Cincinnati Enquirer, Inc. v. American Sec. & Trust Co.

• Decision Date: 08 December 1958
• Citation: 107 Ohio App. 526,160 N.E.2d 392
• Parties: , 9 O.O.2d 60 CINCINNATI ENQUIRER, INC., Appellant, v. AMERICAN SECURITY & TRUST CO., Appellee. *
• Court: Ohio Court of Appeals

Page 526

107 Ohio App. 526

160 N.E.2d 392, 9 O.O.2d 60

CINCINNATI ENQUIRER, INC., Appellant, v. AMERICAN SECURITY & TRUST CO., Appellee. ^*

Court of Appeals of Ohio, Hamilton County.

Dec. 8, 1958.

Syllabus by the Court

1. A contract for the sale of a newspaper business operated by a trustee under court supervision to a group which included employees of such newspaper, which describes the assets to be purchased as 'all the assets owned by the trustee and used by it in the operation of said business at the closing date' and provides that the balance sheets be prepared 'in accordance with sound accounting principles and principles used in the past in' such newspaper's audit reports and that the purchaser be given the balance sheet of the newspaper as of the close of business December 31, 1951, with a statement of operation from such date until the closing date (June 6, 1952), does not provide for the supplementation or modification of the accounting methods employed by such newspaper in the past.

2. In such case, an amount deducted from the earnings of the newspaper for the period from December 31, 1951, to June 6, 1952, as a debit for depreciation and forwarded to the trustee (which items had been so treated in all the annual audits for years), and which money was not being used in the operation of the newspaper, is money withdrawn from the assets of the newspaper, and formed no part of such assets on the closing date of the sale and no part of the assets transferred on that date.

3. In such case, a sum of money, representing the proportionate 'depreciation for the month of June' and which arose from the operation of the paper for the first six days of June and was being used in the business and was not money separated from the aggregate mass of the assets of such newspaper, formed a part of the assets included in the sale of such newspaper.

4. Where, in the operation of such newspaper business, the vacation pay of certain of the employees, members of unions whose employment contracts had been negotiated by the union with the employer, was, by the accounting methods used by such newspaper, in the process of accrual from day to day as each employee worked but was not debited when accrued but charged as an expense at the time of payment (always the following year), the obligation therefor outstanding on the closing date of the sale of such newspaper was assumed by the purchaser under provisions of such purchase contract that all those liabilities and obligations arising out of contracts or commitments 'entered into in the ordinary conduct of the business' which were outstanding on the closing date would be assumed by the purchaser.

5. In such case, a bond issued by a news-service organization and payable to the trustee is not a part of the assets purchased, where the ownership of such a bond is not a condition precedent to obtaining the news service of such organization.

Frost & Jacobs and Francis L. Dale, Cincinnati, for appellant.

Graydon, Head & Ritchey, Cincinnati, for appellee.

MATTHEWS, Judge.

This case comes before this court at this time for final disposition on appeal on questions of law from a judgment declaring the rights of the parties under a certain contract, whereby the defendant agreed to sell the property known as The Cincinnati Enquirer, as a going concern to Portsmouth Steel Corporation and a group of employees of The Cincinnati Enquirer, who caused the plaintiff to be incorporated under the laws of Ohio to receive the title from the seller, which sale was consummated by bill of sale to the plaintiff corporation.

The Cincinnati Enquirer is, and has been for many years, a morning newspaper of wide circulation published in Cincinnati, and was wholly owned by John R.McLean, who died testate, on June 19, 1916. Admittedly, he left a large estate, of which The Cincinnati Enquirer was only a part. What proportion it bore to the whole estate does not appear.

By his will, John R.McLean created a trust of his entire estate including The Cincinnati Enquirer, and named American Security & Trust Company, the defendant, as trustee thereof. Edward B. McLean was the beneficiary during his life and he was named as a co-trustee, but resigned many years ago. The will provided that after the death of Edward B. McLean his descendants should receive the income until the youngest reached the limit allowed by the rule against perpetuities, when the corpus should be distributed and the trust terminated.

