text:
    VALIDITY OF A MODIFIED CITY CONTRACT.
    Circuit Court of Lucas County.
    John H. Lloyd, a Tax-payer, on Behalf of the City of Toledo, v. City of Toledo et al.

    Decided, January 27, 1912.

      Municipal Corporations — Contracts for Public I?nprovements — May be Modified Without Action by Council — Discretion and Good Faith With Reference to Modifications — Failure of Record to Show Approval of Modified Contract — Sections 4211 and 4331.
    1. The statute requiring that action taken hy 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. 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. 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. 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 and this is true for an additional reason when the modifying contract imposes no increased liability upon the city.

      C. A. Seiders and Frank E. Geer, for plaintiff in error.

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

      E. B. King, for the C. H. Path & Son Construction Company.
    Richards, J.; Wildman, J., and Kinkade, J., concur.
    Appeal from the Court of Common Pleas of Lucas County.

       Dismissed in the Supreme Court for want of preparation.

   The plaintiff brings this action as a tax-payer of the city of Toledo against the city, its officials, and the C. II. Fath & Son Construction Company, 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 was 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 questions 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 we 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 with the C. H. Fath & Son Construction Company 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. II. Fath & Son Construction Company 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 úse 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. II. Path & Son Construction Company 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 duly approved by a unanimous 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 Schreiber, 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 duly 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 Volume 2, Dillon on Municipal Corporations, 5th Edition, Sections 557 and 558, being Sections 300 and 301 of the 4th Edition of that treatise. Such was the holding in Drott v. Village of Riverside, 2 C. D., 565, 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 fur-ther action, but that the business shall be conducted to completion by the board or officer having charge of the same. .Section 4331 of the General Code 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; Meech v. Buffalo, 29 N. Y., 198; Doland v. Clark, Mayor, 143 Cal., 176; 2 Dillon Municipal Corporations, Section 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 ivas 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 tax-payer 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 oE 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 to 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 the 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 thé 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 case, 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 ease 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 attmpt 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 thus 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 Company 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 ontract, and without any necessity for a new one. Paragraph 28 of the original specifications, which is a part of the contract, provides as follow’s:

“28. Furnishing and placing metal lining for cylinder shafts. (See Section 13). This wmrk 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 III of the original contract contains the following provision:

“Art. III. 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 dratviugs 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 covered 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 thp 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 O. S., 185; Akron v. Dobson, 81 O. S., 66; Kohler Brick Co. v. Toledo, 10 C.C.[.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 docs 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 O. S., 585 and 594; Burke v. Cleveland, 6 N.P.(N.S.), 225 (affirmed without report, 75 O. S., 603).

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 Village of Carthage v. Dickmeier, 79 O. S., 323, 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 ease 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 contemp’ates that the amount appropriated shall not be exceeded. See General Code, Section 4211; Akron v. Dobson, 81 O. S., 66, 78.

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 wou’d 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.


source: Caselaw Access Project

license: Public Domain

text:
    AUTHORITY OF AN AGENT EMPLOYED TO NEGOTIATE AN EXCHANGE OF PROPERTY.
    Circuit Court of Cuyahoga County.
    Anna M. Potter v. Leon A. Potter and Henry Veelman.
    Decided, January 22, 1912.

      Agency — Authority of Agent — Estoppel.
    1. 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. An estoppel from statements made does not arise in favor of one who had no knowledge of the statements at the time he acted.

      Tanney & Barber, for plaintiff.

      William, Gordon and H. Noff, contra.
    Marvin, J.; Winch, J., and Niman, J., concur.
   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 the 5th day of -June, 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 the 5th day of June, 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 R. 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, ho 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.

Yeelman 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 Yeelman should be exchanged for the property here claimed by the plaintiff. Yeelman 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 Yeelman. 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 other 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 Veelman were deceived and defrauded.

It is urged on the part of Veelman 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 Veelman 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 hee 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 Veelman knew nothing of this testimony. Pie 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, and 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 Veelman and under whose direction Veelman conveyed his property to Blase. Whatever rights, therefore, Leon A. Potter had in this property is the property of Veelman, because Veelman 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.


text:
    RAILWAY COMPANIES OWNING LEASED LINES NOT LIABLE FOR. THE WILLIS LAW TAX.
    Circuit Court for Cuyahoga County.
    The Cleveland & Pittsburgh Railroad Company v. State of Ohio.

