text:
    LIABILITY FOR THE DEBT OF ONE OF THE COMPANIES OF A MERGED CORPORATION.
    Court of Appeals for Cuyahoga County.
    (Judges of the First Appellate District sitting in place of the Judges of the Eighth Appellate District.)
    The Bruce-MacBeth Engine Co. v. J. P. Eustis Manufacturing Co.

    Decided, June 28, 1917.

      Corporations — Merger by Contract — Liability for Debt of Constituent Company — Waiver of Jury — Effect of Dismissal of all the Defendants Except One — Election betiveen Remedies — Time of Filing Petition in Error.

    1. Where two journal entries are shown by a transcript, the first being in form merely a finding in favor of the plaintiff and a fixing of the amount of damages and the second disposing of a motion for a new trial and in its terms a formal judgment entry in all respects except that it does not contain the amount to be recovered, the second entry is the judgment entry from which the filing of the petition in error must date.
    2. Where the prayer of a petition is for a money judgment only ás against one defendant with an alternative prayer for equitable relief against the other defendants and the defendant against . whom a money judgment is sought waives a jury, such defendant can not thereafter withdraw the waiver of a jury and insist upon a jury trial merely because the court dismisses the other defendants from t'he case.
    3. Where the • undoubted purpose of a contract between two corporations is to merge the two corporations into one, practically making as complete a merger as an actual statutory consolidation would have done, the new company is liable for the payment of a debt of one of the merged companies, alhough the contract in some of its terms savors of a sale and does not comply in all respects with the requirements of a statutory consolidation.

      4. A party is required to elect only when two or more inconsistent remedial rights are given by law upon the same state of facts.
    5. A review by a proceeding in error of the action of a court in dismissing certain defendants from a case does not serve to delay or prevent either the continuance of the trial and a judgment against a defendant not dismissed or a review of such judgment by error proceedings.

      Gage, Day, Wilkin dt Waohner, Tolies, Hogsett, Ginn dt Morley and White, Johnson, Gannon & Neff, for plaintiff in error.

      Hoyt, Dustin, Kelley, McKeehan & Andrews, I. L.' Evans and Frank O. White, contra.

       Motion for an order requiring the Court of Appeals to certify its record in this case overruled by the Supreme Court, December 11, 1917.

   Jones, P. J.

Error to Common Pleas Court of Cuyahoga County.

The foundation of this action is based upon a contract dated September 11, 1905, by the terms of which the J. P. Eustis Manufacturing Company, hereinafter called plaintiff, was given the right to sell in certain territory engines manufactured by The Bruce-Meriam-Abbott Company, hereinafter called the engine company.

Under this contract plaintiff sold an engine to the Saco Brick Company, which was warranted to develop a certain guaranteed horsepower. In January, 190)7, the Saco Brick Company sued plaintiff in the courts of Massachusetts for damages by reason of the failure of the engine sold to it to deliver the guaranteed horsepower. Notice of this suit was given to the engine company, which company assisted in securing testimony for the defense, and was advised of the progress of the case, which was hotly contested. After a considerable time judgment was obtained against the J. P. Eustis Manufacturing Company by the Saco Btrick Company, and execution was issued upon said judgment in May, 1911, and plaintiff was compelled to and did pay the judgment.

In December, 1913, plaintiff brought an action against the engine company in the court of common pleas of Cuyahoga county, Ohio, to reimburse it for the damages sustained by the payment of the judgment of the Saco Brick Company. This action resulted in a judgment, on November 14, 1914, in favor of plaintiff, which was carried to the court of appeals and was there affirmed. Execution was issued upon said judgment, and October 13, 1915, a return of nulla tona was made thereon.

The action now before the court was then commenced in December, 1915, to recover the amount of said judgment against the engine company which it had failed to collect on execution. In this case were joined as parties defendant The BruceMeriam-Abbott Company, called the engine company, and its directors and stockholders, together with the personal representatives of the deceased stockholders of said company, and The Bruce-MacBeth Company, hereinafter called “the new company.”

The ease was tried on the amended petition, in which it is alleged that on or about April 29, 1909, the engine company and The MaeBeth Iron Company, called “the iron company,” with the consent and approval of the directors and stockholders of each of said companies, entered into a contract “for the purpose among other things of combining the business and property of said two companies;” that all the property, assets and effects of the two companies were to be appraised and the values fixed; that the engine company was to transfer and assign to the iron company all its assets of every kind and description whatsoever, except the lease-hold of a small building thereon; that the engine company was to list all of its debts and liabilities, and that all of the debts and liabilities so listed- were- to be paid by the iron company; and that the directors of the engine company guaranteed that the liabilities of said company would not exceed the sum so listed, and that they would hold harmless the iron company from any liabilities in addition to those listed. Said agreement further provided that the engine company should be dissolved; that the iron company should change its name to The Bruce-MaeBeth Engine Company and if necessary increase its capital stock; and that both companies would list their assets and liabilities and would issue stock to the stockholders of the engine company pro rata to represent the net assets of the engine company. The amended petition alleges that this transfer of property was carried out and that the new company thus obtained net assets of said engine company to the value of $68,326; that certificates for three hundred and forty-one shares of stock were issued to the stockholders of the engine company to represent said amount, and the cash balance of $126 was distributed among the stockholders in lieu of fractional shares; and that the engine company was left without any assets with which to pay its debts and particularly the debt of plaintiff. Then the following allegations were made:

“Plaintiff further alleges that by reason of the acts, transactions and proceedings of the defendants (except Walter S. Bowler), as herein set forth, said The Bruce-M'acBeth Engine Company became, and is legally obligated and bound to pay all the debts, obligations and liabilities of said The BruceMeriam-Abbott Company, including the aforesaid claim of this plaintiff.
“If, however, it should be found by the Court that said The Bruce-MaeBeth Engine Company did not become so obligated and bound to pay the aforesaid claim of this plaintiff, by reason of the premises, then plaintiff alleges that said acts, transactions and proceedings have hindered, delayed and defrauded it in the collection of its aforesaid claim against said The BruceMeriam-Abbott Company, and that by reason thereof, it has been prevented from collecting the same. That the aforesaid transfer and conveyance of’ its property was made by The Bruce-Meriam-Abbott Company with the intention of hindering, delaying and defrauding its creditors, and particularly this plaintiff, in the collection of their claims, debts, obligations and liabilities against it.”

The amended petition prayed for a judgment against defendant, The Bruce-MacBeth Engine Company, in the sum of $4,-845.12, with interest; and, in the event the court should refuse this judgment, prayed in the alternative for a judgment against the other defendants, and that the transfer of the assets of said company be declared null and void and that they be taken over and administered for the benefit of the creditors of said company; and for general relief.

The case was tried to the court, and in the progress of the trial the court being called upon to construe the contract found that the terms of the contract would require the payment of the debts of the engine company by the new company, and thereupon dismissed the individual directors and stockholders and their personal representatives from the case, and allowed plaintiff to proceed as against the new company, which company was then permitted to file an amended answer in which it set up as an additional defense that the plaintiff, having elected to pursue the engine company and secure a judgment against it, was conclusively barred from proceeding against the new company. The new company at that stage filed a motion for a jury trial, which was refused by the court because a jury had been waived by the new company at the comcencement of the trial.

The case proceeded, and judgment was finally rendered against the new company in the amount claimed.

Error proceedings are prosecuted here to reverse that judgment. -

A preliminary question is raised by the defendant in error by a motion to dismiss the petition in error on the ground that it was not filed within the time provided by law. It is contended by defendant in error upon this motion that the judgment of the court below was entered September 22, 1916, while plaintiff in error contends that the judgment to which error is prosecuted was entered October 19, 1916.

The journal entries shown by the transcript in this case are as follows: -

“September 22, 1916. The parties by their attorneys come, waive a jury and submit this cause to the court on the pleadings and evidence; on consideration whereof the courts finds for the plaintiff against the defendant, The Bruce-MacBeth Engine Company, and assesses its damages in the sum of $5,426.53. To which the defendant excepts.”

Motion for new trial was filed September 25, 1916, by defendant and on the same day a motion was filed by the defendant to set aside judgment. These motions were overruled, and the following entry was placed on the journal October .19, 1916:

“The motion by the defendant The Bruce-MacBeth Engine Company for a new trial of this ease, is heard and overruled, to which the said defendant excepts. It is therefore considered that the said plaintiff recover- of the said defendant its said damages and also its costs of this suit. Judgment is rendered against the said defendant for the costs herein. Record waived. ’ ’

On November 2, 1916, the following entry was made upon the journal:

“The motion by the defendants for a new trial of this cause, is heard and overruled. To which ruling the defendants except. It is therefore considered that said plaintiff recover of said defendant its said damages and also its costs of this suit. Judgment is rendered against the defendants for the costs herein. ’ ’

It is apparent to the court that the entry of November 2, 1916, which is practically the same as that of October 19, was made by inadvertence and need not be further considered, as the entry of October 19 had disposed of the motion for a new trial, and in its terms is a formal judgment entry in all respects except that it does not contain the amount to be recovered, as is customary in such entries. By reference, however, to the previous entry of September 22 this amount is made certain. In its form the entry of September 22 is merely a finding in favor of the plaintiff and a fixing of the amount of damages.

