Tompkins v. Sperry, Jones & Co.
| Decision Date | 11 February 1903 |
| Citation | 54 A. 254,96 Md. 560 |
| Parties | TOMPKINS et al. v. SPERRY, JONES & CO. et al. |
| Court | Maryland Court of Appeals |
¶ 5. See Corporations, vol. 12, Cent. § 742.
Appeal from Circuit Court No. 2 of Baltimore City; J. Upshur Dennis Judge.
Bill by John A. Tompkins and others, as receivers of the Maryland Brewing Company, against Sperry, Jones & Co. and others. From a decree dismissing the bill, plaintiffs appeal. Affirmed.
Argued before McSHERRY, C.J., and FOWLER, BRISCOE, BOYD, PAGE PEARCE, SCHMUCKER, and JONES, JJ.
John Prentiss Poe and Williams, Thomas & Williams, for appellants.
D.K Este Fisher, Bernard Carter, Gans & Haman, Fielder C Slingluff, and T. Wallis Blackistone, for appellees.
This is an appeal from a decree of circuit court No 2 of Baltimore City, sustaining the appellees' demurrer to, and dismissing a bill filed by, the appellants, as receivers of the Maryland Brewing Company of Baltimore City, hereinafter called the "Company." The purpose of the suit is to procure an account of certain bonds and the proceeds thereof, which the bill alleges the appellees Sperry & Jones, while occupying a fiduciary relation to the company and being in control of its corporate organization, caused to be overissued by it to themselves, and which they and their coappellees, who acted with full knowledge of the facts, sold and disposed of for their own use and advantage. The allegations of the bill in large part relate to the stock of the company, which is charged to have been overissued at the same time and in the same manner as the bonds, but there is no prayer in the bill for an account of the stock or its proceeds, although there is a prayer for general relief.
The bill of complaint alleges that the company was incorporated under the general laws of this state by articles of incorporation filed on February 7, 1898, and amended on December 22, 1898, with a capital of 32,250 shares of preferred and 32,250 shares of common stock, and that it subsequently authorized an issue of $7,500,000 of bonds; that the incorporators and directors named in the certificate of incorporation, and also the stockholders who participated in the organization of the company, consisted of the appellees Sperry & Jones, and persons who were under their control, and were in fact their agents, and were not independent subscribers, and by that means the said two appellees remained in absolute control of the company from its organization down to and including February 28, 1899; that, pending the organization of the company and prior to the last-named date, Sperry & Jones, who were bankers and brokers by profession, contracted for and on its behalf with each one of certain named brewers and brewing companies of Baltimore, including George Brehm and Joseph Strauss, to the end that they should sell and transfer their brewing establishment to the company, to be paid for by it partly in cash and partly in its bonds and stock at a valuation to be determined by their respective barrelage, or output of barrels of beer, for the preceding year; that the total capitalization of the company, which was expected to absorb all of the breweries in Baltimore having an estimated output of 700,000 barrels per annum, was fixed in the contracts at $14,000,000, being $20 of capital for each barrel of output, it being further understood that, if the entire brewing interests of Baltimore were not brought into the company, its capitalization should be reduced at the rate of $20 per barrel of output of such breweries as failed to come in, such reduction of capitalization to be pro rata in bonds and stock; that it was further provided in the contracts that the several properties should be transferred free of debt to the company, but the latter would buy for cash the stock of malt and hops on hand at the several component breweries as of March 1, 1899, and, further, that out of the proceeds of the bonds and stock to be issued by the company a cash working capital of $500,000 should be provided, and that the balance of the stock and bonds so to be issued should go to Sperry & Jones as compensation for their services, they to pay all of the expenses attending the promotion of the enterprise. Copies of the alleged contracts between Sperry & Jones and George Brehm and Joseph Strauss were filed as Exhibits A and B with the bill, which alleged that all of the contracts with the other brewers were similar in terms to the two of which the copies were filed, and that the other contracts were in the possession of Sperry & Jones. It was further alleged that all of those contracts were made by Sperry & Jones for and on behalf of the company, and provided on their faces that they were to be assigned to and filed with it. The bill, then, after having directly charged that Sperry & Jones in making the contracts with the brewers were acting for and on behalf of the