Central Trust Co. v. Arctic Ice Machine Manufacturing Co.

McSiieury, J., delivered the opinion of the Court. On the third day of April, 1890, the Maryland Ice Company, a body corporate, executed and acknowledged, and on the fifth of the same month placed upon record in Baltimore City, a mortgage to the Central Trust Company of New York, bearing date March the first, 1890, and conveying certain property, fully described, and also all property thereafter acquired, for the purpose of securing the payment of two hundred and fifty bonds, each for the sum of one thousand dollars, together with the coupons attached for the amount of the semi-annual interest; and at the same time it executed and acknowledged a second mortgage to the same trustee upon the same property, with a like provision as to after-acquired property, to secure the payment of one hundred and ten other bonds, each for the sum of one thousand dollars, with similar interest coupons attached. On September the first, 1891, the mortgagor made default in the payment of the coupons due on that day, and payable in New York, and on the next day the Central Trust Company filed a bill in the Circuit Court of Baltimore City, for a foreclosure of the mortgage, a sale of the mortgaged property and the appointment of a receiver to take possession of the property of the Maryland Ice Company. Simultaneously with the filing of the bill of complaint the Maryland Ice Company put in an answer, but, by the consent of the Central Trust Company, not ²²⁰ under oath, admitting all the allegations of the hill to he true, and consenting to the appointment of a receiver, and the Court at-'once passed an order appointing Ormond Hammond, Jr., such receiver.

On the fourth day of the same month, the Arctic Ice Machine Manufacturing Company filed a petition in the case claiming to own certain machinery which had been affixed to the mortgaged premises after the mortgages had been recorded, but which had not been fully paid for by the Maryland Ice Company. The Central Trust Company and the Maryland Ice Company both answered this petition, and the last named company insisted that the damages which it had sustained by the failure of the Arctic Ice Machine Manufacturing Company to construct the machinery erected by it within the time and according to the specifications of its contract, were far in excess of the balance due under the contract. On March the fifteenth, 1890, Thomas Sturgis, of New York, and Ormond Hammond, Jr., of Baltimore, entered into a written contract with the Arctic Ice Machine Manufacturing Company of Cleveland, Ohio, by which the Arctic Company agreed to construct and then to erect in Baltimore three ice manufacturing machines of a designated capacity, and Sturgis and Hammond agreed to pay therefor the sum of one hundred and seven thousand dollars in several instalments; the first, a cash payment of thirty-five thousand dollars on April the seventh, 1890, and the residue at later periods. The contract contained the following provision: “And it is further expressly agreed, that the title and ownership of said apparatus and appurtenances shall remain in said Arctic Ice Machine Manufacturing Company, until each of the aforesaid payments shall have been fully made; and in case of default in any of said payments when due, said Arctic Ice Machine Manufacturing Company shall have thereupon the right to take possassion of and remove said apparatus ²²¹ and appurtenances.” On March twenty-first, 1890, the Maryland Ice Company was incorporated under the laws of New Jersey, and on the third of April following it executed the mortgages to which allusion has already been made.

Those mortgages, as heretofore stated, bear date March the first, or twenty days before the mortgagor company was - actually incorporated, and among other things provide that the lien created thereby should extend to the land and premises described, “and the buildings now erected or hereafter to be erected thereon, and the plant and machinerty affixed or to be affixed thereto,” and that “the fixed plant and machinery hereby mortgaged, or intended so to be, shall be real estate for all the purposes of this indenture, and shall be held and taken to be fixtures and appurtenances of the said real property hereby mortgaged and a part thereof, and shall be used and sold in connection therewith, and not separate therefrom. ” On May the seventh, 1890, ¡Sturgis and Hammond assigned to the Maryland Ice Company the contract between themselves and the Arctic Company, the latter company having the preceding day consented that the transfer might be made. After the mortgages had been recorded the Arctic Company began the erection of the three ice manufacturing machines on the mortgaged premises in Baltimore, but owing to some delay in their construction, they were not finally accepted by the Maryland Company until November the eighth, 1890. The only payment made for them was the first instalment of thirty-five thousand dollars — the residue of seventy-two thousand dollars remains unpaid. The Arctic Company claims a return of the machines under the provision heretofore quoted from the contract between it and Sturgis and Hammond; the Central Trust Company claims title to and property in these same machines under the mortgages from the Maryland ²²² Ice Company, for the benefit of the holders of the mort- ' gage bonds; and the Maryland Ice Company claims the right to recoup out of the unpaid purchase money due by it on these machines, the amount of damages it has sustained by the failure of the Arctic Company to construct the machines in accordance with the contract.