Upon consideration of these entries of both September 22 and October 19, we hold that the first is not the judgment entry from which the filing of the petition in error must date, but that the entry of October 19 is such judgment entry, and that the petition in error was therefore filed within the statutory time and the motion to dismiss must be overruled.

The first and second points relied upon by plaintiff in error in seeking a reversal of the judgment below are: first, this action as it was originally instituted was one in equity and the court of common pleas had no authority or jurisdiction to transform it upon the court’s own motion into an action at law against the new company alone; and, second, the new company w^s entitled to a trial by jury after the other defendants were dismissed from the ease. We will treat these two points together.

There is no question, from the form of the petition, but that the action was primarily one for a money judgment against the new company, and, failing to secure that, in the alternative to hold the directors and stockholders of the engine company and reach its assets as a trust fund in the hands of the new company for the purpose of paying plaintiff’s judgment. The action of the court in dismissing from the case the directors and stockholders of the engine company over the objection and exception of the plaintiff did not in any wise change the character of the action from one in equity to an action at law; it merely dropped out the equitable feature of the action, requiring plaintiff to stand alone upon his claim for a money judgment, which had been in the case from the commencement of the action.

By Section 11238, General Code, it is provided that there shall be but one form of action in this state, to be known as a civil action; and under Section 11305, General Code, plaintiff is required to set forth in his petition a statement of the facts constituting his cause of action, in ordinary and concise language, with a demand for the relief to which he claims to be entitled.

A distinction between actions at law and suits in equity has been abolished by the code, so far as relates to form or name, and what is .called ‘ ‘ a civil action ’ ’ has been substituted. When the facts entitle the party to relief the mere form of the action is disregarded. Chapman v. Lee, 45 Ohio St., 356, 367, and Raymond v. T., St. L. & K. C. Ry. Co., 57 Ohio St., 271.

The part of the amended petition above quoted shows that so far as this plaintiff in error, the new company, is concerned, the demand was for money only, both by the language of the allegations of the amended petition and by the form of prayer which demanded a money judgment. In this state of the pleadings, which was in no way modified by the later stages of the trial, at the commencement of the trial, counsel for the new company in answer to inquiry from the court said the case was for trial by the court and not by a jury. We regard this as a clear waiver of a jury, in accordance with the terms of Section 11379, General Code. And there was nothing in the further progress of the trial, after the court had come to construe the contract and in a measure to pass upon the liability of the new company, to authorize or permit the new company to change its position and to withdraw the waiver of a jury and to insist upon a jury trial.

The third ground of error argued by plaintiff in error is that the court erred in its conclusion that by the terms of the contract between the engine company and the new company the new company assumed and agreed to pay the claim of the plaintiff against the engine company.

. It is urged that the motion or merger between the engine company and the iron company was not a statutory consolidation. If it were, there is no question but that the new company would be liable for the payment of plaintiff’s judgment as a debt of the engine company. Boehmke v. Northern Ohio Trac. Co., 88 Ohio St., 156, 162.

The trial court in its opinion discusses the question of classification of this contract, and seems to be justified in its conclusion that it must be classed as a sort of nondescript. While in some of its terms it savors of a sale, and while it does not comply in all respects with the requirements of a statutory consolidation, still its undoubted purpose was to merge the two companies into one, continuing, it is true, the corporate existence of the iron company under a new name, but practically making as complete a merger as an actual statutory consolidation would have done. If this claim had been listed, no question whatever could have been made as to the liability of the new company.. The contract required that all debts, obligations and liabilities should be listed, and that when so listed the new company should become liable for them and pay them. It recognized the fact that in some manner these assets could be reached to pay any obligation which through inadvertence or mistake was not included in the list of liabilities so prepared and guaranteed to be included in the contract, and made the directors and stockholders personally liable for any claim not so listed which the new company was required to pay.

Plaintiff in error, the new company, can not sustain its position that the transfer and conveyance of the assets of the engine company to it was a sale, carrying with it no obligations except those clearly expressed in the contract, for the reason that no consideration whatever was given by the new company to the engine company. The issue of stock in the new company, to the stockholders, was for no consideration to the company. The stockholders are not the corporation, nor do they represent it in its relation to its creditors. Compton v. Railway Co., 45 Ohio St., 592, 615, and McIver v. Young Hardware Co., 144 N. C., 478, 119 Am. St., 970.

“The assets of a corporation, including unpaid subscriptions to its capital stock, constitute a trust fund for the benefit of its creditors, which can not be disposed of by it, without consideration, or fraudulently, to the injury of such creditors.” Niles, Assignee, v. Olszak, 87 Ohio St., 229.

The record clearly shows that the conduct of the parties, including their catalogues and the literature as well as their correspondence and dealings, showed a recognition that the two companies had actually become merged into a new company.

In the case of Andres v. Morgan, Trustee, 62 Ohio St., 236, where the members of a partnership had incorporated for the purpose of continuing the business as a corporation, and had taken capital stock to correspond with the interests theretofore held in the partnership, transferring all the partnership property to the corporation, it was held that the debts of the partnership became the debts of the corporation, which was liable therefor. The opinion of the court in this case is instructive as illustrating how the law brushes aside the fiction of the legal entity, when no real change has taken place, and refuses to construe a transaction as a purchase where such construction would operate as a fraud upon the rights of creditors.

It is suggested in the brief of counsel for plaintiff in error that there could be no liability on the part of the new company to -plaintiff, because plaintiff was not a creditor of the engine company at the time its property was transferred to the new company. The obligation of the plaintiff to the Saco Brick Company arose at the time of the sale of the engine to it, and the obligation of the engine company arose at the same time by reason of its contract with plaintiff. Boies v. Johnson, 1 C. C. (N. S.), 451; Jones v. Leeds, 10 Ohio Dec., 173, and Herrick v. Wardwell, 58 Ohio St., 294, 309.

The fourth point claimed by plaintiff in error is that plaintiff made a conclusive election to hold the engine company alone for its debts, by proceeding against it, and that the action against the new company was therefore barred.

The party is required to elect only when two or more inconsistent remedial rights are given by the law upon the same state of facts. In Becker v. Walworth, 45 Ohio St., 169, the court, at page 173, used the following language:

“It may be said, as a deductoin from the authorities on the subject, that an election is the making of a choice between two or more benefits or rights which estops the party from after-wards denying that an election has been made, and from demanding some benefit or right other than the one chosen. Except in cases where his conduct has* been such as to mislead another party to his prejudice, the party having a right to elect must have proceeded upon the idea that he was bound to elect; he must have had knowledge of his obligation to elect as matter of law; there must have been a purpose to elect, and an actual election. And where the election is as to one of two or more remedies, in order to make a selection of one a bar to a pursuit of the other, it must appear that they are inconsistent, and that the one last sought is not merely cummulative. ’ ’

There is no claim whatever in this case that the new company has been misled to its prejudice by the conduct of plaintiff, which seems to have been the basis' of the decision in Bohanan v. Pope, 42 Me., 93, relied upon by plaintiff in error.

An election may be either as to the parties or as to the remedy. There can be no claim in this case that any election of parties has been had to the prejudice of the new company. Possibly such a question might have arisen as between the engine company and the plaintiff, the Saco Brick Company having an election as to which it might pursue — one being principal and the other agent- — but that certainly does not obtain as between plaintiff and the new company.

Plaintiff in error urges that it may claim a benefit because of an election as to remedy, in that the plaintiff undertook to reach the assets of the engine company for the purpose of securing satisfaction of its judgment. Clearly such claim can not be made where, as in this ease, the parties were brought into one suit and the prayer was in the alternative, and the court granting relief by way of money judgment dismissed out the parties by means of whom it was undertaken to reach the assets.

But it is useless here to discuss further the question of election, as the trial judge has gone fully into that question in the very able opinion rendered in this case, which meets with the approval of this court, and to which it is not necessary to make any addition.

As a fifth ground of error plaintiff in error challenges the jurisdiction of this in this proceeding in error, because plaintiff has seen fit by petition in error to undertake a review of the action of the trial court in dismissing the stockholders and directors.

So far as that proceeding in error is concerned, which is found as ease No. 1515 on the dockets of this court, it was a final judgment, and it was clearly within the right of plaintiff in error to obtain a review of the action of the court in that matter, and so far as any claims plaintiff might have against the stockholders and directors are concerned it was necessary to proceed without allowing lapse of time to prevent a review of that -portion of its ease; but such review could not in any way delay or prevent the continuance of the trial and a judgment against the new company. And the pendency of the error proceedings does not in any way interfere with the jurisdiction of this court in. this case.

The judgment of the court below is therefore affirmed.

Judgment affirmed.

Gorman and Hamilton, JJ., concur.


source: Caselaw Access Project

author: Houck, J.

license: Public Domain

text:
    VALIDITY OF THE PAY PATIENT LAW.
    Court of Appeals for Knox County.
    Clinton M. Rice, as Guardian of John W. Young, an Insane Person, v. The State of Ohio.
    Decided, December 18, 1918.

      Constitutional Law — Classification of Persons — Not Violative of Constitutional Provisions, When — Requirement that Patients in Hospitals for the Insane Pay for their Support when, Able so to do Not Unreasonable.

    1. The mere fact that a statute is based on a classification, and in effect applies to some persons and not to others, does not render it invalid, where it operates uniformly on all persons in the same class and under similar conditions.
    2. The General Assembly had full power and authority to enact what is known as the “pay-patient” law, applying to institutions for the care of the insane, and its enactment was purely a matter of public policy and peculiarly within the domain of the legislative branch of the government.

