Trivison, Trustee v. Steiner

179 N.E. 208 | Ohio Ct. App. | 1931

This cause comes into this court on a petition in error to the common pleas court of Cuyahoga county, the purpose being to reverse a judgment in favor of the defendant in error, Oscar H. Steiner, who was defendant below; the error claimed being that the trial court was wrong in directing a verdict for the defendant in the court below at the conclusion of the plaintiff's testimony.

We have examined the record, heard the arguments of able counsel, and have familiarized ourselves with the briefs filed in this action, which are voluminous, and learn therefrom that a suit was brought by the trustee of the bankrupt estate of the Advance Printing Label Company to recover the proceeds of a certain check given to the Advance Printing Label Company by the board of elections of the city of Cleveland in payment for printing the registration lists for 1928, which check was immediately transferred and assigned to Steiner, the defendant below. It was claimed that that was a preference within the meaning of the Bankruptcy Statute (Title 11, Section 96, U.S. Code) and the insolvency statute, Section 11104, General Code; that the money was really the money of the bankrupt, and transferring it in the manner that it was transferred to Steiner constituted a fraud upon the creditors; and that the trustee in bankruptcy should be permitted to recover the entire proceeds of the check. This the court refused to permit him to recover, and directed a verdict, as already stated.

From the record and the arguments we learn that prior to July 21, 1928, the Advance Printing Label Company and Steiner — who had the controlling interest at least in a certain Machinery Supply Company, and had furnished supplies and so forth to the Advance Printing Label Company — had had many dealings with each other, and that the Advance Printing Label Company had owed Steiner quite large sums of money, and that on the 21st of July there was due to Steiner from the Advance Printing Label Company something between five and six thousand dollars.

At about this time the board of elections of the city of Cleveland was seeking a person with whom to execute a contract for the printing of the registration lists for the year, and I believe either the board solicited the Advance Printing Label Company in regard to the work, or the Advance Printing Label Company solicited the board of elections for the work. The Advance Printing Label Company, however, was not in financial condition to do the work required on this job, the price of which, I believe, amounted to something over $20,000. The board of elections required a bond to be given by a surety company to insure the performance of the contract, as the contract for the printing provided. The bonding company, before it would insure the performance of the contract, insisted that the sum of $5,000 be deposited in some bank to protect it for going surety for the Advance Printing Label Company. The company was unable to give this bond, and was unable to proceed by reason of its inability to finance the procuring of supplies and material for doing this work, and had to secure aid. Whereupon a contract in writing, which we have before us, was entered into between the Advance Printing Label Company and Steiner, whereby Steiner was to furnish a cash deposit of $5,000 and was to furnish the necessary supplies and money for financing the project, and in consideration of so doing the Advance Printing Label Company was to assign, and did assign, to Steiner the proceeds to be derived from this contract; and that assignment is before us, as it was evidenced in writing, and the board of elections agreed to and did consent to the assignment.

Now Steiner had already deposited $5,000 and performed all the conditions that he was to perform, prior to the assignment of this contract to him by the Advance Printing Label Company, with the consent of the board of elections. In the contract already referred to, Steiner was to receive protection by reason of his deposit of the $5,000 to guarantee the surety bond and to insure the repayment of the money that he was to advance for the materials and labor necessary in carrying out the contract with the board of elections, and was likewise to retain from the proceeds of this contract the sum of five or six thousand dollars that the Advance Printing Label Company already owed him, and he was to have any expenses that he was put to by reason of attorney fees or other costs that this contract would entail, and, after all of these obligations were taken care of, and the $5,000 that he had deposited with the bank as guarantee for the surety company had been returned to him upon satisfactory completion of the contract, the board of elections was to pay the money, and then, if there was anything left, any profits in the contract, he and the Advance Printing Label Company were equally to share such profits.

Now this contract was entered into on the 21st day of July, 1928, and the proceeds of the contract, having a potential existence by reason of the contract, were immediately assigned to Steiner, and the board of elections agreed to the assignment and promised thereby to pay to the assignee, Steiner, the entire proceeds of the contract. This, it must be remembered, was on the 21st of July. The Advance Printing Label Company went on and performed its contract, so far as we know, satisfactorily to the board of elections, and all the work that the contract called for was done; and there became due the sum total of the contract price, no part having been paid until the contract was completed; nor was it to have been paid until the contract was completed.

The board of elections drew a check on the 5th of November, 1928, to the Advance Printing Label Company, which was immediately assigned and delivered to Steiner, in accordance with the terms of the contract. At this point we should say that, so far as the record shows, no profit was made on this contract, but a loss was incurred. We should say likewise that, under the terms of the assignment, the board of elections could and should have made the check payable directly to Steiner; that he had become the owner of the proceeds of this contract immediately after the contract was made by virtue of this assignment, and, as already stated, the contract having been made, gave a potential existence to the proceeds thereof, which were subject to the assignment.

