Bortner v. Leib

Parece, J., delivered the opinion of the Court. The bill of complaint was filed on. August 30th, 1923, by James C. Leib, Clayton E. Rutledge, and Otha L. Gladding, against the J. C. Leib Company, Inc., a body corporate, and Rayman W. Bortner. The plaintiffs .alleged that the capital stock of -the corporation was held by the plaintiffs and the defendant, Rayman W. Bortner, and that the corporation vtfas insolvent with a large judgment against it outstanding; that it had not been actively in business since August, 1923, and that the defendant, Rayman W. Bortner, held certain stock of the Aspers Fruit Products Company in his own name, when it was in fact the property of the J. 0.

Leib Company, Inc. There was a prayer for general relief, and the specific relief sought were a receivership to preserve and liquidate the .assets of the insolvent corporation; the.transfer by Rayman W. Bortner to the receiver of the stock of the Aspers Fruit Products Company, and an injunction to prevent his disposition of 'the stock in any form before the transfer was made; and, finally, the distribution of 'the assets of the corporation and its dissolution. The allegation in the bill, that gave rise to .the controversy below, .and this appeal, is the charge that the J. C. Leib Company, Inc., had advanced the sum of ten thousand dollars to the Aspers Fruit Products Company, which had issued its preferred stock in the sum of eight thousand and six hundred dollars, in part payment of this loan, to the defendant, Ray-man W. Bortner, who held the stock in his own name when it w'as, in fact, the property of the J. C. Leib Company, Inc. The lower court appointed a receiver, with power and authority to take charge of the assets of the company, and to collect its outstanding accounts receivable; and enjoined Rayman W. Bortner from making any disposition whatso ⁵³³ ever of the sitares of preferred stock of the Aspers Ffnit Products Company then supposed to be held by him in his name in the amount of eight thousand dollars, until the further order of the court. The answer of Rayman W. Bortner did not admit the allegations of the bill with respect to the company’s financial condition, and asserted that the three plaintiffs were largely in the debt of the company. With reference to the advance^ ment by the company to the Aspers.

Fruit. Products. Company of the alleged sum of ten thousand dollars, the defendant, Rayman W. Bortner, admitted that advancements, had been made, but asserted that these had all been fully adjusted in 1921 between the four stockholders of the company, and that, while he was the holder of preferred stock in the Aspers Fruit Products Company, every share of this stock was his own private property, in which neither the plaintiffs nor the defendant company had the slightest interest. While the answer of the appellant was verified, and was filed on October 1st, 1923, yet the secured preferred stock of the Aspers Fruit Products Company was not held by the appellant, as this stock had stood in the name of his wife since May 5th, 1922, as his gift.

A judgment pro confesso was obtained against the J. 0. Leib Company, Inc., and testimony was taken, and a decree was. passed .adjudicating the corporation to be insolvent, appointing a permanent receiver to wind up its affairs and declaring that the defendant, Rayman W. Bortner. should pay to the receiver the- sum of ten thousand dollars by reason of his. fraudulent conversion to his own use of warehouse eider certificates of that value belonging to the said the. J. C. Leib Company, Inc. It was. through the alleged wrongful conversion by the appellant of these certificates that he obtained the preferred stock in question. The decree was dated on December 6th, 1923, and on January 8th, 1924, the defendant, Bortner, filed a petition setting forth that he had discovered certain evidence which was not in his possession at the1 time of the trial of the case, and asking that he be granted a rehearing.

This petition was ⁵³⁴ answered by the plaintiffs* and the lower court, passed its order on January 25th, 1924, dismissing- the petition. 1. On January 29th, 1924, the defendant, Kayman W. Bortner, took separate appeals from the decree of December 6th, and the order of January 25th. Consequently there are .two appeals on this record. The appeal from the refusal of the lower court to grant a rehearing with leave to offer additional testimony, will not be considered by this Court, as a rehearing, after a decree, is a matter in the sound discretion of the lower court and will not be considered here when there is nothing on the record to indicate any injustice sustained by the petitioner or any abuse of its power by the court before which the cause was heard.

Dorsey v. Hammond, 1 Bland, 463 , 473, 474; Walsh v. Smyth, 3 Bland, 9 , 27, 28; Tessier v. Wyse, 3 Bland, 28 , 61; Meluy v. Cooper, 2 Bland, 200 . Furthermore, the decree was enrolled, and no rehearing could have been granted. Miller’s Equity, sec. 286; Code, art. 16, sec. 188. This leaves for consideration the propriety of the decree appointing a permanent receiver and awarding a judgment of ten thousand dollars in personam against the appellant. 2.

