text:
    NEGLIGENCE — INDEPENDENT CONTRACTOR — ERROR.
    [Cuyahoga (8th) Circuit Court,
    February 9, 1905.]
    Marvin, Winch and Voorhees, JJ.
    (Judge Voorhees of the Fifth Circuit, sitting in place of Judge Hale.)
    American Contracting Co. v. Walter Sammon et al.
    1. Contractor cannot Escape Liability for Negligence of Independent Contractor, when.
    Where the work to be done is of such character that injurious consequences to an employe may be reasonably expected to result from its performance, unless proper care is observed, the person contracting to do such work cannot escape liability to an employe for injuries sustained from negligence in its performance, by showing that the work was left to and was done by an independent contractor.
    2. Misconduct of Counsel Prejudicial to Own Client not Reversible Error in Favor of Adverse Party.
    Improper conduct of counsel in his argument to the jury, which is calculated to prejudice the jury against his own client only, cannot be urged as reversible error by a codefendant.
    3. Comment on Smallness of Defendant’s Capital Stock not Prejudicial Error, when.
    A comment by plaintiffs counsel in his argument to the jury, in an action to recover damages resulting from personal injuries, to the effect that one of the defendant corporations had substantially no capital stock, cannot be said to be prejudicial error in the sense that it was calculated to aid in obtaining a' verdiet or enhance the amount of damages allowed.
    4. Evidence must be Prejudicial to Complaining Party to • Constitute Reversible Error.
    A defendant cannot complain of the admission of evidence which is in no sense prejudicial to him, simply because it may be prejudicial to his codefendant.
    5. Remittitur of $3,000 from $5,000 Verdict not Conclusive that Verdict was Obtained by Influence of Passion and Prejudice.
    The mere fact the trial court overruled defendant’s motion for a new trial on condition that plaintiff would remit $3,000 from a $5,000 verdict, which was accordingly done, is not conclusive that the verdict of the jury was obtained by the influence of passion and prejudice. •
    Error to Cuyahoga common pleas court.
    Kline, Tolies & Goff, for plaintiff in error.
    Kerruish, Chapman & Kerruish, for defendant in error.
   MARVIN, J.

Suit was brought in the court of common pleas by Walter Sammon against the King Bridge Company and the American Contracting Company, the petition alleging that the King Bridge Company was a corporation organized under the laws of the state of Ohio and engaged very extensively in structural iron work of various kinds and entirely responsible pecuniarily; that the defendant, the American Contracting Company, was a corporation in name only; that, although organized as a corporation under the laws of Ohio, it had a capital stock of but $500; that such company was “a mere formal device instigated, inflated and manipulated by said The King Bridge Company for the purpose of discreetly subletting to it by the King Bridge Company in form of words, occasional contracts, when in .the opinion of said The King Bridge Company, such subletting might be’ advisable, to avoid pecuniary responsibility to its employes for its negligent acts of omission and commission and for other like purposes; * # * being officered in form of words by the agents and servants of said The King Bridge Company, and is now and ever has been the creation in fact and mere tool of said The King Bridge Company, for the purposes above indicated, and for such purposes only.”

The plaintiff further alleges in his petition that:

“At the time of the accident hereinafter mentioned he was unaware of the existing relations above stated between said defendants, and that though in form of words he was nominally in the employ of said The Americán Contracting Company, as he now learns, he avers and charges the fact to be, that he was actually doing the work and in the employ of said The King Bridge- Company. ’ ’

Further, the petition alleges that on or about November 30, 1901, the plaintiff, while so engaged in the nominal employment of the American Contracting Company but in the actual employment of the King Bridge Company, he was required as a part of his duty to climb an iron column to a height of some forty feet above the surface of the ground, and that arriving so that his head was at the top of said column, for the purpose of raising himself he reached with his hand and grasped an iron plate, which should have been firmly bolted to such column but which in fact was not so bolted, and by reason thereof it slipped from the top of the column and was precipitated with him to the ground whereby he received great injuries and for which he brought his suit. The petition alleges that the injuries which he sustained were caused wholly by the negligence of the defendants and were in no wise contributed to by any fault or negligence on his part.

At the close of the evidence on the part of the plaintiff the court, on motion of the King Bridge Company, arrested the evidence from the jury as to that defendant and entered a judgment in its favor and the case proceeded against the American Contracting Company, re-suiting in a verdict and judgment against .said last named company; to reverse which the present proceeding is brought.

Objection was made at the trial on the part of the King Bridge Company to the introduction of any evidence against it under the petition. This objection was overruled and a proper exception taken. The only bearing that this ruling has to the ease as it now stands here is as to whether evidence was not permitted against the bridge company which was prejudicial to the construction company.

We think it clear that under the petition evidence was admissible as against the King Bridge Company.

It was urged in argument to us that the petition shows that the contracting company was a duly organized corporation and that the plaintiff was, nominally at least, in the employ of that corporation, but what has already been quoted from the petition shows that it was distinctly averred in the petition that the plaintiff was an employe of the bridge company and that the intervention of the contracting company was a mere subterfuge, and that it was organized as a creature of the bridge company, and the only purpose of its organization was that the bridge company might be relieved from pecuniary liability to any employe injured in performing the work which was really to be done by the bridge company but which was nominally being done by the contracting company.

It is settled that one who contracts to have work done cannot always be relieved from liability for injuries received by an employe in some department of the work by having an independent contractor intervene between the principal contractor and the employe who receives the injury.

In Covington & C. Bridge Co. v. Steinbrock, 61 Ohio St. 215 [55 N. E. Rep. 618; 76 Am. St. Rep. 375], the first clause of the syllabus reads:

“Where danger to others is likely to attend the doing of certain work, unless care is observed, the person having it to do, is under a duty to see that it is done with reasonable care, and cannot, by the employment of an independent contractor, relieve himself from liability for injuries resulting to others from the negligence of the contractor or his servants.”

And in the opinion in the same case, page 222, Judge Mrnsha.il uses this language:

“The doctrine of independent contractor, whereby one who lets work to be done by another, reserving no control over the performance, of the work, is not liable to third persons for injuries resulting from negligence of the contractor or his servants, is subject to several exceptions. One of these * # * is where the employer is, from the nature and character of the work, under a duty to others to see that it is carefully performed.”

And this quotation is made with approval from Cockburn, C. J., in Bower v. Peate, 1 L. R. Q. B. Div. 321:

“ ‘A man who orders work to be executed, from which, in the natural course of things, injurious consequences to his neighbor must be expected to arise, unless means are adopted by which such consequences may be averted, is bound to see to the doing of that which is necessary to prevent mischief.' ”

Again, on page 223, Judge Minshall says:

“The weight of reason and authority is to the effect that, where a party is under a duty to the public, or a third person, to see that work he is about to do, or have done, is carefully performed so as to avoid injury to others, he cannot by letting it to a contractor, avoid his liability, in case it is negligently done to the injury of another. ’ ’

We think it clear that, if the allegations of the petition as to the relations between the bridge company and the contracting company had been sustained by the evidence the bridge company could not have escaped liability by reason of the contracting company being an independent contractor, and so there was no error in allowing proper evidence to be introduced against the bridge company.

It is said, however, on the part of the plaintiff in error that even if any evidence were admissible against the bridge company, certain evidence was permitted to go to the jury which was incompetent as against either company and which was prejudicial to the contracting company, though introduced primarily as against the bridge company. The bill of exceptions does not purport to contain all of the evidence offered but only certain parts of such evidence upon rulings in regard to which complaint is made. The rulings upon evidence especially complained of are, where the court permitted questions to be answered which were asked by counsel for the plaintiff below and the purpose of which manifestly was to belittle and make insignificant the contracting company. A specimen of such is found beginning on page 4 of the bill of exceptions. The witness called by the plaintiff was Harley B. Gibbs,' treasurer of the King Bridge Company, and the following questions and answers appear in the bill, the questions being asked by counsel for the plaintiff below:

Q. “The King Bridge Company is a company that has existed here a long time and has done an extensive business all over the United States ?
A. “Since 1871.
Q. “And is reputed to be, and is in fact, a great financial responsibility ?
A. “Why, yes, none better that I know of.
Q. “The President, James A. King, is in bad health, is he not?
A. “Yes, he has been incapacitated for work for some time.
Q. “Who was the secretary of the King Bridge Company in 1901?
A. “Norman C. King. I don’t remember in what year he was elected.
Q. “ Is he a grandson, or a son ?
A. “He is a grandson of Zenas King.
■ Q. “It is largely a King concern — was originally. It is capitalized for how much?”

