text:
    CORPORATIONS.
    [Cuyahoga (8th) Circuit Court,
    May, 1912.]
    Marvin, Winch and Niman, JJ.
    Owen W. Callahan v. Owen Steel Crane Co.
    Sale of Unissued Stock to Director on Terms Unfair to Company Set Aside.
    A sale of unissued treasury stock to one of -the .directors at par on a cash payment of 2 per cent, and a promise to pay the balance in ten annual payments, no efforts being shown to sell the stock to others, but cash offers' therefor having been received and refused, additional capital not being necessary and the stock being probably worth more than par, because it was then paying 20 per cent, dividends, will be set aside as a fraud upon the corporation and its stockholders.
    Error.

      Max P. Goodman, for plaintiff in error.

      Wing, Myler & Turney, for defendant in error.
   WINCH, J.

The plaintiff in this ease'seeks to have a sale and issue of fifty shares of stock of the Crane Company, to the defendant, J. Frank Rollings, set aside and held for nought, on the ground that the transaction was illegal and fraudulent.

It appears that the corporation was organized in May, 1910, with an authorized capital stock of $25,000, divided into 250 shares of one hundred dollars each. Two hundred shares of stock were issued to plaintiff in, payment for the good will of his steel crane business and certain applications for patents on cranes, which he transferred to the company.

Callahan sold eighty of his shares to the defendants Rollings and Eagan, and their wives, retaining one hundred and twenty shares for himself. When he made this sale to Rollings and Eagan, he entered into a written agreement with them that they should have the control of the corporation and a majority of the board of directors, and that the fifty shares of unissued or treasury stock should be issued to a trustee for the joint benefit of the three parties. Pursuant to this agreement the corporation elected Rollings and his wife and Eagan and his wife as four of the five directors of the company, and Callahan as the fifth director.

The corporation had no plant or physical assets when it started business; it was a mere selling agency, soliciting orders for cranes which it filled by having cranes manufactured for it by others.

The company met with some success in the next few months. In January, 1911, it had an annual meeting and re-elected the same directors under whom it continued business until the latter part of 1911. Meanwhile it had paid 20 per cent, dividends to its stockholders, and accumulated $3,000 or $4,000 of profits in addition. Then trouble arose and Callahan demanded that the original tripartite agreement for the control of the company be rescinded; Eagan and Rollings demurred and issued the fifty shares of treasury stock, without consideration, to the wife of one of them as trustee. Then Callahan brought suit to have this issue of stock rescinded, and while the suit was pending, by mutual consent, said tripartite written agreement was rescinded and annulled; the stock was returned to the company and the case was dismissed.

Thereupon Callahan notified the other four directors that he stood ready to purchase said fifty shares of stock and pay par for them, and a meeting being called at once, he appeared at the meeting, demanded at least his pro rata share of said stock, thirty shares, and offered to pay therefor in cash. The directors refused his offer and at once, by a vote of Eagan, his wife and Rolling’s wife, accepted an offer of Rollings to take the fifty shares and pay therefor $100 cash and the balance in annual payments of $500 each. Rollings himself did not vote on this proposition, and offered no security for the deferred payments. The evidence fails to show that he is good for the amount of his agreement.

At once Callahan brought this suit to set aside said sale of fifty shares to Rollings, the case being removed here by appeal and heard on the evidence. It is apparent that this controversy is simply over the right of control of the corporation..

The defendants justify their actions in the premises on two grounds: first, that Callahan induced them to buy their stock from 'him on an agreement that they should have control of the corporation, and second, that the directors had full discretion to sell the stock to anybody to whom they desired to sell it.

The first point is easily disposed of on the evidence. Whatever agreements were made between the parties for control of the corporation were reduced to writing and merged in that writing; the written agreement was thereafter, by mutual consent, terminated. That voluntary action of the parties in the midst of litigation must be considered as a settlement of the whole matter, so far as an agreement for control of the corporation was concerned, and put an end to all moral obligation on Callahan’s part to further live up to his agreement. It is doubtful if the agreement ever had any legal force.

As to the right of the directors to dispose of this unissued fifty shares of stock as they did, it has two aspects, their legal right to distribute the stock as they saw fit, and their good faith in selling it to one of their number on credit, rejecting at the same time the plaintiff’s cash offer therefor.

Whatever the law applicable to the facts in this ease may be, as decided in other states and laid down by the text writers, it is plainly expressed in this state by the syllabus of the case of Simms v. Street Ry., 37 Ohio St. 556, as follows:

“By See. 3248 B. S., the powers, business and property of a corporation having a capital stock, must be exercised, conducted and controlled by its board of directors, who are duly elected and qualified; and a court of equity will not, on the application of a stockholder, interfere with its management and control of the corporate business, while acting within the scope of its authority, unless they are guilty of a breach of trust to the injury of such stockholder.
“This principle is applicable to the action of the board of directors in receiving subscriptions for that portion of the authorized capital not taken before the corporation was organized, where it will promote the objects of the corporation. A subscription for such stock made by one member of the board, with the consent of the others, any payment of the par value thereof, when the transaction is free from fraud, and is beneficial to the corpdration, will not be set aside at the instance of a stockholder, when no action has been taken to withhold such stock from subscription or sale.”

We think weight must be given to the phrases: “where it will promote the objects of the corporation” and “when the transaction is free from fraud, and is beneficial to the corporation. ’ ’

In the Simms case it affirmatively appeared that the sale of unissued stock to Tom L. Johnson was beneficial to the corporation and was free from fraud.

“Repeated efforts had been made by the board to place this stock, but with little success.
‘ ‘ The financial condition of the company was such that additional capital was necessary.
“From the allegations of the petition it (the stock) was worth much less” (than par).
“The consideration received was for the full value of said stock. The property and money received was necessary and proper for the use of the company. In short, the transaction was bona fide and beneficial to the company. ’ ’

What are the facts in the case at bar?

Not only were no efforts made to sell the stock to others, but cash offers therefor from Callahan and his sons were refused. The financial condition of the company was such that additional capital was not necessary.

From the evidence it is likely the stock was then worth more than par; at least it was paying 20 per cent, dividends, which is probably the reason the opposing factions have got into this scramble for it.

No good consideration was received for the stock; a cash payment of 2 per cent, and a promise to pay the balance in ten years was for the benefit of director Rollings, who received the stock, and not for the benefit of the corporation. In short, the transaction was not bona fide and was not beneficial to the company in any aspect of it, and only beneficial to Rollings and his faction, the other directors who voted the stock to him.

We are unable to say, as required by the Simms case that the transaction in question is free from fraud and beneficial to the- company. It appears to have been such an abuse of the trust reposed in the board as warrants the interference of the chancellor.

Judgment for plaintiff.

Marvin and Niman, JJ., concur.


source: Caselaw Access Project

author: NIMAN, J.

license: Public Domain

text:
    EXEMPTIONS — JUDGMENTS.
    [Cuyahoga (8th) Circuit Court,
    May 22, 1912.]
    Marvin, Winch and Niman, JJ.
    Western Reserve Nat. Bank v. Mary E. Christy et al.
    1. Exemption in Lieu of Homestead under Land Contract.
    Where real estate in which a judgment debtor has an interest under a land contract is, by agreement of all parties, sold and converted into money in a suit to marshall liens on the property, such liens to be transferred to the fund realized from its sale, the judgment debtor’s interest in said fund as exemptions is $500, notwithstanding he occupied the premises as his home- ■ stead.
    2. Equitable Interest under Land Contract not Subject to Judgment Lien.
    A judgment is not a lien upon the judgment debtor’s equitable interest in real estate under a land contract for its purchase and possession by him.
    Appeal.

      White, Johnson & Cannon, for plaintiff.

      Ford, Snyder & Tilden, W. A. Granger, Myers <& Green and M. B. c& U. IT. Johnson, for defendant.
   NIMAN, J.

