Booth v. Baltimore Steam Packet Co.

Alvey, C. J., delivered the opinion of the Court. The primary object of the bill filed in this case was to ■obtain indemnity by the complainants for the depreciation ⁴² of, and loss in, the value of the shares of the capital stock of the Powhatan Steamboat Company, held hy them, caused, as it was alleged, by the illegal and fraudulent, conduct of certain of its directors, who acted in the interest of a rival corporation, the Baltimore Steam Packet Company. The principal relief sought hy the bill was denied, for the reasons stated by this Court when the case was. here on the former appeal (Booth, et al., vs. Robinson, et al., 55 Md., 419, 428 ,); but it was held, that a certain transaction, whereby it was made to appear that for the consideration of §40,000, there had been a sale and transfer of the Steamer Petersburg from the Powhatan Company to the Steam Packet Company, was in reality and effect a mortgage, and not an absolute sale, and that being so the latter Company should account for the mortgaged property, and all the profits and hire thereof; and the-cause was remanded to the end that such account might he taken. Accounts were stated, and upon the case coming on for hearing upon exceptions to such accounts, the Court below rejected the accounts as stated hy the auditor, and in its opinion and order determined and settled the principles and basis upon which the account should he taken, and referred the cause hack to the auditor.

It is from this order that both parties have appealed to this Court. To the proper statement of the account it is essential that the value of the steamer at the time she went into' the possession and control of the mortgagee should he ascertained, and also the value of her use while in such possession. It is likewise material to ascertain to what extent she suffered depreciation in value, from natural causes, or otherwise, during the time of such possession of the mortgagee, and for what allowances the mortgagee may he entitled for repairs and other expenses, if for any, under the circumstances of the case. And as the mortgagee finally sold the steamer as its own property, and without notice to the mortgagor, it also becomes necessary to de ⁴³ termine for what amount the mortgagee shall he charged, as the value of the steamer, for and in respect of such sale.

Before referring to the facts of the case, hearing upon these questions, it would seem to he necessary that we should state briefly the principles of law that must he observed in taking the account between the parties. As between the mortgagor and mortgagee, where the latter is in possession in the acknowledged character of mortgagee, the principles of the account are plain and well defined, and are applied for the mutual benefit of both parties. But where the possession is held adversely to the mortgagor, with denial of the right of redemption, the principles of the account are quite different, and are applied with more or less rigor against the wrong-doer, according to the circumstances of the case. In the ordinary case for redemption, where the mortgagee is in possession, acknowledging his true relation to the property, he is required to account for all issues and profits thereof, so that they may he applied, after deducting all reasonable expenses and allowances, towards the discharge of the debt and accrued interest.

The usual decree in such cases, against the mortgagee in possession, is for an account “of what he has received, or what he might have received without his own wilful default.” Mayer vs. Murray, 8 Ch. Div., 424, 428; 2 Fisher on Mort. (3d ed.) 943. The duty of the mortgagee in possession is well stated by Lord Justice Turner,, in Kensington vs. Bouverie, 7 De G., M. & G., 134, 157, where he says, “ A mortgagee, when he enters into possession of the mortgaged estate, enters for the purpose of recovering both his principal and interest, and, the estate being, in the eye of this Court, a security only for the money, the Court requires him to be diligent in realizing the amount, which is due, in order that he may restore the estate to the mortgagor, who, in the view of this Court, is entitled to it.

It is part of his contract that he should do so.”' ⁴⁴ See, also, Mayer vs. Murray, supra. By taking possession the mortgagee assumes the duty of treating the property ■as a provident owner would do. He is hound to keep it in good ordinary repair, or, as some of the cases put it, to keep it in necessary repair. Godfrey vs. Watson, 3 Atk., 518; Sandon vs. Hooper, 6 Beav., 249.

And for all such proper or necessary repairs placed upon the property by the mortgagee he is entitled to receive allowance in the ■settlement of his accounts, and the amount so allowed will be added to the principal of the mortgage debt, if not liquidated by the rents and profits charged. Godfrey vs. Watson, supra; Moore vs. Cable, 1 John. Ch., 388. Such are the principles of accounting as between the mortgagor and the mortgagee in possession, where the character of mortgagee is acknowledged by the latter.

But where the mortgagee in possession repudiates his character and true relation to the property, and claims to hold as real, absolute owner, and denies all right of redemption, he renders himself liable to be treated as a wrong-doer, and as having acted in fraud of the rights of the mortgagor. In such case, it is an attempt to pervert a transaction from its real nature and design, and to give it an effect contrary to the real intention of the parties ; and such an attempt is stigmatized by a Court of equity as fraudulent. Russell vs. Southard, et al., 12 How., 148 . And the consequences attending such attempted perversion of- the transaction is most serious to the mortgagee.

