text:
    COLD METAL PROCESS COMPANY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. LEON A. BEEGHLY FUND, THE UNION NATIONAL BANK OF YOUNSTOWN, Trustee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
    United States Court of Appeals, Sixth Circuit.
    Nos. 13047, 13048.
    Decided September 10, 1957.

      Howard F. Burns, Cleveland (William H. Fleming, Alan G. Rorick, Cleveland, on the brief), for petitioners.

      Melva M. Graney, Dept. of Justice, Washington, D. C. (Charles K. Rice, Asst. Atty. Genl., Harry Baum, Atty. Dept. of Justice, Washington, D. C., on the brief), for respondent.
    Before SIMONS, Chief Judge, and ALLEN and MILLER, Circuit Judges.
   OPINION

By SHACKELFORD MILLER, Jr., Circuit Judge.

The petitioners, The Cold Metal Process Company, hereinafter referred to as Cold Metal, and The Leon A. Beeghly Fund, The Union National Bank of Youngstown, Ohio, Trustee, hereinafter referred to as trustee, seek review of the judgment of the Tax Court which adjudged an income tax deficiency for the year 1949 against Cold Metal in the amount of $3,931,174.37 and in the same amount against the trustee as a transferee of Cold Metal. The stipulated facts are stated by the tax court in its Findings of Fact and Opinion reported at 25 T. C. 1333, to which reference is made for the facts in detail. We will restate here what we believe to be sufficient for an understanding of the issue.

The question involved is the 1949 income tax liability of a corporation, which was dissolved in 1945, on income received in 1949 by its sole stockholder arising from assets received by the stockholder in dissolution in 1945. The income under consideration resulted from transactions by the corporation prior to dissolution but was not accruable to the corporation prior to dissolution because of litigation instituted by the Government which strenuously contested the legal right of the corporation to such income until the termination of the litigation in 1949.

Cold Metal, an Ohio corporation, was incorporated in 1926 with 2000 shares of outstanding common stock. It kept its books on an accrual basis of accounting. Its principal assets consisted of United States patents No. 1,744,016 and No. 1,779,195, hereinafter referred to as the patents, relating to the hot and cold rolling of metals. The process covered by the patents gained wide usage in the metals industry, and beginning in 1928 Cold Metal granted non-exclusive licenses to certain manufacturers. Various other manufacturers, not licensed, installed rolling mills which Cold Metal claimed embodied its inventions and infringed its patents. Cold Metal brought suits for infringement against several large producing companies.

In Cold Metal Process Company v. Carnegie-Illinois Steel Corporation, 3 Cir., 108 F. (2d), 322, certiorari denied and petition for rehearing denied 309 U. S., 665, 667, 60 S. Ct., 590, 84 L. Ed., 1012, the Court of Appeals held the patents valid and infringed. The suit was settled for $3,850,000 and the granting by Cold Metal of non-exclusive licenses on a royalty basis. See also: Cold Metal Process Co. v. Republic Steel Corp., 6 Cir., 233 F. (2d), 828, certiorari denied 352 U. S., 891, 77 S. Ct., 128, 1 L. Ed. (2d), 86, a recent opinion of this court, for a thorough discussion of the validity of the patents.

In 1943 the United States started a suit, hereinafter referred to as the Cancellation suit, in the United States District Court for the Northern District of Ohio against Cold Metal seeking cancellation of the patents on the ground of fraud or a mutual mistake of fact in the granting of them. On the motion of the United States, the District Court entered an interlocutory order on October 10, 1944, hereinafter referred to as the impounding order, which enjoined Cold Metal until final judgment in the suit from receiving any further moneys by way of royalties or damages for infringement under the patents and from transferring the patents in any manner whatsoever. The order directed that royalty payments and damages for infringement be deposited with the Clerk of the Court. Final judgment in the District Court dismissing the complaint was entered for Cold Metal on September 20, 1945. The impounding order was restored pending the Government’s appeal to the Court of Appeals. Before this case was finally terminated there was paid into court and impounded under the provisions of the order the sum of $9,749,000, which was eventually released and paid in 1949 to the trustee, who, as sole stockholder of Cold Metal, had acquired all its assets in dissolution. This money and other payments received by the trustee in 1949, following the proceedings and litigation hereinafter refered to, constitute the basis for the deficiency assessment against Cold Metal for the year 1949, herein in controversy.

In 1940 Leon A. Beeghly, who was one of Cold Metal stockholders and Chairman of its Board of Directors, transferred 150 shares of Cold Metal stock to The Union National Bank of Youngstown, Ohio, in trust for certain charitable purposes, herein referred to as the trustee. In 1944 he transferred one additional share to the Trust.

In 1942 and 1943 Cold Metal brought several suits for alleged infringement of the patents against a number of steel companies. Thereafter, negotiations were entered into looking to the settlement of these suits. A plan was suggested by several of their attorneys that the way to settle the controversy was for the stockholders of Cold Metal to sell their stock to the steel companies or to an unnamed banker. This plan appealed to the stockholders because of the impounding order which resulted in the discontinuance of dividends and also because Cold Metal became pressed for money to continue prosecution of its claims. However, neither the steel companies nor the unnamed banker would have been willing to purchase the stock until the termination of the Cancellation suit. The steel companies wished to settle within the taxable year of 1945 as the excess profit tax was due to expire at the end of 1945. They were not concerned with whom they settled as long as the settlement was binding. An alternate plan was worked out by which the stockholders of Cold Metal would sell all of their shares to the trustee, Cold Metal would be liquidated with the trustee as sole stockholder acquiring all its assets, and the infringement claims would then be settled with the steel eompánies. Under this plan the trustee assumed a risk that the assets acquired through the dissolution of Cold Metal would not produce sufficient funds to meet its obligations to pay the debts and taxes of Cold Metal, the purchase price of the stock, and the future expenses to be incurred in connection with pending litigation. On the other hand, the stockholders who sold at the price offered by the trustee, thus limiting the amount they would receive, would receive a partial cash payment immediately and very substantial payment later if and when litigation was successfully terminated.

While the negotiations were being conducted with the steel companies, negotiations were also taking place among the stockholders of Cold Metal with respect to the sale of their shares to the trustee. On December 28, 1945, the trustee entered into a separate agreement with each of the other stockholders whereby it purchased all of their shares in Cold Metal for a total of $11,131,000 at prices varying from $4250 to $7500 per share. $200 per share was to be paid in cash upon delivery of the certificates. The balance was to be paid at a later time in accordance with the plan looking to the dissolution of Cold Metal and to the payment of the trustee, who would acquire its assets, by the Clerk of the Court of the impounded funds in the Registry of the Court and the payment to the trustee by sundry licensees of royalties under patents formerly owned by Cold Metal. On December 29, 1945, certificates for the 1849 shares were delivered duly endorsed to the trustee. In accordance with a pre-arranged plan between certain former stockholders of Cold Metal, The Union National Bank of Youngstown, Ohio, and the trustee, the trustee acquired $375,000 in cash which it used to make the cash payments totaling $369,800 to the transferring stockholders of Cold Metal. Following delivery by the trustee to Cold Metal of the certificates covering the 1849 shares, three certificates were delivered to the trustee making it the record owner of all the 2000 shares of outstanding stock.

While the above transactions were taking place, a meeting of the stockholders of Cold Metal was called and a resolution to dissolve the corporation was adopted. A further resolution was adopted directing the distribution of all of its assets to the trustee, subject to the impounding order in the Cancellation suit.

On December 29, 1945, following the stockholders meeting, a certificate of dissolution of Cold Metal was filed with the Secretary of State of Ohio, and the officers of Cold Metal executed an instrument entitled “Assignment and Distribution in Kind” transferring to the trustee all of the assets of Cold Metal, subject, however, to the impounding order in the Cancellation suit. This was accepted in writing by the trustee.

By contracts executed December 29, 1945, six of the steel companies settled with Cold Metal and the trustee claims against them for past infringement for a total of $9,000,000 and took license agreements under the patents. On December 31, 1945, a settlement was reached with Inland Steel Company in the amount of $600,000. On March 19, 1946, a settlement was reached with Signode Steel Strapping Company in the amount of $39,000. On September 30, 1946, a settlement was reached with Crucible Steel Company in the amount of $110,000. The amounts called for by these settlements were paid to the Clerk of the District Court in the Cancellation suit. This brought the total amount impounded in that suit to $9,749,000.

On December 29, 1945, a settlement agreement was reached with Allegheny-Ludlum Steel Corporation and its subsidiary, Wallingford Steel Company, in the amounts of $700,000 and $300,000, respectively. These amounts, totaling $1,000,000, were paid into the District Court on July 9, 1947, in a different suit, namely, United States v. Thomas Steel Corporation, 109 F. Supp., 418, hereinafter referred to.

