author: Bradbury, J„

text:
    Peter v. The Union Manufacturing Company et al.

      Corporation for profit — Purchase of unsubscribed stock by officers at discount — Bad faith not imputed, when — Corporation insolvent —Rule as to value and validity of stock bought below par— ' Right of disposal of stock by owner — Non liability of transferer for corporation debts made after transfer;

    1. The directors and managing officers of a corporation for profit should be held to strict good faith in all dealings between themselves and the corporation. Where, however, the corporation is deeply in debt and pressed for money to continue its business ; where a large proportion of its capital stock remains unsubscribed, a great part of which was created by an unauthorized increase of the same, for which such directors and managing officers were chiefly responsible, though acting in good faith and in the belief that their action was regular; where such directors and managing officers believe the only practicable means of obtaining money to relieve the necessities of the corporation, is by disposing of this stock; where accordingly they make diligent but unsuccessful efforts to dispose of the stock at par ; where they offer it at a large discount to all its stockholders and generally to others without takers, such directors and managing officers and some others without intending to secure personal advantage, but with a view to aid the corporation, take parts of the stock at the discount price, either paying cash therefor, or cancelling debts due to them from the corporation, and they do not afterwards derive any profit on account of such stock, bad faith should not be imputed to them, either in respect to such increase of capital stock -or their acquisition of it.
    If the corporation subsequently become insolvent the difference between the discount price and the par value of the stock thus purchased, should not be regarded as assets of the corporation, as between those stockholders who bought at a discount and those who did not. In such case the holders of previously issued stock for which they had paid par should not be allowed to assert the invalidity of the issue of the discounted stock without consenting that its purchasers be placed in statu quo.

    2. An owner ol stocir m a corporation for profit created under the laws of this state, m the absence of a by-law to the contrary, has absolute power of disposition over the same, and may dispose of it by sale or gift at his pleasure. If the sale or gift is made in good faith, and the shares, sold or donated, are transferred on the books of the corporation to the purchaser, or donee, the transferer does not remain an equitable owner thereof, or thereafter continue liable to assessment, under the statute of this state, for the payment of future corporate debts, although at the time of the sale or donation the corporation and transferee were both insolvent, and the purpose of the former owner, in disposing of the stock, was to escape such future liability. •
    (Decided March 30, 1897.)
    Error to the Circuit Court of Lucas county.
    This cause was orally argued to the second division of the court. Owing, however, to the importance of certain questions of law involved in its determination the cause was by the second division submitted to and considered by the whole court upon the elaborate briefs filed by counsel.

      Kinney <& Newton and John II. Doyle, for plaintiff in error.
    Was the court right or wrong in holding Mr. Peter liable for the debts of the company on the one thousand shares of stock, which he transferred in February, 1889, and- which thereafter did not stand in his name, that is for such debts as were contracted after the date of such transfer? Of course, it is not claimed that he could be released by any transfer from existing liabilities, Ilenkle v. Salem Mfg. Go., 39 Ohio St., 547; Brown v. Ilitchoook, 36 Ohio St., 678.
    The question simplifies itself, it seems to us, into this: If a person at one time becomes a shareholder in a corporation, and admitting his liability to all existing creditors, desires to disconnect himself from the corporation as to future creditors and future liability, is there no way that he can do so, unless he can find some one willing to buy his stock as an investment and pay for it, who is solvent and who buys for the purpose of becoming an active member of the corporation ? Cannot a stockholder give his stock away to anyone who is willing to take it? As he cannot transfer it back to the corporation which cannot deal in its own stock, except where it iscompelled to take it for debt and the like, is the rule of Brown v. Hitchcock to bé so construed as to bind the stockholder forever, nolens volens, so that once a stockholder, forever a stockholder is to be the rule, no matter how earnest or honest he may be in the desire to get out and free himself from future obligations, which he may have no other power of preventing, .except the right to vote his stock at an annual meeting for directors.
    The liability of stockholders is of many kinds, depending upon the particular laws of the locality :
    (a.) The liability for calls on the stock up to the par or agreed value is, of itself, the most common and under which the great majority of the cases are decided. Valid assignments or transfers of stock in many cases will exempt the transferrer, either to the company or creditors, even in this class :
    (A) A joint and several liability as partners is provided by the laws of some states and countries and a joint and several liability as guarantors in others ; a limited and an unlimited several liability by still others ; the limited several liability being the law of Ohio. Section 197 Thompson Liability of Stockholders.
    We assert that these stockholders and creditors cannot now be heard to say, that as between them and Peter, this transfer was void or voidable. Even under the English law as applied to jointstock companies, which are nothing but numerous partnerships, each member being liable in solido for the debts of the concern, the other shareholders may, as between themselves, consent to a withdrawal of a member and if after knowledge of such withdrawal, or circumstances which ought to charge them with knowledg-e, they stand by and do not complain, they should be taken as having acquiesced in it, Syackman v. Evans, L. R. 3H.L., 171; Evans ,v. Smallcombe, L. R. 3 H. L., 249; Ilouldsworth v. Evans, L. R. 3 H. L. 263; Dixons case L. R. 5 Ch., 79, Sedgwick.Constitutional and Statute Law, 111; Tone v. Columbus 39, Ohio St., 281; State Ex rel v. Mitchell, 31 Ohio St., 592.
    The creditor may waive, either by express contract, or by conduct, either the constitutional or the statutory provisions made for his protection or benefit, Thompson’s Commentaries on Corporations, Volume 3, Section 3008, page 2163; Robinson v. Bid-well, 22 California 379; French v. Teschemaker 24 California 518; JBasshor v. Forbes 36, Maryland 154 \Ohio Insurance Co.,v. Merchants etc. Co., 11 Humph (Tenn.) S. C., 53, Am. Dec. 742.
    In England, the rule has been adopted by nearly a harmonious line of decisions, that a transfer, if real and substantial and without reservation, will be upheld as against future calls and the claims of creditors, pre-existing, althoug-h made with the intention of escaping liability, De Pass Case 4 Delg. & J. 544; Ex parte Costello 2 De G. F. & J. 302; Ex parte Jessop 27 L. J. Ch. 757, Hanúsons case L. R. 6 Ch., 286; Colquhon v. Courtenay, 43 L. J. Ch. 338 ; S. C. 29 L. T. N. S. 877; Chynoweths case 15 Ch. Div. 13; Westons case L. R. 4 Ch. 20; Ex parte Bugg 2 Dr. & Sm. 452. Battles case 39 L. J. Ch., 391 — 18 W. R. 620 ;■ Slaters case 35 Beav. 391 — 35 L. J. Ch. 304; Kings case L. 6 Ch. 196; In re Taurine Co. 25 Ch. Div. 118. — and other cases cited in 23 American and English Encyclopedia of Law — pages 880 and 881.
    See also cases cited by Thompson Liability of Stockholders: Masters case L. R. 7 Ch. 292; Hakims case L. R. 7 Ch. 296 — Note, Bishops ease L. R. 7 Ch'. — Note, • Williams case 1 Ch. Div. 576.
    A conveyance to be fraudulent as to future creditors, must be the result of active fraud, an intent to commit a fraud on parties with whom he intends to deal, and the conveyance found to be in secret trust for the grantor, the perpetrator of the fraud. The act of grantor and grantee. That is the rule, where the creditor seeks to reach the property conveyed. Evans v. Lewie, 30 Ohio St., 11 ,
    The fact, that it was a gift or without consideration, is not enough and not material, even if it left the grantor insolvent, it is not enough. There must be an active intent to defraud future credi-. tors. Llinlde v. Salem, etc., 39 Ohio St., 547.
    There has been a great deal said in the former arguments of this case about the property, assets and capital stock of a corporation being a trust fund for the benefit of its creditors. This court has decided that “the property and assets of a corporation áre a trust fund for the payment of its debts, especially in case of its insolvency. ” Bouse Trustee v. The Merchants’ National Bank of Cincinnati, 46 Ohio St., 503.
    Unsubscribed capital stock is not an asset of any kind. No one owes anything on it to either the corporation or its creditors. It is not in esse ; if it was, it would, pass under a mortgage, or could be attached or sold on execution. It is the contract of somebody to take it that becomes of value, and that contract becomes an asset of the corporation. When subscribed in the regular subscription book, it is a contract in writing, Gaffv. Flesher, 33 Ohio St., 112, and actions on it are barred in fifteen years. Gibson v. Columbia etc. Company, 18 Ohio St., 397; !Varner v. Collencler, 17 Ohio St., 198.
    If we adopt as correct the rule, that the corporate property is a trust fund, and that the directors are trustees and the shareholders and creditors the cestuis qu,i finest, to its full extent, the result would necessarily be, that it was this contract to take the shares at a certain price that came into the trust, and that the contract can only be enforced by either the trustee or cestuis qui trust according to its terms. See Sturgis v. Stetson 1 Bissell, 249; First National Bank v. Gustin Mining Co., 42 Minn., 327; Ilospes v. Northioestern Manufacturing daCar Co., 48 Minn., 174; Dayton, etc., Railroad v. Hatch, 1 Disney, 8.4.
    For cases discussing the rights of creditors and the trust fund doctrine, see, in addition to above: Christenson v. Eno, 106 New York 97; Van Cott v. Bount, 82 New York, 535 ; Hollins v. Briar-field Coal ds Iron Co., 150, U. S., 371; Brown v. Grand Rapids P. F. Co., 58 Federal Reporter 290, and the cases hereafter cited.
    The attempt to apply this doctrine to’this case must be unavailing. No “trust fund” doctrine can convert a contract to pay a given price i nto a contract to pay a greater price where the contract is in good faith and legal.
    With this finding, the fact that these bonds and stocks were taken by stockholders and directors is immaterial. Sims v. Street Railroad, 37 Ohio St., 556; Twin Lick Oil Company v. Marbury, 91 U. S., 587; Dupont v. Railway Company, 18 Federal Reporter, 469; Harts v. Brown, 77 Illinois, 226. Syllabus 1 and 2, 230; Brown v. G. R. Furniture Company, 58 Federal Reporter, 290-2; Montreal v. Hotts Salt & L. Company, 90, Michigan 345;
    The directors had the right to sell, the stock. Sims v. Street Railroad Company, 37 Ohio St:, 565;
    The corporation had the power to pledge its stock as collateral security for advances. Guest v. Worcester R. Company, L. R., 4 C. P., 9; Ashworth v. Bristol c& R. Company, 15 L. T., (U. S.) 561; Union Savings Association v. Selyman, 92 Missouri 635; S. C. 1 American State Report,. 776. Burgen v.' Selmcm, 107 United States, 20.
    The creditors thus holding it as collateral, might have sold it as pledges and with consent of the corporation, pledgor became its purchaser. The corporation may sell its unsubscribed capital stock for less than par. Where the contract is in good faith, the purchaser is under no obligation to pay more than he agrees to pay, First National Bank v. Gustin, etc., 42 Minnesota, 327; Clark v. Beaver, 139 U. S. 104; Fogg v. Blair 139 U. S. 118; Hadley v. Stutz, 139 U. S. 417; Hospes v. Northwestern Mfg. <& Car Company, 48 Minn. 174; Smith v. Prior 58 Minn. 247, 251; Republic Life Insurance Company v. Swigett 135 111. 150 ; Stein v. Howard, 65 California, 616; Calaman v. Windsor, 78 Iowa 193; Dayton, etc., Railway v. Hatch 1 Disney 84; Hollis v. Brickfield C. & I. Company, 150 U. S. 371; Harrison v. Arkansas Valley Railroad 4 McCrary, 264; Van Cott v. Brunt 82, New York 535.