    Decided, December 24, 1913.

      Taxation — Application of the Excise Tax Provisions to Raihoay Companies Whose Lines are being Operated Under Lease — Construction of the Willis Law — Sections 5485 et seg.

    A steam railroad corporation which has leased its entire line and equipment and is not operating within the state of Ohio, is not required to pay an assessment under the "Willis law upon its issued and outstanding capital stock.

      Squire, Sanders & Dempsey, W. O. Henderson and Lawrence Maxwell, for plaintiff in error.

      T. S. Hogan, C. D. Laylin and Robert M. Morgan, contra.
    Winch, J.; Meals, J., and Grant, J., concur.

      Motion for order to direct the Court of Appeals to certify its record overruled by the Supreme Court, March 24, 1914. because “it does" not appear from the record that error has probably intervened.”

   This is an action to reverse a judgment for $85,203.40 recovered by the state against the railroad company for delinquent excise taxes found to be due under the Willis law, so-called, for the years 1902 to 1908, inclusive, being an assessment amounting to one-tenth of one per cent, upon the issued and outstanding capital stock of the railroad company for said years. The railroad company claims the judgment is not authorized by law.

There is no dispute as to the facts of the case, ,and though the literature of the case is voluminous, it will not be greatly extended by this opinion, for all that is really involved in the case is the true intent and meaning of a statute which seems plain enough upon its face for him who runs to read and understand.

Previous to 1871 the Cleveland & Pittsburgh Railroad Company was a steam railroad corporation duly incorporated under the laws of Ohio and owning and operating a railroad within the state. It was also incorporated under the laws of Pennsylvania and owned and operated a railroad in that state, connected with its Ohio line.

October 25, 1871, the Cleveland & Pittsburgh Rilroad Company leased all its property to the Pennsylvania Railroad Company and surrendered possession of all its railroad and all property and equipment connected therewith to the Pennsylvania Railroad Company, the former company retaining its corporate existence, however, for the purpose of collecting its rent under the lease and distributing the same as dividends to its stockholders, with an agreement to pay for extensions, renewals, betterments and increased facilities for its railroad properties, the latter company to operate the road and pay all taxes lawfully assessed against it.

April 14, 1873, all rights under this learn were assigned to the Pennsylvania Company, which has ever since been in possession of the property, operating the same and paying all taxes assessed on the real and personal property of the lessor company.

April 11, 1902, the original Willis act (95 O. L., 124), was passed and Sections 1, 2 and 7 thereof require consideration in this case, as well as Section 7 of the act as amended April 25, 1904 (97 O. L., 381).

These two acts cover the period for which taxes were claimed by the state; there have been amendments to these statutes passed since 1908.

By the first section of the act of 1902, every corporation organized under the laws of this state, for profit, is required to make a report in writing to the Secretary of State, annually, setting forth certain facts, including the nature and kind of business in which the company is engaged ,and its place or places of business, and to pay a fee of one-tenth of one per cent, upon the subscribed or issued and outstanding capital stock of the corporation.

By the second section of this act, every foreign corporation for profit doing business in this state, and owning or using a part or all of its capital or plant in this state, and subject to certain requirements of other laws, is required to make a report of certain facts to the Secretary of State, annually, and to pay an annual fee, for the purpose of exercising its franchises in Ohio, of one-tenth of one per cent, upon the proportion of the authorized capital stock of the corporation represented by property owned and used and business transacted in Ohio.

Ever since the passage of this act the Pennsylvania Company has made reports to the Auditor of State and has paid an excise tax upon the gross earnings from the operation of the Cleveland & Pittsburgh Railroad within the state of Ohio, as required by the second and fifth sections of the act of March 19, 1896 (92 O. L., 79), sometimes called the Cole act, and the amendments thereof. The Cleveland & Pittsburgh Railroad Company has never filed the annual reports nor paid the taxes required by either the Willis law or the Cole law, claiming that it was not required to do so, because it was not “engaged in business” within the intendment of said laws, and in the claim that it was not required to file annual reports with the Auditor of State, the state has acquiesced and still acquiesces. Will the merits of this claim we are not now concerned, as will develop from further consideration of the case, but an assumption that this claim is correct is necessary to an understanding of the state’s contention regarding the meaning of Section 7 of the act of 1902, to which we now come.

