author: By BLYTHIN, J.:

text:
    FEDERMAN, Plaintiff, v. STANWYCK et, Defendant.
    Common Pleas Court, Cuyahoga County.
    No. 606061.
    Decided December 26, 1951.

      Alfred A. Frost, David Perris, Cleveland, for plaintiff.
    D. A. Harrington, Robert A. Good, Cleveland, for defendant.
   OPINION

By BLYTHIN, J.:

The plaintiff Ben R. Federman brings his action seeking to set aside the cancellation of a mortgage and names as the principal defendants Edward J. Stanwyck and his wife Tillie. The plaintiff in his amended petition sets forth his claim in two causes of action.

In the first cause he claims that on or about the 1st day of June, 1944, the defendants executed and delivered to him their note in the sum of $6,558.53 secured by a mortgage on the home of the defendants on Lipton Avenue in the city of Cleveland. The note was payable in monthly installments of $40.00 each, and provided for interest at the rate of 3% per annum. It was to mature August 1st, 1954. The mortgage was duly recorded and became a lien on the home, and it is claimed in the amended petition that only two payments of $40.00 each have been made on the note. He claims further that on April 15, 1948, the Stanwyck defendants filed with the County Recorder a purported cancellation of the mortgage and that he, the plaintiff, did not execute such cancellation, that the debt has not been paid and that the pretended cancellation was without consideration.

In his second cause of action the plaintiff includes his claims already stated and says further that at no time was it his intention or purpose to execute any cancellation of the mortgage and that if his signature appears thereon the signature was procured without his knowledge or consent and not by his own free will and volition, and that the Stanwyck defendants procured it by fraud and undue influence. By reason of those claims he prays for a rescission of the purported cancellation and restoration of the mortgage and its lien.

By answer the Stanwyck defendants admit the execution of the note and mortgage and the recording by them of the cancellation thereof and assert that the cancellation was executed by the plaintiff and delivered to them. They then proceed to deny all else claimed in the amended petition.

On issue so joined two important questions of fact are first to be answered:

1. Did the plaintiff execute the cancellation and deliver the so-cancelled mortgage and note?

2. If the answer to No. 1 is in the affirmative, was such action on his part without his knowledge, or was it induced by fraud or undue influence, as he claimed?

The plaintiff is a man now 75 or 76 years of age; kindly, generous and undoubtedly bearing an irreproachable character. He is alert, is a business man (real estate) and on the basis of his appearance and testimony appears to be a very active individual. In the late 1930’s he became acquainted with the defendant Tillie Stanwyck who then was not married to Edward Stanwyck. She was then a widow or was divorced, and had two minor children of tender years.

She became employed by the plaintiff. The plaintiff became genuinely interested in her welfare and in the welfare of her little ones and did a great deal for them, and there is no doubt whatever about his conduct and generosity being very helpful to them and being very pleasing to him. There came a time when the defendant Edward Stanwyck appeared on the scene and it is clear that Tillie discussed with the plaintiff her intention to marry the defendant Edward Stanwyck. This seemed quite pleasing to the plaintiff and the Stanwycks were married in 1941. The plaintiff’s friendship for and interest in the family continued for years beyond the marriage of Edward and Tillie and it was a very mutually agreeable friendship. In the meantime the plaintiff helped the little family in many ways and the little family reciprocated his kindness. Whenever he was ill he was welcome at the Stanwyck home and it is not denied that the Stanwycks cared for him in a proper and gentle and generous manner. The plaintiff helped the family financially and there is no escape from the belief that the help which he gave to the family was voluntarily and willingly given and was a source of great pleasure to the plaintiff. He assisted the family in securing a home and in a trade transaction by which a more suitable home (the one now owned by the Stanwycks) was acquired. There came a time in 1944 when the parties in a frank and kindly manner discussed their financial relationship and the plaintiff estimated that he had advanced to the Stanwycks from time to time the sum of $6,558.53 which is the amount of the mortgage, and it was suggested that they give to him a note and mortgage and those are the note and mortgage now in issue.

The plaintiff alleges in his amended petition that only two payments of $40.00 each were ever made on that mortgage note. Upon trial he admitted that three or four payments were made. Examination of the mortgage note discloses endorsements indicating twenty payments on the note plus some interest payment. Tillie Stanwyck admits that the interest payments that are not in the hand writing of the plaintiff are in her hand writing and the testimony by the Stanwycks is to the effect that the payments were made but the plaintiff denies they were made. Tillie Stanwyck performed services for plaintiff and had proper access to his records, including the mortgage and note in question. The testimony of the Stanwycks is to the effect that the plaintiff, early in 1948, discussed with Mrs. Stanwyck the whole situation and indicated to her that it was his judgment that to have the property in the joint names was a risky proposition for the little family because of the fact that the husband did a good deal of driving the family automobile, and might become involved in serious liability should he meet with some unfortunate accident in his driving operations. Plaintiff then stated that he thought that Edward Stanwyck should convey his interest in the property to Tillie and that if Edward was willing to do so he, the plaintiff, would cancel his note and mortgage and deliver them to the Stanwycks so that the wife and the two children would definitely be protected.

