text:
    CONTRACT FOR. THE EXCLUSIVE SALE OF A PATENTED ARTICLE.
    [Circuit Court of Lucas County.]
    Thomas Van Tuyl v. Homer J. Young et al.

    Decided, October 19, 1901.

      Damages — Provision for a Liquidated Sum — Not as Penalty hut as Compensation Will he Enforced — Contract for Payment of, Royalties — Measure of Damages for Failure to Carry Out — Such Failure Does Not Work a Rescission.

    1. Where the measure of damages is provided for in the contract, and the damages are liquidated, and the sum to be paid is not in the nature of a penalty, but in the nature of a compensation agreed upon between the parties, it is the policy of the courts to uphold and enforce the agreement in that behalf.
    2. The failure of one of the parties, to a contract to perform his part does not operate ipso facto to work a cancellation. It may give to the party not in default a right to rescind, but that option is not a privilege of the one defaulting; and where the contract contains no condition upon which there shall be a forfeiture, but simply a provision for cancellation, some positive fact amounting to an absolute rescission and tender of the amount due, is necessary to terminate the contract.
    3. Under the contract in suit, granting the exclusive right to make and sell handle bars for bicycles, the measure of damages for its breach is the royalty upon the minimum production provided for in the contract, notwithstanding no handle bars were made or sold.

      Parker, J.; Haynes, J., and Hull, J., concur.

       Affirmed by the Supreme Court without report, March 8, 1904.

   In the court below the parties stood as they do here, Van Tuyl being plaintiff and Young and another being defendants. The action was brought upon a written contract and bond. The contract is not very long, and I will read it:

“This contract made and entered into this 16th day of September, 1898, by and between Thomas Van Tuyl, of Nicholas, Iowa, party of the first part, and H. J. Young, of Toledo, Ohio, party of the second part, witnesseth:
“That whereas the said H. J. Young is about to conduct an enterprise for the manufacture and sale of a certain patented bicycle handle bar, which patent was issued to the said Thomas Van Tuyl under date of May 10, 1898, and under the title of the “Van Tuyl Double Adjustable Bicycle Handle Bar,” whereby the said Thomas Van Tuyl (patentee) is to receive' as such patentee a royalty on each and every Van Tuyl adjustable bicycle handel bar so manufactured and sold by H. 91 Young, his successor or assigns, as hereinafter set out.
“The said Thomas Van Tuyl hereby awards to said H. J. Young, his successor or assigns, the sole and exclusive right to manufacture and sell the aforesaid patented handle bar, protected by letters patent to said Thomas Van Tuyl from the U. S. Patent Office granted May 10, 1898, and numbered 603,671, and all patented improvements on the said handle bar which the said Van Tuyl may hereafter invent or acquire for and in consideration of a royalty for the manufacture and sale of said handle bar as herein set out.
“The said H. J. Young, his successors, legal representatives or assigns, agrees in consideration for the sole and exclusive right and privilege to so manufacture and vend the said handle bar as above set out and described, to pay or cause to be paid the said Thomas Van Tuyl, his legal representatives or assigns, a royalty of ten cents on each and every handle bar for the first 10,000 so manufactured and sold; and a royalty of five cents thereafter on each and every handle bar in excess of 20,000 so manufactured and sold by the said H. J. Young, his successors and assigns. Said royalty to be due and payable on the first day of each and every month for all hanlle bars manufactured and sold the previous month.”

[It seems to us that the word “twenty” there is probably inserted through mistake; the word “ten” must have been intended. We could not otherwise reconcile the terms of the contract. However, it is not very material to the question we have submitted to us].

“The said H. J. Young, for himself, successors or assigns, further agrees hereby to manufacture and sell not less than 10.000 of aforesaid handle bars on or before the 1st day of September, 1899, and to manufacture and sell not less than 10.000 each succeeding year thereafter, or so long as said H. J. Young shall continue to so manufacture and sed said handle bars after the 1st day of September, 1899, or surrender and cancel this contract.
“The said Young, his legal representatives or assigns, hereby further agree to manufacture the first 1,000 handle bars before the 1st day of February, 1899, or cancel this contract, and whether manufactured or not to be liable to said Van Tuyl, his legal representatives or assigns, for the royalty of ten cents each upon said 1,000 handle bars.
“Said H. J. Young for the faithful performance of the above and foregoing conditions to be by him kept and performed, hereby further agrees to execute and deliver to the said Thomas Van Tuyl his good and sufficient bond in the sum of $1,000, signed by at least one resident freehold security, and approved by said Thomas Van Tuyl, which bond shall be holden until the 1st day of September, 1899. That each year thereafter from the date last above mentioned the said H. J. Young shall execute and deliver a like bond in the sum of $500, so long as he or his successors shall manufacture and sell said handle bar.
“It is further agreed by the said H. J. Young that should he desire to continue to so manufacture and sell said handle bars after the said 1st day of September, 1899, he shall give notice to the said -patentee at least thirty days prior to the 1st day of September, 1899, and a like notice each year thereafter, so long as the said H. J. Young shall continue in said manufacture and sale of said handle bars.
“It is further agreed by and between all parties hereto that the said Thomas Van Tuyl shall at all times have free and undisputed access to the books of said IT. J. Young, his successor or assigns, for the sole and only purpose of ascertaining the number of said handle bars so manufactured and sold.
“It is further understood and agreed that this contract shall be binding and in effect from and after the 16th day of September, 1898, on which date said H. J. Young shall sign this contract and furnish to said Van Tuyl a bond (which bond is hereby made a part .hereof in conformation with the above and foregoing conditions in the sum of $1,000 for the faithful performance of the same).
“This contract to be in duplicate and when properly signed and bond furnished, each party to have a copy of the contract and the same to be in full force and' effect thereafter.
“Signed in duplicate this 16th day of September, 1898. (Signed by the parties, and witnessed, and acknowledged before a notary public).”

And the bond reads:

“Know all men by these presents, that we, H. J. Young, as principal, and E. D. Hubbell, as surety, of the county of Lucas and state of Ohio, are held and firmly bound unto Thomas Van Tuyl in the penal sum of $1,000, for the payment of which and truly to be made we bind ourselves, our heirs, executors, administrators and assigns firmly by these presents.
“Sealed with our seal and dated this 16th day of September, 1898.
“The condition of the above obligation is such, that whereas, the above bound II. J. Young, of Toledo, Ohio, on the 16th day of September, 1898, entered into a contract with Thomas Van Tuyl, of Nicholas, Iowa, for the sole and exclusive right to manufacture and sell a certain patent handle bar known as the Van Tuyl Double Adjustable Bicycle Handle Bar, and protected by letters patent number 603,671 of the patent office of the U. S., and paying the said Van Tuyl a royalty on each and every handle bar manufactured and sold under said patent a certain specified royalty.
“Now, therefore, if the said H. J. Young shall do and perform all the stipulations and conditions of said contract to be by him kept and performed, then this obligation shall be null and void; otherwise to be and remain in full force and effect in law.
“Witness our hands and seals this 16th day of September, 1898.” It is duly executed.

In the court of common pleas the plaintiff recovered a judgment for $100, with interest from February 1, 1899. The prayer of the petition was for judgment for $1,000 and interest.

The plaintiff contended that the measure of damages for the default alleged was fixed by the contract at ten cents each upon 10,000 handle bars that should have been manufactured during the year, and that the damages, therefore, to which he was entitled amounted to $1,000. He filed a motion for a new trial upon the ground that the verdict was against the law and the evidence, i. e., that the award of damages was too small.

It appears from the bill of exceptions that the defendant, Young, did not enter upon the manufacture of these handle bars at all. He never manufactured any of them. Sometime in the fall of 1898 he began to correspond with the plaintiff with a view of effecting a rescission of the contract, but the terms of his proposal were not accepted by the plaintiff.

It is set forth in the bill of exceptions that—

“It is admitted by the plaintiff and the defendants that no handle bars were manufactured or sold by the defendants, Homer J. Young or Edward P. Hubbell, in pursuance of the contract hereto attached, marked plaintiff’s exhibits Nos. 1 and 2, and that no royalty was paid by the defendants to the plaintiff. ’ ’

There was no averment or evidence that the plaintiff had manufactured or sold any handle bars, or that anyone else for him had done so during the year. The plaintiff did not introduce any evidence of any damages that he had suffered by-reason of the failure of the defendants to manufacture and vend the handle bar, relying upon the terms of the contract as providing not only the measure of damages, but as liquidating the damages, stating the amonut definitely; that is to say the minimum amount that he would be entitled to recover.

A jury was waived in the court below, and the case was submitted to the judge, and it is evident from the amount of his award of damages- that he did not sustain the contention of the plaintiff in error, but that he regarded the provision in the contract that “The said Young, his legal representatives or assigns, hereby further agrees to manufacture the first 1,000 handle bars before February 1, 1899, or cancel this contract, and whether manufactured or not, to be liable to said Yan Tuyl, his legal representative or assigns, for the royalty of ten cents each upon said 1,000 handle bars,” as being the only provision which fixed the measure of damages in the event that the handle bars were not manufactured and sold, and as being the only provision for liquidated damages.