      In relation to these stock transactions, it must be. remembered ,that they are not at all like cases where there was an actual unconditional subscription to the capital stock, and an attemptafterwards bjr the directors to modify, or release it, or an actual subscription and unenforcible collateral agreement modifying its terms. It is, therefore, wholly unlike the eases of: Henry v. Vermillion Railroad Company 17 Ohio 187; Noble Adminisfrator v. Calendar 20 Ohio St., 199.
    There is nothing in the Constitution prohibiting such sales. There is no provision in the Constitution that requires a man to pay, under, a contract, more than he agrees to pay, or makes “any amount unpaid thereon’’after he had paid the full contract price.
    As to the meaning of those words ‘ ‘any amount unpaid thereon.” See: First National Bank v. Qustin Mining Co. 42 Minn. 327 ; Republic Life Insurance Company v. Swigert 135, 111., 162; Clark v. Beaver 139 United States 108; Churchmaa v. Novelty Glass Works.

    There can be no implied contract, arising either from the facts or the law, to pay more for this stock because there was an express contract, free from fraud, in absolute good faith,., that the purchaser should never be called upon to pay more. Even if the directors had no power to make the contract, it could only result in the cancellation of contract, not the creation of a new contract, which the parties never intended but expressly refused to enter into.

      E. W. Tolerton and Alexander L. Smith, for defendants in error

      This Court will not review the finding of the Circuit Court that William Peter is the equitable owner of the one thousand shares of stock transferred to Sarah E. Peter for the reason that the bill of exceptions does not contain all the evidence upon which the Court below acted in making this finding, Ide v. Churchill, 14 Ohio St., 372; Reid v. Sykes, 27 Ohio St., 287; Combs v. Miller, 6 O. C. C. Rep., 446; Hollister et al. v, Reznor, 9 Ohio St., 9 Donnell v. Jones, 17 Ala., 689; 40 Me., 274; 3 Litt., 215; 7 Mo., 293. ,
    That the takers of the 999 shares of original stock at 20 cents on the dollar must be assessed up to its par value for the purpose of paying the debts of the company, for the following reasons :
    1. There was never any contract or agreement made by the company that these 999 shares should be paid for at the rate of 20 cents on the dollar and no more.
    2. The takers of tnese 999 shares of stock at 20 cents on the dollar are estopped as against other holders of the original stock who had paid par for the same, to claim that they should not be assessed up to par for their stock.
    3. Under the circumstances of this case the corporation had no power to sell its stock less than par.
    An understanding or individual consent on the part of the directors is not sufficient to authorize such action. They must act as a board, See Beach on Private Corporations, Section 224 ; Taylor on Corporations, Section 258, and cases cited ; Baldwin v. Canfield, 26 Minn., 43; Hillyerv. Mining Co., 6 Nev., 51. Shoe c& Leather Co. v. Rurtz, 34 Mich. 89; McCortle v. Bates, 29 Ohio St., 419, Thompson on Corporations, Sections 3905-3906-3908.

      The sale of Capital stock of a corporation at less than par, even if within the powers of the corporation itself, is beyond the power of the board of directors, Thompson on Corporations, Section 1563; Sturges v. Stetson, 1 Biss., 246.
    There is another point of view, however, from which it may be seen that it is not within the power of the board of directors to sell stock less than par. Such a sale is in effect a reduction of the capital stock of the corporation. This can only be done by authority of the stockholders, Ailing v. Wenzel, 123 111., 264; Gill v. Balis, 27 Mo., 242; Eidman v. Boioman, 58 111., 444; Railway Co. v. Allerton, 18 Wall., 233. (A leading and well considered case.) Shoe ds Leather Co. v. Kurtz, 34 Mich., 89 • Thompson on Corporation, Sections 2114, 2122.
    What cannot be done directly may not be done indirectly, Shoe da Leather Co. v. Kurtz, 34Mich., 89; Holmes v. Newcastle Etc. Co., L. R., Ch. Div., 682.
    This state of facts widely differentiates this case so far as the 999 original shares are concerned, from the case on which the defendants chiefly relv, viz: Ilospes v. Northxoestern Mfa. Co. 48 Minn., 174.
    We submit that as directors in this case bought this stock with a view of voting it as ‘ fully paid up” at the impending meeting for the purpose of increasing the time capital stock, they must be “held to the substance of the liability which they in form held themselves out as having fulfilled, Thompson’s Liability of Directors, page 367.
    This stock was issued arbitrarily by the directors to themselves and as plainly appears for the purpose of obtaining control of the majority of the capital stock of the company. They used this advantage thus obtained in voting the increase of the capital stock to one million dollars.
    As has been well said, “They cannot be stockholders to vote and not stockholders to pay.”

    It is no answer to this to say that they acted in good faith and that they supposed that all the stockholders would be benefited. They certainly supposed that they would be benefited and they should be made to bear the responsibility for the financial disaster which subsequently overtook the company. Neither good faith nor an adequate consideration will sustain such a transaction. See Godwins. Garni Go., 18 Ohio St., 182. Richard-sons. Green, 133 U. S., 45; Thompson on Liability of Directors, 364; See also Ex parte Daniell, 1 De G. and J., 372; Parker s. McKenna, L. R., 11 Ch. App., 108-216; Schley v. Dixon, 24 Ga,, 273.
    There is a strong analogy between this case and that of the liability of directors for qualification shares issued to them as fully paid, but which in fact are not paid for; See Carling’s case, L. R., 20 Equity, 580; Hayes’ case, L. R.,10 Chancery, 593 ; Dent’s case, 15 Equity, 407; Menier s. Hooper, L. R. , 9 Chancery, 350; Clarke s. Thomas, 34 Ohio St., 46; Gratz v. Reed, 4 B. Monroe, 178; Moses v. Ocoee Bank, 1 Lee Tenn., 398 ; State s. Sherman, 22 Ohio St., 411.
    If it be argued that here was no subscription, we answer none is necessary. The taking of stock implies an agreement to pay for it; Sanger s. Upton,, 91 U. S., 63; Glvubb s. Upton, 95 U. S., 669; Handley s. Stutz, 139 U. S., 417; Railroad Co. s. Smith, 15 Ohio St. 328; Mathis s. Pridham (Texas), 20 S. W. Rep., 1015-1023; Bates of Convention, 1851, Vol. 1, page 260; The Ocregum Gold Mining Co. v. Roper et al., H. L. Appeal Cases, 1892, 125.
    But aside from the question raised by our Ohio constitution and statutes, we submit that it is the generally accepted doctrine that any agreement, secret or otherwise, fraudulent or in good faith, between a corporation and its shareholders, for the sale of its stock at less than par, is void as to creditors of the corporation, in the event of insolv-' ency. For the capital stock of a corporation is a trust fund for creditors. Such is the law in Ohio; Ilenry v. Vermilion, etc., Ry. Co., 17 Ohio, 187Nobler. Callender, 20 Ohio St., Rouse v. Bank, 46 Ohio St., 502; And as to other states: Union Mutual Ins. Co. v I rear Stone Mfg. Co., 97 111., 537; Melvin v. La. mon Lns. Co., 80 111., 446; Ailing v. Wenzel, 133 111., 264; Chouteau v. Bean, 7 Mo. App., 210; Skrci. inkco.Y. Allen, 7 Mo. App., 434’, s. c. ail’d, 76 Mo., 384; ICehlor v. Lade man, 11 Mo. App., 550; Schickle v. Watts, 94 Mo. 410; Gill v. Balis, 72, Mo.,424, Rider v. Morrison, 54 Md., 429; Crcmford v. Roher, 59 Md., 599; Jackson v. Traer, 64 Iowa, 469; Wetherbee v. Baker, 35 N. J. Eq., 501; Bailey v. Coal Co., 69 Pa. St., 334 ; Robinson v. Pittsburyh, etc., Co., 32 Pa. St., 334; Morroxo v. Washville, etc., Co., 87Tenn., 262; (Opinion by JudgeLurton.) Curry v. Woodxoard, 53 Ala.; 371; Elyton Land Co. v. Birmingham Co., 92 Ala., 407; Mann v. Cook, 20 Con., 178; White Mt. By. Co. v. Eastman, 34 N. H., 124; Thompson v. Reno Sewings Bank, 19Nev., 103; Lee v. Imbree, 13 Or., 510; Robinsons. Carey, 8Ga., 527; Ilightoxoer v. Thornton, 8 Ga., 486; •Adler v. Milxoaxikee Brick Co., 13 Wis., 57; Payne v. Bxdlcird, 23Miss., 88; Mathis v. Priclharn, 1 Tex. Civ. App., 58; Nenney v. Wciddill, 6 Tex. Civ. App., 244.

