, for benefit of General Lighterage Co., v. Maryland Casualty Co., 25 F. Supp., 778, did not provide for the recovery of difference in cost and a per diem for delay.

The latter three cases were cited and the decision predicated upon them in the case of United States v. Cunningham, 125 F. (2d), 28, and the court expressly placed its ruling in favor of the contractor on the ground that the provision was in the alternative. At page 32 the court said:

“To hold as the government asks us in this case would be not only to disregard the plain, unambiguous language of the government’s own contract, but to make a new and different contract for the parties. ’ ’

The language of the contract in the case'at bar as plainly and unambiguously provides for both excess' cost and per diem damage. We do not understand that it is claimed otherwise.

We regard such cases as United States v. Bethlehem Steel Co., 205 U. S., 105, 51 L. Ed., 731, 27 S. Ct., 450; Maryland Dredging and Contracting Co. v. United States, 241 U. S., 184, 60 L. Ed., 945, 36 S. Ct., 545; Wise, Trustee, v. United States, 249 U. S., 361, 63 L. Ed., 647, 39 S. Ct., 303; Ayres & Graves v. United States, 95 F. (2d), 502, and the other cases cited by the United States as deciding only that a provision for the payment of a certain snm for each day of default in a contract with the United States is a valid provision even though called a penalty in the contract, the court finding in each case that the actual damage that would result to the United States by the delay was uncertain and difficult, if not impossible, of calculation.

That could be said with equal propriety in this case. The difference between the contract price and the excess cost to the United States upon its purchase from another by no means represents the recoverable damages from breach of this contract for supplies for the army, even under the rule of Hadley v. Baxendale, 9 Exch., 341, 156 Eng. Rep. R., 145, 5 Eng. Rul Cas., 502, in the absence of any stipulation on the subject of damages. Provision for the payment of an item of damage that is subject to mathematical certainty is no reason for denying operation to a provision covering other damage equally real, but which cannot be determined by the application of a mathematical formula.

In none of the cases cited did the Supreme Court of the United States construe the provision to provide for a penalty and then refuse to enforce it. The court has frequently considered the distinction between liquidated damages and penalties in construing language to determine the intent of the parties as to the measure of damage. And in our view that is the only relevancy of the distinction in an action by the United States on a contract providing for the consequences of a breach.

Our conclusion is that the United States has a valid claim for the delay in the sum of $1,917.66, thal this claim is entitled to priority, and that the court erred in disallowing it.

The judgment is reversed and judgment rendered for the United States in the sum of $1,917.66 against the receivers, payable out of the assets in their hands prior and preferable to all other claims.'

Judgment reversed.

Ross, J., concurs in the syllabus and in the judgment.

Ross, J.,

concurring. I concur in the conclusion of my associate that the judgment of the Court of Common Pleas must be reversed and judgment here rendered in favor of the United States, payable out of assets in the hands of the receivers.

I concur in this conclusion for the reason that the law of the forum in this case is not radically different from that recognized generally by the weight of authority.

It appears from the record that the sum found to be due as liquidated damages under the contract has a direct relation to the actual damages suffered by the government through the breach of the contract; that actual damages would be difficult to ascertain and uncertain in amount; and that the contract, as far as is shown by the record, is not manifestly unconscionable, unreasonable and disproportionate in amount, and apparently does represent the intention of the parties. Under such circumstances liquidated damages stipulated in the contracts are enforceable. Mackenzie v. Stuber, 119 Ohio St., 588, 165 N. E., 296; Jones v. Stevens, 112 Ohio St., 43, 146 N. E., 894; Miller v. Blockberger, 111 Ohio St., 798, 146 N. E., 206; Norpac Realty Co. v. Schackne, 107 Ohio St., 425, 140 N. E., 480; Sheffield-King Milling Co. v. Domestic Science Baking Co., 95 Ohio St., 180, 115 N. E., 1014; Doan v. Rogan, 79 Ohio St., 372, 87 N. E., 263; Knox Rock Blasting Co. v. Grafton Stone Co., 64 Ohio St., 361, 367, 368, 60 N. E., 563.

Some early Ohio cases are apparently in conflict with this later well-considered and more reasonable rule. See: Berry v. Wisdom, 3 Ohio St., 241; Lange v. Werk, 2 Ohio St., 519; Nelson v. Ford, 5 Ohio, 473, 474.

The general rule throughout the country is to the same effect as the rule here found applicable. Kunkel & Jordan v. Wherry, 189 Pa., 198 (the contract in the ease here under consideration was to be performed in Pennsylvania); Dwinel v. Brown, 54 Me., 468; Leary v. Laflin, 101 Mass., 334; Guerin v. Stacey, 175 Mass., 595, 56 N. E., 892; Peabody v. Richard Realty Co., 125 N. Y. Supp., 349; Atkyns v. Kinnier, 4 Exch., 776, 783, 154 Eng. Rep. R., 1429.

See, also: 15 American Jurisprudence, 671, Section 240 et seq.; 25 Corpus Juris Secundum, 650, Section 101 et seq.

Such being the case it becomes unnecessary to determine whether the law of the forum or the law where the contract was entered into applies. In any event, the stipulation is ■ enforceable.

In the construction of contracts entered into by a citizen with the Federal Government the.same rules of construction apply that are employed in construing contracts between private citizens. 26 Ruling Case Law, 1437, Section 32.

I am unable to concur in the proposition that the Federal Government, when it enters into a contract with a citizen of a state and participates in litigation involving such contract in a state court, may invoke some nonstatutory rule or law which will exclude the application of the law of the forum or law of the place of performance, as the case may be.


source: Caselaw Access Project

author: Sherick, J.

license: Public Domain

text:
    In re Estate of Backus.
    (No. 1930
    Decided September 20, 1943.)

      Mr. Forrest B. Ashcraft, for appellant.

      Mr. Robert McDongle, Mr. R. W. Noll and Mr. Charles L. Flory, for appellees.
   Sherick, J.

Carl H. Backus, a freight train conductor in the employ of The Baltimore & Ohio Railroad Company, was killed in the course of his employment on the 15th day of April, 1942. Mary Backus, his widow, as executrix, procured a settlement with the company in the sum of $8,000, of which the Probate Court of Licking county approved.