company, proceeds to aver that Sperry & Jones, through the said board of directors, "did compel the said Maryland Brewing Company on February 28, 1899, to assume the obligations of the various contracts with various brewers hereinbefore referred to." The bill then further alleges that the various breweries which were, in fact, transferred to the company, without averring that they were so transferred by virtue of said contracts, represented an output for the preceding year of only 543,000 barrels, against which the terms of the contracts would have permitted an issue of only $5,320,000 of bonds, and a corresponding amount of stock by the company, but that the appellees Sperry & Jones, having control as aforesaid of the company, caused it to issue to them against the said properties $7,500,000 of bonds, and $2,750,000 of preferred and $2,750,000 of common stock; that this issue of bonds and stock was authorized at a meeting of the company held on February 15, 1899, by the presentation to a stockholders' meeting, and the acceptance by the stockholders in such meeting assembled of a written offer from Sperry & Jones to subscribe for, and take the above-mentioned amounts of, bonds and stock of the company, and to pay for $500,000 of the bonds in cash, and to pay for the remainder of bonds and stock so to be subscribed for by a transfer and conveyance to the company of certain specified brewery properties, at the valuations therein set forth. A copy of the minutes of said stockholders' meeting, showing that all of the stockholders were present in person or by proxy, and containing in full the said proposition of Sperry & Jones, is filed with the bill as Exhibit C. The bill then charges that this stockholders' meeting had no legal right to receive or accept said proposition, because it does not appear that prior notice had been given of the meeting and its purpose, as is required by law in such cases.
The bill further charges that the two trust companies, which were made codefendants with Sperry & Jones, and which appear in this court as appellees, with full knowledge of the matters hereinbefore mentioned, entered into an agreement with Sperry & Jones to furnish them the sum of $3,300,000 to consummate the promotion of the company, for which they received $4,000,000 of the bonds and a large amount of the stock of the company, and that they became jointly interested with Sperry & Jones in such promotion and in the transactions connected therewith, and that they subsequently sold said bonds for the sum of $4,240,000, but did not account to the company or its receivers therefor, and that Sperry & Jones failed to account for such of the bonds as were retained by them. The bill then charges that this alleged overissue and sale and disposal of the bonds and stock of the company, procured by Sperry & Jones with the aid and connivance of the two trust companies, was a fraud upon the company and its original stockholders and its creditors. The bill further avers that subsequently the company was compelled to default upon its bonds, and was, upon a bill filed for that purpose, put in the hands of receivers under sections 264 and 264a of article 23 of the Code, and that, after a sale of substantially all of its property and effects and the application of the proceeds to the payment of its debts, there still remains over $4,000,000 due to its bondholders, and that the institution of the present suit was authorized by an order of court passed in the receivership case. The prayer of the bill is for an account from the defendants of the proceeds of the bonds of the company unlawfully obtained and sold by them or appropriated to their own use, and for general relief. The appellees Sperry & Jones and the Citizens' Trust & Deposit Company demurred to the bill, and the issue thus made was tried; and the decree appealed from, which sustained the demurrers and dismissed the bill, was entered before the time of the other appellee to respond to the bill had expired.
Notwithstanding the positive averment already referred to in the bill, that on February 28, 1899, Sperry & Jones compelled the company to assume the obligations of the contracts with the various brewers, the theory of the bill is that Sperry & Jones acted for and on behalf of the corporation in making the contracts with the brewers, and for that reason stood in a fiduciary relation to it, and could have no undisclosed interest in the property covered by the contracts nor make any secret profit out of their execution. It is charged that they violated their fiduciary obligation by procuring the company to issue to them a larger amount of stocks and bonds than are called for by the contracts. The case against the two trust companies, who are also made defendants to the bill, rests upon the allegation that they, with full knowledge of the relation of Sperry & Jones to the company and of...
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