To this last question objection was made, and the court overruled the- objection but before any answer was given the following question was asked:

Q. “What is the capital stock of the company?”

To this objection was made by the Bridge Company; it was overruled, and the answer is:

A. “$600,000.”

The court in ruling upon the admissibility of this evidence stated that the question of the financial responsibility of the bridge company had nothing to do with the recovery and that this was admitted solely with reference to the allegation of the petition as to the connection between the companies. Whether it was admissible for any purpose it is not* necessary to determine here. It is certain that if any error was committed in the admission of this evidence it was not to the prejudice of the contracting company but only to the prejudice of the bridge company, against whom no judgment was recovered.

Again, on page 7, the question‘was asked by counsel for the plaintiff below:

Q. “About how many employes in 1901 did the King Bridge Company have ?
A. “At the works?
Q. “Yes, from bosses and contractors and so on, from top to bottom?”

This last question was objected to and the objection overruled.

A. “We must have had four or five hundred.”

Later on in the examination of the same witness this question was asked by counsel for plaintiff:

Q. “I will inquire of you if you know about the financial size of the contract that the King Bridge Company made with this American Contracting Company, what it signified in dollars and cents?”

This was objected to, overruled and witness answered:

A. “I can’t tell without referring to the contract.”

The contract was handed to the witness and the questioning continued and the witness still was unable to give the amount of the contract in dollars and cents.

Then this question was asked:

Q. ■ “Didn’t you know all the time that the American Contracting Company, as a financial institution, wasn’t worth one cent?”

This was objected to, the objection overruled, and the witness answered:

A. “No, I didn’t know that.”

Then the counsel for plaintiff asked the witness if the contracting company had any offices, and any materials or any devices for carrying on the work, etc., and finally this was asked:

Q. “Isn’t this the truth about the matter, that that was not only for the purpose of avoiding detail” (the witness having said that one purpose forAhe letting to the contracting company was to avoid detail) “but it was for the purpose of getting the responsibility for poor fellows that happened to get hurt, thrown off on a $500 corporation that wasn’t worth anything, and to relieve yourself of it?”

Objection was made to this and overruled, and a good many other questions substantially of the same sort were asked and permitted to be answered, the purpose clearly being to impress upon the jury that the contracting company was an insignificant affair and really had no existence independent of the bridge company.

The plaintiff also called H. W, King, who was the vice president of the bridge company and was president of the contracting company, and he was inquired of as to the contract made between the bridge company and the contracting company for the work on which the plaintiff below was engaged at the time of his injuries, and among other things, this was asked of him:

Q. “Isn’t this the object and purpose of the organization of this company, not for the purpose of making dividends or making money, but simply to have another institution which may have a legal existence, so that in case an accident happens like this it shall be said the man was working for the contracting company and not for the King Bridge Company?” /

Witness was permitted to answer, and did answer, “I think not.” And then this question was asked:

Q. “Now I will ask you again, if it is not the fact that was á mere contrivance made, not intended to make money, never has made money, not organized by those who wanted to make money, but just as a mere convenience for the King Bridge Company? Isn’t that the whole of it, all of it, nothing else but it?” (Speaking of the contracting company.)
A. “No.”

If it be conceded that this evidence was not admissible as to the bridge company, though upon that we express no opinion, it seems clear that it could not have been to the prejudice of the contracting company. The tendency would seem to be, if the questions had been answered in the affirmative instead of the negative, rather to relieve the contracting company from responsibility and place it all upon the bridge company.

The testimony of but one witness offered by the defendant appears in the bill. The cross-examination of this witness is set out, from which it appears that every objection to questions asked of him in such cross-examination by counsel for the plaintiff' was sustained by the court.

We hold that there was no erroneous ruling by the court upon the admission of evidence which was prejudicial to the contracting company.

Complaint is made, however, of the conduct of counsel for the plaintiff below in his argument to the jury. It appears that in the argument plaintiff’s counsel spoke of the contracting company as a “scapegoat.” Objection was made to this remark at the time, which was sustained by the court. The first remark made by counsel to which objection was not sustained, so far as is shown by the bill, is in these words:

“We are here, then, dealing with the American Contracting Company. Am I justified in saying that the capital stock of the American Contracting Company is but $500 ? ’ ’

An objection was made to this, and overruled. The statement was sustained by the facts, and, indeed, appears in the pleadings, but it, of course, was not a fact which could aid in any way in determining whether the plaintiff was entitled to a verdict, and if so, what the amount of such verdict should be, but how it was calculated to prejudice the contracting company we are unable to see. Usually there is complaint where an effort is made to show that the defendant in a case like this is wealthy, as tending to enhance the. verdict which may be rendered against it. How it eonld tend to enhance a verdict or to aid in obtaining a verdict against the company to show that it 'had substantially no capital stock we are unable to see, and we think there was no prejudice to the contracting company in the remark made. Counsel then said:

“Am I justified in saying that the American Contracting Company appears never to have made a dollar?”

Objection was made to this and sustained, and the court said:

“I wish to say now for the last time that I will not permit this kind of discussion in this case. ’ ’

Counsel then said:

“If your Honor please, I hardly know what to say.”

Arid the court said:

“Anything you choose to say in this case which is proper, and you know what is proper, you may say without exception, but these matters have been taken out of the case and are not open to discussion.”

Counsel then said:

“May I say this, then, that if it should chance in your judgment that a judgment should be rendered in your opinion here sitting as jurors, that adjudgment should be rendered in this ease larger than the amount that this company is apparently able to pay, that you ought not, therefore, to be stingy about that judgment but that you should give that judgment as you think just, and,” (turning to the court) “Is that right?”

The court, we think very properly, answered:

‘ ‘ Turning to the court with that inquiry and making that statement is not fight, and I will not permit it. Address yourself to the jury, and go on with the ease.”
Counsel then said: “At the same time, I want to go on with the good offices and the kindness and the friendship of the court,” to which the court answered, “You have the friendship of the court, but you must proceed in order.”

Nothing more is shown by the bill as to the conduct of counsel in the argument of the case. We think the trial court pursued the proper course in the matter, and that nothing said by counsel for the plaintiff, taken in connection with what the court said to him in the presence of the jury, could have prejudiced the jury in his favor. We think it was rather calculated to prejudice the jury against him.

At the conclusion of the argument the court charged the jury. As shown by the bill, the charge was concluded at twenty minutes before 12 o’clock, the hour for the noon adjournment. ’The jury thereupon retired to the jury room, reached a verdict and reported to the court about 1 o’clock, the conclusion of the noon adjournment, at which time the verdict of the jury wás returned in favor of the plaintiff in the sum of $5,000.

A motion was made by the contracting company for a new trial, . and upon the hearing of that motion the plaintiff Remitted from the amount of the verdict the sum of $3,000, whereupon the motion was overruled and judgment was entered for the plaintiff for $2,000.

It is urged that the fact, that the jury in so short a time- rendered a verdict for an amount so much greater than the amount of the judgment entered by the court, establishes that the verdict was obtained by the influence of passion or prejudice, and that therefore there was error on the part of the court in overruling the motion for a new trial, which was not cured by the remittitur. The only evidence we have that the verdict was excessive is this remittitur, because the evidence given to the jury is not all before us. It is not certain that the court would have sustained the motion for a new trial but for this remittitur.

In the case of Pendelton St. Ry. v. Rahmann, 22 Ohio St. 446, the syllabus reads:

“Where the damages assessed by a jury are excessive, but not in a degree to necessarily imply the influence of passion or prejudice in their finding, the court, in the exercise of a sound discretion, may make the remittitur of the excess the condition of refusing to grant a new trial. ’ ’

In the opinion, the court recites the causes for which, under the statute, a new trial shall be allowed, among which causes appear the following: “ ‘Excessive damages appearing to have been given under the influence of passion or prejudice. ’ ’ ’ This is the exact language of our present statute. Laning R. L. 8821 (R. S. 5305).