John R. McLean, resided in the District of Columbia at the time of his death, and his will was duly probated in the District Court of the District of columbia, and the administration of the trust has been under the supervision and jurisdiction of that court during the intervening years. American Security & Trust Company as testamentary trustee has controlled and operated The Cincinnati Enquirer as a morning newspaper and was so operating it up to June 6, 1952. The trustee apparently deemed it prudent to separate the operations of the newspaper from its other activities as trustee, perhaps, principally for the purpose of determining whether the newspaper was producing a profit. In pursuance of this purpose, those in active charge of the business in Cincinnati reported frequently to the trustee in Washington. They made monthly reports and the trustee employed independent public accountants who prepared annual balance sheets for the information of the trustee. The last balance sheet prior to this sale showed the assets of the John R. McLean estate used in the business and the liabilities incurred in the operation of The Cincinnati Enquirer as of December 31, 1951. These balance sheets also showed the method uniformly followed in listing assets and in determining the accrual of the maturity of obligations. At the trial of this action, the defendant sought to account for its method of accrual by referring to the terms of the will and the orders of the District Court based thereon. This was met by the assertion that the contract provides that the law of Ohio should govern, but, as we view this subject, the law of the District of Columbia is not law in Ohio, and its admissibility must be determined just as the admissibility of any other evidential fact is determined. Furthermore, the reason for adopting a particular method of including or excluding an asset or liability of entirely immaterial. The only conceivable purpose of this evidence was to identify the subject matter of the contract and sale.

In February 1952, it became known in Cincinnati that the Cincinnati Times Star had made an offer of $7,500,000 for The Cincinnati Enquirer. This incited certain employees into activity, and a committee of employees was formed for the purpose of soliciting financial support for the purchase of the Enquirer by the employees. This committee induced the Portsmouth Steel Corporation to submit an offer of $7,600,000, under an agreement to assign the contract to the employees or a corporation formed by them. This offer was accepted by the defendant, effective June 6, 1952, the 'closing date,' and this contract was made, which is before the court to determine the rights of the parties thereunder.

It should be noted here that the plaintiff must be charged with all the knowledge of the members of the committee who organized it, and most, if not all, continued in active control of the Enquirer after the transfer. While each member may not have known all the facts, their composite knowledge, without doubt, embraced all the essential facts of just how the defendant had operated the newspaper and kept the records, so as to give it, so far as possible, an identity separate and apart from the rest of the trust estate.

The contract and supplemental contract intended to effect the transfer of title to a large and going newspaper, without interruption, as was to be expected, is rather voluminous, but counsel in their briefs have agreed that only a few provisions are involved in this inquiry.

Under the heading 'Assets To Be Purchased,' the subject matter of the sale is described as follows:

'The assets sought to be purchased by this offer consist of the newspaper business known as The Cincinnati Enquirer, as a going concern, including * * * all the assets owned by the trustee and used by it in the operation of said business at the closing date, * * * with such changes in said business and assets and only such changes therein as shall have occurred in the ordinary course of business in the operation of the Enquirer after December 31, 1951, excluding however, the sum equal to the undistributed earnings derived from the operation of the Enquirer at the close of business on closing date, such earnings to be subject to the liabilities of the Enquirer not assumed by Portsmouth under the provisions of paragraph 3 hereof.'

The contract also provided:

'That the trustee deliver to Portsmouth or its nominee the balance sheet of the Enquirer as of the close of business December 31, 1951, and as of the date of acceptance of the offer, and a statement of the operations and earnings of the Enquirer during the period from December 31, 1951, to closing date, which statements shall be prepared by the Enquirer's independent accountants, or other independent public accountants selected by it, and shall be prepared in accordance with the same accounting principles as were used in preparing the balance sheet as of the close of business December 31, 1951.'

The contract further provided that:

'The balance sheets of the Enquirer delivered and to be delivered to Portsmouth [plaintiff] have been and will be prepared by Messrs. Peat, Marwick, Mitchell & Co., independent public accountants, in accordance with sound accounting principles and principles used in the past in Enquirer audit reports and to the best of the trustee's knowledge and belief, the balance sheet as of December 31, 1951, fully discloses the trustee's assets and liabilities...