So far as the appointment of a permanent receiver is concerned, no point is made by the appellant that requires attention. It is admitted that a receiver should be appointed, and there is nothing before this Court to1 indicate reversible error in the selection of one of the attorneys for three of the principal stockholders, who, with the appellant, are the chief parties in interest. In this connection, however, it may be said that, as a general rule, it is better practice not to appoint as sole receiver an attorney who represents one of the antagonistic interests. As the naming of the receiver is so largely in thq discretion of the circuit courts; they should be careful to choose those who have practical knowledge, experience and sound judgment in the matter involved, and wW shall be impartial with respect to the parties affected and the conflicting interests involved.

In the course of the receivership, the court is in control, and possesses ample power to remove its ⁵³⁵ original nominees, and appoint other or additional receivers as circumstances may, from time to time, require, in safeguarding the interests and rights of those concerned. High on Receivers, secs. 65-70, 820-829; In re Colvin, 3 Md. Ch. 300 ; Williamson v. Wilson, 1 Bland, 418 . There is no reason to assume that these principles will not be enforced by the chancellor to the end of the proceedings in this cause. 3. The primary matter for the court on this appeal is to determine from a mass of testimony, largely made up of irreconcilable statements, what is the truth in respect to the inception, progress and conclusion of a transaction, whereby ten thousand dollars passed from the J. C. Leib Company, Inc., to the Aspers Fruit Products Company.

Every essential fact is a subject of controversy. It is, however, agreed that for a number of years J. O. Leib carried on in Baltimore1, under the trade name of J. C. Leib Company, the business of selling fruits, and vegetables, and their products, as a commission merchant, in 1914, he formed a corporation, called The J. C. Leib Company, Inc., with a capital stock of thirty thousand dollars; and he transferred his business to it, and thereafter the business was conducted as a corporate enterprise. Leib1 retained control of the corporation, and became its president. Clayton E. Rutledge, Otha L„ Gladding and Rayman W. Bortner, the appellant, old employees, were kept, and became, in June, 1921. with Leib, the holders of all the capital stock.

At this time, and until the filing of the bill of complaint,-the respective holdings of the stock of the incorporation were J. 'C. Leib, $16,000, Clayton E. Rutledge; $4,000, Otha L. Gladding, $4,000, and Rayman W. Bortner, $6,000, aggregating the authorized capital stock of $30,000. From the beginning, J. C. Leib continued as the president of the corporation. The management of the corporate affairs was similar to that of a partnership. Notwithstanding Leib’s large interest, the profits were divided among all the shareholders, who, with the exception of Leib, were paid salaries.

The business was, in 1921, in the hands of Leib, who. was. ⁵³⁶ chiefly consulted with respect to financial matters; of Hut-ledge, who was the traveling salesman for five or six months of every year, and who was, also; when in Baltimore, a.salesman at the docks; of Gladding, who was not in the office but who was chiefly occupied in looking after the affairs of the corporation at Bolton Depot and on the wharfs; and of Bort-ner, who was the 'active manager of the corporation, its treasurer, with general charge of the office work and of the books. Among the business concerns, with which the J. C. Leib Company, Inc., dealt, was the newly formed Aspers Fruit Products Company, a corporation located at Gettysburg, Pennsylvania. In order to make more secure the future patronage of this company, the J. C. Leib Company, Inc., in 1911, 1918, bought $10,000 of its common stock, upon the understanding that it would advance the purchase price of $10,000 for the account of the four stockholders, and would charge the sum of $2,500 against the personal account of each stockholder on the books of the company. This was done and for two- years the stock seems to have been in the name of the J. C. Leib Company, Inc., but, at the expiration of that period, every stockholder having paid for his portion of the stock in full to the Leib Company, certificates of stock were issued in the individual names of the four stockholders, and have since been so severally held.

Since 1920, therefore, the I. C. Leib Company, Inc., has not held a share of stock in the Aspers Fruit Products 'Company, and has had no vote in its corporate affairs. The appellant has, however, advanced the theory that, while he was a director of the Aspers Fruit Products Company, he was as such director acting .as an agent of the J. O: Leib Company, Inc., and that, therefore, it was bound by his act in 'becoming the individual accommodation endorser of the Aspers Fruit Products Company, and obliged to indemnify him against any loss personally sustained as one of the seven directors of the Aspers Fruit Products Company, who had endorsed for its accommodation to the extent of some $86,000 or $87,000. ⁵³⁷ It is clear -that an agent’s authority is commonly available only for the principal’s benefit. So the conceded ownership in severalty by Leib, Gladding, Rutledge and Bortner of-$2,500 each in certificates of the common stock of the Aspers Fruit Products -Company is of itself a negation of any implied corporate grant of power by the J. C. Leib Company, Inc., to the appellant, to bind it for the obligations of the appellant that were voluntarily incurred in his own individual name and for the relief of a third party. If any benefit indirectly inured from the appellant’s endorsement, it was not to the corporation but to- Leib, Bortner, Gladding and Rutledge personally as stockholders of the Aspers Fruit Products Company.