In the case then under consideration the jury had returned a verdict for $10,000, and upon motion for a new trial the court entered the following order:

“The court, being fully advised in the premises, overruled said motion on condition of the plaintiff remitting $5,000 on the amount of the verdict, and the plaintiff consenting thereto, it is ordered and adjudged by the court that the plaintiff recover of the defendant his damages assessed at $5,000,” etc.

The entry in the present case is in these words:

“The motion of the American Contracting Company for a new trial of this eause is heard, whereupon the plaintiff remits from the amount of the verdict of the jury the sum of $3,000, and said motion is refused, ’ ’ etc.

It will be observed that in the case referred to the court made it a condition of the overruling of the motion that the plaintiff remit $5,000 from a verdict of $10,000. In the present case, it does not appear from the language of the entry of the court that the remitting of $3,000 from the verdict was a condition of the overruling of the motion for a new trial, yet perhaps it is fair to assume that such was the case, and this would make the two cases almost exactly parallel. The remittitur in the case referred to was for a larger amount than in the case before us; the percentage, however, was not so great, but practically the cases are alike, and in the opinion in the case in Pendleton St. Ry. v. Rahmann, supra, this language is used (page 450), and seems to be entirely applicable to the case at bar:

‘ ‘ The presence of the conditions, necessary to bring the case at bar clearly within the operation and peremptory rule of the statute, is not disclosed in the record. The amount of the verdict is not such that the influence of passion or prejudice is inferable from its magnitude.' It is not dedueible from the facts spread upon the record. It is not shown by the finding of the court. We are not put in possession of any circumstances imposing the statutory obligation to vacate.
“It is probable, as is often the case, that in the opinion of the judge, who heard the cause, the verdict was larger than he would have given as a juror, but not such as, in the absence of statutory infirmities, excluded his discretionary power to confirm or vacate it. We cannot presume the existence of such infirmities, for it is not competent to presume a state of facts repugnant to the judgment of the court.
“So far as appears, then, the entering of a judgment upon the verdict for its entire amount, would not have been disturbed by this court. But, with the consent of the plaintiff, judgment was entered for a smaller sum. If this had been done arbitrarily, without his assent, it might have been ground of exception and reversal at his instance. But can the defendant object? The only consequence to him is the substitution of a less for a larger sum, which might have been legally exacted, and cannot be held to prejudicially affect him.
“It may be supposed that a reasonable doubt existed in the mind of the court in regard to the vacation and awarding of a new trial. In the exercise of a sound discretion, with which courts are necessarily clothed, the question presented by the motion might have been determined either way, without constituting ground of exception. Wherefore it results, that as confirmation of the entire verdict could not have been made available ground of error by tbe defendant, judgment for a part thereof instead of the whole, the residue being relinquished, cannot."

We reach the conclusion, therefore, that there is no error apparent upon the record in the action of the court in overruling the motion for a new trial, and no error in any of the proceedings of the court shown by the record which would justify a reversal of the judgment of the court of common pleas, and such judgment is affirmed.

Winch and Yoorhees, JJ., concur.


source: Caselaw Access Project

author: MARVIN, J.

license: Public Domain

text:
    ERROR — PLEADING—CORPORATION—JUDGMENTS.
    [Cuyahoga (8th) Circuit Court,
    January 16, 1905.
    Hale, Marvin and Winch, JJ.

      Wm. C. Scofield v. Excelsior Oil Co. et al.
    1. Appeal to Circuit Court Brings up all Questions upon Pleadings (Lan. R. L. 8734).
    An appeal from the common pleas to the circuit court brings up all questions upon the pleadings, whether raised by demurrer or otherwise, in the same manner as they would be raised had the latter court had original jurisdiction of the case. Such practice is not opposed to Lan. R. L. 8734 (R. S. 5225).
    2. Additional Allegations may be Made in Supplemental Petition, when.
    Where the petition in an action to enforce the liability of stockholders was held insufficient merely because it did not allege that a judgment had been recovered against the corporation, which remained unsatisfied for want of property whereon to levy, a supplemental petition adding such allegation to the allegations of the original petition, but in no other way changing the original petition, will not be stricken from the files on account of such additional allegation.
    3. Judgment against Corporation Res Adjudicata against Stockholders, etc.
    A judgment against the corporation for an indebtedness, which still remains in full force and effect, and unreversed, is res adjudicata against the stockholders as to the amount of the indebtedness in an action against them to enforce their liability.
    4. Liability of Stockholder for Corporate Debts not Discharged by Transferring Stock (Lan. R. L. 5202).
    Prior to the amendment of Lan. R. L. 5202 (R. S. 3258) on April 29, 1902 (95 O. L. 312), the liability of stockholders to creditors for corporate debts attached at the time the debt was created, and was not discharged by the subsequent transfer of the stock.
    5. Stockholders Still Liable for Debts Contracted while Holders of Stock under Dan. R. L. 5202.
    A stockholder of an Ohio corporation is not relieved from liability to creditors for debts contracted while he was a stockholder by the act of April 29, 1902 (95 O. L. 312), amending Lan. R. L. 5202 (R. S. 3258), notwithstanding the debts did not become due and enforcible until after the passage of said act, and until after he had transferred his stock. A construction which would restrict the liability of stockholders to such debts as were due and collectible before they transferred their stock, would render said act obnoxious to Sec. 16, Art. 5 of the constitution.
    Appeal from Cuyahoga common pleas court.

      Henderson & Quail, for plaintiff.
    Goulder, Holding & Masten, for defendants.

      Subsequent decision on motion for new trial. See ante, 318.

   MARVIN, J.

This case comes to this court by appeal from the judgment of the court of common pleas.

The questions to be determined relate to whether the defendant, Lester A. Cobb, is liable in any sum to the plaintiff.

Scofield originally brought his suit claiming to be a creditor of the Excelsior Oil Company, which is a corporation, setting out an indebtedness of the corporation to him; that the corporation was without assets and was insolvent; that the defendant, Cobb, was a stockholder in the corporation at the time the indebtedness was created; that he transferred his stock to Charles E. French, who thereafter transferred ■the same to J. B. Huston. Said French is insolvent, and” said Huston died insolvent in 1894. The prayer was for a recovery against Cobb for a proportionate .share of such indebtedness determined by the amount of stock held by him when the indebtedness was created.

Upon a trial had in this court it was held upon the evidence that the corporation was indebted to plaintiff in the sum of $149*016.67, with interest from January 9, 1900, and such holding was made upon the evidence of original indebtedness and transfers of claims made to him.

Upon proceedings in error in the Supreme Court, it was there held that the allegations of the petition were not sufficient to entitle the plaintiff to relief against the stockholders in that no allegation was made that a recovery had been obtained against the company, and that upon execution being issued, no property was found out of which the same could be satisfied, and the case was remanded to the court of common pleas, where it originated, for further proceedings.

Thereafter said' plaintiff brought suit in the court of common pleas of Cuyahoga county against said oil company for said indebtedness. Appearance of the company was entered by its attorneys, and upon hearing, the plaintiff recovered judgment against the company for the sum of $98,497.20, together with costs, said judgment bearing interest from September 22, 1902.

On leave granted, plaintiff, after obtaining such judgment, filed a supplemental petition in this action, setting up the recovery of this judgment; that execution had been issued thereon; that no property of the company was found whereon to levy, and that no part of said judgment has been paid.

Motion was made in the court of common pleas and renewed here, to strike this supplemental petition from the files. This motion was overruled at the time of the hearing, the court reserving the final determination of what should be done therewith until after the case had been heard. Such hearing has been had, and it becomes our duty now to determine whether such motion should have been sustained by this court.

On the part of the plaintiff it is urged that this question is not properly here; that the question was one of discretion with the court of common pleas and its determination must be final unless such discretion was abused. In support of this, reliance is had upon Lan. R. L. 8734 (R. S. 5225) which provides that, when a case is appealed from the court of common pleas to the circuit court, the trial shall be conducted in the latter court ‘ ‘ in the same manner as in the common pleas court, and upon the same pleadings, unless amendments are permitted or ordered by the circuit court. ’ ’

This proposition of the plaintiff is not sound. The construction sought to be given to this section is against repeated holdings of the courts. It has been held many times by this court that an appeal brings up questions upon the pleadings in the same manner as such questions would be raised had this court had original jurisdiction of the case. To hold otherwise would be to hold that if a petition or answer to which a demurrer had been filed-but not sustained, but which clearly ought to have been sustained, that upon an appeal the court could not pass upon that question of pleadings. We hold otherwise. It has been repeatedly said that the appeal brings up the demurrer and all questions raised on demurrer. We hold, therefore, that the motion to strike off this pleading is properly here.

