Buchwald Delivery & Express Co. of Baltimore City v. Hurst

• Decision Date: 01 December 1909
• Citation: 75 A. 111,111 Md. 672
• Court: Maryland Court of Appeals
• Parties: BUCHWALD DELIVERY & EXPRESS CO. OF BALTIMORE CITY v. HURST.

75 A. 111

111 Md. 672

BUCHWALD DELIVERY & EXPRESS CO. OF BALTIMORE CITY

v. HURST.

Court of Appeals of Maryland.

Dec. 1, 1909.

Appeal from Circuit Court No. 2 of Baltimore City; Geo. M. Sharp, Judge.

Action by the Buchwald Delivery & Express Company of Baltimore City against John J. Hurst From a decree for defendant, plaintiff appeals. Affirmed.

Argued before BOYD, C. J., and BRISCOE, PEARCE, SCHMUCKER, BURKE, and THOMAS, JJ.

James McEvoy, Jr., and Wm. H. Hudgins, for appellant.

Addison E. Mullikin, for appellee.

BOYD, C. J. This is an appeal from a decree dismissing a petition filed by the appellant against the appellee and dissolving an injunction which had been granted as prayed for in the petition. A chattel mortgage had been given to the appellee which was executed in the name of the Buchwald Transfer Company by William J. Keyes, its president, for the sum of $1,580. The appellee was proceeding to foreclose the mortgage when the abovementioned petition was filed, alleging that it was given by the president without authority, and for his own benefit and not that of the company. The mortgage is not in the record; but we understand it to be conceded that it purports on its face to have been regularly executed by the company, signed by its president, attested by its secretary, and having the seal of the company affixed. That company became involved, and some of the creditors organized the appellant—the Buchwald Delivery & Express Company of Baltimore City. The other general creditors were settled with, and the new company purchased all of the property of the old one. In the petition it is alleged: "That your petitioner, in purchasing the property, while being advised of the alleged chattel mortgage held by the said John J. Hurst upon the property of the Buchwald Transfer Company, was advised that said chattel mortgage had been made, executed, and delivered to the said John J. Hurst by William J. Keyes, the president of said defendant, in order to secure moneys to enable the said Keyes to pay personal obligations and debts of his, and that no moneys in consideration of said chattel mortgage ever passed to the Buchwald Transfer Company or to William J. Keyes, as president thereof." It is also alleged that the check which the appellee gave Keyes was payable to him individually, and not to him as president, and that the appellee "knew or should have known that said $1,580 were not to be payable to the Buchwald Transfer Company." The check itself was, however, produced and is payable "to the order of Wm. J. Keyes, president." By the admission in the petition, it is therefore shown that the new company purchased the property with knowledge that there was on record what appeared on its face to be a valid chattel mortgage, regularly executed by the company. It is true that the stockholders of the appellant were creditors of the old company, but the relief sought is in the name of the appellant, and not the stockholders as creditors of the old company, and hence the fact that it purchased the property with full knowledge of the existence of the mortgage is a material one.

The defendant answered the petition under oath, and denied the material allegations in it with reference to his knowledge that the money was to be used by Keyes personally, etc. The answer alleges that the company was organized by Keyes as a business expediency; that he owned about 90 per cent. of the stock; that it was dominated and controlled by him; that he continued after the organization of the company to exercise all the powers and control over its business affairs that had been exercised by him prior to the incorporation, when he was sole proprietor of the business; that Keyes bought all the horses, wagons, and other property useful to the corporation and sold the same or so much thereof as was by him deemed advisable, when and as he thought proper; that he borrowed money for the corporation and pledged its credit therefor whenever he considered the same to be to the best interest thereof, signed all checks and notes; that the sign in front of the building occupied by the company reads "Buchwald Transfer Company, William J. Keyes, Proprietor," and the company is so listed in the city directory and in the telephone directories; that the directors were at all times well aware of said dealings by William J. Keyes, as president and acquiesced in the same; and that the directors and stockholders are identical.

A general replication was filed and evidence taken. It is shown that the directors never authorized the mortgage—indeed there was not a meeting of the directors from the day of the organization of the company until May 9, 1908, when they passed a resolution that the action of the president "in placing a chattel mortgage of $1,580 on the equipment of this company be disapproved." The mortgage was dated April 21, 1908. The transfer business was originally conducted by William J. Keyes. The company was organized with an authorized capital of $17,000, and Mr. Keyes transferred his business and the equipment owned by him for $16,900, for which he took stock of the company. He was entitled to 109 shares of stock, of which he sold five to Mr. Bennett, ten to William F. Keyes, and gave two to Mr. Rafferty.

Mi. Keyes testified that there was no cash capital invested at the time of the organization of the company, and in answer to the question, "State what difference, if any, there was between the manner in which you managed the company before and after its incorporation," replied: "There was very little difference. I was in entire control and did control and manage everything, such as buying and selling horses, ordering new wagons if necessary, ordering repairs, purchasing the horses, etc. There was virtually no difference in the management of the business. I had entire control the same afterward as I had before. I borrowed money when it was necessary, transacted the business of the concern, and was looked to to furnish all funds for the concern." Mr. Rafferty said there was no actual cash transferred to the company when it was incorporated, and he was asked this question, "Then after its incorporation in March, 1907, the company never received any cash from any one except Mr. Wm. J. Keyes and parties from whom the company borrowed money through him?" to which he answered, "That is right." He also said that William F. Keyes, Mr. Bennett, and himself, who were directors, knew that William J. Keyes was overdrawing his account, and also his method of dealing. There can be no question therefore that William J. Keyes exercised entire control over the affairs of the company, with the knowledge of the other members of the board, who, together with him, constituted the stockholders. It is true that he had hypothecated a good portion of his stock, but there is nothing to show that the parties with whom it was so hypothecated ever had anything to do with the management or the affairs of the company. It is also proper to mention the fact that Mr. Rafferty said that when he signed his name to the mortgage as secretary he did not know what it was, but be had signed at least one other mortgage, which had been previously given in the same way to Mr. Marchant.

Now, with these facts established, the important question is whether the mortgage given to the appellee must be declared invalid merely because the directors had not formally authorized its execution, for that is what the testimony reduces the inquiry to. Under the circumstances, it cannot be said that the Buchwald Transfer Company could have successfully attacked the validity of the mortgage without showing more than this record discloses. It is true that a president of a corporation does not ordinarily have authority to mortgage its property, unless authorized by the board of directors; but that authority may be implied under some circumstances. This was a business corporation which, according to the evidence, was absolutely controlled by the president, who...