Mrs. Stanwyck testified that she informed the plaintiff that she did not know how Edward would feel about that but that she would talk with him. Edward made no objection and it is testified by the Stanwycks that the plaintiff proceeded to prepare a quit claim deed conveying the interest of Edward to Tillie, and that he further proceeded to call a meeting at the home of Adolph H. Shagrin for the purpose of executing the deed, cancelling the note and delivering the note and mortgage.

The Stanwycks called for the plaintiff at his home or office on the designated evening, and they together proceeded to the Shagrin home where the quit claim deed, Plaintiff’s Exhibit 1, was executed by Edward J. Stanwyck and witnessed by May Z. Shagrin the wife of Adolph Shagrin, and by the plaintiff Ben R. Federman. It is not claimed that Adolph Shagrin did anything more than observe the execution of the deed and take the acknowledgment of the signature by Edward Stanwyck. Both Adolph and May Shagrin then saw the plaintiff execute what appears to be a complete release of the note, and execute the cancellation of the mortgage. The cancellation of the mortgage was witnessed by May Shagrin. The note and mortgage are in evidence. These transactions were had on the evening of April 14th, 1948, and it was testified that the plaintiff was very concerned about having the matters properly recorded. This was done on the following day, April 15th, 1948. Adolph and May Shagrin testified to the visit to their home and to the execution of the instruments and stated that it was an especially happy affair and that the plaintiff was pleased and in a specially good mood. There is no doubt whatever in the Court’s mind about the execution and delivery of the note and mortgage having been voluntarily made by the plaintiff for the purpose already stated.

The plaintiff himself now testifies that he remembers no such transaction and that he never voluntarily or knowingly executed the cancellation of either the note or the mortgage He is very hesitant about admitting his signature but he said “it looks like his signature.”

For some time after the details last recited there was no evidence or misunderstanding or disagreement and the recitals of the parties as to how the dissatisfaction or disagreement came about are very far distant one from the other. The plaintiff says that the first he heard of the matter and the first that he knew of any cancellation of the note and mortgage was in April, 1949, when it came time to renew the fire insurance policy on the mortgaged premises. He states that the insurance company’s representative spoke to him of the fact that the mortgage had been cancelled and therefore there would be no mortgage clause in his (plaintiff’s) favor. The Stanwycks, defendants, claim that the first time that the plaintiff raised any question about the matter was following a lawsuit' tried in the Municipal Court of Cleveland in May, 1949, in which the plaintiff here was the plaintiff, which lawsuit resulted in a finding for the defendant. This action was instituted in August, 1949. The Stanwycks claim that the plaintiff insisted that Edward Stanwyck had heard a certain conversation between the plaintiff and the defendant in the Municipal Court lawsuit and he requested Edward to testify on behalf of the plaintiff in that action. Edward insisted that while he knew a conversation was had, he had not heard it and therefore could not truthfully testify. There is a claim that the plaintiff here insisted that Edward Stanwyck testify and that Edward Stanwyck continued to insist that he did not hear the conversation, and the Court believes he is correct in stating that Edward did testify to the effect that he had not heard the conversation. As already stated the plaintiff failed in his claim for recovery.

The answer to question No. 1 is one about which there can be no question. The plaintiff did execute the cancellation of the note and mortgage and did voluntarily deliver them to the Stanwyck defendants. It is not possible for any rational person to hear the evidence or peruse the record in this cause without arriving at that conclusion. We then proceed to seek the answer to No. 2, to-wit, — was such action on his part made without his knowledge, as he claims, or was it induced by fraud or undue influence, as he claims. It certainly was not made without his knowledge. The Court is fully satisfied that the plaintiff planned the entire program, that he was anxious to have it executed and that he was very pleased with the security afforded to the wife and two minor children and by what was then done. The Court is satisfied that plaintiff prepared the quitclaim deed and wrote the detailed cancellation of the note. (See Note.)

We then proceed to determine whether the action was induced by fraud or undue influence.

It is elementary of course that if the action was induced by undue influence or fraud the entire transaction would be vitiated. It is doubtful if the amended petition in this cause even states a cause of action on the basis of fraud or undue influence. We have a mere allegation of undue influence and fraud, and it has been clearly held that a mere allegation of undue influence is not a statement of fact but is a conclusion and is not sufficient to raise an issue. Barber Asphalt Paving Co., 188 Mo., 182 (Affirmed without opinion in 203 U. S., 585).

The Court would not be technical against full inquiry on a claim of undue influence or fraud, even though there be nothing beyond a mere allegation in the petition itself. Full inquiry was permitted. There is not a scintilla of evidence by anybody, and certainly not by the plaintiff himself, to indicate any influence whatever, and certainly not fraud, beyond the claim that there was a confidential relationship between the parties. The testimony is eloquent in support of the fact that the plaintiff had every confidence in the defendants and that the defendants, naturally, had the utmost confidence in the plaintiff. There is no question whatever in the Court’s mind about the relationship being one of mutual trust and confidence over the years, but it is to be noted that the plaintiff and the defendants were not living together excepting that the plaintiff upon occasion when ill and requiring special care would join the Stanwyck household. During all of the periods mentioned he was active, apparently perfectly alert, and a free agent, not in any manner subject to any influence by the Stanwyck defendants excepting insofar as his friendship and concern for them could be said to influence him.

