Bowles v. M. P. Moller, Inc.

Digges, J., delivered the opinion of the Court. The facts leading up to this appeal may be thus stated: On February 2nd, 1932, a bill of complaint was filed in the Circuit Court for Washington County by M. P. Holler, Inc., against the M. P. Holler Company. The bill states that the plaintiff is a corporation duly incorporated under the laws of the State of Maryland, with its principal office in Hagerstown, Washington County, Maryland, that it sues for itself as well as for all other creditors of the defendant, which is also a corporation incorporated under the laws aforesaid, with its business located in the same town; that the defendant is indebted to the plaintiff on open accounts in the amount of $103,658.97; that the defendant is also indebted to other persons, firms, and corporations to the amount of approximately $2,000; that the present assets of the defendant consist of accounts receivable of $2,725.10, accrued interest receivable of $2,377.72, merchandise inventory consisting of instruments, supplies, and all other stock in trade, $23,-988.58, equipment, fixtures, etc., $639.95, automobile delivery trucks worth approximately $400, making the total assets of the defendant approximately $30,131.35; that, in addition to these assets, it owns installments on conditional sale contracts which have accrued, to this date, but the. value of which installments is not, at the time of the filing of the bill, known, and the collection of a large percentage of which “is to say the least very doubtful and problematical”; that the defendant is insolvent and unable to meet and discharge its debts and obligations; that it is necessary for the protec ⁶⁷² tion of the interest of the plaintiff as well as other creditors of the defendant that a rceiver he appointed immediately to take charge of the property and assets of the defendant “so as to preserve the same and dispose of the same to the best advantage under the power, authority and direction” of the court. The prayers of the bill are that a receiver be appointed to take immediate charge of the property and assets of the defendant for the purpose of conserving and liquidating the same under the direction of the court, and for further relief.

The allegations contained in the bill are sworn to by E. O. Schullenberger, secretary of the plaintiff, stating that he is the secretary of the plaintiff, has personal knowledge of the matters and facts therein alleged, and that he is a duly authorized officer and agent of the plaintiff to make such affidavit. At the same time the bill of complaint was filed, an answer of the defendant was also filed, wherein it is stated that it admits the allegations, matters, and facts set forth in each and all of the paragraphs of the bill, and submits its rights to the court for such action as the court may deem fit and proper in the premises. The answer is sworn to by the vice-president of the defendant. On the same day the Circuit Court for Washington County, on the bill and answer, signed a decree appointing John Wagaman and J. Lloyd Harshman receivers of the defendant company, “with power and authority to take charge and possession of all the estate and property, stock in trade, cash, fixtures and equipment of or belonging to The M. P. Moller Company, a corporation, and to collect all outstanding obligations and debts owing to the said The M. P. Moller Company, which company is hereby required to yield up and deliver to the said receivers all its goods, wares, merchandise, stock in trade, fixtures, equipment, accounts, books, papers, and all of its assets of whatsoever kind and nature, subject to the order and direction of this court; that the said receivers proceed as expeditiously as may be reasonable with the liquidation of the business of the M. P. Moller Company and with the collection- of the bills receivable as fast' as said ⁶⁷³ collections may be reasonably made, and as soon as may be convenient, after making such liquidation, the receivers shall report to the court under oath a full and particular account of their proceedings under this decree, and bring into this court the money arising from said liquidation as well as from said collections, the same to he disposed of under the direction of the court, after deducting the costs of this suit, counsel fees and such commissions to the receivers as the court shall allow.” The decree further provided that the receivers, before proceeding to act, should give bond for the faithful performance of the duties reposed in them by tbe order and decree, or any future order and decree in the premises, in the penalty of $30,000.

