Opinion
No. 27071
Decided July 12, 1939.
Corporations — Contract between development company and nonprofit cemetery association, invalid — Sections 10098 and 10101, General Code — Resort to corporate fiction to accomplish objective prohibited by law.
APPEAL from the Court of Appeals of Lorain county.
The plaintiff is the owner of a burial lot in Ridge Hill Memorial Park, Lorain county, Ohio. She instituted this action in the Court of Common Pleas on behalf of herself and all other owners of lots in this cemetery.
Among the defendants are two corporations called the Ridge Hill Development Company, Inc., and the Ridge Hill Memorial Park. Also joined as parties defendant are the officers, managers, directors and trustees of these corporations.
The Ridge Hill Development Company, Inc., a corporation for profit, was organized in September, 1928, and the Ridge Hill Memorial Park, a corporation not for profit, was organized about two months later. Their purpose clauses are similar in many respects. That of the first named corporation reads as follows:
"The purpose or purposes for which it is formed are: For the purpose of leasing, buying, holding, owning and selling real estate and the doing of any and all manner of work necessary for the preparation and development of said real estate for memorial park purposes and also the construction and erection of buildings, mausoleums, burial vaults, tombs and monuments thereon; the acquiring by purchase, lease or otherwise, of any and all real and personal property necessary or incident to the conduct of the said business, and the selling and developing of said memorial parks, and the selling, leasing or otherwise disposing of any or all of said real or personal property and developments and the doing of all things necessary or incident thereto."
The Ridge Hill Memorial Park was organized "for the purpose of leasing, buying, holding, owning and operating cemeteries and burial grounds; and the doing of any and all manner of work necessary in making and preparing said burial grounds; also the construction and erecting of buildings, mausoleums, tombs and monuments thereon; the acquiring by purchase, lease or otherwise, of any and all real and personal property necessary or incident to the conduct of the business of said cemetery and burial grounds, and the selling, leasing, or otherwise disposing of any or all Of said real or personal property, and the doing of all other things necessary or incident thereto."
Immediately the two corporations entered into the following contract:
"Contract.This agreement made and entered into this 20th day of November, 1928, by and between Ridge Hill Development Company, Inc., a corporation, of Lorain, Ohio, party of the first part, and Ridge Hill Memorial Park, a corporation, of Lorain, Ohio, party of the second part, witnesseth:
"That, whereas, party of the first part is in the business of developing memorial parks for sale of [to] cemetery associations, and
"Whereas, party of the second part is a cemetery association, and is desirous of purchasing from party of the first part burial lots in the property of party of the first part known as Ridge Hill Development Company, Inc., as the same is developed.
"Now, therefore, in consideration of the mutual promises herein contained, it is hereby agreed as follows:
"Party of the first part agrees that it will at its own expense develop and improve, will sell to party of the second part, such lots as may be desired by party of the second part for a consideration of 90 per cent of the sales price received by party of the second part from the sale of said lots; said sum to be paid in full in cash upon the dates when conveyances of lots from party of the first part to party of the second part, are made, or as demanded by party of the first part.
"It is understood by and between the parties hereto that this contract shall be binding upon the parties hereto so long and until such time as all of the lots in Ridge Hill Memorial Park cemetery have been disposed of by party of the second part.
"It is further understood and agreed by and between the parties hereto that the final 10 per cent collected on said lots shall be paid to a trust company designated by parties hereto, the earnings of which shall be used for the perpetual upkeep and maintenance of Ridge Hill Memorial Park.
"In witness whereof, the parties hereto have hereunto set their hands to duplicates hereof the day and year first above written.
"Ridge Hill Development Company, Inc. "By: Charles F. Yeager, President "By: P.H. Stevens, Secretary "Ridge Hill Memorial Park "By: C.F. Heitman, President "By: W.L. Brandt, Secretary.
"In the presence of:
"Ruth Firey "M.J. Firey, Jr."