Mechem on, Agency (2nd Ed.), sec. 981. No agent has implied power to- give away any portion of the corporate property or to create a corporate obligation gratuitously, as the property of tbe corporation belongs to its shareholders, and its use must be confined to the chartered purposes, except by unanimous, consent. ’ On tbis practical ground the authority to lend the credit of a corporation without a consideration, or to sign its name to negotiable paper for the accommodation of others, is usually not implied. If the corporation is. to be bound, the endorsement must generally have, been made with the knowledge and assent of all the directors and stockholders, and the rights of creditors must not be impaired. Even if tbe corporate form, be brushed aside as immaterial, and the relation of the four shareholders he regarded as a partnership, one partner eo-uld not so bind the firm without the consent of all its. members.

Morawetz on Private Corporations (2nd Ed.), sec. 423; 3 Cook on Corporations (7th Ed.), sec. 774; Savage Manufacturing Co. v. Worthington, 1 Gill, 284 ; 1 Daniel on Negotiable Instruments, sec. 365; Navarre Realty Co. v. Coale, 122 Md. 494, 501 ; Bear Creek Lumber Co. v. Bank, 120 Md. 566 , 569 ; Johnson v. Johnson Bros., 108 Me. 272, 281 , 26 Ann. Cas. 1303, 1313 et seq.; Mechem on Agency (2nd Ed.), sec. 976; Johnson & Pitt v. Crichton, 56 Md. 108 . It is. true that, the dangerous, power of an agent to bind his, principal by endorsing negotiable paper- or by pledging ⁵³⁸ bis principals credit for tbe benefit of a third person may be established by implication, but, if not proved to have been conferred in express terms or to be the result of an estoppel, the delegation of this power must be shown to-be necessarily implied from the very nature of the agency created, or to be an actual incident to an established course of dealing. Mechem on Agency (2nd Ed.), sec. 1001-1003. The only basis for this contention of the appellant is tha-t, after the purchase of this stock, the Aspers Fruit Products Company requested Leib to join its board of directors in order to watch its- affairs-.

When Leib declined, Bortner was selected as hi® substitute. The appellant stated in his testimony that he went upon the board of directors- of the Aspers Fruit Products Company as the representative of the J., O. Leib Company, Inc., but this assertion is emphatically and categorically denied by the three other stockholders, and there is nothing in the proof sufficient- to establish such a relation. There was no written authority ever conferred upon Bortner to use the credit of the corporation as an accommodation endorser. The appellant endorsed in his own name, and told Leib that he was not using the corporate name.

No pretense is made -that either the corporation, or his associates- in the James C. Leib Company, Inc., ever authorized a single one of such endorsements, or ever had one submitted for consideration, approval or ratification, or that .anything was ever said or done that could be construed into establishing an agreement of any kind, or creating an estoppel, whereby the Jaimes C. Leib Company, Inc., was bound to save harmless the appellant from his independent acts and ill considered use of his own personal credit. In fact-, the appellant himself accepted the situation as one in which he co-uld not successfully maintain -tha-t his acts-as a -director of the Aspers Fruit Products Company were the acts of the J. C. Leib Company, Inc. All that he deduced from the situation was a “moral” responsibility of the other three stockholders to indemnify him for his- personal endorsement of -the paper of the Aspers Fruit Products Company. In speaking of his loss as endorser, the appellant ⁵³⁹ testified that he said: “Mr. Leib, I felt that I represented the firm in this transaction. If you three insist that I stand this loss, I will have to stand it, but I tell yon now, I will not stand it gracefully.” This is an unequivocal recognition that neither the corporation nor the three stockholders were under any legal obligation to reimburse the appellant on any of his endorsements. 4.

In order to determine the remaining questions on this record, it is necessary to ascertain what occurred in the course of the transaction assailed, and this has required a. careful consideration, weighing and review of all the evidence. To set out every conflict of proof resolved would serve no useful purpose. It is, therefore, best .to state the conclusion on the testimony in a narrative form, with some discussion of the testimony on the crucial points. Although the Aspers Emit Products Company had borrowed heavily on its own and its directors’ personal credit, it was nevertheless in urgent need of money, and on June 15th, 1921, appealed for a loan of $10,000 from the J. C. Leib Company, Inc., that was to he secured by the pledge of certain negotiable warehouse receipts for eider in storage in Gettysburg which were worth more than the amount of the loan desired.

The four stockholders met and considered the application. Leib, Rutledge and Gladding opposed a loan of $10,000, and the stockholders denied the request, but agreed to a loan of $5,000, with the certificates as collateral. The cheek for the loan was issued on June 15th. At the time of the granting of this loan, the J. C. Leib Company, Inc., was not in a good financial condition.

In order not to weaken its credit hv having the statement to