Hammond v. Lyon Realty Co.

• Decision Date: 30 November 1932
• Docket Number: Nos. 1, 2.,s. 1, 2.
• Citation: 163 A. 480
• Parties: HAMMOND et al. v. LYON REALTY CO. VALE et al. v. SAME.
• Court: Maryland Court of Appeals

163 A. 480

HAMMOND et al.

v. LYON REALTY CO.^*

VALE et al.

v. SAME.

Nos. 1, 2.

Court of Appeals of Maryland.

Nov. 30, 1932.

Concurring Opinion Dec. 15, 1932.

DIGGES, J., dissenting.

Appeals from Circuit Court No. 2 of Baltimore City; Samuel K. Dennis, Judge.

Suits by the Lyon Realty Company against the Milburn Realty Company, for which Edward H. Hammond and Abraham Davidson were subsequently appointed receivers after dissolution. From orders overruling separate exceptions of Edward H. Hammond and Abraham Davidson, receivers after dissolution of the Milburn Realty Company, and of Peter E. Vale and Nathaniel G. Grasty, committee of Caroline V. Richardson, a lunatic, to sales of mortgaged realty and ratifying sales, such receivers and committee separately appeal.

Affirmed.

Argued before BOND, C. J., and URNER, OFFUTT, DIGGES, PARKE, and SLOAN, JJ.

J. Morfit Mullen, of Baltimore, for appellants.

Sylvan Hayes Lauchheimer, of Baltimore (Lauchheimer & Lauchheimer, of Baltimore, on the brief), for appellee.

PER CURIAM.

A majority of the judges of the court have reached the conclusion that the orders appealed from in these cases must be affirmed, but there is no majority in agreement on any of the grounds leading to that conclusion; the order must therefore be, and it is hereby, affirmed without an opinion for the court as a whole.

OFFUTT, J.

On October 8, 1927, the Milburn Realty Company, a Maryland corporation, purchased from Caroline V. Richardson, a tract of land known as "Glenleigh" containing about 21 acres on Glen avenue near Park Heights avenue in Baltimore city for $60,000, of which it paid in cash $20,000, and executed to the vendor a mortgage on "Glenleigh" to secure the payment of the balance of the purchase price. That mortgage was in the form ordinarily employed under the Public Local Laws of Baltimore matured in three years, contained provisions for a consent decree, and the usual covenants for the payment of taxes, charges, assessments, interest, and principal.

On January 6, 1923, Joseph Berman, the Lyon Realty Company, and the Druid Realty Company of the first part and the Milburn Realty Company of the second part executed an agreement under which Berman for himself and as president of the Lyon Realty Company, and the Druid Realty Company agreed to furnish the Milburn Realty Company "at the rate of six per cent per annum, such sums of money and at such times as I may deem necessary for the carrying on of the business of The Milburn Realty Company." In the same agreement the Milburn Company undertook to execute on demand a mortgage or mortgages pledging any of its property which Berman deemed adequate to secure such loans or advances.

On July 29, 1930, in response to a demand made under that agreement, the Milburn Realty Company executed to the Lyon Realty Company a mortgage for $124,564.38 on its entire assets for loans or advances made to it from time to time by the Lyon Realty Company or the Druid Realty Company. And, on February 20, 1931, in consideration of the release of certain land covered by that mortgage, the Milburn Realty Company executed to the Lyon Realty Company another mortgage for $35,000 (the portion of the first mortgage released) on two pieces of fee simple property included in that mortgage.

Caroline V. Richardson, having been adjudicated a lunatic, and Nathaniel G. Grasty and Peter E. Vale, having been appointed a committee of her estate, and the mortgage from the Milburn Realty Company to her being in default, on November 14, 1930, that committee instituted in Baltimore city foreclosure proceedings to enforce the payment of a balance due under that mortgage "in excess of $38,000." A sale of the property was in due course reported and ratified in that proceeding and a deficiency decree entered therein in favor of the committee for $29,209.28 on July 29. 1931.

On July 18, 1931, petitions were filed for the foreclosure of the two mortgages from the Milburn Realty Company to the Lyon Realty Company, the case referring to the earlier being designated as case B and that referring to the later mortgage as case A. A sale was reported to the Beta Realty Company in case A of the property therein described for $705 subject to a first mortgage of $30,000, and in case B a sale was reported to the same purchaser of the property described in the mortgage filed in that case for $5,000, "subject to prior mortgages of $38,501.73."