The pleadings and agreed statement of facts on which the case was submitted, disclose that on June 9, 1911, an involuntary petition in bankruptcy was filed against the defendant, Henry C. Christy, in the United States district court for the northern district of Ohio, eastern division, and thereafter he was duly adjudicated a bankrupt; that the defendant, J. C. Logue, is the duly elected and qualified and acting trustee of the estate of the said Henry C. Christy in bankruptcy; that the defendant, the First National Bank of Cortland, Ohio, on July 7, 1910, recovered a judgment against the said Henry C. Christy in the common pleas of Cuyahoga county, on which there' remains unpaid the sum of $2,880, with interest from the date of the judgment ; that on August 22, 1910, another judgment for $3,420.63 was rendered in said court in favor of said bank and against said Christy, which, with interest from the date of rendition, is wholly unpaid and in full force and effect; that on March 6, 1911, an execution was issued on said judgments to the sheriff of Cuyahoga county, who on March 7, 1911, levied said execution upon the interest of Henry C. Christy in the property described in the cross-petition of the defendant, the First National Bank of Cortland; that prior to the year 1910, Henry C. Christy acquired from Julia Flynn, by assignment, a land contract with Lizzie H. Neff for the purchase of land described in the cross-petition of the defendant, the First National Bank of Cortland, by which said property was to be purchased by Christy for $14,500; that at the time the judgments against Henry C. Christy were rendered in favor of the First National Bank of Cortland, there had been paid on said land contract the sum of $6,500, leaving a balance due on the purchase price of $8,000 and interest ; that at all of the times mentioned the said Henry C. Christy and his wife, occupied the dwelling house on the premises embraced in said land contract as their home, and were in full possession of said premises under the land contract, the legal title thereto a.t all times remaining in Lizzie H. Neff; that while this action was pending in the court of common pleas, the property covered by said land contract and described in the cross-petition of the defendant, the First National Bank of Cortland, was by agreement of all parties to the action, sold for the sum of $12,000, out of which the sum of $9,333.57 was paid to satisfy the claim of Lizzie H. Neff for the balance- of the purchase price of the premises, with interest, $500 to the said Henry C. Christy to apply on his claim for exemptions, and $299.77 for taxes and other expenses, and the balance, $1,866.73, to J. C. Logue, trustee of the estate of Henry C. Christy in bankruptcy, to be held by him subject to the final determination of the issues in this action; that by said agreement this fund is substituted for the property sold, and the rights of the parties to this action are transferred to said fund without in any way prejudicing the respective claims of the parties to said agreement.

By the terms of the agreement referred to all the parties to the action, except the First National Bank of Cortland, J. C. Logue, trustee of the estate of Henry C. Christy in bankruptcy, Henry ,C. Christy and Mary E. Christy, abandoned their claims against the property involved in the action and the fund derived therefrom, and on the hearing in this court counsel for Mary E. Christy urged no claim on her behalf.

The conflicting claims against the fund which has been substituted for the real estate, therefore, are those of the defendants, the First National Bank.of Cortland, J. C. Logue, trustee, and Henry C. Christy.

The First National Bank of Cortland claims the entire fund on the ground that it acquired a lien against the interest of Henry C. Christy in the real estate described in its cross-petition, and being that from which the fund was realized, by virtue of its judgments.

J. C. Logue, trustee in bankruptcy of the estate of Henry C. Christy, claims the entire fund as a part of the general estate of the bankrupt, unincumbered by any claims or liens.

Henry C. Christy claims the sum of $500 out of said fund on the ground that he is a resident of the state of Ohio,'and the head and support of a family, and that the premises from which the fund was realized were occupied by him as a homestead, and that he is entitled to receive in lieu thereof upon said sale in the manner indicated, the sum of $1,000 as homestead exemptions, of which $500 has already been received.

Considering the last mentioned claim first, Sec. 11730 G. C. is cited, by virtue of which husband and wife living together, may hold exempt from sale or judgment, or order, a family homestead not exceeding $1,000 in value.

No statutory provision, however, has been cited and none exists, whereby the sum- of $1,000 is allowed in lieu of a homestead. If a husband living with his wife has no homestead, he may claim by virtue of See. 11738 G. C., in lieu thereof and hold exempt from levy and sale, real or personal property not exceeding $500 in value, in addition to chattel property, otherwise by law exempted.

By Sec. 11737 G. C., it is provided:

“When a homestead is charged with liens, some of which, as against the head of the family or the wife, preclude the allowance of a homestead to either of them, but others of such liens do not, and a sale of such homestead is had, then, after the payment, out of the proceeds of sale, of the liens so precluding such allowance, the balance, not exceeding five hundred dollars, shall be awarded to the head of the family, or the wife, as the case may be, in lieu of such homestead, upon his or her application in person, by agent or attorney. ’ ’

The claim of the defendant Christy must be disposed of by either Sec. 11737 G. C., or Sec. 11738 G. C., and in either case, the result is the same. He is entitled to only $500 out of the proceeds of the sale of the proprety, and this he has already received. We hold, therefore, that he has no right in or claim against the fund in question.

The claim of the First National Bank of Cortland depends upon the determination of the question whether by the rendition of the judgments in its favor against the said Henry C. Christy a lien was created against the real estate, or against Christy’s interest therein, held under the land contract with Lizzie H. Neff.

No lien founded upon the execution levied on March 7, 1911, can be asserted because the levy was made within four months prior to the filing of the petition in bankruptcy against Christy, which was followed by his adjudication as a bankrupt. By favo'r of Sec. 676 of the bankrupt act of 1898, as repeatedly decided, any lien so acquired would be null and void and the property affected released therefrom.

The ultimate question for decision in this case, therefore, is, does the rendition of a judgment in the court of common pleas create a lien against the equitable interest of the judgment debtor in real estate within the county where the judgment is rendered ?

This question has been answered in the negative by our Supreme Court in a number of decisions. As early as 1824 it was held in Manley v. Hunt, 1 Ohio, 257:

“Where land is sold but not conveyed, it is not affected by a subsequent judgment against the vendor, the vendor holding under a contract, and not having the legal title until after the judgment. An attempt to sell it upon execution, as the land of the vendor, will be restrained by injunction. ’ ’

In Schuler v. Miller, 45 Ohio St. 325 [13 N. E. 275], it is said in the opinion of the court, at page 331:

‘ ‘ The provision of the statute regulating judgments, that the lands and tenements within the county where the judgment is entered, shall be bound for the satisfaction thereof from the first day of the term at which the judgment is rendered, is applicable only to legal interest in lands and tenements, to such interests as can be sold upon execution. The defendant of judgment debtor must have a legal title in order that the judgment may operate as a lien.”

In Warner v. York, 25 O. C. C. 310 (1 N. S. 73), decided by this court in 1903, paragraphs 4 and 5 of the syylabus read:

“4. An equitable interest in lands can not reached by an attachment upon said lands.
1 ‘ 5. Nor does a judgment against the holder of an equitable interest in lands become a lien upon said lands. ’ ’

Unless the amendment of 1880 to See. 5374 R. S., now See. 11655 G. C., has changed the law on this subject, the rule must be considered as established, that a judgment does not create a lien upon an equitably interest in land, but attaches only to the legal title in lands and tenement's. •

Section 11655, G. C., now reads:

‘ ‘ The lands and tenements, including vested interests therein, permanent leasehold estates renewable forever, and goods and chattels not exempt by law shall be liable to be taken on execution and sold as hereinafter provided. ’ ’

By the amendment referred to, the words “including vested interests therein” were inserted after the words “lands and tenements” and it is contended on behalf of the bank that Christy’s interest in the real estate under the land contract was a vested interest, and, by virtue of Sec. 11656 G. C., which refers to “such lands and tenements” and makes them subject to a judgment rendered against the owner, his interest in the land became bound for the satisfaction of the judgments rendered against him.

. "Whatever the expression, “including vested interests therein, ’ ’ may mean, we do not think that its insertion in the statute has modified the rule long established in this state that the lien of a judgment does not attach to an equitable interest or estate in land.

The decision in National Bank of Columbus v. Tennessee Coal, Iron & Ry., 62 Ohio St. 571 [57 N. E. 450], does not, in our opinion, indicate any change of view on the part of the Supreme Court. The decision there announced was founded upon ,the finding that the judgment debtor had a legal and not an equitable title in the real estate involved, and therefore the judgment became a lien against said real estate.

In accordance with the conclusions here announced, the cross-petition of the defendant, Henry C. Christy, and that of the defendant, the First National Bank of Cortland, will be dismissed, and the fund in question is found and decreed to be the property of the defendant, J. C. Logue, trustee in bankruptcy for Henry C. Christy, free and clear of any claims or liens asserted by the other parties hereto.

Winch and Marvin, JJ., concur.


author: RICHARDS, J.

text:
    MUNICIPAL CORPORATIONS.
    [Lucas (6th) Circuit Court,
    January 27, 1912.]
    Richards, Wildman and Kinkaid, JJ.