      B. B. Ferenbaugh and D. H. Hyatt, for plaintiff in error.

      Joseph McGee, Attorney General, Charles L. Bermont, Prosecuting Attorney, and L. D. Johnson, contra.
   Houck, J.

Heard on error.

Question: Is the “pay patient law” of Ohio constitutional? This action was brought in the court of common pleas of Knox county, Ohio, under favor of Sections 1815 to 1815-12, inclusive, of the General Code.

An answer was filed by the plaintiff in error, defendant below, which admitted the allegations of the petition, but set up the unconstitutionality of the law as a defense.

A general demurrer was interposed to this answer and the same was sustained.

An amended answer was then filed which contained three separate defenses. The first, after practically admitting all of the allegations of the petition, contained a general denial; the second setting up the defense that the ward was a pensioner, and that he had no means except what had been received as pension, and that plaintiff below was therefore unable to enforce the payment of its claim. The third defense set up the unconstitutionality of the law.

A general demurrer was then interposed to the second and third defenses of the amended answer and the same was sustained.

The case then went to trial to a jury upon the petition, the first defense in the amended answer, and the evidence, and after the evidence was adduced, the court directed the jury to return a verdict for the plaintiff below for the full amount of its claim, being the sum of $397.06, for one hundred and thirteen weeks’, support, at $3.10 per week, and interest thereon, furnished John W. Young, an insane person, at the State Hospital for the Insane, at Columbus, Ohio.

A motion for a new trial was filed and overruled, and exceptions noted.

Counsel for plaintiff in error seek to reverse the judgment in this ease upon the ground that the “pay patient law” is unconstitutional for the reason that it is in conflict with Section 26 of Article II, and Section i of Article VII, of the Constitution of Ohio.

The first is:

“All laws, of a general nature, shall have uniform operation throughout the state * * *.”

The second is:

“Institutions for the benefit of the insane, blind, deaf and dumb, shall always be fostered and supported by the state; and be subject to such regulations'as may be prescribed by the General Assembly.”

Do the requirements of this law operate uniformly throughout the state of Ohio? An examination of its provisions at once satisfies us that the answer must be, yes.

It will be conceded, we think, that the mere fact that a. statute is based on a classification, and in effect applies to certain persons to the exclusion of others, does not affect its validity, if it be so made that all persons subject to its terms are treated alike under like circumstances and' conditions.

We hold that legislation, which in effect carries ont a public purpose, and applies to a class or classes of unfortunate persons of our state, as the humane law now under consideration seeks to do, and which is limited in its application, if within the bounds of its operation it affects alike all persons similarly-situated, is not within the prohibition of Ohio’s Constitution.

It is necessary that such law must affect alike all persons in tlie same class and under similar conditions, the restriction being that the law must apply to all of a given class, and that individuals from such classes can not be excepted. It will be observed that individuals are not excepted from the provisions of the “pay patient law,” but it applies to all persons who come within the class of insane, blind, etc.

The rule here laid down is well settled in Ohio, and is found in the second syllabus of the case of Steele Co. v. Miller, 92 O. S., page 115, which reads:

“A statute is general and uniform,, within the requirements of the Constitution, if it operates equally upon every person and locality within the circumstances covered by the act, and when a classification has a reasonable basis it is not invalid merely because not made with exactness or because in practice it may result in some inequality.”

Testing the “pay patient law” by the provisions of Section 2 of Article VII of our Constitution, will it stand or fall ?

Counsel for plaintiff in error in their brief say:

“It would seem very clear that the Legislature derives its power from this provision of the Constitution to enact Section 1815, G-. C., because it is in accordance with its provisions, but it is entirely without power to create in the law such exceptions as are contained in the sections that follow.”

The admission made by learned counsel in the first part of the above statement is sound, but the latter part of same, in which it is claimed that subsequent sections of this law create exceptions making it unconstitutional, is not well taken. We reach this conclusion after a careful examination of all the sections of the act in question.

Counsel having conceded that this provision of the Constitution is not self-executing, and that in order to make it operative it was necessary for the Legislature to act, which it has done, and having done so with proper discretion and within constitutional bounds, the law is effective.

The constitution makers of our state acted wisely and humanely when.they provided for the fostering and support of institutions for the insane, blind, etc., and the Legislature of Ohio exemplified its humanitarian spirit when it passed the law now before us for consideration, and thereby provided for the maintenance, support and care of such unfortunate wards.

The necessity of having places for the restraint as well as for the care of insane persons will not be questioned. This is essential for all so afflicted, whether they be rich or poor. The state is bound to and does for the sake of society, the protection of the public, and for the personal welfare and safety of all such unfortunate persons, provide a place and suitable care for them, and our Legislature in its wisdom passed this “pay patient law” requiring such persons, if they have the means, and if not then certain of their relatives are required to pay for said support, an amount not to exceed $3.50 per week. To us this is not am unreasonable requirement, and where the patient is able to pay, in part, for his support in a public institution, as is clearly evident in the present case, we feel the Legislature acted within its right, and possessed full power and authority to make the law now before us, and that its enactment was purely a matter of policy, which was to be determined by the enacting body, and that it does not come within any inhibition of the Constitution of Ohio.

We are unable to find, in' law or sound morals, any reason why an insane person, if he possesses a sufficient amount of “this world’s goods” to do so, should not, at least in part, contribute to the cost of his support, while confined in a public insane hospital, which is fostered by the state, and whereby it is sought to restore him to reason and return him to his family and loved ones, thus enabling him to again take his former place in community life.

Are the tax payers of our state to be compelled to pay entirely for the support of such persons, and they be excused from contributing thereto, although amply able to do so? This would be in direct violation of what we hold the rule should be: that for one to become a proper subject to receive the benefits of public charity, he first must have reasonably exhausted all his own means for his support, and when this is done it clearly follows that such person, if he be insane, is entitled to care and support, while receiving treatment at a state hospital for the insane, and without legal claim that he should contribute to the expense of same.

It might be well to recall that every presumption is in favor of the validity of an act of the Legislature; and in determining as to whether or not a law is constitutional or unconstitutional, courts must and do presume in the beginning that it is constitutional. If the Constitution prescribes one rule, and the law another and different one, the law must and does fail, and should be declared void.

Courts also presume that the Legislature acted with integrity, using its best judgment, and with an honest purpose to keep within the restrictions and limitations prescribed by the Constitution.

Applying these rules to the case in hand the law now being attacked must stand.

The question for determination in the ease at bar is an important one, and so far as we have been able to learn this is the first time it has been presented to a court of appeals in this state, and owing to its importance and far-reaching effect upon the unfortunate wards of Ohio’s commonwealth, as well as every citizen within its confines, we have given it careful and laborious consideration, and it is the unanimous judgment of this court that the "pay patient law,” as it now stands in Ohio, is constitutional, and is not repugnant to or in any way in conflict with the Constitution of our state.

We have examined all of the claimed errors, as set forth in the petition of plaintiff in error, and find none of them well taken. It follows that the judgment of the common pleas court must be affirmed.

Judgment affirmed.

Powell, J., and Shields, J., concur.


author: Farr, J.

text:
    RIGHTS UNDER A DEFECTIVELY EXECUTED LEASE.
    Court of Appeals for Jefferson County.
    The Rex Amusement Company et al vs Thomas A. Nolan.
    Decided, May 25, 1918.

      Landlord and Tenant — Term of Lease — Restoration of Building.

    1. Where possession is taken under a defectively executed lease or a lease void 'for any reason, fixing the period of tenancy at oné or more years and the rentals are payable monthly, such lease creates a tenancy from month to month only.
    2. Where a building, formerly used for a store room or rooms, is leased for the -purpose of conducting a motion picture show, with the right and privilege of repairing and altering same vo suit the purposes of the lessee for a moving picture theatre, and it is further provided that at the expiration of the lease the premises shall be surrendered in as good condition as they were in at the beginning of the term and just before the alterations were made, the lessee, upon surrender or expiration of his lease-, is not required to restore the building to its former or original condition as a store room or rooms as it was at the beginning of his term; nor is he liable in damages for his failure so to do. He is only required by the terms of his contract to leave the building in as good condition as it was at the beginning of his term.

      Ralph B. Cohen and Dio Rogers for plaintiffs in error.

      Edward McKinley and E. Dewitt Ershine, contra.
   Farr, J.

On the 2d day of February, A. D. 1914, John Peters as agent for the Rex Amusement Company, entered into a lease or rental agreement in writing with Thomas A. añd Mary E. Nolan for the rental of a two story brick building located at the corner of Fourth and Main Streets in the village of Toronto, this county.

The lease provided among other things that the term should be five years, beginning on the first day of March, 1914, and ending on the 28th day of February, 1919, and the rent agreed to be paid was the sum of $2,100, payable fifteen dollars per month on the 1st day of each month during the first year of said term and forty dollars per month during the remainder of said term.

It is further provided in said lease that the premises should be surrendered to the lessor at the end of said term in as good condition as they were in at the beginning. It is conceded that the premises were leased for the purpose of conducting a motion picture show in the same, and it is provided with reference to alterations in the building, that the lessees should have “the right and privilege of repairing and altering same to suit the purposes of the lessees herein for a moving picture theater. ’ ’

The Rex Amusement Company soon thereafter took possession of the premises and made certain alterations in the building and such alterations consisted, among other things, in removing a partition for which iron beams were substituted, a stairway was removed, the floor altered by lowering it at one end and the entrance to the building was changed.