The Legislature having provided by other laws for the payment of excise taxes by certain corporations, Section 7 of the Willis act exempts them from the payment of a franchise tax or fee under its own provisions in the following language (quoting only so much as is applicable to this case) :

“Provided that electric light, gas, natural gas, water works, pipe line, street railroad, electric interurban rafiroad, steam railroad, messenger, union depot, express, freight line, sleeping car, telegraph, telephone and other corporations, required by law to file annual reports with the auditor of state, * * * shall .not be subject to the provisions of the preceding sections of this act.”

The amendment of 1904 (97 O. L., 381) makes no change in this language except to insert the words “public service,” between the words “other” and “corporations” so as to read “other public service corporations” instead of “other corporations.”

We apprehend this amendment is not important in a discussion of this case and confine our attention to a consideration of the meaning of the section as originally enacted.

The contention of the state, to quote from the brief of the Attorney-General and his associate counsel is:

“That Section 7 does not except the plaintiff in error company because, though it is chartered as a railroad company corporation, it is not an operating company, and was not required during the years in question to file a report with the auditor of state and pay a tax under the Cole law, so-called; and that the mention of steam railroad in Section 7 means a steam railroad corporation which in addition to owning its property, is also the operator thereof.”

It would seem that the Legislature, if it had intended what the law officer of the state now contends for, would have said so. It could have said so by using the following simple language:

“Provided that all corporations (or all public service corporations) required by law to file annual reports with the auditor of state, shall not be subject to the provisions of the preceding sections of this act.”

Instead of using this simple language it enumerated some fifteen kinds of corporations, and then said “and other corporations, required by law to file annual reports with the Auditor of State, ’ ’ shall not be required to comply with the act.

Clearly the intention was to exempt steam railroad corporations, and the other fourteen mentioned corporations, from the operation of the act, and also to exempt therefrom such other corporations, if any, then existing, or which might thereafter be authorized by law, and which might be required by law to file annual reports with the Auditor of State.

The use of the words “other corporations required,” etc., was to complete the enumeration of exempt corporations and not, as claimed by the state, to limit and qualify the enumeration already made.

At least two good reasons appear for this conclusion: there was then in existence at least one kind of corporation (equipment company) not enumerated, which was required to file annual reports with the Auditor of State, and other like companies might afterwards be authorized by law, in which event Section 7 of the Willis act, with its enumeration of exempt companies, but without the general words, “other companies,” etc., would have to be amended every time such new companies might be authorized.

We think the Legislature meant something by its enumeration of exempt companies in Section 7, and that the courts are not at liberty to disregard this enumeration and rewrite the statute as suggested by the Attorney-General. That is for the Legislature to do and it is significant that the Legislature has not done it, though more than ten years have elapsed and subsequent legislation has wholly revampt the laws upon the subject here involved.

We conclude that the statute is unambiguous and plain, requiring nothing to be added to or taken from its words so that it may be understood and applied by the taxing officers of the state, and that by its plain terms the Cleveland & Pittsburgh Railroad Company, being a steam railroad corporation, is exempt from the provisions of the Willis act.

This conclusion makes it unnecessary to examine other statutes claimed to be in pari materia, or to go beyond the words of Section 7 itself, to determine the intention of the Legislature in enacting said section. The section intends what it says.

For the same reason it becomes unnecessary to consider the. very interesting question submitted by the railroad company as to the effect of the judgment of the court below, which allowed the claims of the state, resulting, as clearly pointed out in briefs of counsel, in double taxation of one business, for the lessee company pays the Cole tax on the gross business done on this railroad and pays it for the. lessor company.

The leasing of railroads by Ohio railroad corporations is favored by our statutes, but to make the giving of such a lease require the payment of additional taxes to the state, would penalize and so prohibit such leasing.

For the reasons stated, because the plain words of the statute require it, the judgment is reversed, and there being no dispute as to the facts of the ease, judgment is rendered for the plaintiff in error.