Now just after this check was given by the board of elections, which according to Steiner, belonged to him by virtue of the assignment, the Advance Printing Label Company ceased doing business, closed its doors, and was thrown into involuntary bankruptcy by petitions filed against it, which were filed on the 24th of November. The plaintiff in error, Louis A. Trivison, was appointed trustee in bankruptcy, and, inasmuch as the estate was insolvent, he brought an action to recover the proceeds of this check, on the theory that such a transfer made by an insolvent debtor was in violation of the bankruptcy statute, and that the funds received from the proceeds of this check were impressed with a trust for the benefit of the creditors, and he, the trustee, having been appointed by the bankruptcy court, was entitled to the money.

At the hearing of the case in the trial court, after the plaintiff had introduced all his evidence and rested, a motion was made to direct a verdict, which was done, and it is to reverse that judgment, as already stated, that this suit is prosecuted here.

Now from the state of the record, as to the evidence, it appears that on the books, at least, the company was not insolvent within the meaning of the bankruptcy statute on the 21st of July, for a balance sheet that is in the record shows that its capital amounted to $19,000, and it had been depleted to the extent of only $2,900, and the statement of assets and liabilities otherwise balanced, so that there was an abundance of assets to meet the obligations as appeared in the statement in evidence in this case, at the time of this transaction.

Under the Ohio statute, however, the probabilities are that the Advance Printing Label Company was insolvent, for, we believe, the Ohio statute provides that, when a debtor cannot meet his obligations as they mature, he is insolvent and can be thrown into insolvency in the state courts; and, it is claimed, that this theory of the law obtains in this action, and that Steiner knew that the Advance Printing Label Company was insolvent and unable to meet its obligations at the time that this transaction took place, and therefore the transaction was a fraud on creditors, and the beneficiary of that fraud could not avail himself of the proceeds obtained from this check.

So far as the bankruptcy statute is concerned, the Advance Printing Label Company was not declared a bankrupt until November 24, 1928, more than four months after this transaction had been completed, unless one regards the transaction as arising when the check was delivered, and that seems to have been the theory of the plaintiff in the court below, the plaintiff in error in this court, that this check and the proceeds of it belonged to the Advance Printing Label Company until the transfer was actually made on the 5th of November.

Now I presume there is no question better settled than that, when a person who knows a concern is insolvent, and actually advances money to help along the transaction, even though it operates as a hypodermic — to use the same term which was used in the argument — to instill new life and vigor into a dying concern, notwithstanding this fact, if he actually advanced the money and took security upon the property, knowing that it was insolvent, the effect would be to enhance the value of the estate to the extent of such money advanced, and therefore the universal holdings are that to the extent of the money that was advanced, which was secured by a mortgage lien upon the property, the claimant to such money would have a valid priority in spite of an insolvency in the state court or in the United States Bankruptcy Court.

Now applying that doctrine to the instant case, what do we find? Why, that here was a concern which was not insolvent prior to the 21st day of July. It had not been declared a bankrupt. It had not been found incapable of carrying on business, but it was doing business. Here was a valuable contract which it sought to obtain and did obtain, but it could only obtain it by performing a condition precedent, and that was by giving a bond, and the only way in which it could give a bond such as the board of elections required was by putting up five thousand dollars in cash in the bank, to remain there until the contract was completed and the bond discharged. The Advance Printing Label Company, being unable to comply with this requirement, sought means whereby it could obtain assistance to get this contract. Now at the time the contract was made, and it was a part of the negotiations, Steiner was brought into the matter, and he agreed in writing, and the Advance Printing Label Company was a signatory, that he would perform all things which would enable the Advance Printing Label Company to enter into this contract, whereby the board of elections was to pay something over $20,000, both parties supposing that there would be a profit out of the contract, which profit would redound to the benefit of the Advance Printing Label Company; but, in order to enable the Advance Printing Label Company to obtain this contract, Steiner had to be protected. In other words, he loaned his credit in order that the whole contract could be carried out, and for that credit, and for the use of his money, and his advancing of money for the material and labor to be used in the execution of this contract, this written assignment was made to him — not the assignment of the contract, but the assignment of the proceeds of the contract. In other words, the proceeds were mortgaged to him for money that he actually advanced, as well as for credit advanced for the purpose, and only for the purpose, of carrying out this contract; and so, after the board of elections had agreed to this, and promised to pay Steiner the money, the proceeds of this contract belonged to him, and never were the property of the Advance Printing Label Company. The only interest the Advance Printing Label Company had in the transaction was a share of the profits after all the expenses and all other things mentioned in the contract were taken out and cared for by Steiner. Steiner, of course, was to receive back his $5,000 which he deposited in bank. This, I believe, was done.

The record in this case shows — or at least it does not show anything to the contrary — that there was no profit in this contract, but, instead, that a loss was incurred; that Steiner had paid all that he had agreed to pay; that he had borne the burden of providing the material and labor for the carrying out of this contract; and that he was entitled to payment, and could have compelled the board of elections to have paid him. And had the board of elections paid this money to the Advance Printing Label Company, and it had refused to pay the money over to Steiner, Steiner would undoubtedly have had a good cause of action against the board of elections for the money, and the act of turning the check over when it was made payable to the printing company was only in accordance with the contract, and only an evidence of honesty and good faith. So whatever title Steiner received to the proceeds of this contract was received on the 21st of July at the time of the assignment of the proceeds of this contract, and that assignment was agreed to by the board of elections.