Nolan did not rent the second story of the building to the Amusement Company, in which there were living rooms occupied by himself and family. Later the state authorities notified the Amusement Company that a picture show could not be conducted in the first story of a building where there were living apartments over the same occupied as a dwelling, unless there were fireproof walls and ceilings separating same in such manner as to make the building safe and suitable for occupancy as such.

The record further discloses that Nolan and his family moved out of the second story of the building and were out of same for a period of some months while the alterations were being made, and it is claimed that during the time that he did not occupy the rooms the Rex Amusement Company had, by a verbal agreement, agreed to pay his rental in another dwelling house.

After the completion of the alterations or improvements, it is disclosed that Nolan with his family returned and occupied the rooms over the picture show, when the state authorities again notified the Amusement Company that the building could not be utilized for a picture show unless the family removed from the upper story thereof, or unless the building was further improved or altered so that the living rooms wpuld be safe for occupancy as such.

It is further disclosed that the Amusement Company closed its picture show in the building on the 24th day of April, 1917, and abandoned the premises, but paid the rentals before abandonment to the 1st day of May following. In December of 1917, Nolan began a suit in the Court of Common Pleas of this county; the petition contains four causes of action. In the first he seeks to recover the sum of $360 for the amount of rentals accrued and claimed to be due at the expiration of the term and for the interim between the date of surrender or abandonment and the expiration of the year.

l!n the second cause of action he sets out the alterations made in the building by the Amusement Company to prepare and make it suitable for their use as a motion picture theater, and asks to recover the sum of $979, which he alleges it will cost to restore the building to the same condition as store rooms as it was in before the alterations were made.

In the third cause of action he recites the order of the state authorities with reference to his removal from the living rooms over said picture show, and avers that by verbal agreement, the Amusement Company agreed to pay his rental in another building during the time the repairs or alterations were being made, and asks judgment in the sum of $120 as reimbursement for the rentals so paid by him, and in the fourth cause of action he asks to be compensated for the destruction or removal of a stairway leading from the first to second floor and says that the cost of restoring the same would be twenty-five dollars.

To this petition the Rex Amusement Company filed an answer, and answering plaintiff’s first cause of action, avers that it was required by an order of the state to close said picture show because Nolan, against its wish, moved back into the living rooms over the auditorium and that by no fault of its own, it was compelled to close its show and therefore denies all liability upon said cause of action for the remainder of the term from the time it surrendered possession until the expiration of the year.

For answer to the second cause of action, relating to the changes or alterations made in the building, it is averred that it made said changes and had a right so to do by the terms of its agreement, and it further avers that it left the premises in as good or bettter condition at the date of surrender than they were in at the time it took possession at the beginning of the term. And for answer to the third cause of action, it is averred that Nolan voluntarily agreed to remove from the rooms while the repairs were being made, and that it did not agree to reimburse him for the rentals which he paid for another dwelling house.

In answer to the fourth cause of action it is averred that the defendant knows nothing about the removal or destruction of the stairway and denies all liability. A cross-petition was filed and in it is alleged that the sum of $1,450 was expended in alterations, and $1,075 for picture show equipment, and by reason of the persistent occupancy of said living rooms by Nolan, defendant was compelled to close its picture show and in consequence suffered damage in the sum of $5,000 for which it asks judgment.

To this answer and cross-petition a reply was filed, denying the essential averments of the answer and the allegations of the cross-petition and the issues being joined, trial was had and judgment rendered, from which error is prosecuted here.

The issues here are therefore practically as follows:

First. Is Nolan entitled to recover from the Amusement Company for the rentals accruing between the date of abandonment of the premises and the expiration of the year?

Second. Is he entitled to recover the amount that would be required to place the building in the same condition as store rooms that it was in at the beginning of the term?

Third. Is Nolan entitled to recover for the rentals paid by him during his temporary absence from the living rooms; and

Fourth. Is the Amusement Company liable for the removal or destruction of the stairway?

However, there are possibly two principal issues which it is most important to determine here. First, it is assigned for error that the court erred in its charge as to the term of said lease and the amount of rentals that might be recovered thereunder.

It is conceded that the lease was for a term of five years; and that it was not acknowledged or recorded, and was therefore void. Richardson v. Bates, 8 O. S., page 257.

However, it is urged that since the parties went into possession under it, that it became effective as a lease from year to year. In support of that view B. & O. R. R. v. West, 57 O. S., 161, is cited. The first paragraph of the syllabus reads as follows:

“An entry under a lease for a term of years at an annual rent, void for any cause, and payment of rent under it, creates a tenancy from year to year upon the terms of the lease, except as to its duration.”

As above stated it is urged that in the instant case there was a tenancy from year to year, and therefore Nolan is entitled to recover for the remainder of the year from the date of surrender or the date to which rentals were paid. It must be conceded that when the Amusement Company went into possession under this void lease that it became a tenant, but the issue is, as to the term of the tenancy.

The last word spoken by the court of last resort in this jurisdiction upon this subject is Building Company v. Watt, 96 O. S., 75, and which is decisive of the issue here. The 7th paragraph of the syllabus reads as follows:

“Possession taken and rents paid under a defectively executed lease creates a tenancy from, year to year, or month to month, dependent upon the terms as to payment of rentals, and the lessor, by instituting an action for accrued rentals or for the purpose of ejecting the lessee for nonpayment of rentals, is not thereby estopped to question the validity of such lease.”

In the foregoing’it is not held differently from, but the rule is amplified somewhat, as stated in R. R. Company v. West; holding in Building Co. v. Watt that the term or period of tenancy created by entering into possession under a void lease is to be determined by the periods fixed for the payment of rentals.

The foregoing therefore determines the issue in the instant .case, because the lease provides that the amount of the rentals to be paid for the whole term shall be $2,100, payable fifteen dollars per month on the first day of each and every month during the first year and forty dollars per month during the balance of said term, commencing on the first day of March, 1915. Therefore the rentals were clearly and unmistakably payable monthly on the first day of each month, and the lessee having gone into possession, it created a tenancy from month to month. It is urged that the court erred in its instruction to the jury upon this issue, as follows: ■

“While the lease is not valid for a term of five years, it is in law effective and.binding for a period of one year, if the premises were occupied and used by the defendants.”

In view of the above ease of Building Company v. Watt, the conclusion must be that it was a tenancy from month to month and the trial court therefore erred in this instruction.

The next issue to be determined is, whether or not Nolan is entitled to recover the cost and expense of restoring his building to the same condition as store rooms as it was in before the alterations were made.

In that regard the lease provides that the lessee shall have the right to alter the building and make it suitable for the purposes of a moving picture theater. It is also provided that “at the expiration of this lease said premises shall be surrendered in as good condition as they now are in.”

Numerous cases were cited to the effect that where a lease provides that the premises shall be restored to the same condition as they were in at the beginning of the term, then the lessor is entitled to a restoration of the building as it was before any alterations were made. The cases, however, are not in full accord on that proposition. Some courts have gone far beyond and held that even though a lease provides that premises shall be restored to the same condition as before changes were made, the tenant is not obliged to restore them to the same condition but leave them in as good condition.

The case of McGregor v. Board of Education, 107 N. Y., 511, is somewhat helpful in determining this issue; the plaintiff leased to the board of education certain premises which had been occupied as a dwelling house and which were to be used for the purposes of a public school and the necessary alterations were made in the building, and by the agreement the lessee covenanted to make them and to surrender the premises at the expiration of the lease in the same condition as they were at the beginning of the term, reasonable use and wear thereof by the public school and damage by the elements only excepted. The lessee changed the dwelling into a school house by removing partitions, etc. It was, in fact, a dwelling house changed into a school house, and in the instant case a store room or rooms were changed into a moving picture theater. At the expiration of the lease it became a question as to whether or not the lessee should be required to restore the building to its former condition or as it was at the beginning of the term, and it is provided in the latter part of the syllabus as follows:

“Held, that defendant was not bound to restore the premises to their former condition as a dwelling house; but that the evidence showed other damages, and the question as to whether or not they resulted from a reasonable use of the premises for school purposes was one of fact, and a submission of the same to the jury was proper.”

The proposition of interest in the above ease is that the court held that the lessee was not bound to restore the premises to the same condition, that is, of a dwelling house, hut to place them in as good condition, though the lease provided that the premises be restored to the same condition.

Another case well in point is In re Milling Company, 175 Fed., 308, the syllabus of which provides as follows:

“Where, at the commencement of a lease for a term of years, the premises were changed from a loft and office buildi-ng to a factory, the expense of alterations necessarily to place them in their original condition after surrender on the tenant’s bankruptcy was not ‘repairs’ for which the landlord was entitled to claim under the lease, providing that the tenant shall make all inside repairs and alterations at his own expense.”

In this ease the lease provided that the tenant should take good care of the premises, make all inside repairs and alterations at his own expense and at the end of the term surrender said premises in good order or condition. The court refused to allow a claim based upon estimates for rebuilding that part of the premises which had been changed.