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    ACTION BY A MINORITY STOCKHOLDER..
    Circuit Court of Cuyahoga County.
    Harry Koblitz v. The Brookside Brick Company et al.
    Decided, May 10, 1912.

      Corporations — Stockholder Suing for Company — Demand and Refusal of Officers to Bring Suit — Good Faith of Officers.

    1. Although generally a stockholder can not bring an action in his own name but for the benefit of the corporation, upon a cause of action existing in favor of the corporation, without alleging and proving demand upon the corporation, or its proper officers to bring the action, and refúsal on their part to act, yet where the demand would have to be made upon those who are changed with having committed the wrongs which it is sought to redress and against whom the action would have to be brought, and, under the circumstances, would be a vain thing, its necessity is dispensed with.
    2. The highest good faith on the part of an officer and director of a corporation does not require him to finance the company out o£ his own resources so as to enable it to take advantage of a favorable option.

      Harry Koblitz and Wing, Myler & Turney, for plaintiff.

      W. W. Hole, F. C. Scott and Marlin W. Sanders, contra.
    Niman, J.; Pollock, J., and Dustin, J. (sitting in places of Judges Winch and Marvin), concur.
   The plaintiff in this action is a minority stockholder in the defendant, the Brookside Brick Company, a corporation organized under the laws of Ohio. He brings this action on behalf of himself, and all other stockholders of said company similarly situated, to correct certain alleged abuses in the management of the corporation claimed to have been committed by the majority stockholders in the control of the board of directors, and to secure redress for the corporation on account thereof.

Stated briefly, the facts established by the evidence are as follows:

In 1905 the Brookside Brick Company, a West Virginia corporation, and the predecessor of the defendant, the Brookside Brick Company of Ohio, was the owner of a brick plant near Brookside Park, in the city of Cleveland. Its supply of clay for the making of brick was nearly exhausted and its financial resources were limited.

On September 11, 1905, a regularly called special meeting of the stockholders was held, the minutes of which show that a majority of the issued and outstanding capital stock was represented, and that the following motion was unanimously adopted:

"Moved and seconded that the proposition made by Mr. Louis Koblitz to the B. B. Co., which is as follows, be accepted: Said Louis Koblitz to buy 290 shares treasury stock of said B. B. Cor, said Louis Koblitz is to buy the 10% acres, more or less, south of- and adjoining the plant of the B. B. Co., being the same land upon which IT. Spitz, manager of the B. B. Co. received an option from L. M. Plummer, Pittsburgh, Pa., and for which the said PI. Spitz agreed to pay $700 per acre. The aforesaid Louis Koblitz to sell to the B. B. Co., on royalty of ten cents per thousand brick the clay from said land. Said clay to be used for the manufacture of brick. Said royalty to be based on brick sold, delivered and accepted; and the said Louis Koblitz is to give the B. B. Co. the right to take clay from said land for the period of one year, with the privilege of extending said right to take clay at the same price, ten cents per M. brick, for one year longer; and the said Loujs Koblitz is to give the said B. B. Co. the right to purchase said land at the same price be paid for same within the time the said B. B. Co. has the right to take clay- from said land on royalty. ’ ’

The Louis Koblitz mentioned in this section is the Koblitz who is one of the defendants in this action. The capital stock of the West Virginia corporation was 1,000 shares of the par value of $50 per share. The 290 shares of treasury stock sold to Louis Koblitz under the terms of the foregoing motion were sold at $20 per share, making a total price of $5,800.

After this motion was adopted, Louis Koblitz took his stock -and paid $5;800 for it as stipulated; he also bought the 10% acres of clay land and the company proceeded to take clay therefrom for the manufacture of brick, and paid the royalties provided therefor.

At about the time Louis Koblitz acquired this stock, or a short time before, he also acquired 220 shares from Herman Spitz, giving him 510 shares in all out of a capitalization of

I, 000 shares, and vesting him with the power of control in the corporation. He was at once elected to the board of directors and was chosen treasurer of the corporation, and he, and those who may be presumed to be under his control and influence, have been in control ever since.

In May, 1906, the West Virginia corporation was dissolved and the defendant, the Brookside Brick Company, was organized under the laws of Ohio, with the same capital stock. The property and rights of the old company were turned over to the new company, and the liabilities of the old'were assumed .by the new. Stock in the West Virginia company was exchanged for a like amount in the Ohio company.