These conflicting claims give rise to the several questions which were ably and elaborately argued at the Bar. Whatever may be the law elsewhere, it is settled beyond dispute in Maryland, that a conditional sale of personal property, whereby the vendor retains the title until the purchase price has been fulty paid, is perfectly valid between the vendor and the vendee, and all persons claiming, under or through the latter with notice of the outstanding lien. Hall vs. Hinks, 21 Md., 418 ; Lincoln vs. Quynn, et al., 68 Md., 299 . As between the Arctic Company on the one hand and Sturgis and Hammond on the other, there can, therefore, be no doubt that the machines contracted for by them on March the fifteenth, 1890, remained the property of the vendor until paid for.

And it is equally clear that no assignee of Sturgis and Hammond having notice of the Arctic Company’s title, could acquire or assert any better claim than Sturgis and Hammond had. Walker vs. Schindel, 58 Md., 360 . Nor is it necessary, in order to affect the person claiming under the vendee, with notice of the vendor’s lien, to show actual knowledge of the existence of that lien; for if “there he circumstances which, in the exercise of common reason and prudence, ought to put a man upon particular inquiry, he will be presumed to have made that inquiry, and will be charged with notice of every fact which that inquiry would give him. ’ ’ Baynard vs. Norris, 5 Gill, 483 ; Green vs. Early and Townshend, 39 Md., 229 ; Higgins vs. Lodge, et al., 68 Md., 229 . ²²³ The Maryland Ice Company gave to the Central Trust Company an order dated April the first, 1890, for the delivery of the whole issue of the first mortgage bonds to the London and New York Investment Corporation; and on March the thirty-first, or one day before the date of the order, and three days before the mortgage was actually executed, the Central Trust Company agreed to deliver these bonds upon receiving notice that the mortgage had been recorded. The two hundred and fifty first mortgage bonds were delivered to the London and New York Investment Corporation not earlier than April the fifth, and that corporation still holds two hundred of them.

Fifty of the two hundred and fifty bonds were purchased by Poor and Greenough, and they still hold forty-five of them. The remaining five the record does not disclose the ownership of, but if they are in the possession of bona fide holders for value without notice, the decree in this case will not affect their title. Had the bondholders, in whose behalf the Central Trust Company now claims the three ice manufacturing machines erected by the Arctic Company, knowledge or information, before they acquired the bonds, of the lien of the Arctic Company, or of circumstances which ought to have put them upon inquiry with respect thereto ? To answer intelligently this inquiry, it will be necessary to examine some of the numerous facts contained in the voluminous record, and to contrast with them portions of the testimony delivered by several of the witnesses who have given evidence in support of their own interests.

On the twenty-eighth of February, 1890, Ormond Hammond, Jr., who has already been alluded to, entered into a written contract with the executors of William E. Hooper, deceased, for the purchase from them of certain property in the City of Baltimore. In this contract it is recited that Hammond, “and certain associates,” ²²⁴ are about to form a corporation for the purchase of this property, and for making such additions thereto and improvements thereon as may be desirable, and for the conduct of the business of manufacturing and selling ice, &c. Who these associates were the contract does not say, but further references to the record will reveal that the London and New York Investment Corporation and Poor and Grreenough were among them. The price agreed to be paid was one hundred and fifty thousand dollars in cash, and one hundred and ten thousand dollars “in second mortgage bonds of the company which is to be organized to operate said property as above set forth.” It was further stipulated that Hammond “will erect or have erected by the company which it is thus proposed to organize, additional machinery for the manufacture of ice,” which additions, it was agreed, should cost from one hundred and thirty to one hundred and fifty thousand dollars.