It is very interesting to note too that the plaintiff claims in his amended petition that only two payments were ever made on the note and mortgage, and upon hearing claimed only three or four payments had been made. There is no evidence to indicate that he pressed for any payments, nor that he even mentioned the note and mortgage between the date of cancellation in April, 1948, and a date in April, 1949, —the latter being the date on which he claims to have discovered that the cancellation had been recorded. Able counsel for the plaintiff dwell at some length on the fact, often present in cases of undue influence and fraud, of a complete impoverishment of the donor by a gift and a resultant dependency or clear danger of it. This is not even a case of that character. It is true that the plaintiff testified that he has no property left other than a $2,000.00 mortgage executed by parties foreign to the transaction here in issue, and while his health is not what it used to be there is no evidence that he is not able to continue in his business, nor that he is not actually in business today as he has been for a number of years.

The cancellation of this mortgage was not an isolated act of generosity on the spur of the moment under pressure, but was a natural act, clearly free from pressure and engineered by the plaintiff himself along lines which he had followed over a long period of years as a result of his affection and regard for what became of the Stanwyck family. Based upon the facts developed upon trial the Court must conclude that the plaintiff did execute and deliver the note and mortgage, that he did so voluntarily and without any undue influence or fraud of any character. Able counsel for plaintiff in their brief raise a question which on its face is not free from difficulty.

It is claimed that by reason of the confidential relationship existing between these parties over the years, and certainly existing in April, 1948, when the note and mortgage were can-celled, the plaintiff as a matter of law could not lawfully become the donor as between himself and the donees in this cause without independent and disinterested advice, and that it was the duty of the donees in a case such as the case at pax not to accept a gift without the donor being so counseled about it. Quite a number of cases are cited but most of those cited are cases decided by the courts of New Jersey. The Court has examined all the authorities cited, and others. It must be conceded that the courts of the state of New Jersey have clearly adopted the doctrine already mentioned touching independent and disinterested advice. Examination of those cases leaves one with the firm conviction that any court of equity would in any event have granted relief in those cases even without having to resort to the doctrine of independent advice.

The doctrine of independent advice has a dual purpose under the New Jersey authorities, and possibly others—

(a) to guard against undue influence or fraud, and (b) to protect the donor against the commission of an act highly improvident to him.

The Court will not burden this memorandum with the details in the cases cited in brief on behalf of the plaintiff, but will briefly mention one or two:

Slack v. Rees, 66 N. J. Eq. 447. In this case the gift was from father to daughter, but the normal relation of parent and child existing in earlier years had been reversed and the daughter was now the guardian of the father. The conveyance of property was made on the day before the father’s death. He owned no other real estate and his personal property was insufficient for the payment of his debts. It was the daughter who took the old deeds to her attorney and ordered him to prepare new deeds for execution by her father.

82 Atl. 48, Ware v. Mulford, et al., (N. J.). This was a case of an illiterate woman approaching 90 years of age and suffering from a broken hip and as to whose mental impairment by age and illness there was conflicting evidence. She made a voluntary gift to a relative of all her property except a pension of $144.00 a year and unproductive real estate valued at about six or seven hundred dollars. The gift made the donor an object of charity.

153 Atl. 384, Kelly et al., v. Kelly (N. J.). This involved a transfer by a widow, aged, an invalid mother, of all of her property to her daughter when a close confidential relationship existed between the mother and daughter, and by reason of which gift the mother suffered impoverishment. The mother had four children but only the donee lived with the mother. The court calls attention to the fact that the transfer took place on July 18th, 1928, when—

“The ravages and progressiveness of her ailments had so sapped her vitality and powers of resistance that she took a turn for the worse. Her condition became precarious and her life was despaired of.”

157 Pac. (2nd) Gillian v. Schoen (Supreme Court of Oregon). This case involved a conveyance by an 88 year old mother to her clergyman son with whom she lived at the time of her death. Due to the grievous illness it was claimed that she was weak, ailing and unsound of mind and body and mentally incapable of transacting business or understanding her affairs. She had other children with whom she was perfectly friendly, but they were wholly excluded. She was German and lived a German life and the court in Syllabus 8 says,—

“The reading of deed, by a scrivener, in English to aged grantor who had so slight a knowledge of English that she had difficulty in following even an ordinary conversation in English and who habitually spoke German was a meaningless procedure with regard to determination of whether deed reflected grantor’s true intent or whether it was obtained by undue influence.”

The above are typical illustrations of the facts which seem to have been developed in the cases cited, and they are certainly very far from any facts present in the case at bar. This leaves us with the sole question of the necessity of independent advice to the donor.

In 12 R. C. L., 953, — -“The effect of fraud or undue influence,” at page 954 it is said:

“In some jurisdictions the donee is required to prove that the donor had the benefit of the competent and independent advice of a disinterested third party * *

The States of Arkansas, New Jersey, Virginia and perhaps another are cited as the jurisdictions referred to. The Court has failed to find in the decisions of Ohio or in the texts referring to those decisions, any reference whatever to the rule and the Court is fully satisfied that the courts of Ohio have never adopted the rule, and that it is not in effect in Ohio. The general rules providing protection to innocents against undue influence or fraud are clear and do govern, and the Court must hold that the Stanwyck defendants were not obligated to see to it that independent advice was afforded to the plaintiff in this case to stamp his action with validity.