      John H. Lloyd, Taxpayer v. Toledo (City).
    1. Failure of City Officials to Conform to Directory Requirement as to Record of Contract Modifications not Nullifying.
    Section 4331, G. C., requiring that action taken by the proper officials modifying an existing municipal contract shall be made a matter of record, is directory only, and such action regularly taken is not nullified by failure through an oversight to make a record thereof.
    2. Failure of Council Specifically to Authorize Contract Modification not Material.
    Nor does failure by the city council to specifically authorize a modification by ordinance render such a modification invalid since a municipal improvement which has been duly authorized by council and the necessary appropriation made, is left by the municipal code to the proper board or officer to be carried to completion.
    3. Bad Faith Absent in Record.
    The record fails to disclose bad faith or any abuse of discretion in the modification by the officials in charge of the construction of a bridge over the Maumee river at Cherry street, Toledo.

      4. Failure to Certify Funds Available on Modification of Contract Previously and Regularly Executed.
    Where an appropriation for a specific municipal improvement has been made and funds provided by a sale of bonds to pay for the entire cost of such improvement, and thereafter a new contract is entered into modifying some of the terms of the original contract, the failure of the city auditor to certify that the money was in the treasury to the credit of the fund from which it is to be drawn does not render the modified contract invalid for violation of Sec. 4211, G. C., and this is true for an additional reason when the modifying contract imposes no increased liability upon the city.
    Appeal.

      C. A. Sciders and Frank H. Geer, for plaintiff.

      Cornell Schreiber, City Solicitor, and' A. G. Duer, for Toledo.

      E. B. King, for the C. H. Fath & Son Construction Co.

       Dismissed in the Supreme Court for want of preparation.

   RICHARDS, J.

The plaintiff brings this action as a taxpayer of the city of Tolédo against the city, its officials, and the C. H. Fath & Son Construction Co., for the purpose of enjoining the construction of a bridge over the Maumee river at Cherry street, under the modifying contract of August 9, 1911, and to enforce its construction under the original contract of March 3, 1910, at the compensation claimed by the plaintiff to be provided therein, and for such further relief as he may be entitled to in equity.

The ease has been submitted to us upon the evidence which Avas introduced in the court of common pleas and a large amount of additional evidence taken before a referee in this court, all of which we have carefully read. The question at issue and the amount involved have been such as to command the most thorough consideration of counsel and of 'this court, and in our deliberation Ave have been greatly aided by the able arguments, both oral and typewritten, of counsel.

It appears from the evidence that the city provided the funds, amounting to $825,000, by the sale of bonds, and having taken the preliminary steps entered into the original contract vvith the C. H. Fath & Son Construction Co., on March 3, 1910, for the construction, of a reinforced concrete arch bridge to be built under the directions of engineers appointed by the city. Upon the execution of the original contract the work was commenced by the C. H. Fath & Son Construction Co. and has been proceeded with to the present time. On. August 9, 1911, a supplementary or modifying contract was entered into between said company and the city, through the director of public service, the purpose of which was to modify the original method of construction in various respects.

The original plan contemplated that, by means of cofferdams which could be pumped out, the foundations of the piers should be built in the dry, but in working on pier No. 6 water was encountered which appears to have seriously interfered with pursuing the work under that plan. The method adopted in the original plan was found by the city, on the advice of the consulting engineer, to be not feasible nor safe, especially for piers three and four, which adjoin the channel of the river where the head of water is strongest. By the original contract it was intended to use throughout most of the wells for laying the foundations, wooden lagging supported by iron rings, but the modified contract specifies steel cylinders in lieu thereof. The original contract, however, authorizes the use of shields, metal rings or steel cylinders under certain circumstances, when recommended by the engineers. The use of steel cylinders for the purpose intended is, of course, much more expensive than wooden lagging and iron rings, but the new contract provides for the removal from the work of the steel shields except the lower 24 feet 9 inches, and requires a credit to the city of four cents per pound, while the original contract failed to provide for any credit therefor. The modifying contract also provides for a layer of concrete called a blanket over the entire surface of the cofferdams six to ten feet thick, to be laid under water by means of a tremie pipe or other suitable method, and it further substitutes in certain places timber piles in place of concrete piles. In addition to the items already mentioned, the new contract requires the C. H. Fath & Son Construction Co. to provide a compressed air plant and the city agrees to purchase the same at $6,000, if it should require its use, and to pay the net cost of its operation not exceeding $25 per day. The modifying contract extends the time for the completion of the bridge for a period of six months beyond the original contract.

The plaintiff contends that the modifying contract of August 9, 1911, is illegal and void for various reasons, and he asks to have it so adjudged by decree of this court.

The first ground of his contention to which we direct attention is based upon the claim that the city council did not authorize the contract and that it was not approved by the board of control, there being no record of such action by that board. Parol evidence has been received, however, which establishes beyond all question that at a meeting of the board of control the modifying contract was duty approved by a unaimous vote. The secretary was not'present at that meeting. The director of public service informed him soon after the meeting of the action taken by the board, for the purpose of having it recorded, but it was overlooked and no record ever made. In the light of this parol evidence, the charge contained in the petition that the director of public service, John R. Cowell, and the city solicitor, Cornell Sehreiber, entered into and approved the contract without the authority of the board of control wholly fails. The statute requires a record of such action to be made, but we have no doubt that the statute is directory only, and the mere oversight of the clerk or secretary in failing to make a record of action duty taken by the board, can not nullify that action nor invalidate the contract based thereon,. The general rule sustaining that doctrine is laid down in 2, Dillon, Municipal Corporations, 5th ed., Secs. 557 and 558 (Secs. 300 and 301 of 4th ed.) Such was the holding in Drott v. Riverside, 2 Circ. Dec. 565 (4 R. 312), and in many other eases, and the rule appears to be founded on excellent reasons. Dillon’s treatise on municipal corporations has been a well recognized standard authority for a generation, and the author in the sections cited uses the following language:

■ “Where the records of a municipal corporation have been so carelessly, and imperfectly kept as not to show the adoption of a resolution or other acts of the city council, and there is no written evidence in existence, parol testimony may be admitted, e. g., to show that certain work was done by authority of the city, by proving the passage of a resolution of the council, the appointment of a committee to make the expenditure, their report after the work was done, and its adoption by the council.”

That the contract was not specifically authorized by ordinance passed by the city council is not, in and of itself, sufficient to render it invalid. The municipal code contemplates that the city council shall, in inaugurating an improvement, give authority and make the necessary appropriation and shall-take no further action, but that the business shall be conducted to completion by the board or officer having charge of the came. Section 4331 G. C. vests in the director of public service power to make alterations and modifications upon' approval of the board of control.

We have no doubt of the power of a municipal corporation to change or modify, with the consent of the other contracting party, contracts into which it has entered. Upon this proposition we cite Weston v. Syracuse, 158 N. Y. 274 [53 N. E. 12; 43 L. R. A. 678; 70 Am. St. 472]; Meech v. Buffalo, 29 N. Y. 198; Doland v. Clark, 143 Cal. 176 [76 Pac. 958]; 2 Dillon Municipal Corporations, Sec. 820.

Such being the power and authority of the board of control and the director of public service, we are brought to the claim made by plaintiff that the modifying contract was entered into through fraud and bad faith and was an abuse of discretion on the part of that board and the director of public service. If the modifying contract is shown to be a result of fraud or bad faith, or if its execution was an abuse of the discretion vested in the city officials, then a taxpayer suing on behalf of the city, is of course, entitled to the fullest relief from a court of equity. The charges made have required of the court a careful reading of the entire record covering some five hundred pages of testimony, and in addition thereto numerous exhibits.

It is not within the province of this court to1 determine whether the bridge should or could be built in accordance with the original plans, nor -whether those plans ought to -be modified to meet conditions encountered during the progress of the work, nor in what respects the plans should be modified, if at all’. Those matters are all confided by the statutes, of Ohio to tlie sound discretion of the city authorities. For a court to interfere and .determine those questions would be to transcend its powers and usurp the functions of the board of control and director of public service.

The duty is cast upon this court of determining whether the board of control in authorizing the modifying contract, and the director of public service in entering into the same on behalf of the city, exceeded their powers under the law, and whether the said officials abused the discretion vested in them when they authorized and entered into the said contract.

We are unanimously of the opinion, after the most careful examination of the entire record, that the charges of fraud and bad faith and abuse of discretion are not sustained by the evidence, either as to the modifications provided or the extension of time for the completion of the bridge. We think the evidence shows that the city officers having this work in charge have acted in good faith, and, as was well stated by Judge Chittenden in the court of common pleas in his decision of the ease, courts have ever hesitated to arrogate to themselves the right to be the censor or guardian of public officers who act in good faith.

