Central Law Journal

St. Louis, June 5, 1926

CARE REQUIRED BY OWNER OF PASSENGER ELEVATOR

In the case of Orcutt v. Century Building Company, 201 Mo. 424, 99 S. W. 1062, it is held that the relation of passenger and carrier exists between persons riding in a passenger elevator and the owner thereof. The rule is stated in this case that, a person or corporation, running an elevator to transport persons or property from one floor of the building to another, is just as much a carrier as a person or corporation running a railroad or stagecoach, and that the law governing railroads and other carriers applies with equal force to the operator of an elevator. Quoting from the case of Springer v. Ford, 189 Ill. 430, the court, in the case first mentioned, declared that the operators of elevators for the purpose of carrying persons from one story to another, are required to exercise the highest degree of care and diligence in and about the operation of such elevators to prevent injury to passengers being carried thereon, and that the rules governing the liability of persons owning and operating passenger elevators in buildings, apply to persons operating freight elevators, when a person is rightfully upon such elevator as a passenger, and that while, from the necessary construction of the freight elevator, there cannot, in the nature of things, be the same immunity from peril upon a freight elevator as upon a passenger elevator, still the same degree of care must be exercised in the operation of each class of elevators to protect persons from injury, who are thereon as passengers.

In the case first cited, it is also held that, the relation of passenger and carrier having been established, it is not incumbent upon plaintiff to show the cause of

the accident, where general negligence is pleaded. It is sufficient to show the accident and the attendant circumstances and conditions; that done, negligence on defendant's part will be presumed, and the burden then shifts to defendant to show that there was no negligence in the construction or operation of the elevator.

The Supreme Court of Pennsylvania, in deciding the case of McKnight v. S. S. Kresge Co., 132 Atl. 575, held that the owner of an elevator is not an absolute insurer of the safety of persons carried on it, and that the burden of proving negligence is on the passenger, but that the passenger is aided by a presumption of negligence, similar to that arising in the case of common carriers. It also held that the happening of an accident, which in the ordinary course of affairs would not have happened, had proper and reasonable care been used, affords reasonable evidence of negligence and that the accident happened as the result of want of due care.

In the case of Griffen v. Manice, 166 N. Y. 188, the court held that an instruction that the defendant was required to use the utmost care and diligence in the maintenance and operation of a passenger elevator in an office building, and is responsible for the slightest negligence against which human prudence and foresight might have guarded, is reversible error, since, as to the machinery and appliances by which the elevator was moved and controlled, and in its maintenance and operation, the owner is required to use only reasonable care. In this respect the

court said:

"If the fair purport of the charge of the court was only that the care should be commensurate with the danger, it might not be objectionable. The charge, however, goes far beyond this. The utmost human care and foresight would require the owner of a building to use the most modern and improved form of elevator, the latest successful mechanical device and the most skillful operators. Such is the

"'When parties negotiate at a distance, by letters and telegrams-first an offer, then a declination, then a revision of the offer, then a halt upon an important term, afterwards an offer of its concession in return for the concession of some prior term now to be changed, and finally an acceptance of this concession, and thus an end of the negotiations-where are the terms of this contract to be found? Obviously, in this congeries of letters and telegrams, as mutually modifying and complementing each other. The whole of the contract is not in any one document. Nor, on the other hand, does the whole of any one document (probably) represent a part of the contract, because some of its terms have been impaired and replaced by other documents in the series. Nor can it be said that there is a series of legal acts, each one independent, successively modifying the preceding ones; for each letter and telegram is merely tentative and preparatory, and there exists no legal act til the final assent is given. That assent, when it comes, adopts and vivifies the entire mass, which until then was legally inchoate only. The process is not unlike the fall of cards in the play of a trick at whist; the total effect cannot be determined till the last card has fallen, and no one card exhibits in itself the effect of the trick; yet, when all are played the second card may prove to be the decisive factor, and may remain unimpaired by any later play.

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"On the other hand, if, instead of leaving the net effect of the negotiations to be gleaned from the mass of writings, a single document is finally drawn up to replace them and to embody their net effect, and is signed or otherwise adopted by the parties, this document will now alone represent the terms of the act. Instead of leaving the wheat mingled with the chaff, the wheat has been definitely selected and set apart in a single mass. The wheat existed there no less before than now, but it has now been placed in a single receptacle by itself.'

