Hammond v. Straus

• Decision Date: 28 January 1880
• Citation: 53 Md. 1
• Parties: THOMAS B. HAMMOND v. WILLIAM H. STRAUS.
• Court: Maryland Court of Appeals

53 Md. 1

THOMAS B. HAMMOND v. WILLIAM H. STRAUS.

Court of Appeals of Maryland

January 28, 1880

Appeal from the Superior Court of Baltimore City.

The case is stated in the opinion of the court.

Exception.--It is not necessary to set out the prayers offered by the plaintiff at the trial; the instructions given by the court below (Dobbin, J.,) are contained in the opinion.

The cause was argued before BARTOL, C.J., MILLER, ALVEY and ROBINSON, JJ.

Charles E. Phelps and A. W. Machen, for the appellant.

The appellant submits, that the court below erred in taking the case from the jury, and directing a verdict for the defendant: Because the testimony showed a clear case of estoppel by conduct on the part of the defendant to deny the acceptance by the corporation styled the "Union Banking Company of Baltimore City," of the Act incorporating the "Union Banking Company of Baltimore." Hager v Cleveland, 36 Md. 476, 491; Slocum v. Warren, 10 R.I. 116; State v. Simonton, 78 N.C. 57; Eaton v. Aspinwall, 19 N.Y. 119; Doubleday v Muskett, 7 Bing. 110; McDougald v. Lane, 18 Ga 444, 452; McHose v. Wheeler, 45 Pa. St. 32; McCarthy v. Levashe, 10 Chi. L. N. 342, cited in Thompson's Liab. of Stock. sec. 415; 2 Smith Lead. Cases 718-720, note; L. R. 7 Ch. Div. 533; 3 App. Cas. 1002, 1026; Corwith v. Culver, 69 Ill. 502; Wallace v. Loomis, 7 Otto, 146, 154, 155; San Antonio v. Mehaffey, 6 Otto, 314, 315; Dooley v. Cheshire Glass Co. 15 Gray, 494; Hall Flax Co. v. Wellesley, 6 H. & N. 53; Tyerman v. Smith, 6 El. & Bl. 719; Foster v. Bank, 8 Q. B. 689; R. R. Co. v. Woodcock, 5 M. & W. 574.

Was then the credit given by the plaintiff to the company in this case given presumably upon the faith of the Act of 1874, ch. 118?

Had the defendant, before the plaintiff made his deposit, given his express personal assurance as a director, that the company was doing business under the Act as its charter, he would be clearly estopped beyond all doubt or question.

But the whole line of conduct of the defendant and his associates, was a standing, implied assurance, as strong as any express one could possibly be. They could easily have avoided this consequence by simply notifying the public and their customers that they had purposely non-complied with the requirements of the 4th section of the Act, in order to escape the liabilities of the 14th section. This they did not do, because it would have prevented 12 per cent. dividend. For the sake of the profit, they were willing to have the public reputation of individual liability. He who shared in that profit cannot now be heard to say that the public was deceived, and deceived by him. He who is silent when he ought to have spoken, shall not be heard when he ought to be silent. Morgan v. R. R. Co., 96 U.S. 720.

As to the acceptance of dividends, see Moale v. Buchanan, 11 G. & J. 326; Lanahan v. Latrobe, 7 Md. 272; Edes v. Garey, 46 Md. 41.

Certainly the public had a right to presume the company was doing a legitimate business. Now, a legitimate banking business the company could only do under the Act. For it is to be observed, that they never pretended to do a banking business as a partnership, but from the first as a corporation. While persons dealing with corporations are required, at their peril, to know the provisions of their charter, there is no law which requires them to know all matters in pais. In all such matters, the business public must act upon appearances, upon the face of things as they notoriously exist. If anybody is deceived by such appearances, the loss should fall upon those who have held out those appearances. State v. Simonton, 78 N.C. 57, 62.

There was some evidence of an actual acceptance of the legislative charter, and the question could not rightly be taken entirely away from the jury. That at the close of the plaintiff's testimony, he had a prima facie case, was recognized when the defendant proceeded to offer testimony to meet it. If at that stage there was a question which must have been submitted to the jury, had the trial stopped there, the court went beyond its province, as we respectfully submit, when it assumed, afterwards, to pass upon the weight and sufficiency of the defendant's proof, and upon all the evidence, to decide the question of fact in issue, and declare that the plaintiff's prima facie case was overcome.

