Continental Trust Co. v. Baltimore Refrigerating & Heating Co.

• Decision Date: 11 April 1913
• Citation: 87 A. 947,120 Md. 450
• Parties: CONTINENTAL TRUST CO. et al. v. BALTIMORE REFRIGERATING & HEATING CO. et al.
• Court: Maryland Court of Appeals

87 A. 947

120 Md. 450

CONTINENTAL TRUST CO. et al. v. BALTIMORE REFRIGERATING & HEATING CO. et al.

Court of Appeals of Maryland

April 11, 1913

Appeal from Circuit Court No. 2 of Baltimore City; Henry D. Harlan Judge.

Petition of the Continental Trust Company, in the suit of J. William Middendorf and others, against the Baltimore Refrigerating & Heating Company and others. From two orders, said petitioner and another appeal. One order affirmed; appeal from the other dismissed.

Argued before BOYD. C.J., and BRISCOE, BURKE, THOMAS, PATTISON URNER, and CONSTABLE, JJ.

Edward Duffy and J. Southgate Lemmon, both of Baltimore, for appellant Continental Trust Co. Clarence K. Bowie, of Baltimore, for appellant Terminal Freezing & Heating Co. W H. De C. Wright and George Whitelock, both of Baltimore, for appellees.

THOMAS J.

The question presented by this appeal is a narrow one, and in order to get a clear apprehension of it, it will be necessary to refer to the circumstances under which it arises. In 1902 the Baltimore Refrigerating & Heating Company of Baltimore city executed to the Continental Trust Company, as trustee, a mortgage to secure an issue of 2,000 bonds of the par value of $1,000 each. The Refrigerating Company became insolvent, and in 1908 receivers were appointed and authorized to continue the business of the company until the further order of the court. After the appointment of receivers, two committees of the bondholders of the Refrigerating Company were formed, one called the Homer-Betts Committee, which represented a large majority of the bondholders, and the other called the Middendorf-Heyward Committee, representing a minority of the bonds. In December, 1909, some of the bondholders filed a bill against the Refrigerating Company and the Continental Trust Company, alleging, among other things, that the Trust Company had wrongfully certified and issued a number of bonds of the Refrigerating Company, and asking that the Trust Company be removed as trustee for the bondholders. The Trust Company answered, denying the averments of the bill, but the controversy resulted in the Trust Company being restrained until the final hearing from proceeding to foreclose the mortgage under the power contained therein. While that order was in force the Middendorf-Heyward Committee and Robert Spedden, a bondholder, on the 3d of November, 1910, filed a bill against the Refrigerating Company, the Trust Company, and the Homer-Betts Committee for a sale of the property of the Refrigerating Company. A few days later, on the 12th of November, the same plaintiffs filed a petition for a sale of the property, before final decree, and after a hearing the circuit court No. 2 of Baltimore city, on the 7th of December, 1910, passed an order or decree directing the sale of the property, and appointing the Continental Trust Company trustee to make the sale. On February 3, 1911, the Trust Company, trustee, reported a sale of the property to the Central Securities Company for $503,000, which sale was finally ratified and confirmed by the court. The Central Securities Company, as purchaser, paid the trustee $25,000 on account of the purchase money, but failed to pay the balance, and on March 27, 1911, the court ordered a resale of the property at the cost and risk of the purchaser. On appeal that order was affirmed by this court on December 6, 1911. 117 Md. 17, 82 A. 1047. The property was accordingly resold by the trustee to Francis T. Homer and others, constituting a committee of the bondholders of the Refrigerating Company, for $261,000. That sale was finally ratified July 20, 1911, and the order confirming it was affirmed by this court in February, 1912. 117 Md. 443, 84 A. 150. On the 19th of March, 1912, the Continental Trust Company, trustee, filed a petition in the court below, in which, after reciting that the property had been sold to the Central Securities Company for $503,000, that said company had paid $25,000, but failed to make any further payment, and that the property had been resold at its cost and risk for $261,000, it alleged that the Central Securities Company was a corporation, organized under the laws of the state of Maryland, and that it acted in purchasing the property of the Refrigerating Company merely as the agent of other persons, among whom were "holders or representatives of the bonds of the Baltimore Refrigerating & Heating Company; that no part of the difference" between the said sum of $503,000 and the sum of $261,000 had been paid to the petitioner, except the sum of $25,000; that the persons for whom the Central Securities Company acted were liable for said difference; that "a deficiency decree should be made against them"; and "that none of the bondholders represented by said Central Securities Company should be permitted to receive any part of the funds held by this trustee, as a dividend on any bond held by them." The petition further alleged: "That while your petitioner has no reason to believe that any of the bonds of the Baltimore Refrigerating & Heating Company were improperly certified, issued, or negotiated, nevertheless the plaintiffs in this case, on or about July 21, 1911, filed a petition in these proceedings, in which petition they allege that certain of the 600 bonds, numbered 701 to 1,300, both inclusive, of the Baltimore Refrigerating & Heating Company were improperly issued, and that no portion of the proceeds of sale of the property mentioned in these proceedings should be distributed to the holders of bonds, numbered as aforesaid until this court shall, by proper proceedings, have determined which, if any, of such bonds have been improperly certified, issued, and negotiated. That before a distribution account can be passed in this case it is therefore necessary to determine: (1) For whom and for which of the holders of the bonds of the Baltimore Refrigerating & Heating Company the aforesaid Central Securities Company was acting as agent; (2) which of the bonds of the Baltimore Refrigerating & Heating Company numbered, respectively, 701 to 1,300, both inclusive, were improperly certified, issued and negotiated. Wherefore your petitioner prays that these proceedings may be set down for a hearing on the above questions, and that testimony may be taken orally in open court." No one was named as defendant in the petition, but the court passed an order setting it down for a hearing on the 4th day of April, 1912, provided a copy of the petition and order be served on the two committees of the bondholders, the executors of Robert M. Spedden, the Central Securities Company, William R. Pohler, Julia M. Brauer, and William H. Brauer, or their respective counsel, on or before March 25th. Julia M. and William H. Brauer answered the petition, alleging that they became possessed of the bonds held by them as the distributees of the estate of their father; that as holders of said bonds they had filed their claims in the case for the purpose of sharing in the distribution to be made under the direction of the court; that they were in no way represented by the Central Securities Company; that they "concurred in the objects sought by the petition," and submitted their rights to the determination of the court. The Middendorf-Heyward Committee, the executors of Robert M. Spedden and the Central Securities Company, filed separate demurrers to the petition. Nothing further was done under said petition until the 15th of October, 1912, when the Middendorf-Heyward Committee filed an "additional demurrer." In the meantime, however, the Continental Trust Company, trustee, filed its report to the court, showing that the terms of the sale to Francis T. Homer and others had been complied with; that all exceptions to the sale and all appeals that could be taken had been finally disposed of, and alleging that there was no reason why a distribution among the creditors of the Refrigerating Company should be further postponed. Upon this report the court passed an order referring the case to the auditor to state an expense account and an account making final distribution of the funds in the hands of the trustee, and account "B" of the auditor, distributing the balance of the fund, after deducting costs, fees, etc., among the bondholders, was finally ratified August 19, 1912.

The fourth and fifth grounds of the "additional demurrer" filed by the Middendorf-Heyward Committee are as follows:...