      Besides the case of Sturgis v. Stetson, 1 Biss., 246, above cited, we cite following: Wood v. Bummer, 3 Mason, 308: Sawyer v. Hogg, 17 Wall., 610; Upton v. Tribilcoch, 91 U. S., 45; Sanger v. Upton, 91 U. S., 56.
    Both of which last two cases are quoted with approval by this Courtinthe Rouse case, 46 Ohio St., 5.03; Chubb v. Upton, 95 U. S., 665; Ha/usley v. Upton, 102U. S., 314; ScovilleY. Thayer, 105U. S., 143, Flynn v. Bagley, 7 Fed. Rep., 785; Handley v. Stutz, 139 U. S., 417; Camden v. Stuart, 144 U. S., 104; Brigham v. Mead, 10 Allen, 245; Sawyer v. Hoag, 17 Wall., 610; Webster v. Upton, 91 U. S., 65; Pullman v. Upton, 96 U. S., 328; County of Morgan v. Allen, 103 U. S., 498; Haiokins v. Glenn, 131 TJ. S., 319; Graham y. Railroad Co., 102 U. S., 148 161; Richardson v. Graham, 134 U. S., 30.
    The English cases seem formerly to have held that a contract of a corporation to issue its shares at a discount is either absolutely void or absolutely good, and that in neither case could any action be maintained to compel payment of its par value: DeBeville case, L. R., 7 Eq., 11; Ince Hall,' etc., Co., L. R., 23 Ch. Div., 545; Plaskynaston etc., Co., L. R., 23 Ch. Div.,542; Baglaw Hall, etc., Co., L. R.,5Ch.,346; Waterhouse v. Jamison, L. R.,2H. L. (Sc.), 29; Currie’s case, 3 De G., J. & S., 367; Carling’s case, 1 Ch. Div., 115; Smith Middlings Purifier Co. v. McGroarty, 136 U. S.,241; Hollins v. Brierfield Coal Co., 150 U. S., 371; Broton y. Grand Rapids Furniture Co., 58 Fed. Rep., 290; Callahan v. Windsor, 78 Iowa, 193; Republic Life Ins. ' Co. v. Swigert, 135 111., 150;' Stein v. Hoioard,
      65 Cal., 616. VanCottY. VanBrunt, 82 N. Y., 535; Taylor on Corporations, section 545; Christensen v. Eno, 106 N. Y., 97; Beach Private Corporations, sections 561-562; Morawetz Corporations, section 818; Cook on Stocks, section 42.
    The increase of stock was illegal; but holders of the increased stock who took it with knowledge of the facts which made it illegal must be held liable in all respects as if it were entirely valid, and are in like manner assessable for the purpose of paying the debts of the company. But purchasers of the increased stock who had no knowledge of the facts which rendered the increase illegal and never received any benefit from the stock or acted in any way as stockholders, are not liable as such. On the contrary such innocent purchasers of the increased stock are entitled to prove up as claims against the company the sums paid by them respectively therefor. Morawetz, vol. 2, section 763; Scoville v. lliayer, 105 U. S., 143; Veeder v. Mudgett, 95 N. Y., 295; Kansas City Hotel Co. v. Hunt, 57 Mo., 126; Insurance Co. v. Horner, 17 Ohio, 407; Vorhees v. Receivers, etc., 19 Ohio, 463; Clark v. Miomas, 34 Ohio St., 46; Tipton v. Ilansbrough, 3 Biss 417.
    That the corporation is liable to holders of spurious stock was held in Bank v. Curtis, 99 Penn. State, 344. TomeY. Parkersburg, etc. Co., 39 Maryland, 36, W. 7. <& K II. R. R. Co. v. Schuyler, 34 N. Y. 30; Bruff v. Mali, 36 N. Y. 200; Kennedy v. Panama etc. Mail Co. L. R. 2 G. B., 579; Gomperty v. Bartlett, 75 C. L. R., 849; Addison Contracts, 2 Edn., 152; Benjamin on Sales, Bennett’s \ th Ed., section 608; Spring Co. v. Knowlton, 103 U. S., 49; Wood v. Sheldon, 42 N. J. L., 421; Gurney v. Womersley, 82 C. L.‘ R., 132.

      That in no event can those purchasers of discount stock, who are also creditors, • be relieved from assessment for the unpaid balance of their stock to the extent that such assessment may be necessary for the purpose of paying their own debts, and that the original stockholders who paid par for their stock cannot be held for the payment of these debts until such assessment has been exhausted.
    There is another point of .view from which this error will be manifest. If there is one thing better settled than another in this class of cases, it is that the statutory liability is the ultimate resource of the creditor. The stockholder has a right toinsist that all other assets, including liability for unpaid stock, shall be exhausted before the statutory liability is enforced. Wright v. Me Oormach, 17 Ohio St., 86; Brown v. Hitchcock, 36 Ohio St., 667; Boneioitz v. Bank, 41 Ohio St., 78 ; Bcurrick v. Gifford, 47 Ohio St., 180. •
    The original stockholders who paid par for their stock have certainly therefore the right to require the creditors to exhaust any assets, which these innocent stockholders are not estopped from claiming to existió? the payment of their claims before any assessment is levied on the statutory liability. The Circuit Court erred in ignoring this fundamental equity.
   Bradbury, J„

This action was brought in the court of common pleas of Lucas county by a creditor of the Union Manufacturing Company, an insolvent corporation, for the purpose of reaching certain alleged unpaid subscriptions to its capital stock, and to enforce against its stockholders their statutory liability.

The cause was taken to the circuit court on appeal and there tried on its merits. That court stated its finding of facts separately from its conclusions of law. A number of questions arising out of this finding- were argued by counsel at considerable length and with much force and ability. Upon two of those questions this court does not concur in what seem to have been the views of the circuit court. We are by no means certain, however, at least as to one of these questions, that the difference of opinion between the circuit court and this court does not arise out of a different construction, made by the courts respectively, of the finding- of facts rather than out of different views of the law applicable to such facts. 'Be this as it may we will state the conclusions to which we have arrived respecting these two questions; concurring, as we do, with the circuit court upon all the other questions made, we do not regard them of sufficient importance to discuss in this opinion.

The two questions considered, are:

1. The relative rights and liabilities of certain stockholders to whom stock was issued at a discount, and those who subscribed and paid par, for their stock.

2. The liability of William Peter to be assessed under the statute on account of certain shares of stock that he transferred to an insolvent transferree, his purpose in the transaction being to escape liability thereon.

The unpaid subscription sought to be reached, consist of the difference between the par value of certain stock of the corporation issued at a discount, and the price that was in fact paid. This difference made a large sum. The number of shares of stock disposed of at a discount was greater than five thousand, of a par value exceeding §500,000. A small number were issued at fifty cents on the dollar, a few at twenty-five cents on the dollar, but from the other shares, substantially all of them, only twenty cents of the dollar of their par value was realized.

The transactions by which this stock was issued took the form of sales, instead of subscriptions,, the usual method by which corporations issue their stock. The discount suffered by the corporation on account of these sales of stock below par — that is, the difference between its par value and the sum realized by the corporation — was approximately $400,000. If the purchasers of this stock should be held to owe the corporation this difference, the fund realized from this source should be exhausted before resorting to the statutory liability of stockholders; because being assets of the corporation it is primarily liable for the corporate debts. Wright et al. v. McCormack et al., 17 Ohio St., 86. Wehrman & Co. v. Reakert et al. 1 C. S. C. R. 230.

The circuit court did not hold the purchasers of stock at a discount absolutely, liable for the entire difference between the discount price and its par value, but did hold them “liable on said stock as and for unpaid stock subscriptions to its par value, less what has been paid the company for it, so far and so far only as may be necessary to pay the claims of those creditors of the company who be come such after the issue and delivery of such stock and without notice that said company had issued said stock at less than its par value.” * * *

It may be that, if necessary to protect creditors who became such after these transactions occurred, the difference between the discount price and the par value of the stock so sold at a discount, should be held assets of the corporation, collected and applied to the payment of their claims. While the record is not as clear and specific respecting this necessity as.it might have been made, yet if we correctly interpret it such necessity does not appear. On the contrary there were before the court solvent stockholders of enough stock liable to assessment under the statute, to pay all the debts of the corporation; so that the result of collecting any of the alleged balances due on the stock sold at a discount would simply be to reduce the assessment to which stockholders would otherwise be liable under the statute. To creditors it is immaterial whether they are paid out of a fund produced by collecting the balance due on unpaid subscriptions, or from a fund raised by an assessment made upon stock holders under the statute. This matter, however, materially concerned the stockholders inter se. The assessment against them under the statute would be reduced in proportion to the amount collected upon these irregular sales of stock. The controversy therefore respecting the liability of those who had bought the discounted stock, yras between those stockholders who had not and those who had bought stock at a discount.

The finding of the circuit court respecting the circumstances under which the capital stock of the concern was successively increased, and the stock issued at a discount, was both comprehensive and minute. It shows that the concern was incorpo rated in the year 1872 with a capital of $50,000 divided into shares oí $100 each; that the whole of it having been subscribed and fully paid up- prior to April 1873, the capital stock was then increased to $100,000: This stock also having been fully subscribed and paid up, in September, 1883, the capital was further increased to $300,000: That of the 2,000 shares resulting from this last increase, about one-half (1,001 shares) was subscribed and paid for in full for cash or by way of stock dividends : That the remaining shares (999) were issued to different persons hnd paid for in cash, or taken in payment of debts due them from the corporation, at about twenty cents on the dollar of their par value.

The directors,'and its stockholders, generally, believing that the shares thus sold at a discount should be considered as paid-up stock, in good faith about the month of August, 1886, caused the capital stock of the concern to be increased to $1,000,000: Of this increase, amounting to $700,-000, there were subsequently subscribed or sold, 4,245 shares of a par value of $4245.00; but which in fact realized only about twenty cents on the dollar, or one-fifth of its par value. The stock • thus sold by the corporation at that heavy discount, that which resulted from the increase to $300,000; as well as that produced by last increase (to $1,000,000) was substantially all bought by holders of the earlier issued stock who were directors of the concern and closely connected with the management of its affairs. The other stockholders however had an opportunity to obtain this stock from the corporation upon the same terms and in fact were importuned to do so but did not. It thus appears that nearly all of the stock disposed of at the reduced rates, was taken by the directors and officers of the corporation, or those in close touch with them; it was taken however without any intent or design to obtain any advantage over other stockholders of the concern or over the corporation itself, and in the full belief that the title to the shares thus obtained was complete and that the stock was paid for in full. It also appears that this reduced price was more than the full value of the stock at the time the several shares were issued. The concern, during’ the entire period covering’ these issues of stock, was in straightened financial circumstances, and the only practicable method of raising money to meet its obligations was these issues of stock, and that resorts was had to it, solely to raise money for this purpose.