Well in point with the foregoing is the case of Perty v. Mott Iron Works Company by the Supreme Court of Mass., 93 N. E., 798. In this case the tenant was authorized under the provisions of the lease to make pex’-manent alteratioxis in the building to accommodate his business, to remove same at the end of term providing he left the premises in good repair; the tenant decided to surrender the building as it was, that is, with the alterations, axxd it is held in the first paragraph of the syllabus as follows:

“Whex’e trade fixtures, so constructed as to constitute an addition to the premises, were built by the lessee with the consent of the lessor and added nothing to the value of the premises, and their removal was necessary to let the premises to another lessee, the lessor could not recover from the lessee the cost of removal to adapt the prexnises to other uses, and the rent for the time required in doing the work, uxiless the lease gave the right. ’ ’

The foregoing is supported in principle by Pfister & Vogel Co. v. Fitzpatrick Shoe Company, 83 N. E., 878, so that the strong weight of authority is, that where substantial alterations and changes which become part of a building are made in or upon the premises and which are of substantial or permanent character and are made in pursuance of the provisions of the lease or with the consent of the landlord, no recovery can be had for the cost of restoring such premises, and the reason is obvious, because alterations of a permanent character would reasonably be presumed to remain as made, unless otherwise provided.

What is the situation here? N'olan entered into a contract by which he consented to the conversion of the building into a picture show auditorium. ITe lived in the second story of this property; he was, no doubt, about there much of the time and observed the progress of the changes and alterations being made and knew just what was being done. He made no complaint because he had agreed to it, and therefore had no reason to complain; he sold one of the windows which was eliminated by the alterations and received in consideration therefor the sum of $55; he stood by, at least consenting, during the progress of the work.

Now he seeks to recover for the restoration of this building to store rooms as it was before the changes were made, and in so doing asks to recover for the window which he-sold. It is not disputed that the premises were left in as good condition, possibly better, than they were in at the beginning of the term, but the lease is peculiar in its wording, and had the landlord intended to require the tenant to restore the premises to their former condition as store rooms, how easy it would have been to have so provided in the lease, but in making the same, the lessor was content to provide that they be placed in as “good” condition as they were at the beginning of the term, and the premises, so far as the record discloses, were left in as good, possibly better condition. Nolan’s conduct clearly indicates that he did not expect more, or that the premises were to be restored to their condition before the alterations were made.

It is urged that the court erred in its charge upon this proposition, as follows:

“Now, gentlemen, you will look to the evidence on this claim of the plaintiff and determine whether or not this property was in as good condition as it was at the time it was occupied by the defendants, and in considering this you should take into consideration all of the facts surrounding the parties at the túne this lease was entered into; the purpose for which the building was to be used; the purpose for which it was used before this time, and the purposes for which it would be available after this time.
“Was it in as good condition when they left it as it was when they went into possession of it; if you find from a preponderance of the evidence.that these store rooms were not in as good condition as they were when the defendants went into the occupation of them, then the plaintiff would be entitled to recover upon this second cause of action and the measure of his recovery would be the difference in the value of the property at the time he leased it to them, and the time at which they left it, or the amount of money that it would take to place it in the same condition.”

By the foregoing instruction the court practically left it to the jury, as a question of fact, to construe the above part of the contract or lease in question, whereas it was the duty of the court; therefore the instruction was erroneous; and as between landlord and tenant it is a well established principle of law that where a necessity for the construction of a lease arises that it must be construed most favorably to the lessee. 24th Cyc., 915 and note 70. 2 Kerr on Beal Property, Secs. 1110, 1242; 1 McAdam on Landlord and Tenant, p. 735.

Therefore resting this case upon the provisions of the lease, it must be held: first, that it was a tenancy from month to month, not from year to year, and Nolan can not recover the rentals from the date of surrender to the expiration of the year, and the instruction upon that issue was erroneous; second, that it was the duty of the court to construe the terms of said lease, concerning which an issue was' made; and third, that it was not the duty of the lessee to place the premises in the same condition as before the alterations were made, but in as good condition as at the beginning of said term. Nolan can not therefore recover for the restoration of the building to its original condition or as it was before the alterations were made, nor can there be a recovery for the removal of the stairway.

There are other assignments of error, which do not affect the substantial rights of plaintiff in error, and it is not therefore necessary to discuss them here. For errors in the charge and the reasons above given the judgment is reversed.

Pollock and Metcalfe, JJ., concur.

       Motion to require the Court of Appeals to certify its record in this case overruled by the Supreme Court, November, 19, 1918.


author: Jones, E. H., P. J.

text:
    ORDINARY CARE UNDER THE WORKMEN’S COMPENSATION LAW.
    Court of Appeals for Hamilton County.
    The American Chemical Co. v. Smith.
    Decided, February 5, 1917.

      Negligence — Test of Liability under the Workmen’s Compensation Act —Ordinary Care only Required of the Employer — Fellow Servant Rule — Two Allegations of Negligence with Evidence as to One of Them Only.

    1. While the workmen’s compensation act (102 O. L., 524) takes away the defenses of the fellow-servant rule, contributory negligence and assumption of risk, it does not enlarge the basis for recovery on the grounds of negligence beyond what existed at common law, and the employer is only required to exercise ordinary care under all the circumstances of the case.
    2. The only test of liability under such act is whether the employer exercised the degree of care that ordinary prudent persons are accustomed to exercise under the same or similar circumstances.
    3. Where a petition contains two allegations of negligence but no evidence is offered supporting one of the allegations, it is error to permit both questions to be submitted to the jury.

      Healy, Ferris (& McAvoy, for plaintiff in error.

      Litileford, James, Ballard <& Frost, contra.
    Error to Superior Court of Cincinnati.
   Jones, E. H., P. J.

This action was brought in the superior court of Cincinnati by-Robert H. Smith, as plaintiff, against The American Chemical Company, defendant, for damages on account of injuries sustained by the plaintiff while in the employ of the defendant.

The second amended petition, upon which the case was submitted to the jury, alleged that the defendant was a corporation, and that it “employs and did at the times hereinafer referred to employ more than five workmen as employes regularly in its said business and had not at the time of the injury complained of herein paid any premiums into the State Insurance Fund in accordance with the laws of the State of Ohio relating to the compensation of injured employes.”

Said second amended petition further alleged in substance that on December 4, 1913, the defendant was engaged in the business of manufacturing a chemical known as sal soda; that in the course of the manufacture of the said product it was necessary to carry it in iron pans of great weight, which had to be carried by two men from one portion of the cellar where it was stacked to another part of the cellar where it was dumped out; that by reason of the caustic properties of the sal soda the said pans had to be carried with hooks to protect the hands of the men; and that the floor of the cellar was very slippery with the liquid from the pans so that it was dangerous to stand upon it — particularly so as the floor was sloping. The amended petition then goes on to state that on the 4th day of December, 1913, the plaintiff was engaged with another man in carrying one of said pans, and that when they reached the point where the pan was to be dumped they undertook to fling the pan so that it would fall face downward upon the floor, as it was their duty to do; that defendant bad negligently allowed the floor to become unsafe and slippery; that defendant had negligently allowed the handle of the pan into which plaintiff had caught his hook to become bent, and the rivets by which said handle was attached to the pan to become insecure, so that, when the men undertook to fling said pan, the end of the pan which plaintiff held came loose from the hook and fell upon plaintiff's left foot, bruising and crushing the foot and the toes thereof; and that on account of the slippery condition of the floor, caused by the liquor from the pans, plaintiff was unable to maintain his footing, or to get a firm footing, so that the above described fall of the pan was caused partly because the handle was bent and the rivets insecure, as aforesaid, and partly because he could not maintain a proper footing. The plaintiff in said second amended petition then sums up the negligence charged, thus:

“The said injury was directly and proximately caused by the negligence of the defendant in permitting the said handle of the pan to become bent and said rivets to become insecure as aforesaid and furthermore in permitting the floor to become slippery and in requiring plaintiff to work with a defective and unsafe contrivance and in an unsafe place, and said injury was caused without any fault or negligence whatever on the part of the plaintiff.”

The answer to this second amended petition admitted that the defendant was a corporation, and that it had not on said date, nor at any time prior thereto, paid any premium into the state insurance fund; and denied each and every other allegation contained in the petition.

The issues thus raised were tried to a jury, the trial resulting in a verdict and judgment in favor of the plaintiff for $2,-500, which judgment the plaintiff in error here seeks to reverse.

The effect of the so-called Workmen’s Compensation Law upon the rights and duties of the parties to this action was a subject of controversy during the trial. The question was raised from time to time in various ways, but chiefly by requests for special instructions on the part of defendant, and objections thereto, and by exceptions on the part of the defendant to the general charge of the court.

It has been held in the case of Gerthung v. The Stambaugh-Thompson Co., 1 Ohio App., 176, as follows:

“1. The workmen’s compensation act, Section 1465-60, General Code (102 O. L., 529, Section 21-1), which provides that an employer of five or more workmen, who has not paid the premiums prescribed by said act, shall be liable in damages to any employe for injury caused by ‘the wrongful act, neglect dr default’ of such employer, his officers, agents or other employes, takes away the defenses of the fellow-servant rule, contributory negligence and assumption of risk, but does not enlarge the basis for recovery on the grounds of negligence beyond what existed at common law, and the employer is only required to exercise ordinary care under all the circumstances of the case.
“2. The only test of liability under such sections is whether the employer exercised the degree of care that ordinarily prudent persons are accustomed to exercise under the same or similar circumstances.”

