Hooper v. Central Trust Co. of N.Y.

• Decision Date: 20 June 1895
• Citation: 32 A. 505,81 Md. 559
• Parties: HOOPER ET AL. v. CENTRAL TRUST CO. OF NEW YORK ET AL.
• Court: Maryland Court of Appeals

32 A. 505

81 Md. 559

HOOPER ET AL. v. CENTRAL TRUST CO. OF NEW YORK ET AL.

Court of Appeals of Maryland

June 20, 1895

Appeal from circuit court of Baltimore city.

Cross bill by William J. Hooper and others, executors and trustees in the foreclosure suit by the Central Trust Company of New York against the Maryland Ice Company. There was a decree dismissing the cross bill, and the complainants therein appeal. Reversed.

Argued before BRYAN, ROBERTS, PAGE, BOYD, FOWLER, and McSHERRY, JJ.

Thomas M. Lanahan, John P. Poe, and Frank Gosnell, for appellants.

John H Thomas, Rand Barton, Skip. Wilmer, and W. Pinkney Whyte, for appellees.

McSHERRY J.

On March 21, 1890, the Maryland Ice Company was incorporated under the laws of the state of New Jersey. On the following 5th of April the company acquired certain property situated in Baltimore city from the executors of the estate of the late William E. Hooper, deceased, and it acquired this property under an agreement previously made between the executors and Ormond Hammond, Jr., who contracted for himself and his undisclosed associates. The circumstances attending this acquisition of property will be stated later on. The price agreed to be paid was $150,000 in cash (of which $5,000 were paid when the agreement was executed) and $100,000 in second mortgage bonds of a company to be formed thereafter which company, when formed, was the Maryland Ice Company. In the contract of purchase, which bore date February 28, 1890, there were stipulations requiring the construction by the purchaser and his associates of certain betterments and ice-manufacturing machinery upon the premises, to the value of $130,000 to $150,000, to be erected by a designated time, and to have a prescribed ice-producing capacity. Simultaneously with the execution of the deed by the executors conveying the property to the Maryland Ice Company, the latter placed upon record two mortgages to the Central Trust Company of New York, each dated on the 1st of March, and acknowledged on the 3d of April, and each covering the property so conveyed to the Maryland Ice Company by the Hoopers, and also covering all additions thereto, and all machinery thereafter to be placed thereon. The first of these two mortgages secured an issue of $250,000 of the Maryland Ice Company's bonds, and the second secured an issue of $110,000 of other bonds of the same company. These latter were delivered to the executors, $100,000 of them in part payment of the purchase money as provided in the contract of February 28th, and $10,000 of them in settlement of another transaction, which has no connection with the pending controversy. Prior to the incorporation of the Maryland Ice Company, Ormond Hammond, Jr., and Thomas Sturgis, acting for and in behalf of the promoters of the enterprise, which finally culminated in the formation of the Maryland Ice Company, entered into a contract with the Arctic Ice Machine Manufacturing Company for the construction of three ice-manufacturing machines to be placed upon this property. In the contract so executed on March 15, 1890, there was a clause expressly reserving to the Arctic Company the title in these machines, and the right to reclaim and remove them if the purchase price should not be paid when due. This contract was assigned to the Maryland Ice Company after its incorporation. The machines were, after some delays, finally erected, but were not fully paid for. The Maryland Ice Company having made default on September 1, 1891, in the payment of the interest coupon due that day on its first mortgage bonds, the Central Trust Company, representing and acting for the holders of those bonds, filed on the following day, in the circuit court of Baltimore city, a bill for the foreclosure of the first mortgage, and for a sale of the property, including the machines constructed by the Arctic Company, and which had not been fully paid for by the Maryland Ice Company. With the bill there was filed the unsworn answer of the Maryland Ice Company consenting to a sale, and agreeing that a receiver be forthwith appointed. On the same day a decree was signed appointing O. Hammond, Jr., receiver, and enjoining the Maryland Ice Company and all persons from selling or disposing of any of the company's property. This whole proceeding, though ostensibly between different parties, occupying opposite sides of the docket, was in fact conducted by the same individuals, who, under other names, controlled both sides of the apparent controversy, because the trust company, the plaintiff, acted at the instance and in behalf of the first mortgage bondholders, and the Maryland Company, the defendant, represented its stockholders, who were the same identical bondholders and their agents, and coprojectors of the original