On May 31, 1946, an order was entered by the District Court in the Cancellation suit modifying the impounding order so as to allow Cold Metal to transfer to the trustee the patents, together with all rights and causes in action thereunder, conditioned upon the trustee entering a general appearance in the Cancellation suit and subjecting itself to the impounding order, which the trustee did. On June 6, 1946, an assignment of the patents was recorded in the United States Patent Office.

The Court of Appeals for the Sixth Circuit affirmed the judgment of the District Court in the Cancellation suit on December 12, 1947, reported at United States v. Cold Metal Process Co., 164 F. (2d), 754, certiorari denied on May 3, 1948, 334 U. S., 811, 68 S. Ct., 1016, 92 L. Ed., 1742, and petition for rehearing denied on June 1, 1948, 334 U. S., 835, 68 S. Ct., 1343, 92 L. Ed., 1761. On June 16, 1948, the District Court over the Government’s objections entered an order sustaining a motion of Cold Metal and the trustee, allowing the withdrawal of the impounded funds but not earlier than June 25, 1948.

In the meantime, starting in 1943, the United States proceeded under the provisions of the Royalty Adjustment Act, Sections 89-96, Title 35 U. S. Code, and was successful in having the royalties under the licenses from Cold Metal established at a value of zero. Based on this ruling, the United States on March 3, 1947, filed suit in the District Court for the Northern District of Ohio, Eastern Division, against Thomas Steel Corporation, Cold Metal, the trustee and twenty-five licenses to prohibit the payment of royalties to Cold Metal. It was in this suit, herein-before referred to, that the $1,000,000 was paid into court on June 9, 1947. In addition to this $1,000,000 which was paid into court for past infringement, $6,964,695.92 was paid into court as royalties under licenses granted by Cold Metal. On August 29, 1949, the District Court entered a pre-trial consent order providing that a part of the royalties was outside the operation of the Royalty Adjustment Act and, accordingly, the clerk of the court paid to the trustee the sum of $3,424,278.58.

Proceeding on the same theory, the United States on June 23, 1948, two days before the impounded funds in the Cancellation suit were subject to release, filed suit in the District Court against Youngstown Sheet & Tube Company, Cold Metal, the trustee, and the steel companies which had made settlement agreements with respect to past infringement claims. The Government alleged that the funds impounded in the Cancellation suit were subject to the ruling under the Royalty Adjustment Act and the court was asked to retain these funds pending the determination of the rights of the parties. The validity of the ruling under the Royalty Adjustment Act was attacked both in this suit and in the suit against the Thomas Steel Corporation. The District Court, after entering a temporary restraining order preventing the distribution of the impounded funds, ruled that the Royalty Adjustment Act applied only to royalties and not to moneys paid in settlement of infringement claims and denied the Government’s motion for a preliminary injunction impounding these funds for a further period. United States v. Youngstown Sheet & Tube Co., D. C., 81 F. Supp., 996. Application to the Court of Appeais to stay the order of denial was denied on July 21, 1948. on condition that the impounded funds, when withdrawn from the District Court, be deposited with the Federal Reserve Bank at Cleveland for safekeeping and investment until final disposition of the appeal to the Court of Appeals. Pursuant to the order, the impounded funds in the amount of $9,749,000 were paid over to the trustee on or about July 26, 1948, and were immediately deposited by it as directed.

On December 6, 1948, the Court of Appeals affirmed the ruling of the District Court. United States v. Youngstown Sheet & Tube Co., 6 Cir., 171 F. (2d), 103. It appearing that the United States did not contemplate litigating the matter further, the Court of Appeals on January 7, 1949, entered an order permitting the trustee to withdraw the funds deposited with the Federal Reserve Bank. On January 12, 1949, the District Court entered an order permitting the withdrawal of $1,000,000 deposited with the clerk of the court in the suit against the Thomas Steel Corporation. Some of the steel companies which had entered into license agreements paid into court in this case royalties for the period of January 1, 1946, to January 14, 1947. Of the total of these payments, $759,-499.90 was held not subject to the Royalty Adjustment Act and was also released to the trustee in 1949.

In 1940 Cold Metal had brought suit against McLouth Steel Corporation to recover royalties allegedly due under a 1934 license agreement with Cold Metal. This litigation ultimately resulted in a judgment against McLouth and the subsequent payments to the trustee in 1949 of amounts totaling $423,731.61. Cold Metal Process Co. v. McLouth Steel Corp., 6 Cir., 170 F. (2d), 369. This included royalties and interest thereon for the periods both before and after the date of dissolution of Cold Metal.

The trustee also received during 1949 other payments under license agreements and from miscellaneous sources. The total amount received by it during 1949 from the various sources hereinabove referred to was $15,438,220.71. All of the funds in question were paid directly to the trustee. Nothing was paid to Cold Metal. It was stipulated by the parties that except insofar as it might be otherwise determined by the final decision of this case, Cold Metal acquired no assets after December 28, 1945, and had no income or disbursements.

Cold Metal was a party to a' number of actions which were pending after December 29, 1945, in addition to those which were settled without trial on December 29, 1945. At the end of 1949 it was the sole plaintiff in actions against Detroit Steel Corporation and Ford Motor Company. Six other actions originally brought by it in the United States District Courts were pending and untried at the end of 1949 in which, however, the trustee had been added as a party-plaintiff during 1948 and 1949. In 1946 the trustee was added as the plaintiff in an action by Cold Metal against McLouth Steel Corporation above referred to. Both Cold Metal and the trustee were plaintiffs in an action filed in 1946 against the Bopp Steel Corporation. Cold Metal was made a party-plaintiff to two actions against the United States filed by it and the trustee in 1949 in the United States Court of Claims for the stated reason that the Government threatened to defend on the ground that claims against the United States could not be assigned. At the end of 1949, Cold Metal was the sole defendant in an action brought by the E. W. Bliss Company.

The Commissioner of Internal Revenue determined deficiencies in Cold Metal’s tax liability for the year ending December 31, 1945, in the amount of $7,212,796.65 on the basis that the settlement of the patent infringement claims in 1945 resulted in accrued income for that year. Cold Metal contested the liability in a proceeding in the tax court on the ground that the amounts involved in the settlements were not in fact received in 1945, that they were not properly accruable in that year, and that even if they were then accruable they must be ascribed to the trustee rather than to Cold Metal. The tax court reviewed the litigation hereinabove referred to and pointed out that at the close of 1945 the Government appeared to be firmly convinced, and was strenuously acting on its conviction, that the two patents had been improperly obtained, were invalid and ought to be cancelled, and that Cold Metal, or anyone who might stand in its place, was not entitled to enjoy and retain any benefits under these patents; that the Government persistently blocked every effort to have the impounding order modified so as to permit the release of the funds; that the right of Cold Metal to obtain the impounded funds was successfully contested for some three years after the close of the taxable year involved; and that there was no certainty that its right thereto would ever be establiished. It ruled that under the circumstances it could not be required to accrue the amounts involved as income in 1945 and that to the extent the deficiencies asserted were based upon the ruling that said amounts were included in Cold Metal’s 1945 income, they were disapproved. Cold Metal Process Co. v. Commissioner, 17 T. C., 916. The judgment was affirmed by this court without opinion in accordance with the decision of the tax court.

On January 11, 1951, the commissioner issued the statutory notice of deficiencies in the present proceeding determining that the $15,-438,220.71 received by the trustee in 1949 was taxable as ordinary income to Cold Metal for the year 1949. A deficiency of $5,550,140.33 was assessed against Cold Metal and also against the trustee as transferee. In the proceeding before the tax court contesting these assessments, the tax court reduced the amount of the deficiency to $3,931,174.37. Cold Metal Process Co. v. Commissioner, 25 T. C., 1333.

The tax court held that where the corporate entity, after statutory dissolution, was still used so extensively as in the present case in aiding its stockholder to realize on claims which it had assigned to it, the corporation was in existence for tax purposes during 1949, citing United States v. Joliet & Chicago R. Co., 315 U. S., 44, 62 S. Ct., 442, 86 L. Ed., 658, and Henry Hess Co. v. Commissioner, 16 T. C., 1363. It also held that with respect to income earned after December 29, 1945, no part of that income was attributable to Cold Metal since it assigned and transferred at that time the patents themselves as well as the income which was subsequently earned by them. However, it ruled that that portion of the $15,438,220.17 representing royalties and amounts paid for infringement of patents on production prior to December 29. 1945, totaling more than $12,000,000, was taxable to Cold Metal, since it represented “income earned, although not accruable” prior to the date of the assignment, citing Helvering v. Eubank, 311 U. S., 122, 61 S. Ct., 149, 85 L. Ed., 81; Helvering v. Horst, 311 U. S., 112, 61 S. Ct., 144, 85 L. Ed., 75; Lucas v. Earl, 281 U. S., 111, 50 S. Ct., 241, 74 L. Ed., 731 and other cases.