Thereafter, the widow applied to the same court for an order of distribution. She alleged that the decedent was survived by two sons, each over 30 years of age, but that she is the only one who suffered any pecuniary loss by reason of decedent’s death. The two sons join in a similar application and therein admit their majority.

The applications thereafter came on to be heard. It was decided that Section 10509-168, General Code, was controlling; that a fair and just application required that each son was entitled to receive the sum of $800; and that the balance of $6,400 was due the widow. From this order both the widow and sons appeal

The widow complains that the trial court erred in four respects, all of which sum up to the one claim that the court erred as a matter of law in not awarding her the entire sum and in giving the sons any part thereof. The sons maintain that the court erred in not granting them a larger portion. They urge that distribution must be made under the Ohio law, that is, Sections 10509-167 and 10509-168, General Code. The widow with equal vigor maintains that the court was bound but failed to follow the provisions of the Federal Employers’ Liability Act, found in Title 45, Chapter 2, Section 51, U. S. Code, for the reason that the railroad company, being engaged in interstate commerce, was only amenable to the Federal Employers’ Liability Act and not liable under the state Workmen’s Compensation Act.

It is noted that Section 56 of the federal act provides for concurrent jurisdiction of wrongful death cases in both the federal and state courts. It is also pertinent to point out that only the state statute, Section 10509-167, General Code, contemplates that settlements in Probate Courts may be made before suits are commenced, as was done in the matter under review.

The record displays, let us say, two negative facts. First, it was not proved that the railroad company was engaged in interstate commerce. It is left to inference that such is so. It is perhaps a reasonable inference deductible therefrom. Second, the sons, adhering to their view that the state statutes only'were applicable, offered no proof of pecuniary loss, that is, any pecuniary benefit from a continuation of the decedent’s life. They rather bottom their right of participation on their father’s failure to pay an alimony award made to their mother, and his failure to support and maintain them during their infancy. The manner and mode of proof offered and received savors of the claim of a debt due them rather than of a reasonable expectancy of pecuniary benefits which they would have received from him had their father lived. As we see it the sons made no proof of pecuniary loss. They say such is not necessary under the state law, and that the court had discretionary power, under Section 10509-168, General Code, to make distribution among beneficiaries in such manner as may be “fair and equitable.” If this view be sound then their appeal stands emasculated. Neither their dissatisfaction nor this court’s power warrants or permits the substitution of a different distribution.

As we see it, three questions require our consideration. Does the federal act apply? We think it does. If this were a non-employer-employee wrongful death controversy then clearly the state law would apply, but when the Legislature adopted the Workmen’s Compensation Act it contemplated the abolition of common-law actions for wrongful death with all their attendant defenses, and created a cause of action and a remedy in its stead for those in employment within the state. Congress, on the other hand, under its powers to regulate interstate commerce, supplied an omission and provided for those who labored not only within but without and between the several states The federal act had a like purpose and intent as the state act in its scope.

The fact that action against those engaged in interstate commerce may be commenced in state courts simply increased the forums within which such actions might be brought. This provision for concurrent jurisdiction was for the convenience of the beneficiaries of killed employees. The damages recoverable from those engaged in interstate commerce therefore springs and flows from the federal act. Congress therefore had the right to direct how compensation paid by those engaged in interstate commerce should be distributed among beneficiaries. State courts apportioning such funds must be governed by federal direction. The annotations under the federal act disclose many adjudications supporting this rule. The fact that here is a settlement without suit, even though the federal act does not contemplate such, cannot change the rule.

The second query is: Does the federal act require that a beneficiary must sustain a pecuniary loss before he is entitled to participate in any such settlement or judgment obtained? The answer is yes.

We choose to cite but one authority. In Railway Co. v. McGinnis, 228 U. S., 173, 57 L. Ed., 785, 33 S. Ct., 426, the Supreme Court of the United States in interpreting the federal statutes now in question had this to say:

“The recovery under the Federal Employers’ Liability Act of April 22,1908, for the death of a. railway employee while engaged in interstate commerce, must be limited to compensating those relatives for whose benefit the administrator sues as are shown to have sustained some pecuniary loss; and a surviving child not dependent upon the decedent, and with no reasonable expectation of any pecuniary benefit from the continuation of the decedent’s life, can have no share in such recovery.”

The third question in view of our conclusion is hardly necessary. It is in fact purely obiter. But since this court in Bevan v. Century Realty Co., 64 Ohio App., 58, 65, 27 N. E. (2d), 777, has adopted the rule of the necessity of showing a pecuniary loss before one has a right to a distributive share of a wrongful death award under the state statutes, it follows that if the state act applied in this ease, our judgment would be the same.

It follows that it is the judgment of this court that the Probate Court was without discretion under the state of the record. It erred as a matter of law in permitting the adult sons to participate in the settlement. Its judgment is reversed and the cause is remanded with instruction to order distribution .in conformity with this finding.

Judgment reversed.

Montgomery, P. J., and Putnam, J., concur.


author: Sherick, -J.

text:
    Belden, Appellee, v. The Union Central Life Ins. Co., Appellant. Koplin, Appellee, v. The Ohio National Life Ins. Co., Appellant.
    (Nos. 3537 and 3548
    Decided April 5, 1943.)

      Messrs. Schnee, Grimm & Belden and Messrs. Slabaugh, Seiberling, Guinther S Pfluejer, for appellees,

      Messrs. Wise, Boetsel S Maxon, Messrs. Dinsmore,. Shohl, Saivyer é Dinsmore, Mr. Stanley K. Renshaw and Mr. Virgil D. Parish, for appellant The Union Central Life Insurance Company.

      Messrs. Buckingham, Doolittle é Thomas and Messrs. Bettinger, Schmitt é Kreis, for appellant The Ohio National Life Insurance Company.

      Mr. Thomas J. Herbert, attorney general, and Mr, David M. Spriggs, amici curiae.

   Sherick, -J.

Both of these controversies are suits in equity, instituted by objecting policyholders, wlm seek to enjoin their respective insurers from converting themselves from domestic stock life insurance corporations into level premium mutual life insurance companies, all of which defendants now seek to do under the plans which they have adopted and the provisions of Sections 9364-1 to 9364-8 inclusive, General Code, which plaintiffs say are unconstitutional legislative acts and aid and abet in the accomplishment of unconstitutional plans.

