Cumberland Coal & Iron Co. v. Parish

• Citation: 42 Md. 598
• Parties: THE CUMBERLAND COAL AND IRON COMPANY, and THE CONSOLIDATED COAL COMPANY v. ANN PARISH.
• Decision Date: 10 June 1875
• Court: Court of Appeals of Maryland

42 Md. 598

THE CUMBERLAND COAL AND IRON COMPANY, and THE CONSOLIDATED COAL COMPANY v. ANN PARISH.

Court of Appeals of Maryland

June 10, 1875

APPEAL from the Circuit Court for Allegany County, in Equity.

The bill in this case was filed by the appellee on the 13th of January, 1871, to procure payment of a mortgage alleged to have been made by the Cumberland Coal and Iron Company to Allen M. Sherman, of certain real estate in Cumberland, to which the Consolidation Coal Company had become entitled by transfer from the Cumberland Coal and Iron Company. This mortgage came into possession of the appellee by assignment from Sherman, dated 6th October, 1863, and recorded 15th of October, 1863, the consideration thereof being recited as $21,000. The title of the Consolidation Coal Company accrued before this assignment. The further facts in the case, so far as necessary, will be found in the opinion of this Court. The Court below (MOTTER, J.,) passed a decree for the sale of the mortgaged premises, from which decree the defendants took this appeal.

The cause was argued before BARTOL, C.J., STEWART, GRASON, MILLER and ALVEY, J.

John P. Poe and I. Nevett Steele, for the appellants.

As to the burden of proof, ordinarily in the case of a bill filed to enforce a mortgage, the production of the mortgage, and proof of its execution and delivery by the mortgagor, create a sufficient prima facie case for the mortgagee. He may rest upon the recitals in the mortgage, and, in the absence of fraud or mistake, need offer no additional evidence of his claim--nor fear the admissibility of parol evidence to vary or contradict it.

If the mortgagor denies that the mortgage debt ever existed, his denial will not be considered effectual unless accompanied by allegations of fraud, accident or mistake in the execution and delivery of the mortgage, and, even if thus accompanied the burden rests upon him to sustain by competent and sufficient proof these allegations. If he fails to meet this requirement, the mortgage will be upheld and enforced.

So, if he claims that the mortgage debt has been paid and satisfied he must prove it to the satisfaction of the Court, and if his defence be that the mortgage itself was released, discharged or superseded by another instrument, he must, in like manner affirmatively establish these defences.

Undoubtedly these are the general principles in ordinary mortgage cases but their application to this case is the fundamental error of the Court below. The learned Judge proceeded upon the idea that it was incumbent upon the appellants to sustain the defences set up in their answer "by proof, clear, certain and entirely satisfactory to the Court;" that the production of the mortgage and the assignment was all that was required of the appellee, and that the mortgage, when produced, established proprio vigore alone the whole case of the appellee, until that case was rebutted and clearly overthrown by the proof on behalf of the appellants.

This view of the Court, proper enough in an ordinary case, is wholly erroneous here. The mortgagee, Allen M. Sherman, at the date of the mortgage, was a prominent, active and influential director of the company. Moreover he was a controlling member of the executive committee of the company, by which all its affairs of every description were administered--its policy shaped and carried out--its debts contracted and paid--its assets managed, and its very existence attempted to be destroyed by a fraudulent combination, which has twice been condemned and annulled by this Court, upon the distinct grounds that his position as director and member of the executive committee disabled him from contracting for his own benefit with the company, whose affairs he controlled, and made all such contracts, if not absolutely void, at least prima facie fraudulent in law and in fact. 16 Md., 456; 20 Md., 117.

During the whole time of these transactions he occupied towards the company a fiduciary relation of the most marked and distinctive character, and is, therefore, to be held to that degree of legal accountability which springs out of such relation. In asserting any pecuniary claims upon his cestui que trust, or its property which he had in his hands or under his control, he must especially come prepared to sustain his claim by a measure and amount of proof not demanded from parties differently situated.

The law upon this subject is now well settled, and nowhere more clearly than in Maryland. Pairo vs. Vickery, 37 Md., 484, see also 16 Md., 506; 20 Md., 117, and the cases there cited.