, The present case does not involve the 1949 income tax liability of the trustee other than as a transferee. Sec. 311, Internal Revenue Code of 1939, 26 U. S. C. §311. No question is involved about the receipt of the money by the trustee in 1949 or the fact that it represented accrued income to the trustee in that year. Whether or not the trustee, outside of its status as a transferee, has a 1949 income tax liability or is exempt as a charitable organization, is not before us. If there is no 1949 income tax liability against Cold Metal, there is no transferee liability against the trustee. Accordingly, the validity of the 1949 assessment against Cold Metal is the question presented.

In making its ruling, the tax court rejected the commissioner's contentions (1) that Cold Metal, by transferring its assets to the trustee, merely turned its assets over to a receiver or trustee, in liquidation which continued to operate the corporation, and therefore the corporation was still in existence and received the income in 1949, and (2) that the alleged sale of stock to the trustee was a sale in form only which for tax purposes should be disregarded. We agree with the rulings for the reasons given by the tax court. The commissioner does not press those contentions on this review.

The Government in its brief calls attention to the fact that the purchase of the stock of Cold Metal by the trustee, the dissolution of Cold Metal, and the distribution of its assets to the trustee was pursuant to a “prearranged plan.” Petitioners concede this to be so. If the transaction was a bona fide one and was one in substance rather than merely in form, the existence of a motive to avoid taxation by the use of such a plan is not material. United States v. Cumberland Public Service Co., 338 U. S., 451, 455, 70 S. Ct., 280, 94 L. Ed., 251; United States v. Cummins Distilleries Corp., 6 Cir., 166 P. (2d), 17. The tax court did not base its ruling upon any finding that the transaction was one in form only, and in our opinion there is no substantial basis for such a contention.

This case is not the type of case under consideration in Helvering v. Horst, supra, Helvering v. Eubank, supra, Harrison v. Schaffner, 312 U. S., 579, 61 S. Ct., 759, 85 L. Ed., 1055, and other similar cases. Those cases involved a gift of income payable in the future, as distinguished from a gift of income producing property where the donor relinquishes to the donee not merely the income which is payable in the future, but also complete ownership and control of the property which produces the income. Blair v. Commissioner, 300 U. S., 5, 57 S. Ct., 330, 81 L. Ed., 465; Helvering v. Horst, supra, 311 U. S. at pages 118-119, 61 S. Ct., 144. When the ownership of the income producing property remains in the donor, a gift; of only the income therefrom is taxable to the donor father than the donee. As stated in Lucas v. Earl, supra, 281 U. S., Ill, 50 S. Ct., 241, the fruits cannot be attributed to a different tree from that on which they grew. In the present case there was no retention by Cold Metal of any right, title or interest of any kind in the patents transferred to the trustee. Both the income producing property and the income therefrom were transferred in their entirety and unconditionally to the trustee. Helvering v. Horst, supra, and other similar cases are accordingly not applicable. Blair v. Commissioner, supra, 300 U. S., 5, 13, 57 S. Ct., 330; Telephone Directory Advertising Co. v. United States, 142 F. Supp., 884, 889, 142 Ct. Cl., 670; Commissioner of Internal Revenue v. Reece, 1 Cir., 233 F. (2d), 30, 34-35.

In United States v. Joliet & Chicago Railroad Co., supra, the taxpayer retained title to the chose in action which it received in exchange for its property, and the annual payments to the taxpayer’s stockholders thereafter were in performance of the obligation under the chose in action. The stockholders received the payments because of their status as stockholders, not as transferees of the chose in action. Payments called for and made under the chose in action were taxable to the taxpayer, who was still owner of the chose, even though the payments were actually made to the stockholders at the direction of the taxpayer.

The tax court recognized the well-settled distinction shown by such cases as Helvering v. Horst, supra, and Blair v. Commissioner, supra. While recognizing that the income involved in this case did not accrue as taxable income until after the transfer of the income producing property, as had been held by it in 17 T. C., 916, it nevertheless based its ruling upon its conclusion that the income had been “earned,” although not accruable, prior to the assignment, citing Estate of Bertha May Holmes, 1 T. C., 508. But the income involved in that case was far different from the income in this case. The income there treated as earned at the time of the transfer was in the nature of a corporate dividend previously declared but not payable until a later date. The court considered it similar to the interest coupon payable in the future which was involved in Helvering v. Horst, supra. Liability and amount were both unquestioned. A future maturity date was the only thing which prevented its immediate payment. It was paid to the transferee shortly after the transfer, in the same taxable year, and held taxable to the transferor. The case is a good example of the rule that the anticipatory assignment of earned income does not defeat income tax liability thereon. Carter v. Commissioner, 9 T. C., 364, 373-374.

In the present case, as stated by the tax court in 17 T. C., 916, the legal right to the income was being strenuously contested by the Government and there was no certainty at the time of the transfer that the transferor’s right thereto would ever be established or that the money would ever be paid to either the transferor or transferee. The amount that might eventually be collected was unliquidated. Having previously held that by reason of the uncertainty of Cold Metal ever being able to collect on any of its claims for infringement such claims did not constitute accrued income to it in 1945 and that Cold .Metal was not taxable on it in 1945, we have real difficulty in now ruling that under the same circumstances and same uncertainties Cold Metal had nevertheless “earned” such income on December 29, 1945. The facts which prevented it from being accrued income in 1945 also prevented it from being “earned” income at that time in the usually accepted meaning of the term. “Earn” is defined in Webster’s New International Dictionary, Second Edition, as: “1. To merit or deserve, as by labor or service; to do that which entitles one to (a reward, whether the reward is received or not); * * * 2. To acquire by labor, service or performance; * * (Emphasis added.) If the decision in the Cancellation suit had gone against Cold Metal in 1948, it would not have acquired the income or at any time been entitled to it. We do not think it can rightfully be classified as having been earned in 1945. In re Magazine Associates, Inc., D. C. S. D. N. Y., 43 F. Supp., 583; The Talus, 5 Cir., 248 F., 670, 673; Johnson County v. Crosier, Tex. Civ. App., 211 S. W. (2d), 299, 300.

Regardless of the terminology used with respect to the income, its taxability depends upon the actual circumstances existing at the time of the transfer. At that time, it was not income to Cold Metal. It was an unliquidated chose in action. Cold Metal divested itself of all title, interest and control over it at that time. Later developments over which Cold Metal had no control transformed it into taxable income which was paid to and received by the new owner for its sole use and benefit. These facts fall far short of classifying the transaction as an anticipatory assignment of income taxable to the assignor when later paid. In Harrison v. Schaffner, supra, 312 U. S., 579, at pages 580 and 582, 61 S. Ct., 759, the Supreme Court stated that the rule applicable to an anticipatory assignment of income applies when the assignor is entitled at the time of the assignment to receive the income at a future date and is vested with such a right. Cold Metal’s right was not a vested right in 1945. We think that the absolute and unconditional assignment by it in 1945 of the income producing property together with a contingent right to income therefrom, payable, if at all, at some indefinite time in the future in an indeterminate amount, with respect to which the" assignor had no voice or control whatsoever, prevents us from treating the case as one involving the anticipatory assignment of income, which when paid becomes taxable to the assignor. This conclusion is in accord with our previous ruling in Commissioner of Internal Revenue v. Timken, 6 Cir., 141 F. (2d), 625, 629. Compare: Anthony’s Estate v. Commissioner, 10 Cir., 155 F. (2d), 980, 983, and Austin v. Commissioner, 6 Cir., 161 F. (2d), 666, 668, certiorari denied 332 U. S., 767, 68 S. Ct., 75, 92 L. Ed., 352, where the distinction is made between income actually earned at the time of the assignment and income the payment of which is contingent. Our conclusion is also supported by the rulings in United States v. Horschel, 9 Cir., 205 F. (2d), 646; Commissioner of Internal Revenue v. Reece, supra, 1 Cir.. 233 F. (2d), 30; Carter v. Commissioner, 9 T. C., 364, affirmed, 2 Cir., 170 F. (2d), 911; Herbert v. Riddell, D. C. S. D. Cal., 103 F. Supp., 369, 384-385, Note 40; Telephone Directory Advertising Co. v. United States, supra, 142 F. Supp., 884, 135 Ct. Cl., 670; Motion Picture Corporation of California v Commissioner, Board of Tax Appeals, Feb. 17, 1942, CCH-BTA Service, Dec. No. 12,425-F.

If we are wrong in this conclusion, the assessment against Cold Metal can nevertheless not stand because Cold Metal, as a corporation, had been dissolved in 1945 and was not in legal existence in 1949. We are not in agreement with the commissioner’s contention and the tax court’s conclusion that even though it had dissolved in 1945 under the state law, it was still in existence in 1949 for Federal income tax purposes.