The Belclen case is appealed to this court on questions of law and fact. It is now being considered on demurrer to the answer. The Koplin appeal is upon a question of law. The trial court, as in the Belden case, sustained plaintiff’s demurrer to defendant’s answer. Neither company desired to plead further and final judgments were entered against them. The Ohio National Life Insurance Company contends that the court erred in its suit as a matter of law.

The pleadings in both suits evidence the same general plan of attack and defense. Their points of difference, wherein material, will be noted. Inasmuch as defendants’ right to mutualize depends on the constitutionality of the statutes in the first instance, it is clear that the immediate question in each cause is identical. In recognition thereof the appeals are not consolidated but are jointly presented. We shall first comment upon the pleadings in the Belden case.

This pleading recites that in 1931, The Union Central Life Insurance Company insured plaintiff’s life; that its policy stipulates he was entitled to participate in the profits as apportioned by the defendant’s directors ; and that his contract of insurance is in full force and effect. It avers that the company was incorporated under Ohio law in 1867; and that its capital stock of 5,000 shares, of the par value of $20 each, has from time to time been increased by declaration of stock dividends to $2,500,000. This was done by debiting surplus aud crediting capital. It is pleaded that the stockholders have received better than four and a quarter million of cash dividends, and that since 1916, the company’s bylaws have limited stock dividends to five per cent semi-annually on nonparticipating and participating insurance, the latter not to exceed 1/20 of the company’s assets or to provide’a dividend in excess of six per cent per annum. It is said that the company is licensed to do business in nearly all states and has many policyholders therein.

It is next pleaded that the company directorate, in July 1941, adopted a plan of mutualization, which in part provided for the purchase of all shares of its stock at $25 per share; that thereafter in August 1941, the stockholders met and approved the plan; that notice was given of a policyholders’ meeting to be held in October 1941, for the purpose of securing their majority approval of the plan; and that if a majority of the policyholders so approved, then the approval of the Superintendent of Insurance will be sought, which plaintiff believes has already been- given. It is said that if a majority of policyholders approves of the plan the company’s officers will proceed to purchase the company’s stock which will require an expenditure of $3,125,000 in cash and other sums to defray expenses. These sums will be paid out of company’s surplus.

Plaintiff next pleads that all this is attempted to be done under the provisions of the Code hereinbefore noted and known as the Mutualization Act, and that if these sections permit of the consummation of the proposed plan under the circumstances pleaded the act is unconstitutional because it is repugnant to Section 1 of Article II, and other clauses of the state Constitution, in that it delegates legislative powers and confers discretion upon the Superintendent of Insurance without establishing any standards for his guidance; that the act transgresses upon the provision of Section-26, Article II, which provides that no act may be passed to take effect upon the approval of any other authority than the General Assembly; that the act is repugnant to Section 28, Article II, because it impairs the obligation of contracts; and that the same is true of Section 19, Article I, which provides that private property shall ever be held inviolate. It is said also to .¡be repugnant to Section 10, Article I, of the federal 'Constitution in that it impairs the obligations of contracts ; and that the same is true in respect to Section 1 of the Fourteenth Amendment in that it deprives one of his property without due process of law.

Plaintiff nest avers that The Union Central Life Insurance Company’s capital structure is composed of its original capital, policy reserves, policy proceeds and dividends left at interest, supplementary contracts, claims due, premiums paid in advance and dividends reserved for policyholders, and other reserves, which totaled upwards of $400,000,000 in 1940; and that the ■stockholders’ investment has contributed but little to this sum as compared to the policyholders ’ investment to the capital and surplus account out of which it intends to pay the stock-purchase price. Plaintiff says that he and other policyholders have a vested interest in the capital and surplus accounts, and if they are depleted by the planned stock purchase they are deprived of their property without due process of law, .and that their contracts are impaired.

Although the petition is not so drawn it may rightfully be said that this matter comprises one of two ■causes of action. Without separate statement or reaffirmation, plaintiff pleads on in some thirteen subsequent paragraphs. Wé simply note that this latter portion complains, upon purely equitable grounds, that •mutualization ought not to be permitted because of inferred bad management and probable impairment of capital and surplus, and that reserves will be impaired if the stock is purchased as per plan. Fraud or insolvency is not charged or alleged.

The company, not to be outdone, has filed a voluminous answer, wherein it admits certain of plaintiff’s averments, modifies others and states in reply thereto-that all stock dividends have been made out of profits-which had been allowed to accumulate throughout the years and passed into the surplus accounts. It states that those sums might have been paid out as cash dividends to stockholders. It states that its average cash dividends to stockholders from 1920 to 1940 is-5.18 per cent. During this period dividends to stockholders amounted to $2,718,750, as against dividends to policyholders of $136,606,720.

This defendant admits the approval of its plan of mutualization by its directorate and stockholders and says that the policyholders’ meeting has been adjourned and as yet has not been held. It denies that the Superintendent of Insurance has approved of the plan, but admits that if a majority of the policyholders approve thereof, his approval will be sought and if obtained, it proposes to proceed to the plan’s consummation. It'states that it has in all things followed the direction of the Mutulization- Act, which is in no way repugnant to the State or Federal Constitution.

It further states that as of December 31, 1940, its assets amounted to $413,679,712; that $398,884,078.64 is already allocated to the owners of policies in the form of reserves, in which the stockholders have no interest. It says that as of December 31,1942, its total-assets are nearly 456 million dollars. It next avers that its allocation of reserves represent sound accounting practices and conforms to insurance experience.. It admits that reserves must be sufficient to meet tbe claims which will arise, and then says that its reserves are sufficient and in accordance with sound insurance accounting practice.

From this point it proceeds by denial and averment of facts and figures to controvert plaintiff’s claims of bad management and reserve impairment, if its capital stock is purchased in accordance with the plan of mutualization. If its version be true, it is a complete answer to plaintiff’s equitable claims for the relief sought. We recognize that any such issue or issues are factual matters concerning business strategy, investment propriety, and accounting practices, with which plaintiff as a policyholder cannot be concerned, unless he and the class which he represents have a vested proprietary interest in the capital or surplus accounts which amount to some $14,700,000, or these accounts have been improperly accumulated with funds which should have been placed to reserve funds.

