Goertz v. Backman

Decision Date07 June 1950
Docket Number177.
Citation74 A.2d 3,195 Md. 450
PartiesGOERTZ v. BACKMAN et al.
CourtMaryland Court of Appeals

Joseph Loeffler, Baltimore (Bernard J. Medairy Baltimore, on the brief), for appellant.

Charles G Page, Baltimore (White & Page, and John T. Backman Baltimore, on the brief), for appellees.



The equity case in which this proceeding arose was instituted in October, 1948 by Luther J. Smith and wife and Hale M. Hamilton and wife against General Erectors, Inc., a building corporation, and John T. Backman, trustee. The bill of complaint alleged that the corporation had sold to each of the complaining couples an uncompleted house in Ingleside Manor, but that it owed large amounts for taxes, labor and materials, and had stopped all construction work. The bill further alleged that the corporation had borrowed sums from Irvington Federal Savings and Loan Association of Baltimore City, and had deposited them with Backman as trustee. The bill prayed for a receiver and an injunction to restrain Backman from paying any of the funds which he held as trustee. In November, 1948, the Court appointed Harry E. Goertz receiver. In March, 1949, the Court dissolved the corporation. When the case against Backman came on for hearing, the receiver appeared, but no testimony was offered by complainants. Accordingly the Court on October 19, 1949, dismissed the bill as to the trustee.

On November 12, 1949, the receiver petitioned for the funds in the hands of the trustee. He alleged: (1) that the corporation borrowed $13,440 on October 9, 1947, by mortgage on two lots, and that this amount was deposited with the trustee for disbursement to the corporation in accordance with a schedule of construction progress; and on October 23, 1947, the corporation borrowed $44,100, which was likewise deposited with the trustee; (2) that at the time the mortgages and trust agreements were made, the corporation was indebted to creditors in the amount of approximately $25,000, and was insolvent, and (3) that the trust agreements were fraudulent as to creditors. On December 14, 1949, the Court dismissed the receiver's petition and authorized Backman to pay the funds to the mortgagee. From that decree the receiver brought this appeal. No question has been raised as to his authority to appeal.

It was questioned at the outset whether the matter raised by the receiver's petition was res judicata. It is an established doctrine that when an issue has been fairly tried in a court having jurisdiction of the parties and the subject-matter, and has been finally decided on the merits, it cannot again be litigated by the same parties in the same court or any other court of concurrent jurisdiction. It is thoroughly understood that there must be an identity of parties, an identity of subject-matter, and a decision on the merits, as well as jurisdiction over both parties and subject, otherwise the defense of res judicata will not be available. Ugast v. La Fontaine, 189 Md. 227, 232, 55 A.2d 705; Riggs v. Loweree, 189 Md. 437, 442, 56 A.2d 152; Snodgrass v. Stubbs, Md., 64 A.2d 130. Thus, while a decree dismissing a bill of complaint, where the Court determines that the complainant has no title to the relief sought, is a bar to another suit brought for the same matter, a dismissal is not a bar if it is not upon the merits and the court has not determined that the complainant had no title to the relief sought by the bill. Royston v. Horner, 75 Md. 557, 24 A. 25.

When the case against Backman came on for hearing, the receiver had been appointed and the corporation had been dissolved. The action of the Court had produced an entirely different situation. Complainants, discontinuing their effort to restrain payment of the trust funds, offered no evidence. Evidently they felt that if the receiver wished to take action in reference to the trust funds, he had the right to do so. In any event, the Court was justified in considering that the matter was not res judicata.

One of the contentions of the receiver is that the decree of dissolution nullified the trust agreements. As a general rule, the insolvency of a corporation and the assumption of jurisdiction by a court of equity for the distribution of its assets among creditors do not destroy any security or liens existing in favor of any of its creditors. In the absence of any statute to the contrary, secured creditors of an insolvent corporation are entitled to be satisfied from the secured property before it is liquidated or distributed as assets of the corporation, and the unsecured creditors are merely entitled to the residue after the secured creditors are satisfied. The Maryland Corporation Law provides that whenever any corporation shall be dissolved by the decree of any court of this State, all preferences, payments and transfers, howsoever made by it or by any of its officers on its behalf, which would be void or fraudulent under the insolvency law of the State, if made by a natural person shall likewise be fraudulent or void. Code 1939, art. 23, sec. 99. But no existing liens of a corporation, other than those that would be void or fraudulent under the insolvency laws, are divested by dissolution of the corporation and the appointment of a receiver. Forest Lake Cemetery v....

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