The question presented, it will be observed, turns entirely upon the construction to be placed upon this contract. We are unable to agree with tbe conclusions of tbe learned judge of tbe court below. We are of tbe opinion, looking at the whole contract, and reading it in the light of the purposes to be served by it, that the proper construction to be put upon it is, that if Young held on to the privileges thereby conferred upon him beyond February 1, 1899, that is to say, if he did not cancel and surrender the contract before that time. he would be bound to manufacture and sell and pay royalty upon 10,000 handle bars, or- if he did not manufacture and sell them, nevertheless to" pay a royalty for the year upon the 10,000 handle bars that he agreed to manufacture and sell during the year. If he manufactured and sold 10,000 handle bars, he would be required to pay the royalty of ten cents each thereon; if he manufactured and sold more than 10,000, he would be required to pay a royalty of ten cents each upon the 10,000, and a royalty of five cents each upon any in excess of 10,000, assuming that the word “twenty” to which I referred was inserted by mistake, and that it should read “ten.” We believe this is the true construction of the provision on the subject of royalties, in the light of other provisions of the contract, especially in the light of the provisions respecting the bond required.

It is apparent that if a distinct measure of damages had not been provided in the event of a failure to perform, by the manufacture and sale of the handle bars, it would be difficult, if not impossible, to arrive at a true and just measure of damages. It is also apparent that it would be important to the patentee, who conferred this exclusive right upon the manufacturer, that the handle bars should not only be manufactured and put upon the market, but that such number should be manufactured and put upon the market as would bring to him some reasonable return, in consideration of his having surrendered to the manufacturer the exclusive right to manufacture and vend for the period stated. It is apparent, too, from the correspondence itself, that it would nor have been feasible for the patentee to accept a surrender of this contract after the first day of February of any year, and then undertake to enter into a new arrangement, either for the manufacture and vending of the article himself, or with another manufacturer to do so, because the season after that would be so far advanced that it would be impracticable to place the handle bars upon the market during the season. And it seems to us, looking over the whole contract, that this contingency is provided for in the clause which I have just read. That seems to us to be a definite provision that the right of cancellation which is given to the manufacturer is limited, for the initial year, at least, to February 1, 1899. And we think that it should be and is the policy of the courts, where the measure of damages is provided for in the contract, where the damages are liquidated, where the sum to be paid is not in the nature of a penalty, but in the nature of a compensation agreed upon between the parties to uphold and enforce provisions of that character.

In the clause immediately preceding that which I have just read the matter of surrender and cancellation is mentioned, but in our judgment the cancellation there provided for has reference to other provisions of the contract for years subsequent to September 1, 1899; that is to say, if the defendant should not desire to manufacture during any succeeding year, and failed to renew the contract by giving the notice and bond provided for other years, that then he should surrender and cancel the contract. This does not say that the failure to give such notice and bond would necessarily operate as a cancellation of the contract. The contract, by its terms, is adequate for future years. It provides for other years succeeding September, 1899. And the patentee, Mr. Van Tuyl, might have waived the notice provided for in the contract, and might even have waived the bond provided for in the contract, and if the defendant had gone ahead and manufactured, VanTuyl would have had a right, notwithstanding the failure to give notice and bond, to consider and hold him as manufacturing under and in pursuance of this contract, and-to require him to pay the royalty provided for by the contract. It would not be within the power of the defendant to effect a cancellation or abrogation of this contract simply by failing to perform certain conditions of the contract imposed upon him.

It was contended in argument that since Young had failed to manufacture any handle bars, he had forfeited his rights under the contract; that the contract had ipso facto become inoperative; that it had been annulled with respect to all its provisions, excepting those as to the manufacture of 1,000 handle bars up to February 1, 1899. A right of cancellation was given to Mr. Young, but cancellation requires some positive act. A failure to perform the contract on the part of Young would not ipso facto operate to work cancellation. It might give to tho patentee, Mr. Yan Tuyl, not in default, a right to rescind and annul the contract; but that option would be in Mr. Yan Tuyl, and not in the party in default. In this respect the principle of forfeiture is similar and applicable; arid upon that head I read from a case that was cited in argument — Woodland Oil Co. v. Crawford, 55 Ohio St., 161. I read from the opinion by Judge Burket:

“This case arose upon an oil lease which contained a pro- ■ vision that—
“ ‘A failure on the part of U to complete such well or wells as above specified, or instead thereof to pay the rental as above provided, shall render-this lease and agreement null and void, together with all rights and claims, and not binding on either party, and not to be revived without the consent of both parties hereto in writing.’ ”

The lessee having failed to perform, either by the driving of the well or by paying rental, when he was called upon to respond in damages, answered that by the terms of the lease his failure to perform had abrogated the agreement. Judge Burket very tersely and emphatically disapproves of that proposition:

I read from pages 176 and 177:

“The principal contention in this case arises upon that part of the lease which provides that a test well should be drilled within one year, and in default, payment of a yearly rental of $128 for further delay, and a further provision that a failure to drill the test well, or pay the rental, should render the lease null and void, and not binding on either party, and not to be revived without the consent, in writing, of both parties.
“It was this provision that was relied upon in-the demurrer to the amended petition, and in the third general defense in the answer of the oil company.
“Reduced to its essence, this is a promise to in writing, upon sufficient consideration, to pay a yearly rental of $128 for the right to use, to a limited extent, certain premises, with a further provision in the samé instrument, that a failure to pay should discharge the debt; that a default of payment should be the equivalent of payment; that failure should be performance; that non-payment should be payment.
“Such contradictions in like instruments have caused the courts to look critically into such instruments to ascertain the real intention of the parties, because such contracts can not be enforced according to their letter. A promise to pay can not be fulfilled by a failure to pay. A promise to drill a well can not be satisfied by a failure to drill such well. The proper construction to be placed upon such an agreement is, that upon failure of the lessee to drill a well, or pay the rental, or both, as the- case may be, the lessor may elect to put an end to the lease, and enforce payment of the promised rental, or sue for damages for failure to drill the well, or he may elect to have the lease continue in force to the end of the term, and enforce the drilling of wells and the payment of rentals, as provided in the lease. Such provisions of forfeiture are for the benefit of the lessor, and not for the'benefit of the lessee. The lessee can not plead his own default or wrong in discharge of his obligation to drill or pay rental.”

The contract under consideration here has no such express provision, and, besides, it contains no condition upon which there shall be* a forfeiture, but simply a provision for a cancellation, which, as I have said, requires a positive act — something more than a mere failure to perform; and we think the principles enunciated in the case from which I have just read apply with full force to the case under consideration and to the argument advanced in support of the proposition that the failure to perform operated to cancel the agreement.

It is contended on behalf of the defendant in error that Young did exercise his right to cancel the agreement. It will be observed that it is very clearly and distinctly provided in the agreement that Young shall be liable for at least $100, whether he manufactures any handle bars or not. About that counsel make no question. As I have said, we hold that the provision as to cancellation was limited to February 1, 1899. There was some correspondence' upon the subject of putting an end to this agreement, and it is upon that correspondence that the defendant in error relies to show that the cancellation was effected. I need not read all of it. The first letter referring to the matter of putting an end to the contract is dated November 29, 1898. It reads:

“Mr. Thos. Van Tuyl,
“Nicholas, Iowa.
“Dear Sir: I write you to-day in regard to your double adjustable handle bar which has been absorbing my attention more or less for the past month, and at this time can not see my way clear to do you justice upon your bar for the coming season. Our Mr. Hubbell and myself had about concluded a deal whereby one of the largest jobbing houses in the bicycle sundry and fittings line would dispose of the output for us, but the deal, up to this time, has not been consummated, and they report to us that they have got more than they can do this season upon their' regular line. We are also in a similar condition ourselves with our own business here, and it is taking so much of our time and attention that it is impossible for us to do your handle bar justice. I therefore wish to state if you will kindly release me and Mr. Hubbell as my surety, in regard to contract entered into, I will surrender and deliver contract to you. I believe that this will certainly be to your advantage, because it will be necessary to do considerable preliminary work even for the coming year, and it will now enable you to prepare yourself in plenty of time for the retail trade for next season; and introducing a bar of this kind, it will be almost impossible to force it onto the manufacturer or jobber before you have done your preliminary work with the retailer. I therefore verily believe that you should take hold of it and put it on the market this season.
“I have regretted very much my inability to give it proper attention and was in hopes to tie up with some concern wfio would handle the output for this season and give it a name in the trade.
“Enclosed please find release of contract, which I would ask you to kindly sign and return, and will forward to you tools and bars now in our possession. I believe you will consider this the best thing to be done in the premises, and let the contract revert back to you. Therefore, if you will kindly send in your release, we will act very promptly.”