The Ohio General Corporation Law, relating to the dissolution of corporations, provides in §8623-79 GC, for voluntary dissolution of a corporation by the taking of certain corporate action and the filing of a verified certificate in the office of the Secretary of State stating certain facts including the fact that the corporation elects to wind up and dissolve. Sec. 8623-80 GC, provides that upon the filing of such certificate, together with other designated papers, “the corporation shall be dissolved.” These provisions were complied with.

Sec. 8623-80 GC, further provides:

“Any corporation which shall be dissolved and any corporation whose articles have been cancelled shall cease to carry on its business and shall be without authority so to do, but it shall continue for the sole purpose of paying, satisfying and discharging any existing liabilities and obligations, collecting and distributing its assets and doing all other acts required to adjust, settle and wind up its business and affairs, and it may ■do all such acts and may sue and be sued in its corporate name.”

The foregoing provisions of the Ohio Statutes are not ambiguous. Under them Cold Metal’s corporate existence was dissolved. It was not carrying on business thereafter while in the process of liquidating, since the statute expressly states that the dissolved corporation shall cease to carry on its business “and shall be without authority so to do,”

The commissioner urges upon us in support of a different ruling our consideration of the numerous law suits which were prosecuted or defended subsequent to 1945 and through 1949, to which Cold Metal was a party. The parties have stipulated that Cold Metal acquired no assets after December 28, 1945, and had no income or disbursements. These suits involved transactions entered into prior to its dissolution and were a necessary part in the winding up. of its business and affairs. They were for the exclusive use and benefit of the trustee, not Cold Metal. They were authorized by the same Ohio statute which provided that the corporation was dissolved. Nor is the number of such law suits material, provided they are actually for the purpose of winding up its affairs.

The commissioner and the tax court rely upon Henry Hess Co. v. Commissioner, 16 T. C., 1363, as holding to the contrary. In that case, the tax court held that a California corporation, although dissolved under the California statute, was nonetheless existing for the purpose of winding up its affairs and possessed sufficient vitality to be taxable on gains incident to such winding up of its affairs. The ruling is really a Federal income tax ruling that a corporation, although legally dissolved under state law, is nevertheless liable under certain circumstances, for income taxes accruing in subsequent years. Part of the special circumstances existing in that case was the fact that the income which was held taxable was actually paid to and received by the so-called corporation even though dissolved at the time. Notwithstanding those special circumstances, we have difficulty in reconciling our fundamental concept of Federal income taxation with the proposition that an income tax can be assessed against a nonexisting corporation. The making of an assessment would seem to require the existence in the taxable year of the taxpayer against whom the assessment is to run. Income tax liability is statutory. We find no Federal statute which requires a non-existing taxpayer to file an income tax return or which imposes an income tax liability for a certain year upon a so-called taxpayer who was not in existence during that taxable year.

The ruling in the Henry Hess Co. case was reversed on review by the Court of Appeals for the Ninth Circuit. Commissioner of Internal Revenue v Henry Hess Co., 210 F. (2d), 553. The Court of Appeals relied upon Treasury Regulation 111, Section 29.52-1, which requires a corporation having an existence during any portion of a taxable year to make a return for that part of the year during which it was in existence. The Regulation provides: “* * * A corporation is not in existence after it ceases business and dissolves, retaining no assets, whether or not under state law it may thereafter be treated as continuing as a corporation for certain limited purposes connected with winding up its affairs, such as for the purpose of suing and being sued. If the corporation has valuable claims for which it will bring suit during this period, it has retained assets, and it continues in existence. * * *” It held that the corporation having dissolved was not in existence during the taxable year in which the income accrued, was not required to make a return, and could not be assessed for an income tax liability for the year in question. The tax court in the present case referred to the reversal of its ruling but stated that; it thought its own decision in the case was correct and followed it in making its ruling. We are of the opinion that the Regulation fits this case. Cold Metal retained no assets and following dissolution it had no valuable claims for which it brought suit in its own right. We agree with the ruling of the Court of Appeals. See also: Novo Trading Corp. v. Commissioner, 2 Cir., 113 F. (2d), 320; A. B. C. Brewing Co. v. Commissioner, 9 Cir., 224 F. (2d), 483, 491-492; Herbert v. Riddell, supra, D. C. S. D. Cal., 103 F. Supp., 369, 384-385. In Telephone Directory Advertising Co. v. United States, supra, 142 F. Supp., 884, 889, the Court of Claims stated in partial support of its ruling favorable to the dissolved corporate taxpayer, “The plaintiff did not realize the income because it was not in existence when it accrued and was paid.”

The judgments are reversed and the cases remanded to the tax court for further proceedings consistent with the views expressed herein.


source: Caselaw Access Project

author: By PETREE, PJ.

license: Public Domain

text:
    STATE, ex rel. GOINS, Relator-Appellee, v. INDUSTRIAL COMMISSION, Respondent-Appellant.
    Ohio Appeals, Tenth District, Franklin County.
    No. 5963.
    Decided October 14, 1958.
    Schwenker, Teaford, Brothers & Solsberry, L. Bernell Solsberry, of Counsel, Columbus, for relator-appellee.
    William Saxbe, Atty. Genl., John R. Barrett, Robert M. Duncan, Asst. Attys. Genl., Columbus, for respondent-appellant.
   OPINION

By PETREE, PJ.

This is a law appeal from a judgment of the Common Pleas Court upon the following assignment of error:

The Court of Common Pleas erred in ordering a writ of mandamus to issue granting the relief requested in relator’s petition.

Sec. 1465-90 GC, under which this question arises, provides, in part, as follows:

“* * * the claimant may, within thirty days after the receipt of notice of such finding of the commission, file an application with the commission for a rehearing of his claim, * *

It is admitted in this case that claimant’s application for rehearing was not within the time provided by law. It is also admitted that Julia Goins, relator, appellee herein, received actual notice from the Industrial Commission of its finding. Her attorney, L. Bernell Solsberry, did not receive notice of the disallowance of the claim, and neither the claimant nor the attorney took action until after the thirty days had expired. In this particular case, the appellee had not filed an authorization of representation naming Mr. Solsberry. This authorization was not filed until several months after the decision of the Industrial Commission disallowing appellee’s claim. In a prior case, involving occupational disease, an authorization of representation had been filed. That was in Case No. CD-74781. However, the two cases are entirely separate, and the authorization of representation filed in the earlier occupational disease case would not carry over to the instant case. Even if the authorization of representation had been filed, the only person required to be notified under the statutory law of Ohio is the claimant.

Inasmuch as the claimant did receive notice and took no action within the time provided by law for such action, the Court of Common Pleas had no authority to render the judgment in mandamus in which it ordered the Industrial Commission to grant the relief requested and to schedule a hearing on her claim.

In State, ex rel. Allen, v. Industrial Commission, 127 Oh St 541, claimant had been notified of the disallowance of her claim. In that case, claimant said that she instructed the Industrial Commission to mail all notices to her attorney. The syllabus of the Allen case reads as follows:

“1. In the absence of abuse of discretion the decision of the Industrial Commission as to whether an application for rehearing has been filed within the statutory thirty-day period, is final.
“2. A writ of mandamus will not lie to require the Industrial Commission to entertain an application for rehearing not filed within thirty days after the claimant’s receipt of notice of the denial of the claim.”

In the same case, at Pages 544 and 545, the opinion, written by Chief Justice Weygandt, reads as follows:

“The relatrix further claims that the commission should not have sent the notice to her in view of her instruction to mail all notices to her attorney. Whatever may have been the effect of this instruction, it clearly could not have served to invalidate a notice given in conformity with the statute.
“In view of the foregoing, it necessarily follows that the writ must be denied and the petition dismissed at the costs of the relatrix.”

The assignment of error is well taken, and the judgment of the Court of Common Pleas is hereby reversed.

BRYANT and MILLER, JJ, concur.


author: Per CURIAM.

text:
    STATE, Plaintiff-Appellee, v. RAY, Defendant-Appellant.
    Ohio Appeals, Seventh District, Columbiana County.
    No. 763.
    Decided January 2, 1958.

      G. William Brokaw, J. Warren Bettis, Lisbon, for plaintiff-appellee.
    Walter J. Hunston, Ralph Atkinson, Salem, for defendant-appellant.
   OPINION

Per CURIAM.

Defendant appealed to this court on questions of law from a judgment of conviction entered by the court of common pleas upon a jury verdict of guilty of “unlawfully and unintentionally killing one Ada McFee while violating a law of this state applying to the use or regulation of traffic, to-wit: §4511.43 R. C. (the stop sign statute) contrary to §4511.18 R. C. (the second degree manslaughter statute). Defendant was sentenced to pay a fine of $350.00 and costs.

