Davis v. Gemmell
| Citation | 21 A. 712,73 Md. 530 |
| Parties | DAVIS ET AL. v. GEMMELL ET AL. GEMMELL ET AL. v. POE ET AL. BRYDON ET AL. v. GEMMELL ET AL. NORTH BRANCH CO. v. GEMMELL ET AL. |
| Decision Date | 24 March 1891 |
| Court | Maryland Court of Appeals |
Appeals from circuit court of Baltimore city
W Pinkney Whyte and John P. Poe, for appellants.
W Irvine Cross and W. L. Marbury for appellees.
William A. Brydon recovered a judgment amounting to $75,000 against the Baltimore & Ohio Railroad Company for a breach of contract with respect to the purchase of coal from him by the railroad company. This judgment was entered to the use of Henry G. Davis and company. Upon appeal to this court by the railroad company, the rulings upon which the judgment was founded were sustained and the judgment itself was affirmed. 65 Md. 198, 611, 3 A. 306, and 9 A. 126. Immediately thereafter Thomas Gemmell and Malcolm Sinclair filed a bill in the circuit court of Baltimore city against Henry G. Davis & Co., William A. Brydon, the North Branch Company, and the Baltimore & Ohio Railroad Company. The bill alleged that the judgment, though recovered in the name of Brydon, in fact belonged to the North Branch Company, of which Brydon Gemmell, and Sinclair were stockholders Brydon owning a majority of the stock, and Gemmell and Sinclair the remainder, and that the assignment of the judgment to Davis & Co. was fraudulent. It prayed that a receiver of the North Branch Company might be appointed to take charge of all the property and assets of that corporation; that the assignment of the judgment to Davis & Co. might be canceled; and that the Baltimore & Ohio Railroad Company might be restrained from paying over the amount of the judgment to Brydon or Davis & Co. An injunction issued as prayed. The defendants answered the bill, Brydon claiming that the judgment did not belong to the North Branch Company and Davis & Co. claiming that it was their property under the assignment from Brydon. A motion was made to dissolve the injunction, and a large mass of testimony was taken. In the mean time the Baltimore & Ohio Railroad Company was required to and did bring into court the greater portion of the amount due on the judgment. The motion to dissolve was, after hearing, denied, and an appeal brought the case into this court, where the ruling was affirmed, and the cause was then remanded. Davis v. Gemmell, 70 Md. 356, 17 A. 259. When the case again reached the circuit court an amended bill was filed, praying the following relief in amplification of that prayed for in the original bill, viz., that a decree might be passed (1) adjudging and decreeing that the said North Branch Company be wound up, its property sold, and its assets collected and distributed among the parties entitled thereto; (2) that an account be taken of the assets and liabilities of said company; (3) that, in order to carry out such winding up sale and distribution, a receiver be appointed, with full power and authority to take possession of all the property, books, papers, and accounts of the company, and to sue for and recover all moneys due the company; (4) that Brydon and all others, claiming to be officers of the company, turn over to the receiver all the property and books of the company, and that the receiver give notice to all creditors to file their claims; (5) that a preliminary receiver be appointed. Answers were filed denying the right of the court to wind up the company, but assenting to a distribution of the fund. Testimony was taken, and on September 28, 1889, a final decree was passed, declaring that the $75,000 judgment was the property of the North Branch Company, making the injunction perpetual, and referring the cause to the auditor "to state an account or accounts, distributing the amount of the judgment, with interest thereon, upon the pleadings and proof now in the cause, and such other testimony as may be produced by any of the parties, or by any parties who may file claims as creditors, to and among the several parties who may be entitled thereto." It was further ordered that notice be given to creditors of the North Branch Company to file their claims. A number of claims were filed, and much testimony was taken before the auditor, who thereupon stated three accounts, to which exceptions were filed; whereupon the court rejected all the accounts, and sent the papers back to the auditor, with instructions to state another account on the principle upon which Account A was founded. This the auditor did, and his report is marked "Account D." To this account exceptions were also filed, but they were overruled, and the account was ratified, and from the final order of ratification these four appeals have been taken.