And in connection with that appears a release, which we understand is a copy of the one which went forward with the letter (though it contains the date of December 6, 1898), which reads:

“Mr. H. J. Young,
“Toledo, Ohio.
“Bear Sir: In consideration of your surrendering contract between us dated September 16, 1898, to me, for the control of U. S. letters patent No. 603,671, I hereby release you and your surety from all obligations thereunder.
“Very truly yours.”

That was to have been signed and returned by Mr. Van Tuyl. The answer that Mr. Van Tuyl made does not appear in the record, but it is apparent from other letters by Mr. Young and Mr. Hubbell that he did not accept this proposition. There is more correspondence along that line — more letters — before February 1, 1899, in which this proposition to rescind is repeated. Then on June 2, which was after the time, according to our construction of the contract, within which Mr. Young might have cancelled this contract and surrendered it, he writes as follows:

“Mr. Thos. Van Tuyl,
“Nicholas, Iowa.
“Bear Sir: Please take notice that on November 29, 1898, I did by letter cancel and surrender all my right, title and interest that I had or might have acquired in and to a certain contract, dated the 16th day of September, 1898, between you (Thomas Van Tuyl, Nicholas, Iowa) and myself (EL J. Young, of Toledo, Ohio), in regard to a patented adjustable handle bar; and I hereby again notify you that I do relinquish all my right, title and interest in and to above contract, and I hereby surrender my original copy of said contract, and send the same by mail to you to-day.
“Very truly yours,
H. J. Young.”

And accompanying that was his copy of the contract with the words “Canceled November 29, 1898,” written upon it. When that was written upon it does not appear, but according to our construction of these letters and these acts, the statement that he had, upon November 28, 1898, canceled the contract and surrendered his rights under it, was incorrect. He had simply proposed a rescission upon the terms that his obligation to pay $100 should be canceled and released — a proposition that Mr. Van Tuyl was not required to accept, and that he steadfastly refused to accept. We do not think that it would have been necessary for Mr. Young to have paid $100 as a condition precedent to exercising his right to cancel; but he might have canceled absolutely, if he had done so before February 1, 1899, and then Mr. Van Tuyl would have been compelled to enforce as best he could the obligation of Mr. Young and his bondsmen to pay $100. But Mr. Young did not attempt to exercise that right. He was seeking to save the $100 and to obtain a rescission of the contract by agreement with Mr. Van Tuyl. The situation was this: Up to the second of June Mr. Van Tuyl had declined to accept this proposition to rescind the contract and put an end to the rights conferred upon Mr. Young under this contract — the exclusive right to manufacture and vend was still 'in Mr. Young. Mr. Van Tuyl had no right, upon the mere submission of this proposition, or unless he accented it and released Mr. Young from the obligations under the contract to manufacture and vend handle bars, or to confer the right upon another. The exclusive right to make and vend the handle bars was in Mr. Young, and remained in him. Mr. Young said that he would relinquish it; that he would surrender the contract if the obligation to pay $100 were surrendered, and that proposal Mr. Van Tuyl declined. So that we are of the opinion that Mr. Young did not accomplish a cancellation; indeed, did not attempt to exercise the right to cancel the contract within the time that by its terms he might have done so.

Holding these views, and believing that the measure of damages applied by the court below was not correct, and that the motion for a new trial should have been granted upon the ground that the award was too small, the judgment of the court of common pleas will be reversed, and the cause remanded.

C. E. Longwell, for plaintiff in error.

B. F. Brough, Doyle & Lewis and C. A. Seiders, for defendant in error


source: Caselaw Access Project

license: Public Domain

text:
    CONVEYANCES.
    [Circuit Court of Lucas County.]
    William H. A. Read, Assignee, etc., v. Toledo Loan Co. et al.

    Decided, October 19, 1901.

      Conveyance — Instrument Witnessed and Acknowledged by Interested Parties — Acknowledgment Before a Notary a Ministerial Act— Grantor Estopped from Claiming Invalidity, When.

    1. A conveyance is not rendered invalid in Ohio by reason of the fact that the witnesses thereto and the notary who took the acknowledgment were interested parties to the extent of being stockholders in the grantee company.
    2. An attestation by a notary public is not a judicial but a ministerial act in this state.
    3. In view of the custom for the grantor to prepare his own deed, call the witnesses and acknowledge its execution before it passes into the possession of the grantee, he is -estopped from objecting to a witness in whom he has thus reposed confidence in the witnessing of his- own act.
    Hull, J.; Parker, J., and Haynes, J., concur.

       Affirmed by the Supreme Court (68 Ohio State, 280).

   This ease involves the question as to whether an interested party may witness a mortgage and also act as a notary publie in taking the acknowledgment of the grantor.

The action below was brought originally in the probate court by the assignee, by filing a petition to sell real estate, making the Toledo Loan Company and others parties defendant. The Toledo Loan Company filed its answer and cross-petition setting up a mortgage given by Cary D. Lindsay, the assignor. The assignee replied, denying the validity of that mortgage,. alleging that it had not been acknowledged or witnessed according to law. The mortgage was sustained in the probate court, and upon appeal a like judgment was entered in the common pleas court, and we have here a finding of facts by the court of common pleas. In paragraphs 4, 5 and 6 the finding of facts is this:

‘ ‘ 4. That prior to and upon February 19, 1896, said assignor, Cary D. Lindsay, was armember of said The Toledo Loan Co. and on the said date subscribed for ten shares of the capital stock of said company; that thereupon, on the representation of said Cary D. Lindsay to said company, and upon agreement between said Cary D. Lindsay and said company that said loan should become and be secured by a first lien upon said lots, numbers 116 and 117, in Shaw’s Monroe street addition to Toledo, Ohio, said The Toledo Loan Company, on February 19, 1896, loaned and advanced to said Cary D. Lindsay the sum of $4,800 of and from the moneys theretofore raised by said company for said purpose of loaning to its members, said Cary E>. Lindsay agreeing to repay said loan with interest in weekly installments, in accordance with the constitution and by-laws of said company; that in pursuance with said representation and agreement, and to secure the payment of said money so loaned, with interest, and simultaneously with the loaning thereof, said Cary D. Lindsay executed, acknowledged and delivered to said defendant, The Toledo Loan Company, his cer tain mortgage for said sum of $4,800 upon said lots, Nos. 116 and 117, in Shaw’s Monroe street addition aforesaid.
‘ ‘ 5. That said mortgage was executed by said Cary D. Lindsay in the presence of Eva M. Ely and Grant Williams, and was acknowledged by said Cary D. Lindsay before Grant Williams, a notary public within and for Lucas county, Ohio; that at the time of the execution and acknowledgment of said mortgage said Cary D. Lindsay was a stockholder in said The Toledo Loan Company, and Eva M. Ely and Grant Williams were each owners of two shares of the stock of said company, and said Eva M. Ely and Grant Williams were not otherwise related to said The Toledo Loan Company or in any wise employed by it; and said Cary D. Lindsay then knew that said witnesses and notary, respectively, were stockholders in said company.
“6. That Eva M. Ely and Grant Williams each testified upon the hearing of this case that they acted as witnesses and notary, respectively, of said mortgage, at the request of said Cary D. Lindsay, and Cary D. Lindsay testified that he did not request either of them to act as witnesses, and that he did not request Grant Williams to act as a notary.”

This last does not amount to a finding of fact as appears from its reading, but is a statement by the court of what the witnesses testified to. So that it appears that this mortgage given by Cary D. Lindsay to the loan company was witnessed by two persons, both of whom were stockholders to the amount of two shares in the loan company; that one of these- stockholders who acted as a witness also took Lindsay’s acknowledgment as a notary public.

It is claimed by the plaintiff in error that these persons were incompetent to act as witnesses, and that Williams was ineompetent, by reason of his interest, to act as a notary public in taking the acknowledgment.

The case was very fully argued, and a very large number of authorities collected by counsel 'on both sides and cited to the court — authorities not only from this state, but from nearly every state in the Union, bearing upon this question. The briefs were very full, and have been very helpful to the court. However, in this opinion we shall not be able to review or cite any great number of these authorities.

The statute with reference to this question in this state is Section 4106, Revised Statutes, which provides as follows:

“A * * * mortgage * * * of any estate or interest in real property shall be signed by the * * * mortgagor * * * and such signing shall be acknowledged by the * * * mortgagor * * * in the presence of two witnesses, who shall attest the signing and subscribe their names to the attestation, and such signing shall also be acknowledged by the * * * mortgagor * * * before a judge of a court of record in this state, or a clerk thereof, a county auditor, county surveyor, notary public, mayor or justice of the peace, who shall certify the acknowledgment on the same sheet on which the instrument is written or printed, and subscribe his name thereto.”

The question is whether, under the provisions of this statute, a person may act as a witness to a conveyance who is interested to the extent of being a stockholder in the grantee, and whether such person may act as a notary public in taking the acknowledgment.