Under these decisions the burden is upon Sherman to prove the validity and bona fides of the mortgage--the making of the alleged advances--the agreement to secure them by the mortgage, evidenced by some valid corporate act--the existence of this mortgage debt independently of and in addition to the debt to him, specified in the schedule annexed to the deed of trust--the authority to the president and secretary to execute this mortgage, and, in a word, all the circumstances and conditions necessary to give the instrument complete validity; and this, moreover, must be done by satisfactory evidence, aliunde, the mortgage itself.

The mortgage in such a case as this does not prove itself and make a prima facie case for the trustee-mortgagee, but he must sustain its fairness and validity by competent and independent testimony. To hold otherwise would necessarily render the principle which casts the burden of proof upon the mortgagee, practically of no value. In the opinion of the Court below this controlling principle is altogether ignored.

Does the appellee stand in a better position than her assignor Sherman?

The learned Judge below seems to lay some stress upon the supposed fact that she was a bona fide purchaser for value, and that as such she had higher rights than her brother-in-law, Sherman, the original mortgagee. At most, the assignment being given only on account of an alleged pre-existing indebtedness, would not make the appellee a bona fide holder for value without notice. Ratcliffe vs. Sangston, 18 Md., 390, 391. But if the appellee had in reality paid in cash the consideration of $21,000 as claimed, still her title would be precisely that of Sherman, neither more nor less.

If the alleged mortgage debt had really never existed, or if it had in fact been paid before the assignment, then the appellee, under her assignment, bought nothing but a fraudulent, or an extinguished chose in action.

The purchaser of a mortgage always buys subject to the equities between the original parties, no matter what consideration he gives, and his title depends upon the true state of facts between them. The mortgagee whose rights have been extinguished cannot transfer a better title than he has. The appellee's case therefore, is precisely that of Sherman's, whether she be or be not a bona fide purchaser for value. No principle is better established than this. Jones vs. Hardesty, 10 G. & J., 420; Coote on Mortgages, 315-320; Matthews vs. Wallwyn, 4 Vesey, 118; Chambers vs. Goldwin, 9 Vesey, 264; Schafer vs. Reilly, 50 New York, 61; Bush vs. Lathrop, 22 New York, 535; 1 Hilliard on Mortgages, 571-582.

S. A. Cox and William Walsh, for the appellees.

Sherman was one of the directors at the date of the mortgage. But this did not disable him from lending needed money to the corporation, or disable the president and directors (he not acting in the matter) from borrowing the money and securing it. It is an every day matter for a director of a Company to make such loans, and take such securities. Some of the directors are often the largest stockholders and most interested in the success of the enterprise. There is no law forbidding the friends of the corporation to aid it with loans, and compelling it in its distress to seek relief from its enemies or strangers; no law confiscating the money so loaned, and making the loan carry all the evidences of a crime. There is a very wide difference between the case of one of a numerous body of directors loaning money or securities to the Company, which it gets the benefit of, and the case where a sole trustee, with title and control of the property in himself, appropriates it all to pay himself the worthless debt of the insolvent husband, of his feme covert cestui que trust. Such a transaction as the latter shocks the bluntest sense of justice. The cestui que trust not sui juris--the whole property taken--no benefit to her. Such was 37 Md., 467.

Surely this case is not like that. Can one director of a Company loan money to the corporation and receive security for it?

The Company has power to borrow money, and badly needs the money, and one of the ten or dozen directors has the money, and is willing to lend it to help the corporation, if he gets a mortgage security.

The president and a majority of the directors constitute the contracting and managing power of the corporation. The president is the whole of one integral part of the corporation. A majority of the directors form the other integral part.

The president and majority of the directors are in fact the corporation. The trust is not absorbed in one director. It is no fraud upon the corporation to loan it money. If the trustee, in 37 Md., 467, had loaned needed money to his cestui que trust, a mortgage to secure it would have been good, and the property could not have been released without paying it. Where the benefit is conferred upon the cestui que trust, no law condemns it. Bell, et al. vs. Webb, 2 Gill, 170.

It is considered unnecessary to dwell upon the assignment of the mortgage to the appellee. Any equities growing out of the mortgage itself might be available against the assignee, but not set-off on other...