Carrington v. Thomas C. Basshor Co.

Briscoe, J., delivered the opinion of the Court. The voluminous record now before us brings to this Court for review twenty appeals, taken by the plaintiffs below, from decrees of Circuit Court Ho. 2 of Baltimore City, dated the fifth day of December, 1911, dismissing certain bills of complaint which had been filed by the plaintiffs against different groups of defendants in that Court, after a hearing, and upon answers and full proof, filed in the cases. The litigation grows out of the insolvency of the Hammond Ice Company, a corporation, under the laws of Dela ⁴²² ware, with its principal place of business in the City of Baltimore. The object of the suits was for the purpose of holding the several defendants liable for the diversion and misappropriation of a “special fund” which had been dedicated and devoted by the terms of the mortgage, and certain agreements, to the erection of Plant No. 2 of the Hammond Ice Company, and to recover this fund for the benefit of the bondholders and the creditors of the company.

The cases were before us, on demurrer, on a former appeal, Basshor Company et al. v. Carrington et als., reported in 104 Md. 606 , where it was held that the fund here in controversy was impressed with a trust and that a Court of Equity had jurisdiction to entertain these suits for the recovery of claims of this kind. The demurrers were ovenuiled and the cases were remanded in order that the defendants might answer the bills. The legal principles applicable to the cases were clearly stated and announced in a carefully prepared opinion on the former appeal, and it now remains for us to inquire whether the proof supports the allegations of the several bills and brings these cases within the settled principles of law as there stated. While the record presents twenty appeals taken from ten separate decrees or orders of the Court below, it will be seen that they practically present but four separate and different controversies, and for convenience will be designated by us as (1) The Basshor Case; (2) The Sheridan Case; (3) The De La Vergne Case, and (4) The Hammond Cases.

The averments and allegations of the several bills are substantially the same, and as they ar.e fully set out in the opinion on the former appeal, it will not be necessary to repeat them here, except to say that it is alleged by the first bill that moneys were improperly paid to the Thomas C. Basshor Company by Hammond upon the authority and order of the other defendants in that case; in the second bill that moneys were wrongfully paid to the De La Vergne Refrigerating ⁴²³ Machine Company, by Hammond on the order of the other defendants; in the third, that they were so paid to John A. Sheridan by Hammond on the order of the other defendants and in the fourth that they were so paid to Hammond himself on the order of those defendants. It also appears that Ormond Hammond, at the time, was a contractor for the building of the ice plant to be known as Plant No. 2, of the Hammond Company, and Messrs. West-cot t, Martin, Evans, Basshor and Dallam constituted the Building Committee of the company. On the tenth of November, 1902, a loan of $300,000 on the bonds of the company and the subscription contracts was secured through the City Trust and Banking Company, as shown by Exhibits E. & P., and by agreement, the amount of this loan was to be deposited with the Trust Company, and to be withdrawn upon checks signed by Ormond Hammond, accompanied by certificates or orders of the Building Committee, and to be used on account of the purchase and acquisition of the property, real, personal and mixed, and the erection of the plant, known as Plant No. 2 in Baltimore City and the storage houses and other property and effects incident thereto, as described in Exhibit A., filed in the case.

And it is a portion of this special fund that is alleged to have been improperly diverted and wrongfully misapplied by the several defendants in this record, and for the recovery of which these suits were instituted. This brings us to a consideration of the several cases as presented by the record. We shall dispose of them separately, and state as concisely as possible the reasons for the conclusions we have reached, after a careful examination of the record, and the very full briefs of the counsel who argued the cases; The Basshor case involves a claim of $21,000 paid the Thos. O. Basshor Company on the 20th day of November, 1902, by Ormond Hammond in settlement of account due for work done on Plant No. 1, and which sum it is alleged ⁴²⁴ was paid from funds derived from the special fund devoted to Plant No. 2.

The proof shows that on the 19th day of November, 1902, Messrs Martin, Evans, Dallam and C. Hazeltine Basshor, members of the Building Committee, drew the following-order payable to Ormond Hammond. Baltimore, Nov. 19th, 1902. The City Trust and Banicing Company, Baltimore, Md. Pay to Onnond Hammond or order twenty-one thousand dollars in cash, and charge same as payment to Mr. Hammond on contract for Plant No. 2, account workmanship and material, as per agreement with Thomas C. Basshor & Co. (Signed) Patrick Martin, C. H. Basshor, ~W. H. Evans, Frederick Dallam, Building Committee of the Hammond Ice Company. On the 20th of Nov., 1902, Mr. Hammond drew a check as follows: Special A. 0.

No. 28. Baltimore, Md., Nov. 20, 1902. City Trust and Banicing Compcmy. Pay to the order of Thomas C. Basshor Co. $21,000.00 — - twenty-one. thousand — 00/100 dollars.