A number of cases from other states were cited by counsel for plaintiff in error, where it has been held that persons can not act either as witnesses or notaries public, upon the ground of their interest in the transaction, in the conveyance, or the property itself. In some of those states, and perhaps nearly all of them, it is held by the courts that the act of a notary public in taking an acknowledgment is a judicial act, and the courts hold that under the rule that a judge may not act in his own case or in a case in which he is in any wise interested, a notary public, as he acts judicially, can not act in any matter in ■which he has any interest. It is the settled law of this state, however, under the decisions of our Supreme Court, that the action of a notary public, in taking an acknowledgment, is not ft judicial act, but a ministerial one, and manifestly, therefore, the reasoning of many of the decisions in other states is not applicable to the statute of this state.

It is to be observed from the reading of the statute itself that the witnesses are not required to be disinterested. The language of the statute is that it “shall be signed by the grantor, mortgagor, or lessor,” and “in the presence of two witnesses, who shall attest the signing, and subscribe their names to the attestation,” and then it further provides that such signing shall be acknowledged by the grantor, mortgagor, or lessor, before a notary public or some other officer named. The statute itself, then, does not provide that either the witnesses or the notary public shall be disinterested. There are statutes relating to notaries public which provide that they shall be disinterested in acting in certain matters, as in the taking of depositions, in which the statute provides that the notary public shall be some person who is not interested in the case.

So, then, the statute itself containing no express provision upon this subject, the question is, whether the policy of the law, or the law of this state, as established by the courts, requires the witnesses to a conveyance, or the notary public taking the acknowledgment to be disinterested persons. The purpose and object of witnesses to a mortgage or other conveyance, of course, is plain; that there may be on record in a matter as important as the conveyance of real estate the names of two persons, who certify that they saw the grantor sign the instrument, or heard him acknowledge the same. The purpose of the acknowledgment is to require a still further and more solemn attestation of his signature to the instrument, that he acknowledge it before an officer, who shall certify formally that he acknowledged the signature before him; all these provisions being for the purpose of the protection of titles, and of affording testimony and witnesses to the conveyance of real estate, which, in the times out of which this law grew, was regarded as a matter of great solemnity and importance.

In practice the grantor himself usually selects his own witnesses and the notary public before whom he desires to acknowledge his deed or mortgage. Until the mortgage has been signed, attested, and acknowledged, or the deed, if it be such a conveyance, it rests- in the hands of the grantor. It is still in his possession and under his control. 'By whom it shall be witnessed and before whom it shall be acknowledged is a matter, ordinarily, for him to determine.

In this case it does not appear from the statement of facts that the grantor requested these persons to act as witnesses or üotary public; it simply appears that he knew they were stockholders in the corporation. But in a ease where the grantor had in fact requested a person or persons to act as witnesses or as a notary public, knowing that such persons were interested parties, were interested in the conveyance, the grantor himself selecting his witnesses from choice, it would seem that under such circumstances he ought to be estopped from compJaining that the witnesses were interested, and therefore that his conveyance was invalid.

The question here is one of great importance, for if it be true that it invalidates a conveyance if a witness or the notary-public is interested in the conveyance, to the extent of being a stockholder, it might affect, and doubtless would, the titles of a great many pieces of property, and in many eases it would be impossible to determine from an examination of tbe records in the recorder’s office .whether a conveyance was valid or invalid, for it would not, in many cases, as in this case, appear upon the face of the instrument that either of the witnesses or the notary public was interested. In $iis case the grantee is The Toledo Loan Company. There is nothing in the record to show that either one of these witnesses has any interest in The Toledo Loan Company, or would be interested in a conveyance to the corporation. These persons sustain no relation to the company except that of stockholders. From that alone the plaintiff in error claims that the mortgage is void. His claim was well and succinctly stated in the brief of counsel, as follows:

“1. That inasmuch as Eva M. Ely and Grant Williams were both stockholders of the defendant company, the mortgage given to it by Cary D. Lindsay was never witnessed.
“2. That inasmuch as Grant Williams, the notary before whom said mortgage purports to have been acknowledged by Cary D. Lindsay, was a stockholder in said company, that said mortgage was never duly acknowledged.
“3. That never having been acknowledged and never having been witnessed as to its signature, said mortgage was not entitled to record, in Lucas county, and its recordation is a nullity.
“4. That the plaintiff holds the legal title to said real estate free from all incumbrances or liens growing out of said mortgage.”

This question has been discussed in some of the text books on the law of real estate, and some phases of it, at least, by cur own Supreme Court, and whatever the law may be in other states, we must follow the decisions of our Supreme Court. An early ease, in which the question of the qualification of a witness to a conveyance arose, is that of Johnson v. Turner, 7 Ohio (pt. 2), 216, where it is held that “A deed conveying lands is not to be impeached by showing that one of the subscribing witnesses is incompetent to testify.” We find this in the statement of facts in the case:

“In this case an agreed statement of facts is submitted on which the questions to be decided arise. Walter Turner was indebted to the Bank of Zanesville in the amount stated in the trust deed under which the plaintiffs claimed, and on the application of C. B. Goddard, Esq., the attorney for the bank, executed the deed which was prepared and signed by said Goddard, as one of the subscribing witnesses, he being a stockholder in the corporation.”

So that the facts in this ease are similar to the facts in the case before us; the witness, who was the attorney, was also a stockholder in the bank. The Supreme Court held that it did not affect the validity of the deed. They say on page 218:

“But is not this deed in conformity with the statute? This is admitted, in all respects, excepting that General Goddard was interested in the corporation for whose benefit it was made, when he subscribed it as a witness, and it was executed by Turner. If interested, however small that interest may be, the general rule of law excludes the witness from giving testimony. It distrusts him and declares him disqualified. But if it be necessary to sustain this deed, to call this subscribing witness, would the rule which excludes an interested witness apply? The party whose right it is to object on the ground of interest may waive that objection, and the witness is then competent. He may. call him himself, and he is competent; because if he testify for himself, who has the right to object? His evidence is against his own interest, and the more worthy of credence; and if called by the other side, whose claim it is his interest to support, and the objection of interest is waived, the law admits him to testify.”

The objection to Goddard, the witness in this case, seems to have been on the ground that he was an interested party and would not be competent to testify if necessary to call him in a court as a witness. That objection under the law as it is now would not be good. But the Supreme Court say on the same page, in discussing the ease:

“In England the grantee must prepare the conveyance and present it to the grantor for execution. We know of no such rule here. The grantor prepares his own deed. He calls his witnesses; they are selected by himself. He must then acknowledge its execution, and not until thus acknowledged does he part with its possession by a delivery to the grantee. Every act, therefore, is the act of the grantor while the deed remains in his possession, and the first act of the grantee is the acceptanee when finally delivered to him. The grantor, then, should not, it appears to us, be permitted to object to a witness selected by himself, and in whose intregity he had reposed confidence, to bear witness to his own acts. But aside from this course of reasoning is this deed invalid? The statute, Volume 31, 346, Section 1, requires the deed to be executed ‘in the presence of two witnesses, who shall attest such signing and sealing and and subscribe their names to such attestation.’ Unless the express provision of this statute, or its plain inference, lead to the conclusion that the witnesses to a deed must be credible and competent to prove its execution at the time of their attestation, and that such was the intention of the Legislature, reluctantly, indeed, would this court adopt such an opinion. If such be the law, it is time to look around us and ascertain by whom our deeds bear witness. Who ever instituted an inquiry when a witness was called to attest a deed, whether he was competent or incompetent to testify in a court of justice; or whether persons might not subsequently be found who would impeach him for the want of character for truth,” etc.

