Alexander v. Maryland Trust Co.

Boyd, J., delivered the opinion of the Court. There are three appeals in this record — two by John S. Alexander and one by Archibald A. Alexander — but it will be unnecessary to discuss them separately, in view of the conclusions we have reached. Although the record contains nearly five hundred pages and the briefs over two hundred, the principal questions in controversy are comparatively simple, after they are separated from those which have no bearing on these appeals. It will, however, be well to ‘state at ¹⁷² some length the facts leading up to the order and decree appealed from, as they will tend to explain and throw light upon the true situation and rights of the respective parties, so far as necessary for the purposes of this case.

The Mexican Government granted a concession for the building of the Vera Cruz and Pacific Railroad, by which, in addition to the right to construct and operate the road, a subsidy in bonds of the Government was granted at the rate of $16,000 (Mexican) per kilometre, payable in installments as the road was completed. The length of the road as projected was 350 kilometres (about 220 miles). Messrs. Reed and Campbell originally held the concession.

John S. Alexander entered upon negotiations for the control of it and Alfred Bishop Mason became jointly interested with him in the project, upon the representation of the latter that he would procure the assistance of the Maryland Trust Company in constructing the road. Prior to May 3rd, 1898, whatever understanding existed between Mason and Alexander was in parol, but-on that date an agreement in writing was entered into between them. It recited that Mason had purchased from V. R. Reed a concession bearing date February 28th, 1898, issued to him by the Government of the United States of Mexico, which concession had been assigned to Mason and Henry J. Bowdoin, and which Mason had agreed to assign to the Vera Cruz and Pacific Railroad Company. It further recited that Alexander aided in the promotion of the undertaking, and had agreed to render such service thereafter, under the direction of Mason, as he might request, upon an agreement for compensation out of the net proceeds of the undertaking.

It was then agreed by Mason that upon the completion of the contracts of subscription and construction he would pay Alexander for such services “foür-ninths of such part of' the net profits accruing from said contracts as the said Mason may retain for his own use and benefit, which payment shall be made by the transfer and delivery of four-ninths of such net profits in the form in which they may be when ascertained * * * that is to say, in stocks, bonds or notes of said com ¹⁷³ pany or in cash profits.” Alexander agreed to accept the four-ninths “and does not and will not claim any interest in said concesión or any interest in, nor control over, the undertaking except the right to receive the four-ninths of the net profits as above provided.” It was provided that nothing in the contract should prevent Mason from dealing with the undertaking as his own property, or from cancelling existing contracts with the Railroad Company and with others, or from making such other contracts as he might see fit. The agreement was also stated to be in full settlement of all questions existing between them prior to that date, and in final determination and definition of their respective rights. That agreement was drawn by Henry J. Bowdoin, who was Vice-President of the Maryland Trust Company, and was executed in triplicate — each of the parties and the Trust Company retaining a copy. Alexander testified that Bowdoin “ undertook to give” him notice of any changes in the contract between the Trust Company and the Railroad Company that mightjbe made at any time thereafter.

On January 17th, 1900, J. Bernard Scott, Secretary of the Trust Company, wrote to the counsel for Alexander; “Should there remain in our hands to the credit of Mr. Mason any net profits, as defined and set forth in the agreement of May 3rd, 1898, we will, before turning same over to Mr. Mason, notify Mr. Alexander and give him an opportunity to assert his claim for his share in the same. ” In the petition of the receiver, to be hereinafter more particularly referred to, asking of the Court authority to settle with Alexander, he said, in speaking of the contract of May 3rd, 1898, “The Maryland Trust Co. was notified of this contract between Alexander and Mason and Mr. Henry J. Bowdoin, the vice-president of said Trust Company, and acting on its behalf promised the said Alexander that the Trust Company would see that four-ninths of any profits that might be coming to Mason should be retained for his benefit.” Certain arrangements were made between Mason, the Railroad Company and the Trust Company and the latter advanced from time to time large sums of money. Alexander claims to ¹⁷⁴ have been kept in the dark, and evidently was not fully informed as to what was being done between those parties. The Railroad Company was organized under the laws of West Virginia, and in April, 1901, a new arrangement was entered into between the Trust -Company, the Railroad Company and Mason without the knowledge of Alexander. An agreement was entered into between the Trust Company and Mason on April nth, 1901, which recited the holdings of stock and promissory notes of the Railroad Company by Mason, which were held by the Trust Company as collateral security for the indebtedness of Mason, and by which it was agreed that the Trust Company should vote the stock as the agent and attorney of Mason at .the meetings of the Railroad Company, in order that new contracts between Mason and the Railroad Company could be entered into.