In support of this motion it is urged that, since the Supreme Court has held that the facts as they existed at the time the suit was brought, were not such as to entitle the plaintiff -to recover at all, that he cannot, by the creation of subsequent facts, be permitted to bring such facts into his original action and proceed thereon.

We think this contention is not sound.

The supplemental petition in this ease only added to the allegations of the original petition that judgment had been recovered by plaintiff against the company on the indebtedness set out in the original petition, and failure to obtain any property upon execution with which to satisfy said judgment. It made no claim for an indebtedness not claimed in the original petition, nor did it make any new allegation as to the actual insolvency of the company, but only set out the facts occurring after the bringing of the suit, which the law requires in a proceeding of this kind as evidence of such insolvency before suit can be maintained against the stockholders.

In the case of Gibbon v. Dougherty, 10 Ohio St. 365, it is held that, where in aid of execution on a judgment, the judgment creditor brings an action to subject to the satisfaction of his judgment, the debt of a' debtor of the judgment debtor, and such debtor of the judgment debtor is served in the action, the fact that after such service, the judgment upon which the action is brought is set aside at a subsequent term for irregularity, and a new judgment is entered, it is proper to set up such facts in a supplemental petition and proceed with the action.

In the opinion, on pages 371 and 372, this language is used by the court:

“The subject-matter of the suit and the parties in the action, as well as the object of the suit, all continued to be before the court. The substantial object was the payment of the debt of the judgment debtor; and the reversal of that judgment for an irregularity, was in no sense an intimation of its payment, or a relinquishment of the claim of the plaintiff td enforce its payment in the manner and by the means expressed in the petition. The law, which never requires a vain thing, would not, therefore, require a plaintiff, after having the irregularity in the judgment cured by a new judgment expressing the same debt, incur the delay and expense of dismissing the suit and commencing de novo, when the entire proceeding could be perfected by a supplemental petition. And our practice, as regulated by the code, shows still less favor to objections merely technical. A supplemental petition was always regarded as only ancillary to the original petition. Its office is to bring before the court some event which has happened subsequently to the commencement of the suit. The. plaintiff does not thereby withdraw any allegation in his original petition not inconsistent with the averments in the supplemental petition. If, therefore, the plaintiff had even neglected to make, as he has done in this case, special reference in his supplemental petition to 'his original petition, he would still have been entitled to the full benefit of the same.”

1 Nash, Pleading & Practice page 288 and following, discusses this question, and cites authorities and quotations in brief of counsel for plaintiff are made from them, and we think the holding as enunciated here is in full accord with these authorities.

¥e therefore overrule the motion to strike the supplemental petition from the files.

A great amount of evidence was introduced on the question of whether the company was indebted to the plaintiff. The transactions of the parties from the beginning of their business relations up to the time of the bringing of the suit was gone into. " Prom this evidence we find that the oil company was, at a time when Cobb was a stockholder, indebted to the plaintiff; that the subsequent holders of the stock which had formerly been .owned by Cobb were insolvent; that all of the solvent stockholders, other than Cobb, have paid their proportionate share of such indebtedness, and that the liability of Cobb must depend upon whether the plaintiff is still a creditor of the corporation. A judgment has been obtained, as hereinbefore stated, by the plaintiff against the corporation, for $98,497.20 together with costs, and drawing interest from September 22, 1902. Except by contributions of stockholders, nothing has been paid upon this judgment. The judgment is still in full force and, as we hold, establishes the fact of the indebtedness to the amount of such judgment.

Without going into a discussion of the facts as to any indebtedness other than such as is shown by this judgment, we only say that viewing such evidence as wé now view it, and considering the fact that plaintiff brought suit for only the amount recovered, we find that the amount of the indebtedness of the company to the plaintiff is fixed by said judgment. If it is said that this is not consistent with the finding of this court in the case before, the only answer we have to make is, that the court as now constituted would not find upon the facts as we found before.

It was suggested in argument that the defendant, Cobb, was not liable to respond in this action because of the wording of Lan. R. L. 5202 (R. S. 3258) as amended April 29, 1902. The section as amended reads:

“The stockholders of a corporation who are the holders of its shares at a time when its debts and liabilities are enforcible against them, shall be deemed and held liable, equally and ratably * * * and no stockholder who shall transfer his stock in good faith, and such transfer is made on the books of the company, or on the back of the certificate of stock properly witnessed or tendered for transfer on the books of the company prior to the time when such debts and liabilities are so enforcible, shall be held to pay any portion thereof.”

Before the amendment the section read:

‘ ‘ The stockholders of a corporation which may be hereafter formed, and such stockholders as are now liable under former statutes, shall be deemed and held liable,” etc.

Under the statute before the amendment the holding of the Supreme Court is, that the liability of the stockholder attaches at the time the debt is created, and is not discharged by the subsequent transfer of the stock. Brown v. Hitchcock, 36 Ohio St. 667.

In that case Judge White in the opinion discusses at considerable length the nature of the stockholders’ liability, quoting from the decisions of other courts with approval, where it is held that the liability is in the nature of a contract made by the stockholder when he becomes such. Among such quotations is the following from Corning v. McCullough, 1 N. Y. (1 Comst.) 47, 59 [49 Am. Dec. 287]:

“It is virtually and in effect a liability upon a contract, and the mutual agreement of the parties.”

Also from Hager v. Cleveland, 36 Md. 476:

“It is a debt under the statute, due from the stockholder to the creditor, springing out of, and coexistent with, the contract between the corporation and the creditor. * # # It is clear that no act of the stockholder without the consent of the creditor, can exonerate him from the liability thus named.”

In Hathorn v. Calef, 69 U. S. (2 Wall.) 10 [17 L. Ed. 776], it is said in the syllabus:

“A statute repealing a former statute, which made the stock of the stockholders in a chartered company liable to the corporation’s debts, is as respects creditors of the corporation existing at the time of the repeal a law impairing the obligation of contracts, and void.”

If, then, the amended section is construed to mean that the stockholder is liable only for such debts as have matured and upon which suits could be at once brought before the stock was transferred, it would be void as obnoxious to See. 16, Art. 8 of the constitution of 1802, which reads:

“No # * * law impairing the validity of contracts, shall ever be made, ’ ’ etc.

We think, however, it was not the intention of the legislature by this amendment to restrict the liability of the stockholders to those debts which are due and collectible before the stock is assigned, but only to such as are incurred while the stock is held by such stockholder, and are enforcible when they become due, against the corporation, hence the liability of defendant, Cobb, is in no wise affected by this amendment of the statute.

We reach the conclusion, therefore, that the plaintiff is entitled to the rights of a creditor to the amount of his judgment; that Cobb is liable to him as a stockholder to the amount of his pro rata share of the stock held at the time the debt was contracted. This is 42-1700ths of the entire judgment. Decree will be entered accordingly.

This is an opinion of the majority of the court only.

Hale, J., does not concur.