While not expressing an opinion on the matter, it is, possible that the plaintiff in this case was over-generous and that it would have been wiser for him to have retained his mortgage. The Court is satisfied that if such be the. fact the situation now existing came about as a result of an error of judgment rather than any overreaching and that the Court is without authority to correct mere errors of uninfluenced judgment.


source: Caselaw Access Project

author: By DOYLE, J.:

license: Public Domain

text:
    FEDERMAN, Plaintiff-Appellant, v. STANWYCK et al, Defendants-Appellees.
    Ohio Appeals, Eighth District, Cuyahoga County.
    No. 22136.
    Decided December 17, 1951.
    Alfred A. Frost, David Perris, Cleveland, for plaintiff-appellant.
    Robert A. Good, Cleveland, for defendants-appellee's.
    (DOYLE, J, of the Ninth District sitting in place of HURD, J, of the Eighth District.)
   OPINION

By DOYLE, J.:

We encounter this case on appeal on questions of law and fact from the Court of Common Pleas of Cuyahoga County and have conducted a trial de novo. The evidence before us is that which is contained in a transcript of the testimony, coupled with the exhibits presented in the court of first jurisdiction.

The fact that there is presented what appears to have peen an improvident act of a 74-year-old man in the gift of a valuable property right to a very much younger husband and wife, who bear no relationship to him either by affinity or consanguinity, has caused this court to read and reread the many pages of testimony, to the end that no detail should escape us in rendering a final judgment.

The trial judge in the Court of Common Pleas accurately states the issues as follows:

“The plaintiff, Ben R. Federman, brings his action seeking to set aside the cancellation of a mortgage and names as the principal defendants, Edward J. Stanwyck and his wife, Tillie. The plaintiff in his amended petition sets forth his claim in two causes of action. In the first cause, he claims that on or about the first day of June, 1944, the defendants executed and delivered to him their note in the sum of $6,558.53, secured by a mortgage on the home of the defendants on Lipton Avenue in the city of Cleveland. The note was payable in monthly installments of $40.00 each, and provided for interest at the rate of 3% per annum. It was to mature August 1, 1954. The mortgage was duly recorded and became a lien on the home * * *. He claims further that on April 15, 1948, the Stanwyck defendants filed with the county recorder a purported cancellation of the mortgage, and that he, the plaintiff, did not execute such cancellation, that the debt has not been paid and that the pretended cancellation was without consideration. In his second cause of action, the plaintiff includes his claims already stated and says further that at no time was it his intention or purpose to execute any cancellation of the mortgage, and that if his signature appears thereon, the signature was procured without his knowledge or consent and not by his own free will and volition, and that the Stanwyck defendants procured it by fraud and undue influence. By reason of these claims, he prays for a rescission of the purported cancellation and restoration of the mortgage and its lien. By answer, the Stanwyck defendants admit the execution of the note and mortgage and the recording of them, of the cancellation thereof, and assert that the cancellation was executed by the plaintiff and delivered to them. They then proceed to deny all else claimed in the amended petition.”

Of course, the plaintiff appellant also seeks a reinstatement of the promissory note evidencing the debt.

There is no question but that the evidence shows beyond a reasonable doubt (even though such is not the degree of proof) that the plaintiff in his own handwriting cancelled the note and mortgage.

Proceeding now from this point, what rules shall govern us in our appraisement of the evidence on the legal question of fraud and undue influence?

There is a distinction between undue influence and fraud. To make a case of fraud, it is generally necessary that the evidence show that by misrepresentations and deception the donor is led into doing something which he would not have done but for the misrepresentations and deception.

Such is not the case before us. To make a case of undue influence in the absence of a fiduciary relationship, generally the free agency of the donor must be shown to have been overcome. So, when the voluntary disposition of property is made by a person, and such conveyance is made under influence exerted upon him by means of mental, moral or physical coercion, in such force that his act is really not his own, but is the act of another, then the transaction is voidable and may be set aside. Within this limit, argument, persuasion, or even influence brought to bear, are not necessarily objectionable to the law, provided one’s mind is free to act and is left free to decide and act upon the considerations which are addressed to it, to the end that the person’s acts are really his own voluntary acts.

We find that the facts in the case before us do not justify a finding of fraud or undue influence under this rule.

Proceeding now to the rule pertaining to a fiduciary relationship and its bearing upon undue influence.

Under the rule stated above, a fiduciary relationship as such is unnecessary and immaterial. There, we are talking about an actual undue influence, consciously and designedly exerted upon a party who was peculiarly susceptible to external pressure because of mental weakness, old age, ignorance, necessitous condition, etc. When undue influence of that type is established as a fact, a deed or contract or release obtained, is voidable, and may be set aside without the aid of presumptions.

We now proceed to a situation in which some fiduciary relation, some relation of confidence, subsists between parties. It is claimed that such a situation existed in the present case.

Where a fiduciary relation exists, “No mental weakness, old age, ignorance, pecuniary distress, and the like, is assumed as an element of the transaction; if such fact be present, it is incidental, not necessary, — immaterial, not essential. Nor does undue influence form a necessary part of the circumstances, except so far as undue influence, or rather the ability to exercise undue influence, is implied in the very conception of a fiduciary relation, in the position of superiority occupied by one of the parties over the other, contained in the very definition of that relation.” 3 Pomeroy’s Equity Jurisprudence (Fifth Ed.), Sec. 955.