They say at the bottom of page 219:

“The counsel for the plaintiffs have furnished us with the case of Smith v. Chamberlin, 2 N. H., 440. The opinion is given by the Chief Justice, Richardson, and appears to us fully to sustain us in our opinion of the law of this case, as to the validity of the trust deed. The opinion is founded on a statute of New Hampshire, of February 10, 1791 (1 N. H. Laws, 191), which/contains this provision: ‘That all deeds or other conveyances of any lands, tenements, or hereditaments, lying in this state, signed and sealed by the party granting the same, having good and lawful authority thereunto, and signed by two or more witnesses, and acknowledged by such grantor or grantors before a justice of the peace, and recorded at length in the registry of deeds in the county where such lands,’ etc., ‘lie, shall be valid to pass the same without any other act or ceremony in law whatever. On this section of the statute the chief justice says: ‘In the clause now under consideration, there is nothing which indicates an intention in the Legislature to require that witnesses to a deed should be competent to prove its execution on redirect examination favorable to the plaintiff on this point at the time they subscribe it as witnesses. We have been much at a loss to conjecture why two witnesses were in this instance required by the statute. Surely they were not intended to be placed round a grantor for the same reasons they were placed round a testator. The most plausible conjecture is, that it was intended to render the proof of the instrument more certain. If this were the object, there is good reason to suppose that the word witness, was, in this instance, used in the simple sense of spectators of the transaction. A witness competent at the time might in one hour become incompetent; and a witness incompetent at the time might in one hour become competent. All that could be done with this view, by the Legislature, was to require that deeds should be executed in the presence of two or more persons who should put their names to the deeds as witnesses. It would have been idle to make the validity of the deed depend upon the ineompetency of the witnesses, at a time when they could not be wanted to prove the execution of the deed.’ ”

It seems to us that this decision of the Supreme Court settles the question for us, that a witness to a conveyance may be an interested person, and that although he may be interested to the extent of being a stockholder, this does not invalidate the deed. In 2 Jones Law of Real Prop., Section 1126, the author arrives at the conclusion that that is the general law of the land. And his conclusions as to the notary are, that if there is nothing on the face of the deed to notify purchasers that the notary is an interested person, it will not affect the validity of the deed; and he says:

“An interest under a deed not apparent on its face does not disqualify an officer to take and certify an ordinary acknowledgment. Thus, if he is one of the beneficiaries in a deed of trust, he may take the grantor’s acknowledgment, when his interest under the deed does not appear on the face of it. The fact that he acted as the agent of the mortgagor in obtaining the money does not disqualify him to take the mortgagor’s acknowledgment.
“The chief use of an acknowledgment, as already noticed, is to perfect the deed for record. The grantor can select such authorized officer before whom to acknowledge his deed-as he chooses. He may refuse to make his acknowledgment before an interested officer. Having voluntarily acknowledged the deed, the grantor is presumed to have voluntarily consented to its record.. If his deed is found on record, apparently executed according to the forms of law, and without any circumstances of suspicion against it, the plainest principle of equity would hold him estopped from setting up an undisclosed interest of the officer before whom he made his acknowledgment, to defeat his conveyance, as against an innocent purchaser relying upon the record as to the evidence of his title.”

These remarks will apply to a witness as well as a notary, and perhaps with more force.

In National Bank v. Conway, 17 Fed. Cas., 1202, it was held by the United States Circuit Court that the fact that the notary was interested would not invalidate a deed. Chief-Justice Waite, deciding this case, among other things, said:

“It has been frequently denied that an acknowledgment before a grantee named in a deed was of no effect. * * * It has also been held that a party interested in a deed can not take and certify the acknowledgment of a married woman requiring a privy examination. # * * The taking of such an acknowledgment is, in some respect, a judicial act, and not ministerial only, but in the case of an ordinary acknowledgment it is purely a ministerial act. * * * Upon this principle it was decided in Dussuane v. Burnett, 5 Ia., 95, that an acknowledgment before one not a grantee named in the deed, nut interested in the conveyance, was good. The same distinction was recognized in Stevens v. Hampton, before cited.”

And the chief-justice said further along in the opinion:

“The recording acts are intended for the security of titles and the prevention of frauds. They are to be construed liberally to that end. As the record, when made, is constructive notice to all having the legal right to rely upon it for protection, public policy requires that it shall import as near absolute verity as is consistent with a due regard to the rights of fhe parties interested. A deed acknowledged before one named as grantee, carries upon its face notice of that fact, or, what is equivalent, notice of circumstances sufficient to put a reasonable man upon inquiry. But when the name of the officer taking the acknowledgment does not appear as grantee, or as otherwise interested, no such notice or presumption accompanies the deed or its record. A certificate of acknowledgment is required to perfect a deed for record. The grantor can select such authorized officer for that purpose as he chooses. He has full power to protect himself against frauds by interested parties as certifying officers, for he may refuse to make his acknowledgment before them.”

Under the law of this state, as laid down by the Supreme Court, it is not clear that it would be held that the taking of an acknowledgment of a married woman was a judicial act. We aie of the opinion that it would not be. The comparatively recent caso of Amick v. Woodworth, 58 Ohio St., 86, decides that a grantee in , an instrument can not take the acknowledgment, and it is urged by counsel for plaintiff in error that this case modifies '/he decision (Johnson v. Turner, supra). The first paragraph of the syllabus is this:

“A grantee in an instrument for the conveyance or incumbrance of real property is disqualified, on grounds of public policy, to be an attesting witness to its execution, or to act in an official character in taking and certifying the acknowledgment of .the grantor.”

The court discusses the question fully in the opinion, ana on the ground of public policy holds that a grantee in an instrument is disqualified from taking an acknowledgment. The court argues, page 100, and it is clearly true, that to permit the grantee in an instrument to “attest as a witness the execution of an instrument made to himself, or take its acknowledgment as an •officer, where its attestation and acknowledgment are necessary to give it validity, would be against public policy and would practically defeat the real purpose of the law, which is to prevent the perpetration of frauds on the grantors, and afford reasonable assurance to those who deal with or on the faith of such instruments that they are genuine and represent bona fide transactions. ’ ’ They say on page 101 of the opinion:

“It is probably unnecessary to notice that this question was not involved in Johnson v. Turner, 7 Ohio (pt. 2), and that case is unaffected.”

So it seems to us that the Supreme Court intend here, and do expressly state, that the doctrine in Johnson v. Turner, supra, is not to be disturbed, and is not affected by this decision, which was rendered in 1898.

A case decided by the District Court of Mahoning County in 1881 is decidedly in point here. It is a very brief decision in Horton v. Columbian Building & Loan Co., 8 C. C., 169, heard before Judges Sherman, Myer and Woodbury, and is as follows:

‘ ‘ The plaintiff in error executed and delivered a mortgage to the defendant in error to secure a loan made by the society to him, one of its stockholders.

W. H. A. Read, for plaintiff in error.

King & Tracy, for defendant loan company.

“The mortgage was acknowledged before Owen O’Donnell, who at the time of taking the same was a stockholder in, and secretary and treasurer of the defendant in error, The Columbian Building & Loan Society, a corporation. In the suit in foreclosure brought by the society upon the mortgage, the defense was made that the mortgage was not properly executed for the reason that the notary public, 0 ’Donnell, being a stockholder and officer of the society, the mortgagee, occupied such a position as disqualified him from acting in his official capacity as notary.
“Held: That the official connection of O’Donnell with the society did not disqualify him from acting in his notarial capacity in taking the acknowledgment to the mortgage to the corporation of which he was an officer and stockholder.”

In that ease the facts were stronger than in the one at bar. The notary was not only a stockholder but an officer of the corporation. This decision, through brief, is to the point, and it is significant that it has stood in this state now for twenty years without criticism, so far as we know by the Supreme Court or any other court of the state. The court which decided the case was composed of able judges, and their decision is entitled to great respect, and we give it such respect.

In this state the act of the notary is not judicial, but ministerial, and it seems to us, both upon reason and authority, that it is not sufficient to invalidate a conveyance in Ohio that the witnesses or the notary are stockholders in a corporation to which the conveyance is made. To hold that this was sufficient would unsettle titles, and as the Supreme Court say in Johnson v. Turner, supra,, we might well examine our conveyances, and look about us to see who were the witnesses that had attested them. We think there is every reason to hold against that claim for the purpose of security of titles. And the decisions of the courts of this state, as we understand them, are against the contention of the plaintiff in error.

For these reasons the judgment of the court of common pleas will be affirmed.


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    FIRE INSURANCE.
    [Circuit Court of Lorain County.]
    Manchester Fire Insurance Co. v. Henry A. Plato et al.

    Decided, October 10, 1901.

      Insurance — Authority of Agent — Policy Written hut Not Delivered or Premium Paid When Fire Occurred — Provision for Five Days’ Notice Before Cancellation — Question of Cancellation.

    1. Where the agent of several insurance companies is solicited to place a policy for a given amount on a specified piece of property, and replies that he will do so, and thereafter writes a policy on the property in one of his companies, and the building is a few days later destroyed by fire, the company in which the policy was written is liable thereon, notwithstanding the policy had not been delivered nor the premium paid, there being no claim that the policy was not delivered because of failure to pay the premium.
    2. The writing of the policy by the agent before submitting the risk to the home office bound the company, and a finding by the jury that five days’ notice of the cancellation of the policy was not given as required by its terms will not be set aside, where the testimony as to notice was directly contradictory.
    Marvin, J.; Caldwell, J., and Hale, J., concur.
    Heard on error.

       Affirmed by the Supreme Court without report, April 27, 1903.

   In tbe case of tbe Manchester Fire Association against Henry A. Plato and John E. Plato, .the defendants in error were the owners of a store building in North Amherst in this* country. On October 13, 1900, one H. N. Steele, who was acting for the Platos, as their agent in the premises, had a conversation by telephone with Mr. R. W. Pomeroy about the insurance of their property. Pomeroy was the agent of a number of fire insurance companies, including the plaintiff in error. Steele asked him to insure the property. Steele and Pomeroy are at issue as to just what was said in this conversation.