The facts in this case are simple. About five o’clock P. M. on the slushy day of December 28, 1956, defendant was driving an empty five ton coal truck slightly upgrade in a westerly direction on State Route 172, with which route he testified he was unfamiliar, toward the intersection of that highway with stop sign protected County Route 402 in New Alexander, Columbiana County, Ohio. Defendant testified that he observed the stop sign protecting County Road 402 when he was sixty to seventy feet away from it; that he applied his brakes and his truck skidded on ice out of his control notwithstanding the use of every facility at his command to control and stop his truck, and skidded into a Willys station wagon being operated in a southerly direction on County Road 402. Ada McFee was riding in the Willys station wagon and died shortly after the collision as the result of injuries sustained therein.

The slippery condition of the highway is contradicted by the state’s witnesses who testified that the condition of the highways at the point of collision was no different than the rest of both of the highways near the place and at the time of the collision. The state’s witnesses testified that defendant simply failed to stop his truck in obedience to the stop sign situated on State Route 172 protecting County Road 402, on which road the station wagon in which Ada McFee was riding was proceeding.

The state highway patrolman who investigated the collision travelled over the same highway as defendant at a higher rate of speed and arrived at the scene of collision twenty minutes later and encountered no icy spots nor slippery conditions on such highway. This patrolman testified that when he questioned defendant at the scene of the collision defendant stated he had not travelled State Route 172 before and didn’t see the stop sign in time to stop before he entered the intersection of that highway with County Road 402.

Defendant assigned six grounds of error set forth in three pages of his original brief which in a word are:—

“1. The court of common pleas erred in construing §§4511.18 and 4511.43 R. C.
“2. The court erred in overruling defendant’s objection to the introduction of any evidence, and in overruling defendant’s motions to strike all evidence in support of plaintiff’s case and in arrest of judgment based on the ground that the indictment failed to state facts constituting an offense under the laws of the State of Ohio.
“3. The court erred in overruling defendant’s motion for a directed verdict of acquittal made at the close of the state’s opening statement, at the close of the state’s evidence, and at the close of all the evidence.
“4. The court erred in overruling defendant’s motion for a new trial.
“5. The court erred in entering judgment of conviction and sentencing defendant.
“6. The court erred in other respects manifest from the face of the record.”

Under other errors “manifest from the face of the record” counsel for defendant state by brief:—

“We rely on assignments of error III, IV, V and VI, but, for the reasons just stated, we leave them to argue themselves.”

By reply brief counsel for defendant questions the correctness of the court’s charge:—

“It is true the trial court charged (B. 251) that ‘the state must prove that such killing of Ada McFee was unlawful * * *.’
“But the only explanation of t!he meaning of the word ‘unlawful’ the trial court gave the jury was this: ‘The term “unlawful” means illegal, contrary to law, wrongful, without any legal justification.’ (B. 251.) And the trial court flatly refused to charge that accident or anything else could be a ‘legal justification’ or a legal excuse for physically passing through a stop sign (B. 255-8).
“In short, the trial court did charge that, on the admitted facts, the jury was required to convict.
“It is this of which we primarily complain * *

The trial judge charged the jury, correctly we believe, that:—

“Right of way is the right of a vehicle to proceed uninterruptedly in a lawful manner in the direction in which it is moving in preference to another vehicle approaching from another direction into its path, and the fact that there may be ice or snow on the highway does not excuse a vehicle or its driver from its duty to yield the right of way to another vehicle entitled to such right of way, nor does it excuse a vehicle from observing or honoring a stop sign.”

We find no error prejudicial to the defendant in any of the grounds of error urged by defendant for reasons, in most instances, apparent from the statement of facts set forth in the factual statement of this opinion, which facts are supported by the bill of exceptions, and especially the claimed errors assigned as sub-divisions of error number I in (b) rejecting each of the special charges asked by defendant; (c) in refusing to charge the substance of said special charges; (d) in “affirmatively charging that, if ‘the defendant failed (however accidentally or involuntarily) to stop his truck in obedience to such stop sign before entering the intersection, or * * * (however accidentally or involuntarily) failed to yield the right of way to the car in which Ada McFee was riding at such intersection,’ then, on the other admitted facts (including the fact that Ada McFee died in consequence), the defendant was guilty of a felony as charged”; and (e) in refusing to charge at all on the defense of accident.

The statutes under which the indictment was returned against defendant are clear and unambiguous— whoever “unlawfully and unintentionally kills another while violating a law of this state.”

In connection with counsel for defendant’s.request to charge on the defense of accident the court said:—

“It is the court’s opinion that §4511.43 R. C., is a positive and specific rule of conduct passed by the Legislature of the State of Ohio to govern the conduct of motorists in using the highways and that nowhere in that section is it provided that the defendant must purposely or intentionally or knowingly violate the statute before he is guilty. I have previously cited counsel, in passing upon his motions for directed verdict, the authorities for that.”

The trial judge aptly summarized the situation in the above quoted words.

The evidence presented questions for the consideration of the jury and the jury found against defendant, and we cannot disturb the verdict of the jury.

Sec. 2945.83 R. C., provides:—

“No motion for a new trial shall be granted or verdict set aside, nor shall any judgment of conviction be reversed in any court because of:
“(A) An inaccuracy or imperfection in the indictment, information, or warrant, provided that the charge is sufficient to fairly and reasonably inform the accused of the nature and cause of the accusation against him.
“(B) A variance between the allegations and the proof thereof unless the accused is misled or prejudiced thereby;
“(C) The admission or rejection of any evidence offered against or for the accused unless it affirmatively appears on the record that the accused was or may have been prejudiced thereby;
“(D) A misdirection of the jury unless the accused was or may have been prejudiced thereby;
“(E) Any other cause unless it appears affirmatively from the record that the accused was prejudiced thereby or was prevented from having a fair trial.”

Following the provisions of the above section of the Code the judgment of the court of common pleas is affirmed.

NICHOLS, PJ, GRIFFITH and PHILLIPS, JJ, concur.


author: By MILLER, J.

text:
    STATE, ex rel. VISINTINE & COMPANY, Relator, v. ALEXANDER et, Respondents.
    Ohio Appeals, Tenth District, Franklin County.
    No. 5940.
    Decided August 19, 1958.
    Knepper, White, Richards, Miller & Roberts, Columbus, for relator.
    Russell Leach, City Atty., John W. E. Bowen, Chief Counsel, Alba L. Whiteside, Asst. City Atty., Columbus, for respondents.
   OPINION

By MILLER, J.

This is an original action in mandamus wherein the relator is seeking an order directing the respondents, who are the duly appointed, qualified and acting Trustees of the Sinking Fund for the City of Columbus, to pay to it the balance due under construction Contract No. 3296, which was duly entered into with said City.

The petition sets forth all the facts necessary to entitle the relator to the balance due on the contract, and then alleges the failure of respondents to perform their official duty of making payment. It also alleges:

“Respondents state that they are retaining said balance due in the Sinking Fund pending the settlement of an alleged claim for damages by the City of Columbus arising out of a broken water main at the Spring-Sandusky Interchange. This alleged claim does not arise out of said Contract No. 3296, and is in no way related to any work done on said contract.”

A demurrer has been filed to the petition alleging that it does not state a cause of action. In the event that the demurrer is overruled respondents then move that the City of Columbus be made a party defendant. In support of the demurrer it is urged that the rela,tor has an adequate remedy at law by way of an action for the balance due upon the contract, and that mandamus, therefore, is not the proper remedy. We are of the opinion that the petition discloses sufficient facts to reveal that the City of Columbus is the real party against which the relief is sought and any defense which it might have to the action should be available to it. In State, ex rel. Williams v. Glander, 148 Oh St 188, Judge Turner discusses the “real party in interest” subject at page 193 and says:

“In 37 O. Jur., 268, Section 44, it is said:
“ ‘In accordance with the general rule that the state cannot be sued without its consent, suits against officers of the state, as representing the state in action and liability where the state, though not a party to the record, is the real party against which relief is sought and where a judgment for the plaintiff, though nominally against the defendant as an individual, could operate to control the action of the state or subject it to liability, are treated as suits against the state.’
“In 59 Corpus Juris, 313, Section 468, it is said:
“ ‘A suit, involving property in which the state has an undoubted right or interest, and in which no effective decree can be rendered without binding the state itself, is a suit against the state and cannot be maintained without its consent. * * *’
“In 49 American Jurisprudence, 304, Section 92, it is said:
“ ‘While a suit against state, officials is not necessarily a suit against the state, within the rule of immunity of the state from suit without its consent, that rule cannot be evaded by bringing an action nominally against a state officer or a state board, commission, or department in his or its official capacity when the real claim is against the state itself, and the state is the party vitally interested. If the rights of the state would be directly and adversely affected by the judgment or decree sought, the state is a necessary party defendant, and if' it cannot be made a party, that is, if it has not consented to be sued, the suit is not maintainable. The state’s immunity from suit without its consent is absolute and unqualified, and a constitutional provision securing it is not to be so construed as to place the state within the reach of the process of the court.’”