The petition in the Koplin case pursues the same general trend of the Belden pleading. It recites that The Ohio National Life Insurance Company insured his life in 1927. It is a nonparticipating policy which when and if fully executed may be exchanged for a paid-up policy which shall then participate-in future surplus earnings in cash or accumulated paid-up insurance, or it may be surrendered at insured’s then option.

It is then averred that defendant commenced business in 1910, with a capital stock of $100,000, with 10,000 shares of the par value of $10; that by 1940, its capital had been increased to $828,580; and that shareholders have received total cash dividends of $1,353,836.

Its plan of mutualization contemplates purchase and retirement of its shares at $40 per share, which will require an expenditure of $3,314,320 and expense sums from capital and surplus accounts. Its board of direc-' tors and stockholders have approved of its plan It is claimed, like in the Belden petition, that the Mutualization Act is unconstitutional.

The petition recites that defendant’s capital structure at 1940 end had reached $55,000,000, of which $47,662,906 are in reserve accounts built up for policyholders exclusively. It is said that diversion of the stock purchase sum from capital and surplus accounts would not only wipe out these accounts but would also cut into policy reserves to the extent of $1,000,000.

Koplin says that if the plan is pursued it will impair his contract and take his property without due process. It is not pleaded that defendant’s mutualization plan contemplates present stock purchase. It recites that “if the diversion which the defendant contemplates at this time is allowed” the reserve account will be impaired. It is further pleaded that defendant’s shares are actually worth but twenty some dollars.

This defendant’s answer admits those things that should be admitted. It denies all others. It avers two additional affirmative facts. It pleads that its plan among other things authorizes its directorate “to purchase from time to time as funds are available the stock of its shareholders” at $40 per share. It states that since the filing of the petition herein, its policyholders have approved of the plan as provided by law. (We here observe that its plan, as admitted by the demurrer, does not propose immediate total capital stock purchase, but is to be acquired by purchase out of capital and surplus accounts as and when such funds are available.)

Plaintiffs rest their claim of the act’s unconstitutionality upon three grounds, impairment of contract obligations, deprivation of property without due process, and improper delegation of legislative power These are the points we shall particularly examine.

Section 9364-2&, General Code (its effective date being July 17, 1941), is first of importance. It reads in part:

“Neither the retirement of its capital stock nor the amendment of its articles of incorporation, as herein provided, shall affect existing suits, rights or contracts of such corporation.”

In the light of its terms and the established operative facts of the fonr pleadings which the demurrers search, it is clear that mutualization but continues the insurer’s corporate existence. It changes only the corporation’s purposes. New insurers are not created or injected into the insurance contracts. The contracting parties remain the same. It is neither permitted by the act nor proposed by the plan that “rights or contracts” are to be affected by mutualization. That is to say, that so long as the insured pay their stipulated premiums, no more or no less, their contracts of insurance shall remain in full force without modification in any of their provisions. Inasmuch as these observations are inescapable, true, it must follow'that before plaintiffs’ contracts can be impaired by mutualization under the act, it must be found that the insured are thereby deprived of some vested interest in the capital and surplus accounts or that portion thereof which is to be appropriated for the purchase and retirement of the capital stock. It must take from them some substantive part of the capital structure or some source of security which flows therefrom and to which they have an assertable right. In addition thereto it must be such a taking as will lessen the value of their insurance contracts.

The first section of the act, Section 9364-1, General Code, after setting forth the four required steps necessary to secure mutualization,. a failure of any one of which will defeat the objective, concludes with this assurance to the policyholders and restraint upon, the Superintendent of Insurance:

“Provided that every payment for the acquisition of any shares of the capital stock of such corporation, the purchase price of which is not fixed by such plan, shall be subject to the approval of the superintendent, and provided that neither such plan, nor any such payment, shall be approved by the superintendent unless at the time of such approvals, respectively, the corporation, after deducting the aggregate sum appropriated by such plan for the acquisition of any part or all of its capital stock, and in the case of any payment not fixed by such plan and subject to separate approval as aforesaid after the approval of such plan, after deducting also the amount of such payment, shall be possessed of assets sufficient to maintain its deposit theretofore made with the superintendent of insurance and not less than the entire liabilities of the corporation, including the net values of its outstanding contracts computed according to the standard adopted by the corporation under the provisions of Section 636 of the General Code of Ohio, and also all funds, contingent reserves an'd surplus save so much of the latter as shall have been appropriated or paid under such plan.”

This quoted provision is of special significance in view of the several claims advanced by the plaintiffs for holding the act unconstitutional. It is urged that while the act takes care of the company stockholders, it fails to. provide protection to those dissenting policyholders who object to the plan’s adoption. Clearly this is not true. The Legislature has commanded, in Section 9364-1, General Code, that the Superintendent of Insurance shall in the first instance and at all times thereáfter withhold his approval not only to the plan but to any subsequent disbursement of capital assets towards its consummation, unless lie shall first find that sufficient assets of the corporation remain and are available to meet all present and future demands upon it, and this of course includes that which is or may be due policyholders. Thus it is apparent that the superintendent is charged with mathematical duties. He must audit the corporation’s books. He must value assets and determine liabilities. This could be done only oh the basis' of present actual cash values, except in those instances wherein the Legislature had previously prescribed how bonds or other evidences of debt shall be valued, as in Section 9363-1, General Code. No other standard of audit values could or would be fair and just. It is certain that the Legislature contemplated and intended from the language used that true values were the only standard of values possible. It was at the same time recognized that in computing liabilities, present policy values might be subject to various standards. To forestall all such disputes the General Assembly incorporated therein Section 636, General Code, first enacted in 1872 (see 69 Ohio Laws, 32, 36), and as finally amended in 1908 (see 99 Ohio Laws, 178), which annually causes computation and standardization of insurance policy values. We here point to the fact that when plaintiffs procured insurance, they then knew that it was the state’s settled public policy that insurance contract values were at all times valuable by a fixed standard. This statute assured an insured of a definite surrender value at all times, which the insurer might not diminish. It also made possible the ascertainment and creation of adequate reserve accounts which at all times protected an insured’s investment and life hazard insured against. True, surrender values never exceed premiums paid; why this should not be so is self-evident when protection against the risk assumed over a period of time has been afforded.