The difficulties which had been encountered and the delays which had ensued under the original plans and the necessity of avoiding them in the future, as far as may be possible, consistent with approved methods, appear to have all been carefully considered by the director of public service and the board of control for weeks before the final execution of the contract of August 9, 1911. In some particulars there was a sharp conflict among the engineers in charge, notably with reference to the quality of concrete laid under water, and the wisdom of the change in the kind of piles to be used. These were engineering questions calling for the opinion of experts in the construction of foundations for bridges, and were properly referred to the consulting engineer, Ralph Modjeski. He gave the matter his personal attention and recommended the modified contract..

These questions so submitted and determined were in no sense judicial questions, but called for the exercise of sound business judgment and the highest grade of mechanical skill in engineering. This court is convinced, from the evidence, of Mr. Modjeski’s thorough qualifications as an expert of national reputation in the construction of bridges, and he occupies the unique position in this case of being commended for his capacity and experience by every witness who has been called on for information whether testifying for the plaintiff or the defendants, and nothing in the records tends to impeach his integrity. Mr. Modjeski unhesitatingly gives his opinion that the modified plan is a wise one and should be followed.

Mr. Gessner, who is the severest critic of the new plan, is careful to state his position in his testimony taken before the referee in the following language:

“I do not attempt in any of my answers to say that the bridge is unsafe under the modified construction, and I do not want to be so understood.”

One of the allegations of fraud or bad faith contained in the petition consisted of the charge that K. F. Gill, an officer of the construction company, unduly used his influence as a friend of the mayor to bring about the execution of the supplementary contract. I mention this charge specifically for the purpose of directing attention to the fact that at no stage of the case has the plaintiff offered or attempted to offer any evidence to sustain the same, and I wish to express our disapproval of the practice of making reckless charges of bad faith in the pleadings not based on any evidence, for we assume that if the plaintiff had evidence to support the charge it would have been produced.

Before determining whether objections made by the plaintiff to the validity of the modifying contract are tenable, it is necessary that the court should construe the original contract and specifications with a view of ascertaining whether any of the so-called changes are within the terms and provisions of the first contract. It is contended by counsel for the C. H. Fath & Son Construction Co. that all of the changes could have been properly made under the order and direction of the engineer pursuant to the terms of the original specifications and contract, and without any necessity for a new one. Paragraph 28 of the original specifications, which is a part of the contract, provides as follows:

“28. Furnishing and placing metal lining for cylinder shafts. (See Section 13.) This work will include all of the metal required for these shields, or metal linings, in case they are required. The engineers will decide whether or not these metal linings are necessary and will also furnish designs for same, or in case designs are submitted by the contractor, they shall be subject to the approval of the engineers. ’ ’

Article 3 of the original contract contains the following provision:

“Art. 3. It is understood and agreed by and between the parties hereto, that the work included in this contract is to be done under the. direction of the engineers, who will represent the owners on the work, and that their decision as to the true construction and meaning of the drawings and specifications shall he final.”

The specifications contemplated the use of some metal shields or linings, and we hold, in view of the wide discretion given to the engineers by the terms of the contract that the power is vested in them to decide whether they were necessary and if in the progress of the work it became in the opinion of the engineers necessary that they should be used, then it might be properly done within the provisions of the original contract; and we see no reason why, if in their opinion it became necessary to do so, these steel cylinders might not be covei’ed with a concrete blanket constructed under water, and all within the original contract, nor do we discover any reason why the metal, shields, linings or cylinders might not properly, in the same broad discretion confided to the engineers, be provided with a cutting edge and weighted with concrete in the manner which as appears from the evidence, was subsequently adopted.

Courts will within reasonable limits give heed to the interpretations which the parties themselves have placed on their contracts, and it is in evidence that the parties to the first contract did interpret the same in such a manner as to evince their understanding that it authorized the use of steel cylinders for this purpose, for it appears from the evidence that the contractor, with the approval of the engineers, did on June 22, 1911, long before the execution of the modifying contract purchase steel cylinders for use under the contract of March 3, 1910.

It is worthy of note that the price for metal shields under the original contract was seven cents per pound with no rebate, and that under the supplementary contract the city receives a rebate of four cents per pound for all steel not left permanently in the wells. Mr. Gessner, who is called by the plaintiff, testifies that ¡if the metal cylinders properly come under item 28 of the original contract, then the bridge if built under the modifying contract will cost approximately $48,000 less than under the original contract.

It is manifest that, with the construction we place upon the contract of March 3, 1910, the provision for the rebate of four cents per pound inserted in the contract of August 9, 1911, will inure very largely to the benefit of the city.

Bearing this construction of the contracts in mind, we approach the next contention of plaintiff, that the modifying contract is invalid because the city auditor did not certify that the money was in the treasury to the credit of the fund from which it is to be drawn. We do not understand that such a certificate is required where the fund is provided by the sale of bonds for a specific purpose; Emmert v. Elyria, 74 Ohio St. 185 [78 N. E. 269]; Akron v. Dobson, 81 Ohio St. 66 [90 N. E. 123] ; Kohler Brick Co. v. Toledo, 29 O. C. C. 599 (10 N. S. 137). Furthermore, as we construe these two contracts, the later one does not cast any increased obligation upon the city.

It is also insisted that the director of public service was without legal power to enter into the modifying contract, because it exceeds the sum of $500 and should have been let to the lowest bidder after advertising for bids. We believe and hold that this objection is valid to the extent that the contract contemplates the purchase of a compressed air plant at $6,000, and provides a rental for use of the same, but beyond that the objection is without force.

As already indicated, the new contract aside from its provisions relative to the compressed air plant does not increase the liability of the city.' Even if it did so, it can not be that a contract providing for such alterations and modifications is required to be let to the lowest bidder after advertising. Such a course, if it resulted in a contract with a different person than the one holding the main contract, would introduce inextricable confusion and would almost certainly result in vexatious delays and expensive litigation. Such a course was held not to be necessary in Hastings v. Columbus, 42 Ohio St. 585, 594; Burke v. Cleveland, 17 Dec. 408 (6 N. S. 225), affirmed, no opinion, 75 Ohio St. 603 [80 N. E. 1124],

The contract of August 9, 1911, provides that the steel shields from the rock upwards are to be of a permanent character, 24 feet 9 inches long, and above that point are to be so constructed that they can be removed and used again. It appears from the evidence that steel shields to the length of 36 feet 9 inches are left in some of the wells and have been paid for. The parties to the new contract having agreed on 24 feet 9 inches as the length to be left in the wells, no authority exists, so long as they continue to operate under the same, to pay for more than that and for the use at three cents per pound for such additional length as may be placed in the wells temporarily.

The record in this case contains evidence taken since the case was appealed to this court, tending to show that to construct the bridge under the modifying contract will, after making all rebates for steel removed, cost the city $900,000. The evidence further tends to show that if the bridge were constructed under the original contract and included the steel cylinders now being used, and allowed no rebate for steel removed, it would cost approximately $48,000 more.

It must be remembered that the bridge is being built on the unit plan, the specifications and contract so providing, and that therefore the precise total cost is not known, because it is not known just how many pounds of steel, cement, etc., will be required. These were, however, approximated in the estimates claimed to have been made by the .engineers for the city. The original estimates, said in evidence to have, been made by them under the first contract, were $813,000. The fund provided by the sale of bonds amounted to $825,000, being the total sum appropriated for such work and is the limit. beyond which the board of control and the director of public service may not go in the performance of these contracts. It was said by the Supreme Court in Carthage v. Diekmeier, 79 Ohio St. 323 [87 N. E. 178] 345, in a case where the village clerk’s certificate was required to be filed because numerous contracts were made for separate improvements to be paid from a gross fund, that it was not within the power of the council to increase the liability of a municipal corporation, beyond the amount for which the certificate had been filed. The court states that to so hold would strike down the statute. In like manner in the case at bar where no certificate is required, because a single fund raised by a bond issue is appropriated to a single public work and the limitation is the fund so appropriated, to go beyond that fund would be to disregard the general policy of the state as embodied in the statutes providing the restrictions under which municipal improvements may be made. It is manifest that the amount certified to be in the treasury to the credit of the fund can never exceed the total amount appropriated for the work, and that the requirement to keep within the amount so certified contemplates that the amount appropriated shall not be exceeded. See Sec. 4211 G. C., Akron v. Dobson, supra.

The contracts under review provide for a work of great magnitude for which the city has already appropriated $825,000 and upon which more than $200,000 has already been expended. The construction under the supplementary contract has proceeded for more than five months along the lines and in pursuance of the modifying plans adopted by the city on the advice of the consulting engineer. To stop the work by order of court or to require a return, to the original method at this time would produce great confusion and would probably be calamitous in its consequences. To justify a court of equity in entering such a decree, it should be clearly and unequivocally required by the circumstances of the case.