It is, therefore, our conclusion that the action should be against the real party in interest, to wit, the City of Columbus. Also, since the City of Columbus is asserting a claim against the plaintiff, the plaintiff’s claim is therefore not liquidated; hence, mandamus would not be a proper remedy, as there is no clear duty imposed upon these respondents to pay the plaintiff the amount it is seeking. To constitute a ministerial act enforceable by mandamus the duties must be so clear and specific that no element of discretion is left in their performance. State, ex rel. Dennis, 27 O. C. D. 245; 23 O. C. C. N. S. 301.

It is also said in 25 O. Jur. 997, Section 23:

“It is well settled that the relator’s right to the relief sought must be clear. In addition to this, it must appear that the particular act which constitutes an absolute obligation is devolved upon the particular person or officer sought to be coerced; and a plain dereliction of duty must be established against such person or officer, before the writ will be awarded. The right to a writ of mandamus has also been said to rest on the inherent natural justice of the relator’s claims. Where it appears that the relator has no right to have a specific act performed, mandamus will not issue.”

We therefore hold that the rights of this plaintiff should be limited to an action at law based upon the contract and in which any defense or counterdemand which the City might have could be interposed and the rights of the parties finally adjudicated.

The demurrer will be sustained.

PETREE, PJ, BRYANT, J, concur.


author: By KOVACHY, J:

text:
    STATE, Plaintiff-Appellee, v. SHARDELL, Defendant-Appellant.
    Ohio Appeals, Eighth District, Cuyahoga County.
    No. 24511.
    Decided October 30, 1958.

      John T. Corrigan, County Pros., Margaret Spellacy, Asst. County Pros., for plaintiff-appellee.
    Paynter & Green, Richard Green, of Counsel, for defendant-appellant.
   OPINION

By KOVACHY, J:

This cause is before us on appeal on questions of law from a judgment of the Juvenile Court of Cuyahoga County wherein the defendant, Gary Shardell, a boy of sixteen, was found to be a delinquent child and placed on probation with orders “not to associate with his co-delinquents.” The record discloses that Gary had moved into a new neighborhood where he met new friends, two of whom met with him one evening in the basement of his home and discussed the subject of breaking and entering homes. Gary thought that a home in his former neighborhood would be a good place to break into and drew a diagram of it for the boys. These two boys thereupon left with intentions to seek out the home and upon arriving there found the occupants at home. They, thereupon, selected three other homes a few blocks beyond it which they entered and from which they stole $90.00 in cash. They then returned to Gary’s home and reported what they had done. Gary told them that he had an alibi for them since they could say that they had been in his basement during all this time. The next day Gary went with one of the boys to get the money hidden in a churchyard. This they took back to Gary’s home. Upon looking the money over, Gary noted some coins that he thought would be a valuable addition to his coin collection and appropriated $5.00 worth, which he exchanged for his own money. The money had been in a metal box. It was transferred into ping-pong boxes furnished by Gary. The metal box which had been stolen from one of the homes remained in the possession of Gary. Gary, in his conversation with one of the police officers, admitted that he knew that these boys had previously broken into a barber shop and also that he had accompanied them to help dispose of two guns taken during the time of the burglary of this barber shop. In his conversation with the probate officer of Juvenile Court, he stated, however, that he thought the boys were only “joking” about breaking into the homes and that the money was the proceeds of paper routes which one of the boys and his brother pursued. The record also shows that Gary had an Intelligence Quotient above the average,

The petition filed in the Juvenile Court charged Gary Shardell with unlawfully conspiring with other minors to break into and enter a home; that the other minors did break into and enter a home in the night season and did steal and carry away $90.00, a target pistol and a strong box; that the stolen property was taken to Gary Shardell’s home; that Gary furnished two containers and retained the strong box; and that Gary received $5.00 in old coins, knowing the same to be stolen.

The six assignments of error can be consolidated into three as follows:

1. That the finding of delinquency was manifestly against the weight of the evidence;

2. That the defendant was prejudiced through the admission of hearsay evidence; and

3. That the constitutional rights of the defendant were violated by compelling him to testify.

The Legislature of Ohio in §2151.35 R. C., inter alia, provided that hearings in Juvenile Court may be conducted in an informal manner: that the court shall permit a child to be represented by an attorney-at-law during any hearing before it; that the court shall hear and determine all cases of children without a jury; that the judgment rendered by the court shall not impose any of the civil disabilities ordinarily imposed by conviction, in that the child is not a criminal by reason of such adjudication; that the disposition “of a child under the judgment rendered or any evidence given in the court shall not be admissible as evidence against the child in any other case or proceeding in any other .court, except that the judgment rendered and the disposition of such child may be considered by any court only as to the matter of sentence or to the granting of probation. Such disposition or evidence shall not operate to disqualify a child in any future civil service examination, appointment, or application.”

Sec. 2151.02 R. C., in part, defines a delinquent child to be a child “(a) Who violates any law of this state * *."

Defendant-appellant herein maintains that since, in effect, he is charged with a crime, a felony if he were an adult, and since such violation is the sole basis upon which he was found to be a delinquent child, the proof of guilt should be beyond a reasonable doubt. With this contention we do not agree. The philosophy of the state, as declared in the sections above stated, is not to consider the child, although in violation of law, a criminal but rather to take him in hand for the purpose of protecting him from evil influences. The state thus becomes the parens patriae of the child on the theory that he needs protection, care and training as a substitute for parental authority that has broken down and failed to function. The proceedings instituted in a Juvenile Court, therefore, are not criminal in nature nor are they conducted with the object of convicting the minor of a crime and punishing him therefor. It is an informal hearing through the medium of Juvenile Court to determine whether the child needs intervention of the state as guardian and protector of his person. This is obviously to do away with the usual and customary ceremony and procedure of a court trial in order to surround the child with an atmosphere of friendliness and good-will rather than one of hostility and faultfinding. It is thus proper for the judge to carry on a conversational type of investigation which is more conducive to eliciting the truth and arriving at an impartial, fair and more acceptable solution of the problem of the child involved.

It is stated in State v. Scholl, 167 Wisc. 504, 167 N. W. 830, 43 A. L. R. 2d 1146 as follows:

“The desideratum is to obtain, by the use of kindness and sympathy, the confidence of the child and of its parents if possible, to convince them that the judge and probation officer are friends and not the avengers of offended law. Good results are far more likely to be obtained in this way by the use of informal methods than by bringing them into a court conducted with the form and ceremony attendant upon trials for crime, where all the proceedings suggest that the law is about to be invoked to inflict punishment upon hardened malefactors.”

We conceive the procedure to be civil rather than criminal in nature and to carry with it the juridicial connotations of a civil action. That being so, a mere preponderance of the evidence, in our opinion, is sufficient to warrant the finding of a minor to be a delinquent even though such determination involves the finding that a criminal statute of the state had been violated by the minor. The Supreme Court of Texas on pages 469 and 474 of Dendy v. Wilson, 142 Tex. 460, 179 S. W. 2d 269, stated the same proposition thus:

“* * * We think, however, that the whole Act discloses that the Legislature intended that proceedings instituted thereunder should be governed, as far as practicable, by the rules relating to civil procedure.
“* * * if the objects of the Act are to be accomplished, the proceedings thereunder must necessarily be civil in nature, and while in some respects the orders or the judgment of the court may have the characteristics of a judgment in a criminal case, the customary rules of evidence in civil cases, developed through long experience as essential in arriving at the truth with reasonable certainty, must be followed.”

Headnote 7 of People v. Lewis, 260 N. Y. 171, 183 N. E. 353, reads as follows:

“In juvenile delinquency proceeding, finding of fact must rest on preponderance of evidence adduced under'rules of evidence applying in civil trials.”

See, In re Contreras, 109 Cal. App. 2d 787, 241 P. 2d 631 (District Court of Appeals, California).

The record discloses ample evidence to sustain the judgment entered in this case by the Juvenile Court. Assignment of error number one is, accordingly, overruled. '

In assignment of error number two, defendant claims he was prejudiced through the admission of hearsay evidence. The record shows that a police officer from Parma, the city in which defendant lives, testified from a composite police report containing information that he had obtained by talking to the defendant and the other boys, not in the presence of the defendant, and matters obtained by another police officer during an independent investigation. Defendant’s counsel throughout the testimony of this police officer objected to any evidence being presented by this witness of matters that were clearly hearsay. At the conclusion of the testimony by this witness, the court struck from the record “for the purpose of consideration by the court all hearsay evidence in all of the statements not made in the presence of Gary Shardell.” We believe that it was proper for the trial judge to strike all hearsay evidence presented by this police officer, who at no time during the investigation of this case was under the direction or control of the Juvenile Court judge. The law affords a child charged with delinquency in Juvenile Court the right to be represented by an attorney-at-law. The Legislature clearly had in mind that although the hearings be informal in nature, the legal safeguards with respect to evidence be adhered to. Certainly a matter such as this is of the utmost importance to the child involved as well as his parents. Long experience has shown that the truth can be arrived at by competent and reliable firsthand information rather than by information that comes from the mouths of individuals who are not in court and who cannot for that reason be cross-examined to determine the accuracy or validity of their statements. We hold, therefore, that the Juvenile Judge acted properly in so removing such evidence from the record and that he has the training and experience to disregard incompetent evidence that has gotten into the record when considering the matter on its merits.