•Winch, J., concurs.


author: HENRY, J.

text:
    ESTOPPEL — INJUNCTION—MUNICIPAL CORPORATIONS— PARTIES.
    [Lorain (8th) Circuit Court,
    May 8, 1905.]
    Marvin, Winch and Henry, JJ.
    John W. Emmert, Jr. v. Elyria (City) et al.
    1. Taxpayer Estopped prom Questioning Action oe Council, when.
    An objection that the action of the municipal council in allowing the board of public service to exercise its discretion in choosing the material to be used in making a public improvement, was an unwarrantable delegation of its legislative authority, cannot be successfully raised by a taxpayer who, together with all others whom he represents, had watched, without objection or protest, the improvement to its completion. A fortiori when the material actually used was authorized by the council. Laning R. L. 3611 (B. 1536-220), examined, and held to support this conclusion.
    2. Certificate of Auditor Filed before Contract Let, is in Time.
    The certificate of the municipal auditor that sufficient money is in the city treasury to pay for the proposed improvement, is in time if filed before the contract for the improvement is let. Braman v. Elyria, 26 O. C. C. 731, approved and followed.
    3. False Certificate of Auditor does not Invalidate Contract, when.
    The fact that the certificate filed by the municipal auditor, as required by Sec. 45 of the new municipal code (Lan. R. L. 3999; B. 1536-205), to the effect that sufficient money to pay for a proposed improvement is in the city treasury, was in fact false, is not sufficient to sustain the charge of fraud and thereby invalidate the contract made for the improvement, when it appears that the parties in good faith, and relying upon the advice of the city solicitor, honestly believed it to be true. A fortiori, when the section referred to is fairly open to the construction placed upon it by the parties.
    Appeal from Lorain, common pleas conrt.
    D. J. Nye, for plaintiff.
    E. G. & H. C. Johnson, W. B. Johnston and F. H. Stevens, for defendants:
    Construction of Lan. R. L. .4000 (97 O. L. 44). Slinglujf v. Weaver, 66 Ohio St. 621 [64 N. E. Rep. 574]; Tracy v. Card, 2 Ohio St. 431; Johnson v. State, 42 Ohio St. 207; Gross v. Armstrong, 44 Ohio St. 613 [10 N. E. Rep. 160]; Terrill v. Auchauer, 14 Ohio St. 80; Toledo & O. C. Byi v. Jump, 50 Ohio St. 651 [35 N. E. Rep. 1054]; Moore v. Given, 39 Ohio St. 661; McCormick v. Alexander, 2 Ohio 65; Lancaster (City) v. Miller, 58 Ohio St. 558 [51 N. E. Rep. 52].
    Estoppel. Findlay v. Pendleton, 62 Ohio St. 80 [56 N. E. Rep. 649]; Tone v. Columbus, 39 Ohio St. 281 [48 Am. Rep. 438]; Mott y. Hubbard, 59 Ohio St. 199 [53 N. E. Rep. 47]; Bank of CMIUcothe v.
      Chillicothe {Mayor), 7 Ohio (pt. 2) 31 [30 Am. Dec. 185]; Larwell v. Savings Fund Soe. 40 Ohio St. 274; Randolph Co. v. Post, 93 U. S. 502 [23 L. Ed. 957]Moore v. New York {Mayor), 73 N. Y. 238 [29 Am. - Rep. 134]; Horstman v. Railway, 12 Dec. 756; Cleveland v. Bank, 16 Ohio St. 236 [88 Am. Dec. 445]; 16 Am. & Eng. Enc. Law (2 ed.) 356; Knorr v. Miller, 3 Circ. Dec. 297 (5 R. 609) ; Columbus v. Bold, 13 Dec. 569.
    A taxpayer is not entitled to relief where he seeks to compel the city to do what is manifestly inequitable and. unjust. Friedman v. Cincinnati, 13 Dec. 404; Fergus v. Columbus, 8 Dee. 290 (6 N. P. 82) ; Crawford v. Madigan, 13 Dec. 494; Pugh v. Electric Light Co. 10 Circ. Dec. 573 (19 R. 594); Kellogg v. Ely, 15 Ohio St. 64; Tone v. Columbus, 39 Ohio St. 281 [48 Am. Rep. 438] ; Mott v. Hubbard, 59 Ohio St. 199 [53 N. E. Rep. 47]; Prince v. Boston, 148 Mass. 285 [19 N. E. Rep. 218]; State v. Bader, 7 Circ. Dec. 1 (13 R. 15); Tracy v. Card, 2 Ohio St. 431; Pollock v. Speidel, 27 Ohio St. 86.
    Plaintiff’s petition is sufficient to entitle him to an injunction. Sloane v. Railway, 3 Circ. Dec. 674 (7 R. 84) ; Ampt v. Cincinnati, 15 Dec. 237.
   HENRY, J.

This is an appeal from the Lorain county common pleas court. Plaintiff, as a resident taxpayer of the city of Elyria, in said county, having applied in vain to the city solicitor to bring suit, commenced this, action to enjoin the further payments to the Barber Asphalt Company on its. contract of July 7, 1904, with said city for the improvement of Middle avenue. Said contract is claimed to be void because:

First. The ordinance failed to specify definitely the kind of material to be used.

Second. Because no plans and specifications were on file as provided by the ordinance.

Third. Because no valid nor seasonable certificate as required by Sec. 45 of the municipal code (Lan. R. L. 3999; B. 1536-205), was filed' by the city auditor, showing that there was sufficient money then available, in the city treasury for said improvement.

Fourth. Because, to the knowledge of the asphalt company, when it entered into said contract there was in fact no sufficient amount of money then available for said purpose.

The evidence shows that the ordinance of the city of Elyria passed May 10, 1904, orders the construction of a pavement on Middle avenue in accordance with the prior ordinance passed April 12, 1904. The ordinance of May 12, 1904, specifically describes in detail the kind and other particulars of the improvement, and also orders the pavement to be constructed in accordance with the plans, specifications, etc., therein adopted.

Section 6 of said ordinance of April 12, 1904, reads as follows:

“That the plans, specifications, profiles, estimates heretofore prepared by the city engineer and now on file in the office of the board of public service be and the same áre hereby approved.”

The resolution of necessity passed March 22, 1904, provided for “brick, asphalt, or other materiales may be hereafter determined.”

Said ordinance of April 12, 1904, also adopts the plans and specifications which were at that time on file.

It is true that these proceedings did not decisively specify the kind of material to be used, but allowed the board of public service to exercise its discretion in choosing one of the materials named. This, it is-claimed, was an unwarrantable delegation by council of its legislative authority. But council having at least authorized the use of the material that was in fact adopted, we cannot now, at the suit' of plaintiff, brought after he and all whom he represents, had watched this contract to its completion, give countenance to the claim' that such authority was invalidated merely because the board was sought to be invested with a discretion whereby it might have chosen some other material. The advantages to be derived by the city from competitive bidding are plainly enhanced by clothing the board with a latitude of choice as to materials, end the legislature has, in some measure, at least, set the seal of its approval upon the practice, in Sec. 60 of the municipal code, as amended April 21, 1904 (97 O. L. 123; Lan. R. L. 3611; B. 1536-220). This section provides that special assessments theretofore or thereafter made shall not be invalidated by this practice; and, under the circumstances here,'we hold that the contract in this case is also unaffected thereby.

The evidence further shows that there was no sufficient warrant in fact for the allegations of the petition that plans and specifications of the improvement were not regularly on file, and we find the contrary to be true.

It also appears from the evidence, that a certificate was made by the auditor in due form, showing that there was sufficient money in the city treasury to pay for the improvement, but. that such certificate was not made until after the council proceedings were all had and the contract for the improvement was about to be let. We deem it unnecessary now to discuss the objection to which this situation gives rise, inasmuch as this court expressly held at a recent term in this county, in the case of Braman v. Elyria, 26 O. C. C. 731, that a certificate thus filed is in due season.

The question of real difficulty, however, in the present case arises from the circumstance, that the certificate filed was untrue in fact to the knowledge of all parties, unless it falls within the saving of Sec. 45a of the code, as contained in the amendment of March 18, 1904 (97 O. L. 44). This section provides:

“Money to be derived from lawfully authorized bonds or notes sold and in process of delivery shall for the purpose set forth in Sec. 45 of this act, be deemed in the treasury and in the appropriate fund.”

"With much ingenuity and plausibility it is argued on behalf of the defendants that the delays to municipal improvements, sought to be obviated by this amendment are, on the one hand, those occasioned by the necessity of prolonged advertising in the case of the sale of bonds,' and on the other hand, those occasioned by the practice of selling municipal notes for future delivery from time to time as the money is actually needed by the city for disbursement in the course of its business, in order to save the interest on premature loans.

In other words, this contention assumes that in two distinct classes of cases the money may be deemed in the treasury for the purposes of See. 45, viz: First, when bonds have been lawfully authorized, and secondly, when notes are sold and in process of delivery.

In the present case it is conceded that bonds had been lawfully authorized, but they were not sold and in process of delivery when the certificate was filed.

It is claimed by plaintiff on the other hand, that both of the- two qualifying phrases, “lawfully authorized” and “sold and in process of delivery, ’1 apply to bonds and notes alike.

• The city solicitor, however, took the former view, and so advised the board of public service, at their request, before the contract was let. He is by law made the legal advisor of that body, and they acted in good faith in accordance with his view. The asphalt company, as we find, likewise acted in good faith upon a similar interpretation of the statute.