It may be conceded that under section 3262, Revised Statutes, the existing capital stock of a “corporation for profit,” to which class the concern involved in this case belongs, must be fully paid up before the right to increase its capital accrues. This is a condition precedent to such right, and means that the stock shall be actually paid for in full at its par value. To permit the corporation to dispose of its stock at less than its par value, under the form of a sale, instead of by way of subscription, the usual and regular method, would, be to allow it to perpetrate a fraud upon the law. The corporation could defeat the object of the statute, if by selling its own stock at much less than its par value and receiving this reduced price in full payment, it could issue shares to such purchasers, so-called, as fully paid up, and thus entitle it to an increase of its capital stock, although in fact only a small fraction had been paid, while the policy of the state, as declared by the statute on the subject, is to deny to corporations the right and power to increase'their capital stock until that already allowed has been fully paid up. As the $200,000 of stock resulting from the increase from $100,000 to $300,000, made in September, 1881, was not fully paid up, within the meaning of the statute, because a considerable proportion of it was disposed of by the corporation at twenty cents on tbe dollar, and this amount received in full payment, it follows that the increase of $1,000,000, made in 1886, was unauthorized.

If in the history of this concern there appeared the slightest grounds to suspect bad faith in the course pursued by its directors and managers, or others who secured stock at less than par, or if it appeared that by any irregularity for which they were chargeable, or of which they had knowledge, any advantage accrued to them whether intended or not, they would stand before the court in a very different attitude than that in which they now appear. The stamp of absolute good faith, and a singleness of purpose is by the finding of the circuit court fixed upon the several transactions by which this stock was created and issued. That court finds the projectors of this unauthorized increase of capital stock, and those to whom it was issued at less than par were moved by a desire to advance the corporate interests and not their own: That, not only did they not intend to gain personal advantage on account of these transactions but in fact none accrued to them, on the contrary, whatever they paid for the stock issued to them was totally lost, and in addition to the loss of what they paid, they are liable to assessment under the statute as stockholders.

That we are dealing with the rights and liabilities of stockholders alone should, constantly, be borne in mind. Creditors as we have seen, are not concerned in a controversy among the stockholders as to the relative burden to be east upon the latter.

Keeping in mind that the controversy now under consideration is one between stockholders, relieved of all complications growing out of the rights of creditors,, upon what principle should those who, in good faith, and with a purpose to advance the interests of the corporation and not their own, contracted for and received stock at less than its par value, be required to pay the difference between its par value and the .contract price; and that to extent relieve others against assessment on account of their statutory liability? They paid the sum stipulated in the contract, that sum was equal to or greater than the value of the stock they received; they neither intended to nor did acquire any personal advantage from the transaction. The contract was made in good faith and the price paid the full value of the stock at the time. If this was hot binding upon the parties to the contract it is because the corporation had no power to enter into such an ag’reement. This want of power may be conceded, and j^et it would not follow that' the purchasers should pay a greater sum than their contracts called for. Had they acted in bad faith, or even sought in this way to procure stock enough to control and did thereby control the management of the concern, they might be held to the payment of the par value of the stock notwithstanding their contracts stipulated for less. In the absence however of every element of bad faith, if the corporation -is not bound "by the contract neither should the other party be bound and it should be rescinded, in which case the purchaser should be restored to his former condition, and instead of being a holder of corporate stock should be treated as a creditor to the extent of his payment, and where stock had been taken in payment of a corporate debt such debt should be revived.

Those stockholders who paid par for their stock do not desire this result; instead they wish to affirm the sales of stock to the extent of holding the purchasers as stockholders, while repudiating the stipulation respecting the price to be paid. This we think should not be permitted, where the capital stock was increased and the stock sold under such circumstances as the finding of the circuit court discloses.

The decree therefore should be modified in this respect, and-if it is not necessary to protect some creditors of the corporation, who become such after and in ignorance of the manner in which these transactions occured, those who purchased these discounted shares.should hot be held liable for any part of the difference between the par value of the stock and the contract price. And such necessity will not exist until after the statutory liability of all the stockholders shall have been exhausted. As between the stockholders themselves, standing in the relation established by the finding of the circuit court, the plainest principle of equity and fair dealing require that no part of the difference between the contract price, and the par value of the stock sold at a discount should be exacted of its purchasers prior to the complete exhaustion of the statutory liability of every stockholder of the concern.

2. Williám Peter was a large stockholder' of the corporation, the number of shares held by him exceeding twenty-three hundred having a par value greater than $230,000. On February 7th, 1889, he attempted to dispose of one thousand of these shares, hi’s purpose, as he claims, being to escape future liability to corporate creditors on account of th,e shares thus trans ferred.

The finding of the circuit court in respect to this transaction is ás follows :

4. The court further find that on the 7th day of February, 1889, the defendant William Peter, transferred one thousand shares of the capital stock of said company then belonging to him of the par value of $100,000 to Sarah E. Peter, and such transfer was on said day entered upon the books of the said Thé Union Manufacturing Company, and certificates for said one thousand shares issued to the said Sarah E. Peter; that said transfer was made by said William Peter to said Sarah E. Peter for the purpose of avoiding his liability as a holder of said stock for the debts of said company

The court further find from the evidence tnat said William Peter was and continued to be after said transfer, the equitable owner of said stock and as such liable thereon for the indebtedness of the said The Union Manufacturing Company as hereinafter found.

This finding is ambiguous in that it does not show whether the object of Mr. Peter in disposing of these shares was to harass, delay or impede creditors of the corporation then exi sting or to avoid becoming liable, on account of the shares transferred, to its future creditors. He could not by the sale and transfer defeat the ultimate right of existing creditors to proceed against him on account of these shares, if a resort to that liability became necessary for their protection. His ultimate liability to them was fixed by the circumstance that he owned these shares at the time their claims were contracted. Brown v. Hitchcock, 36 Ohio St., 667. Noth withstanding his liability had become fixed in favor of existing creditors, he might resort to a fraudulent scheme to delay, hinder or embarrass them in obtaining relief by making transfers of shares to insolvent transferees. If the transaction thus become tainted with actual fraud it might well be treated as void and the transferee held to be a mere trustee for his benefit.

If the finding on the other hand should- be construed as showing- that his purpose was to avoid liability to future creditors only, then it is uncertain whether the circuit court held that he remained the “equitable owner” of the one thousand-shares of stock, for the reason that they, upon a consideration of all the evidence did not believe that he, in good faith, intended to divest himself of its ownership, or whether, admitting his good faith in the transaction, the court was of opinion that his purpose to escape liability for future corporate debts, was, of itself, sufficient to defeat the transfer, and to continue his ownership in equity.

• If as an aid to the construction of the finding resort be had to the evidence, little, if anything, of value for this purpose is found except the statement of Mr. Peter, himself. That is as follows:

“Q. It appears from the records here, on the7th of November, 1889, you transferred to Sarah E. Peter, one thousand shares of the capital stock of this company, of the value of $100,000 — that is, the par value ; please explain that transaction.”
A. I sold her the stock for the purpose of getting rid of the liabilities.
Mr. Tollerton:
Q. Was there any consideration?
A. Yes; I took her note for it.
Q. Mrs. Peter is your wife?
A. No, sir; she is the wife of a nephew I have, a worthless- fellow. I take care of her. She lives with me in my family.
Mr. Bissell:
Q. Where does she live ?
A. In Columbiaville. She has been here with us, and then from here I went to Columbiaville.
Mr. Smith:
Q. Where do you now reside?
A. Now, I live in Michigan. I don’t come here as often as I did go to Michigan when I lived here.
Mr. Bissell:
Q. Are you still a director in the company;
A. No, sir.
Q. When did you cease being a director ?
A. I don’t know; a year ago — last January, I guess.
Q. You were a director up to January, 1891?
A. I guess so, yes; it wasn’t convenient for me here, as I, wasn’t here, and, why, put somebody else in — •
Mr. Kinney:
Q. State whether or not these thousand shares that are transferred to Sarah E. Peter by you were sold to her absolutely ?
A. I sold it to her out and out, and took her note for it.
Mr. Smith:
I am a little curious to know the amount of the note that Sarah E. Peter gave you for this stock?
A. I took her note, dollar for dollar. I considered the note as good as the stock.”

This testimony of Mr. Peter’s together with the phraseology of the finding of the court upon this subject raises a strong presumption that the circuit court held him to continued liability to future corporate creditors on account of this stock, on the sole ground that his purpose to escape liability under the statute for future corporate debts, together with his transfering it to an insolvent person, defeated the transfer.

In reviewing a judgment based upon a finding of fact, a reviewing court should steadily lean towards that construction of the finding which would support the judgment; but where after applying this principle to its fullest extent, nevertheless, the reviewing court finds itself in great doubt concerning the grounds upon which the judgment was founded, it, in the exercise of a sound discretion, should require the court rendering the judgment to find the facts more specifically.

If the circuit court were .of opinion that the transfer of the one thousand shares of stock to an insolvent member of his family by Mr. Peter, his purpose in the transaction being to escape liability to future corporate creditors was, alone, sufficient to continue in him their equitable ownership, and founded their judgment on that view of the question we think their judgment in this respect was erroneous.

In the absence of a by-law on the subject, and treated simply as property no reason is apparent for limiting the power of disposition over corporate stock within narrower bounds that those pertaining to other species of property. Under the decisions of this court, the owner cannot, by a transfer of his stock, defeat the ultimate right of existing creditors, to relief against him. But upon what grounds do future corporate creditors plant their rights to relief against one who had ceased to be a stockholder before their claims arose. If he had, in fact, disposed of his stock and the stock had been transferred on the books of the corporation, as to such future creditors it was if he had never been a stockholder. If the transaction was not bona fide; if it was a ruse or device by which he sought to hold himself out to the world as divested of his ownership while by some understanding or agreement, express or implied, the transferee held it for him, he doubtless would remain the equitable owner, and under the express words of our statute would remain liable to assessment to pay future corporate debts.