The bond, with corporate surety, was filed and approved by tbe court on February 3rd, 1932. On February 5th, 1932, the receivers filed a petition reciting that they had filed bond and taken charge of the business; that the “receivers now have a bona fide offer from a parly to purchase all the assets of the defendant corporation consisting of goods, wares, merchandise, stock in trade, fixtures, equipment and accounts receivable whether on conditional sales contracts or otherwise, at and for the sum of $41,324.83, which said sum includes and embraces the sum of $6,102.60 representing the exact appraised value of all of the stock in trade, goods, wares, merchandise, equipment and fixtures, which appraisement yonr receivers had made by three competent appraisers and which has been already hied, in. this proceeding; and also embraces the sum of $35,222.23'' offered your receivers for the purchase of the aforesaid accounts receivable to the defendant corporation, approximately $100,000 of which accounts are represented by installment payments on conditional sales contracts some of which payments are past due and some of which cover a period of as high as thirty months in the future from this date, as well as approximately $5,000 of unsecured open accounts duo and owing to said defendant corporation”; that “yonr petitioners are advised and believe that the aforesaid sum of $35,222.23 offered them for the purchase of the aforesaid accounts receivable is eminently fair and reasonable and amounts to ⁶⁷⁴ probably more than what your receivers would be able to realize from said accounts should they be required to undertake the collection of them”; that M. P. Moller, Inc., the party making the aforesaid offer, is represented to the petitioners, and they believe it so, to be entirely able and capable from a financial standpoint to carry through its offer, $5,000 of which said sum has already been paid to the receivers, who are holding the same subject to the action of the court, and the balance is payable in two equal installments of $18,162.42 each, represented by promissory notes which will be given by M. P. Moller, Inc., and payable respectively in three and four months after the date on which the court may take action; that appended to the petition as a part thereof is a certificate of M. P. Moller, Inc., the largest creditor of the defendant corporation, in which it agrees to give prior right to all other creditors of the defendant, to the end that all other common creditors may be paid their accounts in full before anything out of the proceeds of this sale is distributed to M. P. Moller, Inc.; that also appended to the petition as a part thereof is the certificate or answer of the defendant corporation in which it states that it is familiar with the entire business and accounts of the defendant corporation, the property of said corporation, including accounts payable on installment contracts, and that, from its ■experience covering a period of approximately twenty years in handling conditional sales contracts, and taking into consideration that the offer to- the receivers is a cash' offer, it recommends that the court pass an order authorizing and directing the receivers to accept said proposition; that the receivers have made an investigation from persons who are in a position to know the success with which collections can be made on conditional contracts after they have been turned over to the receivers, and those persons “do not hesitate, after taking everything into' consideration, to recommend to this honorable court that it pass an order authorizing, empowering and directing them to accept said proposition of M. P. Moller, Inc.” The prayer of the petition is that the receivers be authorized and empowered to accept the offer ⁶⁷⁵ of M. P. Moller, Ine., to purchase the assets of the defendant at and for the sum of $41,324.83, payable as set forth in the petition. This petition is sworn to by the receivers. On the same day, upon said petition and affidavit,’ and the certificate and affidavit of the proposed purchaser, as well as the answrer and affidavit of the defendant company, the court ordered and decreed that the receivers “be and they are hereby authorized, empowered and directed to sell all the assets, stock in trade, goods, wrares, merchandise, fixtures, equipment and accounts receivable of The M. P. Moller Company, the defendant corporation in this proceeding, unto M. P. Moller, Inc., at and for the sum of $41,324.83, said sum to be payable as follows : $5,000.00 cash and the balance in two equal installments of $18,162.42, each, in three and four months respectively from the1 date hereof, said deferred payments to be secured by the notes of the said M. P. Moller, Inc., and upon receipt of the payments as aforesaid, the1 said receivers are hereby authorized and empowered to make proper assignment of all outstanding conditional sales contracts unto the purchaser, M. P. Moller, Inc.” On February 24th, 1932, the appellants filed a. petition to intervene, wherein it was stated that Norman S. Bowles and James L. Skinner respectfully petition this honorable court for the right tO' intervene and to become1 defendants in the above-entitled cause’, with a right to file an answer and defend said action, and for reasons say: (1) That they are the owmers of twenty-five per cent, of the total capital stock of the defendant corporation, represented by 125 shares of the capital stock of said corporation, which they purchased from one George Funkhouser for a total consideration of $11,000; (2) that the proceedings in this case indicate upon their face fraud, to wit, bill of complaint filed February 2nd, 1932, sworn to by E. O. Shulenberger, who is the secretary of both plaintiff and defendant corporations; that the samé day an answer was filed sworn to by M. P. Moller, Jr., officer and director of both plaintiff and defendant corporations; and the said answer was filed in the1 interest of the plaintiff corporation and was not filed in the interest of the defendant, ⁶⁷⁶ and both, papers indicate an attempt to' defraud your petitioners; February 2nd, 1932, an order of court was made appointing the son-in-law of the principal stockholder of the plaintiff corporation, M. P. Moller, Sr., as a joint receiver, without consideration of petitioners and without notice to them; that the officers of the plaintiff corporation had full knowledge that one of the petitioners was