In her amended petition the plaintiff complains in substance that two of the defendants, C.F. Yeager and F.J. Bussey conceived and devised the plan incorporated in the foregoing contract; that they dominate and control both corporations; that on November 24, 1928, the Ridge Hill Development Company, Inc., purchased ninety-eight acres of land for cemetery purposes; that the value of said land did not exceed $20,000; that soon thereafter this corporation mortgaged this land to E.C. Straw, Lizzie Straw and William A. Miller, as guardian, for $46,000; that the total selling value of all the lots in the cemetery is approximately $5,000,000; that two thousand or more lots have been sold for about $500,000, out of which the Ridge Hill Memerial Park has created a trust fund in the sum of $44,000 for the perpetual maintenance of the cemetery; that all of this sum is invested in the preferred stock of the Ridge Hill Development Company, Inc.; that no plat of said land has been filed with the recorder of Lorain county as required by law; that this land has been exempted from taxation on the application of the Ridge Hill Memorial Park upon the ground that the land is held by it exclusively for burial purposes and not for profit; that the fact of the existence of the contract was concealed; that Yeager and Bussey conduct the affairs of the two corporations secretly and to the irreparable loss of the plaintiff and all other owners of lots.
In the prayer of her amended petition the plaintiff asks an accounting, cancellation of mortgages, quieting of title and the appointment of a receiver.
The trial court rendered a decree for the defendants.
Upon an appeal on questions of law and law and fact the Court of Appeals entered a decree in favor of the plaintiff by holding the foregoing contract invalid. In order to permit an appeal and review on this important issue, the court reserved its decision on the remaining questions. Upon the request of the defendants the court also stated in writing its conclusions of fact separately from its conclusions of law, but these are of too great length to be quoted in full.
The case is in this court for review by reason of the allowance of a motion to certify.
Mr. O.D. Eshelman, Mr. Jesse Stephens, Mr. E.H. Davidson and Mr. Percy R. Taylor, for appellee.
Messrs. Glitsch, Stack Moon, and Mr. Wesley Grills, for appellants.
The single question of law requiring the consideration of this court at this time is whether the Court of Appeals was in error in holding this contract between the two corporations invalid.
Of course the contract speaks for itself, but it is proper and important to note as briefly as possible a few of the many attendant and involved facts shown by the record. The following paragraphs from the factual conclusions of the Court of Appeals are illustrative:
"8. The entire acreage acquired by the development company, including that quitclaimed to the cemetery association constituted one parcel of land and was acquired solely for the purposes of sale to the nonprofit cemetery association and was all planned and developed as a unit, there being nothing in its outward appearance to indicate that any part thereof was not owned, controlled and operated by the non-profit cemetery corporation. The main entrance thereto is on land held in the name of the development company.
"9. Burial spaces of the total sales value of $528,494 in the land quitclaimed to the non-profit cemetery corporation have been sold and there have been some burials on that portion of the land still in the name of the development company.
"10. It was planned and contemplated that the sale of burial lots would yield $7,500,000 of which sum $750,000 would develop the cemetery, $750,000 would be placed in the cemetery perpetual care fund and $375,000 be used to bring the cemetery to a self-sustaining condition. The balance of the money received from the sale of burial lots was to belong to the development company, of which it would be necessary to expend approximately $1,825,000 in advertising and selling the burial lots. If the cemetery development proceeded as planned, it would result in a net profit of approximately $3,800,000. * * *
"13. The two corporations occupied and now occupy the same offices, Mr. Yeager being president of each of them and the same person acting and serving as secretary of both of them. Yeager has been president and manager of the development company from its inception. That company employs agents to sell burial lots. The purchaser of a lot, if cash therefor is not paid, signs a contract with the cemetery association, which contract is retained by the development company, the deed for the lot when paid for being executed by the non-profit cemetery association. If the purchase price is paid in installments, the money passes through the books of the cemetery association to the development company to apply on its 90% contract interest therein and when paid in full the last 10% paid is credited to the non-profit cemetery association. The same bookkeeper keeps the books of both corporations and Mr. Yeager signs all checks drawn by either corporation. Money received from the sale of burial lots is paid to the cemetery association and immediately turned back by check to the development company.