If, however, the transaction is bona fide and the shares transferred on the proper corporate books, future creditors are not concerned with the motives which actuated the former owner. It was the right and privilege of such owner to sell to any purchaser who would buy,' or to donate to any person who would accept the gift, his worthless corporate stock, and if, in such case, the transaction is completed by a transfer of the stock, persons who thereafter give credit to the corporation have no claim against such former owner.

If the sale and transfer is absolute and made in good faith the former owner does not thereafter remain the equitable owner by reason of the facts that the worthless stock passed either by gift or sale, into the ownership of an insolvent transferee, and the sole object of the former holder in entering into the transaction was to escape liability for future debts of the corporation.

In order to correctly apply these principles to the transfer made by Mr. Peter, the findings of fact should be made certain. It should show whether the sale was absolute, or whether by some agreement or understanding, express or implied, by the circumstances, the transferee held the stock, transfered to her, for his present or ultimate benefit.

Judgment reversed in part and affirmed in part.


source: Caselaw Access Project

author: Spear, J.

license: Public Domain

text:
    Bird et al. v. Young.

      Designating heir at law — Section 4182, Rev. Stat. — Procedure—Not necessary in open court —Nature of proceedings.

    1. In giving effect to the act of April 29, 1854 (Sec. 4182. Revised Statutes), which provides for the filing of a declaration, appointing one to stand as heir-at-law to the declarant in the event of his death and for the making of an entry upon the journal by the judge and a record of the proceedings, it is not essential that the declaration be made in open court, nor that it be made in any particular place. Such declaration may be made before a judge of the probate court within his county at a place other than the office of said court.
    2. The .entry which the statute requires the judge to make upon his journal and the record.of the proceedings do not constitute a judgment, and it is not essential to the validity of the proceedings that the order for such entry be made by the court. It is sufficient if it be made by the judge.
    (Decided March 30, 1897.
    Error to the Circuit Court of Fairfield county.
    Two cases are pending between the same parties ' and involving practically the same issues. One had its origin in the probate court, founded on a motion to set aside an entry; the other originated in the court of common pleas and was commenced by the filing of a petition directly attacking the entry. In the first named case the probate court found for the plaintiffs and vacated the entry, which on error was affirmed by the common pleas, but reversed by the circuit court In the second case the common pleas found for the plaintiffs and set the entry aside. On appeal the circuit court found for the defendant, and dismissed plaintiffs’ petition. These proceedings are brought to reverse these judgments of the circuit court. Pacts necessary to an understanding of the questions involved are as follows:

      On September 9th, 1893, one John Young was, and for many years had been, a resident of Madison township, in Fairfield county, Ohio; his residence being on a farm at a distance of ten miles from Lancaster, the county seat. Young was then of the age of seventy-four years, and of infirm physical condition ; was without children born in lawful wedlock; had never been married ;. had executed no last will and testament; his next of kin being Elizabeth Bird, a sister, and the children of a deceased sister. He was the owner in fee of lands valued at about $10,000.00 and of personal property of the value of about $4,000.00.
    On the date named, Edward G. Rutter, the probate judge of the county, at the instance and request of one John' F. Young, went to the residence of' the said John Young, and there, in the presence of said judge and two disinterested witnesses, said John Young signed a written declaration under the provisions of section 4182, Revised Statutes, designating James Luther Young to be his heir at law in the event of his death. The probate judge returned to his office at the county seat, made an entry of his finding on the journal of the. probate court, and a complete record. The entry was as follows:
    “In the matter of the designation by John Young, of James Luther Young, as a son and heir at law.
    “This day, being September 9th, A. D. 1893, appeared before me, the undersigned judge of the probate court, in and for the county of Fairfield, Ohio, John Young, residing in Madison township, in said county, and in my presence and in the presence of John Abbott and Thomas Delong, who are disinterested persons and acquaintances of the said John Young, he, the said John Young, did file a written declaration subscribed by him and attested to by the said John Abbott and Thomas Delong, declaring that he, as a free and voluntary act, did designate and appoint James Luther Young, of Hardin county, in the state of Iowa, to stand toward him in the relation of a son and heir at law, in the event of his death. And I, the said judge, being satisfied that such declarant, the said John Young, is of sound mind and memory, and free from any restraint, do hereby order that such facts-be entered upon the journal of said probate court, and that a complete record of such proceeding be made.
    “Edward C. Rutter,
    ‘ ‘Probate Judge. ’ ’
    The designation was as follows:
    “Designation.- — Know all men by these presents, that I, John Young, of the township of Madison, in the county of Fairfield, and state of Ohio, being of sound mind and memory, and free from any restraint, do hereby publish and declare, that as my free and voluntary act, I have designated and appointed and do hereby designate and appoint James Luther Young, whose place of residence is in Hardin county, in the state of Iowa, to stand toward me in the relation of a son and heir at law, in the event of my death.
    “In testimony whereof I have, in the presence of John Abbott and Thomas Delong, who are disinterested persons, of my acquaintance, subscribed my name on this, the 9th day of September, A. D. 1893.
    “John Young.

      “Attested by us, who are acquaintances of the said John Young, and are persons disinterested in the above designated matter.
    “John Abbott.
    “Thomas Delong.’7
    This was done without the knowledge of the next of kin. John Young did not at any time appear before the probate court at the county seat. He died intestate on the 30th day of October, 1893, at his residence, being'then the owner of the real estate and personalty named.
    Thereupon the next of kin; the plaintiffs in error, filed their motion in the probate court to vacate and set aside the finding’, order and entry on the ground: 1. That section 4182, Revised Statutes,’ is unconstitutional. 2. That the proceedings were not had and held, and said judgment was not rendered at, the office of the probate judge at the county seat where the probate court is located and established by law. About the same time they instituted the suit herein before referred to in the common pleas, alleging the same grounds, and adding allegations that John Young- was of unsound mind and memory and mentally incapacitated from making the declaration, and that the same was procured by fraud, restraint and undue influence.

      M. A. Daugherty; George Bird and ¿7. M. SPriekler, for plaintiffs in error.
    Section 4182. R. S. provides for the designation of an heir.
    Section 523, R. S. establishes the Probate 'Court at the county-seat where all judicial proceedings must be held.

      The probate court shall be a court of record, open at all times and holden by one judge. Constitution of Ohio, Art. IV, section 7.

      First — Said section 4182 is unconstitutional.

      Second — The designation proceedings and judgment were coram non judice and void because not had at the county-seat, 'the place prescribed by law for holding the court.
    It cannot be successfully denied and the defendant in error practically admits that the finding-was a judgment; judgments are rendered only by courts as the result of judicial proceedings. The proceedings under section. 4182 are nearly identical with the proceedings for the admission of a will to probate. Probate of a will is a judicial act. 9 Ohio, 96; 8 Ohio, 239-247. There must be a finding- that the declarant “is of sound mind and memory and free from any restraint.” The terms “file,” “journal,” “complete record,” “proceedings,” “satisfied,” are significant as indicating the acts of a court and not the ministerial acts of a mere judge. It is a judgment of a higher order than a judgment admitting a will to probate because it is conclusive unless impeached for actual fraud or undue influence. It is final and of the-highest order.
    It is an indispensaole prerequisite to a valid judgment that the court obtain jurisdiction of both the person and the subject matter.
    It is essential to the validity of all judgments of all courts that they be made and entered at the time and place prescribed by law, and if made at any other time or place such judgments are absolutely void and may be successfully impeached in a collateral proceeding, or by direct proceeding. Van Fleet on Collateral Attack, section 28; Black on Judgments, section 177; White v. Biggs, .27 Maine 14; Hernclon v. Ilockins, 65 Mo. 265; Cooper v. Insurance Co., 3 Colorado, 318; Dalton v. Libbey, 9 Nevada 192; Hobart v. Hobart, 45' Iowa 501; Grimmet v. Askeio, 48 Ark. 151; Dunn v. State, Ark. 229; Northrupp v. People, 37 N. Y. 203; Burnett v. Cooper, 57 Barb, (N. Y.) 642; Wells on Jurisdiction, section 121; 12 Am. and Eng. Ency. of Law, 14.
    1 Ency. of Pleading and Practice, title “Adjournment.”
    Neither the statutes nor the constitution confer upon him such jurisdiction. Constitution, Art. IV. section 18.
    Pinal jurisdiction, such as was exercised in this case, is always conferred on courts, and not upon judges at chambers. Board of Education v. Scoville, 13 Kan. 32; Darst v. Phillips, 41 Ohio St., 514.

      Brasee <& Brasee and George E. Martin, for defendant in error.
    One ground for attacking the declaration, is this: That the declarant did not appear before the probate judge in his court room to make the declaration, nor in open court, but the probate judge went to declarant’s residence, and the declaration was there signed and attested in his presence. Declarant’s residence was in the same county but was some miles distant from the county seat.
    It is claimed by plaintiffs in ■ error that section 4182 confers jurisdiction upon the probate court and that no authority is conferred thereby upon the probate judge to be exercised by him apart from his court.
    It is therefore argue., that “the designation proceedings and judgment were coram non judice and void because not had at the county seat, the place prescribed by law for holding the court.”

      The proceeding provided by section 4182 is peculiar to our statutes. There is no such enactment in any of the other states, nor so far as known, in any other country. The proceeding does, not seem to be common in practice, nor has there been any reported litigation upon it. There is therefore no direct authority upon the question raised upon the statute in this case. The better view of the matter, however, seems to be that the authority conferred by the statute is to be exercised by the probate judge within his county and not by the probate court; and that the, entry made by the judge upon his journal is not the entry of a judgment.
    And it seems to be a misnomer to call the entry made upon the journal by the judge, a judgment. Bouvier Law, Diet; 3 Bl. Com. 395; Blood v. Bates, 31 Vt., 150; Union Bank v. Marin, 3 La. An., 35; McNulty v. Hurd, 72 N. Y., 521; 11 Ohio St., 203.
    The function is quasi judicial, but public convenience requires that it be performed by judges rather than by organized and fixed, courts.
    The legislature had undoubtedly the constitutional power to vest such authority in either the probate court or the probate judge, (Constitution of Ohio, Art. .IV, section 18.)
   Spear, J.