Of course, when agents, trustees, or others in a similar legal relationship, intentionally conceal material facts or secure to themselves enrichment directly proceeding from their fiduciary position, agreements entered into accompanying such conduct are fraudulent and may be set aside. There is, however, an entirely different aspect of the fiduciary relationship where there is no intentional concealment, no misrepresentation, no advantage taken through a trust or agency.

“The broad principle on which the court acts in cases of this description is, that wherever there exists such a confideuce, or whatever character that confidence may be, as enables the person in whom confidence or trust is reposed to exert influence over the person trusting him, the court will not allow any transaction between the parties to stand, unless there has been the fullest and fairest explanation and communication of every particular resting in the breast of the one who seeks to establish a contract with the person so trusting him.” * * *

“Whenever two persons stand in such a relation that, while it continues, confidence is necessarily reposed by one, and the influence which naturally grows out of that confidence is possessed by the other, and this confidence is abused, or the influence is exerted to obtain an advantage at the expense of the confiding party, the person so availing himself of his position will not be permitted to retain the advantage, although the transaction could not have been impeached if no such confidential relation had existed.” 3 Pomeroy’s Equity Jurisprudence (Fifth Ed.), Sec. 956, quoting from Tate v. Williamson, L. R. 1 Eq. (Eng.) 528, 536, and Tate v. Williamson, L. R. 2 Ch. 55, 60, 61.

In respect to the principles of law stated in the preceding paragraph, the relation and duties there discussed may be moral, social, domestic or personal. If a relation of trust and confidence exists, when confidence is reposed by one party and a trust accepted by the other, or when confidence has been acquired and abused, such a fact is sufficient as a predicate for relief. The origin of the confidence is immaterial.

Quinn v. Phipps, 93 Fla. 805, 113 So. 419, 54 A. L. R. 1173; Hoge v. George, Admr., 27 Wyo. 423, 200 P. 96, 18 A. L. R. 469; Varner v. Carson, 59 Tex. 303.

Under circumstances w'here gifts of property are improvidently made and there is evidence tending to prove a fiduciary relationship of the type now being discussed, while equity recognizes under many circumstances the validity of such transactions between the parties, yet, because every fiduciary relation implies a condition of superiority held by one of the parties over the other, in transactions between them, by which the superior party obtains a possible benefit, equity raises a presumption against its validity, and easts upon that party the burden of proving affirmatively the fairness of the transaction and its compliance generally with all equitable requisites.

Bearing in mind at all times the many guides which the rules of equity declare, and thoroughly sifting the evidence before us, we can come to no other conclusion than that the gift in question was a voluntary act and free from fraud and undue influence.

Assuming that the evidence justifies a finding that confidence was reposed by Mr. Federman in the Stanwycks, and that the influence which ensued from that confidence was possessed by the Stanwycks, and as a result thereof, equity raises a presumption against the validity of the cancellation, nevertheless under the facts extant, it appears to this court that there has been affirmatively proved such a compliance with all equitable requisites that the presumption of invalidity has been overcome.

It has long been the law that a person in the possession of all of his faculties, as we find Mr. Federman to have been in the instant case, has the right to dispose of his property as he sees fit. To hold that voluntary gifts, with full knowledge of all the facts, and of the nature and effect of the gift, should be set aside because the donor has divested himself of a great part of his property, would be in effect to rule that no person can make a voluntary disposition of his estate except by will. Such has never been the law in this state. And when there has been shown an entire absence of fraud, undue influence or imposition, such as we find in the case before us, a gift made voluntarily will not be set aside because the donor subsequently changes his mind and regrets his benevolence, or merely because a court of equity may regard his act as improvident.

See: 160 A. L. R. 1133, annotation on “Improvidence Of Donor As Affecting Validity Of Gift.”

The appellant urges this court to apply the so-called rule of “independent advice.” There are cases in other states which lay down a rule to the effect that, in order to rebut the presumption of undue influence arising from the fact that the parties to a gift of property stood in a confidential or fiduciary relation, it is necessary to show that the one reposing confidence acted upon independent advice.

Such a rule has never been adopted in this state, and this court does not believe that such a rule should now be declared. We adopt the general rule to the effect that, in cases where it is claimed that confidence has been abused, or the transaction was unfair and was the result of undue influence which is inferred from the relationship of the parties, the existence or nonexistence of independent advice should be considered as evidence bearing upon these questions. See annotation 123 A. L. R. 1505 and cases therein cited.

In the case before us, we have considered this question as an evidenciary fact in reaching our conclusion.

It may be that what is here written is a work of supererogation, in view of. the written opinion of Judge Blythin, who heard the case in the court below. We reach the same factual and legal conclusions as did Judge Blythin, and, with his permission, will include by reference in this opinion his splendid and accurate analysis of the facts and the law of the case before us.

Decree for defendants appellees. Exceptions noted. Order see Journal.