Steele’s testimony in regard to it is this:

“I asked Mr. Pomeroy over the phone if he would place $500 insurance on the H. A. and J. E. Plato store building, lot No. 48, rate two per cent., and to begin that day, and he said he would.”

Pomeroy’s testimony on the subject is this:

“He called me up and wanted to know if I could place $500 on Plato Brothers’ store building, he called it. I told him I did not know whether I could or not, but I would try.”

Then this question was asked: “Did you tell him that you would place or carry $500 on that?”

Answer. “Not positively; no, I did not.”

As the result of that conversation Mr. Pomeroy thereafter wrote out a policy for the Platos for $500 in the German Insurance Company, of Freeport, 111., of which he was the agent. In reference to this policy Pomeroy was asked this question upon the trial: “And what did you do with that policy?” Answer. “It was canceled; it was returned to the company.” Question, “Was it ever sent to Platos or Steele?” Answer. “No, sir never went out of the office. ’ ’ After this was done, Pomeroy testified as follows: Question. “Well, after that was canceled and returned, what did you do then?” Answer. “I wrote a policy in the Manchester. ’ ’ This latter policy was dated on October 16, 1900, and is made a part of the bill of exceptions.

There is no question as to the authority of Pomeroy to write and issue this policy and thereby bind the company by its terms.

The building named in the policy was totally destroyed by fire on December 26, 1900, and the owners made proper proofs of loss, so if the policy was in force at the time of the fire they were entitled to recover from the company the amount of the indemnity named therein, to-wit, $500.

The company denied liability and suit was brought against it by the Platos on the policy, and judgment obtained against, the company, to reverse which this proceeding in error is prosecuted.

On the part of the company it is urged that the company was never bound by the policy. The policy remained in the office of Pomeroy until it was sent by him to the insurance company as hereinafter mentioned. Neither the Platos or Steele paid the premium on the policy, nor was such premium tendered to the company or its agent until after the destruction of the insured property, when Steele made tender of the proper amount, acceptance of which was refused by Pomeroy.

It appears there had been a course of dealing extending over a period of several years between Steele and Pomeroy, by which Steele, who was himself the agent of one or more insurance companies at North Amherst, would have Pomeory issue policies to his customers when he could not in his own company carry the insurance, and then later a settlement would be had between Steele and Pomeroy, at which Steele would pay Pomeroy on such policies as he had written for Steele’s customers. This being true, the fact of non-payment of premiums alone ought not to prevent the insured from recovery especially when no claim is made that Pomeroy retained the policy on account of such non- i payment.

If Pomeroy had the conversation with Steele as he says he did, and in pursuance of what was then said wrote ‘this policy and reported it to his company he bound the company by its terms. See Machine Co. v. Insurance Co., 50 Ohio St., 549; see also New York Life Ins. Co. v. Babcock, 30 S. E. Rep., 273 (104 Ga., 67). This last was a life insurance case. The application was made to the agent, and by him forwarded to the company; the premium was paid at the time the application was left with the agent, the company accepted the risk and issued the policy and sent it to its agent. It remained in his hands until after the death of the assured. The court held that the company had bound itself.

It is true the premium there was paid. But what has already been said disposes of what we think as to the premium in this case. In that ease the application had been sent to the company, because in life insurance the policies are not binding until the company has approved of the application; indeed the policies are not issued except as the company approves the application.

In this case the policy itself shows that Pomeroy was authorized to issue the policy, and it became valid upon the signature of the agent, providing, of course, the other things necessary to make it a contract took place. The fact that the policy had not been delivered to the assured in the case to which attention is called in New York Life Ins. Co. v. Babcock, supra, cuts no figure in the decision. The court held the policy remaining in the hands of the agent did not affect the question of whether the contract of insurance was binding upon the company. To the same effect is the text of 16 Am. & Eng. Enc. Law (2d Ed.), 855, and the authorities there cited.

It is urged on the part of the insurance company that Pomeroy did not promise Steele he would insure this property in one of his companies; but only that he would try to insure it. Pomeroy, who had full authority to bind the company by issuing the policy, immediately wrote a policy in the German company which he canceled, as he says, by order of the company. The very fact of cancellation is evidence that in that company at least there was a contract by which until canceled it was bound.

In Insurance Co. v. Maguire, 51 Ills., 347, this language is used: “The very fact of an attempt at cancellation is an admission there was a policy capable of being canceled.”

Upon the cancellation of this policy in the Freeport company, without any further conversation or communication with the assured or their agent, Pomeroy wrote the insurance involved in the present action. The policy provides for a cancellation by the company upon a five days’ notice. If this was not to take effect until Pomeroy should hear from the home office, why did he write it; why not submit the question of whether the company would carry the risk to the home office before writing the policy 1 This question in substance was asked in various forms of Mr. Pomeroy, and no satisfactory answer was given. It seems clear the policy was written upon the understanding that the company should be bound by it until it should be canceled, which could be done upon five days’ notice to the assured.

When this policy was reported by Pomeroy to the home office, the company notified him the company would not carry the risk at the rate stipulated, and he thereafter sent the policy to the home office; just how soon does not appear. And Mr. Pomeroy says he notified Steele that the company would not carry the risk, and he gives the conversation in which he says he gave this notice. Steele denies this. They are distinctly at issue about it.

If, as has been already stated, the company became bound by the terms of the policy, then it remained in force until canceled and notice of. such cancellation must have been given to the assured, and the notice must have been at least five days before the policy ceased to be valid.

E. G. Johnson and F. M. Stevens, for plaintiff in error.

H. G. Redington and Webber & Metcalf, for defendant in error.

The burden was upon the company to show that there had been such cancellation, if the policy was ever binding.

The jury must have found that no such notice was served upon the assured, and under the law as given by the court, none upon Steele. As to whether notice to Steele would have been sufficient it is unnecessary to discuss.

Attention is called to the case of White v. Ins. Co., 95 Fed. Rep., 161, upon the question as to whether notice to an insurance broker who effected the insurance is sufficient notice to bind the assured. But whether that be so or not, we are not satisfied that the jury were wrong in finding that no .notice was served upon either the assured or upon Steele of the cancellation of the policy; that being so that no notice was served, the policy remained in force and it entitled the assured to recover as it did recover in this case. We are not prepared to say the jury found wrong on that fact, and hence the judgment is affirmed.


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    PRISONER INJURED IN WORK HOUSE.
    [Circuit Court of Muskingum County.]
    Robert Green v. Commissioners of Muskingum Co. et al.
    Decided, October Term, 1901.

      Negligence — Resulting in Injury to a Worlc House Prisoner — No Liability Attaches to Municipality — Governmental Powers of Municipality.

    No liability can attach to a municipal corporation on account of an injury to a work house prisoner, resulting while operating by compulsion a machine alleged to have been defective.
    Norris, J., Day, J., and Mooney, J., of the third circuit, sitting in place of Douglass, J., Voorhees, J., and Donahue, J., of the fifth circuit; opinion by Day, J.
   The plaintiff disclaims any right of action against the county commissioners, who were made parties under the impression that they were liable, and the case, so far as that board is concerned, is dismissed.

The petition avers that plaintiff is a minor and brings this action by his nest friend, who says, in substance, that the city of Zanesville and Muskingum county, jointly, own and conduct a workhouse at Zanesville, where persons convicted of offenses against the ordinances of the city, or the statutes of the state of Ohio, are confined at hard labor, on sentence of a competent court; that on January 20, 1900, the minor plaintiff was confined in this workhouse on an order of commitment from the mayor’s court' of said city, and he was required by the officers and employes of said workhouse, in charge thereof, to labor in a broom factory operated therein, and was required to work at a machine which he was not physically able to operate in safety; that the machine was defectively constructed, all of which the city authorities knew; that on said January 20 the plaintiff, while so employed, under compulsion of the defendant city, through its officers and agents in charge of said machine and works, because of his physical weakness and the negligence and failure of the defendants to furnish proper machinery, and because of their negligence in furnishing said defective machinery and permitting it to remain out of repair, without fault on his part, the plaintiff got caught in said machine and was seriously injured in his person, to his damage in the sum of $5,000, for which he prays judgment against the city.

The lower court sustained a demurrer to the petition, and plaintiff, not desiring to amend his petition or further plead, the petition was dismissed at the cost of plaintiff. Plaintiff prosecutes error and seeks a reversal of the judgment and judgment overruling the demurrer to the petition.

But a single question is presented: Does the petition state a cause of action in the plaintiff’s favor and against the city of Zanesville ? ->

The petition, possibly, states a ease against the persons whose active and affirmative acts and conduct were so negligent as to directly and proximately occasion plaintiff a serious injury without any fault of his own, but it is not believed that it states a cause of action entitling him to relief against the municipal corporation, the city of Zanesville, while the city, as we think clearly appears, was in the discharge of a wholly governmental duty as the duly constituted agency of the great public, the state of Ohio, and concerning which the city has no liability. It can not be doubted that the power conferred on municipalities, to preserve the peace and protect persons and property by the arrest of offenders and their commitment and detention in jails and workhouses, is of a public or governmental nature, in which the sovereign state exercises its functions through the agency of the municipality. In such case the non-liability of the municipality rests upon the same reason as does that of the sovereign exercising like powers.