There was no actual fraud. Section 45 was literally complied with. The only question remaining, is whether constructive fraud can be predicated of this erroneous interpretation of the statute, if it was erroneous. We do not find it necessary to construe Sec. 45a further than to say that it is fairly open to either interpretation, and we cannot hold that the parties were bound to interpret it correctly at their peril.

They were entitled, under the circumstances to rely upon the literal compliance with Sec. 45. The fact that the certificate filed in accordanee with that section might possibly prove to be false, when tbe parties ' in good faitb and upon legal advice, provided for by law, believed it to be true, is not sufficient to sustain the charge of fraud and thereby invalidate this contract. The petition will therefore be dismissed.

Marvin and Winch, JJ., concur.


author: WINCH, J. HENRY, J.,

text:
    CORPORATIONS — RECEIVERS—BANKS AND BANKING.
    [Lorain (8th) Circuit Court,
    May 8, 1905.]
    Marvin, Winch and Henry, JJ.
    James W. Dickason v. Grafton Sav. Bank Co. et al.
    1. Admissibility of Evidence when Insolvency of Corporation not Judicially Determined.
    Where, in an action to enforce the secondary liability of stockholders, the petition alleges the recovery of a judgment against the corporation and the return of an execution unsatisfied, together with the insolvency of the corporation, and the plaintiff, in open court, admits that the judgment referred to in his petition is void because of insufficient service, an objection by the stockholders to the introduction of any evidence for -lack of any averment of a judicial determination of the insolvency of the corporation, is well taken and should be sustained.
    2. Amendment Alleging Appointment of Receiver, Proper, when.
    An amendment to a cross petition, filed by a creditor, alleging the appointment of a receiver of the corporation may be made in such ease, ■ although the receiver was appointed subsequent to the filing of the petition.
    3. Nonexistence of Corporate Capacity of Savings Bank no Defense against Creditors, etc.
    Stockholders of an insolvent savings bank cannot successfully defend an action commenced by creditors to enforce unpaid stock subscriptions and their secondary liability, on the ground that the bank was not a corporation by reason of the fact that it commenced business without its capital stock being fully subscribed and one-half of each subscription thereto fully paid up as required by Lan. R. L. 6123 (R. S. 3797). It is sufficient, in such case, that the corporation has a de facto existence.
    4. Failure to Comply with Lan. R. L. 6124 (R. S. 3798) no Defense against Creditors.
    Failure to comply with the provisions of Lan. R. L. 6124 (R. S. 3798) requiring the incorporators of a savings bank to give at least three days personal notice or thirty days notice by publication of the time and place of the meeting for the election of directors, cannot be successfully set up as a defense in an action by creditors to enforce the payment of unpaid stock and the secondary liability of the stockholders.
    E. Majority of Directors Constitute the “Board” under Lan. R. L. 5188 (R S. 3247).
    Three directors of a board of directors of a corporation consisting of five directors, being a majority, constitute the “board” within the meaning of Lan. R. L. 5188 (R. S. 3247), and may transact the business of the corporation.

      6. Savings Bank mat Borrow Monet, under Favor of Lan. R. L. 5199 (R. S. 3256).
    A savings bank incorporated under the laws of Ohio has power to borrow money under favor of Lan. R. L. 5199 (R. S. 3256), which forms a part df the general corporation statutes.'
    7. Creditor not Charged with Knowledge that Stockholders have not made Statutort Payment on Subscriptions.
    A creditor who has loaned money to a savings bank is not charged with knowledge that the stockholders of the latter have not paid up their stock as required by Lan. R. L. 6123 (R. S. 3797), which requires that one-half of each subscription shall be fully paid before the bank commences business, by reason of the fact that it was informed that certain stockholders had given notes for their subscriptions, unless it further appears that it knew that said notes represented their entire subscriptions, as it is reasonable to presume, in such case, that one-half of the subscription had been paid in cash, and that the notes referred to were given for the balance.
    8. Creditor may Elect to Sue Stockholders Usurping Corporate Powers as such Stockholders or as- Individuals.
    Persons who- carry on a banking business in the name of a corporation, in violation of law, are not protected by the corporate privilege from personal liability for debts contracted in the transaction of such business; and while the creditors may bring their action against the individuals who actively assume the exercise of corporate franchises without lawful authority so to do, yet they may also, at tbeir election, bring an action against tbe stockholders as such, to enforce their unpaid subscription and secondary liability, relying, in such case, upon the doctrine of estoppel.
    Appeal from Lorain common pleas court.
    F. M. Stevens, for plaintiff.
    Lester, Wood & Gage, Higley & Maurer, Clayton Chapman, D. -J. Nye, J. C. Hill, F. M. Stevens and Johnston & Leonard, for defendants.
   WINCH, J.

July 17, 1902, plaintiff filed his petition against the Grafton Savings Bank Company and various individuals claimed to be stockholders thereof for the purpose of enforcing the secondary liability of said stockholders.

He alleged the recovery of judgment against the corporation, execution thereon and return of the same unsatisfied and that said corporation was wholly insolvent and without property or assets to satisfy said judgment, and had for a long' time ceased to do business.

On November 15, 1902, the Savings Deposit Bank Company of Elyria, having become party defendant to the case, filed its amended answer and cross petition, in which it set up an indebtedness to it of the Grafton Savings Bank Company on a promissory note for $1,000 given by the latter company to it on March 10, 1902, and in addition to a request that the stockholders’ secondary liability be enforced, also prayed that the unpaid stock subscriptions of the defendant stockholders be collected, alleging the amount of their several subscriptions, and that none of them had been paid.

In this amended cross petition is an allegation of the insolvency of the Grafton Company and that it had closed its doors and ceased to do business; but no allegation was made of judgment against the corporation with execution returned unsatisfied; nor that a receiver had been appointed for it, nor any other judicial determination of its insolvency.. As a matter of fact, as shown in evidence, a receiver had been duly appointed for the Grafton corporation on August 28, 1902, and he had qualified and taken possession of its assets.

October 19, 1903, said receiver on motion of the plaintiff was made party defendant to the case, and answered, setting up his appointment as such receiver. No objection has ever been taken to this action on his part.

The defendant stockholders having answered, denying that the Grafton Savings Bank Company, was ever incorporated or existed as a corporation, denying any indebtedness on its part and denying that they had ever subscribed for stock or were the owners of any stock in said alleged corporation, the case was tried in the common pleas court, and from its judgment an appeal was taken to this court.

In this court, plaintiff admitting that the judgment alleged in the petition to have been recovered against the insolvent bank was void, for lack of proper service, the defendant stockholders objected to the introduction of any evidence for lack of any averment of such judicial determination of the insolvency of the corporation as rendered the secondary liability of stockholders enforcible against them.

This precise question was determined by the Supreme Court in the case of Cobb v. Scofield, 66 Ohio St. 680 [65 N. E. Rep. 1127], on authority of Younglove v. Lime Co. 49 Ohio St. 663 [33 N. E. Rep. 234] and Bronson v. Schneider, 49 Ohio St. 438 [33 N. E. Rep. 233], the Supreme Court holding such objection well taken.

Thereupon the defendant, The Savings Deposit Bank Company, asked leave to amend its second amended cross petition by inserting an allegation as to the appointment of a receiver and such amendment being objected to on the ground that the receivership was a matter occurring subsequent to the filing of the petition, we overruled the objection, and permitted the amendment, following the ruling of this' court in the recent retrial of the Cobb case above referred to, in which ruling we are sustained by the case of Gibbon v. Dougherty, 10 Ohio St. 365, and 1 Nash, Pl. & Pr. 288, and cases there cited.

Whether we were right in permitting such amendment or not, we think the objection to the introduction of evidence should be overruled, for the fact of the appointment of a receiver came upon the record and into the case without objection before it was tried in the common pleas court, by the appearance and answer of the receiver himself, and that too, within the time limited for the beginning of such actions as this.

Coming now to the merits of the case, we find that the Grafton Savings Bank Company had duly issued to the incorporators thereof, authority to organize under the savings and loan association laws of the state for the purpose of carrying on the business of such associations. Grafton being a village of less than 2,500 inhabitants, under the provisions of Lan. R. L. 6123 (R. S. 3797), this association was forbidden to commence business, with a subscribed capital of less than $25,000 and until one-half of each subscription therefor was fully- paid up.