It follows from what has been said that the injunction must be denied except as to the compressed air plant, and for the steel left in the wells in excess of 24 feet 9 inches, and that the total expenditures under the two contracts shall not exceed the amount appropriated therefor.

It must be understood that nothing contained in the foregoing decision, is intended to express any opinion as to the power of the city council with reference to further appropriations for the completion of the bridge, if occasion therefor should arise.

Wildman and Kinka.de, JJ., concur.


author: MARVIN, J.

text:
    ESTOPPEL-PRINCIPAL AND AGENT.
    [Cuyahoga (8th) Circuit Court,
    January 22, 1912.]
    Marvin, Winch and Niman, JJ.
    Anna M. Potter v. Leon A. Potter and Henry Veelman.
    1. Authority to Exchange Properties Does not Authorize Acceptance of Deed to Third Person.
    An agent authorized to make an exchange of properties is not authorized to accept a deed conveying property accepted in exchange for his principal’s property to any one else than his principal.
    2. Estoppel not in Favor of Person Having no Knowledge of Statements Made.
    An estoppel from statements made does not arise in favor of one who had no knowledge of the statements at the time he acted.

      Tamney & Barber, for plaintiff.

      William Gordon and if. Neff, for defendants.
   MARVIN, J.

The plaintiff, in her petition, sets out that she is the owner of certain real estate described therein, and that she became such owner on June 5, 1907. She says she is the owner of this property, and she relates a certain transaction which will be hereafter mentioned as showing how it comes that Henry Veelman claims any interest in the described premises. She says that by reason of certain facts named in her petition, Veelman claims to be the owner of the premises. The defendant Leon A. Potter is the husband of Anna M. Potter.

Veelman denies the allegations of the petition, and sets up in his cross-petition that he is the owner of the premises and prays to have a decree entered that the premises belong to him.

The facts are that the premises described were purchased by Anna M. Potter and her husband, Leon A. Potter, the deed for the same was placed in Susan M. Conian, the mother of the plaintiff. She held the property in trust for Anna and her husband. On June 5, 1907, by arrangement between Susan M. Conian and the plaintiff and her husband Leon A. Potter, the said Susan M. Conian executed a warranty deed of said premises to the plaintiff, and delivered such deed to her. There was a suggestion on the trial that this deed was never delivered by Mrs. Conian to Anna M. Potter, but the evidence shows that before the present suit was begun, Anna M. Potter had this deed with her, and carried it to the office of L. Z. Tanney, attorney at law at this bar, and an attorney in this case. Subsequently, and without the knowledge of said plaintiff, her name as grantee in this deed was erased and the name of one Benjamin B. Blase substituted therefor.

This deed .'to Anna M. Potter had never been recorded; nevertheless, it being in the possession of Anna M. Potter, the legal title in the premises was thereby in her. There being, however, no record of this fact, the legal title appeared by the.record to stand in her grantor, Susan M. Conian, until the deed which had been made to Anna M. Potter and was altered so as to make it appear that Blase was the grantee, was recorded. That deed being recorded, the record of deeds of the county would'make it appear that the legal title of this property was in Blase.

Veelman owned a piece of real estate in Ashtabula county, Ohio, which he was desirous of exchanging for property in Cleveland, as this property claimed by the plaintiff was. Negotiations took place between Veelman and Leon A. Potter and Blase by which it was agreed between them that the Ashtabula county property owned by Veelman should be exchanged for the property here claimed by the plaintiff. Veelman went to the house of the Potters, that being the house on the premises involved in this litigation, and the plaintiff learned that these negotiations were going on. She had no intimation at this time that the title did not stand in' her; no intimation had come to her of this change of the deed, which change was made fraudulently by somebody, probably by her husband and Blase. Nothing in the evidence indicates that the plaintiff had any idea that an exchange was to be made, except that the Ashtabula property was to be conveyed to her in exchange for her city property; nor had she any idea that the contract would be completed until she should have executed a deed' conveying the city property to Veelman. Veelman understood that it was the plaintiff’s property, but before the exchange was completed by the delivery of deeds from one party to the othei* he found that the title apparently was in Blase, and so he accepted a deed from Blase of this city property, and he conveyed by deed to Blase the Ashtabula county property. Mrs. Potter never vacated the premises which she here claims. In short, by the acts of Leon A. Potter and Blase both the plaintiff and the defendant Yeelman were deceived and defrauded.

It is urged on the part of Yeelman that the plaintiff held out to him that her husband was her agent for this exchange, and that whatever was done by her husband was to be held as having been done by her.’ The evidence is such as to justify the conclusion that she did understand that her husband would examine the Ashtabula property and determine whether it was best to make the exchange, but there was nothing that could suggest that she was to accept as consideration for the deed of the city property a deed of the Ashtabula property made to Blase.

It is further claimed on behalf of Yeelman that Mrs. Potter is estopped from claiming that she was the owner, equitable or otherwise, of this city property, because of testimony given by her in bankruptcy proceedings in' which her husband was adjudged a bankrupt. In that proceeding she seems to have testified that neither she nor her husband had any property (this deed of the property in controversy was in the name of her mother), but Yeelman knew nothing of this testimony. He did not rely on it. As against him she is not estopped from making claim that she owned the property, as she clearly did own it, except as is hereafter to be stated.

The evidence shows that $400 of the purchase money for this property, which was originally conveyed to Susan M. Conian, was furnished by Leon A. Potter, an".d therefore the title held by Susan M. Conian in trust was to the extent of $400 held in trust for Leon A. Potter, and Leon A. Potter is the man who negotiated with Yeelman and under whose direction Yeelman conveyed his property to Blase. Whatever rights, therefore, Leon A. Potter had in this property is the property of Yeelman, because Yeelman has. paid for the entire property, and he. must have so much of it as belonged to the man to whom or for whom he made the payment, to-wit: Leon A. Potter. Besides this, Veelman has paid certain taxes on the property, and has paid interest upon a note secured by mortgage on this property, and to the extent of such payments, he is entitled to be protected.

The decree of the court here will be practically what it was below, that is, that the title of the plaintiff in the premises is quieted as against the defendant Henry. Veelman, subject to the lien of $400 which was the interest of Leon A. Potter in the premises; the taxes paid by Veelman, the amount paid by Veelman on the mortgage indebtedness, with interest on the sums so .paid from the first day of June, 1911; and if such liens of Veelman shall be paid on or before the first day of March, 1912, plaintiff’s title will be perfected as against Veelman. The rights of the mortgagees can be determined and fixed, as there is no dispute about those rights.

Winch and Niman, JJ., concur.


text:
    FRAUDULENT CONVEYANCES.
    [Cuyahoga (8th) Circuit Court,
    May 27, 1921.]
    Winch, Marvin and Niman, JJ.
    Elizabeth Weeks v. Frank O. Spencer et al.
    1. Fraudulent Conveyance not Set Aside if Grantee not Aware of Fraudulent Intent of Debtor.
    A fraudulent conveyance made with intent to hinder, delay and defraud creditors, will not be set aside under Sec. 67-e, of the National Bankruptcy Act, unless made within four months next preceding the filing of a petition in bankruptcy, nor under Sec. 6343 (Sec. 11102 G. C.), unless the person to whom the conveyance was made knew at the time of the transaction of the fraudulent intent on the part of the debtor.
    2. Conveyance to Wife of Husband’s Interest Governed by Ohio Law though Conveyed in Italy.
    Where a husband citizen of Ohio becomes indebted to his wife in the .United States and in payment of that indebtedness delivers to her in Italy a conveyance of his interest in a trust estate held in the state- of Ohio, the transaction is governed by the laws of Ohio and not by the laws of Italy.

      II. J. Doolittle and G. K. Bissell, for plaintiff.

      White, Johnson c6 Gannon, for defendant.
   MARVIN, J.

This suit was originally brought by Elizabeth Weeks to have set aside an assignment or transfer of property made by Frank 0. Spencer to his wife, Margaret T. Spencer. This transfer or assignment was made on June 10, 1908, at a time when Frank 0. Spencer was insolvent.