The money paid by Louis Koblitz for his treasury stock was paid to the bank to apply on an indebtedness of the company amounting to $15,200.

The option provided for in the proceedings of the stockholders’ meeting of September 11, 1905, covering the 10% acres of land, was not exercised by the company, and on October 15, 1907, after the two years provided in the option had expired, a stockholders’ meeting was held at which 614 shares were represented. The following resolution was adopted at tjhis meeting:

“Whereas, The Brookside Brick Company, holders of an option on a certain tract of land about 10% acres adjoining the Brookside Brick Company plant, and known as the Plummer property, from which they have been using clay on a royalty, said option dated September 11, 1905, and expired September II, 1907; and
“Whereas, The Brookside Brick Company being unable to take advantage of said option, instruct the secretary to notify the owner of said tract of land upon which option was held, in writing, of their inability to accept or take advantage of said option. ’ ’

It appears that at no time during the two years covered by the option was there any money on hand to take advantage of it. September, 1906, a destructive fire occurred which made necessary the rebuilding of a part of the company’s plant at an expense of several thousand dollars. In the early part of 1907, the company owed the United Banking Company $11,000, which was secured by mortgage on the company’s plant as well as by a mortgage given the bank by Louis Koblitz on the 10% acres covered by the option. The company was also indebted to Louis Koblitz in the sum of $13,000 which he had loaned it on a second mortgage.

At the same stockholders’ meeting at which it was voted to notify Louis Koblitz that the company could not take advantage of the option a resolution was adopted authorizing the making with the owner of the 10-% acres of a royalty contract for clay, on the basis of twenty-five cents per thousand brick manufactured, sold and delivered, and on the 16th day of December, 1907, such a royalty agreement was made between the company and the defendant, Joseph Koblitz, in whose name the property then stood. The royalties paid under this agreement and extensions thereof on the twenty-five cents per thousand basis, amounted to something over $11,000.

The company continued in business until February 17, 1912, when its board of directors made an assignment of all its property to the defendant, Lawrence Koblitz, for the benefit of creditors.

Thereafter, the plaintiff in this action filed a motion in the insolvency court to remove the assignee upon grounds similar to the grounds set forth in his petition in support of the relief prayed for by him. This motion on hearing in the insolvency court was overruled.

The plaintiff, by this action, seeks to have the deed of assignment declared null and void and set aside, and a receiver appointed; to have an accounting between the Brookside Brick Company and the other defendants as to the moneys received by such defendants from the company; and to have such relief decreed as will result in a suspension of the two years time limitation in the option contract so that the company, freed from the alleged antagonistic influences of the defendant Louis Koblitz, may have an opportunity to take advantage of said option.

Some technical objections have been interposed against the right of the plaintiff to maintain this action.

It is urged by the defendants that the questions involved in this action have been adjudicated by the decision of the insolvency court on the motion to remove the assignee, but in our opinion the issues before us are much broader than the issue raised by the motion, and while the motion might be supported or opposed in part by the same evidence that would support or oppose the averments of the petition, yet the matters in issue in the two hearings are entirely different.

It is also contended by the defendants that the plaintiff can not maintain his action as a stockholder without first making demand upon the proper officers of the corporation, or the assignee, to start suit to redress the grievancees complained of, and showing a refusal to comply with such demand.

It is the rule generally that a stockholder has no right to bring an action in his own name upon a cause of action existing in favor of the corporation, and in which the corporation is the proper plaintiff, unless the corporation has refused to prosecute the action, and it is therefore necessary for a stockholder who institutes such an action to aver and prove a demand upon the corporation, or its proper officers, to start the action, and a refusal to act. Where the demand, however, would have to be made upon those who are charged with having committed the wrongs which it is sought to redress, and against whom the action would have to be brought, and where a demand under the circumstances would be a vain thing, its necessity is dispensed with. In this case we think the averments of the petition are such as to show a right in the plaintiff to institute the action without having first made a demand upon the officers or assignee.