We find that the association had a subscribed capital of but one-half of $25,000, and that it never had one-half of each subscription fully paid up.

It commenced doing business on March 10, 1902, and the claims of plaintiff and defendant creditors, are based upon actual business transactions with said corporation, but defendant stockholders claim that neither the corporation, nor they as stockholders, are bound by such transactions; because the corporation was by law expressly forbidden to do any business — not that the transactions would not be lawful and binding if all of its capital stock had been subscribed and one-half paid up.

With this contention we cannot agree. “When an action is brought to collect a subscription, either directly or indirectly for the benefit of corporate creditors, it is well established that the subscribers cannot defeat such action by the defense that the corporation was not an incorporation, by reason of its not having fully complied with the terms of the statute providing for such an incorporation. Not only is the subscriber estopped, by the act of subscribing, from setting up this defense, but he is bound also by. the rule that the existence of a corporation cannot be inquired into except by a direct proceeding in behalf of the state. It is sufficient that the corporation exists de facto.” 1 Cook, Corporations Sec. 184. ,

Four of the defendants, Fuller, Hale, Morgan and Mills, participated in the election of directors; the directors, or a majority of them, elected Mills secretary and treasurer, and' by resolution authorized and directed him “to do all things necessary to be done to carry on the business of this corporation.”

The fifth stockholder, Kerr, testifies he knew Mills was to run the business, but he never attended any meetings, either of stockholders or directors.

But it is contended that there was no legally elected board of directors, for Lan. R. L. 6124 (R. S. 3798) provides that the incorporators of a savings and loan association shall give at least three days notice, personally served upon each stockholder, or thirty days notice by publication, of the time and place of the meeting, for the election of directors. This was not done, it being in evidence that at least Kerr had no notice of such meeting, and did not waive such notice. We think however, that this objection'is not well taken.

“The fact that directors have been illegally elected cannot be set up as a defense to a suit for the payment of stock.” Green’s Brice, Ultra Vires 150, note b, and cases cited.

It is next contended that only three of the five directors ever qualified and assumed to act as such; that the business of the corporation must be transacted by the board, the whole board and nothing but the board, and as sustaining this contention' we are referred to the case of Bradford Belting Co. v. Gibson, 68 Ohio St. 442 [67 N. E. Rep. 888].

But that case only holds that an officer of a corporation, in the absence of express authority from the board of directors cannot bind the corporation in a transaction .beyond the apparent authority of his position.

On page 449 of the opinion Judge Davis says:

“The corporation may by its regulations, so define the duties of its officers as to make them alter ego within the assigned limits.”

In this case we think the board attempted to confer this express authority by the resolution referred to, and we use the word, board, designedly, though only three out of five acted, for Lan. R. L. 5188 (R. S. 3247) says:

“A majority of the trustees or directors shall form a board.”

It also sufficiently appears that the three directors who acted, took the oath of office, if that is material.

It is further contended as to the claim of the Savings Deposit Bank Company, that it is for a loan, and that Mills, who negotiated the loan, not only had no authority to represent this corporation, but it itself had no authority to borrow money.

We think such an institution as this has the power granted under the general corporation statutes, by Lan. R. L. 5199 (R. S. 3256), to borrow money, and that Mills had express authority to negotiate the loan by virtue of the resolution referred to, a copy of which he exhibited to the Elyria bank.

It is said that the Elyria bank knew that the Grafton bank had not complied with the law and paid up half of its capital stock, because Mills told it about notes which Kerr and Fuller had given for their stock subscription, but it does not appear that it knew said notes represented their entire stock subscription; it might reasonably have supposed that they had paid up one-half and that the notes were for the balance.

Upon the whole we are of opinion that the Grafton Savings Bank Company was a de facto corporation, and that the irregularities in its organization and method of doing business complained of are not such as either the defendant, Fuller or the defendant, Kerr, or any other defendant stockholder can set up as a defense to this action to collect such part of their subscription and secondary stock liability as may be necessary to pay the valid debts incurred in its behalf by its acting board of directors or Mills under authority of the resolution mentioned; in other words that said stockholders are estopped from setting up such defense; in the words of Ashbel Green’s American edition of Brice, Ultra Vires (2 ed.) 784:

“When a transaction of the kind now in consideration is completed on the part of the other contracting party, every principle of common sense and equity requires that the corporation should not be permitted to repudiate payment therefor, or the other due completion thereof by itself, on the ground that the transaction, though admitted to be within its possible capacities, is outside its actual powers then called into existence. The very defense discloses fraud; discloses what no court of equity has ever allowed a party to rely .on, namely, his own laches or chicanery; discloses that the objector could have given, and can now give himself the capacity which he pretends to be without, and could have done that which, if done, would cut away the ground whereon his objection rests. It is submitted, therefore, that when such a transaction is completed on one side, it is then too late for the corporation to attempt to wriggle out of that stipulated for on its side.”

This is strong language. The word “chicanery” is applicable to Mills’ conduct alone, but the word “laches” fully characterizes the easy and indifferent manner in which Fuller and Kerr signed stock subscriptions, Fuller also signing minutes of meetings — minutes which he says he never read, and meetings which he says he never attended — and both trusted to the representations of their friends that Mills had a good business, and would run the bank all right. Does. anyone for a moment suppose that if the corporation had been a success, made money, declared large dividends, that either Fuller or Kerr would have denied that they were stockholders or denied that there was a corporation? Should they be heard to make such denial when the shoe is on the other foot?

We think these observations answer the suggestion, supported by authority, that those who did not participate in the de facto organization should not be held liable. We find that all participated by giving their subscription, and they had no right to consider the enterprise abandoned, as was held under the circumstances of the case of Bartholomew v. Bentley, 1 Ohio St. 37.

It remains to consider two more Ohio cases with which the conclusion reached in this case is said to be inconsistent.

The case of Medill v. Collier, 16 Ohio St. 599, was an action by a. depositor against the officers and stockholders of a bank, to recover from them as individuals, on a certificate of deposit issued by the corporation, it appearing that said corporation' had failed to make a deposit with the state required by law, as a prerequisite to such corporation’s doing business. It seems the depositor “had no information as to whether they were doing business as a corporation, or as private bankers. He seems to have trusted them in the latter capacity. ’ ’ Page 611. The court held that persons who carry on a banking business, in the name of a corporation, in violation of law, are not protected by the' corporate privileges from personal liability for debts contracted by them in the transaction of such business.

That doubtless is the law yet, and plaintiff might have had it enforced against Mills, and his active associates, if he desired, but he chose to pursue another remedy, and we do not find that the case cited holds that he cannot. Indeed, it expressly states that such proposition is not decided. On page 612, Judge Day says:

“Whether the law would afford any remedy in favor of the plaintiff against the corporation, upon a contract express or implied, made on its part in violation of law, may well be doubted, both upon principle and authority. * * * Clearly the plaintiff wquld have no remedy against the corporation, unless he could bring to his aid the doctrine of estoppel, where the transaction is forbidden, as may be done where it is merely unauthorized. Although the court do not deem it necessary to decide' this point, the following authorities tend to show that the plaintiff is remediless against the corporation.”

The case of Trust Co. v. Floyd, 47 Ohio St. 525 [26 N. E. Rep. 110; 12 L. R. A. 346; 21 Am. St. Rep. 846], is like the Medill case, and was an action' brought by one who had sold wool to a certain “wool growers exchange” to recover a balance due on account of such sale from the directors of said exchange, a corporation, said directors having been elected and having undertaken to contract as directors before 10 per cent of the capital- stock of the corporation had been subscribed. The defendants were held personally liable. The case does not undertake to hold that the plaintiff could not have recovered in an action to assess the stockholders’ liability, though the defendants urged that such was the plaintiff’s only remedy. The substance of what the court said on this subject is found on page 542:

“If the doctrine of estoppel could be brought to the aid of the plaintiff against it, the defendants are not in a position to require a resort to that remedy, to relieve them from the liability they have incurred. ’ ’

From an examination of the Ohio cases cited and relied upon by defendants, we conclude that while the creditors of the Grafton bank in this case, might have brought their action against the individuals who actively assumed the exercise of corporate franchises without lawful authority so to do, yet the right to bring an action against the stockholders as such, to enforce their subscription and liability, relying upon the doctrine of estoppel, has never been denied in Ohio.