Plaintiffs further knew when their contracts were entered into that Section 2, Article XIII of the state Constitution of 1851, as amended in 1912, provided that:

“Corporations may be formed under general laws; but all such laws may, from time to time, be altered or repealed. ’ ’

That provision directly empowered the Legislature to enact the Mutualization Act which permits change of a stock life insurance corporation’s charter by amendment. It permits alteration in insurance purpose. It permits change in organization and structure, so long as the obligations of existing contracts of insurance are not impaired. All this defendants may do if the four steps found in Section 9364-1, General Code, are susceptible of performance, provided Section 10, Article I of the federal Constitution, and Section 28, Article II of the state Constitution, which forbid a state from enacting laws which impair the obligation of contracts, are not transgressed.

Plaintiffs urge that inasmuch as their contracts antedate the Mutualization Act, its terms can only have prospective effect, and to hold such contracts amenable to the provisions of the act is to give the act retroactive effect, and thereby impair the obligation of their contracts. and deprive them of due process of law. This is but to reiterate that defendants’ capital structures must stand forever unchangeable until such time as every present participating policyholder’s contract shall have ceased to exist. This claim can be made to stand upright only upon the theory of a policyholder’s vested interest in the capital and surplus accounts. We cannot subscribe to this view. To our notion any such interest that policyholders have in these funds is purely a contingent interest, which even then does not exist if reserves fully protect their contracts of insurance.

An analyzation of plaintiffs ’ claims sums up to this: That a participating policyholder, who is in fact a corporation creditor, by virtue of his contract of insurance, has a vested right to uninterrupted continuance of an insurer’s capital structure. Defendants do not controvert this claim insofar as it concerns reserve accounts and required deposits thereover which must be maintained with the Superintendent of Insurance, but they do insist that beyond the requirements of these policy guaranties, policyholders have no vested interest in company surpluses.

It may be stated as indisputable propositions of general law that corporations organized for profit, as are these defendants, are not required to create surpluses. Neither are they required to maintain such. Their directors may declare dividends out of earnings undistributed, or earnings that have been passed to surplus account so long as it is done in good faith, that is to say, if it is not declared to the detriment of corporation creditors. It is also lawful for corporations to not only increase but to diminish their capital structure, subject to the same limitation. Particularly considering the matter of declaration of dividends from surplus accounts, it is observed that Section 9362, General Code, first enacted in 1872 (69 Ohio Laws 154), permits insurance corporations to make dividend payment to stockholders from surplus accounts after reserve requirements are met. This statute was in existence when plaintiffs procured their policies. They knew or must have known that surplus accounts in insurance companies organized for profit belonged to those stockholders whose capital was invested in the enterprise, subject of course to the limitation previously noted. Here again it is pertinent to observe that plaintiffs do not plead insolvency, but plead, in Tbe Union Central Life Insurance Company case, that stock retirement out of surplus lessens that fund and impairs their security and takes without due process of law that in which they have a vested interest. In The Ohio National Life Insurance Company case they plead that reserve funds are to be used to consummate the plan. This the latter company denies, thereby creating a question of fact which requires evidence

If plaintiffs are correct in that they have a vested interest in surplus funds, then consistency dictates that they or their beneficiaries at maturity or death should be entitled to their aliquant part of that fund This they do not claim. If they did so it is apparent from their pleaded rights under their contracts that they would then be attempting to do that which they now condemn, that is, impair the obligation of their contracts at the expense of the insurers. It is clear that plaintiffs’ interests are fixed and determined by their contracts and the laws applicable thereto.

The parties agree that no case is reported within or without those jurisdictions which by similar statutes have permitted mutualization or other type of change in the business of insurance corporations wherein stock life insurance corporations have been converted into level premium mutuals. It is also, said that cases of kindred nature are all sponsored by stockholders and none are to be found instituted by a policyholder. In these two respects only is the present question made unique. We believe that the law applicable requires but the applying of well-settled existing rules.

Plaintiffs knew or must have known not only of the provisions of Section 2, Article XIII, of the Ohio Constitution, but also of the statutes hereinbefore noted, which were in existence prior to their insurance contract’s execution. They contracted, knowing that laws existed inconsistent with their present claims. They knew that the state had reserved power to amend or repeal corporate charters, and that it might consent to subsequent change in corporate structure and plan of business, and even that management, ownership and control might be thereafter changed. It matters little how this power be reserved. It might be embodied in the articles of incorporation, or in the original act which afforded the vehicle for organization, or in the general law. Possessing the power to amend, it might do so, so long as its acts were not repugnant to the federal and state Constitutions.

It is equally certain that plaintiffs have not been deprived of due process of law under Article XIV of the Amendments. What the Legislature did in the enactment of the Mutualization Act, was done in conformity to the theii existing law. Plaintiffs complain only that the plan and the Mutualization Act deny them due process, because they impair the obligation of their contracts, and deprive them of vested property rights. If what the Legislature did and the corporations pursued, insofar as we are now advised, was done in accordance with the law of Ohio and the federal Constitution, we are unable to perceive wherein plaintiffs have been harmed thereby. In truth, after mutualization, if the third and fourth hurdles are overcome, and over which the corporation stockholders and officers have no control, the policyholders gain management and control, if that be of advantage.

Has there been an improper delegation of legislative powers to the Superintendent of Insurance? We think not. The court in Fassig v. State, ex rel. Turner, Atty. Genl., 95 Ohio St., 232, 116 N. E., 104, states the rule applicable, as we understand it:

“it may clothe administrative officers with power to ascertain whether certain specified facts exist, and thereupon to act in a prescribed manner, without delegating to such officers legislative or judicial power within the meaning of the constitution.”

We have hereinbefore pointed out what the superintendent will be required to do when matters reach his hand. He must amass and compute figures and values, and see if reserves are adequate in accordance with existing law. In fact he must audit a company’s accounts when it seeks mutualization approval If he finds from his computations that policyholders and other creditors are not harmed thereby, he shall approve of the plan provided it is not antagonistic to the state’s insurance law. Surely the Legislature is incapable of performing any such service or laying out a plan in minute detail which would meet every mutualization that might thereafter be requested. As we see it his duties under the Act require him to ascertain whether “specified facts exist, and thereupon to act in a prescribed manner.” We do not find any improper delegation of legislative power or arbitrary discretion lodged in him. Neither can we perceive wherein the plan or the act is repugnant to the other constitutional provisions claimed to be violated thereby.