In Western College v. Cleveland, 12 Ohio St., 375, 377, Judge Gholson says that—

“There is a distinction between those powers delegated to municipal corporations to preserve the peace and protect persons and property, whether to be exercised by legislation or the appointment of proper officers, and those powers and privileges which are to be exercised for .the improvement of the territory comprised within the limits of the corporation, and its adaptation to the purposes of residence or business. As to the first, the municipal corporation represents the state — discharging duties incumbent on the state; as to the second, the municipal corporation represents the pecuniary and proprietary interests of individuals. As to the first responsibility for acts done, or omitted, is governed by the same rule of responsibility which applies to like delegations of power; as to the secdnd, the rules which govern the responsibility of individuals are properly applicable.”

McHenry & O’Neal, for plaintiff in error.

C. C. Lemert, for defendants in error.

This language of Judge Gholson is quoted with-approval in Frederick v. Columbus, 58 Ohio St., 538, 546, 547, and in this last named case, the court, through Judge Minshall, p. 548, quotes from a similar decision of Hayes v. Oshkosh, 33 Wis., 314, and says:

“The decision is fully supported by the authorities and the decisions in the other states of the Union. There is, in fact, a remarkable unanimity on the subject.”

We think the lower court did well to sustain the demurrer and dismiss the petition, and we affirm its judgment with costs but without penalty. There will be a judgment for costs, execution is awarded, and cause remanded for execution.


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    PREFERENCES UNDER THE OLD LAW.
    [Circuit Court of Huron County.]
    First National Bank v. H. G. Leise et al.
    Decided, 1901.

      Chattel Mortgages — Executed Prior to the Cohen Law, and on the Eve of Assignment■ — Mortgagees Could Legally Take Possession of the Property — Notes Discounted in Bank — Not Extinguished by New One Day Notes Secured by Mortgage, When.

    1. Chattel mortgages given to- secure bona fide debts- were not invalid under Section 6343 prior to its amendment (93 O. L., 290), and did not constitute the agent of the mortgagees, who took possession of the property, a trustee for the benefit of all the creditors.
    2. The making of new one day notes, secured by mortgage on the maker’s stock of goods, to- take the place of former unpaid notes to the same payees, which had been discounted in hank and which the payees promised to return to the debtor, did not extinguish the indebtedness, and gave under the mortgage no advantage to other creditors than the payees.
    Haynes, J.; Mooney, J., and Hull, J., concur.
    This action was brought here by appeal from the court of common pleas. Action was brought in that court for the purpose of setting aside certain transfers of property and to declare a trust for the benefit of all creditors under Section 6343, Revised Statutes, and extending under Section 6344. The proper issues were made up from the pleadings and the case has been heard upon the evidence, and upon the argument of counsel.
   Briefly, it appears that J. L. Hudson, prior to 1894, or about that time, had been carrying on the business in this city of selling ready-made clothing, and about that time he desired to withdraw from the business here. Mr. Leise had been in his employ for some time, here and at Detroit, and knew him well and he desired to purchase the goods and remain here and carry on the business; and such negotiations were had that Hudson sold out to him for something like $2,200 and took notes for that amount payable at a future time, but with a separate arrangement in writing between the parties that Leise might pay $75 per month until the amounts were paid.

Leise desired to enlarge the business, or rather to extend it and to.carry on the business of selling dry goods, and for that purpose it was necessary for him to purchase from merchants dry goods, and he sought to purchase from certain firms in Detroit, the firm of Strong, Lee & Company and Edson, Moore & Company, and I believe he purchased from some other firms at other points. To enable him to do so, Mr. Hudson entered into a guaranty with these respective parties, guaranteeing the amount of the goods that each might sell him, up to a certain amount. They made sales to him payable at a future time, and the business was carried forward by Mr. Leise for a period of perhaps eighteen months. The business did not prove remunerative. His sales were light and his expenses were a little large and he found himself in a failing condition.

It appears from the testimony that he had told Mr. Hudson at the time he gave this guaranty for the payment of these goods and perhaps before that time, that he would protect him in case of any financial trouble. In carrying on the business he has created some other indebtedness, he had borrowed money of friends of those that were rather intimate with him and had created some indebtedness for goods and had borrowed money from the First National Bank of Norwalk for the purpose of carrying on his business the sum of $1,500 or $2,000, which was still due and owing.

Finding himself in this position, he notified Mr. J. L. Hudson, or rather the agent of Mr. Hudson in Ohio, who lived at San-dusky, Mr. Hicks — Mr. Hudson himself living at Detroit — that he would have to stop business. Thereupon Mr. Hudson came to Ohio and appointed a meeting with Mr. Liese and Mr. Hicks, his manager, at Cleveland, at the office of a firm of lawyers, and there it was arranged and agreed and carried out, so far as it could be, that mortgages should be executed to Mr. Hudson and to some of these other creditors for the purpose of securing them to the amount that he was owing to each. It seems that at the same time there was a deed of assignment drawn up whereby an assignment was to be made after the filing of the mortgages to a trustee for the benefit of creditors. This was done on Sunday afternoon, on February 9, but all papers were dated February 10. Mortgages were given to each of the creditors — a mortgage to Hudson, to Strong, Lee & Company, to Edson, Moore & Company and some others.

The mortgages contained a condition that the mortgagees should take immediate possession of the stock of goods. There were also executed, at the same time, notes payable one day after date, direct to the mortgagees.

The next morning Mr. Leise returned home, and Mr. Hicks and Mr. Loeser came here, Mr. Loeser being an attorney from Cleveland.

It had been agreed that Mr. Hicks was to be the man who was to take possession of the stock of goods for the mortgagees, and Mr. Hudson returned to Detroit for the purpose of seeing the parties in regard to that matter. He did see them in the morning and it was agreed by them, or consented to by them, that Mr. Hicks might act as their respective agent in taking possession of the stock of goods under the mortgages; and that was done, as the testimony shows, before a final consummation of the arrangement by the filing of the mortgages. He took possession of the stock of goods and the mortgages were then filed in the recorder’s office in this county.

Shortly after, Mr. Hicks, as the agent of the mortgagees, took possession of the stock of goods and closed the door, or about the same time the deed of assignment was signed and executed and Mr. S. M. Young of this city was named as assignee, and that paper was filed in the office of the probate court and Mr. Young went to the store and demanded possession of the stock of goods under it, but he was told that he could not have it and was allowed to remain outside of the building, and within three or four days this suit was commenced. Hicks, in the meantime, after closing the store, was proceeding to take an invoice of the stock of goods. That stock of goods, either by agreement or under an order of the court, has been sold, and the money is in the hands of a trustee awaiting the action of the courts in regard to these mortgages.

It transpired from the evidence which was brought out upon examination, that J. L. Hudson had received notes originally; and, in the course of business, had transferred them to a bank, for his own convenience, raising the money on them to be used in his business, and that Strong, Lee & Company and Edson, Moore & Company had done the same thing.

I believe that comprehends substantially all the facts that are material to the case.

It is intimated here that this transaction operated as a fraud upon the other creditors. That the effect of it was to entirely deprive them of any part in the proceeds of the stock of goods, is true, and we suppose their debt still remains wholly unpaid and will be unpaid unless Mr. Leise at some time should be able to make money enough to pay them.

That there was actual fraud, in that there was an agreement at the time of the original transfer of the stock of goods to sell same and pay the' indebtedness to Hudson, restock by purchase on credit and thus take the proceeds for the benefit of J. L. Hudson, is not claimed, nor is. it shown by the evidence. We think the evidence shows that Mr. Hudson was willing to allow this clerk of his to try his hand at carrying on the business, but that he had some doubts whether he would be successful, and as the matter proceeded, perhaps had still more doubt; but he was willing to give Him time and did give him time, and he allowed his installments of payments to pass at times unpaid. He assisted him to buy goods and incurred indebtedness on his paper for the purpose of enabling him to carry on his business, a fact which we conceive to be wholly inconsistent with actual intent of fraud on the part of Mr. Hudson. So that at’ the time that Mr. Leise had given notice that he would carry on the business no longer, the matter simply stood in such a manner that the transaction to be carried out, or whatever was to be done, was to take such legal steps as would prefer or protect Mr. Hudson and those other parties in accordance with the statement of Leise previously made that he would do so. That we conceive makes no special difference.

The question is, whether or not this matter of taking these preferences is illegal in the state of Ohio; whether the manner in which it was taken is illegal, or would render it obnoxious to any provision of the statutes in this state.