With that in mind, we have the case, then, so far as the Ohio Insolvency Law is concerned, where a man, even if he knows the debtor is insolvent, who advances money which enhances and enriches the estate to the extent of the contract in this case (and no charge is made in this suit that all the labor and material furnished in this contract had not been taken care of by Steiner), would be entitled to recover.

Now, so far as the United States Bankruptcy Law is concerned, the only chance for the creditors to recover would be the five or six thousand dollar pre-existing debt which was owed by the Advance Printing Label Company to Steiner, payment of which was agreed to in this contract, and which, I believe, was paid by Steiner out of the proceeds of this check. That undoubtedly would have been a preference under the United States Bankruptcy Statute had the bankruptcy taken place within four months from the date of the assignment of this payment of the proceeds of this contract. But this took place on the 21st of July, and the petition in bankruptcy was not filed until the 24th of November, and the Advance Printing Label Company had not closed its doors, but was doing business, to all intents and purposes at least, prior to the 6th of November, and there is nothing in the record to show that it could not pay its debts even under the insolvency laws of Ohio, prior to that time. Dating the bankruptcy from the 24th there would be four months and three days from the time this money was turned over, for the proceeds of the contract were assigned to and became the property of Steiner at that time; and, if it is three days or one day over the four months, the Bankruptcy Statute creating a preference does not apply. Consequently on either theory, that of the Ohio Insolvency Law or of the Bankruptcy Statute, the plaintiff was not entitled to recover; and this appearing at the time the plaintiff rested, no evidence in defense was needed, because it then became a matter of law and the court could and should have directed a verdict, and it did.

Now it is claimed in this lawsuit that, assuming that theory of the law to be correct, yet this printing company was a corporation, and the corporation was managed by a board of directors, and that there was nothing in the record to show that the board of directors ever authorized the transfer of the proceeds of this contract to Steiner; and that, if there was a sort of partnership relation between Steiner and the Advance Printing Label Company, it would be unlawful, for the reason that a corporation could not enter into a partnership.

Now let us analyze those two propositions, the last one first. There is abundant authority, in fact there is a decision in Ohio of long ago, where it was held that a corporation could enter into a partnership either with other corporations or with individuals. The court refused an accounting in the partnership in the case I refer to for the reason that it was formed for an unlawful purpose, but held that for a legal purpose a corporation, or several corporations, if their charters did not prevent, could go into a partnership to carry on a common enterprise, and that corporations could so do with private individuals. But that question does not become material.

The other question, however, is of more moment, and that is that a corporation speaks only through its board of directors. It is claimed that the man who made all these contracts and signed the checks and did everything else was John Kohl, and that therefore the assignment itself was invalid, and that Steiner, having received the proceeds of the check, holds it simply as trustee for the benefit of the creditors of the concern.

Now it appears from the record and argument that Kohl was virtually, if not actually, the sole stockholder — was president and general manager of this corporation, and whatever he said went. Now it would be rather singular if Kohl had the right to make this contract with the board of elections, whereby the estate was enriched, and that only through the aid of Steiner who financed it, I say, it would be rather singular if the corporation could receive the benefit of a contract which was made by its president, or general manager, and then escape its responsibilities by reason of the fact that the board of directors did not properly pass the resolution.

We do not put much stock in such an argument. If a principal receives the benefit from a contract through the agency of an individual, such principal cannot keep the benefits and repudiate the liabilities. This court has held that many times, and it has been so often decided in Ohio and elsewhere that it becomes quite a familiar doctrine. We think that under this record Kohl was the sole operating factor in the Advance Printing Label Company, that he made all contracts, and did things as he chose, and that he made the contract with the board of elections. The board of directors of the company did not make it, and, if he had the right to make the contract for the benefit of the directors, he had the right to assign it for the benefit of the board of directors of the company to the man who made the carrying out of the contract possible. The only right that the trustee in bankruptcy would have would be to recover a share of the profits that were coming to Kohl or his corporation as provided for in the contract. If the contract had shown a profit, which profit was included in the check, then the trustee in bankruptcy would be entitled to recover that much, but, so far as the record shows there was no such profit. On the contrary, it appears that there was not only no profit, but that a loss was sustained; and simply because that results in making more obligations for the bankrupt company does not militate against the law in the least, nor is the party who enabled the company to carry out the contract through his financing any the less entitled to the proceeds of the check.

After reviewing the whole record we can come to no other conclusion than that the court below was right in directing a verdict, for there is nothing to go to the jury, and the judgment therefore should be, and is, affirmed.

Judgment affirmed.

LEVINE, P.J., and WEYGANDT, J., concur.