Court Opinion

ID: 6746795
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:55:54.548805+00
Date Added: 2024-06-11T16:01:59.176889
License: Public Domain

DISSENTING OPINION
By GEIGER, J.
I am in full accord with my associates in most of the many conclusions at which they have arrived, there being but one major point of difference between us. This relates to the question as to whether or not the salary drawn by Mr. Davis as president of the Peruna Company became a part of the trust estate to be accounted for by him, and upon his failure to do so, to be paid by his bondsmen, he having died insolvent. My associates have so clearly and correctly stated the facts I refrain from discussing them to any extent. The majority arrives at the conclusion that any and all official connection of Mr. Davis through the estate’s control of the stock of the corporation was not as an individual, but as trustee; that he was the trustee-director, a trustee-president and treasurer; that Mr. Davis .as a member of the Board of Directors and as president and treasurer stood in the place of Dr. Hartman and all his activities relative to the Peruna Company were as trustee, and being required under the will to give all his time to the affairs of the estate for which a salary had been fixed, he could not take on individual employment.
The majority sees no reason why Mr. Davis as trustee could not cause to be done the same things as could have been done by Dr. Hartman had he been living; that had Dr. Hartman received the salary and bonus as president of the company no one would have considered it excessive. The majority then state, “At this point we come to the parting of the ways. Whatever Mr. Davis received as salary and bonus he received as trustee and not individually.”
“The trustee having converted these amounts to his own use and not at any time accounted therefor to the trust, the finding of the Common Pleas Court sustaining the exceptions will be affirmed.” The majority then finds that the salary and bonus paid to Spetnagle were not a part of the trust estate and should not be accounted for as such.
The majority arrived at this conclusion largely from the provision of Dr. Hartman’s will, and in consideration of other matters incident to Davis' administration of the trust and to his activities as president of the Peruna Company.
Dr. Hartman appointed Earl S. Davis “my executor and trustee to administer my estate and to execute the trust mentioned and created by this will.” Item VII provides in substance, “I hereby empower and direct my executor and trustee to vote all shares of the capital stock of all corporations of which I shall be owner at the time of my death and all shares of the capital stock of which my estate shall be owner during the continuance of the trust and to exercise all powers at all the meetings of the stockholders and on behalf of my estate to exercise any and all lawful powers with reference to all said capital stock which will not be inconsistent with the oowers conferred upon my executor and trustee by Item V.”
The 3rd item of the codicil dated January 16, 1913, provides, “It is my wish and I hereby direct that my said executor and trustee, Earl S. Davis, shall receive and be paid as compensation for his services as such executor and trustee not less than $10,000 per annum” and in certain events, $20,-000.00, “it being my intention that he shall not receive and be paid as his compensation for any one year while he performs his duty as my said executor and trustee less than the sum of $10,000.00 nor more than the sum of $20,000.00 per annum." The amount of *85compensation to be received by and paid to him shall depend upon the amount of said net revenue.
“And that my said executor and trustee shall devote all of his time to his duties as such executor and trustee.”
The trustee under the will had power to carry on any business that the testator was engaged in; was empowered and directed through his control of- the stock of the Peruna Company to carry on the business of that corporation and through his control of the capital stock was directed to sell all the property and assets of the company as a going concern and to vote all the stock of all corporations of which the testator might be owner and to exercise all lawful powers with reference to said stock not inconsistent with the powers conferred upon him."
Provisions as to his compensation were set out in the codicil as above indicated.
Manifestly the will was concerned with the testator’s estate and the powers were limited to the action of Davis as executor and trustee. There is no implication that as to the compensation that the provisions of the will should extend to his activities and compensation while acting as president of the company. It specifically covers activities other than those of president, which are not mentioned in the will.
There is internal evidence in the will that the testator recognized the distinction between the corporate entity of the Peruna Company and his estate, seemingly a recognition by him that tire final power to carry out his “wishes" with the corporation.
There are external evidences of importance in determining the testator’s conception of the scope of the will. The codicil by which Davis’ compensation was fixed was dated January 16, 1913. Two weeks before that date the Peruna Company entered mto a contract with Davis, executed by Hartman as president, whereby Davis became treasurer and general manager of the company for a period of five years. By this contract ne was to devote all his time necessary to the business, and was to receive an annual salary ultimately $10,000.00 a year so long as he remained in the services of the company. This corporate contract was signed by Dr, Hartman, a few days before executing the codicil. If Dr. Hartman intended by the codicil to confine Davis’ compensation to the amount provided by it, it would have been natural for him to have stated that the compensation provided therein was to be in lieu of the corporate contract, or that on the $10,000.00 compensation of the trustee there should be credited the compensation provided in the corporate contract. The codicil provided that Davis should devote all his time to the trust. The corporate contract provided that he should devote all'his time necessary to the business. If he was under contract with the corporation to devote all his time necessary to the business manifestly it would not have been the intent of the testator that he should devote all his time to his duties as such executor and trustee. The codicil did not provide that when compensation as trustee began, that the corporate salary should cease.
If the testamentary requirement was that he actually devote all his time to his trust and in spite of that provision he devoted a portion of his time to his duties as president of the Peruna Company, the beneficiaries under the will were continuously informed of this fact,, and also of the fact that he was receiving a salary therefor. If they had objections they should have been made known to the proper authorities. I am of the opinion that it requires a very strained construction of the will and codicil to arrive at the conclusion that Davis was bound hand and foot to-the trust and through his holding as; trustee of the stock of the corporation, was likewise bound to do any service-that the corporation might require for' thé same compensation that was provided by the will for services as trustee. The testamentary compensation was; not large considering the extent of the estate, and if in addition to his activities as trustee he performed services-for the corporation, as president, the conclusion that he was to do. both services for a single compensation seems to*86me unjustified by the provisions of the will or codicil. Had Davis refused to act in an official capacity in the corporation some other individual would have had to perform this service for a compensation.