He thereby disentitles himself to be treated with the favor of a mortgagee in possession as such, but is treated as a wrong-doer from the time of the disclaimer or repudiation of his true character. As an authority for, and in illustration of this principle, we may refer to the case of the Incorporated Society vs. Richards, 1 Dr. & War., 334. In that case the Chancellor, Lord St. Leonards, was pressed ■to give to the defendant the advantages of a mortgagee, in an ordinary suit for redemption, to which he replied, ⁴⁵ “ This is a peculiar case, and cannot he treated as the ordinary case between mortgagee and mortgagor. Here-you set up a title adverse to the owner ; and when a creditor denies his character as such, and claims as owner, I cannot allow him to fall back on his original character of creditor, as if he had never departed from it.

I will never allow a party, who has put the owner at arm’s length, to turn round, when defeated, and claim all the benefits attached to the character of a fair creditor.” The same principle was adopted and applied in the decision of the case of the Bank of Australasia vs. United Hand-in-Hand Co., 4 App. Cas., 391, 408, by the Judicial Committee of the Privy Council. Many of the facts of that case are very analogous to those of the present. In that case it. was held that because the mortgagee set up title to-the mortgaged property adverse to the mortgagor and in denial of the right of redemption, he lost the immunities of an ordinary mortgagee, and was held to account as for a wrongful possession. Coming now to the facts of the case, the first question is, what was the value of the steamer Petersburg, on the-1st of February, 1874, the time when she was surrendered to the possession of the Baltimore Steam Packet Company ?

The learned Judge below estimated the value of the steamer at that time, and for all the purposes of the case, at $15,000. But this estimate, we think, was too low. That the real value of the steamer was not less than $40,000 .on the 1st of January, 1870, was a fact fully conceded and acted on by both parties at that time. The transaction of the loan of the $40,000, and the subsequent, charter of the steamer to the Powhatan Company, fully establish this fact.

The insured value of the steamer at that time was also $40,000. The steamer, from that time to the 1st of February, 1874, was in the possession and use of the Powhatan Company, under the charter party of January 1st, 1871, and there is nothing in the evidence- ⁴⁶ to show that the steamer suffered any material damage •during that time, more than natural decay, and the ordinary wear and tear suffered hy the use for which she was ■chartered. She received some considerable repair during that time, at the cost of the Powhatan Company, and when she was surrendered to the Baltimore Steam Packet Company, February 1st, 1814, her insured value, fixed by the latter company, was then $25,000; and if loss had occurred by the perils insured against, we may he sure that the full insured value would have been claimed. In fixing the value of perishable property, and especially of that like the property in Question, there is always more or less difficulty in arriving at satisfactory results; but upon consideration of all the facts and circumstances of this case, this Court is of opinion that $20,000 would he a fair and just valuation of the steamer at that date ; and that the amount to he allowed for her use or hire should be adjusted to that valuation.

And as there was considerable repair placed upon the steamer between the date of her surrender to the Steam Packet Company and the time of filing the answer of that company to the hill in this case, we think the same rate of allowance for use or hire' of the •steamer should continue to the latter date. What, then, is a fair amount, per annum, to he allowed for the use or hire of the steamer during the period just mentioned? This, according to the testimony of Mr. Robinson, should he the one-third of the entire value of the steamer. And though this would seem to he a large hire, we must take into consideration the nature of the property — the great wear and tear suffered by use, its rapid deterioration hy non-use, and the constant necessity for repair to keep it in good running condition.

We therefore determine that the allowance for the use or hire of the steamer, from the 1st of February, 1814, to the 20th •of November, 1815, the date of filing the answer, shall be •at the rate, per annum, of one-third of her entire value, ⁴⁷ •as that value is herein ascertained and determined. This •allowance, however, for use or hire of the steamer, is made to the Powhatan Company, subject to the allowance to the Steam Packet Company for all necessary and reasonable repairs placed upon the steamer during the time before mentioned; that is to say, between the dates of February 1st, 1874, and November 20th, 1875. This allowance for repairs, during the period designated, is made upon the principle of accounting before stated, applicable as between mortgagor and mortgagee in possession, where the latter has made no adverse "claim to absolute ownership of the property. But from the time that such adverse claim is made or set up as against the mortgagor, a different principle applies, as we have already shown.

Now, the bill in this case was filed on the 7th of August, 1875, and in that hill it is distinctly charged that the transaction between the two companies in regard to the apparent sale and purchase of the steamer Petersburg, for the sum of $40,000, was in reality but a "loan, and that the absolute bill of sale was only intended as a mortgage security for the sum advanced, and that, by monthly payments, according to agreement, the mortgagor company had in