undertaking. After the appointment of the receiver, the Arctic Company intervened by petition, and asserted, under the contract of March 15, 1890, made with Hammond and Sturgis, its ownership of the machines erected by it, but which had not been fully paid for. This claim was resisted by the first mortgage bondholders on the ground that they were bona fide purchasers of those bonds without notice of the unrecorded conditional sale made by the Arctic Company of the three ice-manufacturing machines. While that controversy was pending, no further steps were taken with reference to the foreclosure and sale. Ultimately the point at issue between the first mortgage bondholders, represented by the Central Trust Company, and the Arctic Company, reached this court, and the case is reported in 77 Md. 202, 26 A. 493. Bearing in mind that the precise question controverted between the contending parties to that appeal was whether the holders of the first mortgage bonds were in fact bona fide purchasers thereof without notice or knowledge of the title set up by the Arctic Company to the three machines erected by it under the contract made by Hammond and Sturgis on March 15, 1890, the pertinency of the conclusions reached on that subject in that case to the questions involved in the pending appeal will be apparent. After a full, able, and elaborate argument at the bar, we held that the London & New York Investment Corporation and Poor and Greenough, who, it then appeared, together owned $245,000 of the $250,000 of the first mortgage bonds of the Maryland Company, and who, it now appears, between them own the entire issue, were in fact, with Hammond and Sturgis, the actual promoters of the scheme which resulted in the purchase of the property from the Hoopers, the making of the contract with the Arctic Company, the formation of the Maryland Ice Company, and the issue of its first and second mortgage bonds. It was distinctly decided that the London Corporation and Poor and Greenough had notice and knowledge of the provisions of the contract between the executors of Hooper on the one hand and Hammond on the other, wherein the latter agreed, in behalf of himself and his associates, that betterments to cost from $130,000 to $150,000 should be placed upon the property; that they knew how and by what means the Hoopers were to be paid the amount of the agreed purchase money, and that they further knew the provisions of the contract between Hammond and Sturgis and the Arctic Company, which was subsequently assigned to the Maryland Ice Company. And they were held to have known these facts because, in the opinion of this court, the London & New York Investment Corporation and Poor and Greenough were the real parties to these several contracts executed in their behalf by their accredited agents, Hammond and Sturgis. "It was," we said in 77 Md. 231, 26 A. 493, "for the London Corporation, and at its instance, that Hammond negotiated the purchase with Hooper, and it was for it and for its benefit that he incurred the obligation to erect the three additional machines thereon; and it was to advance its interests that he and Sturgis entered into the contract with the Arctic Company. He and Sturgis were, therefore, in fact the agents of that corporation, employed to develop the project for it; and the attempts to disguise their real connection with the London Corporation are, whilst numerous and adroit, none the less transparent and obvious. * * * The priority asserted by the Central Trust Company for the holders of the Maryland Ice Company's first mortgage bonds is a priority claimed in behalf of the very persons whose agents and associates purchased the machines and contracted for the preservation of the vendor's lien thereon. The London Corporation and Poor and Greenough, who are stockholders of the Maryland Company, claim, as creditors of the very company which they organized and control, and whose obligations they were aware of, a priority over the vendor of the machines, notwithstanding the knowledge and information which they had and were chargeable with when they took the bonds, and notwithstanding the fact that the very priority which they are now seeking to defeat was one created by their own agents, even before the bonds were issued. No court has ever yet held that parties thus situated could successfully maintain such a position. It is the worst of bad faith. * * * As bondholders, they have no standing to destroy or to impair the lien which as projectors of the company they, through their own agents, established in favor of some one else." Page 234, 77 Md., and page 493, 26 Atl.

Under the contract between Hammond and the Hoopers of February 28 1890, it was stipulated that Hammond should furnish a guaranty from Poor and Greenough, bankers of New York, that the betterments and additional machinery provided for would be placed upon the property on or before the 1st day of the succeeding July. The object which the Hoopers had in view in insisting...