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Stunt v. Tube & Steel Co.

intended to become a member of the corporation. And of such an act Mr. Morawetz says: "If it appears that the subscriber intended to become a member of the corporation, and as such entitled to vote at meetings and otherwise enjoy the privileges of membership, it is clear that the subscription cannot be deemed a subscription upon a condition precedent." Morawetz on Corporations, Sec. 89.

The plaintiff's case, as made by his petition, is clearly distinguishable from that class of cases wherein certain conditional subscriptions have been recognized and sustained, as in Ashtabula & New Lisbon R. R. Co. v. Smith, 15 Ohio St., 328, and in Armstrong v. Karshner, 47 Ohio St., 276, 294, 295 [24 N. E. Rep., 897].

The petition here does not make a case of conditional sale, nor an agreement on the part of the corporation to take back the plaintiff's stock on failure to comply with the contract. It is not necessary therefore to decide whether a corporation can so traffic in its own stock. The contract is sought to be rendered null and void by failing to comply with a condition subsequent and not a condition precedent; and the stipulations relied upon being a condition subsequent, it does not render the whole contract void as shown by authorities supra, and especially by Cook on Stock and Stockholders, Sec. 78.

The case does not fall within the rule of Vent v. Duluth Coffee and Spice Co., 67 N. W. Rep., 70 [64 Minn., 307], Supreme Court of Minnesota. In that case the court made the suggestion that a conditional subscription may be void, invalid, and the party not be a stockholder; but that he may have the right to recover back his money. The syllabus "The plaintiff purchased from the defendant corporation a number of shares of its capital stock, by an agreement which provided that at the end of a certain time he could, at his option, return the stock, and receive back the purchase price * * *. In an action to recover such price, held the agreement is in the nature of a conditional sale, with an option to the purchaser to revoke or rescind; and, as between the plaintiff and defendant, the rights of creditors not being involved, the agreement by the defendant to receive back the stock, and pay back the price thereof, is not ultra vires."

The court further say: "There is no express provision in its articles of incorporation authorizing defendant to buy or deal in its own stock, and whether an original independent contract, by which it agreed to purchase its own stock, would be ultra vires, we need not consider. This is not such a case. This provision of the contract constituted a material and substantial part of the consideration and inducement for the purchase of the stock by plaintiff, and, if the provision is void, it seems to us that it vitiates the whole contract, and it is a sufficient reason for the rescission of that contract and the return of the purchase price, which purchase price plaintiffs are demanding. But the better opinion, it seems to us, is that which holds the original contract to be a conditional sale, with the option to revoke or rescind in the purchaser." The doctrine of this Minnesota case is in conflict with Coppin v. Greenlees & Ransom Co., 38 Ohio St., 275 [43 Am. Rep., 425]. Judge McIlvane, at page 278, says: "The doctrine that corporations, when not prohibited by their charters, may buy and sell their own stocks, is supported by a line of authorities; and prominent among them, may be mentioned the cases of Dupee v. Boston Water Power Co., 114 Mass., 37, and C. P. and S. R. R. Co. v. Marsailles, 84 Ill., 145. But, nevertheless, we think the decided weight of authority both in England and

Licking Circuit Court.

in the United States, is against the existence of the power unless conferred by express grant or clear implication. The foundation principle, upon which these latter cases rest, is that a corporation possesses no powers except such as are conferred upon it by its charter, either by express grant or necessary implication; and this principle has been frequently declared by the Supreme Court of this state; and by no court more emphatically than by this court. It is true, however, that in most jurisdictions, where the right of a corporation to traffic in its own stock has been denied, an exception to the rule has been admitted to exist, whereby a corporation has been allowed to take its own stock in satisfaction of a debt due to it. This exception is supposed to rest on a necessity which arises in order to avoid loss; and was recognized in this state as early as Taylor v. Miami Exporting Co., 6 Ohio, 176, and has been incidentally referred to as an existing right since the adoption of our present constitution. State v. Building Association, 35 Ohio St., 258."

In the case under consideration, believing as we do, that the provision in the contract in relation to giving the plaintiff employment in the company, was a stipulation merely, and its performance was not a condition precedent to his becoming a stockholder, we hold, that on paying his subscription, the relation of stockholder was established between him and the company, whether the corporation gave him employment or not; and upon its failing to do so, he is left for redress to the ordinary remedies for the breach of the contract.