The rules of law which the court has applied will be found in the following authorities. They may be pursued with profit. Wright v. Minnesota Mutual Life Ins. Co., 193 U. S., 657, 48 L. Ed., 832, 24 S. Ct., 549; Polk v. Mutual Reserve Fund L. Assn., 207 U. S., 310, 52 L. Ed., 222, 28 S. Ct., 65; Wall v. Bankers’ Life Co. of Des Moines, 208 Iowa, 1053, 223 N. W., 257; In re Leininger, 115 Neb., 801, 215 N. W., 167; and Grobe v. Erie County Mutual Ins. Co., 24 Misc. Rep., 462, 53 N. Y. S., 628, affirmed by the appellate division, 39 App. Div., 183, 57 N. Y. S., 290, and again affirmed in 169 N. Y., 613, 62 N. E., 1096.

An order may be entered in the Beldén case which overrules plaintiff’s demurrer to defendant’s answer. Inasmuch as this court does not possess original jurisdiction in injunction matters, it is ordered that the cause be remanded for trial in the Court of Common Pleas. The judgment of the trial court in the Koplin case is reversed and the cause is remanded with instruction to overrule the plaintiff’s demurrer to defendant’s answer. In order that there be no misunderstanding, let it be understood the court considers that the demurrers search the plaintiffs’ petitions and that portions of their causes of action which question the constitutionality of the Mutualization Act are elided from any further inquiry. It may be considered as finally disposed of in this review.

In order that the merits of the particular questions presented might be speedily determined, the court in its judgment has purposely refrained from considering The Union Central Life Insurance Company’s claim that these suits were prematurely instituted.

Demurrer overruled in cause No. 3548.

Judgment reversed in cause No. 3537.

Montgomery, P. J., and Putnam, J., concur.

Montgomery, P. J., Sherick and Putnam, JJ., of the Fifth Appellate District, sitting by designation in the Ninth Appellate District.


author: Ross, P. J.

text:
    Rathman, Appellee, v. First American Bank & Trust Co. of Middletown, Appellant.
    (No. 853
    Decided July 2, 1943.)

      Messrs. Baclen & Fiehrer and Mr. C. W. Elliott, for appellee.

      Messrs. Andretvs & Weiss, for appellant.
   Ross, P. J.

The defendant has appealed to this court upon questions of law from a judgment of the Court of Common Pleas of Butler county in favor of the plaintiff in the amount of $10,000.

It appears that the plaintiff was a lady of some eighty years of age and that she had, on January 2, 1941, some business to transact with the bank operated by the defendant in its bank and office building.

After transacting her business with the bank, she proceeded to the exit, which consisted of a revolving door flanked by an ordinary swinging door on either side. She used the revolving door. It was stationary as she approached the panel against which she was required to press in order that the door might revolve and permit her exit. She exerted the necessary force to cause the door to revolve and, somewhere between a halfway position and a complete clearance of the door, was- struck by the panel behind her with such violence that she was pitched or thrown out of the door and across a ten-foot sidewalk, from which experience she suffered a broken hip and sundry bruises and injuries. She made a surprising recovery considering her age, and this fact is emphasized by the defendant as an argument against an excessive verdict. As to this assignment of error, the evidence fully justifies the finding of the jury.

The charges of. negligence included a claim that no speed-control device was used on the door and that such door was permitted to lapse into a condition allowing it to revolve at an excessive speed.

It is apparent that those who see fit to install and maintain such doors for ingress and egress of patrons to their places of business, must be charged with knowledge that the extremely young and the aged, the weak and the strong, the well and the sick, will use them for the purpose for which they are obviously designed. Such being the case, those responsible for their maintenance must be held to an obligation to use that care in such maintenance which a reasonably prudent person is accustomed to use under like circumstances.

It is also obvious if an aged person, moving slowly through such a door, simultaneously with a normal person using possibly normal force and going in the opposite direction, such aged person in all probability will be overtaken by the following panel. As one walks, it is usual that the heel of one foot lags behind as the step takes the other foot forward and that, if a panel of a revolving door moves suddenly up upon the person proceeding through it, the rear heel will be struck and balance lost, the logical result of which, if the person so struck is below normal in strength and agility, is to cause a fall. There is evidence .in this case indicating that the plaintiff had proceeded through the door and hesitated before completely clearing the circle of its revolution. Even if such were the case, this situation merely presented a factual issue for the jury involving the existence of contributory negligence or proximate cause of the mishap.

There is evidence also that so-called friction strips of rubber and felt on the door were not so adjusted by the defendant, that they would by friction on the housing of the door cause a retarding action. It is apparent that the defendant did not consider them adapted to that purpose, and did not adjust them so as to create friction. No other retarding device was used, although such devices are available.

There was evidence that such retarding devices are not in very general use in such doors, but there is evidence that friction strips, if properly installed and maintained in good condition, do have a tendency to cause the spinning action of the door to decrease.

Counsel for plaintiff and defendant have cited a number of cases to this court, in which several phases of actions predicated on injuries received through the operation of revolving doors are considered. No controlling authority has been noted, however, requiring this court to hold that the facts in this case do not present a question for the jury, and there was ample evidence to sustain the charges of negligence set forth in the petition.

Whether the action of two other persons, using the door at the same time the plaintiff was passing through, co-operated with the negligence of the defendant in not using proper care to prevent the ‘injury to plaintiff, is beside the point.

The defendant complains that the court committed error in the admission of evidence and the giving of special instructions. An examination of the record fails to show any error so prejudicial to the defendant as to warrant a reversal of the judgment of the Court of Common Pleas, which is, therefore, affirmed

Judgment affirmed.

Hildebrant and Matthews, JJ., concur.


author: Hornbeck, J. Geiger, P. J.,

text:
    In re Guardianship of Jacobs: Jacobs, Appellant, v. Porter, Gdn., Appellee.
    (No. 3273
    Decided September 18, 1941.)

      Messrs. Griffith & Griffith, Messrs. Baker, Hostetler & Patterson and Messrs. Power $ Barton, for appellant.

      Mr. Charles 8. Druggan and Mr. Henry A. Reinhard, for appellee.
   Hornbeck, J.

This is an action in which the appellant seeks the reversal of the judgment of the Court of Common Pleas dismissing an appeal from an order of the-Probate Court appointing a guardian of the person and estate of William E. Jacobs, an alleged incompetent.