The contract also provided that Hammond would furnish the executors of Mr. Hooper “with a letter from Poor and Grreenough of New York, giving their guaran tee that said improvements shall be erected upon the said property within the time limited.” Upon the execution of this contract with the executors Hammond paid, as part of the one hundred and fifty thousand dollar cash payment, the sum of five thousand dollars, which money had been furnished him by the London and New York Investment Corporation to be thus applied. Prom this contract alone it is apparent that the London and New York Investment Corporation and Poor and Grreenough were not only in consultation with Hammond, but were through him actively interested in projecting and promoting this ice manufacturing'enterprise in Baltimore. In four days after the execution of this contract with Hooper’s executors, that is to say, on March the fourth, 1890, Hammond entered into a written agreement with the London and New York ²²⁵ Investment Corporation in which the details for the organization of the Maryland Ice Company are fully set forth, and the contract between Hammond and Hooper’s executors is specially referred to. The whole scheme for the formation of the ice company, all contracts, bonds, mortgages and other instruments necessary or, in the judgment of the London and New York Corporation, expedient for the purpose of carrying into effect the agreement of March the fourth were to bo prepared under the direction of the Investment corporation’s own solicitors, by whom also all legal questions of whatever nature relating thereto were to be settled.

By this agreement Hammond stipulated that he would convey to the Maryland Ice Company when formed the property purchased from Hooper’s executors, and partially paid for by the London corporation’s money. Hammond further agreed that the price he was to receive for the property, and which the Maryland Company was to pay, would be eight hundred and sixty thousand dollars, “to be paid as to five hundred thousand dollars in the full paid capital stock of the company;” as to two huudred and fifty thousand dollars in first mortgage bonds, and as to one hundred and ten thousand dollars in second mortgage bonds of the Maryland Ice Company: That these mortgages were to be liens on all the property owned by the Maryland Ice Company when the mortgages should be executed, and on all property thereafter to be acquired by it, and that the London corporation would purchase two hundred thousand dollars of the first mortgage bonds, and one hundred thousand dollars of the stock for the sum of one hundred and eighty thousand dollars. It was further stipulated that two of the directors of the Maryland Ice Company should be designated for the first year by the London corporation, and that the latter corporation, so long as it held any stock or bonds of the Maryland Company, should be entitled ²²⁶ to keep at the expense of the Maryland Company in the office of the last named company’s treasurer, a representative who should have access to its hooks of account. The London corporation agreed that it would first deduct from the price of the bonds and stock which it contracted to purchase, the sum of one hundred and fifty thousand dollars, and that it would apply the balance to the payment of the expenses of organizing the Maryland, and the fees of its own solicitors, and the residue it would expend for new plant and machinery.

The one hundred and fifty thousand dollars so deducted, less the five thousand dollars previously advanced, were paid to Hooper’s executors in full of the cash payment provided for in Hammond’s contract of February the twenty-eighth with the executors. All these stipulations were entered into by the London corporation seventeen days before the Maryland Ice Company was incorporated. Thus the London corporation provided for the creation of the Maryland Ice Company, prescribed the terms of the purchase to he made from Hammond by the yet unincorporated ice company, the mode of payment, the disposition of the mortgage bonds which had not been issued, and which were then legally incapable of being issued, and bound the Maryland Company in advance of its formation as to what covenants its mortgages should contain. Whilst doing all this the London corporation knew that Hammond had contracted to erect at a very large cost new and additional machinery for the use of the company to he formed, though it also knew that he was without the means to pay therefor, because the London corporation had itself advanced for him the comparatively small sum of five thousand dollars to make a partial payment of the purchase money to the Hoopers.