Coming to the decision of the case, then, upon its merits, we think the entire controversy depends upon the disposition to be made of the plaintiff’s contention that the company’s rights under the option should not be concluded merely because the two years have passed, but that it should be placed in such a position as that, freed from the control of Louis Koblitz, it may have an opportunity to still avail itself of said option.

Without this 10% acres of land, the company is hopelessly insolvent, and the deed of assignment should stand. If. the right to acquire this supply of clay by taking advantage of the option still belongs to the company, the value of its assets will be much greater, and if the value of this .land is as great as it is asserted to be, the company would not be insolvent.

It is claimed that Louis Koblitz, being in absolute control of the company through the ownership'of a majority of its stock, caused its affairs to be so managed that the company refrained from acquiring the supply of clay necessary for its further existence, and intentionally allowed the option to expire, so that he might cause the company to fail, and the intimation is that he acted with a view of ultimately acquiring the plant after the failure of the company at a small portion of its value, and using it in connection with his valuable supply of clay. It is urged that his failure to have the company exercise the option has operated as a fraud on the corporation and on other stockholders.

It is said in Thompson on Corporations, Vol. 2, Section 1216:

“A director occupies a position of trust or agency for his corporation of such a character that dealings between him and it, where his interest is opposed to that of the corporation, will be subject to close scrutiny and will not be sustained 'as against the stockholders, unless consistent with good faith and fair dealings on his part.”

Giving the conduct of Louis Koblitz in connection with this option that close scrutiny required by the law, we are compelled to reach the conclusion that his dealings with the company are entirely consistent with good faith and fair dealings on his part.

At the time he was induced to become a stockholder and in"vest Ms-money* the company-was in poor financial condition." It received, much financial assistance from him from time to time. In fact, it appears from the evidence, that whenever the company was in need of money, he was the one to whom appeal was made. He mortgaged the 10% acres of land in question and otherwise pledged his credit for the benefit of the company. At no time during the two years provided for in the option did the company have the means at hand to acquire the land, unless the money should be advanced or in some way secured by Koblitz himself. The rule of highest good faith could hardily require him to finance the company out of his own resources to enable it to take advantage of the option. Complaint is made that money was expended in rebuilding the plant after the fire that might have been used to acquire the land, but the money so used was borrowed for that purpose, and we fail to see how any implication of bad faith is suggested by the act of the company, under the control of Koblitz, in borrowing money for one purpose and not borrowing it for another.

All of the important transactions complained of here were considered and authorized at stockholders’ meetings, at which a majority of the stock was. .represented. The option expired September 11, 1907, and the meeting at which it was resolved to notify the owner of the land of the company’s inability to accept said option, was held October 15, 1907. For more than .four years after this the company continued in business, and ,was supported financially by Louis Koblitz until the assignment was made. We are unable to see how more could be required of him as a matter of right and law.

The transaction with respect to the making of the new royalty contract with Joseph Koblitz on the basis of twenty-five cents per thousand brick, does not seem to have been unfair. The price was the usual price for clay. The company has used the clay paid for by it and has had the benefit of it. There is nothing in this transaction to call for an accounting.

In view of the conclusions reached by us on the facts as indicated, the relief sought by the plaintiff and the various cross-petitioners will be. denied, and the petition and cross-petition-dismissed.


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    APPLICATION OF THE DEFENSE OF NEGLIGENCE OF FELLOW SERVANT.
    Circuit Court of Cuyahoga County.
    Guisippe Ruggiere v. The Newburgh & South Shore Railway Company.
    Decided, May 10, 1912.

      Master and Servant — Negligence—Fellow-Servant Defense — Not Abrogated in all Cases by Sections 6242 and 6244, General Code.

    Where one employee of a railroad company who is assisting another employee of the same grade, his fellow-servant, in replacing old ties with new, is struck a blow on the nose and injured by a mallet carelessly swung by such fellow-servant, the defense of fellow-servant may be made by the railroad company in an action brought against it by the injured employee, notwithstanding the provisions of Sections 6242 and 6244, General Code.

      B. D. Nicola, for plaintiff in error.

      Squire, Sanders & Dempsey, contra.
    Niman, J.; Pollock, J., and Dustin, J. (sitting in place of Judges Winch and Marvin), concur.
   This was an action brought by the plaintiff in error in the court of common pleas to recover damages for personal injuries suffered by him while in the employ of the defendant in error.