On March 26,1937, an application was made foi the appointment of a guardian for William E. Jacobs,' a man then 93 years of age and alleged to be the owner of an estate of the value of, at least, $500,000. The application proceeded to hearing and the testimony in the case was largely that of two doctors. The evidence was such that the court made an entry to the effect that being satisfied that William-E. Jacobs “is incompetent, in that by reason of advanced age, improvidence, mental and physical disability and infirmity, he is incapable of taking proper care of himself and his property”; that he is of the age of 93 years and the court being satisfied that it is necessary that a guardian be appointed it is ordered that J. Lawrence Porter be appointed guardian.

A motion for new trial was filed and overruled.

On June 13,1940, the Common Pleas Court made an entry to the effect that the cause came on' to be heard on the motion of appellee to dismiss the appeal on questions of law and fact. The court thereupon found said motion well taken and ordered that the appeal be dismissed.

. Notice of appeal from this decision, upon questions of law, was filed within proper time and the case is now before this court for review of the order of the Common Pleas Court dismissing the appeal.

' The errors assigned are that the Court of Common Pleas erred in sustaining the motion of appellee to dismiss the appeal from the order of the Probate Court and dismissing said appeal.

A bill of exceptions is filed disclosing the evidence in the Probate Court upon which the appointment was made. It would, therefore, appear that the only question before this court is whether the court below erred in dismissing the appeal on questions of law and fact.

Section 10507-1, General Code, effective January 1, 1932, in the particulars germane to the question presented, is substantially the same as former Section 10989, General Code. This former section made provision for the appointment of a guardian for an idiot, or imbecile, or lunatic or an incompetent by reason of advanced age or mental or physical disability or infirmity. The former section, however, did not more particularly define the term, “incompetent.” It is now defined in Section 10507-1, General Code, as “any person, who by reason of advanced age, improvidence, or mental or physical disability or infirmity, is incapable of taking proper care of himself or of his property * * The terms “idiot, imbecile and lunatic” were not particularly defined in Section 10989, General Code, but are now so defined in Section 10507-1, General Code. In this latter section “the terms ‘insane and lunatic’ include every species of insanity or mental derangement.” (Italics ours.)

Section 10507-1, General Code, was enacted by the Legislature in the light of judicial interpretation of former Section 10989, General Code. In 1923, the Supreme Court had held in Schafer v. Haller, Gdn., 108 Ohio St., 322, 140 N. E., 517, 30 A. L. R., 1378, that:.

‘ ‘ The provision of Section 10989, General Code, making physical disability or infirmity a ground for the appointment of a guardian of the property of a person mentally competent, but physically incompetent, is an unwarranted abridgment of the liberty of such person, and an unwarranted abridgment of his right to acquire, possess and protect property, and is in violation, in that respect, of Section 1, Article I of the Constitution of Ohio.”

The effect of that decision is to render unconstitutional any act authorizing the appointment of a guardian for a person, upon the basis of his physical disability or impairment only. The Legislature recognized its inability to make physical infirmity alone the basis of the appointment of a guardian and inserted in Section 10507-2, General Code, a provision whereby the Probate Court could name a guardian for an incompetent because of physical disability or infirmity if the incompetent consented to the appointment, the effect of which would be a waiver of the incompetent’s constitutional right.

It follows then, that in this case, wherein it appears that not only did the alleged incompetent not consent to the appointment of a guardian for him, but opposed it, the only basis for the appointment which would give it any force or standing in law is that Mr. Jacobs is an incompetent because of mental disability or infirmity.

Section 10501-56, General Code, effective January 1, 1932, and controlling the rights of appellant here, was not materially changed from its former form in Section 11206, General Code, and in no particular °in the controlling language in the instant case. The sections provide that:

“Appeal may be taken to the Common Pleas Court, by a person against whom it is made, or whom it affects, from any order, decision or judgment of the Probate Court * * * in proceedings to appoint giardians or trustees for idiots, lunatics, imbeciles or drunkards.”

It will be noted that the word “incompetent” does not appear in either of the sections.

It is of interest to observe that the review in Schafer v. Haller, Gdn., supra, was by appeal (as then known, now appeal on questions of law and fact) to the Common Pleas Court and the authority for such appeal was grounded on Section 11206, General Code.

In the determination of the material and substantial procedural rights of the ward in this case, nice distinction between the term “incompetent” and the term “insane person or lunatic” is not justified and can not be made.

It is humane and in keeping with the trend of the times to authorize the designation of one whose mind is in such a state that he requires a guardian, as an “incompetent” instead of a “lunatic” or an “insane person,” but, inasmuch as the incompetency which clothes the Probate Court with jurisdiction to name a guardian, against his will, must be mental incompetency, the determination when made is to all intents and purposes synonymous with a finding that the incompetent is insane or a lunatic. This necessarily follows because the terms by which these words are defined in the language of the statute include “every species of insanity or mental derangement. ’ ’ If one suffers mental disability or infirmity he is mentally deranged. There is a variation from the normal, state of the mind, and as said by Judge Robinson in' the opinion in Schafer v. Haller, Gdn., supra:

“* # # the function of the state in exercising a guardianship over the property of one of its defective subjects, whether defective by reason of age, birth, accident or disease, arises out of the fact that such defective is lacking in the power to exercise his will, which we have come to term ‘mental capacity to manage.’ ” ,

Appellant cites Romell v. Romell, 18 Ohio App., 31, which held that a decision of the Probate Court refusing to appoint a guardian for a person upon an application upon the alleged grounds of incompetency by reason of advanced age was appealable to the Common Pleas Court. The appeal there was from an order refusing-to appoint the guardian and thus is not the same question presented, here, which relates to proceedings to appoint a guardian. The statute is silent as to the right of appeal from an order refusing to appoint. The cited case goes further than is necessary in the instant cause. However, the reasoning in the opinion of Judge Chittenden is, in oui judgment, sound insofar as it may be related to the purpose of Section 10501-56, General Code, in the particulars under consideration in this case.