(Signed) O. Hammond. This check is endorsed, Pay to order of Commercial and Farmers National Bank, Thomas C. Basshor Co. Commercial and Farmers National Bank, Baltimore, Md., and was paid Nov. 20, 1902. The books of the Basshor Company show that on the date when this order and check were given, there was due from the Hammond Ice Company to the Basshor Company the sum of $21,000 for work done-on Plant No. 1, and this precise sum appears to have been paid and applied on the books ⁴²⁵ of the Basslior Company as a settlement in full of the debt due and owing on Plant No. 1. The books of the company were balanced by the payment of this sum, and the account against Plant No. 1 was closed.

The lot upon which Plant No. 2 was to be erected was not purchased until December 9th, 1902, and the ordinance permitting the erection of the plant was not passed until December 16th, 1902. The work of constructing the plant did not actually begin until January 1st, 1903. It was provided by an agreement between the Hammond Ice Company and -Ormond Hammond (Exhibt A.), that the parties hereto covenant and agree, that the total issue of said bonds, that is to say, $1,400,000, or the cash which may result from the sale thereof, with $2,800,000 of full paid capital stock of the party of the second part, shall be the consideration for the purchase, acquisition, erection and transfer to the party of the second part of the property above specified, which bonds (or the money resulting from the sale thereof), or the money which may be obtained through any loan secured by ihe bonds or any interest therein and the stock above mentioned, shall be delivered to the party of the first part in installments from time to time as the work on the plant progresses, upon orders or certificates of said Building Committee until the completion and acceptance of said plant, when all the balance of said bonds (or cash from the sale thereof) and stock shall be delivered to said party of the first part, less however the sum of $125,000 working capital above referred to. And it was further provided by Exhibit E that the amount of the loan to the “Borrower” after the deduction of the interest and commission hereinbefore provided, shall be placed to the credit of the “Borrower,” with the “Trust Company,” to be withdrawn upon checks executed by him accompanied by certificates or orders of the Building Committee, and to be used on account of the purchase and acquisition of the property, real, personal and mixed and the erection of the plant, known as Plant No. 2 in Baltimore City and the ⁴²⁶ storage houses and other property and effects incident thereto, which are particularly described in the said exhibit hereto attached, as Exhibt “A.” In Basshor Co. v. Carrington, 104 Md., supra, we said, “that this deposit must be treated as a trust fund, that it was-a special deposit to be used for specific purposes and could only be withdrawn in a way clearly designated.

The Hammond Company had covenanted with the trustee and the bondholders that the proceeds of the bonds should bo used for the purposes named in the mortgage and “none other'-’ and in order to protect the company and the bondholders the agreements are entered into.” C. H. Basshor was Vice-President and General Manager of the Thomas 0. B'asshor Company and also a member of the Building Committee, and it cannot be held, under the facts and circumstances of this case that he was not aware of the misapplication of this fund, because he not only had knowledge of the purposes for which the fund had been deposited, but actually participated in the diversion by receiving the money. The witness Sheridan testified that C. H.. Basshor told him that Hammond had paid him the amount due him on Plant No. 1, and we think it is clear, from the whole proof that the check of Hammond to the Basshor Company dated November 20th, 1902, for $21,000 .of the trust fund, was applied to pay and satisfy the indebtedness due on Plant No. 1, and was not applied in connection with the construction and equipment of Plant No. 2, the purpose for which the fmid'had been specially devoted.

The Court below in its opinion concedes that the $21,000 paid the Basshor Company was credited on Plant No. 1, and says, “it seems that some of the persons for whose benefit these orders were given gave credit to the account of Plant No. 1, for instance, the Basshor Company’s account; at any rate that money was practically credited on Plant No. 1 to balance that account on the books of the company.” ⁴²⁷ But it is contended that the Basshor Company under contract with Hammond delivered a large amount of valuable material under contract for Plant Ho. 2, and the Company also prepared certain other material, piping, etc., which was to enter into the construction of Plant Ho. 2, and it is claimed that the bondholders received the benefit of these, in the sale of Plant Ho. 2 by the receivers. The testimony upon this branch of the case is very far from satisfactory, and does not, we think, sustain this contention. The burden of proof was on the Basshor Company to show by unquestioned evidence that the bondholders did not suffer by reason of the wrongful application of the $21,000, and this we think they have failed to do. The testimony shows that when the work stopped on Plant Ho. 2, in June, 1903, that the materials that had been delivered and not incorporated in the plant, were taken away by the parties who had furnished them.