One ruling upon evidence remains to be mentioned; the objection to the admission in evidence of the letter from Kerr to Stevens, on the ground of its being a privileged communication, is sustained.

Decree may be drawn for plaintiff and cross petitioning creditors as prayed for, finding in favor of the Savings Deposit Bank, depositors who made deposits after March 10, 1902, if any, and other general creditors whose claims were not abandoned at the hearing. The claim based upon affidavit regarding O. E. Durkee is disallowed.

Marvin, J., concurs.

HENRY, J.,

dissenting.

I dissent from this judgment. Not a single step in the career of this corporation was legally taken after the filing of its articles .of incorporation. Its first stockholders’ meeting for the election of directors was illegally convened, and both Kerr and Fuller, who are the only subscribers to the capital stock that are before the court, for the purpose of a decree against them, are said to be estopped by their subscription to deny the validity of that meeting, though neither was present. So again, the business transacted and the general power given to Mills, at tHe first meeting of the directors, to contract the debts which are here in issue, was unauthorized, for the stockholders had not all paid one-half of their subscription, as required by law as a prerequisite to the beginning of business by corporations of this character.

But Kerr and Fuller are again said to be estopped by their subscription to deny the validity of this action.

The conclusion of the court seems to me to be possible only by piling estoppel upon estoppel in a manner that equity does not permit.

I do not think a de facto debt contracted by de facto directors of a de facto corporation, elected at a de facto meeting, can be enforced in a proceeding of this kind.


author: JELKE, J.

text:
    CHARGE TO JURY — ERROR.
    [Hamilton (1st) Circuit Court,
    February 13, 1905.]
    Jelke, Swing and Giffen, JJ.
    Ada Wuest v. Railway Co. et al.
    1. Court must Exercise Utmost Care to State Testimony Accurately to Jury
    The anxiety of juries to discover and determine the views of the presiding judge on the important issues of a case makes it imperative that any statement of the testimony in his charge should be of the utmost accuracy.
    2. Inaccurate Statement by the Court of Certain Testimony is Reversible Error.
    It is reversible error to charge the jury that all the expert witnesses called to give their opinions as to the existence of a certain state of facts had testified in the affirmative when as a matter of fact one of the experts had testified that he could not tell whether or not such state of facts existed, although the trend of his testimony would lead to the inference that the balance of his judgment was in that direction.
    Error to Hamilton common pleas court.
    Theodore Horstman, for plaintiff in error.
    A. W. Goldsmith and Miller Outcalt, for defendant in error.
   JELKE, J.

It seems too bad to reverse a ease wbicb has been so carefully and for the most part correctly tried below. The trial judge in overruling the motion for a new trial seems to have been impressed as we are, that the recovery is very small, probably too small, for the injury received.

It was manifest, from the amount of the verdict, that the jury found that the hernia from which Ada Wuest, the plaintiff, was suffering, was congenital, and not caused by the accident. This is one of the most strenuously fought issues of fact in the case.

In the course of his charge, on page 371 of the record, the trial judge said:

“There has been testimony as to the nature of the rupture complained of in this particular case; testimony tending to show that it is vdiat the experts call congenital, by which the experts for the defendants, who have all testified that it was in their opinion congenital rupture, mean that it was a rupture existing at the time of the birth of the child, or that the child was born with a predisposition to just .such a rupture in that place, that part of the body. I need not go into the details of the testimony on that subject, but I charge you that if you should find that it was not congenital in that sense that the rupture, an actual rupture, did not exist at the time of the birth, and that there was not a predisposition to such rupture at the birth of tlm child, and should find from the greater weight of the evidence that the rupture was caused by that accident, you will award to the plaintiff such damage as would seem to you to be reasonable compensation to her for such an injury.”

It is not only proper, but it is the duty of the trial judge to apply his charge to the testimony of the witnesses. This is a delicate task and one hard to perform without giving undue ‘prominence to part of the testimony, and without indicating to the jury the view of the court on that particular issue of fact.

We know that juries are alert to catch the least note from the presiding judge as to his view on important issues; hence the importance cannot be exaggerated of a correct statement of the testimony where the court undertakes to state the same in the course of its charge.

The statement above referred to, that all the experts had testified that it was in their opinion congenital rupture, slightly overstates the testimony, as disclosed by the record in this regard.

Dr. Bonnifield, one of the experts, expressly testified that he could not tell, and yet, the trend of his testimony might well lead one to infer that the balance of his judgment was that way.

It is unfortunate that this slight inaccuracy occurred on a matter so vital in the trial of the case, but we think it constituted sufficient prejudicial error to require a reversal. We are reassured in our conclusion by the general impression that the recovery was inadequate and trust that a reasonable addition to the amount named in the verdict will end this litigation.

Giffen and Swing, JJ., concur.


author: WILSON, J.

text:
    COURT — GUARDIAN.
    [Darke (2nd) Circuit Court,
    November Term, 1904.]
    Sullivan, Dustin and Wilson, JJ.
    A. A. North v. John A. Smith et al.
    Circuit Court has no Jurisdiction to Review Order of Common Pleas Removing or Refusing to Remove Guardian.
    An order removing or refusing to remove a guardian for cause is not an order affecting a substantial right, within the purview of Lan. R. L. 10297 (R. S. 6707), from which, in the absence of special statutory-provisions, either appeal or error can he prosecuted; and Lan. R. L. 9983 (R. S. 6407), as amended (95 O. L. 406), which provides for the appeal from the probate court to the common pleas court of, such orders confers no jurisdiction on the circuit court to review the order of the common pleas court.
    Error to Darke common pleas court.
    A. A. North and W. Y. Stubbs, for plaintiff in error.
    Meeker & Gaskill and Anderson, Bowman & Anderson, for defendant in error.
   WILSON, J.

By a proceeding in the probate court, the plaintiff in error, a guardian, was by the order of that court removed for cause. An appeal was prosecuted to the court of common pleas under favor of Lan. R. L. 9983 (R. S. 6407) as amended (95 O. L. 406).

That court also made an order of removal.

It is now sought to prosecute error proceedings in the circuit court to review the order of the court of common pleas.

H'as the circuit court jurisdiction?

Before the amendment of 95 O. L. 391, 406 (Lan. R. L. 10298 and 9983; R. S. 6708 and 6407), neither error nor appeal could be prosecuted from an order of the probate court removing or refusing to remove a guardian. This was so for the reason, it was held, that such an order did not affect a substantial right. Had it been such order as is defined in Lan. R. L. 10297 (R. S. 6707), error Or appeal would lie under the general statutes without special provision made therefor. It was the policy of the law to confer upon the probate court exclusive jurisdiction over the matter. The amendment extends the jurisdiction in error and on appeal to the court of common pleas. It does not change the character of the order, as, though final, not affecting a substantial right. It does not enlarge the jurisdiction in error of the circuit court. Laning R. L. 10300 (R. S. 6709), which confers jurisdiction, is the 'same as before. The order that may be reviewed by virtue of its previsions is such as is defined in Lan. R. L. 10297 (R. S. 6707), and we have seen that the order in question is not of that character. It cannot, therefore, be reviewed by the circuit court.

Missionary Society v. Ely, 56 Ohio St. 405 [47 N. E. Rep. 537], and Davis v. Coffman, 55 Ohio St. 556 [45 N. E. Rep. 707], relied upon by the plaintiff in error,- are not in conflict with this view. The orders there reviewed were held to affect a substantial right. Subsequently Monger v. Jeffries, 62 Ohio St. 149 [56 N. E. Rep. 654], holds that an order such as is involved here is not reviewable under the general provisions of the statute. Reading the order into Lan. R. L. 10298 (R. S. 6708) enlarged the jurisdiction of the court of common pleas by that much more than is conferred by Lan. R. L. 10297 (R. S. 6707). But it did not by that much enlarge the jurisdiction of the courts all along the line. Notwithstanding the amendment, it should be said that it is the policy of the law now, to make the jurisdiction of the court of com; mon pleas final, as it was before the policy to make that of the probate court final. The reason for the policy still obtains, and the amendment should not be given scope beyond its letter.

The petition in error will be dismissed.

Sullivan and Dustin, JJ., concur.