On the next day (April 12th, 1901,) another agreement was made between the Trust Company and Mason which recited that by the agreement of April nth, it was provided that the Railroad Company was to be capitalized at $5,000,000 first mortgage five per cent. American gold bonds, $2,500,000 first preferred stock, $2,500,000 second preferred stock and $5,000,000 common stock, to be issued under the terms of a contract to be entered into between Mason and the Railroad Company. Mason then covenanted to deliver to the Trust Company the bonds, the first and second preferred stock and $3,750,000 of the common stock, in consideration of which the Trust Company agreed to release him from all indebtedness or liability to the Trust Company, together with interest thereon, existing at that date, as well as all indebtedness to the associates of the Trust Company under syndicate agreements entered into with Mason. That agreement provided for the sale by the Trust Company, or hypothecation as collateral security, of the subsidy bonds of the Government of Mexico, issued on account of the reconstruction and equipment of the Motzorongo Road, and the .construction and equipment of the Vera Cruz and Pacific Railroad and its branches, and it was agreed that Mason should receive a salary as President of the Railroad Company, ¹⁷⁵ of $20,000 in gold for the twelve months succeeding the first day of April, 1901.

That the $1,250,000 of common stock was allotted to Mason as his share of the profits is shown by what is called “Declaration of Trust and Agreement’’ which was exe'cuted by the Trust Company, through its attorney, Mr. Marbury, and by Mason on March 14th, 1902. That is also so stated in the petition of the receiver, which said that he was advised that Alexander was not notified by the Trust Company that said allotment had been made. The Declaration of Trust is quite a lengthy instrument. It recites that in addition to the proceeds of sales of the subsidy bonds the Trust Company had made large advances towards the construction, operation and maintenance of the railroad, and might advance additional amounts for the same or similar purposes; that Mason claimed to be a creditor of the Railroad Company in the sum of $ 5 5,000 gold, for money advanced by him at various times, also in the sum of $584,122.94 (Mexican) for commissions for money secured by him for its use, and in a sum equal to the difference between the cost of repairs of the “Ferrocarril Agrícola de Montzorongo” and the amount of the proceeds realized from the sale of bonds granted by the Mexican Government to aid in such repairs.

It further stated that it was the object and purpose of the parties to that instrument “to provide for the final adjustment, settlement and extinguishment of all claims existing between them, and to secure the repayment to them respectively of their said advances,” and after stating the capitalization of the Railroad Company and that Mason owned the $1,250,000 of common stock which was alloted to him “as his sole share in the profits” of the railroad enterprise, under the agreement of April, 1901, various covenants and agreements were entered into. Mason agreed to transfer and deliver the shares of the common stock to the Trust Company to be held by it for the purposes and uses of the agreement. The Trust Company declared that it held, and would hold, all the stocks and bonds of the Railroad Company which it already owned and held and those to be transferred to it by ¹⁷⁶ Mason, as security for the repayment to itself and to Mason, pari passu, and without preference of one over the other, of their respective claims against the Railroad Company, to wit: the claim of the Trust Company for moneys'advanced or to be advanced by.it in furtherance of the construction, maintenance, and operation of the railroad, including certain expenses mentioned, with interest at six per cent, per annum upon each of. said advances from the date thereof, less such amounts as the Trust Company may have received upon said claims from sales of subsidy bonds or other sources “and the claim of said Mason against said Vera Cruz and Pacific Railroad Company for the • sum of fifty-five thousand dollars {$>55,000.00) gold, advanced by him as aforesaid, with interest at six per cent. (6 per centi) per annum." It is then agreed, after the payment of all said claims in full, • with interest at six per cent per annum, to apply the balance, ■ if any, remaining of the proceeds of the sale of securities to _ pay fifteen per cent to Mason and the remainder to the Trust •Company.

