Holmes v. Sharretts

• Decision Date: 18 April 1962
• Docket Number: No. 195,195
• Citation: 180 A.2d 302,228 Md. 358
• Parties: , 98 A.L.R.2d 363 David A. HOLMES et al. v. R. Carleton SHARRETTS, Jr., and Dubladenhill, Inc.
• Court: Maryland Court of Appeals

Page 358

228 Md. 358

180 A.2d 302, 98 A.L.R.2d 363

David A. HOLMES et al. v. R. Carleton SHARRETTS, Jr., and Dubladenhill, Inc.

No. 195.

Court of Appeals of Maryland.

April 18, 1962.

A. Slater Clarke, Washington, D. C. (Lawrence J. Simmons and Richard A. Mehler, Washington, D. C., on the brief), for appellants.

Nathan Patz, Baltimore, for appellees.

Before BRUNE, C. J., and HENDERSON, HAMMOND, MARBURY and SYBERT, JJ.

SYBERT, Judge.

The essential question presented here is whether the Chancellor erred in holding a voting trust and employment and management agreements to be legally valid and binding.

The involved facts, detailed in twelve volumes of stenographic transcript, begin with the attempted purchase by Constas G. Basiliko (one of the appellants-plaintiffs) of several Maryland properties located mainly in the Washington D. C. suburban area, and valuable for commercial development, from one Max Offenberg. The transaction was being conducted by Basiliko in the name of one Louis Sommers (who, it appears, had been dead for some time) because of Offenberg's refusal to deal with Basiliko after experiencing some difficulties and alleged sharp practices on Basiliko's part in prior transactions. Offenberg testified that he did not realize he was dealing with Basiliko at the time of the negotiations in question. A contract for the sale of the properties was ultimately drawn up bearing the name of Sommers, as purchaser, and a deposit was made with funds advanced by one Schweitzer, not a party to the contract. The contract was then assigned to Basiliko, the assignment bearing the purported signature of the deceased Sommers. Basiliko, however, was unable to obtain the necessary financing to close the contract, which called for a purchase price of $427,500. Although extensions of time for settlement were granted, the continuing default of the purchaser led to the setting of a final deadline for cancellation of the contract by the seller, Offenberg, which was not met. Basiliko's claim of later commitments by third parties to supply the needed capital and his allegation that Offenberg had accepted a later payment of another $10,000 as a further deposit are not supported by the testimony or documentary evidence.

Meanwhile, the appellee, R. Carleton Sharretts (defendant below), an attorney who was representing Basiliko in regard to certain unrelated tax problems, learned of his efforts to obtain the properties in question along with two associates, David A. Holmes and Z. Sigmund Sachs (the other appellants), and also of Basiliko's offer to pay a bonus of $100,000 for a one year loan of $250,000, plus a finder's fee of $25,000. Since Offenberg refused to enter into any further transactions with Basiliko, or any agent of his, it was agreed between Sharretts and Basiliko that Sharretts should negotiate with Offenberg on behalf of the Dublabenhill Corporation (a cross-plaintiff below and cross-appellant here, along with Sharretts). The corporation had previously been formed by Basiliko, Holmes and Sachs for the purpose of acquiring the properties. The various understandings between Sharretts and Basiliko were formalized in an 'agreement and management contract' of January 14, 1958 (to which the corporation was made a party), which incorporated within its terms certain provisions and clarifications set out in two letters from Sharretts to Basiliko. The agreement provided that 85% of the stock in the corporation should be issued to Basiliko, with the remaining shares divided equally between Holmes, Sachs and Sharretts. It further provided for the return to the corporation of all the issued stock endorsed in blank and for the issuance of a certificate for the aggregate amount of stock to Sharretts as sole 'voting trustee' for all of the stock, with the power in Sharretts to draw up a voting trust agreement at a subsequent time. Various other clauses of the agreement provided for the payment of $100,000 bonus to Sharretts if he should be successful in procuring a loan, and the setting up of an employment contract making Sharretts general manager and his brother, Douglas, assistant manager of the corporation. There was also a specific declaration in one of the letters incorporated into the agreement to the effect that Sharretts was not to be considered as acting as attorney for Basiliko. The employment contract was executed by the corporation and the Sharretts brothers on January 28, 1958.