That possession taken under these mortgages could not make Mr. Hicks a trustee is clearly settled by a decision of the Supreme Court of this state, a decision that has been in force for forty-two years and has been approved and never disputed by the Supreme Court of this state, and that is the case of Justice v. Uhl, 10 Ohio St., 170, where claims being in the hands of Convers, Giddings & Bigelow, a firm of lawyers then doing business in Sandusky, they had taken mortgages to the separate creditors and had taken possession of the stock of goods as agents for those creditors; the Supreme Court said that that was perfectly lawful and right and did not make it obnoxious to any statute of the state of Ohio, and the present statute I understand was in force at the time, or one similar to it. So the taking possession of this stock of goods by Mr. Hicks as agent of these separate mortgagees, did not constitute him a trustee for the benefit of all the creditors.

The question was somewhat discussed and the question is in the case, whether or not the making of these mortgages and the assignment to a trustee at substantially the same time, would or could or should operate as an assignment in trust for the benefit of all the creditors.

In Sylvester v. Hesslein, 5 C. C., 256, this court, sitting in Lucas county, composed at that time of Judges Bentley, Scribner and myself, had that question before us. The question had been decided by some other circuit courts, and there had been perhaps three of them that had passed upon the question, and others, I think, were getting ready to.

In that case Hesslein, who was carrying on business at Toledo, a dry goods business, was pressed by a Chicago creditor for payment, or for security, and she executed to him a chattel mortgage on her stock of goods and allowed the creditor to take possession ; she then, without being pressed or solicited in any manner, gave mortgages to sundry of her other creditors and caused them to be delivered or filed by their agents, subject to this prior mortgage and the taking possession under that mortgage; then she made an assignment of all her stock of goods to Mr. Black, of the city of Toledo, subject to his mortgage, and he wrote an acceptance, but it was never filed in probate court, and he never acted upon it in any manner. The party who held the first mortgage proceeded to sell the stock of goods and they were going to divide the proceeds between themselves, but the creditors intervened and filed their petition, and the matter then came up for hearing. We Held that, in that ease, as far as the Chicago creditor was concerned, that he, being an adversary party and pressing for a mortgage, had the right to hold his mortgage, and that as to all the other mortgagees, it being a voluntary matter on the part of Hesslein, and an assignment having been made substantially at the same time, that same was an assignment in trust for the benefit of all the creditors; and we directed that the matter be sent to the probate court for the appointment of a trustee for carrying out all the purposes and objects of the trust.

The case was never taken up; the matter was settled immediately by the parties and the ease ended. We decided that cáse in 1891. We thought that good law and we have never gotten away from that position. But the Supreme Court, however, the nest year, took a different view of the matter and in Cross v. Carstens, 49 Ohio St., 548, 566, discussed the matter very fully. The case came up from Cincinnati, and perhaps these various decisions coming from the circuit courts of the state, the question having been before the courts throughout the state, they deemed it advisable to pass upon the question. The question was in the case, possibly, although they might have decided the case upon another point alone, but as the question was in the case, they saw fit to decide it, and it is in fact a decision of the Supreme Court of Ohio upon a point that was made in the case which was before them and which they might properly decide; and they say, speaking of the decision such as we had made:

“This doctrine has been confidently argued by eminent lawyers and has recently received the sanction of at least one Ohio oourt of high standing, perhaps of more than one. There is about it a spice of the heroic which challenges admiration, though it may not win acquiescence. Indeed, we may confess that when first presented we were attracted to the doctrine. But reflection has satisfied us that it is consistent neither with a fair interpretation of the statutes, nor with the previous decisions of this court, and, as an attempted rule of property, would prove unsubstantial and delusive, and practically impossible of execution.”

Thereupon they proceed to establish and hold a contrary doctrine for the state of Ohio. They say for fifty years or more, in the state of Ohio, almost from the earliest establishment of the courts, the doctrine that a man might dispose of his own property as he saw fit, for the purpose of preferring creditors, was right; that it was held by him, and was a right which was proper for him to exercise and a right in which he had been sustained from time to time by the courts, and in which, in this decision, they sustained him.

So that, under the decision of the Supreme Court, there could be no question but that this party had the right to make these mortgages. The mortgagees had a right to take possession under those mortgages and they had a right to hold their property, although the effect of it was to deprive other creditors equally meritorious, of any right or share in the distribution of the property, and to leave them entirely without security for their indebtedness, and that the deed of assignment did not deprive them of that right.

Now, there was another complication that came into the question that is raised here, and that is this: As I have said, it appears that these various creditors had, in the course of their business, negotiated notes at the bank and had taken the proceeds and had applied them to the uses and purposes of their business in their regular course of business.

In other words, in carrying on their business, they used all their notes that came in that way and discounted them and carried along the debt for the time, and if the notes were not paid by the debtor, then they took them up themselves.

Reference is made to the case of Pendery v. Allen, 50 Ohio St., 121. In that case Emerson had become surety for some parties by the name of Rowe. Allen owed to the bank in Cincinnati the sum of ten thousand dollars. The Rowe notes were eight thousand dollars. Emerson took a mortgage from Allen to secure himself upon, his endorsement, and at the same time agreeing to pay to Rowe the amount of their notes, and also at the same time agreed to pay the bank the note that was owing by Allen to the bank upon which Emerson, prior to that time, had not been liable.

The Supreme Court held that in doing that he had rendered himself, or brought himself under this statute; that the transaction should be<, declared an assignment in trust of the property for the benefit of all the creditors. In other words, that in receiving the mortgage and in taking the steps that he had, that he had received property from a failing debtor in contemplation of insolvency in trust for himself and for others, and that in doing so, the statute would step in and declare the trust a trust for the benefit of all creditors.

They recognized the right of Emerson to secure himself as an endorser upon that paper. The court say, page 132:

“He might safely have secured his liability for Allen to the Rowes; but, having gone beyond this, and accepted a mortgage intended to secure another creditor, he became by force of the statute a trustee for all, and in respect to all the property covered by the mortgage. * * * And his liability in this regard is to be determined not by subsequent events,, but by the nature of the transfer at the time it was made. If, by its terms, or necessary implication, it made him liable to account to another creditor of the debtor, it is an assignment in trust within the meaning of the statute.”

They argued as far as the bank was concerned, that having received this property upon the agreement that he would pay that debt, the bank would have the benefit or the right to come in and compel him to account to it for the property that he had received.

Now that transaction and this are different, and when we come to reflect upon it, they are quite different. These parties -were creditors of Leise; they had sold him goods and had' claims against him for the price of those goods. It is true that he had given them notes to the amount, of the price of those goods although the notes didn’t pay the account. The account still existed and existed for all time and does exist to-day, because it is not yet paid.

In Merrick v. Boury, 4 Ohio St., 60, the Supreme Court say:

“It is only by force of an agreement of the parties that the giving of an unsealed note by the debtor will be payment of a precedent debt. The burden of proof is upon the debtor, who must establish the agreement clearly; and the question whether there was such an agreement is one of fact to be determined by the jury.”

There is no proof and no way whereby it can be known that there was ever any agreement that these notes were to be taken by the parties as payment of that account; that account existed all the time and still exists. The notes that were taken by the parties were by them, in the course of their business, transferred to the bank simply to raise money to be used in their business. They never applied that money to the payment of the account. They could not do so. It was not what they were negotiating the notes for. They were negotiating the notes simply to carry on their business, and to pay their debts, and to purchase goods in their business.

When they came to take these mortgages, they took the mortgages to secure that debt. It is true, when they came to do it, they chose to put it in the form of a note payable at one day, with the understanding that the other notes should, some time be returned to the debtor; blit the thing that they were doing, the real transaction was, that they were securing the debts of these respective creditors which have never been paid in any manner or form. They never took those mortgages, in any way or form, with the understanding that anybody else was to be benefited by them, and the payment of those notes to the banks, held by them respectively, did not pay the debts due from Leise that still existed.

With this statement of facts and this discussion of the law of the case, as we think, in all its material aspects, we are wholly unable to see wherein the plaintiff has any right to set aside the transfers that were made by Leise to these parties, by virtue of those mortgages or to declare them void in any manner or form by the law of the land, as it existed at the time of the transaction. Each of these respective creditors have, we think, without doubt, the right to hold this property and to apply, it upon the payment of their respective mortgages according to their respective rights and equities. In saying this, we do not wish to say that we approve of the statute as it has stood for fifty years in this state. We have held, and we believe that the rule is, that equality is equity, and we rejoice that the Legislature of the state has finally passed a law which prevents any transfers of the character of these now before us. But inasmuch as this transaction occurred prior to that law, and where the law in force was as I have already stated it, we are compelled to announce and to adjudge that the mortgagees have the right to hold that property, and we so order.

C. L. Kennan and S. M. Young, for plaintiff.

C. P. & L. W. Wickham, for defendants.

      Dismissed in the Supreme Court for ¿failure to file printed record.