This conclusion is supported by the well considered case of Morrow v. Nashville Iron and Steel Co., 10 Am. St. Rep., p. 658 [10 S. W. Rep., 495; 87 Tenn., 262; 3 L. R. A., 37; 10 A. S. Rep., 658]. In the syllabus the court say:

1. "A stipulation in a contract with a subscriber to the initiatory capital stock of a manufacturing corporation, organized under the general incorporation laws of the state, which provides that the subscriber shall receive, in addition to his stock shares, interest-bearing bonds to an equal amount, secured by mortgage upon the company's plant, is without consideration, and is absolutely void, both as against creditors and between the subscriber and the corporation; and the failure of the corporation to carry out such illegal stipulation does not release the subscriber from liability upon his subscription.

2. "Stipulation in contract of subscription to organization or initiatory tock of corporation to issue bonds to the subscriber to the full amount of his subscription, secured by first mortgage on the company's plant, is not to be regarded as a condition precedent to liability upon the subscription, and is nothing more than an independent stipulation for the breach of which the remedy would be in damages, in a case where the subscriber paid part of his subscription in cash, giving notes for the balance, to be paid upon call, and having become a director, after organization, without receiving his bonds, and especially as the mortgage to secure the bonds could only be obtained by payment of the fund subscribed.

3. "Conditional subscriptions to stock of corporations are contrary to sound public policy, by reason of their tendency to mislead and ensnare creditors, and they ought not therefore to be encouraged."

We are of opinion the demurrer to the petition in this case was properly sustained, and the court did not err in dismissing the petition; the judgment of the common pleas is affirmed.

Stone Co. v. Mack.


[Hamilton Circuit Court, January Term, 1899.]
Shearer, Summers and Wilson, JJ.

(Sitting in Hamilton County.)


While a custom among contractors of helping themselves to each others' material when a small quantity is needed to complete a job, is unreasonable and not binding as a rule of property, it is competent for the purpose of tending to prove a lack of criminal intent in taking such material.


Jerome D. Creed, for the plaintiff in error.

Geo. W. Hardacre, contra.


The defendant in error recovered a judgment for $385, damages for malicious prosecution on a charge of taking a small quantity of the Kuhl company's material in completing a cement sidewalk contract, a line of work in which the Kuhl company and Mack were competitors. Error was claimed in the admission of testimony as to a general custom prevailing among contractors of helping themselves to each other's material when a small quantity was needed to complete a job.

The reviewing court holds that while such a custom is unreasonable as a rule of property, and therefore not binding, yet it was competent for the purpose for which it was evidently introduced-that is, as tending to prove a lack of criminal intent.

Judgment affirmed.


[Lorain Circuit Court, May 4, 1901.]


1. DEFECTIVE Machinery -AVERMENTS of Knowledge of DefecTS. In an action for wrongful death, alleged to have been the resuit of a defective fly wheel, a petition which charges negligence on the part of the defendant, and knowledge of the defect, and avers that plaintiff's decedent did not know of such defect, though without averments that defendants or decedent by the exercise of ordinary care should or would have knowa of such defect, is sufficient; and particularly where no objection was made to the absence of such averments until after the case went to trial. Under such circumstances it would have been improper for the court to have directed a verdict for defendant unless the evidence failed to show that plaintiff's decedent was without knowledge of the defects or upon grounds other than the absence of the averments referred to.

12 O. C. D. Vol. 12

Lorain Circuit Court.


A special finding by the jury in an action for wrongful death, caused by a defective fly wheel, that the plaintiff's decedent did not know of the defect, is conclusive in a reviewing court, although it may be doubtful whether, had the question been asked, the jury could have found that by the exercise of ordinary care decedent would not have known of the defect; unless the finding is clearly against the weight of the evidence the verdict should stand, and particularly where the trial court directed the jury that such a finding was essential to a recovery by the plaintiff in whose favor it was rendered.


Where decedent, who was a carpenter, was employed as such in making repairs to some devices connected with machinery, and in the performance of such duties removed and replaced a shaft on which a defective fly wheel was attached, but did not remove the wheel from the shaft, which, upon being replaced had to be readjusted by someone else, and decedent had no occasion to specifically know about the wheel in question, although the defect must have existed for a long time, the fact that he stood in the line of its revolution and in the same perpendicular plane as the wheel while it was being operated after being fixed, does not necessarily show negligence on his part, or lack of care such as a prudent man would have exercised, his superior standing right by him.