SKEEL, PJ, THOMPSON, J, concur.


author: By THE COURT.

text:
    STATE, Plaintiff-Appellee, v. FORTY-FIVE HUNDRED EAST BROAD, Inc., Defendant-Appellant.
    Ohio Appeals, Second District, Franklin County.
    No. 4454.
    Decided June 4, 1951.
    C. William O’Neill, Atty Geni., Thomas R. Lloyd, Asst. Atty. Geni., Columbus, for appellee.
    Herbert & Dombey, Edwin M. Tuttle, Columbus, for appellant.
   OPINION

By THE COURT.

This is an appeal on questions of law from the judgment of the Common Pleas Court of Franklin County affirming the order of the Board of Liquor Control, State of Ohio, in revoking a D-5 Permit issued in the name of Forty-five Hundred East Broad, Inc.

The permit of the appellant was revoked on the ground that appellant had made a false material statement in the application for the renewal of the permit. The false maaterial statement in the application in answer to Question No. 31 is shown by the facts presented to the Board by way of stipulation and oral testimony.

The factual development shows that Louis DeVictor, the president of the appellant corporation and the owner of all but two shares of stock in said corporation, had prior to June, 1949, operated a restaurant at the same location. The corporation in this case owned a business known as “The Showboat” located on East Broad Street, Columbus, Ohio, which was destroyed by fire, after which the D-5 Permit which was held by the corporation was placed in escrow. Thereafter, on May 16, 1949, the stockholders in the corporation sold their stock to DeVictor. An application was made to the Department of Liquor Control to transfer said stock to the new stockholders. The Department approved the transfer of stock to DeVictor on June 10, 1949. In the meantime, to wit: on May 6, 1949, DeVictor was arrested for violation of §13195 GC, for the illegal sale of whisky at the restaurant which he was then operating. He pleaded guilty to the charge in the Municipal Court of Columbus on June 3, 1949, and was fined $100.00 and costs. On June 1, 1949, DeVictor, as president of the corporation, signed an application for a renewal of the D-5 Permit under which the corporation formerly operated and which was about to expire. This application was not filed with the Department of Liquor Control until June 13, 1949. On the basis of the application and the representations made therein the permit was issued. Subsequently, upon discovery of the conviction the appellant was cited before the Board to show cause why the permit should not be revoked. Upon hearing the Board revoked the permit, which action was affirmed by the Common Pleas Court.

The pertinent part of the order revoking the permit effective September 21, 1949, is as follows:-

“The Board finds from the evidence that on the 13th day of June, 1949, the Forty Five Hundred East Broad, Inc., filed with the Department of Liquor Control an application for a D-5 permit, which application contained a false material statement, as follows: Question No. 31, ‘Have you as an individual or any member of the partnership or corporation or officer thereof, or any person employed by you ever been convicted of violating any of the penal provisions of the Liquor Control Act or any statute relating to beer or intoxicating liquor?’ The answer contained in said application being ‘No’; in violation of provisions of the Ohio Liquor Control Act.
“It is therefore ordered and adjudged that Permit (D-5) 31779 be, and the same is REVOKED, effective September 21, 1949.”

The violation of the Ohio Liquor Control Act on which the Board relied to sustain the revocation is found in §6064-25 GC, which in part provides:

“The Board of Liquor Control may suspend or revoke any permit issued pursuant to the Liquor Control Act for the violation of any of the applicable restrictions of this Act or of any lawful rule or regulation of the Board or other sufficient cause, and for the following causes;
“2. For making any false material statement in an application for a permit.”

The sequence of events presents the question for determination. On June 1, 1949, the application for the renewal of the permit was signed and the statement was made that there had been no conviction. On June 3, 1949, DeVictor was convicted of violation of a statute relating to intoxicating liquors. On June 13, 1949, the application for renewal of the permit was filed with the Department.

On the date the application was signed there had been no convictions, but on the date the application was filed there had been a conviction. Does the application speak as ot the date of its execution, or the date of filing? Manifestly, DeVictor knew of the pending charge at the time he signed the application and knew on the date of the filing of the application on June 13th that a circumstance had occurred which was material in determining whether or not the permit should be granted. The application could not have been filed before conviction as the approval of the transfer of stock was not given until after the conviction. The evidence shows that DeVictor was aware of the fact that the application had not been filed prior to conviction, although it had been signed. The execution of the application had no legal effect; only the filing of the application gave it legal effect. The answers to questions stated in the application were in the nature of representations to the Department to be considered in determining whether the permit should be renewed. These representations could only have legal effect after the application was filed. To hold that the statements made in the application speak as of the date of signing of the application would open the door to subterfuge.

The statement in the application in answer to Question No. 31 was a “false material statement” within the meaning of the provisions of §8064-25 GC, We find no abuse of discretion on the part of the Board in revoking the permit.

We find no error assigned well made. Finding no error in the record prejudicial to the rights of the appellant the judgment is affirmed.

HORNBECK, PJ, WISEMAN and MILLER, JJ, concur.


author: By QUATMAN, J.

text:
    ARMENTROUT v. ARMENTROUT et.
    Probate Court, Allen County.
    No. 24076.

      Attorneys not given.
   OPINION

By QUATMAN, J.