It seems to us that there can be no doubt but that the court in the above ease correctly interpreted the language of the compensation law. It also appears that in the trial of this case the learned judge who presided recognized this as the law, and correctly charged the jury in clear and unequivocal terms, that the defendant by reason of its not having contributed to the state fund could not avail itself of the defenses of contributory negligence, felloAV servant or assumed risk. This being the correct vieAV of the law, the rulings of the court upon special instructions asked by the defendant were correct.

We have reached the conclusion, however, that the judgment in this case must be- reversed for want of evidence in support of one of the charges of negligence made in the second amended petition. It will be noted that this petition contains two allegations of negligence on the part of the defendant. They are briefly stated: first, the defective handle of the pan; and, second, the slippery condition of the floor caused by the liquid from the pans. The trial court permitted both of these questions to be submitted to the jury, and charged it fully upon the law with respect to each. We fail to find any evidence of want of ordinary care on the part of the defendant with respect to the condition of the floor or with respect to the cellar being an unsafe place to work. The evidence shows that the escape of the liquid from these pans by overflow and splashing Avas unavoidable, and that the only thing defendant could have done when the floor became wet was to have ceased the operation of the plant, or at least to have removed the workmen from the cellar until the floor became dry. In view of the lack of any real, apparent danger from the wet and slippery condition of the floor, it seems to us such action would be requiring the defendant to exercise ‘more than ordinary care; in fact it would be exacting a very extraordinary degree of care on his part.

A motion was made by defendant, at the close of plaintiff’s evidence, and also at the close of all the evidence, for an instructed verdict.

Evidence in support of the other allegation of negligence, viz., the defective condition of the handle, was properly submitted to the jury.

In our view of the case the motion that counsel for defendant should have made was one to withdraw from the consideration of the jury the question as to the unsafe and slippery condition of the floor. However, an exception was taken by the defendant to the general charge, in which, as said before, the court dwelt at length upon and submitted to the jury this issue with respect to which we find there was no evidence of actionable negligence.

In the view that the case was submitted to the jury we think the court below erred in refusing to give special instruction No. 9, requested by the defendant, as follows:

“I charge you as a matter of law that before the plaintiff can recover in this case he must show by a preponderance of the evidence either, first, that the handle of the pan in question was defective and that such defective condition was the proximate cause of the injuries sustained by plaintiff, or, second, that the floor of the cellar at the point where the plaintiff was walking when he claims to have received the injuries in question was in an unsafe condition and that said unsafe condition was the proximate cause of said injuries so sustained.”

Also that the court erred in refusing to propound to the jury special interrogatory No. 3, submitted by counsel for defendant, as follows:

“Did the defendant exercise ordinary care as to the condition of his cellar on the afternoon of December 4th, 1913, in view of the nature of the sal soda business which was being conducted therein?”

But as both the special charge and the interrogatory relate' in whole or in part to the condition of the floor, these errors become immaterial, and have no bearing upon the action of this court in reversing the case.

Interrogatory No. 1, submitted to the jury at the request of the• defendant, and the answer thereto, were as follows:

“Was that part of the defendant’s cellar where the plaintiff claims the pan fell on his foot a reasonably safe place to work on the afternoon of December 4th, 1913?”
Answer: “No.”

It follows, from what has already been said, that this answer is not supported by the evidence.

For the reason that the trial court erred in submitting to the jury the question as to negligence with respect to the cellar and the floor thereof, and for the further reason that substan- ■ tial justice was not done, the judgment will be reversed, and the cause remanded for a new trial.

Judgment reversed, and cause remanded.

Jones, Oliver B., and Gorman, JJ., concur.


author: Shields, J.

text:
    LIABILITY OF SURETY COMPANY TO MATERIALMAN.
    Court of Appeals for Stark County.
    American Fidelity Company v. Metropolitan Paving Brick Company et al.
    Decided, February Term, 1919.

      Sureties — Rule that Liability of shall be Fixed by the Most Strict Law— Not Applicable to Paid Sureties — Construction of Provision for Immediate Notice of Default — Where the Bond Runs for Benefit of Materialmen as well as Principal — ■Execution of Notes not Payment of Claim, When — Extension of Time of Payment not a Release of Surety.

    1. A provision in the bond of a surety company, covering a contract entered into by county commissioners for road work, that immediate written notice shall be given to the surety company of any known default on the part of the principal in said bond, does not contemplate that materialmen and laborers must give such notice as a prerequisite to the cringing of suit on their claims.
    2. The mere execution and delivery of promissory notes, in the absence of an agreement that the said notes are in settlement of the indebtedness which they represent, does not operate as payment or settlement of the claim or release the surety, nor does a reasonable extension of time for payment operate as a release of th¿ surety. .

      Lynch, Lay, Fimple & Lynch, W. S. Buff and C. B. McGlintock, for plaintiff in error.

      J. W. Craine, contra.
   Shields, J.

This was an action on a certain bond executed by the plaintiff in error as surety and others named therein as principals to the board of commissioners of Stark county, Ohio, to secure the faithful performance of a certain written contract entered into between said board of commissioners and said parties named therein as principals, for the improvement of what is known as the Canton-Cairo road by grading and paving said road and otherwise improving the same.

Said bond contained the following provision:

"Now, if the said party of the second part in the said foregoing agreement, shall well and truly execute all and singular the stipulations in said agreement by him to be executed, and shall pay all just and legal claims for labor performed upon and material furnished for the work specified in said agreement, then this obligation is to be void, otherwise to remain in full force and virtue in law, we agreeing and hereby consenting that this undertaking shall be for the use of any laborer or any person furnishing material, for a just claim, as aforesaid, as well as for the said county.”

That for the purpose of carrying out said contract said named principals in said bond purchased from the Metropolitan Paving Brick Company certain brick, used in making said improvement, amounting to the sum of $10,798.55, for which said sum with interest from February 1, 1916, judgment was prayed for.

After certain preliminary questions raised by motions and demurrer to said petition by the several defendants were disposed of, the American Fidelity Company filed its separate answer setting up two principal defenses:

First, that said surety company signed said bond as surety only; that long before the completion of said improvement, the purchase price of the brick furnished by said brick company became due and payable, and that if any default by said contractors in the payment of said brick existed, such default existed long prior to the payment by said board of commissioners of the several amounts thereafter accruing under the several estimates made to said contractors, and that said amounts were largely in excess of said brick company’s claim, all of which was known to said board of commissioners and its engineer, but unknown to the said surety company, and that notwithstanding the provisions of said contract and bond, neither said board of commissioners, nor its engineer, nor said brick company gave any notice to tbe said surety company of any default of tbe principals in said bond in the payment of said brick company’s said claim, but wholly failed to do so, and that by reason thereof said American Fidelity Company is and was thereby released and discharged as surety from any and all liability to the said brick company.
Secondly, that after the purchase price of said brick became due, without the knowledge or consent of the said surety company, said brick company agreed with the principals in said bond to extend the time of payment for the purchase price of said brick, and that on February 1, 1916, in consideration of the execution and delivery to said brick company of certain notes by the said J. B. Smith and J. C. Krabill did so extend the time for the payment of said brick for a definite time, which said notes were accepted by said brick company in full settlement of its said claim; that said Smith and Krabill afterward executed a chattel mortgage on certain property to secure the payment of said notes, and that suit was afterward instituted thereon. Further, that at the time the payment of said brick company’s said claim was so extended, said principals in said bond were each financially responsible and then had property available on execution sufficient to satisfy said brick company’s said claim, but that since said time their financial condition has materially changed and their property has become so encumbered as to render the same less available to execution, and that by reason of said wrongful extention of time the rights of said surety company have thereby been prejudiced and that said surety company became and was thereby discharged from all liability to said brick company under the conditions of said bond.

In an amendment to its said answer, said surety company set up that said brick company did not bring its action within one year from .the time of furnishing said brick pursuant to the provisions of Section 6974, General Code, which became effective September, 1915,

Separate answers were filed by tbe defendants, Wise and Garaux, and a joint answer by the defendants Smith and Krabill, in each of which the execution of notes of said Smith and Krabill to said brick company in settlement of said brick company’s said claim was averred, and the subsequent execution of a chattel mortgage by them to secure the payment of said notes.

A separate reply was filed to each of said answers by said brick company, denying in substance the allegations therein, inconsistent with the allegations of the petition, and in reply to the second defense of said surety company, said brick company admitted that at the time, of the filing of said answer an action was pending in said Stark county common pleas court on the part of said brick company to recover upon said promissory notes in cause known as No. 28264 therein, but that since the filing of said answer said cause has been dismissed.

With the issues thus made, a jury was waived and said cause was submitted to the court below, resulting in a judgment in favor of the brick company. By a petition in error filed in this court a reversal of said judgment is sought, principally upon the specifications of error in grounds designated as Nos. 6 and 7, and which in substance are as follows:

“No. 6. Because said court erred in failing to find that the provision contained in said bond requiring immediate written notice of any known default on the part of the principals in said bond was applicable to said brick company, and was a condition precedent to the right of said brick company to recover against the said surety company as surety on said bond; and that said court failed to find that the failure of said brick company to give such notice and to perform such precedent condition operated to release said surety company from all liability to said brick 'company, and was and is a bar to the right of said brick company to recover on said bond.
‘ ‘ No. 7. Because said court erred in failing to find that under the terms and conditions of said bond rendering the same available to material men, the duty devolved on said brick company to notify said surety company of any default known to it on. the part of the principals in said bond within a reasonable time; and also erred in failing to find that said surety company was released from any and all liability to said brick company on account of the latter named company’s failure to give such notice.”