the owner of the 125 shares of stock, as the certificate representing those shares was in the hands of the officers of the defendant company for transfer to the petitioners; that the petitioners believe that the court was misinformed as to the interest that was outstanding, and, when said order was signed, believed that all parties at interest were either in court or had been properly notified; that three days later, February 5th, 1932, the receivers submitted a recommendation and petition to the court to sell some $150,000 in assets of the defendant corporation, consisting principally of secured and unsecured accounts, to the plaintiff corporation for the sum of $5,000 cash and two notes of the plaintiff for $36,000, and the petitioners say that these accounts of the defendant corporation are of such a nature that they could be collected within two years, and that more than the amount offered could be borrowed against these accounts; that the pleadings indicate that no effort was made to protect the defendant corporation, or to obtain the best price for its assets, no advertising, no offering to the public, and the entire proceeding was handled by the joint action of the plaintiff and the receivers acting in the interest of the plaintiff and not in the interest of the defendant; that on February 5th, 1932, the plaintiff, by an officer who' was an officer of both corporations, filed an offer to pay $41,-324.83 for the entire assets of the defendant, and agreed to pay off all other common creditors in full before any distribution to the plaintiff corporation; that this was done to' mislead the court into' believing that all interested parties had been satisfied, but that the interests of the petitioners, who hold twenty-five per cent, of the stock of the defendant corporation, were totally disregarded, and the common creditors, these petitioners are informed, are the officers and ⁶⁷⁷ relatives of the officers of the plaintiff corporation; that on February 5th, 1932, a paper filed by the defendant through its alleged solicitor, Samuel C. Strite, and sworn to by one of the officers of the plaintiff corporation, recommended to the court that- the offer be accepted, and, on the same day, the court, having been informed that all interests had been considered, and that no valid reason existed for not accepting said offer to sell or purchase, signed an order authorizing the sale of the defendant’s assets to the plaintiff for $5,000 cash and notes of some $36,000, and the petitioners say that a fraud was perpetrated upon the> court when this order was presented, as the petitioners are informed that no mention was made to the court of any outside interest, and the court was informed that all interested parties had been satisfied; that there is no need for such hurried action on the part of the receivers; that the defendant corporation is in no different condition from what it has been for the past few years and is now or was before the filing of the bill of complaint in this cause; that a great injustice will be done the petitioners if a proper answer is not filed to plaintiff’s bill; and' that, if given an opportunity, the petitioners, as parties defendant, will and can file a good and lawful answer to the plaintiff’s bill setting forth facts which they believe will defeat the plaintiff’s action.

The petition further alleges that the plaintiff and defendant corporations are one and the same; that, if the officers and former officers of the two corporations are properly examined upon oath, or a bill of discovery filed, facts will be developed showing that for some ten years or more the two1 corporations have been operated as one and the same, with the same directors, officers, stockholders, holding joint directors’ and stockholders’ meetings, being directed from the same offices; that the plaintiff corporation, as a corporation, has been actually operating and directing the affairs of the defendant corporation for some three years or more; and finally it is alleged that the suit was instituted solely for the purpose of defrauding the holders of this twenty-five per cent, of the capital stock of the defendant corporation owned by the petitioners, as the entire balance of the ⁶⁷⁸ stock and all other intex’ests have been acquired by the plaintiff or its officers, and that they were unable to acquire the petitioners’ stock without paying a reasonable value therefor; that the plaintiff corporation attempted and has about succeeded in forcing all outside interests to sell their stock to the plaintiff corporation at their price and on their terms, regardless of its market value, and that this action was instituted for the purpose of making the petitioners’ stock valueless, so that the plaintiff and its officers could acquire the said stock or acquire all the assets of the defendant without paying a fair price therefor, and that to this end the bill of complaint was filed and no proper answer was attempted to be made; that the alleged solicitor for the defendant, the petitioners are informed and therefore believe, is being paid by the plaintiff or its officers, and that the actual answer was in fact drawn by the plaintiff or its agents and attorneys. The prayers of this petition are: (1) That the petitioners be made parties defendant with leave to file an answer for themselves and for the defendant corporation within thirty days from the date of the petition; (2) that an outsider, one not interested in the plaintiff, be made an additional receiver with the two receivers now appointed; (3) that the order of court authorizing the sale of the assets of the defendant be set aside and vacated; (4) that the petitioners be given access to the defendant’s books and be furnished with full information now in the hands of the receivers; (5) that the books and records of the plaintiff corporation be examined, together with copies of all directors’ and stockholders’ meetings, to the end that the court may learn whether or not the plaintiff and defendant corporations have not become merged into' one corporation, and that the receivers be instructed to take possession of the assets of the plaintiff corporation and to wind up the two corporations as one, and that the court take such other and further action as it may deem fit and proper in the premises. The plaintiff corporation and the receivers filed their joint answer to this petition on March 5th, 1932, wherein they admit that one