The statute under which the probate judge acted, is the act of April 29, 1854, (52 Ohio Laws, 78), now appearing as section 4182, of the Revised Statutes. It is as follows:

“Section 4182. (Heir at law ; how designated.) A person of sound mind and memory may appear before the probate judge of his county, and in the presence of such judge and two disinterested persons of his or her acquaintance, file a written declaration, subscribed by him, which declaration shall be attested by such disinterested persons, declaring that, as his or her free and voluntary act, he or she, did desigmate and appoint another, naming and stating the place of residence of such person specifically, to stand toward him or her in the relation of an heir at law in the event of his or her death ; thereupon the judge, if satisfied that such declarant is of sound mind and memory, and free from any restraint, shall enter that fact upon his journal, and make a complete record of such proceedings ; thenceforward the person thus designated shall be deemed and held to stand in. the same relation, for all purposes, to such declarant as he or she could, if a child born in lawful wedlock ; the rules of inheritance shall be the same, between him and relations by blood of the declarant, as if so born ; and a certified copy of such record shall be prima facie evidence of the fact stated therein, and conclusive evidence unless impeached for actual fraud, or undue influence.1’

Counsel for plaintiffs claim that the entry and record purport to be, and in order to be valid must be, a judgment of a court; that a judgment can be rendered only by a court, and the statute contemplates that the action under it, resulting as it does in a judgment, is to be taken by a court, not by a judge ; but that the proceedings are not valid ; but are void, because not had at the office of the probate court at the county seat, the place prescribed by law for holding a court; and that being thus absolutely void, may be impeached by the plaintiffs by a proceeding for that purpose, either direct or collateral.

Much, may be said in favor of the propositions stated ; but, we think, all things considered, that the better reasons are against, and will endeavor to state some of them.

The proceeding is peculiar to this state, there not being, so far as we are aware, any similiar statute elsewhere. It is, besides, anomalous in many respects. That the entry is not a judgment in the general sense of our statute, is clear by reference to section' 5310: ‘ £A judgment is the final determination of the rights of the parties in action.” There is no action, nor are there adversary parties. Hence there cannot be the determination of rights in the sense of this section.

If the entry is a judgment at all, it is a judgment inrem. Not that it brings within the grasp of the law property, and provides for its condemnation ; for such result cannot follow. But, viewed in the light of the statute, it bears resemblance to those proceedings in rem, which fix the status of a person, as in lunacy or insolvency proceedings under our statute, or bankruptcy proceedings under the United States statute, for apparently its effect is to fix the status of the one designated as heir at law, by declaring that he ma3r, standing in that relation, inherit the same as would a child born in lawful wedlock, and that the record is to be prima fade evidence of the fact stated therein, and conclusive unless impeached for fraud or undue influence; thus giving lasting effect to the action taken, and making it, save when attacked as above stated, conclusive against the world with respect to the particular matter declared. It is true, also, that the judge is authorized to make the entry only upon finding certain facts to exist, viz: that the declarant is of sound mind and memory and free from restraint. But while there are these apparent resemblances, we think the analogy is not complete, for the elements of notice and hearing are lacking. The policy of our law makes these pre-requisites necessary before final action by a court prejudicial to individual rights, either of person or property. The appointment of guardians for minors seems to be an exception to this rule, but that the general policy is as stated, admits of no question. Sometimes the notice is by publication, sometimes by a more direct process ; but notice of some kind is required, and the rule is emphasized by numerous adjudications; so that it is fair to conclude that, within the policy of our law, notice, and such hearing as that the court may be called upon to consider and determine conflicting claims, are essential pre-requisites of a judgment in rem, as well as in personam, and it would seem to follow that if the lawmakers, having this policy in- mind, had intended to set on foot a proceeding which was to result in a judgment, they would not have failed to make some provision for notice and hearing. A reason for the absence of such provision is found by a consideration of the scope of the statute. It is a method of perpetuating the desire of the declarant. He, alone, is to be heard. No provision even for securing the attendance of witnesses is made. The appearance of two disinterested persons, as well as that of the declarant, is wholly voluntary. So that, if a proceeding to which there is and can be but one party can be said to be ex parte, then this is most essentially ex parte. In any view provision for notice would seem incongruous. The next of kin, .if anybody, would be entitled to it, and yet notice to them would appear to be as unnecessary and inappropriate as would notice of intention to make a will.

If the entry is not a judgment, then the principal support for the plaintiffs’ contention fails, for there would seem to be no reason why it might not as well be ordered and made by a judge as by a court, and if by a judge then his action-at chambers, though away from the county seat, would seem not open to serious question. And what is there in the proceeding- which requires that it be transacted in open court? No one has the ear of the court save the declarant; no witness is to be called to testify; no objection from any source is in order; no exception; no appeal. The declarant only has a present legal interest in the matter. While he lives he has no heir, as no one can claim a vested right in that which is merely presumptive. iSTor is there any immediate effect upon property, for one may make the declaration who has no property, and, after the declaration is made, any property, whether then possessed or acquired afterwards, may be disposed of by deed, by gift, or by will, with the same freedom and to the same effect as though the declaration had net been made. The action of the judgé in the finding which he makes, is said to be a judicial act. It is so in the same sense that the taking the acknowledgement of a deed or other legal document requiring an acknowledgment, is judicial. That is, it is quasi judicial. There, too, the officer must be satisfied that the acknowledgment is freely made, and his certificate to that effect is conclusive evidence of it in the absence of fraud. Baldwin v. Snowden, 11 Ohio St., 203.

Nor must we fail to give proper effect to the language of the statute which in terms devolves these duties on the probate judge, the probate court being nowhere mentioned. Counsel for plaintiff, with much confidence and some plausibility, urge that this fact is of no significance, because, in many probate acts the terms probate judge and court are used interchangeably, as convertible terms, often incorrectly, and special attention is called to the chapter on appropriation of property and that relating to insolvent debtors. There is some force in this, but it is not, we submit, sufficient to overcome the natural and legal import of the terms used in this act. In the other acts there is no difficulty in determining just what the language means by resort to the context and the general subject-matter, for it .is manifest that the machinery of a court is set in motion, involving complaint, process, appearance, hearing, trial, judgment, or verdict and judgment, exceptions, appeal, etc. The statutes referred to include many sections, and afford a . system of procedure by which the claims of adverse parties ' are to be brought before the court and their rights adjudicated, the termination being a final judgment. Here we have one section, an independent act, having for its object one singlé purpose, not calling necessarily for the exercise of the functions of a court, but reasonably within the functions of a judge, and containing no interchange of terms, but a designation of judge only, in each instance. It would seem reasonable to conclude that the law makers used the term probate judge intelligently, and with full understanding of its exact meaning. They might have named the probate court; they ' did name the probate judge. Nor is the meaning rendered doubtful by the fact that the entry is to be made upon the journal, and that a record is -to be made. This is* familiar practice. All entries required to be made of action by the judge, at chambers, are made upon the court journal. The journal of the court is the journal of the judge as well; he- has no other. The complete record simply embraces a copy of the journal entry and of the declaration, and-is followed by an index. All which concerns the convenience of the matter; not its legal effect. A complete record of deeds and mortgages, and some leases, is by statute required to be made, with an index, direct and reverse, and a copy of such record, certified by the recorder, is made evidence, but it has not been supposed that the fact of making a complete record implies that the recorder, in performing such duties, is exercising the functions of a. court.

Then, too, the construction contended for by plaintiffs restrains the beneficial effects of the act. It limits its operation to such persons as may be physically able to appear personally at the office of the probate court at the county seat, and exclude all such as cannot. No reason is apparent why this exclusive policy should be favored. Impartiality and fairness would seem to require that all persons answering the description who desire to avail themselves of the statute should have the opportunity, and this consideration doubtless was present at the time of its enactment, and presumably had potent effect in shaping the phraseology of the act.

- A point advanced, though not argued, is that the act is unconstitutional. It. rests, we suppose, ■upon the assumption that rights of parties next of kin to the declarant may be taken away without notice. This is answered by the proposition heretofore suggested that no vested rights do or can exist at the time of the proceeding. And as to mere presumptive rights it is clearly within the competency of the general assembly to modify, amend or repeal statutory provisions regulating descents and distributions at any time ; and it is equally competent to reach such result by indirection as by the short cut of a direct repeal.

But even if this entry were held to be a judgment it is not easy to see how these plaintiffs can have a standing to attack it. The record is valid on its face, and, by force of the statute, save as to fraud, _ imports absolute verity. The ancestor of these plaintiffs invoked the action taken, and surely he could not be heard to question its validity on the ground that the acknowledgment was had away from the office of the court. Courts are not ordinarily open for the purpose of setting aside action taken and entries made on the motion of the partv who has procured them. And if the ancestor would be estopped to ask a vacation of this entrj?- on the ground stated, how ca.n those, who stand as privies in blood and acquire their -fights, if any they have, directly from him, have any better right to be heard?

It is complained that on the trial of the case in the circuit court error intervened to the prejudice of plaintiffs by the order limiting, the number of witnesses as to the mental condition of the deceased to six on each side, and refusing to listen to cumulative testimony on the same facts and questions by thirteen other persons. The record does not disclose error. Ordinarily, the matter is within the discretion of the trial court, and it does not appear affirmatively that the court abused its discretion in this ruling.

Judgments affirmed.


author: Burket, C. J.

text:
    Baltimore & Ohio Railroad Company v. Stankard et al.

      Relief department of railway company — Beneficiary feature — Rejection of claim — Rule pi'ohibiting appeal to court, not a bar to action.