On August 16, 1910, Frank 0. Spencer filed a voluntary petition in bankruptcy in the district court of the United States for the northern district of Ohio, and in that proceeding he was adjudged a bankrupt, and Clarence R. Bissel was appointed trustee of his estate in bankruptcy, and thereupon he was substituted for the plaintiff'in the action brought by Mrs. Weeks. This was done in pursuance of Sec. 70e of the Bankrupt Act, which provides that the trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover any property so transferred, or its value, from the person to whom it was transferred, unless he was a Iona fide holder for value prior to the date of the adjudication.

It may be said here that the original plaintiff, Elizabeth Weeks, proved up the claim which she held against Spencer in the bankruptcy proceedings, and the same was allowed. She made no claim for a lien in making her proof in the bankruptcy court.

The bankrupt act provides, in See. 67e, as follows:

“All conveyances, transfers, assignments or encumbrances made or given by a person adjudged a bankrupt under the provisions of this act, subsequent to the passage of this act and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay and defraud creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present, fair consideration. ’ ’

A further provision in the same section on the same subject fixes the time as within four months next preceding the filing of the petition in bankruptcy as being the period for determination that such transfers are null and void.

Since this assignment was made much more than four months prior to the proceedings in bankruptcy, it is clear that if the transfer can be set aside, it must be done because of the provisions of the statutes of the state of Ohio.

The statute in force at the .time of the alleged transfer by-Spencer to his wife, was Sec. 6343 E. S. (Secs. 11102 G. C. et seq.), which reads:

“Every sale, conveyance, transfer, mortgage or assignment, made in trust, or otherwise, by a debtor or debtors, and every judgment suffered by him or them against himself or themselves in- contemplation of insolvency, and with the design to prefer one or more creditors to the exclusion in whole or in part of others, and every sale, transfer, conveyance, mortgage or assignment made or judgment procured by him or them to be rendered in any manner with intent to hinder, delay or defraud creditors, shall be declared void as to creditors of such debtor or debtors at the suit of any creditor or creditors. Provided, however, that the provisions of this section shall not apply unless the person or persons to whom such sale, conveyance, ■ transfer or mortage or assignment be made knew of such fraudulent intent on the part of the debtor or debtors.”

This last clause appears first in the amendment of the section passed on April 30,. 1908, 99 O. L. 241.

The same proposition, however, had already been held in a construction of the statute prior to this amendment, in Babilya v. Priddy, 68 Ohio St. 373 [67 N. E. 736], in which the court sustained a purchase made in good faith and for fair value from an insolvent debtor, and in speaking of such sale used this lenguage:

‘ ‘ Such transfer must be held valid as to such purchaser, even though the seller may have made the sale in contemplation of insolvency or with the design to prefer one or more creditors to the exclusion of others, or with intent to hinder, delay or defraud his creditors, even though a deed of assignment made by such debtor was filed therein ninety days after such sale. ’ ’

And in the case of Lytle v. Baldinger, 84 Ohio St. 1 [95 N. E. 389; 23 Ann. Cas. 894], the first clause of the syllabus reads:

“A petition to set aside a fraudulent sale or transfer made in violation of the provisions of Sec. 6343 E. S., which does not aver that the person to whom the sale, conveyance, transfer, mortgage or assignment is made, knew at the time of the transaction of the fraudulent intent on the part of the debtor, does not state .facts sufficient to constitute a cause of action. ’ ’

So that, unless it be found that Spencer made this transfer to his wife with the design to prefer one or more creditors to the exclusion in whole or in part of others, or that it was a transfer made by him with intent to hinder, delay or defraud creditors and that the transferee knew these facts at the time, the transfer must be found to be good and the claim of the trustee denied. And this brings us to a consideration of the facts for the purpose of determining whether they bring the transfer or assignment of Spencer to his wife within the provisions of the statute.

The property which it is charged was fraudulently transferred by Spencer to his wife consisted of such rights as he had under the will of Phineas M. Spencer, deceased, which was duly admitted to probate in, this county, and which provides among-other things, that after the payment of certain bequests made in the will, “all the rest and residue of my property and estate, of every kind and description, I give and bequeath as follows: The remaining one-fourth to my executor or trustee, to be held in trust during the life of Charlotte M. Spencer, the widow of my late brother, A. K. Spencer, and the income during such period to be paid to her semi-annually or oftener, and upon her death, one-half of the principal of such fund so held in trust during her life, shall be paid or delivered to Florence Murphy, if living, or if deceased, to her next of kin under such.statutes, and the remaining one-half thereof shall be held in trust by my trustee during the joint lives of my nephew, Frank, ánd his wife, Margaret, and the life of the survivor of them. During their joint lives the income from the fund shall be paid for their joint maintenance while and so long as they live together as husband and wife, and accumulated during any period during which they shall not live together. During the lifetime of the survivor, the income shall be paid to such survivor, and on the death of such survivor, if their son. Frederick Albert Spencer, be then of age and a resident and citizen of the United States of America, such fund and its accumulations shall thereupon be transferred to him, and if he be a minor the income thereof may, during the period of his minority be, at the discretion of my trustee, applied to his proper maintenance and education with a view of his becoming such citizen, and thereupon, upon his arriving at age, the principal and any accumulations thereon, shall be paid to him on the condition of his then becoming a resident and citizen of the United States.”

It will be seen that the portion of the estate of the testator in which Frank 0. Spencer had any interest (for the Frank Spencer mentioned in the will is the defendant F. 0. Spencer in this action, and his wife Margaret mentioned in said will is the Margaret T. Spencer, defendant in this action) was one-half of the one-fourth residuum of the estate of which his mother, during her life-time, was to receive the entire income. At her death this one-half of one-fourth was to be held in trust by the trustee. The trustee which actually had this money in trust was the Citizens Savings & Trust Company.

At the time of this transfer, the mother of Frank 0. Spencer, who was to have the income of this property during her life, was still living, so that no part of the income was yet payable to either Frank or his wife. Not only so, but for a considerable time prior to such assignment Frank 0. Spencer and his wife had been living apart. They have a son who was living at the time of this transfer, and who is still living, being the Frederick Albert Spencer named in the will.

The amount of property, the income of which it is provided in the will shall go to Frank and his wife while they are living together and to the survivor if one of them should die, is about $34,000.

At the time of the marriage of Frank 0. Spencer and his wife, she received from her mother about $924.50 which she put into the hands of her husband to be deposited for her. He failed to make the deposit and had never paid it back before the time of this assignment or transfer. This certainly constituted a good and valuable consideration for the transfer by him to her of some property in payment of that debt. The value of his interest in the bequest was very uncertain ;■ it depended, among other things, on the length of time which his mother should live; it depended in a measure upon whether he should outlive his wife; it depended, during their joint lives after the death of his mother, upon the length of time they should live together. They had separated and lived apart for a considerable time before this transfer was made, and whoever purchased his rights under that will would be purchasing that which is sometimes not inaptly spoken of as a.“pig inn poke.” It was a purchase of something which might never bring any return, and which, if it did bring any return, depended on so many things that nobody could say what it was worth. He made out the assignment on the 10th day of June, 1908, here in Ohio, and immediately deposited it with the Citizens Savings & Trust Company, the trustee under his uncle’s will. He then went to Italy where his wife was, taking a duplicate of this transfer and delivering it to her in Italy. She accepted it and expressed herself as satisfied. The assignment itself expresses that it is in payment and full settlement of the claim which Margaret had against him for this $924.50, together with interest from the time it was taken by him, towit, May 4, 1904.

Attention lias already been called to some of the elements of uncertainty as. to the value of this interest of Frank 0. Spencer thus assigned. There is a further uncertainty, towit, a fractional part of any income to which Frank might be entitled, that might be received from this money while in the hands of the trustee after the death of Frank’s mother. The will provided for its being paid to Frank and his wife for their joint support. Whether this would entitle each of them to one-half while they were living together, we do not undertake to say, but regard it as a matter of grave doubt, and as therefore affecting the value of any interest which Frank might have in such income which at the time of this transfer to his wife, he could have transferred to anybody.

The evidence fails to show that Margaret T. Spencer had any knowledge or intimation or suspicion that Frank was making this transfer to her for the purpose of hindering, delaying or defrauding any creditors. The amount of her claims as compared with the very uncertain value of Frank’s interest under this will of his uncle, we think is sufficient, in the absence of evi¿fence showing knowledge on her part of some fraudulent intent, to sustain the transfer made to her.