Provision was made for the sale, exchange, etc., of the securities and Art. 7 of the agreement provided as follows: “Notwithstanding anything in this agreement to the contrary, it is expressly understood that the Trust Company shall have, the right to deliver to John S. Alexander four-ninths of the common stock of the Vera. Cruz and Pacific Railroad Com-. pany to which said Mason was entitled as his share of the profits of the Vera Cruz and Pacific Railroad enterprise, provided the same be accepted by said Alexander in settlement and satisfaction of all his claims to share of said profits, and he give a proper release to said Mason, or his representatives.” Mason released the Trust Company and the Railroad Com- . pany, and each and every officer of those companies, from all claims of every description, acknowledged that he was fully satisfied, ratified, approved and confirmed all corporate acts theretofore taken by the directors and stockholders of the Railroad Company, and especially those relating to the issue of the securities, and the execution and recording of the mortgage securing the bonds. He further covenanted to cause ¹⁷⁷ proper entries to be made upon the books of the Railroad Company to show the settlement and satisfaction of all his claims against the company. He continued to be president of the Railroad Company until November 7th, 1902.

Alexander testified that Mason never called on him for any services after December, 1898, refused to answer his letters and neither he nor the Trust Company gave him any information. On October 19th, 1903, John S. Gittings and Co. filed a bill in equity against the Trust Comgany alleging that they were creditors of it, that the company was indebted in large amounts, was greatly embarrassed and unable to meet the demands of its creditors and depositors; that it had a large amount of assets consisting of securities of various kinds, which had great value but were not marketable; that the creditors and depositors' were demanding payment of the funds due them, and the company did not have sufficient funds to meet the demands and was in fact insolvent; that there was great danger that the assets of the company would be wasted and sold at great sacrifice, etc. They then prayed, first; That the Court fully administer as a trust fund all the property of said company and marshal the assets, ascertain the liens and priorities existing thereon, and enforce and decree the rights, liens and equities of the creditors and stockholders as the same might be fully ascertained and decreed by the Court; second, That a receiver or receivers be appointed to take possession and management of the assets, books and papers of the company, collect all debts due it and administer the same subject to the, further order of the Court, until such time as it may be just and proper to sell said property, etc.; third, That at such time as may be found just and proper the property of the defendant company'be required to be sold and the proceeds distributed; and for further relief. The Trust Company filed an answer admitting the matters and facts set forth in the bill, referring especially to the stocks and bonds of the railroad in Mexico, consenting to the appointment of a receiver or receivers, with authority to administer the property and affairs of the defendant until ,an. adyan-. ¹⁷⁸ tageous sale and disposition of its property and assets could be effected, and consenting to the granting of such other relief as was prayed for in the bill. An order was passed the same day (October 19th, 1903), appointing Allan McLane, receiver, with power and authority to take charge and possession of the goods, wares and merchandise, books, papers and effects of or belonging to the company, and to collect the outstanding debts due it, and the company its agents and attorneys were required to yield up and deliver to said receiver the goods, wares and merchandise, books, papers and effects of said company, subject nevertheless to the further order of the Court.

On December 18th, 1903, the receiver filed a petition, referring to the bonds and stocks of the railroad company which were held subject to the declaration of trust of March 14th, 1902, and quoting from it and asking for authority to purchase the securities. That petition also stated that Mason was indebted to the Trust Company in a sum far in excess of the 15S,000 with interest provided for in said declaration of trust — that amount of indebtedness having been incurred since the execution of said declaration of trust. An order was passed according to the prayer of the petition. On January 25th, 1904, the receiver■ reported that Mason was willing ■ to relinquish his rights under Article 4 of the declaration of trust, requiring notice to him before sale, and to allow the Trust Company, or the receiver, to dispose of or borrow money upon the securities at any time without notice to him, and asked authority to execute an agreement with him which was filed with the pe:ition.- The Court so ordered, and an agreement was made reserving the rights of Mason in the securities and the proceeds of sale as they existed prior to the application of the receiver for authority to purchase the securities, providing that the receiver should account to Mason for the proceeds as provided in the declaration of trust, apply the proceeds to the reimbursement of the Trust Company, or its receiver, for advancements made, “and at the same time and equally and without preference to the reimbursement of said ¹⁷⁹ Mason, his heirs, personal representatives, or assigns, of the sum of fifty-five thousand dollars ($55,000), with interest, as provided in said declaration of trust,” etc. After the appointment of the receiver, Alexander obtained access to the papers and was asserting his claim for his share of the stock allotted to Mason, and which was purchased by the Trust Company with knowledge of Alexander’s rights.