This is an action for declaratory judgment in which Emma A. (Herbst) Armentrout, life tenant of a life estate established under the terms of the last will and testament of Charles F. Herbst deceased, petitions this court to determine the disposition to be made of 1219 shares of stock of The City Loan and Savings Company, declared and paid by said company as stock dividends. Paul O. Boesel, attorney, was appointed by the court as guardian ad litem to represent the interest of certain minor defendants, remainderman under the aforesaid trust. Thereafter the matter was argued before the court and the case continued pending submission of certain exhibits and agreed upon facts relating to the financial structure and stock records of The City Loan and Savings Company. Thereafter this cause again came on to be heard and after oral argument the motion of Plaintiff to submit briefs was allowed. Counsel for Plaintiff has filed two very excellent briefs indicating many hours of research on the subject for which the court is most thankful.

The court finds that Charles F. Herbst died testate on February 6, 1947, his will having been admitted to Probate in this court on February 14, 1947. Item 9 of the will, a residuary clause, creates an ordinary life estate for the benefit of Emma A. (Herbst) Armentrout with the remainder to the defendants. At the time of his death, Charles F. Herbst, was the owner of 1300 shares of the stock of the City Loan and Savings Company, Lima, Ohio, and the same passes under item 9th of the will as part of the corpus of the life estate. After testator’s death the City Loan and Savings Company, at regular semi-annual directors’ meetings, called in December and June, authorized the payment of stock dividends which realized an increase of 1219 shares, leaving an aggregate of 2519 shares in the hands of the administratrix. From the company’s earnings and distribution sheet submitted by stipulation there is some evidence to indicate that not all dividends, both cash and stock, were paid from current earnings, i. e., the six months period immediately preceding the declarations, however, it is not seriously contended by the guardian ad litem and it also appears to the court that the distribution was intended by the directors to be made from current income, and not from some surplus earnings account that had been accumulating over a long period of time.

The court is now called upon to decide the issue as to whether or not a stock dividend declared at a regular directors’ meeting to be paid from current earnings becomes the property of a life tenant or belongs to the corpus. There being-no statutory authority in this state the court must decide the question from primarily an interpretation of testator’s intention as expressed in the will and secondarily case precedent.

It is fundamental that the intention of the testator is the pole star that guides the court in interpreting the provisions of a will. The court must look to the four corners of the instrument in order to draw out that intent. The court has searched the will in vain for testator’s intent as to the instant question and in truth must conclude that it is just not there. Item 9th of the will in question is the only part of that instrument from which an intent on the part of decedent as to the mater in issue might be drawn. The pertinent part of that item reads: “All the rest, residue and remainder of my estate be the same real personal or mixed, and wheresoever situate, —, —, —, I give devise and bequeath to my wife, Emma Almeda Herbst for and during the period of her natural life. At the death of my said wife, —, all property devised or bequeathed by this item of my Last Will and Testament, shall be divided equally among my three children, —.”

It is obvious that this wording creates an ordinary life estate pure and simple, and this conclusion is not disputed. Neither this item nor any other item of the will refers to disposition of stock dividends and we must, therefore, conclude that the testator intended that they pass according to the law as applied in this situation. The fact that testator failed to retain all previous stock dividends paid during his life time is not impressive for several reasons. There is no defined pattern in the transfers indicating that Charles F. Herbst was establishing an estate for his heirs similar to that established by the will; a sizable portion of the transfers was presumably made for the valuable consideration; the fact that testator did receive stock dividends on numerous occasions would indicate that he was fully aware of this policy of the City Loan and Savings Company. This latter point has a strong influence on the decision in Fifth-Third Union Trust Company v. Davis, 1936, Ohio Supp. 251, Id., 55 Oh Ap 377, 10 N. E. 2d 4.

Having failed to find any intention on the part of the testator expressed in the will as to the disposition of stock dividends we must therefore turn to the law. The texts, digests and reports are replete with learned writings and opinions as to whether or not stock dividends should go to the corpus or be distributed as income. The issue has been argued in courts throughout the land and it is no tribute that the authoriies are extremely divided. This court shall of necessity confine itself to the holdings of its own jurisdictions although counsel for Plaintiff has very ably and properly reviewed the foreign decisions in his briefs.

The first reported Ohio case involving a similar issue as the instant case is that of Wilberding, Administrator, v. Miller, 1914, 90 Oh St 28, 106 N. E. 665, L. R. A. 1916A, 722. The stock dividends in that case were paid during a reorganization and out of the assets of the liquidating corporation. The dividends were held to go to corpus. Thereafter the issue was tried in Ohio Savings Bank & Trust Co. v. Clark, 1916, 7 Oh Ap 6, and the court held: “Dividends remaining in the hands of the executors, paid to them on stock owned by the testator, pass to his widow (life tenant) whether paid in cash or stock, provided that the actual value of the stock at the time of testator’s death be not depleted by stock dividends.” (see Syllabus 4)

In 1923 the court in Lehmann, Trustee v. Endowment Fund Association of the University of Cincinnati, 19 Oh Ap 339, had both of the above mentioned cases before it. In the Lehmann case, supra, the stock dividend was issued against surplus transferred to capital. There is nothing in the report to indicate if the surplus amount represented accumulated or current earnings other than the statement on page 341 of 19 Oh Ap.: “It is a further fact that the surplus, against which was issued the stock in question, was used in the prosecution and enlargement of the company’s business.”