It is fundamental that a surety ordinarily is held liable to the strict letter of his contract and that such contracts receive a strict construction by courts. While this is true of individual sureties, courts of equity recognize a distinction between a surety signing for another gratuitously as a mere accommodation and a surety company engaged in the business of furnishing bonds for profit, the latter not being accorded the same degree of protection as the former. This distinction is recognized by both the United States and state courts generally and, among others, the case of City of Topeka v. Federal Union Surety Company et al, 213 Federal Reporter, 958, may be cited where it was held:

“The general rule that a surety should be held only where his liability is fixed by the most strict law does not apply to a corporate surety, which is engaged in the business of becoming surety for premiums supposed to be based on the amount of the risk, but on the contrary, such contracts, are construed most strongly against the surety. ’ ’

And the court in its opinion on pag,e 962 in said case says:

“Generally the surety is a favorite of the law, and should be held only where his liability is fixed by the most strict law. That is to say, what is known as the rule of striotissimi juris applies. These rules have no application to a corporate surety which is engaged in the business of becoming surety for premiums which* are supposed to be based upon the amount of such risks. It is not in the position of a voluntary surety who signs his principal’s obligation. Upon the contrary, surety bonds are usually on forms prepared by the company, and in place of a strict construction in favor of such surety the instrument is construed most strongly against the surety. Contracts of such companies bear a distinct analogy to insurance, and are largely governed by the same rules in construction.”

Numerous cases are cited in the foregoing case both in the federal and state courts sustaining the same doctrine announced in said case. But while it is held that bonds so executed are not to be construed as an individual gratuitous surety, still the law clothes a. surety company with certain legal rights which if ignored by those for whose benefit its bond is given, it may be relieved from its obligation of suretyship. We are not prepared to say and do not say, that any violation of the provisions of such bond would relieve such surety company, but interpreting the contract embraced in the bond in the light of the ordinary rules of law, reference is had to a violation of its terms in some material matter affecting the substantial rights of the surety company. Here it is claimed on behalf of the plaintiff in error that the Metropolitan Paving Brick Company had knowledge of the provisions of the bond given for the protection of those furnishing material for said road improvement, and having such knowledge it was chargeable with notice of the stipulations it contained. Among other things, said bond contained the following:

“Provided, that said surety shall be notified in writing of any act on the part of the said principal, which shall involve a loss for which the said surety is liable hereunder, immediately after the occurrence of such act shall have come to the knowledge of the board of engineers of the obligee herein, and a registered letter mailed to the surety, at its local office at Canton, Ohio, shall be deemed sufficient notice within the meaning of this bond.
Provided further, that if the said principal shall fail to comply with the conditions of said contract to such an extent that the same shall be forfeited, then said surety shall have the right and privilege to assume said contract, and to either complete the same, or, by and with the previous consent of said board, sublet the same, whichever surety may elect to do, provided it is done in accordance with said contract.”

It was argued on behalf of the plaintiff in error that by the terms of the bond already referred to herein providing that immediate notice in writing should be given to said surety company of any default upon the part of the principals named therein is a condition precedent, and this condition not having been complied with, the surety company was thereby relieved of liability on said bond. As was held in the case of Traveler’s In surance Company v. Myers & Company, 62 O. S., 529, “immediate written notice in said stipulation (referring to an insurance contract) means written notice within a reasonable time under the circumstances of the case, and where the facts are not disputed what is a reasonable time is a question of law. ’ ’ Here it is conceded that the first notice of any default under the bond given by the brick company was more than a year after the completion and acceptance of the improvement by the said board of commissioners, and if the duty of giving such notice devolved upon the creditors of said contractors, it could scarcely be contended that notice given by the brick company was in contemplation of law given within a reasonable time. That the provision requiring such notice to be given is a material provision admits of no discussion, for it is not difficult to understand that a surety company’s liability may be lessened by prompt notification of a default on its indemnity bond. Counsel for plaintiff in error cite many adjudicated eases showing the materiality and necessity of notice when inserted in an indemnity bond, and when so inserted that the giving of such notice is’ a condition precedent to a recovery on such bond, while it is urged on behalf of said brick company that said cases do not meet the conditions of the case at bar and are therefore inapplicable. In short, it is insisted by said brick company that the bond here given was given to the said board of commissioners for and on behalf of Stark county, and not to the said brick company, and therefore if any notice was to be given the surety company of any default under said bond it was to be given by said board of commissioners or its engineer, and not by said brick company, which was not a party to said bond for said improvement. That said bond was given for the benefit of said Stark county and for laborers and materialmen is apparent, and the mere fact that there was no statute then in existence expressly authorizing provision to be made for their special benefit is of no moment. As was held in the case of American Surety Company v. Raeder, Assignee, 15 C. C., 47, 49, “the subject-matter of a contract was clearly within the jurisdiction of the board, and the contract one that the board had ample authority to make, independent of any express provisions of the statute.” Such jurisdiction and authority were exercised here and we know of no instance where such provision has not been enforced for the protection of those for whom made, when not burdened with other conditions. As stated, it is urged here that by ,ev§ry rule of construction the obligation to give notice to the surety company of any default under said bond is extended to the materialmen, who it is claimed acted through and adopted the county as their agent, thereby assuming the same relation and obligation to the bond as the county. As we read the evidence in the ease, while it was provided by the side-agreement between said brick company and said contractors that a copy of such agreement should be filed with said board of commissioners, it appears not to have been so filed, nor does it appear that any transaction was had at anytime during the construction of said improvement, or afterward, between said board of commissioners and said brick company whereby the claim of the latter was brought to the knowledge or attention of said board of commissioners. So far as the record shows, said board of commissioners had no knowledge whatever of the existence of such claim. It was argued that it was the duty of said brick company to have looked after its interests by presenting to and'filing its said claim with said board of commissioners before payment of the contract price for said improvement was made to said contractors, independent of any bond, on the ground that the policy of the law is to reward the vigilant creditor, but the rejoinder is made that the bond of the surety company was the continuing protection of said brick company until its said claim was barred by the statute of limitations, and moreover, that the surety company having given its bond for the faithful performance of the conditions thereof, it could not close its eyes and remain indifferent to its liability, relying on notice to be given by materialmen whom they couldn’t and didn’t know when the bond was signed. No express provision - is contained in said bond that notice shall be given by laborers or materialmen. If it was so intended, the inquiry is naturally suggested. Why was it not so designated in the bond ? if deemed necessary for its protection, the company had'the undoubted fight to insert such provision in the bond. Quoting from the brief of counsel for plaintiff in error— . .

“The surety company was under no obligation to enter into this bond for the protection of the county and the materialmen, and If it saw fit to do so it had a legal right to carry into the bond such conditions as it thought advisable for its protection. ’ ’

The provision mentioned expressly says “said surety shall be notified * * * immediately after the occurrence of such act shall have come to the knowledge of the board or engineer of the obligee herein.” We do not feel at liberty, aided by any rule of construction, to go outside of and read into this bond contract an interpretation which will restrict or extend the meaning of its provisions which appear clearly expressed therein. As applied to said contract, we are disposed to adopt the reasoning and apply the rule laid down by the Supreme Court in the case of Slingluff et al v. Weaver et al, 66 O. S., 621. Without further extending the discussion on this branch of the case, we are of the opinion that said bond does not contemplate that laborers or materialmen shall give the notice mentioned in said bond as a prerequisite to the bringing of suit on their claims.

Another ground of error alleged is that said brick company agreed to extend and did extend the time of payment of the purchase price of said brick for a definite time and for a consideration, without the knowledge and consent of the plaintiff in error, and to its prejudice. This allegation of error relates to the notes and chattel mortgage given by Smith and Krabill, two of the contractors, to the brick company, which it was claimed were accepted in settlement and payment of said brick company’s account. The record shows a marked conflict in the testimony given by these parties and that of A. P. Maurer, the sales-manager of the brick company, as to the circumstances under which said notes were given and why they were given. The former testified that they were given in settlement and payment of said brick company’s account, which was denied by Maurer, who further testified that they were given February 1, 1916, when the books of said company were balanced, and when the amount here sued on was found to be due said company from said contractors who executed said notes which were taken by said brick company not as payment of said account, but as security therefor, and that no credit was ever given them or entered on the ■books of said company for said notes. The trial court was clothed with the prerogative of a jury to determine the credibility of witnesses and the weight to be given to their testimony, and the judgment below would seem to indicate how said court viewed the testimony of these witnesses. However this may be, the suit brought on said notes was dismissed without prejudice before this suit was instituted. "We might here add that the mere giving of these notes, in the absence of an agreement that the same should be and were in settlement of said brick company’s account, would not operate as payment or satisfaction of said claim, nor would a reasonable extension of time, if given, necessarily operate to release a paid surety company. Guaranty Co. v. Pressed Brick Co., 191 U. S. 416; Standard Salt & Cement Co. v. National Surety Co., 134 Minn., 121, and numerous cases cited therein.

It was also argued that under the amended answer of the plaintiff in error in respect to the necessity of suit being brought within one year from the date of the delivery or furnishing of material, the provisions of the act referred to apply in this case to the material furnished by said brick company after September, 1915, when the provisions of said act became effective. It will be sufficient to say that the contract for the brick furnished by said brick company for this improvement appears to have been entered into a year or more before the passage of said act and therefore its provisions cannot be held to apply to this case.