The Witness Butler, the consulting engineer, testified: “121 Q. The only thing the Basshor Company put in place, that you can recollect, are the condensing pans, aren’t they? A. That was the only thing that was completed, as to the contract with the Basshor Company, except the delivery of the pipe cutters, and things like that, which were used in the pipe work. 122 Q. The other work of the Basshor Company could not have been put in place until some preceding work was done; isn’t that so ? A. That is right. 68 Q. You spoke, Colonel, of various things being delivered to the plant not being put in place; do you know what became of those things ? A. The parties that furnished them.

I suppose, got them, as I understand. 69 Q. Took them away again ? A. Took thew away again, yes, sir.” ' The witness Jones testified: ⁴²⁸ “72 x-Q. What were your duties there after the work stopped ? A. "Well, I was awaiting orders, looking after the material that was there. 73 x-Q. Ho you recollect what was done with the material that was delivered by these various people down on Block street; do you remember when they took it away?

A. I know it was taken away; I do not know when. 75 x-Q. Ho you remember Mr. Basshor taking some of his away ? A. Well, everybody took theirs away. I do not know— all that could get it took it away.” The witnesses GKest, Westcott, Evans and Carrington testified to the same effect; Mr. Carrington stated that the material on the ground was removed by the parties before the appointment of receivers and Mr. Evans testified that the machines and material were removed and not sold by the receivers. ' Besides this, the books of the Basshor Company do not show any charges for any of the work done or material claimed and alleged to have been done under contract for Plant Mo. 2. Manifestly the bondholders got no benefit from the work claimed to have been done in the shops, or for materials delivered and not put in the plant, and afterwards removed by the parties, and not sold by the receivers.

It is conceded that the condenser pans were furnished by the Basshor Company and put upon Plant Mo. 2. According to the testimony of Mr. Ziers, an expert manufacturer of ice machinery, these would be worth about four 'thousand dollars. This amount, according to Mr. Basshor’s testimony, must have been settled by the subscription to twelve bonds of Plant Mo. 2 for which the Basshor Company had paid nothing. “327 Q. Mr. Basshor, did you subscribe to any bonds on Plant Mo. 2 of the Hammond Ice Company? A. I did. ⁴²⁹ 328 Q. You or your company?

A. I did for the company, I think. 329 Q. Were bonds taken? A. Never received, but T always considered them paid for by material furnished. 330 Q. How large was the amount of those bonds? A. Twelve? bonds at eighty.” It seems then from the whole proof, that the payment of this check to the Basshor Company and the application of its proceeds to Riant No. 1, under the facts and circumstances of this case, was a manifest diversion of the fund from the purposes to which it was devoted and the plaintiffs are entitled to recover it in this suit for the benefit of the bondholders. In Safe Deposit Company v. Cahn, 102 Md. 535 , it is distinctly said: it is a general principle that all persons who knowingly take part or aid in committing a breach of trust are responsible? for the money thus withdrawn from the trust estate and they may be compelled to replace the fund which they have been instrumental in diverting.

Duckett v. Mechanics Bank, 86 Md. 403 ; Basshor Co. v. Carrington, 104 Md. 630 . (2) The Sheridan claim, we think, is free from difficulty and rests somewhat upon similar principles of law, as were applicable to the Basshor case, It appears that on the 19th of November, 1902, ALessrs-Alartin, Basshor, Evans and Hallam, members of the .Building Committee gave Mr. Hammond an order on the City Trust and Banking Company for $5,100 out of the special fund, and “to charge same as payment to Mr. Hammond on contract for Plant No. 2, account workmanship and materials as per agreement with John A. Sheridan.” On November 21st, 1902, O. Hammond drew a check marked special account payable to John A. Sheridan for the identical sum of $5,100, and this check was delivered and paid to Sheridan. There was due by Hammond to Sheridan at this date, for work done in the erection of ice storage warehouses ⁴³⁰ for Plant Ho. 1, the sum of $5,000 and Sheridan held Ham.mond’s note for this sum. This note with interest amounted to the sum of $5,100 and was paid on the 21st of November, 2902, by the check of Hammond on the special fund, and the note was returned to Hammond.

Mr. Sheridan testified that the check for $5,100 was given him by Hammond to pay the note he had given him for the amount that he owed on the ice storage warehouses, and that it had no relation to any work that he did on Plant Ho. 2 of the Hammond Ice Company. He further testified that the contract for the building of Plant Ho. 2 had not been awarded him on Hovember 21st, when the check was received by him. Mr. Hammond testified as follows: “19 Q. And it was your understanding that Mr. John A. Sheridan when you gave him this check for $5,100.00 that he was to take it and take up the note for $5,100.00 which we have been referring to, wasn’t it? A. It was at his request that I paid him enough on account to enable him to take up the note. 80 Q. And you gave him the check for that purpose A. I gave him a check for $5,100.00 on account for construction of Plant Ho. 2 and took his receipt to that effect. 81 Q. And the $5,100.00 was the exact amount that you owed him on Plant Ho. 1 ?