The original bill filed by Gemmell and Sinclair was filed by them as minority stockholders, to prevent an asset (the $75,000 judgment belonging to the North Branch Company) from being appropriated by Brydon to his own use, and this court sustained the right of a minority stockholder to intervene and invoke the aid of a court of equity to prevent the fraudulent diversion of the property of the corporation by the majority of the stockholders. After a patient and thorough examination of the voluminous record in that case this court further held, in a carefully prepared and exhaustive opinion, that the judgment, though recovered in Brydon's name, belonged in fact to the North Branch Company, a body corporate located in Garrett County; and that Henry G. Davis & Co. were not bona fide assignees of that judgment. The effect of that decision was to strike down the assignment of the judgment to Davis & Co., and to declare the judgment the property of the North Branch Company. Ordinarily, no other facts appearing to render further proceedings necessary, the cause would then have been at an end, and the North Branch Company would have been absolutely entitled to demand and receive the money due on the judgment. But, as Brydon owned the majority of the stock, to have placed the funds in the hands of the company would have been practically putting them in his own possession, and under his own control, and hence the supplemental bill of complaint was filed asking for the appointment of a receiver. In answering this bill Brydon, Davis & Co. and the North Branch Company consented that the funds should be distributed in the circuit court under the proceedings then pending, though they vigorously resisted the appointment of a receiver and the winding up of the corporation.
It is perfectly clear that the circuit court of Baltimore city had no authority to wind up and dissolve the North Branch Company. That company was located in Garrett county, and was not within the jurisdiction of the court which was asked by the amended bill to declare its dissolution. Code, art. 23, § 264. The court below, therefore, very properly refrained from passing such a decree. It also refrained from appointing a receiver, and merely sent the case to the auditor to state an account distributing the amount of the judgment, with interest thereon. But the auditor pursued an entirely different principle in stating the accounts, and the court subsequently approved it by ratifying Audit D. Instead of merely following the terms of the decree, and making distribution of the judgment and interest, which together amounted to $93,334.87, the auditor, under the instructions of the appellee's solicitors, added alleged items of indebtedness due by Brydon to the North Branch Company, and thereby swelled the total amount to $190,064.32, and then actually confiscated Brydon's whole stock in the company to pay this confessedly only estimated indebtedness. This went far beyond the terms of the decree, and resulted practically in winding up the affairs of the company by an indirect proceeding, when the court was utterly powerless to accomplish the same result upon a direct proceeding. The theory of the account was radically wrong, apart from the errors arising out of the disallo wance of several claims which should have been ordered to be paid.
To many of the claims filed by creditors of the North Branch Company Gemmell and Sinclair in terposed the plea of limitations, and this gives rise to the question whether a stockholder can plead this or any other plea as a defense to the claim of a creditor preferred directly against the corporation, when the corporation is itself a party to the cause, and does not make or wish to make defense. We have been referred to and we have found no case where such a doctrine has been sanctioned. A stockholder is not, as stockholder, a creditor of the corporation whose stock he owns. He has no standing in a court of equity apart from the corporation of which he is a member, except when he appeals to that court to prevent the majority from doing some act which is ultra vires, or from making some fraudulent disposition of the corporate property. In such cases he in fact merely sets in motion the necessary legal machinery for the protection of the body corporate itself. But here the purpose is to defeat the payment of claims apparently valid, not that the funds may be paid over to the corporation, but that Gemmell and Sinclair may receive as stockholders a larger dividend on their stock out of the funds in court. It would lead to many serious complications in the administration of justice if a perfectly honest claim, due by a corporation, could, because barred by the statute of limitations, be defeated upon the objection of a minority stockholder, not withstanding the corporation made no objection to the payment of the claim, and actually recognized its validity. If it be competent for minority stockholders to rely successfully upon that plea, then logically a single stockholder, owning but one share out of many hundred, may do the same...
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