The Supreme Court of Nebraska in Krell v. Mantell, 157 Neb. 900, 62 N. W. 2d 308, stated in paragraph 2 of the syllabus:

“In a hearing before the Juvenile Court, the customary rules of evidence must be adhered to and a finding of fact may not rest upon hearsay.”

See, In re Hill, 78 Cal. App. 23, 247 Pac. 591; Harry v. State, 246 Wisc. 69, 16 N. W. 2d 390; Ballard v. State, 192 S. W. 2d 329; People v. Lewis, 260 N. Y. 171, 183 N. E. 353.

The defendant consequently fails to maintain his claim of prejudice in this regard, and we therefore overrule assignment of error number two.

Was the constitutional right of the defendant violated by compelling him to testify? We do not think so. The Fifth Amendment to the Constitution of the United States in regard to this matter reads:

“No person * * * shall be compelled in any criminal case to be a witness against himself ***.**.”

The Ohio Constitution, Article I, Section 10, is identical in wording. Its inhibitions clearly pertain to compelling a person to testify to matters that relate to or may involve one in a criminal prosecution. There was no such possibility in the case of Gary Shardell because the spirit as well as the letter of the law under which this hearing was conducted does not consider the proceedings criminal in nature. The defendant here was subjected to a friendly and benevolent investigation by a court instituted not to find him guilty, of crime nor to punish him for any transgression against law but rather to determine the conditions under which he lives, the influences brought to bear upon him by his association with boys of his age, and the parental control over him. The sole object of these proceedings was to determine whether he was under such evil influences as to require the court to exercise control over him with the view of assisting him to become a good and useful citizen of the community. It was well-stated at pages 54 and 56 in Commonwealth v. Fisher, 213 Pa. 48, 62 Atl. 198, as follows:

“ * ** the act is not for the trial of a child charged with a crime, but is mercifully to save it from such an ordeal, with the prison or penitentiary in its wake, if the child’s own good and the best interests of the state justify such salvation. * * * the act is but an exercise by the state of its supreme power over the welfare of its children * * *.
“* * * Every statute which is designed to give protection, care, and training to children, as a needed substitute for parental authority and performance of parental duty, is but a recognition of the duty of the state, as the legitimate guardian and protector of children where other guardianship fails. No constitutional right is violated * *

See, In re Mont. 175 Pa. Super. 150, 103 A. 2d 460; Lindsay v. Lindsay, 257 Ill. 328, 100 N. E. 892; Freestone v. State, 98 Ind. App. 523, 176 N. E. 877; State, ex rel. Palagi v. Freeman, 81 Mont. 132, 262 P. 168; Mill v. Brown, 31 Utah 473, 88 P. 609.

We hold, accordingly, that Gary Shardell was not charged with crime per se, was not prosecuted for a criminal offense, nor subjected to questioning for the purpose of retribution by the state for any wrong committed by him in these proceedings. His constitutional rights with respect to self-incrimination were therefore not invaded and the claim so made must be and herewith is overruled.

The judgment, accordingly, is sustained. Exceptions. Order see Journal.

SKEEL, PJ, HURD. J, concur..


author: By THE COURT.

text:
    HEBDEN, Plaintiff-Appellant, v. HEBDEN, Defendant-Appellee.
    Ohio Appeals, Tenth District, Franklin County.
    No. 5783.
    Decided January 8, 1958.
    King & Gross, Columbus, for plaintiff-appellant.
    Carlisle O. Dollings, Columbus, for defendant-appellee.
   OPINION

By THE COURT.

Submitted on motion of the appellant seeking an order permitting leave to amend at bar the notice of appeal by changing the date of the final order to which the appeal is directed, from the 19th day of August to the 29th of the same month.

The notice of appeal is subject to amendment under §2505.05 R. C., upon good cause being shown. Counsel urges that the mistake in the date of the judgment was due to a typographical error and which we think constitutes good cause.

See also, Fifty West Broad, Inc. v. Poulson, 41 Abs 212, by this court; Williams v. Martin, 82 Oh Ap 395.

The motion will be sustained and permission is granted to make the requested amendment. This change will cure the defect in the notice of appeal and upon which our decision of November 27, 1957, was based. This decision will be set aside upon the amendment being made and the motion to dismiss the appeal filed on November 7, 1957, will be overruled.

An entry may also be submitted journalizing our decision of September 26, 1957, relative to attorney’s fees and support money.

PETREE, PJ, BRYANT and MILLER, JJ, concur.


author: By HURD, J.

text:
    STATE, ex rel. PRENTKE, Relators, v. BROOK PARK (Village) et, Respondents. STATE, ex rel. STINE, Relator, v. BROOK PARK (Village) et, Respondents.
    Ohio Appeals, Eighth District, Cuyahoga County.
    Nos. 24628, 24629.
    Decided October 30, 1958.

      Marston G. Bergmann, for relators.
    Matia & Matia, for réspondents.
   OPINION

By HURD, J.

These cases in mandamus are here appealed on questions of law from judgments rendered thereon in the Court of Common Pleas in favor of the relators allowing writs,of mandamus to issue as prayed for and enjoining the respondents, The Village of Brook Park, its officers and employees, from enforcing its zoning ordinance which by its terms restricted the properties of relators to single residence use only.

In the Court of Common Pleas all of the parties stipulated that the cases were to be tried together and that the evidence adduced would have equal application to each case. In addition to the evidence, there is a stipulation of certain facts which relate to the map and zoning ordinance of the Village and other matters unnecessary to discuss here.

The property in question is comprised of six vacant lots having a total frontage of 292 feet on Brook Park Road, each lot having a depth of 110 feet. The property of, relators Prentke, consisting of three lots 146 feet in width, is located at the southeast intersection of West 139th Street and Brook Park Road. The Stine property, of like dimensions, is located at the southwest intersection of West 139th Street and Brook Park Road. Applications to permit the installation of gasoline service stations and buildings on the premises under consideration were made by both parties and refused by the officers of the Village. These suits were commenced after the parties had exhausted all administrative remedies required of them under the provisions of the zoning ordinance.

To the rear of the relators’ lots is a 15 foot alley duly dedicated which separates relators’ property from lots improved with single residences which front on West 139th Street, a dead end street running south from Brook Park Road.

From an examination of the evidence, there is no question but that Brook Park Road is a main thoroughfare carrying a tremendously heavy traffic load of trucks and motor vehicles of all kinds due, in part, to being in a heavy industrial area and, in part, to the fact that Brook Park Road leads to the Cleveland Hopkins Airport and the Ohio Turnpike and many other points both east and west. Located on Brook Park Road a short distance from relators’ property are the Ford and Chevrolet plants, on the south side of said road, each of which employs ten thousand or more people, who, because the public transportation on Brook Park in this area “is not so good,” are obliged to drive private vehicles to and from their places of employment. Fronting on the south side of Brook Park Road are many other industries. Immediately west of relators’ property is the Park Brook Motel, a Howard Johnson Restaurant, .and the Holy Cross Cemetery, while to the east is first, a vacant parcel- of land zoned for industrial uses, then a large interstate trucking terminal, then a construction company and many other industries too numerous to describe at length. On the opposite or north side of Brook Park Road is a large open vacant section which is within the city limits of Cleveland, all zoned for industrial purposes.

Upon trial, the respondents did not present any testimony in their own behalf but confined their efforts to a cross-examination of the expert witness presented by the relators. A careful reading of the record supports the findings of the trial court that the expert witness of the relators is highly qualified and well informed on the subject of the development of Brook Park Road as an industrial area. He testified that other thoroughfares paralleling Brook Park Road are at present so overcrowded and inadeqquate that Brook Park Road has become a main highway for steel trucks and other trucks coming from the southeast, particularly from Pittsburgh and Youngstown, and that this is especially true since Brook Park Road has been extended to Lorain Avenue (State Route No. 10) which is the feeder line to the Ohio Turnpike in this area.

Concerning the tax situation affecting the property of the relators, the trial court made a statement of facts as found by him to the effect that the lot value of the lots fronting on West 139th Street, for taxation purposes, is $460.00, while the six lots fronting on Brook Park Road are each valued at a lot value, for taxation purposes, at $1220.00. The homes fronting on West 139th Street do not have any sewer assessments against them, while the three lots belonging to Prentke and the three lots belonging to Stine are subject to a sewer assessment on a ten-year basis of approximately $5500.00.