It is said, however, that this transfer to- her was .a contract made in Italy, and that it must be governed by the laws of Italy at the time the contract was delivered to her, and evidence is introduced of certain provisions of the law of that country. Without stopping to read these provisions, the effect of them apparently is that under the law of Italy, a wife can not alienate or dispose of her dowery without authorization, of a proper judicial tribunal. Even if it be held that this contract or assignment of Frank to his wife is to be governed by the laws of Italy, we find nothing that would prohibit the wife from accepting payment of an indebtedness to her, which indebtedness accrued in, a foreign country, though the payment should be made in, Italy. By this contract Mrs. Spencer was not disposing of any dowery which she had. The money which she had furnished to her husband was given to her, it is said, as dowery by her mother in Austria, where the marriage between these people took place,, and that dowery, the money she had long beforé the time of this contract-in Italy, had been, taken by her husband; slie did not have it.

Under the facts hereinbefore recited, her husband, by reason of having used this money which had come to her as dowery, became indebted to her in America; that debt was still subsisting, and she accepted this transfer in payment of that indebtedness, and to hold that, therefore, the contract was invalid would be to hold that a contract made between citizens of- the United States of America paid in some foreign country, while they were abroad, and completely' executed, did not bind the parties because, if the contract by which the indebtedness was created 'had been made in Italy, it would not have been enforcible. We do not, therefore, regard it as essential for the disposition of this case, to determine whether the laws of Italy in relation to dowery would affect a contract made by the citizens of the United States between, themselves while they were temporarily in Italy, would be valid or invalid. Under the laws of the United States where the contract by which Frank became indebted to his wife because of his use of this money, which is the implied contract that where money is put into his hands, to be used for the party so putting the money into his hands, and it is used for another purpose, the party thus using the money is obligated to pay it back, and it was simply the settlement of that American contract which was made in Italy. If the completion of the contract by delivery of the writing of transfer to Margaret was the time when the contract became effective, still it was simply an agreement to release a claim on wdiich, under an American contract, implied it is true, but still a contract, Frank became indebted to his wife.

¥e have not discussed the question of the right of the trustee here to enforce any lien which; by possibility, it might be claimed Mrs. Weeks had any on, interest of Frank under this will, because, as we understand the law, when Mrs. Weeks proved up her claim in bankruptcy and had it allowed, she released any lien. If she had any before that time, 'and it may well be doubted, the trustee in bankruptcy having only the rights in this action which Mrs. Weeks would have had, had the case continued in her name without the intervention of any bankruptey proceedings. Whether he could have maintained the action even if the transfer had been known by Mrs. Spencer to have been in violation of the rights of other creditors, we have not regarded as essential to the disposition of this case to determine.

We therefore reach the conclusion that the trustee in bankruptcy lias no rights of Frank 0. Spencer in any income or property growing out of this will of Phineas M. Spencer, deceased, and that all the rights which Frank otherwise would have under said will are now the property of Margaret T. Spencer, and a decree will be entered accordingly.

Winch and Niman, JJ., concur.


text:
    RELEASES — TRUSTS AND TRUSTEES.
    [Cuyahoga (8th) Circuit Court,
    June 3, 1912.]
    Marvin, Winch and Niman, JJ.
    Henry Lancken v. William G. Platt.
    Evidence of Release to Trustee by Cestui Must Be Clear and Convincing.
    When one holds property as trustee for another and claims that such other has released his equity therein upon sufficient consideration, the evidence of such, release must be clear and convincing.
    Appeal.

      Dissette, Dissette, Dissette <& Reynolds, for plaintiff.

      C. F. Taplin and White, Johnson & Cannon, for defendant.
   NIMAN, J.

In March, 1903, the original plaintiff, Henry Lancken, was the owner of a tract of land located in Brooklyn township, Cuyahoga county, Ohio, consisting of about twenty-five acres. He was also the owner of another parcel of real estate on Franklin avenue, in the city of Cleveland. The twenty-five acre tract was incumbered by a mortgage to John C. and Louisa M. Pflug, to secure the payment of $3,500. The Franklin avenue property was covered by mortgages aggregating $4,250. A Mrs. Humphries owned property on Birch street in the city of Cleveland. About this time contracts were entered into between Lancken and Mrs. Humphries and Lancken and the Pflugs, whereby Lancken was to reduce the incumbrance on the Franklin avenue property to $1,250 and convey the same, subject to such incumbrance, to the Pflugs in satisfaction of their mortgage against the twenty-five acre tract and in satisfaction of certain other claims held by them against Lancken, while the farm, or twenty-five acre tract, with a mortage for $3,500 to be placed against it, was to be exchanged by Lancken for the Birch street property of Mrs. Humphries subject to a mortgage of $3,500.

To facilitate this deal and apparently to enable a loan to be negotiated, Henry Lancken conveyed the twenty-five acre parcel to the defendant, "William G. Platt, having first executed a mortgage against it to Florence H. Easterman, an employe of the defendant, to secure a note for $3,450. At the same time the Franklin avenue property was conveyed to" the Pflugs. The trade with Mrs. Humphries was .never consummated.

The deed to the twenty-five acre tract was placed on record and the title to this property is still in the defendant, who claims to be the absolute owner thereof.

This action was brought by Lancken to have said twenty-five acre tract decreed to be his property and to secure a reconveyance thereof to himself. An. accounting of the rents and profits of the land and the money secured by mortgage thereon, and the cancellation of the Easterhman mortgage are also sought.

After the suit was begun J. Cj. Logue, trustee in bankruptcy for Henry Lancken, was substituted as plaintiff, and the action is now prosecuted by him.

It is conceded that the defendant took title to the property in controversy as the agent or trustee of Lancken for the special purpose of negotiating the Easterman note and mortgage, and effecting the exchange of properties with Mrs. Humphries, and discharging the mortgage of the Pflugs. The Humphries deal , was never carried out, and the defendant continues to hold the title to the property.

It is the defendant’s claim that about June 1, 1903, having been unable to negotiate the mortgage on the farm property, he made an agreement with Lancken whereby Lancken and his wife, in consideration of the surrender of a certain, cognovit note for $367.50 and the cancellation of certain other items of indebtedness, executed a release in writing of all their equity in said property. The decision of this case rests upon the determination of the question whether such'a release was in. fact executed. The evidence on this ■ subject is clouded with uncertainty. The release itself is not produced. The defendant and Miss Easterman testify that such a release was executed, but that in some way it has been lost. Its contents are testified to in general terms, but rather according to what is supposed to be the legal effect of the document than to its language.

Lancken and his wife both deny absolutely that such a release was ever executed.

The burden of proving that the release was executed as claimed rests upon the defendant. The property having been held by him in trust, he must establish by proof of the required degree, the act on the part of the cestui gate.trust, relied upon as a relinquishment of his estate. This proof should be clear and convincing.

The defendant, in our opinion, has not sustained the burden of establishing his claim that Lancken and his wife released their interests in the property in controversy.

' The fact that Lancken did not list among his assets in the bankruptcy proceedings the interest in his property, afterward asserted by him, and the fact that he neglected to start this action, until more than four years after the land ivas deeded to the defendant, are urged as showing that he did not consider that he had any interest therein.

Lancken explains his course in this respect by testifying that he was advised by the attorney that represented him in the bankruptcy proceedings that he could not list this property as an asset, and that he supposed that the bankruptcy proceedings had put an end to his interest in said property, until he was requested to execute a quit-claim deed to another parcel of land adjoining that involved in this action.

Whatever may have been Lancken’s conduct with reference to this property, it does not supply the proof lacking to establish the defendant’s claim of absolute ownership of the twenty-five acre tract of land. ' '

According to this view of the case it follows, of course, that the defendant must account to the plaintiff, the trustee in bankruptcy, for the rents and profits of the farm and the other moneys received by him as the agent of Henry Lancken. He should be charged with the rents actually received, and with such other sums as came into his hands in the course of his agency, and credited with his disbursements.

The defendant can not, however, be allowed anything on account of the cognovit note for $367.50 which is claimed to have furnished part of the consideration for the execution of the alleged release. That note was surrendered to Lanchen as paid, and since we find under the evidence that no such release has been shown to have been executed, it necessarily results that this note must have been paid in .some other manner, probably by the transaction relating to the Quincy avenue property, one of the matters dealt with by the evidence.

According to the figures in evidence, such an accounting shows a balance of $2.39 due the plaintiff.

On the subject of compensation it is urged on behalf of the defendant, that in ease it should be held that he has not so established the release in dispute as to be entitled to retain the property, he should be adequately compensated for his services in connection therewith.

On the plaintiff’s part it is contended that the defendant being in the position of trustee, and having denied the trust, is not entitled -to compensation.

The defendant undoubtedly performed services of considerable value in preserving this property from sale under foreclosure proceedings. At the time the property was deeded to him it was incumbered to practically its full value. While there is no evidence before us as to its present value, it may fairly be assumed from the efforts put forth on both sides of this action to obtain the property, that it has so increased in value that a considerable equity in it now exists.