This apparently was asserted to show good faith on the part of the directors.

It was argued in the Lehmann case, supra, as here, that the Wilberding case, supra, was not controlling in that it involved a distribution of assets on dissolution of the corporation and in answer to this, Hamilton, J., 19 Oh Ap on pages 344-345 of the report states: “But the well-considered and lengthy opinion of Judge Johnson leads to the conclusion that the Supreme Court was adopting a rule for Ohio for such cases as that under consideration. We, therefore, feel bound to hold, under this decision, that the stock in question is a part of the corpus of the estate, and not the property of the life tenant.”

The case was certified to the Supreme Court as being in conflict with Lamb v. Lehmann, Trustee, 1924, 110 Oh St 59, 143 N. E. 276, 42 A. L. R. 437, and is the leading case in Ohio on the question in issue.

Marshall, C. J., in the latter case, reviews at length the decisions of other jurisdictions as well as those in Ohio and concludes that stock dividends shall become a part of the corpus of the tenant. This would appear to be conclusive of the question if it were not here argued that the court had refrence only to extraordinary dividends as opposed to ordinary dividends. This court concludes that in a broad sense the difference being that extraordinary dividends are those paid out of funds other than earnings derived from current operations. It is not clear from the report in the Lamb case, supra, or for that matter any of the reported Ohio cases, whether the stock dividends in question were paid from current or accumulated earnings, however, a reading of the entire case would indicate that those facts were not of concern.- It must be admitted that some jurisdiction, decide the issue on this question, viz, was the stock dividend paid from current or accumulated earnings. Or expressed in another way, was the dividend ordinary or extraordinary.

On page 73 of 110 Oh St, on page 280 of 143 N. E. of the Lamb case, supra, the court in reviewing the various decisions states: “The third rule, known as the Massachusetts rule, regards cash dividends, whether ordinary or extraordinary, as income, and regards stock dividends, so called, as capital, without regard to the period when the same were earned.”

Whether this is or is not a proper digest of the Massachusetts rule is not important. What is important is that the Ohio Court was aware of this distinction and had the difference in mind when on page 80 of 110 Oh St, on page 282 of 143 N. E. it stated: “The Massachusetts rule operates in perfect harmony with the testamentary intent, assuming that when that intent is expressed in general terms there is an implication that corporate policies and the recognized legal relation between the corporation and its stockholders should be the polestar of interpretation.”

The court in the Lamb case seems particularly impressed not with the fact that it was dealing with an ordinary or extraordinary dividend but the fact that it was not in truth dealing with a dividend at all. It must be agreed that the word stock dividend is a misnomer for the two are as different as profit and loss. A certificate of stock gives the holder nothing more than a right to receive back a proportionate share of his investment upon dissolvement of the corporation, a right to share in the profits when and if declared by the directors and a right to vote for the directors. Any of these rights may be restricted or enlarged upon by the charter and by-laws, within limitations of law. In the operation of a company’s business it may become necessary for a multitude of reasons to increase the capital. This may be accomplished by numerous ways including amongst others a transfer from surplus account. The directors could make such a transfer without issuing new stock simply by transferring figures on the books. Stock is directly related to capital and has no right to earnings until the directors, in their discretion, say so. When earnings, regardless of when earned, are transferred to capital they lose their character as earnings and any certificate of the transfer handed the stockholder is not in true sense a dividend but merely additional evidence of his increased rights in the company. Certainly there could be no complaint in the instant case if the directors in the exercise of proper discretion had chosen to make the transfer without the issuing of additional stock.

The directors act only in the interest of the corporation and cannot be expected to have in mind a ramification of their act such as we have here. However, the testator, well knowing the policies of the corporation, who fails to express an intent as to the disposition of stock dividends must be presumed to have relied on the corporation to provide sufficient income for the life tenant knowing that stock dividends would go to capital.

The Lamb case, supra, admits the rigidness of its rule and indicates that hardship could result in some instances but concludes that a court should be concerned with legal principles rather than a multitude of facts. It is the observation of this court that if injury does result (which is not argued in this case) it is the fault of the testator and not of the law.

It is also interesting to note that the United States Supreme Court has held stock dividends not to be income for purposes of taxation. See Eisner v. Macomber, 252 U. S. 189, 40 S. Ct. 189, 64 L. Ed. 521. The present Revenue Act has an express provision regarding the matter, 26 U. S. C. A. Int. Rev. Code, §115 (f).

A subsequent case, namely the Fifth-Third Union Trust Co. v. Davis, 1938, 55 Oh Ap 377, 10 N. E. 2d 4, 5, Court of Appeals, Hamilton County, holds that stock dividends belong to the corpus and not the life tenant. Throughout the opinion the court seeks to find the intent of the testator and arrives at the above conclusion even though the will specifically stated that: “One-half of the income or dividends from said stock,” etc. shall go to the life tenant.

In view of the cases herein referred to as controlling in this jurisdiction and in view of the fact the court is unable to find an expressed intent in the will, the court is bound to hold that the dividends in question are to be considered as an increase in capital of the life estate and should properly be delivered to the corpus. For the purpose of deciding the issues of this case this court makes no distinction between a life estate or an estate in trust. Entry may be prepared accordingly. Exceptions noted.