"14. Upon suggestion of Mr. Yeager, the board of trustees of the cemetery association at its first meeting provided by resolution for the investment in preferred stock of its contract 10% share of the money received from the sale of burial lots, in preferred stock of the development company, in consideration of which the latter company was to assume the maintenance and upkeep of the cemetery until its accumulated 10% was sufficient for that purpose. Under this arrangement the cemetery association at no time received or had in its possession any money from the sale of burial lots, preferred stock of the development company being given to it in lieu thereof. As collateral security for the preferred stock held by the cemetery association in lieu of its 10% of sales of burial lots, it holds $100,000 of the property of the development company, measured by its burial lot sales price. * * *
"17. The salary and commission account of Mr. Yeager for the fiscal years ending August 31, 1929 to August, 1936, show:
"Salary credits, 1929-30-31-32; 4 years at $15,000 per year ................................... $60,000 "Salary credits, 1933-34-35-36; 4 years at $10,000 per year ................................... $40,000 "Commission credits, 8 years, 1929 to 1936 inclusive .......................................... $42,669 ---------
"Total salary and commission credits for 8 years ............................................. $142,669
"18. The cemetery association has nothing to do with the landscaping of the cemetery. That is directed by Mr. and Mrs. Yeager. Nor has the cemetery association any control over the development of the land for burial purposes. The development company makes a charge for opening and closing graves and keeps the money. It also sells vases, bronze plates and shrubbery. The laying out and platting of the land for cemetery purposes into burial lots, the engineering work, the laying out of the driveways and avenues therein, all improvements, developments, embellishments and adornment thereof have been done under the sole direction, control and supervision of Mr. Yeager as president and manager of the development company and has been paid for from the funds received from the sale of burial lots. The whole plan and development was conceived, dominated and controlled by Mr. Yeager, the primary purpose thereof being the profit to be made therefrom, the cemetery association at no time exercising or having any control thereover or any active part therein, it being merely the medium through which the development company operated and conducted its business of developing the land in question as a cemetery and the sale of burial lots therein."
A careful study of the record discloses an ample basis for these conclusions. The Ridge Hill Memorial Park was organized under favor of Sections 10093 to 10119-1, General Code. Section 10098 of this chapter reads in part as follows:
"After paying for such land future receipts and incomes of such company or association, whether from sale of lots, donations, or otherwise, shall be exclusively applied to laying out, preserving, protecting and embellishing the cemetery, and avenues leading thereto, the erection of buildings necessary for the cemetery purposes, and to paying the necessary expenses of the cemetery company or association. No debts shall be incurred except for original purchasing, laying out, enclosing and embellishing the ground and avenues, for which debts may be contracted not exceeding ten thousand dollars in the whole, to be paid out of future receipts."
Then too, the following provisions appear in Section 10109 of the same chapter:
"The receipts and income of such a company or association, whether derived from the sale of lots, from donations, or otherwise, shall be applied to the payment for such lands, to the laying out, preservation, protection, and establishment of the cemetery, the avenues within it, to the erection of necessary buildings, and to the general purposes of such company or association. No debts shall be contracted in anticipation of future receipts, except for the original purchase of the land, and laying out, inclosing, and embellishing the grounds, and avenues therein. No part of the proceeds of land sold, or of the funds of such a company or association, shall ever be divided among its stockholders or lot-owners. All its funds must be used exclusively for the purposes of the company or association, as above herein specified, or invested in a fund the income of which shall be so used and appropriated."
In their brief the defendants express the suspicion that the decision of the Court of Appeals "was influenced by preconceived sentimental notions on the subject, rather than by rules of the law." In view of the inescapable provisions of the above-quoted statutes, it is wholly unnecessary for any court to yield to that understandable temptation in considering cases of this sort. After even the most dispassionate appraisal of the record in this case one is impressed with the utter obviousness of this attempt to resort to the device of a corporate fiction for the indirect accomplishment of an objective positively prohibited by law.
The decree of the Court of Appeals is manifestly correct and must be affirmed.
Decree affirmed.
WEYGANDT, C.J., DAY, ZIMMERMAN, WILLIAMS, MYERS, MATTHIAS and HART, JJ., concur.