Indeed the whole subject had been rally discussed by Hammond, Sturgis and Greenough, the latter of whom was chairman of the ²²⁷ American committee of the board of directors of the London and New York Investment Corporation; and it had been so discussed long before Hammond entered into any negotiations at all. As the London corporation knew as early as February twenty-eighth. 1890, that Hammond was not able to pay for the three additional ice manufacturing machines and other appliances which he in behalf of himself and his associates had contracted with Hooper’s executors should be erected, and interested as it then was in the venture under the contract of March the fourth, and bound by the last clause of that contract to apply certain sums of money to the payment of the cost of such additional plant, the most ordinary prudence would have dictated some inquiry on its part as to the terms and conditions upon which the machines were shortly thereafter purchased, had Hammond and Sturgis not been in fact its mere agents in making that purchase. The London corporation must be charged with knowledge of every thing which its agents in carrying out its instructions knew, and which its contract with Hammond and Hammond’s contract with Hooper’s executors disclosed. The London corporation carefully provided that every step taken towards the organization of the Maryland Ice Company should be taken under the supervision of its solicitors, and that the operations of the company when created should be conducted under the eye of two directors to be chosen by the London corporation, and that the books of account should be subject to the scrutiny and inspection of the latter’s representative.

It is difficult to conjecture how the London corporation could haye been placed in a position of more absolute control over the whole project, or how Hammond could have been more completely clothed with the powers of an agent of the London and New York Investment Corporation from the very inception of the undertaking. The success of the enterprise ²²⁸ depended in a large measure upon the addition of new plant having a greatly increased capacity, and the London corporation knew if in no other way at least from the very terms of the contract of February the twenty-eighth that it, the London corporation, either through Hammond or through the Maryland Ice Company, when organized and incorporated, would have to provide that .machinery or the means with which to purchase it. Whilst the London corporation was thus in possession of the information and the facts we have indicated, and the project was being developed under its direction, Sturgis (who shortly afterwards became president of the Maryland Ice Company) and Hammond went to Cleveland, Ohio, and there entered into a contract dated March fifteenth, 1890, with the Arctic Ice Machine Manufacturing Company for the construction of the three machines provided for in the agreement of February the twenty-eighth, and these are the machines now in controversy. In the contract of March the fifteenth, it was distinctly provided as has been heretofore stated, that the title to and property in the machines should remain in the vendor until the whole purchase money was paid.

Sturgis, whose connection with the •enterprise began prior to the purchase from Hooper, returned from Cleveland to New York and carried with him a copy of the written contract with the Arctic Company, but certainly not for the purpose of concealing its contents from the persons with whom he was co-operating. The Maryland Ice Company bad not yet been incorporated. Sturgis communicated to Greenough the fact that a contract had been entered into for the construction of these machines, named the price they were to cost, and the company which was to build them. Greenough acted throughout this whole transaction in behalf of the London corporation.

The New York office of the London corporation was No. 2 Nassau ²²⁹ Street, in a room adjoining and communicating with, the office of Poor and Greenough — the same bankers whom Hammond agreed with Hooper’s executors would guarantee the erection of the new machines and additional plant. Greenough, the chairman of the American committee of the board of directors of the London corporation, who had been cognizant in behalf of his corporation and of his firm of the negotiations with Hooper, the project of forming a company to manufacture ice, the purchase of machinery for that purpose, and the contract on the part of his corporation to acquire stock and bonds in the ice company, and who knew that the London corporation was to have a voice in and a supervision over the ice company’s management, in fulfilment of Hammond’s agreement of February the twenty-eighth, wrote a letter to Hooper’s executors under date of March the thirty-first, 1890, before any of the mortgage bonds had been delivered, and before the mortgages had been executed, in the following words: •'•'Gentlemen: Referring to a