At the conclusion of the plaintiff’s case in the court below, the trial court, on motion of the defendant, directed a verdict in favor of said defendant.

Proper steps were taken by the plaintiff to preserve for reviewing the ruling of the court on the defendant’s motion to direct a verdict, and the question presented by this proceeding in error is whether or not the trial court erred in so directing a verdict for the defendant.

The evidence tends to establish the following state of facts:

On the 17th or 18th day of July, 1910," the plaintiff was in the employ of the defendant, and was engaged with others in repairing certain railroad tracks by removing old wooden ties and replacing them with steel ties. A short time before the accident to the plaintiff occurred, the foreman in charge had directed the plaintiff and three others to go to a certain part of the tracks and proceed with the work of replacing the old ties with the new. After reaching the place designated the' men started on their work. The plaintiff and another man, by the name of Melano, worked together on this occasion. Melano used what is termed a “spiking mallet” to drive the steel ties into position while the plaintiff held and placed in the proper place the bolts which fastened the rails to the ties. While the plaintiff was in a stooping position near the end of a tie waiting for Melano to drive it into place so that the bolts could be put through, the spiking mallet, swung by Melano, glanced off the tie or missed it, and struck the plaintiff on the nose,, inflicting serious injuries.

It appears, therefore, that Melano was the fellow-servant of the plaintiff and the defendant can not be held liable for the injuries suffered by the plaintiff, unless the relation between Melano and the plaintiff, and the liability of the defendant, have been so modified by Section 6242, P. & A. General Code, or 6244, P. & A. General Code, as to deprive the defendant, of the defense of negligence of a fellow-servant.

Section 6242 is as follows:

“That is all actions brought to recover from an employer for-personal injuries suffered by his employee or for death resulting to such employee from such personal injuries, while in the employ of such employer, arising from the negligence of such employer or any of such employer’s officers, agents, or employees, it shall be held in addition to the liability now existing by law that any person in the employ of such employer, in any way having power or authority in directing or controlling any other employee of such employer, is not the fellow-servant, but superior to such other employee; any person in the employ of such employer in any way having charge or control of employees in any separate branch or department, shall be held to be the superior and not fellow-servant of all employees in any other branch or department in which they are employed; any person in the employ of such employer whose duty it is to repair or inspect the ways, works, boats, wharves, plant, machinery, appliances or tools, in any way connected with or in any way used in the business of the employer or to receive, give or transmit any signal, instruction, or warning’ to or for- such employees shall be held to be the superior and not fellow-servant to such other employees of such employer.”

The evidence discloses no power or authority in any way in Melano to direct or control the plaintiff in the work in which they were both engaged, nor does the evidence bring the case within the other terms of this section. Melano was not a person whose duty it was to inspect or repair the ways, works and other things enumerated in the statute under consideration, or do -the- other things therein mentioned in such, sense as to become the superior to the plaintiff.

The remaining question, therefore, to be decided is whether Section 6244 deprives the defendant, under the facts shown, of the defense of fellow-servant.

Section 6244 provides:

“That in all such actions the negligence of a fellow-servant of the employee shall not be a defense where the injury or death was in any way caused or contributed to by any of the following causes, to-wit: Any defect or unsafe condition in the ways, works, boats, wharves, plant, machinery, appliances or tools, except simple tools, in any way connected with or in any way used in the business of the employer; the negligence of any person engaged as a superintendent, manager, foreman, inspector, repairman, signal man, or any person in any way having charge care or control of such ways, works, boats, w’harves, plant, machinery, appliances or tools; the negligence of any person in charge of or directing the particular work in which the employee was .engaged at the time of the injury or death; the negligence of any person to whose orders the employee was bound to conform, and by reason of his having conformed thereto the injuries or death resulted; the negligent act of any fellow-servant done in obedience to the immediate or peremptory instructions or orders given by the employer, or any person who has authority to direct the doing of said act; the want of necessary and sufficient rules and regulations for the government of such employees and the operation and maintenance of such ways, works, .boats, wharves,, plant, machinery, appliances or tools.”