    One of the rules in the relief department of a railroad company, provided that all claims of beneficiaries should be submitted to the determination of the superintendent, whose decision should be final and conclusive, unless appealed to the- advisory commitee, and in case of such appeal, the decision of the committee, should be final and conclusive upon all parties without exception or appeal: Held, that after the rejection of a valid claim by the advisory committee, the beneficiary could maintain an action in the court for the recovery of the money due thereon, and that such rule is not a bar to the action.
    (Decided March 30, 1897.)
    Error to the Circuit Court of Erie county.
    The action below was brought by John Stankard and Anna Stankard, parents of Michael Stankard, an unmarried man at the time of his death, against the Baltimore & Ohio Railroad Company, for the recovery of sick and death benefits growing out of said Michael’s being an engineer in the transportation department of said company, and a member of the relief feature of the department,- and entitled to the benefits provided by the regulations of said department for a member of Class D.
    Michael became sickonthe27th of January, 1890, and continued sick until his death, on the 13th day of November, 1890, and having received no sick benefits during his sickness, his parents were entitled to receive $484.00 sick benefits, and $1,000 death benefits, in case they were entitled to receive anything.
    The petition made the proper averments including- performance of all conditions.
    The railroad company in its answer set out certain of the rules of the relief department, and denied that Michael was in its employ at the time he became sick, or at the time of his death, and denied that he properly notified the company of his sickness, and also claimed that rule eleven was a complete bar to the action.
    The jury returned a verdict in favor of the plaintiff below for the full amount claimed. A motion was made by the railroad company for a new trial, which was overruled, and judgment entered on the verdict, to which proper exceptions were taken. The circuit court affirmed the judgment. Thereupon a petition in error was filed in this court, seeking to reverse both judgments.

      J. 11. Collins, and H. L. Peeke, for plaintiff in error.
    There was considerable controversy on the trial as to what knowledge Michael Stankard had with reference • to the rules, regulations and by-laws of the Relief Department, and also as to what notice the plaintiffs had with reference to the same. This testimony was all wholly and entirely immaterial.
    A person who is a member of a corporation or contracts with it, is conclusively presumed to know the provisions of the charter, rules and regulations, by-laws, etc., of such corporation, 82 "Virginia, 913; 77 Virginia, 91; 103 U. S. 222; 3d. Am. St. R. 128, and notes; Douglass v. Insurance Co., 118 New'York, 484.
    As to when the declarations of an agent will bind his principal, Vicksburg & Meridian R. R.y. O'Brien, 119 U. S. S. C. Rep., 99; 1st Greenleaf, Section 113; Packet Co. v. Clough, 20 Wall., 540; Story Agency, Section 134.
    With reference to the other question, as to when the knowledge of the agent is the knowledge of the principal, the rule is well settled also.
    Officer or ag’ent must have notice in his representative character, or the corporation will not be bound. In other words, as already stated, he must have the notice while acting for his principal, and it must relate to a matter within the .scope of the agency, Bank v. Schaumberg, 38 Mo. 228; Conger v. Chicago, etc., R. R. Co., 24 Wis. 157; S. C., I Am. Rep. 164. The agent must have authority, and it must be his duty, to act upon the subject of the notice, or it will not be binding-. 133 New York, 97.
    Mere private, unofficial information or knowledge acquired by an officer of a corporation, casually or by rumor or through channels open alike to all, as to matters upon which such officer is not required to act, is clearly not notice to the corporation if not communicated by such officer to the proper authorities in the institution. United Sicotes Ins. Co. v. Shriver, 3 Md. Gh. 381; Winchester v. Baltimore, etc.,R. R. Co., 4 Md. 231; Bank of Virginia v. Craig, 5 Leigh, 399; Miller v. Illinois Central R. R. Co., 24 Babr. 312; VcondenoerkerY. Vermont Central Railroad Co., 27. Verm. 125; Boston Water Power Co., v. Cray, 6 Met. 131; Fraud practiced upon him or bjr him, will, of course, defeat it. Smith v. Boston Concord <& Montreal Railroad Co., 36 N. H. 458; Mickles v. Thayer, 14 Allen, 114; North Lebconon B. B. Co., v. Mg Or arm, 33 Pennsylvania State, 530.
    . The point of divergence between the parties was the alleged incorrectness of this final estimate. But did the parties agree that Mr. Worrell might-adjudicate between them, after he had ceased to be chief engineer? — though doubtless his award would have been final if made during the continuance of his official relation. It is not a question of fitness or unfitness of the arbitrator. The inquiry relates solely to the contract of the parties. In stipulating as they did, that the chief engineer should be the umpire between them, it may well be that it was supposed the engineer would, better than others, understand the merits of any controversy that might arise.
    We have nothing to do with the prudence of such an arrangement. It is ours to enforce the contract as the par ti es have made it. A par ty litigant may refer to his adversary, if he will, or to any one interested adversely to himself. Such a submission will be enforced: Mattheiv v. Ollerton, 4 Mod. 226; TIunter v. Bennison, Hardres, 43; Kyd on Awards, 72; Monongahela Navigation Company v. Fenlon, 4 WaUs & S. 205\Faunee v. Burke 16 Pa. St. 480 (55 Am. Dec. 519); Easton v. Pennsylvania and Ohio Canal Co., 13 Ohio Reports, 79; Mansfield and San-dusky B. B. Co., v. feeder, 17 Ohio Reports, 385; Ea?iev. Stone Co., 39 Ohio St., 1; Continental Ins. Co.; v. Wilson, 45 Kans.,250; Mwndy v. B. B. Co., .67 Red. 633.
    The plaintiffs were not entitled to recover either the sick or the death benefits.
    It is a conceded fact that no benefits were ever paid, and it is also á conceded fact that Stankard never notified the official designated by the General Manager to receive reports of disablement. It is also conceded that there was no proper address given, because no report was made.
    How can it be possible that with these admitted provisions of the rules and regulations of the company, the plaintiffs had a right to recover?

      Phinney <& Merrill, for defendants in error.
    We claim that the evidence shows that at the time the employment of Michael Stankard ceased he was disabled by sickness, and that he was entitled to receive benefits for fifty-two weeks, without himself making any application, and the evidence shows that Michael Stankard died before the expiration of fifty-two weeks from the date that his employment ceased by reason of that sickness, and that he was unmarried at the time of his death.
    The evidence further shows that at that time it would have been impossible for Michael Stankard to have made the application himself.
    The rules show that the timekeeper was the proper one to be notified.
    As to the law upon this point: The policy of the law is against forfeitures and for this reason strict compliance with the manner and time of notice is not required if the insurer has had actual notice. These conditions are excused when the insured, •during the time, is in a state of delirium. Manufacturers! Accident Indemnity Co. v. Fletcher, 5 C. C. Rep., 633; Germania Fire Ins. Co. v. Boykin, 12 Wall., 435; Wood on Insurance, 413; Phoenix Ins. Co. v. Picket, 2 Ind. App., 332.
    • A by-law of a benefit society providing as to the manner of making proofs of loss, and for an appeal from certain subordinates to certain superior ofifice'rs and making the decision of the latter final, is valid, and binding, except as to the part which makes the decision of the appellate tribunal final, and as to that point it is void, and such decision has no bearing to a resort to the courts. Supreme Council, Etc., v. For singer, 125 Ind., 52; Reed v. Insurance Company, 138 Mass., 572; Stephensons. Insurance Company, 54 Maine, 55; Mentz s. Insurance Company, 79 Pa. St., 478; Furnivall s. Combes. 5 Mann & G., 736, and also Insurance Co'mpany s. Morse, 20 Wallace, 445; Whitney s. National Masonic Accident Association of Des Moines, 52 Minn., 378; Kinney s. Baltimore & Ohio Employes Relief Association, 35 W. Va., 385, and cases cited.
   Burket, C. J.

The questions as to whether or not Michael Stankard was in the employ of the company a't the commencement, and during- tbe time of his sickness, and at his death, and whether or not the company was properly notified of his sickness, are questions of fact submitted to the jury upon testimony competent in character, meager and unsatisfactory in substance, but from which a jury mig’ht find, as this jury did, in favor of the plaintiff below.

The only matter in the case deemed worthy of report, is as to the validity and scope of rule eleven. The following is a copy of the rule:

“Rule 11. All claims of members of the relief feature, their beneficiaries or other representatives, or of depositors or borrowers of the savings feature, or of pensioners, arising under these regulations, and all questions or controversies of whatsoever character arising in any manner, or between any parties, or persons, in connection with the relief department or the operation thereof, whether as to the construction of lam guage or meaning of the regulations, or as to any writing, decision, instruction or acts in connection therewith, shall be submitted to the determination of the superintendent of the relief department, whose decisions shall be final and conclusive thereof, subject to the right of appeal in writing to the committee directly or through the advisoi'y committee within thirty days after notice to the parties interested in the decision.
‘ ‘When an appeal is taken to the committee, it shall be heard by them without further notice at their next stated meeting, or at such future meeting- or time as they may designate, and shall be determined 1y vote of the majority of a quorum, or of any other number not less than a quorum of the members present, and the decision arrived at . thereon by the committee shall be final and conclusive upon all parties, without exception or appeal.”

The claim was presented by the parents to the superintendent of the relief department, who did not allow it, but referred it to the advisory committee, and that committee declined payment of the claim, “ because of his failure to report in accordance with the regulations,” and so notified plaintiff below.

The reference of the claim to the advisory committee and its action thereon and notice of such action to the parents, was the equivalent, and took the place of an appeal, so that the case stands as if an appeal had been taken and the claim rejected by the advisory committee.

It is claimed by the railroad company, that the decision arrived at by the superintendent if no appeal is taken, or by the committee incase of anappeal, is final and conclusive, and a complete bar to an action for the recovéry of the benefits.

If the superintendent had rejected the claim, and so notified the parents, and they had failed to take an appeal to the advisory committee, it may well be doubted whether they could have sustained an action in court upon the claim, because in such beneficial associations it is held that the claimants must pursue to the full extent, the remedy provided by the rules and regulations before resorting to actions at law. This is for the benefit of both parties, and is reasonable.

The Supreme Council of the Order of Chosen Friends v. Forsinger, 125 Ind.,52.

But in the case at bar the equivalent of an appeal was had, and the advisory committee acted upon and rejected the claim, and then the parents were compelled to either abandon the claim, or resort to an action at law.

Does rule eleven bar such, action? We think not. A long- line of decisions hold that parties can not by contract take away the jurisdiction of the courts in such cases, and that the attempt to do so is void.

