Johndahl v. Columbus Trotting Ass'n

• Court: Ohio Court of Appeals
• Writing for the Court: HORNBECK; DEEDS; MILLER; DEEDS
• Citation: Johndahl v. Columbus Trotting Ass'n, 147 N.E.2d 101, 104 Ohio App. 118 (Ohio App. 1956)
• Decision Date: 02 May 1956
• Parties: , 4 O.O.2d 179 JOHNDAHL, Appellant, v. COLUMBUS TROTTING ASS'N, Inc., Appellee. *

Page 118

104 Ohio App. 118

147 N.E.2d 101, 4 O.O.2d 179

JOHNDAHL, Appellant, v. COLUMBUS TROTTING ASS'N, Inc., Appellee. ^*

Court of Appeals of Ohio, Franklin County.

May 2, 1956.

Syllabus by the Court.

1. A member of a partnership who is instrumental in forming a corporation of which he becomes an officer and director and who negotiates for the transfer of the partnership assets to the corporation is a promoter and occupies a fiduciary relationship to the corporation.

2. Secret profits, made by a person occupying the fiduciary relationship of promoter in negotiations for the transfer of partnership assets to a corporation by failure to disclose to the corporation, or by misrepresenting, the market or true value of the partnership assets, are recoverable in an action by the corporation.

3. In an action by a corporation against a promoter to recover secret profits made in negotiations for and on behalf of the corporation, it is essential, inter alia, that the promoter made a profit, that his profit was secretly obtained, and that the market value of the assets is established.

4. Action by the board of directors of a corporation in authorizing the purchase of its own stock and authorizing a loan from one of its officers for that purpose is presumed valid, and, where the board customarily acts informally, failure of the board to spread such authorization on its minutes will not rebut that presumption.

5. Corporate funds wrongfully paid an officer of the corporation to reimburse him for personal expenses for which he was not entitled to reimbursement or exoneration are recoverable by the corporation.

6. A corporation, the agent of which has exceeded his powers, must be prompt in disavowing the agent's acts, else the presumption of the law is that it acquiesces in that action.

7. A prior unliquidated tort cause of action is not a 'demand' within the meaning of the provision of Section 2309.19, Revised Code, that cross-demands must be deemed compensated so far as they equal each other.

8. Communications made by the members of a partnership to an attorney during negotiations for the formation of a corporation to take over the business of the partnership are not privileged, and the attorney may testify thereto, where such communications are made in the presence of a third party and are made wtih the intention that such facts communicated be carried into the application for incorporation and thus become public property.

Power, Griffith & Jones and Frank J. Collopy, Columbus, for appellant.

Brownfield & Malone, Columbus, for appellee.

HORNBECK, Judge.

This appeal is on questions of law from a judgment of the Common Pleas Court vacating a judgment for plaintiff, appellant herein, against defendant, appellee herein, on a note dated March 5, 1951, for the sum of $8,000, and in favor of defendant in the sum of $10,000 on the first cause of action of its third amended cross-petition and $6,221.88 on its second cause of action in the amended cross-petition, a total judgment in favor of defendant in the amount of $16,221.88 and costs. There is a third cause of action on which there was a finding against the defendant.

We hereinafter refer to the parties either as plaintiff or defendant, or as Johndahl, who is the plaintiff, or the association, which is the defendant.

On the 28th of May 1951, plaintiff took a judgment on a cognovit note in the sum of $8,108.29, which note was payable to plaintiff and signed by Charles D. Hill, as president of defendant, and Lyman H. Brownfield, as its secretary.

At the same term of court, on motion of the defendant, the judgment was suspended, with leave to the defendant to file its answer and cross-petition. Eventually, issue was drawn between the parties on the original petition of plaintiff, the third amended answer and cross-petition of defendant, and the reply and answer thereto. A jury was waived and the cause submitted to the trial judge who, in a written opinion, made a general finding in favor of defendant and, upon the motion of plaintiff, also made separate findings of fact and conclusions of law, and entered judgment thereon, as hereinbefore stated.

Plaintiff assigns 16 errors which he has incorporated into six groups, which grouping we will follow in the consideration of the appeal. The assigned errors are as follows:

1. The court erred in the admission of evidence and testimony offered by defendant, to which plaintiff objected.

2. The court erred in vacating the judgment previously rendered by the court in favor of plaintiff on plaintiff's petition and in rendering final judgment thereon in favor of defendant.