In Romell v. Romell, supra, the court cited Trumpler, Admr., v. Royer, 95 Ohio St., 194, 115 N. E., 1018, to the effect that Section 11206, General Code, required a liberal construction. We also are in accord with this conclusion, although it is not necessary to resort to a rule of construction to give Section 10501-56, General Code, the interpretation which we place upon it. The trend of appellate procedure is to require that it be given a liberal construction in favor of the party invoking the right of appeal. This is clearly discernible in the new Appellate Procedure Act effective January 1, 1936 (116 Ohio Laws, 104). The Supreme Court has evinced a purpose to so construe this act as late as the opinion in Mosey v. Hiestand, Trustee, 138 Ohio St., 249, 34 N. E. (2d), 210, and Couk v. Ocean Accident & Guarantee Corp., Ltd., 138 Ohio St., 110, 33 N. E. (2d), 9.

Appellee cites In Matter of Watts, 60 Ohio App., 307, 21 N. E. (2d), 129, wherein the syllabus reads:

“An order of the Probate Court appointing a guardian for an incompetent person is not appealable on questions of law and fact to the Common Pleas Court under Section 10501-56, General Code.”

The facts in that case disclose that an application was first filed with the Probate Court for the appointment of a guardian for Watts, “an incompetent person by reason of advanced age.” Watts, in writing, consented to the appointment. He was adjudged an incompetent and a guardian was appointed and bond furnished. Thereafter the order was vacated. Some fourteen days following the appointment of the guardian a second application was filed by a person other than the one who filed the first, alleging that “Watts is incompetent and by reason thereof is incapable of taking care of or preserving his property.” The Probate Court re-entered its prior finding of incompetency and the former named guardian was reappointed To this order the applicant for the appointment, one Dale Powers, who had also sought unsuccessfully to be made a party, excepted. Watts did not except. Thereafter, both Watts and Powers moved for a new trial which was overruled, the appeal de novo noted and the cause was so heard in the Common Pleas Court, which refused to appoint the guardian for Watts.

In the Common Pleas Court Watt’s guardian moved to dismiss the appeal on questions of law and fact which motion was overruled and this question was presented and determined on review in the appellate court. The syllabus is general and to the effect that an appeal on questions of law and fact is not permitted from the appointing of a guardian for an incompetent person and is contrary to our conclusion in this case.

It will be noted that Judge Sherick in the opinion in In Matter of Watts, supra, stresses the fact that “Watts, having promoted and consented to the adjudication of incompetency and the guardian’s appointment, cannot now be found to have been arbitrarily deprived of his liberty or property,” and calls attention to the fact that Watts had in writing consented to the appointment. Watts, being the only party who could, under the order of the court, prosecute the appeal, there was nothing presented to the Common Pleas Court but an appeal on questions of law and fact from an order appointing a guardian upon a finding of incompetency, which could have been for physical reasons only and which appointment was specifically authorized by the terms of Sections 10507-1 and 10507-2, General Code.

We can readily agree with the judgment of the appellate court in In Matter of Watts, supra, because the'only order for review was one which could properly have referred to an appointment for physical infirmity only, with the consent of the person for whom the guardian was appointed. The incompetent clearly could not come within the terms “insane person” or “lunatic” and Section 10501-56, General Code, making no mention of incompetency and nothing therein set forth referable to incompetency for physical infirmity only, it may be said that there was no basis for an appeal from an appointment upon such ground. Our proposition is that the appellant in this case may avail himself of the provision of Section 10501-56, General Code, because upon the adjudication he is brought within the express terms of the statute and his appeal was grounded upon the fact that he, under the language of Section 10507-1, General Code, when designated an incompetent because of mental infirmity brought about by advanced age, was found to be an insane person or lunatic. This designation in the law is in complete harmony with every medical definition of insanity or lunacy which has come to our attention. Senile dementia is recognized by alienists as a form of insanity or impairment of the mental faculties.

The judgment will be reversed and cause remanded.

Judgment reversed and cause remanded.

Barnes, J., concurs.

Geiger, P. J.,

dissenting. Section 10507-1, General Code, contains certain statutory definitions, as used in this act, among- them being that “the term ‘incompetent’ means any person, who by reason of advanced age, improvidence, or mental or physical disability Dr infirmity, is incapable of taking proper care of himself or of his property * * The terms “insane” and “lunatic” are defined as including “every species of insanity or mental derangement.”

The Probate Court in its entry of appointment used the words of Section 10507-1, General Code, defining “incompetent”. This becomes of importance for the reason that the appellant urges that inasmuch as this statute provides that the terms “insane” and “lunatic” “include every species of insanity or mental derangement” that such general definition includes the term “incompetent” as specially defined.

Section 10501-56, General Code (114 Ohio Laws, 320, 336), provides that appeal may be taken to the Common Pleas Court, by a person against whom it is made, from any order, decision or judgment of the Probate Court in a large number of enumerated proceedings, the last of which is “ or in proceedings to appoint guardians or trustees for idiots, lunatics, imbeciles or drunkards. The cause so appealed shall be tried, heard and decided in the Court of Common Pleas in the same manner as though the Court of Common Pleas had original jurisdiction thereof.” This section does not include the defined word “incompetent”. •

Section 12223-23, General Code, provides that “a judgment rendered or final order made by * * * any * * * tribunal * * * inferior to the Court of Common Pleas, may be reversed, vacated, or modified by the Common Pleas Court upon an appeal on questions of law.” (Italics ours.)

This case revolves around the question as to whether or not, by virtue of the liberalizing Section 10214, General Code, and the definition of the term “insane” as appearing in Section 10507-1, General Code, the provisions of Section 10501-56, General Code, include a person found by the Probate Court to be “incompetent”. The term “incompetent” as defined in Section 10507-1, General Code, does not appear in Section 10501-56, General Code. I am of the opinion that inasmuch as the Legislature has definitely defined the condition that may make one “incompetent” which definition the Probate Court adopted in its order appointing a guardian, the omission of that classification in Section 10501-56, General Code, is a definite declaration that in the case of the appointment of a guardian of an “incompetent” there should be no appeal on questions of law and fact permitting a trial de novo. The right to review such cases is confined to the provisions of Section 12223-23, General Code, as held by the court below.

See: In Matter of Watts, 60 Ohio App., 307, 21 N. E. (2d), 129.

I am not persuaded that the majority has effectively answered the authority of that case. It seems to me to be clearly applicable to the case at bar.

I am of the opinion that the court below committed no error in dismissing the appeal.

Judgment of the court below should be affirmed.