The receiver was anxious to sell the securities of the railroad company and negotiations were carried on with the appellant for his interest in the stock. On April 15th, 1904, the receiver filed a petition, in which he referred to the agreement between Mason and Alexander of May 3rd, 1898, and stated that tbe Trust Company was notified of it and that Mr. Bow- ■ doin, its vice-president, and acting on its behalf, promised Alexander that the company would see that four-ninths of any profits that might be coming to Mason should be retained for his benefit, that the declaration of trust showed that 25 per cent of common stock had prior to the date of its execution been allotted to Mason as his share of the profits, of which Alexander had not been notified, that the whole of said 25 per cent of stock was in the hands of the receiver and that Alexander had presented his claim for four-ninths of said stock, alleging that he was entitled to it by virtue of the agreement between him and Mason, and the promise of the Trust Company to see that he received his share called for in the agreement. The receiver then stated that, after conferring with the various creditors of the Trust Company through their counsel, he was advised that it would be “most desirable” to have undisputed title to the entire capital stock of the Railroad Company, in case of negotiation for a sale and was advised to secure the relinquishment of Alexander’s claim; that he had agreed with Alexander that if he would relinquish any claim he might have to the stock he would transfer to him the claim which the Trust Company and he, as receiver, had against Mason. The petition then states: “This balance due from said Mason on that account as shown by the reports of the experts is about $200,000, but said Mason will be entitled to ¹⁸⁰ some credits on said account, and so far as your receiver is advised said Mason has no property from which said claim could be collected, except his interest under said declaration of trust and agreement of Maroh Tfth, 1902." Thé same day the Court authorized the receiver to execute an agreement with Alexander, in accordance with the recommendations contained in the petition.

The docket entries in the record also show that on that day (April 15th, 1904), the receiver reported a sale of all the securities of the Vera Cruz and Pacific Railroad, and the Court ratified and confirmed the sale — although it is stated by counsel that the report of sale and order of Court were not filed until a later period. On April 22nd, 1904, an agreement was executed between Alexander and the receiver by which Alexander released his claim to interest, ownership or title in and to any stock of the Railroad Company and the receiver (who,'the agreement stated, was authorized by order of the Court to make the agreement, and thereby bind the Trust Company) agreed that the company would in its own name, but at the expense of Alexander, set up any and every claim which the Trust Company or the Railroad Company had, or might have, against Mason against any claim which Mason might have against the Trust Company or Railroad Company, by reason of the contract of May 14th, 1-902, to the sum of $55,000, and the interest thereon, and any profits thereunder which may be distributable or distributed to said Mason, “and-so far as said claim against said Mason may be adjudged to set off or extinguish said claims made by him, the'party of the second part (the receiver) agrees to pay to the party of the first part (Alexander) a sum or sums equal to or representing said set off or extinguishment out of the amount received by him from the sale of the securities of the Vera Cruz and Pacific Railroad Company or the sale of any securities which he may receive in exchange therefor.” It then provides that in the event said Mason did not intervene in the suit and make claim to the $55,000, and interest, or to any profits, he may claim under the agreement of March 14th, 1902, and-the Trust Company set up the' counter claim ¹⁸¹ thereinbefore agreed to be set up, “then such sum as the Court may adjudge to be payable out of the said fifty-five thousand dollars and interest and said profits to the Maryland Trust Company by reason of said