On August 8, 1931, the committee of Richardson filed in circuit court No. 2 of Baltimore city a bill of complaint against the Milburn Realty Company, in which it prayed that that corporation be dissolved, a receiver appointed, and its affairs wound up. As a result of further proceedings, Edward H. Hammond and Abraham Davidson were appointed receivers for the company, and on October 1, 1931, it was dissolved and the receivers continued in charge of its assets, with authority "to institute any and all proper suits and actions, or to appear in any suits already pending in order to prosecute their rights as Receivers or on behalf of said corporation to any and all preferences, or to any and all claims or choses in action to which they as Receivers, or to which the said corporation have been or is or are now entitled."

On September 15, 1931, the receivers filed exceptions to the sales reported in cases A and B, and on the following day similar exceptions were filed by the committee, both sets of exceptions being grounded on the proposition that the two mortgages to the Lyon Realty Company constituted an unlawful preference and were void. After the testimony and a hearing, those exceptions were overruled and the sales ratified. The appeals from those decrees were entered by the receivers and the committee, and after that the Milburn Company having been adjudicated a bankrupt, the appeals were prosecuted by the trustee in bankruptcy.

The questions growing out of the appeals may be thus stated: (1) Whether at the time the Milburn Company executed its B mortgage to the Lyon Realty Company it was in fact insolvent; (2) whether the mortgage to the Lyon Realty Company was in effect and for the purposes of this case a mortgage to Berman; (3) whether if in fact it was insolvent it could validly prefer Joseph Berman, one of its stockholders who was also an officer and a director in it, over its general creditors; and (4) whether such preference can be avoided in this proceeding.

Since any consideration of those questions involves to some extent the relation in which Berman stood to each of the several corporations to which reference has been made, and as there is no dispute as to just what that relation was, that will be first stated.

The Milburn Realty Company was a Maryland corporation which conducted a real estate and construction business in Baltimore city, in the course of which it bought, sold, leased, mortgaged, and developed real estate. It issued 50 shares of stock of which 16 1/2 stood in the name of Joseph Berman, 16 1/2 in the name of Harry M. Berman, his son, and 17 in the name of Isaac Rosenberg, his son-in-law. Isaac Rosenberg was its president, Harry M. Berman, its secretary and treasurer, and they with Joseph Berman its board of directors.

The Lyon Realty Company was a corporation which was engaged in the business of operating the Riviera Apartments at Lake drive and Linden avenue in Baltimore, Md. It issued 500 shares of stock. 498 to Joseph Berman, and 1 each to Harry M. Berman and Isaac Rosenberg. Joseph Berman was its president and Harry M. Berman its secretary and treasurer, and they with Isaac Rosenberg its directors. Harry M. Berman was merely a nominal officer and the shares of stock which he and Rosenberg owned were mere qualifying shares indorsed "in blank back to Joseph Berman," so that in fact he was the actual owner of all of the stock of that corporation.

The Beta Realty Company, a Maryland corporation, was also in the real estate business. It issued to Joseph Berman 248 shares of its stock, and to Harry M. Berman and Isaac Rosenberg, 1 share each. Harry M. Berman was its president, Isaac Rosenberg its secretary, and they with Joseph Berman its directors.

The Druid Realty Company, also a Maryland corporation, issued 189 shares of its stock to Joseph Berman, 10 shares to Harry M. Berman, and 1 share to Isaac Rosenberg. Joseph Berman was president of that company and Harry M. Berman its secretary and treasurer.

Reverting to the question first stated, the evidence permits no reasonable inference other than that on July 29, 1930, the Milburn Realty Company was insolvent within any definition of that term by this court. Within the meaning of bankruptcy and insolvency statutes, insolvency has been held to mean the inability of a debtor to pay his debts when they accrue in the ordinary course of business. Castleberg v. Wheeler, 68 Md. 277, 12 A. 3. In Strouse v. Am. Credit Ind. Co., 91 Md. 260, 40 A. 328, 330, 1063, an action on an indemnity bond, where liability depended upon the insolvency of debtors, it was said: "The insolvency designated is the usual legally defined 'insolvency,' which is an inability of the debtor to pay his debts as they fall due in the ordinary course of business, and this is dependent neither upon a formal adjudication, nor on an actual insufficiency of assets to meet liabilities." In United States Fidelity & Guaranty Co. v. Williams, 148 Md. 304, 129 A. 660, an action on an automobile casualty indemnity policy, it was held equivalent to general financial irresponsibility. And it has been held to mean the insufficiency of the insolvent's assets when fairly appropriated and sold at their fair market value to pay his just debts. 3 Words & Phrases, First Series, 2648. The term is not therefore one of precise legal significance, but its meaning varies within somewhat narrow limits according to the facts to which it is applied. But whether it means inability to pay debts as they accrue in the ordinary course of...