It is contended that, on behalf of the plaintiff, Melano was a repairman, because he was engaged at the time of the accident in repairing the track of the defendant, and that since his negligence caused or contributed to the injury of the plaintiff, the defense that the plaintiff was injured by the negligence of a fellow-servant, is not available to the defendant.

We think this contention is not well founded. In our opinion the word “repairman” is used in the statute to designate! or describe one who makes repairs, or who is charged with the duty of making repairs upon machinery, tools, appliances or other property of the employer, used by another employee, or other employees in the work done for the employer. The evident purpose of including the term “repairman” in the statute was to protect the employees against the negligence of those who repair the instruments by which such employees perform the duties of their employment, and the places in which they labor. This protection is furnished by depriving the employer of the defense of negligence of a fellow-servant when the negligence of an employee who repairs, or whose duty it is to repair tools, machinery, appliances, or other property of the. employer used by another .employee, in any way causes or contributes to the injury or death of the latter.

In this case the employee whose negligence caused, or contributed to, the injury of the plaintiff was not a repairman in the sense indicated, and the trial court committed no error in directing a verdict for the defendant at the conclusion of the plaintiff’s case.

Although other error's were assigned by the petition in error, nothing in support thereof has been brought to our attention and the judgment' of the court of common pleas is affirmed.


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    SALE OF UNISSUED STOCK TO DIRECTOR ON TERMS UNFAIR TO THE COMPANY.
    Circuit Court of Cuyahoga County.
    Owen W. Callahan v. The Owen Steel Crane Company et al.
    Decided, May, 1912.

      Corporations — Sale of Unissued Capital Stock — Fraud.
    A sale of unissued treasury stock to one of the directors at par on a cash payment of 2% 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% dividends, will be set aside as a fraud upon the corporation and its stockholders.

      Max P. Goodman, for plaintiff in error.

      Wing, Myler, cfe Turney, contra.
    Winch, J.; Marvin, J., and Niman, J., concur.
   The plaintiff in this case 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 naught, 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% 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 ahd-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 case 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 Railroad Co., 37 O. S., 556, as follows:

“By the Revised Statutes, Section 3248, 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, and payment of the par value thereof, when the transaction is free from fraud, and is beneficial to the corporation, 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 Avas 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% 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% 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 tbe Simms case that tbe 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.


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    EQUITABLE INTEREST UNDER A LAND CONTRACT NOT SUBJECT TO A JUDGMENT LIEN.
    Circuit Court of Cuyahoga County.
    The Western Reserve National Bank v. Mary E. Christy et al.
    Decided, May 22, 1912.

      Exemption in Lieu of Homestead — Judgment Lien — Equitable Interest in Land.

    1. Where real estate in which a judgment debtor has an interest under a land contract is, by agreement óf 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 homestead.
    2. 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.

      White, Johnson & Cannon, for plaintiff.

      Ford, Snyder & Tilden, W. A. Granger, Myers & Green and M. B. & H. H. Johnson, contra.
    Niman, J.; Winch, J., and Marvin, J., concur.
   This action is here on appeal. The pleadings and agreed statement of facts on which the ease was submitted, disclose that on the 9th day of June, 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 the 7th day of July, 1910, recovered a judgment against the said Henry C. Christy in the Court of 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 the 22d day of August, 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 the 6th day of March, 1911, an execution was issued on said judgments to the sheriff of Cuyahoga county, who on the 7th day of March, 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 at 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.

B.y 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.

Iíenry 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, Section 11730, .General Code 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 Section 11738 of General Code, 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 Section 11737, General Code, 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 section 11737, General Code, or Section 11738, General Code, and in either ease, the result is the same. He is entitled to only $500 out of the proceeds of the sale of the property, 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 favor of Section 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 O. S., 325, 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 or judgment ¿ebtor must have a legal title in order that the judgment may operate as a lien.”

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

“4. An equitable interest in lands can not be reached by an attachment upon said lands.
“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 Section 5374, R. S., now Section 11655, General Code, has changed the law on this subject, the rule must be considered as established," that a judgment does not create a lien upon an equitable interest in land, but attaches only to the legal title in lands and tenements.

Section 11655, General Code, 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 Section 11656, General Code, 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. Tenn. Coal, Iron & R. R. Co., 62 O. S., 571, 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.