Frederick A. Henry and Mr. E. G. Johnson, for plaintiff in error. A. R. Webber and G. A. Metcalf, for defendant in error. CALDWELL, J. (Orally.)

The case of the Forest City Stone Company against Musa A. Richardson, administratrix of the estate of James Richardson, deceased, is a proceeding in error to the court of common pleas. The parties are reversed here from what they were in the court of common pleas. I give the terms plaintiff and defendant, meaning as they stood in the original case.

The case was tried to a jury and resulted in a verdict for the plaintiff, after which a motion for a new trial was filed, overruled and proper exceptions taken, and a bill of exceptions is filed here with the petition in error, containing all the evidence in the case.

The suit was brought by the administratrix, charging that by wrongful acts of the defendant, which is a corporation, the plaintiff's intestate was killed.

The petition sets out that the negligence of the defendant, which caused the accident resulting in the death of the plaintiff 's intestate consisted in this, that the intestate was an employee of the defendant; that in the plant of the defendant there was a machine, and one of the devices connected with such machine was a fly wheel which was of iron, and revolved rapidly around a shaft. That this wheel was defective in its construction and in its material; that the iron of which it was com posed was routen; that one of the spokes of the wheel was broken; that the rim of the wheel was thin and cracked; the wheel was never intended in the first place as a fly wheel, and that it was not properly hung, and that the plaintiff's intestate being at work in the discharge of his duty without his fault this wheel burst, and a part of it was thrown against the intestate and injured him so as to cause his death within a few hours.

The petition says that the defects in the wheel were well known to the defendant. The petition further says that they were unknown to the decedent.

Stone Co. v. Richardson.

The petition does not say that, by the exercise of ordinary care they would not have been known to the decedent. It does not say that by the exercise of ordinary care they could or would have been known by the defendant, but it does aver that the defendant knew of such defects.

No objection was taken to this petition until the evidence on the part of the plaintiff had all been offered, and, as appears on page 64 of the record, the evidence on the part of the plaintiff having been completed, a motion was made to direct a verdict in favor of the defendant on the following grounds:


The insufficiency of the petition for want of any averment that the decedent had not the means of knowing the defects complained of.

Second. On the insufficiency or the proof; because there is no evidence that decedent was without knowledge or had no means of knowing of the defects complained of.

Third. There is no evidence that decedent was himself exercising ordinary care.

Fourth. The evidence affirmatively shows that the decedent knew or had the means of knowing the defects complained of, and that he therefore waived or assumed the risk of the defects complained of.

Fifth. The evidence shows that the decedent was not exercising ordinary care.

This motion was overruled. When all the evidence in the case was completed this motion was renewed and again overruled.

Whatever may be said as to the necessity of the averment that the decedent had not the means of knowledge, or by the exercise of ordinary care could or would not have known of the defects in the machinery, we think it came too late in this case.

The defendant went to trial without making any complaint that the petition did not aver that the decedent was without the means of knowing, and by the exercise of ordinary care could or would not have known of the defects in this machine, and unless the court should have taken the case from the jury because of the failure of the evidence to show that the decedent was without knowledge or had no means of knowledge of the defects complained of, then the court committed no error in overruling this motion.

The decedent was a carpenter, had been employed by the defendant for about a year in and about its plant.

His services did not require him, so far as appears, to be especially about this part of the machinery, except that for about a week before the accident he was engaged in replacing some of the devices connected with this part of the plant, and in the doing of that work the shaft on which the fly wheel complained of was hung, with several other wheels, one a cog wheel, was removed and then replaced. The wheels were not separated from the shaft at all.

It is admitted that the decedent was killed by the bursting of this fly wheel; it is conceded that one of the spokes was broken entirely in two, and that this was known to the defendant; if this is not conceded, it is clearly shown that it was known; indeed it was said, on the part of the defendant, it was so plain the decedent must have known it.

The jury have answered the question in a special finding, that the decedent did not know that the spoke was broken. But it is doubtful from the evidence whether they would have been justified in saying that

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