"Where a contract is negotiated between parties at a distance by exchange of telegrams and letters, and where offers and counter offers are made and finally an offer is accepted, but no formal written contract is thereafter entered into, it is frequently true that the final offer and acceptance are wholly inadequate to express the true intent and meaning of the parties. This is because telegrams are reduced to a few words and the final offer and acceptance are written and read by the contracting parties in the light of the prior commun cations. This is true in the instant case. Under such circumstances resort must be had to

the prior correspondence in arriving at the true intent and meaning of the contract. We do not hold in such cases that the contract is found in the final offer and acceptance, but, were this true, resort may always be had to prior communications of the parties in construing a contract which is doubtful and uncertain on its face. The court, construing such a contract, has the right to place itself as nearly as possible in the situation of the contracting parties at the time they entered into the contract."

DISTRIBUTION OF STOCK OF ANOTHER CORPORATION AS A DIVIDEND.-In Liebman v. Auto Strop Co., 241 N. Y. 427, it appeared that the directors of defendant corporation voted to distribute as a dividend to its stockholders all of the stock of another corporation held by it as surplus. This resolution was opposed by plaintiffs on the ground that it was passed in bad faith and that to permit the same to be carried out would be inequitable and detrimental not only to the rights of the plaintiffs but to the corporation. The Court of Appeals, in passing upon the facts as found by the lower courts, stated that as the evidence showed no bad faith or unconscionable conduct on the part of the directors or that their action in passing the resolution would be detrimental either to the stockholders of the corporation, its execution could not be prevented by a court of equity. It reiterated the rule that the test in cases of this nature is that it is within the discretion of the directors to determine when and to what extent a dividend shall be made and that courts will not interfere with such discretion unless it be first made to appear that the directors have acted, or are to act, in bad faith and for a dishonest purpose.

Relative to this question, the Court said: "After a careful consideration of this record, I have no doubt as to the power of the majority of the directors of the Auto Strop Company to declare by way of dividend, the stock of the razor company. This stock was simply a surplus. It was so regarded in 1906 when the 1,000 shares were distributed, and it has remained so since. It is profit derived from the granting of the license under its patents. If the same were in money instead of stock, can there be the slightest doubt that the same might be distributed among its stockholders? It is a fundamental rule relating to the management of corporations that it is within the discretion of the directors to determine when and to what extent a dividend shall be made, subject of course to the qualification that the

same shall not encroach on the capital. Courts will not interfere with such discretion unless it be first made to appear that the directors have acted or are about to act in bad faith and for a dishonest purpose. It is for the directors to say, acting in good faith of course, when and to what extent dividends shall be declared. Dividends, when declared, must be out of surplus or undivided profits. If stock of another corporation be held which constitutes a part of the surplus or undivided profits, it is legally distributable among the stockholders as a div idend precisely the same as if it were cash (Matter of Rogers, 48 N. Y. S., 175, 22 App. Div., 428, affirmed 55 N. E., 393, 161 N. Y., 108; People ex rel. Queens County Water Co. v. Travis, 157 N. Y. S., 943, 171 App. Div., 521; Id., 114 N. E., 1079, 219 N. Y., 571). The statute confers upon the directors this power, and the minority stockholders are not in a position to question this right, so long as the directors are acting in good faith. That is the test and the fixed standard (Kavanaugh v. Kavanaugh Knitting Co., 123 N. E., 148, 226 N. Y., 185). This fact is well known to minority stockholders when they acquire stock in a corporation. The action of the majority directors must not amount to a fraudulent destruction or impairment of the rights of minority direc tors or non-assenting stockholders Godley v. Crandell & Godley Co., 105 N. E., 818, L. R. A., 1915D, 632, 212 N. Y., 121). The declaration of a dividend must be for the benefit of all. If it is done solely for the purpose of benefiting the majority to the detriment of the minority, then a court of equity will never hesitate to exercise its equitable powers to prevent the perpetration of the wrong by which the majority are seeking to impose upon the minority. But before a court of equity will interfere with the action of a majority of the directors facts must be presented from which the court can find that such action has underlying it a fraudulent purpose and corrupt intent. Obviously, if such action is for the benefit of the corporation, which includes all the stockholders, bad faith or a fraudulent and corrupt intent cannot arise or be inferred."

Small Boy: "Father, how do they catch lunatics?"