Supreme Council of the Order of Chosen Friends v. Forsinger. 125 Inch, 52; Whitney v. National Masonic Accident Association, 52 Minn., 378; Insurance Company v. Morse, 20 Wallace, 445; Stephenson v. Insurance Co., 54 Maine, 55; Mentz v. Insurance Co., 79 Pa. St., 478; Reed v. Insurance Co., 138 Mass., 572.

While courts usually base their decisions upon the ground that parties cannot by contract, in advance oust the courts of their jurisdiction of actions, a more satisfactory ground is, that under our constitution all courts are open, and every person, for an injury done him in his land, goods, person, or reputation, shall have remedy by due course of law. Art. 1, sec. 16.

Courts are created by virtue of the constitution, and inhere in our body politic as a necessary part of our system of government, and it is not competent for any one, by contract or otherwise, to deprive himself of their protection. The right to appeal to the courts for the redress of wrongs, is one of those rights which is in its nature under our constitution alienable, and cannot be thrown off, or bargained away.

There is a class of contracts which provide that the value of certain property, the amount of loss sustained, the quantity, quality, character and value of work performed on improvements, and the acceptance of a building- by an architect, an’d other like matters, shall be determined by a certain person named in the contract, and his determination shall be final. Such contracts are lawful, and are usually upheld. They do not oust the courts of their jurisdiction over the subject matter, but only provide a safe and speedy manner of fixing definitely some fact which is usually of a complex and difficult nature, and one that it would not be easy to establish by evidence. Such fact when ascertained and fixed by the person, and in the manner provided by the terms of the contract, is conclusive between the parties, in the absence of fraud or manifest mistake; but the parties are at liberty, after so fixing such fact to go into court and litigate such differences as may still exist between them. In such contracts, the person selected to determine the particular fact, becomes the agent of both parties for that purpose, and what is done by such agent is, in legal effect, done by the parties themselves, and therefore there is no hardship in holding them conclusively hound thereby, in the absence of fraud or mistake. The following- cases are examples of such contracts:

Easton v. Canal Company, 13 Ohio, 81; Railroad Company v. Veeder, 17 Ohio, 385; Mundy v. Railroad Company, 67 Fed. Rep.. 633; Kane v. Stone Company, 39 Ohio St., 1; Railroad, Company v. McGrann 33 Pa. St., 530; 75 Am. Dec., 624; Faunce v. Burke, 16 Pa. St., 469; 55 Am. Dec., 519; Navigation Company v. Fenlon, 4 Watts & Sergeant, 205; Hamilton v. Insurance Co., 136 U. S., 242. See also 33 Central Law Journal, 168.

The following cases also throw some light upon the question involved in this case: Guaranty Co. v. Railroad Co., 139 U. S., 137; Gittings v. Baker, 2 Ohio St., 21; Connor v. Drake, 1 Ohio St., 166; Kill v. Hollister, 1 Wilson, 129.

Such contracts are in their nature only applicable to cases wherein it becomes necessary to fix some facts, leaving the question of law to be settled by the courts upon proper proceeding's. The ultimate question to be determined — the liability or nonliability of the parties — must be left to the courts. The construction of a written contract is a question of law for the court, and a provision in the contract, that the construction of such contract, or the meaning of rules or regulations, shall be finally determined by some designated person, is void, because the court cannot be robbed of its jurisdiction to finally determine such questions. In insurance and other like cases, where the ultimate question is the payment of a certain sum of money, certain facts may be fixed by a person selected for that purpose in the contract, but the ultimate question as to whether the money shall be paid, or not, may be litigated in the courts, and a stipulation to the contrary is void. The fixing of the particular fact by the person or persons named in the contract, and in the manner therein provided, is usually a condition precedent to the bringing of an action on the contract, and the performance of such condition should be averred in' the petition, or some good excuse given for its nonperformance. Viney v Bignold, 27 Central Law Journal, 40.

In the case at bar, the claim having gone through the course provided by rule eleven, and having been rejected, the parents had the right to go into a court of justice and establish their claim; and in the trial, the fact that the claim had been so rejected was not a bar to a recovery. In so far as rule eleven attempts to cut off; the right of action in court, it is null and void.

Judgment affirmed.


author: By the Court :

text:
    Bowen v. The State.

      Support of child — Pather liable though separated wife agrees to care jor — Act of April 16, 1890.

    It is not a defense to a prosecution under the act of April 16, 1890, (87 O. L. 216), that an agreement of separation was entered into by the accused and Ms wife, by which the latter, who was given the custody of their minor children, agreed for a valuable consideration to furnish them all proper support, and that after the mother became unable to support the children the accused offered to support them if she would surrender their custodv to him, which she refused to do
    (Decided March 30, 1897.)
    Error to the Circuit Court of Wood county.
    The plaintiff in error was prosecuted on information in the probate court of Wood county, for a violation of the act of April 16, 1890 (87 O. L. 216), to prevent abandonment and pauperism, which provides that: “The father, or when charged by law with the maintenance thereof, the mother, of a legitimate or illegitimate child or children under sixteen years of age, living in this state, who being able, either by reason of having means, or by personal services, labor or earning’s, shall neglect or refuse to provide such child or children with necessary and proper home, care, food and •clothing,” shall be deemed guilty of a misdemeanor and punished as therein provided.
    The accused contended he was not amenable to the law, because under an agreement of separation entered into by him and his wife, the latter was given the custody of the children, and for a sufficient consideration agreed to keep and maintain them without any expense to him. The agreement contained the stipulation that if the wife should neglect or refuse to provide for the children, or should be unable to do so, the husband should have the right and power to take them from her control and care, and keep them himself. It _ appeared on the trial that the mother had become unable to support the children, and applied to the township trustees for the means of support; and the father on being informed of those facts, offered to take the children and support them, if they were given into his custody. The mother refused to surrender them, and the accused refused to support them; and his contention is that, under these circumstances he was not bound to support them, nor guilty of a violation of the statute. The plaintiff in error was convicted and sentenced, and the judgment was affirmed in the circuit court.

      Baldwin <& Harrington, for plaintiff in error.
    The prosecution is had under the act of April 16, 1890. 87 O. L. 216.
    The offense consists in the neglect or refusal of the defendant to provide his children with necessary and proper home, care, food and clothing.
    There is no evidence in the record showing, or tending to show, either neglect or refusal.
    The neglect of a father, having the means and opportunity to provide for his offspring, would be an offense malum in se.

      We believe there is no exception to the rule, that in offenses malum in se there must be some act of volition, purpose or design on the part of the accused to do or omit to do the thing for which punishment is prescribed. A person cannot be unconsciously guilty of the commission of a crime wrong in itself.

      The articles of separation and provision for support of the children, was authorized by law. — R. S. 3113.
    The mother was then “charged by law with the maintenance of the children,” at least for so long as she was able to support the children — and she by express provision of the statute would be amenable for neglect. The arrangement by which the custody was given to the mother being lawful, and confessedly done in good faith, certainly, no neglect can be predicated on that.
    The father on all occasions asserted his readiness to support the children if given into his custody. It was Ms right to have the custody both under the contract with the mother, and by the dictates of the law of nature. This right is forcibly expressed by this court.
    If this rule obtains in ease of mere civil liability with how much greater force and reason should it be applied in a criminal prosecution involving the same question of parental liability. People v. Pettitt, 74 N. Y., 320; People v. Nachr, 1 N. Y, Grim. Rep., 513; S. C. 4 Lawson’s Grim. Defenses 84.
    It should be borne in mind that Bowen was not shown to be an improper person to have the custody of his children. He never had in any manner forfeited his natural right to their custody, and no adjudication had been made, curtailing' that right in any degree.
    It has been urged that the father’s obligation to support his minor children, under this statute, is an absolute one, and for a failure there can be no excuse or justification. Such in ter p tation would lead to ridiculous results. Baldioi' . Foster, 138 Mass., 449; Reginas. Vann, 4 Lawson’s Crim. Def. 74.

      There is another and we think conclusive reason why this conviction is wrong. There is no causal connection between the action or conduct of the accused and the objects of the crime. It is the act of the mother in refusing to allow the father to provide them with a home and necessaries, which places them in that unfortunate situation. This doctrine is elementary and is laid down and supported by precedents in 1st Wharton’s Crim. Law, section 160.

      Murphy <& McClelland, for defendant in error.
    The law casts upon parents certain rights and duties-, a parent has the right to the society, obedience, and earnings of his minor children, of these rights he can divest himself by his own act. It is the duty of a parent to educate and maintain his minor children. Now, will a father be allowed, by reason of some contract which he may enter into with a third person, to wholly abandon his offspring, and to divest himself of all the duties pertaining to them, which has been cast upon him by law? We think not. We hold that no person can by any act of his own, or by mere agreement with some third party, free and divest himself of a duty which the law has placed upon him.
    By the terms of the ag-reement of separation entered into between Bowen and his wife, whenever the mother failed to provide for the children, Bowen was entitled to take possession of, and was to care for them. It was Bowen’s duty to immediately take steps to provide for his children, when apprised of the fact that they were in destitute circumstances. The record shows that Bowen did not even attempt to get possession of his children, or to furnish them with any of the necessaries of life. Clark v. Bayer, 32 Ohio St., 229; Pretzinger ~sr. Pretzinger, 45 Ohio St., 452.
   By the Court :

The duty is primarily devolved on the father to support his minor children out of his property, or by his labor. Revised Statutes, section 3110. This is a duty which he owes to the state, as well as to his children; and he has no more right to allow them to become a public charge than he has to allow them to suffer for want of proper care and sustenance. The design of the statute, under which the plaintiff in error was prosecuted, was to enforce, as far as practical, the fulfillment of the father’s duty to the public; and it would obviously fail of its purpose if he could, by agreement with another, relieve himself from responsibility for his omission to provide the support for his children which the statute requires; for he might so contract with wholly irresponsible parties. He undoubtedly may contract with another person for the maintenance of his children, if he choses to do so, and may exact such security for the performance of the agreement' as he may deem necessary, or be able to obtain, and in that way protect himself as against the other contracting party from further expense in that behalf. But the duty he owes the public of saving it from the expense of supporting his children, is personal and continuing, and cannot be affected by any agreement he may make with another. He must answer to the state for his omission of that duty, and look to the other contracting party for any breach of the contract.

Judgment affirmed.