Red Star Transportation Co. v. Silverman

On January 19, 1929, Jennie R. Silverman executed and delivered to the Red Star Transportation Company a certain lease for a portion of real estate then owned by her, to wit, a part of what is known as the Clarendon Hotel building, in the city of Zanesville, Ohio. This lease was for a period of three years from and after February 1, 1929, and provided for the payment of rental in the sum of fifty-four hundred dollars in monthly installments of one hundred and fifty dollars, payable on the first day of each and every month.

On June 28, 1929, the Red Star Transportation Company assigned this lease to Pioneer Transportation, Inc., which assignment was on the same day accepted, and by this assignment the assignee assumed and agreed to make the payments and perform the covenants and conditions of the lease. On July 6, 1929, Jennie R. Silverman consented to this assignment.

Shortly thereafter, the Red Star Transportation Company, having paid the rental until that time, vacated the premises and the Pioneer Transportation, Inc., took possession, and paid the rent as called for by the lease until May, 1931. No rental was paid for the last nine months of the lease.

An action was brought in the court of common pleas of Muskingum county by Jennie R. Silverman against both the transportation companies. The amended petition, on which the case was tried, prayed for thirteen hundred and fifty dollars, the amount of the nine months rent unpaid. The matter was contested by the Red Star Transportation Company, which filed an amended answer and cross-petition.

The defense in the amended answer was in substance that the Red Star Transportation Company was a motor transportation company, engaged in transporting passengers for compensation, under authority of a certificate issued by the Public Utilities Commission of Ohio, and was a public utility; that the lease constituted "evidence of indebtedness, payable at periods of more than twelve months after the date thereof;" that the same was never authorized by an order of the Public Utilities Commission of Ohio, and was therefore not a valid obligation of the company.

The cross-petition sought a reformation of the assignment of the lease and consent thereto, averring that the consent "by mistake failed to include any such consent or agreement to release this defendant, The Red Star Transportation Company, from liability for all payments of rent thereafter to be made, and from the performance of the covenants and conditions of said agreement of lease; and this defendant, The Red Star Transportation Company, accepted said written consent to the assignment, under the mistaken belief that the same did release it from all liability for payments of rent thereafter to be made."

A reply was filed, denying that the claim was not a valid obligation of the Red Star Transportation Company, and an answer was filed to the cross-petition denying that there was any mistake as alleged.

The case was tried to the court of common pleas; a jury being waived. A judgment was entered for the amount claimed in the amended petition, and from this judgment error is prosecuted to this court.

There are a number of assignments of error, all of which have been considered, but all may be disregarded as not containing any substantial merit except two assignments.

Going first to the claim made in the cross-petition: There is no averment in it and there is no evidence of any fraud, bad faith or inequitable conduct. The cross-petition does not aver that the mistake was mutual, and the evidence does not establish the fact that there was a mutual mistake. In fact, there is a failure on the part of the plaintiff in error to show by clear and convincing evidence that there was any mistake, and that there must be clear and convincing evidence of mistake before a court should intervene and reform an instrument is too well established to warrant either discussion or the citation of any authorities. The court of common pleas properly found against the transportation company upon this issue.

The remaining question is whether or not this transportation company, being a public utility, can avoid liability under this lease by virtue of the fact that it was not authorized by the Public Utilities Commission of Ohio. In other words, is this such an obligation as comes within the purview of Section 614-53 of the General Code? This section reads:

"A public utility or a railroad, as defined in this act, may, when authorized by order of the commission, and not otherwise, issue stocks, bonds, notes and other evidences of indebtedness, payable at periods of more than twelve months after date thereof, when necessary for the acquisition of property, the construction, completion, extension or improvement of its facilities or for the improvement or maintenance of its service, or for the reorganization or readjustment of its indebtedness and capitalization, or for the discharge or lawful refunding of its obligations, or for the reimbursement of moneys actually expended from income or from any other moneys in the treasury of the public utility or railroad not secured or obtained from the issue of stocks, bonds, notes or other evidences of indebtedness of such public utility or railroad within five years next prior to the filing of an application therefor as herein provided, or for any of the aforesaid purposes except maintenance of service and except replacements in cases where the applicant shall have kept its accounts and vouchers of such expenditures in such manner as to enable the commission to ascertain the amount of money so expended and the purposes for which said expenditure was made.

"The commission may, by order duly made, authorize the issue of bonds, notes, or other evidences of indebtedness, for the reimbursement of money heretofore actually expended from income for any of the aforesaid purposes, except maintenance of service and replacements prior to five years next preceding the filing of an application therefor, if such application for such consent be made prior to January 1, 1913. Any bonds, notes, or other evidences of indebtedness, payable at periods of more than twelve months after date thereof, may be issued as herein provided, regardless of the amount of the capital stock of the public utility or railroad, subject to the approval of the commission to the excess of such bonds, notes, or other evidences of indebtedness above the amount of the capital stock of such public utility or railroad, notwithstanding any provisions of the General Code of Ohio now in force to the contrary.

"Provided, however, that it shall be the duty of the commission to authorize on the best terms obtainable, such issues of stocks, bonds and other evidence of indebtedness as shall be necessary to enable any public utility to comply with the provisions of any contract heretofore made between such public utility and any municipality."

It is true that this lease does establish an obligation or liability or indebtedness payable more than twelve months after its date, but it was for a part of the operating expenses of the company. It certainly cannot be contended that this section is intended to apply to current operating expenses, such as a lease, or such as labor, or to contracts of employment which might not be completed within twelve months, or to articles of equipment bought under advantageous contract and to be delivered from time to time over a period longer than twelve months.

This statute, in our judgment, was intended both for the protection of the utility, in the matter of proper capitalization, and for the protection of the investing public. The terms "stocks, bonds, notes and other evidences of indebtedness" seem to us to have been intended to contemplate proper capitalization of the company, and not operating expenses, and the term "other evidences of indebtedness" might be trust certificates or any other form of capital indebtedness not properly described as stocks, bonds or notes.

The Supreme Court of Ohio, in the case of Pollitz v. PublicUtilities Commission, 97 Ohio St. 191, 119 N.E. 507, held that the Public Utilities Commission is empowered to grant authority "to issue stocks, bonds, notes and other evidences of indebtedness, payable at periods of more than twelve months after date, when necessary for the acquisition of property, the construction, completion, extension or improvement of its facilities, and for other purposes specifically set forth. But that section does not permit the capitalization of replacements of equipment or any physical property. These must be kept up from income."

And again, in the case of Pollitz v. Public UtilitiesCommission, 99 Ohio St. 449, 126 N.E. 926, the court held that expenditures for purposes other than those mentioned in Section 614-53, General Code, cannot be the basis for the issue of stock.

The Supreme Court has in these cases in our judgment so construed this section as to make it applicable to capitalization purposes such as we have briefly indicated, and by inference has held that this section has no application to ordinary indebtednesses incurred in the proper management, control, or operation of its business, and as a part of the operating expenses.

The court of common pleas was right in holding that this amended answer did not set forth any defense to the claim of the amended petition. The judgment of the court of common pleas is therefore affirmed.

Judgment affirmed.

SHERICK, P.J., and LEMERT, J., concur.