As to the error assigned that “the findings and judgment of the court in said cause are not sustained by evidence and are clearly and manifestly against the weight of the evidence,” we need only say that the bill of exceptions together with the briefs of counsel have been read, examined and considered by us with no little care with reference to the issues herein, and while in some aspects of the case our first impressions have yielded to the result of subsequent investigation, we have reached the conclusion that under the evidence and the law, the judgment of the court of common pleas was right and should be affirmed. It is so ordered. Exceptions.

Houck and Patterson, JJ., concur.


author: Hamilton, J.

text:
    EMPLOYEE INJURED IN THE FALL OF AN ELEVATOR.
    Court of Appeals for Hamilton County.
    Jones v. The Ferger Grain Co.

    Decided, March 26, 1917.

      Negligence — Elevator Falls — Employee Injured — Application of the Res Ipsa Loquitur Doctrine — Effect of Enactment of Workmen’s Compensation Law.

    1. Prior to the enactment of the Workmen’s Compensation Law the res ipsa loquitur doctrine as a rule did not apply as between master and servant, but with the common-law defenses denied an employer and employe are placed in the position of strangers to each other, in so far as that rule is concerned.
    2. The breaking of an elevator rope when bearing a load, which, when in proper condition, it would have borne without breaking, is some evidence that the rope had become defective and is sufficient to require the submission of the case to the jury.
    3. Attempted explanations by the defendant of the breaking of the rope may be found by the jury to be unsatisfactory, and the jury may find for the plaintiff by applying the doctrine of res ipsa loquitur.

      B. F. Graziani and Thos. L. Michie, for plaintiff in error.

      John G. Hermann and Sherman T. McPherson, contra.

       Motion to require the Court of Appeals to certify its record in this ■ case overruled by the Supreme Court, July 3, 1917.

   Hamilton, J.

Error to the Court of Appeals for Hamilton county.

This cause comes into this court on a petition in error to the Superior Court of Cincinnati.

The plaintiff below in his amended petition alleges that the defendant is a corporation organized under the laws of Ohio, engaged in operating a grain elevator and storage room for grain, feed and other material of like character; that in March, 1912, he was employed by defendant -company as a common laborer to work in and about defendant’s place of business, and was so engaged until about October, 1913, -when the defendant ordered and directed the plaintiff to run and operate an elevator or lift, from the first floor to the third-floor in said elevator and storage building; and that pursuant to said orders and directions plaintiff ordered and ran said elevator or lift, and on the 26th day of December, 1913, while plaintiff was operating said elevator or lift, the rope operating the elevator or lift broke without notice or warning, causing the elevator to fall, carrying plaintiff with it, from the third floor to the first floor of the building, some eighty feet descent, causing serious and permanent injuries. The amended petition further states that said defendant corporation at and before the time of said injury employed five workmen regularly in the same business and had not paid into the state insurance fund the premium 'provided by the law known as the Workmen’s Compensation Law. The petition further alleges negligence on the part of defendant in not furnishing a safe place for plaintiff to work, with proper safeguards, and in furnishing unsafe appliances and attachments; that the rope was unfit for the purpose, and defective in certain respects. Other acts of negligence are alleged, but they are not necessary to the consideration of the question of error involved.

The defendant’s answer admits that it is a corporation engaged in the business of operating a grain elevator, etc., as stated in the amended petition. It further admits that the plaintiff was employed by it upon the 26th of December, 1913; admits the operation of the man-lift by the plaintiff, and the breaking of the rope, thereby causing said lift to fall as alleged in the petition. The answer also admits that at the time of the injury to plaintiff it employed more than five men regularly in the same business and in and about the same establishment, and that it had not paid into the state insurance fund any premium provided by the act of the general assembly of Ohio known as “The Workmen’s Compensation Law,” which act was in full force and effect at said time. The answer then denies the allegations of permanent injury to the extent of the injuries complained of; avers that the lift and all its appliances were in first-class condition and proper working order; and denies any negligence on the part of defendant, but alleges that the breaking of the rope was due to the carelessness of the plaintiff.

Plaintiff in his reply denies that said lift and all its appliances were in first-class condition; denies that the breaking of the rope which permitted the elevator to fall was caused by the carelessness and negligence of the plaintiff; and denies any act of negligence on the part of the plaintiff.

At the close of all the evidence the defendant moved to arrest the case from the jury, which motion the court granted, and the jury was instructed to return a verdict for the defendant, which was done; to which the plaintiff duly excepted. A motion for new trial was overruled, and judgment was entered accordingly.

Several grounds of error are stated in the petition in error, the first three of which relate wholly to the question of the instructed verdict, which is the ground chiefly urged for reversal of the judgment.

It is admitted by the pleadings that the Workmen’s .Compensation Law was in force at the time of the happening of the injury; that the defendant company employed more than five men regularly in the same business and had not paid into the state insurance fund the premium provided for in that law. It therefore follows that defendant can not avail itself of the defense of the “fellow servant” rule, the defense of “assumption of risk,” or the defense of “contributory negligence,” and the consideration of the questions involved must be had under this law.

The lift, or man-lift, was used in the defendant’s place of business for the purpose of carrying only one man, the employe of the defendant company, from the lower to the upper floors of the warehouse. The lift was operated by a hand rope, with the help of the weight attached to the rope which ran over a pulley at the top of the elevator shaft.-

.Prior to the enactment of the Workmen’s Compensation Law it must be conceded that the res ipsa loquitur doctrine as a rule did not apply as between master and servant, but, with the common-law defenses denied defendant, the employer and employe are placed in the position-of strangers to each other, in so far as that rule is concerned. The question then is: In the light of the Workmen’s Compensation Law does the res ipsa loquitur doctrine apply to the instant case?

The defendant relies mainly on the case of The Julian & Kokenge Co. v. Wm. Panter, decided by the Hamilton County Court of Appeals, reported in the Cincinnati Court Index under, date of January 14, 1914. In that case the question of error upon which reversal was had was the overruling by the lower court of a motion to make the petition more definite and certain by stating in what respect said staple which pulled out was insecurely and defectively fastened and in what respect the manner in which plaintiff was required to do said work was dangerous and unsafe. In determining that question the court followed the case of Egan v. N .Y. C. & St. L. Ry., 5 C. C., N. S., 482, which decision was rendered long prior to the passage of the Workmen’s Compensation Law and v'ould not be controlling in a case where this law is applicable; and while the reason in that case might well apply to the motion to make the petition more definite and certain, it would not obtain in applying the scintilla rule, applied with reference to Section 6243, General Code, and the Workmen’s Compensation Law.

An examination of the authorities leads us to the conclusion that the doctrine of res ipsa loquihor may well be applied to the case at bar.

In the case of Dahlen v. N. Y. Life Ins. Co., 109 Minn., 337, where the plaintiff was injured in defendant’s elevator, of which defendant had control, the court say, at page 340:

“It follows that, if the accident did occur by reason of the elevator not working properly while the plaintiff was operating it, without any fault on his part, proof of such fact would be sufficient prima facie to establish the negligence of the defendant.”

In Green v. Banta, 48 N. Y. Super. Ct., 156, affirmed 97 N. Y., 627, it was held that the fact that the scaffold gave way was prima facie evidence of negligence.

In Solarz v. Manhattan Ry. Co., 8 Misc. N. Y., 656, it was held that the unexplained breaking down of the scaffold made out a case sufficiently strong to go to the jury on the subject of negligence.

In the case of Golden v. Mannex, 214 Mass., 502, the second and third paragraphs of the syllabus are as follows:

“In an action for personal injuries caused by the breaking of a cable when it was bearing a load which, if it had been in proper condition, it would have borne under the circumstances without breaking, the mere fact that the cable broke is some evidence that it had become unsound.
“If, under the circumstances in evidence at the trial of an action for personal injuries caused by the breaking of a cable, the mere breaking of the cable is evidence that it had become unsound, the jury, although the plaintiff attempts to explain the cause of the breaking, may find such explanation to be unsatisfactory and still may find for the plaintiff by applying the doctrine of res ipsa loquitur.”

It is claimed by counsel for defendant in error that this last case cited should not apply, as it does not show that the hoist was operated by the plaintiff who was injured. This position is not tenable, as the defenses of assumed risk and contributory negligence are eliminated from the ease at bar.

The evidence in this case discloses that the plaintiff in the discharge of his duty as an employe of the defendant was going up in the man-lift, when, about at the third floor, on account of some unexplained cause, the lift rope broke, causing the lift to fall with plaintiff, resulting in the injuries complained of. Under the authorities above cited we are of the opinion that the very fact that the rope broke as it did was some evidence that it had become unsound, and was sufficient to go to the jury. It follows that the trial court erred in arresting the evidence from the jury and instructing a verdict for the defendant. ■

We do not think the witness W. R. Todd qualified as an expert on elevators or man-lifts of the kind in question, as he testified he had never seen but one of this character. No doubt he was an expert on passenger elevators and electric elevators, but we do not think that he was sufficiently familiar with the kind in question to properly qualify as an expert, and the objection to his testimony was properly sustained.

Judgment reversed, and cause remanded.

Jones, P. J., and Gorman, J., concur.