H. L. Bouldin, Bradley T. Johnson and E. Otis Hinkley, for the appellee.

The evidence in this case of three of those intended to have been incorporated by the Act of 1874, ch. 118, shows conclusively that the things required to be done to create a corporation under that Act, by the 4th section thereof, were never done; and the reasons are given why they were not done, viz., the new Act created greater liability. All presumption cannot prevail against this direct proof. This being a case where a corporation is created by statute which requires certain acts to be done before it can be considered in esse, such acts must be shown to have been done to establish the existence of the corporation. Lyons v. R. R. Co. 32 Md. 18, 30; Mokelumne Hill Man. Co. v. Woodbury, 14 Cal. 424, 426, 427; Field on Corporations, 36; Lord v. Essex Build. Asso. 37 Md. 320, 324, 325; Burt v. Farrar, 24 Barb. 518; Fire Dept. v. Kipp, 10 Wend. 266; Ins. Co. v. Hart, 31 Md. 59, 61; Boyce v. M. E. Church, 46 Md. 359, 372, 374; 1 Potter on Corporations, 109; Angell & Ames on Corp. sec. 83; St. Paul Division, etc. v. Brown, 9 Minn. 157, 165; R. R. Co. v. Wright, 5 Jones Law (N. C.) 304, 305.

The meaning of the fourth section of the Act of 1874 is clearly that, until the acts of organization are completed, according to its requirements, the persons named do not become a corporation, and do not possess corporate rights or privileges, nor are they subject to the duties and liabilities enumerated in the Act, among which is the liability of the directors and stockholders for the corporate debts under sec. 14 of said Act. There is an obvious reason for making the provisions of sec. 4 of said Act, a condition precedent to the exercise of corporate rights. It is a basis on which all subsequent proceedings are to rest. Defendant cannot be held liable in an action for the debts of a corporation which never had any legal existence. Utley v. Union Tool Co. 11 Gray, 139-142; Hudson v. Carman, 41 Maine, 84, 88, 89; Gardner v. Post, 43 Pa. St. 19, 22; Shaeffer v. Ins. Co. 46 Mo. 248, 250; Thompson's Liab. of Stockholders, sec. 411.

Stockholders are only liable for debts that might have been enforced against the company. Thompson's Liab. of Stockholders, sec. 57; 3 Paige, 409, 415; 7 Paige, 373, 376.

The attempt of plaintiff to show the creation of a new corporation by implication, arising from acts of user, when an old one is shown to be in existence, to which all the acts relied on are referable, fails; because such acts must be unequivocally referable to the new one to avail to raise any such implication. For the same reason the doctrine of estoppel cannot be applied. Woodfork v. Bank, 3 Coldwell, (Tenn.) 488, 498; Rex v. Cambridge, 3 Burr. 1656, 1663; De Witt v. Hastings, 69 N.Y. 518; Green v. Dennis, 6 Conn. 302.

The certificate of deposit so much relied on by the appellant, to show the exercise of banking privileges, is in the name of the Union Banking Company of Baltimore City, an exercise of one of its powers as a savings institution under the Act, 1868, ch. 471, sec. 152, which provides "that any savings institution incorporated under this Article shall be capable of receiving from any person or persons or bodies corporate or politic, any deposit of money," and having the right to receive the deposit of money, it clearly had the right to give the certificate of deposit offered in evidence to the plaintiff as evidence of its indebtedness to the plaintiff. Barnes v. Bank, 19 N.Y. 152, 166; Bank v. Jacobs, 6 Humph. 515, 520; Curtis v. Leavitt, 15 N.Y. 269; Story on Prom. Notes, 97, and cases there cited; Seybert v. Pittsburg, 1 Wall. 272; Green's Brice Ultra Vires, 120.

The ground of estoppel is to prevent fraud. The plaintiff must show that unless defendant be estopped, he is defrauded. The rule is well settled that the representation must be acted upon for the estoppel to arise, for unless the representation is acted upon, the estoppel cannot arise. The party must be deceived; for if he knew the fact by constructive notice, he is not deceived. Bigelow on Estoppel, 467.

Can it be said that the plaintiff acted upon the alleged representation? Certainly not, for he did not deposit his money with the Union Banking Company of Baltimore, but with the Union Banking Company of Baltimore City, as his own certificate of deposit shows. Bigelow on Estoppel, 441, 492, 493; Homer v. Grosholz, 38 Md. 520; Hambleton v. R. R. Co. 44 Md. 536.

The representation is not claimed to have been made to the plaintiff. A third person, to whom the representation was not made, cannot claim an estoppel unless it was intended, or contemplated that he would act upon it; and how can it be said that it was intended or contemplated that this plaintiff would act upon it? Bigelow on Estoppel, (2nd Ed.,) 486.

A stranger casually hearing the representations cannot rely on an estoppel. Morgan v. Spangler, 14 Ohio St. 102, 109. An estoppel can never arise when it would itself perpetrate a fraud, do injustice or injure the innocent. 38 Ill. 467. A general purpose to deceive is not sufficient to raise an estoppel. Bigelow on Fraud, 85; Rutherford v. Williams, 42 Mo. 24; Atwood v. Small, 6 Clark & Fin. 447.

Suppose the directors went ultra vires, can a mere stockholder be held personally liable for such acts without knowledge thereof? for defendant stood only as a mere stockholder when plaintiff's debt was created. The mere...