He further -found, on credible testimony, that the normal ratio of land cost to that of the building would rule out the possibility of obtaining financing for the location of proposed one-family residences on these lots, for the reason that they are taxed more than residential properties are taxed, and for that reason, a person wanting a residence would not be able to afford to build on any of these lots in question as the tax load would be too much. His findings were further to the effect that because of the increased traffic on Brook Park Road, anyone wanting to build a home there would not do so because of the noise and the heavy traffic and especially because of the cost of lot, taxes, etc. being out of line to the ratio which usually exists in building one-residence structures. He further found, on credible testimony, that in line with the taxes and assessments on the cost of lot to building ratio, there should be $25,000 to $30,000 one-residence homes built on these lots in question, and that because of the industrial growth, no one would build that high-priced a dwelling and no financial institution would loan the money for such purposes.

The trial court also found that the erection of a gasoline station on these lots would not be to the detriment of the homes located on West 139th Street or in any way decrease their value, but under the testimony as introduced, the filling station contemplated to be built would be well constructed, well lighted and in operation twenty-four hours per day on a seven-day week basis and that this in no wise would constitute a hazard to the people living on West 139th Street.

Upon examination of the bill of exceptions, we conclude that these findings are amply supported by expert 'and credible testimony.

Respondents’ assignments of error are as follows:

“1. The trial court erred in holding that Sublots 1, 2, and 3 (and 38, 39 and 40) were unsuitable for residential purposes and therefore a permit for a gasoline filling station should be granted.
“2. The evidence is not sufficient to sustain the proposition that Sublots 1, 2, and 3 (and 38, 39 and 40) are not suitable for residential purposes.
“3. The trial court erred in overruling Defendants-Appellants’ motion for judgment notwithstanding the verdict as a matter of law.
“4. The judgment of the trial court is not supported by sufficient evidence and is contrary to law.”

When consolidated and considered together, these assignments of error present a single question. Was sufficient evidence produced by relators to warrant the finding of the trial court that the zoning ordinance in question, when applied to relators’ properties, is arbitrary, confiscatory, unreasonable, and therefore, unconstitutional?

There are many cases which hold, in effect, that a zoning ordinance drawn in general terms, providing a reasonable margin to secure effective enforcement, will not be held to be invalid because individual cases may “turn out to be innocuous in themselves.” This principle was first established in Euclid v. Ambler Realty Co., 272 U. S. 365, 47 Sup. Ct. 114, and has since been universally recognized and approved by authoritative decisions throughout the country.

In line with this and other analogous cases, it has been held that where a zoning ordinance is clearly arbitrary and unlawful without relation to public health, safety and morals or general welfare as to any particular property, it will be held invalid and unenforcable as violative of constitutional rights. These principles have now been so well established under the doctrine of stare decisis as hardly to require the citation of authorities. However, there are certain cases which are directly in point. In Henle v. City of Euclid, 97 Oh Ap 258, 125 N. E. 2d 355, this court held that the zoning ordinance of the City of Euclid, to the extent that it prohibited the use of the property in question for a retail gasoline filling station, was unreasonable and confiscatory. (Motion to certify overruled 10-20-54.) In relation to Henle v. City of Euclid, see also Sun Oil Co. v. Euclid, 164 Oh St 265, 130 N. E. 2d 336, where questions relative to the issues in Henle v. City of Euclid are discussed by the Supreme Court.

Another case in point is State, ex rel. Euverard v. Miller, 98 Oh Ap 283, 129 N. E. 2d 209, wherein the court of appeals of Warren County held that in a mandamus proceeding by a real estate owner to compel the issuance of a commercial building permit for residential zoning, real estate situated on a heavily traveled highway, in the section where property adjacent thereto and diagonal therefrom was used for commercial purposes, the evidence showed that the real estate had little suitability for residential use but rather was a prime business location and zoning thereof for residential purposes bore no relation to the public health, safety, morals, convenience or general welfare and was arbitrary and unreasonable and beyond the zoning power.

See also Kessler v. Smith, 104 Oh Ap 213, 142 N. E. 2d 231 (Motion to certify overruled 10-30-57), and State, ex rel. v. Joseph, 139 Oh St 229, 39 N. E. 2d 515.

In the case at bar, the trial court found correctly from credible evidence that since the time when the lots in question “were zoned residential” there has been a great industrial growth in the immediate and adjacent properties to the east and to the west, and that there has been such industrial growth on Brook Park Road that these lots should no longer be classed as residential land, and that they are suitable for the erection of a gasoline service station.

The respondents in their brief cite the case of The Cleveland Trust Co. v. Village of Brooklyn, 92 Oh Ap 351, 110 N. E. 2d 440, decided by this court in 1952 (Motion to certify overruled 10-29-52). It is our opinion that the fact situation presented in The Cleveland Trust Co. v. Brooklyn case is clearly distinguishable from the facts in the instant case. In that case we held that if the legislative classification for zoning purposes is fairly debatable, the legislative judgment must be allowed to control. Later, in Partain v. City of Brooklyn, 101 Oh Ap 279, 133 N. E. 2d 616 (March 22, 1956), this court had for consideration the identical property considered in the case of The Cleveland Trust Co. v. Village of Brooklyn, but with this difference that in the meantime the council had changed the zoning regulations from dwelling house to industrial use. We again held that the question being fairly debatable, the legislative enactment must prevail. In our opinion, on the facts as shown by the instant case by the findings of the trial judge, which are amply supported by the record, the question is not even fairly debatable. Therefore, we agree with the conclusion of the trial judge that the ordinance in question, as it relates to the six lots in question, is arbitrary, confiscatory and does not promote the public health, safety, morals and general welfare but actually destroys plaintiffs’ properties by forcing an impossible use upon these properties. These lots are no longer either useful or usable for residence purposes under the facts and circumstances surrounding their location as shown by the record and under the conditions which prevail in this area. In our opinion, this case affords a classic example calling for judicial relief where the Village authorities are unwilling to grant such relief.

We conclude, therefore, that as applied to the properties in question, the ordinance amounts to an unreasonable and arbitrary interference with the rights of private property guaranteed by Sections 1 and 19. Article I, Ohio Constitution, and Section 1 of the Fourteenth Amendment to the Federal Constitution.

The judgment of the trial court, for the reasons stated, is, therefore, affirmed. Journal entry may be prepared accordingly.

SKEEL, PJ, KOVACHY, J, concur.


author: By BRYANT, J.

text:
    TROUT, Plaintiff-Appellee, v. TIPTON, Defendant-Appellant.
    Ohio Appeals, Tenth District, Franklin County.
    No. 5850.
    Decided February 4, 1958.
    Russell H. Volkema, Columbus, for plaintiff-appellee.
    George W. Gross, Columbus, for defendant-appellant.
   OPINION

By BRYANT, J.

Geraldine Trout, plaintiff-appellee, herein called plaintiff, has filed a motion to dismiss the appeal of Ellen Tipton, defendant-appellant, herein called defendant. Plaintiff sued in Columbus Municipal Court for $800 as damages for unlawful conversion of personal property and obtained a judgment for $600 and on a previous appeal, this court set aside the judgment as being against the manifest weight of the evidence, and returned the case to the court below.

A second trial was had and judgment in favor of plaintiff again resulted, this time for $500 damages and costs which judgment was entered on May 9, 1957. On May 13, 1957, defendant filed a motion for a new trial and on the same date, defendant also filed a motion requesting the trial court to furnish a written statement of its findings of fact and conclusions of law. The case was tried to the court, a jury being waived.

It appears that the trial court from the bench overruled the motion for a new trial and made a notation thereof upon the court records. It also appears that when the request for findings of fact and conclusions of law came to the attention of the court, he decided to postpone furnishing such statement until the bill of exceptions containing the evidence was available.

It also appears that on the very same day, to wit, May 13, 1957, the trial court decided to set aside his entry overruling the motion for a new trial and decided to pass upon said motion after the said statement had been given final approval by him. Counsel for defendant appears to have known of the said intention of the court but counsel for plaintiff appears not to have had such information.

As we view the record, the court changed his mind with reference to the motion for a new trial on the very day he made the ruling. Thus, the record was in error and did not reflect correctly the court’s rulings. Hence, the notations made later were to bring the record in conformity with the facts.

The final action taken by the trial court appears to be within the powers vested in such court. We can not say that it was unreasonable nor improper for the court to want to have the bill of exceptions before him for reference at the time he gave his approval to the statement which had been requested by counsel.

For the reasons above set forth, it is our opinion that the three branches of the motion to dismiss are not well taken and must be overfed- . „ . „„..A

PETREE, PJ, MILLER, J, concur.