The right of the corporation to enter into a contract with Davis and fix his compensation.
The corporation was separate from the trust estate, the only connection being that Hartman during his lifetime and Davis after his death held all the stock. The law endows a corporation with legal existence capable of contracting in the same manner as an individual, and it is an entity existing separate and apart from the natural persons composing it. Its property is distinct from the individual property of its shareholders and changes in shareholders do not affect its liability or its existence, and contracts made by it do not bind its stockholders. The fact that a corporattion takes over , a business of an individual who owns all the stock is not sufficient for disregarding the corporate entity. The individual is one entity and the corporation, another. Although one may own all the stock, any loss incurred or profits made are those of the corporation, and this is so even though all the stock is held by one shareholder. The shareholder has no legal title to the corporate property or to the profits until the division is made. Under these principles we must regard the Peruna Company as a separate entity transacting its business through its properly constituted officers. It was formed many years before the death of Dr. Hartman for the purpose of handling a prosperous business through a corporation, separate from his private interests which were many and valuable and flowed largely from the success of the business conducted by the corporation. Engaged' as it was in a business that was constantly fluctuating it was desirable that the risk of its corporate business should not involve the separate estate of Dr. Hartman. Upon his death the principle of stock ownership did not terminate and could not be terminated by the provision of the will. That which passed to the executor and trustee were stock certificates, evidencing ownership .in an entirely distinct entity. If the view of the majority is correct that what Davis did he did as a trust executor, then it should follow that he should have accounted for ail the transactions of the corporation in his reports made to the Probate Court, and the trust estate under such condition, would possibly be responsible for the acts of Davis, acting as a corporate officer. All that the trustee was obliged to account for were all dividends that were paid to him as trustee on the corporate stock. Until so received it was corporate property and not trust property.
I am of the opinion that there was ample authority in the corporation to employ at a salary that its Board of Directors might see fit to pay, and a bonus compensation, those that were qualified to conduct the business of the corporation and that '■•uch salary and bonus contract was an obligation of the corporation and the fact that it may have decreased the dividends is beside the question. Remedies were ample and opportunities frequent to correct any violation of any law in which the trustee may have oeen engaged, whether as an officer of the .orporation or as an officer of the Probate Court.
The United States Fidelity and Guaranty Company is a real,party m interest, arising from the fact that it is a surety for Earl S. Davis in the sum of $300,000.00. The provision of the bond was for the faithful discharge of his duties as trustee. He died insolvent and the burden is now upon his bondsmen of paying any sum found due to the estate.
If it should be held that by signing a trust bond the bonasman becomes liable for the act of the principal, wholly disconnected with one trust estate, the writing of such bonds would be so hazardous as not to 're engaged in or engaged in at prohibitive terms. The record of Davis as disclosed by his accounts in the Probate oourt was open go the inspection of the bondsmen. Can it be that a bondsma n is required * m order to protect him-elf against the hazard not only to see that the princi*87pal properly accounts for the money coming into his hands but that it should follow him through every possible enterprise in which he is engaged to find out whether, while acting entirely within corporate authority he has done something against the interest of the estate.
I am, therefore, of the opinion that the salary and bonus urawn by Davis as an officer of the Peruna Company, and of the Railway Company, did not become a part of the trust estate or was not required to be accounted for by him as trustee except so far as he may have converted a portion of it to the so-called “secret” fund and thereby dedicated it to the trust estate, and that the assignment of errors Nos. 1 to 6 by the Fidelity and Guarauty Company should be sustained. Conceding, however, that I may have taken an erroneous view of this matter, we still have the question of acquiescence and laches of the beneficiaries treated on pages 80, et seq. of the brief of the Guaranty Company. It does seem to me from all the evidence that the beneficiaries who are now seeking to recover the salary paid to Davis by the Peruna Company through the instrumentality of the bonding company should be held to have acquiesced in this matter and to have no standing in their endeavor to receive compensation from the bonding company for those actions of Davis with which they were or might easily have been fully acquainted. They should have spoken when the knowledge came to their attention, and not have remained idle until Davis passed away .leaving an insolvent estate. All during the years that Davis was trustee of the Hartman estate these beneficiaries had full opportunity to know and must be held to tne knowledge of everything that is revealed by the inventories, records and accounts and also to the fact that Davis was drawing salary and bonus as an officer of the company. The court should not aid a party whose obligation is destitute of diligence and should refuse to interfere where there has been ■aches in prosecuting rights or where any acquiescence in the adverse rights has occurred. Hammond v Hopkins, 142 U. S. 224; McCall v Casilear, 137 U. S. 556; Bridenbaugh v King, 42 Oh St 410; Harris v Manufacturing Company, 84 Oh St 104.
It is quite evident that should the majority opinion prevail the beneficiaries will receive more from the bonding company than they would have received had there been no increased salary or bonus drawn by Davis and Spetnagle. They will have profited by the decreased federal taxes because had’ the enlarged salaries or bonuses not been paid the government would have taken practically 60% of the corporate income. Under the present holding they will profit by the extent that their corporate tax was decreased by virtue of the reduced corporate income occasioned by the enhanced salaries and bonus, and have the whole of the salary of Davis paid into the trust estate by the bondsman.
There is much else that might be said in this matter, but this opinion is overly long for a dissenting opinion.
In all other matters, which are many and important, I agree with the majority.