The services rendered by the defendants dealt, also, with other property and other liens than are involved here, and a considerable part of said services were rendered before any dispute as to the ownership of'the land arose.

Under all the circumstances of the case considering the doubt and uncertainty with which many features of this ease are surrounded, and considering also the undoubted benefit which has resulted from the defendant’s services, we allow him as compensation the sum of $325, which will be made a charge against said premises subject to the valid and existing liens thereon.

The notes of Henry Lancken and Mary Laneken to the Pflugs, and the mortgage securing the same, should be canceled and surrendered by the defendant,, as should also the note and mortgage to F. M. Easterman for $3,450.

A decree for the plaintiff will be entered, and a journal entry may be prepared in accordance with the findings herein indicated.

Marvin, J., concurs.

Winch, J., not sitting.


text:
    INTOXICATING LIQUORS.
    [Cuyahoga (8th) Circuit Court,
    January 22, 1912.]
    Marvin, Winch and Niman, JJ.
    In re Residence District of Cleveland Local Option Petition.
    Petition Held Prima Facie Evidence of Qualified Electors Signing.
    A petition for or against the sale of intoxicating liquor in a residence district it itself prima facie evidence that the signers thereof are resident electors of the district, qualified to sign the petition, and in the absence of evidence tending to show that a signer is not such an elector, it is not error to count his name in determining the sufficiency of the petition.
    Error.

      W. II. Boycl, G. W. Shaw aud G. E. Harshorn, for plaintiff in error.

      Hidy, Klein & Harris, for defendants in error.
   MARVIN, J.

On August 7, 1911, there was filed with the Honorable Martin A. Foran, a judge of the eourt of common pleas of this district,, a petition purporting to be signed by a majority of the qualified electors of a certain residence district described in the petition and situated in the city of Cleveland, in favor of prohibiting the sale of intoxicating liquors as a beverage in such district. In short, purporting to be such a petition as is provided for in Sec. 6140 G. C., which reads:

“When a majority of the qualified electors of a residence district of a municipal corporation' sign a petition in favor of prohibiting the sale of intoxicating liquors as a beverage in such residence district and file such petition with the mayor of the municipal corporation or with a judge of the court of common pleas of the county in which the municipal corporation is situated, the mayor or judge shall examine the petition at a public hearing and decide upon the sufficiency thereof and cause a copy of his decision to be filed with the clerk of the municipal corporation or council.”

Notice of the filing of this petition was given as provided in Sec. 6151 G. C. ‘

Before said petition, was heard there was filed with said judge a writing designated as “Answer of Max Sternlielit,” Avhich answer sets out that said Max Sternlielit is a bona fide resident and qualified elector residing within the boundaries of the territory described in the petition, and that he files this answer in his own behalf and on behalf of other qualified electors who are residents of said district, and states that said petition is insufficient, irregular and illegal and should be dismissed; it then sets out a large number of reasons why he says it should be dismissed, and among them he sets out that a very considerable number of names which appear on. said petition are the names of persons residing outside of the district; a considerable number that he says are duplicated in the petition; a considerable number that he says have not resided within the district for four months, and a considerable number that he says have not resided within the state for a year; some that he says are not of full age; some that he says were never qualified electors, etc.; and then in such wuiting he says that he objects to each and every name contained in the petition, for the reason that the persons signing the same are not qualified electors and calls for strict proof that they are qualified electors. An. objection to the petition was also made by certain other electors or persons claiming to be electors within the district.

This petition was heard by Judge Foran on October 18, 1911, the hearing having been continued from time to time by consent of the petitioners, and by consent also of those who had entered their objections to the hearing. The result of the hearing before Judge Foran was that he found the petition to be sufficient, and certified bis findings to the clerk of' the city ■pf Cleveland, resulting in. the prohibition of the sale of intoxicating liquors within the district described in the petition.

To this action of Judge Foran error is prosecuted in this court, as provided in Sec. 6164 G-. C., permission having been given for the filing of such petition.

The first question raised here is whether, the petition not having been heard within forty days of the time of its filing and therefore having been heard at a time when the certificate provided for could not have been made, and in fact was not made until more than forty days after the filing of the petition, the whole proceedings were not void. In short, whether the judge, having had the petition in his hands for more than forty days, was authorized thereafter to hear it and to make his certificate at a time beyond the forty days.

As was shown on the hearing, this court has heretofore held that the time limit prescribed in this section is directory an.d not mandatory, and finding in that case reasons why the officer hearing a petition might well have delayed we adhere to the holding in that case, and certainly if any ease would justify the delay, the present is such case, because here the only parties objecting to the granting of the petition consented to the delay. There.was no error in the court’s refusing to dismiss the petition because of the lapse of time.

The next question sought to be raised is whether the burden-of showing that those who signed the petition were qualified electors within the district was upon the petitioners. We think it very doubtful whether that question is in this case. Judge Foran certifies that all the exidence offered by either party is in. the bill of exceptions. We find, however, on page 25 of the record, that the petition was offered in evidence. We nowhere find the petition or a copy of it in the- record. We do find, however, that Judge Foran announced earlier in the hearing that the burden of showing that those who-signed the petition ■were not residents of the district was on those who contested the petition. The petition was -offered in evidence and was examined by the judge. The reason it is not here is because of the provision of Sec'. 6152, which provides that the judge shall cause a certified copy or certificate of his findings,, together with the original' petition, to be filed with the clerk of the municipal corporation or council. Complying with that requirement, of the statute, of course the original petition could not be filed here. In any event, it was out of the hands of the judge when lie signed the bill of exceptions. How we can say that the judge may not have had such knowledge as to who the parties were who signed this petition as that an inspection of the petition might not be sufficient to satisfy him that the parties who signed it, those whose names he allowed to remain on it as signers, were bona fide electors of the district, we are unable to say. However, we are of opinion, at any rate a majority of the court are of opinion, that when the petition was exhibited to the judge, reading, as by law it was required to read and presumably did read, since we have not the petition before us, that those who signed (in the language of the statute), “respectfully represent that we are qualified electors in the following residence district,” etc., he was justified in saying that this made a prima facie case as to the residence and qualifications of the parties who signed.

True, it -was held by Judge Foran, and has been held by this court, that the proceeding is in. the nature of a judicial proceeding, and therefore the court must act upon evidence; but having before him a statement that these people were resident electors, we think it was not error to find such to be a fact in the absence of any evidence tending to show the contrary.

The provision with reference to the public hearing of this petition, a,s provided for in Sec. 6151, is that the judge shall “hear any electors of the district as to the question of the petitioners being qualified electors-in such residence district, or any other matter which may be brought before such mayor or judge for determination relating to the sufficiency of such petition. ’ ’

The judge had exactly the same evidence that the petitioners (except in so far as testimony was taken on the hearing or admissions made as to some of these signers, that they were resident electors of the district), as he had that any one protesting or opposing the granting of the prayer of the petition was an elector of the district. A qualified elector of the district had a right under Sec. 6151 to present evidence on the question of whether those signing the petition were electors, and, acting under this, the judge heard such witnesses as were protesting, Max Sternlicht and other objectors. Their right to be heard depended upon their being electors. Sternlicht had filed an objection denominated by him an answer, in which he claimed this right to be heard, because he said he was an elector in the district. He was heard. The evidence offered by him was received, because prima facie, filing this so-called answer, he was the one who had a right to be heard. It would hardly be claimed on the part of anybody that the judge would have been justified, in the absence of any suggestion on the part of anybody that Sternlicht was not an elector, to have refused to have heard the evidence that he offered. We think that the practical workings of this statute, if it is to have an.y value either to those desiring to prohibit or those who are opposed to the prohibiting of the sale of intoxicating liquors within a proposed district, would be so hampered as to substantially take away all the good which it was the design of the legislature to give, if the peitioners, whether on a petition for prohibition or on a petition against prohibition, were to be required to produce evidence of the qualification of the signers as electors other than such evidence as is furnished by the petition itself, except in answer to evidence which might, be produced against their qualifications as electors; and we think this is clearly shown by the section last referred to.

As pointed out by Judge Foran in his opinion in this ease, and by Judge Martin in the case referred to in Montgomery .county, the time to be taken in these.hearings would be such as to make it practically of no use to file any such petitions.

We are of opinion, therefore, that there is no error apparent upon the record in this ease which would justify a reversal, and the judgment is affirmed.

Winch and Niman, JJ., concur.