The voting trust agreement, provided for in the management contract, was drafted by Sharretts and was executed by the appellants and Sharretts on February 20, 1958. It will be referred to in greater detail hereinafter. Its use appeared necessary to the parties as a positive assurance to Offenberg that the property would not be under Basiliko's control.

The Dubladenhill Corporation, previously organized but dormant, was reactivated by Sharretts and new officers designated, Sharretts becoming president and his brother vice-president and secretary. Thereupon Sharretts began negotiations with Offenberg to purchase the property in his own name. On February 5, 1958, a contract for the sale of the property was executed by Offenberg and Sharretts, which provided in effect that if title were taken in the name of the corporation, the corporation was to be controlled as to voting power by Sharretts. As a further safeguard, Offenberg required that quitclaim deeds or releases be exchanged between himself and Basiliko and his wife. In effect, Offenberg released any claims he might have against Basiliko as a result of alleged improper conduct by Basiliko in regard to the subject property. The Basilikos in turn released any claimed interest they might have in the property.

Numerous problems arose which occasioned great delay in settlement under the contract between Offenberg and Sharretts. One problem, significant for the purposes of this opinion, involved a tax claim recorded by the Internal Revenue Service (I.R.S.) against Basiliko resulting in a lien against the property in question. The testimony shows that Basiliko had informed the I.R.S. that he had an interest in the property after he had executed the release to Offenberg and the management agreement, in which he renounced any claim he might have to the property. The tax claim was paid in part ($27,000) by Sharretts, using corporate funds, in return for a full release of all I.R.S. liens against Basiliko in respect to the properties. This had to be done, according to Sharretts, in order to clear the way for the much delayed settlement under the property contract, since the title insurance company involved refused to issue a required policy until the I.R.S. liens were released.

It was not until November 20, 1959, that the settlement took place, Offenberg transferring title directly to the corporation. Sharretts had obtained sufficient funds through loans to the corporation from various sources to provide the requisite cash payment, over and above a sizable deed of trust note taken back by Offenberg. By this time differences had arisen between Basiliko and Sharretts, and before the settlement occurred the instant suit was filed by Basiliko and the other appellants, on September 11, 1959, seeking cancellation of the voting trust and management agreements because of alleged illegality and fraud. They also asked return of their respective stock certificates deposited with Sharretts under the voting trust agreement, and for the removal of Sharretts as voting trustee because of alleged acts of mismanagement and conflict of interest. Sharretts answered, denying the material allegations, and on behalf of himself and the Dubladenhill Corporation he filed a cross-bill in which he sought to have the voting trust and the management agreements declared valid and enforceable, and to have the appellants enjoined from interfering with the exercise of his powers as voting trustee and with his management of the corporation. He also prayed for a decree in personam against Basiliko in favor of the corporation for the $27,000 paid by it on behalf of Basiliko to the I.R.S., and for a lien in that amount in favor of the corporation against Basiliko's voting trust certificate.

After hearing testimony extending over several weeks during which scores of exhibits were introduced, the Chancellor passed a decree dismissing the appellants' original complaint and granting all of the prayers in the cross-bill, including a decree in personam in favor of the corporation against Basiliko for the $27,000 item, with the exception that the court refused to impress a lien upon the voting trust certificate of Basiliko. The appellants entered this appeal. Sharretts and the corporation also appealed because of the exception just mentioned, but stated in brief and argument that their appeal is not being pressed, so we will disregard it.

I

Appellants' first contention is that the voting trust agreement was void under the relevant Maryland statute in that it provided for the termination of the trust five years after the happening of an uncertain and contingent event, and so might have extended beyond ten years, and also because it failed affirmatively to express any proper business purpose.

The statutory provision is Art. 23, § 45, Code (1957), which reads:

'Any one or more stockholders of a corporation may confer upon a trustee or trustees the right to vote or otherwise represent their shares for a period not to exceed ten years, by entering into a written voting trust agreement specifying the terms and conditions of the voting trust, by depositing an executed copy of the agreement with the corporation at its principal office, and by transferring their shares to such trustee or trustees for the purposes of the agreement. Every other stockholder, upon his request therefor, may by like agreement in writing also transfer all or any part of his shares to the same trustee or trustees and thereupon may participate in the...