Father: "With face powder, beautiful gowns, pretty smiles, and soft words, my son."

Traffic Cop: "What's the idea balling up traffic? Why don't you use your noodle?"

Sweet Miss: "Didn't know the car had one." -Red Cat.

EFFECT OF RELEASE OF PRINCI-
PAL IN BANKRUPTCY AS TO
LIABILITY TO SURETY
ON PROMISSORY
NOTE

The question as to whether a surety or accommodation endorser upon a promissory note, having paid the note after the discharge of the principal in bankruptcy, can proceed against the principal for reimbursement, the note having been listed among the obligations of the bankrupt in the bankruptcy proceedings, is a very interesting one.

At first blush, it would seem, since the obligation as between the bankrupt and the surety did not really accrue until the payment of the note by the surety, which payment was made after the principal was discharged in bankruptcy, that it was not, therefore, covered by the discharge, and that the surety, upon payment, should have a right to proceed against the principal for reimbursement, notwithstanding the bankruptcy proceedings, in the same manner and to the same extent as any other person could proceed against him upon an obligation arising after the discharge in bankruptcy.

In support of this view it might be contended, on behalf of the surety, that inasmuch as no debt existed between him and the principal during the bankruptcy proceedings, and inasmuch as he did not know, at that time, that he would ever be called upon to pay the note, that he would not be in a position during the bankruptcy to present a claim to the bankruptcy court, and that if the discharge of the principal by the bankruptcy court discharged the principal from having to respond to the surety for a payment which the surety might make subsequent to the bankruptcy, the surety would then be without any remedy, having been foreclosed from presenting any claim to the bankruptcy court because he had, in fact, none to present and being unable to pro

procedure were permitted, he would be discharged from none of these obligations through the bankruptcy court.

The purpose of the bankruptcy act was, of course, to put a debtor who has become hopelessly involved in a position where, by turning over all his assets for the benefit of creditors, he could start again and not be hampered by attachment suits, etc., which, but for the act, would keep him in a position where he could not only not pay his creditors, but could not even continue in any business, or, putting it in the language of the Supreme Court of the United States:

"It is the purpose of bankruptcy act to convert the assets of the bankrupt into cash for distribution among creditors, and then to relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh, free from the obligations and responsibilities coincident upon business misfortunes.”

A discussion of the abuses made of the bankruptcy act by dishonest debtors is not pertinent to the discussion involved here, though it would be interesting, and suggests the possibility that some amendments may be required to the bankruptcy act to prevent it becoming an instrument in aid of dishonest debtors desiring to defraud their creditors.

The purpose of the bankruptcy act being as stated above, would there be any real advantage to the bankrupt debtor in a discharge from liability as a principal upon a note, if the surety, not having been discharged from his obligation as surety by reason of the discharge of the principal and being afterwards required to pay the note, could proceed against the debtor for reimbursement? If such action could be taken by the surety, a discharge in bankruptcy might be of very little value to the debtor for it might well be that the greater portion of his obligations were notes upon which there were sureties or

After all, is there any greater hardship inflicted upon the surety than upon any other creditor by reason of his being required to pay the obligation for which he has become surety, notwithstanding the discharge of the principal in bankruptcy and without right to proceed against the principal for reimbursement? And is not the surety or accommodation endorser

bound to know at the time of his endorsement the extent of his liability, and that if the principal does become a bankrupt he will be expected to pay the obligation for which he has become surety? He does, in effect, contract to pay under these very circumstances, although he may not have them particularly in mind at the time he becomes a surety or an accommodation endorser.

Nor can the surety claim that he is without remedy for the stated reason that no debt actually exists between himself and the principal until the surety has been called upon to pay the obligation for which he became surety. The surety's obligation to pay exists from the time that he becomes surety upon the note, and the contract under which he may become liable, is in existence at the time of the bankruptcy proceedings, and while he may not be required to actually pay upon the note until after that time, he is bound to know while the bankruptcy proceedings are in process, that he does have a contingent liability upon the note and it becomes his duty to protect his rights in the bankruptcy court. He can, upon becoming advised of the bankruptcy proceedings, pay the note and present his claim to the referee in bankruptcy as any other debtor for his distributive share of the bankrupt assets; furthermore, he can also insist upon the holder of the note presenting a claim for a distributive part of the bankrupt assets even if he has not paid the note, in which case, of course,