3. The court erred as a matter of law in determining and finding that the note of defendant in the amount of $8,000, and dated August or September 1950, was wholly unsupported by any consideration.

4. The court erred as a matter of law in determining and finding that the note bearing date of March 5, 1951, in the amount of $8,000, the subject of plaintiff's petition, was wholly unsupported by any consideration and was void and unenforceable.

5. The court erred in holding that a prior unasserted unliquidated tort cause of action constituted a demand and prevented consideration existing for a subsequent contractual obligation on the theory that cross-demands are deemed compensated.

6. The court erred in determining and finding that a secret or undisclosed profit in excess of $20,000 was made by or chargeable against plaintiff in the transfer of partnership assets to defendant.

7. The court erred as a matter of law in determining that a percentage of ownership basis is the only basis upon which partnership business may be sold and acquired in determining secret or undisclosed profits.

8. The court erred in holding that the test to determine promoter's profit is the true value of the assets transferred to the corporation, and that 'original dollar investment is not a proper test therefor.'

9. The court erred in placing the burden on plaintiff of proving the value of the assets transferred from a partnership to defendant corporation at the time of its incorporation.

10. The court erred in finding that assets of the partnership had a market or true value more than $20,000 and less than $93,000.

11. The verdict and judgment of the court in favor of defendant on defendant's third amended cross-petition were excessive.

12. The court erred in determining and finding that reimbursements made to plaintiff in the amount of $6,115.97 were not authorized or ratified and were illegal.

13. The court erred in overruling plaintiff's demurrer.

14. The findings of fact found by the court do not support the verdict or judgment.

15. The final judgment and order of the court, dated February 9, 1955, is contrary to and against the manifest weight of the evidence.

16. Other errors apparent upon the face of the record.

Such of the facts as are necessary to an appreciation of the questions on this appeal we state now, generally, and we will be more specific as we discuss the various assignments of error.

A partnership, known as Columbus Trotting Association and formerly known as Marion Raceway, was organized on or prior to the year 1948. It conducted a race meet at Hilliards, Ohio, in 1948. Plaintiff, as an original investment in June 1948 and by subsequent investments, placed a total sum of $18,500 into this partnership. The total investment of all partners was $120,000. The interests in this partnership were originally allocated as shares, and when new money was needed an assessment was made against the partners. Some paid these assessments and some did not, with the result that the respective investments did not maintain the same proportion of interest in the partnership as originally contemplated. On June 15, 1949, one Haines, plaintiff, and one Carlo called on Brownfield to discuss the incorporation of what eventually was defendant company, and thereafter, in July of the same year, the three men hereinbefore mentioned and one Reid, who was also a partner, came to Brownfield's office, employed him to incorporate the company and paid him $200 as a retainer, with instructions to proceed with the incorporation. By reason of delay, the company was not incorporated until September 16, 1949. In the first proposed application for certificate of incorporation, the value of the assets was fixed at $75,000, and thereafter, in the application which was used, the amount of the assets was fixed at $92,500. An appraisal being requested by the Division of Securities, it was provided by itemization of the assets of the partnership, with plaintiff as the appraiser. Articles of incorporation were issued and the first shareholders' meeting was held on the 16th of September 1949, Haines acting as chairman of the meeting. The minutes of this meeting recite:

'The owners [of the partnership] have placed a valuation of $92,500 upon the assets, and it was proposed that the corporation accept them at this valuation. The chairman stated that the valuation had been approved by the Securities Division so that the corporation was authorized to issue stock for any part of the purchase price. He suggested that the stockholders consider the proposition, and if they approve the acquisition, to authorize action by the directors to acquire the property at the stated figure, issuing stock in exchange for the assets to such extent as the directors might desire.

'Whereupon, upon motion duly seconded and unanimously carried, it was

'Resolved: That the corporation take such action as may be necessary to acquire the leasehold and other assets of the Columbus Trotting Association, a partnership, at a price of $92,500, issuing in exchange therefor at $100 per share such portion of the purchase price as sellers will accept in the form of stock of the company.'

At this meeting, provision was made for five directors of the company, and the titles and duties of the officers were fixed.

Among other...