A. It was the amount of the note with interest attached. 82 Q. And Mr. Sheridan took the check and took up the note, didn’t he ? A. I do not know exactly how he took it up. He returned the note to me.” According to the testimony of a number of the witnesses no work had been done upon Plant Ho. 2 when this money was paid Sheridan and it could not have been paid for work done on Plant Ho. 2 because the contract for the construction of the building, according to Sheridan’s testimony w,as not awarded him until the 20th of December, 1902, and no actual work was done on Plant Ho. 2 until Januaxy 3rd, 1903. ⁴³¹ But apart from this both Hammond and Sheridan were advised that it was improper to pay Hammond’s note, with money belonging to a special fund, but with full notice and knowledge of the purposes for which the special fund had been deposited and devoted, they applied the proceeds of the check to pay an indebtedness for work done on Plant Ho. 1, thereby diverting the fund from its proper purpose, to wit, the construction of Plant Ho. 2. It is difficult to see under the facts and the proof, disclosed by the record in this case, how the defendant Sheridan can escape liability to the plaintiffs for the money thus wrongfully withdrawn from the special or trust fund, and under the principles of law heretofore announced in this case, the plaintiffs are clearly entitled to recover the amount, so diverted, for the benefit of the bondholders.

(3) The De La Yergne case involves a check for $30,000, and the facts are as follows: On the 8th of Hovember, 1902, Messrs. Dallam, Martin and Westeott of the building committee drew an order on the City Trust and Banking Company, authorizing it to honor O. Hammond’s checks to the De La Yergne Refrigerating Machine Company for thirty thousand dollars as part payment for engines now being constructed for Plant Ho. 2, of the Hammond Ice Company, as per the company’s agreement with Mr. O. Hammond, of August 28th, 1902. It appears from the record that on the 8th of Hovember, 1902, O. Hammond owed the De La Yergne Company a balance for work done on Plant Ho. 1, and for which he had given his notes. The amount due at this date with interest was $20,413.00.

There is some conflict in the evidence as to the date when the contract for the installation of the machines on Plant Ho. 2 was entered into by the parties, but the following-agreement bears upon and fixes the date as to the payment of the money. ⁴³² New York, November 11, 1902. Whereas, Ormond Hammond, o£ tbe City of Baltimore, is indebted to The He La Yergne Refrigerating Machine Company to the extent of nineteen thousand eight hundred and twenty-six and 63-100 dollars, represented by three promissory notes, as follows: One for $7,500, dated May 15th, .1902, due Sept. 15, 1902, with interest; One for $7,500, dated May 15th, 1902, due Nov. 17, 1902, with interest; One for $4,826.63, dated August 2d, 1902, due Dec. 2, 1902, with interest; and, Whereas, The said Hammond and said The He La Yergne Refrigerating Machine Company have entered into a contract-bearing date the 28th day of August, 1902, whereby the said company is to construct and deliver to the said Hammond certain ice-making machines for the sum of ninety thousand dollars ($90,000); and, Whereas, Under the provisions of said contract, the first payment thereunder, to wit, thirty thousand dollars ($30,000) is to be made in cash within sixty days from the date of said contract; Now, This Indenture Witnesseth, That in case the said payment of thirty thousand dollars ($30,000) is made on or before the 15th day of November, 1902, then and in that event the said company will take up the said notes as they shall severally mature and hold the said Hammond harmless therefrom; and in ease the balance of the purchase price of ninety thousand dollars ($90,000) is fully paid according to the terms of said contract, the company will then pay to the said Hammond in cash the difference between the amount which shall be due upon said notes at maturity and the sum of twenty-five thousand dollars ($25,000). In Witness Whereof the parties hereto have hereunto set their hands and seals this 12th day of November, 1902. (S.eal) The De La Vergne Refrigerating Machine Co. (Seal) Adolf Be.nder, General Manager.

(Seal) Ormond Hammond. ⁴³³ On the 12th of November, 1902, Hammond sent a check to the De La Vergne Company for $30,000 and the following correspondence shows beyond any doubt that $20,413.30 of the special fund was applied to the payment of the notes which had been given for work done on Plant No. 1, and was not used for the construction of Plant No. 2. Baltimore, Nov. 12, 1902. Adolf Bender, Esq., Gen. Mgr.

Be La Vergne Machine Go., New York. Hy Dear Sir : Enclosed yon will please find copy of the agreement signed by me as you request, also cheek according to agreement for $30,000 on account, upon receipt of which you will please mail me a receipt showing the contract price, viz: $90,000, with a credit of $30,000, so that I can keep these receipts on file for the examination of my Building Comnmxee. You will also oblige me very much by taking up the three notes at that end, as I do not wish them presented here for important reasons, which I am sure you will appreciate. Kindly return to me the notes when you take them up and also the stock that I gave you as collateral security.