Cumberland Coal & Iron Co. v. Sherman

Bowie, C. J., delivered the opinion of this- Court: The most prominent and material features of this case, have been elaborately argued and deliberately considered, in the decision of the ease of The Hoffman Steam Coal Company of Allegany County, vs. The Cumberland Coal & Iron Company, tried before this Court at June term 1860. A synopsis of the pleadings and points then presented, and the opinions of the Court, will he found in 16 Md. Rep., 456 . The parties are the same, hut their position is now reversed. The former appeal was taken by the present appellees from the order of the Judge of the Circuit Court for Allegany County, passed after answers filed and testimony ¹³¹ taken by the parties, trader the Act of 1835, refusing to ■■dissolve and continuing the injunction before granted by him.

This Court affirmed the orders of the Court below, and continued the injunction until final hearing. The cause being remanded for further proceedings, commissions were issued, further testimony taken, and on final hearing, the same learned judge who granted and continued the injunction, dissolved the same and dismissed the bill. From which decree the present appeal is taken. The cause being heard originally on testimony taken under the Act of 1835, a large proportion of the evidence now in the record has already been reviewed and-considered by our predecessors.

It devolves upon u-s to determine how far the former testimony has been qualified by the latter, whether there is such a material change in the aspect of the case, as to oblige us to depart from the decision previously pronounced. The law, as applied to the facts there developed, is expounded with great force in the opinion of our late brother, the Chief Justice. Much of the labor which the magnitude of the interests and record seemed to impose, lias already been performed; our duty being to observe that cardinal maxim of justice and jurisprudence, that the Court should adhere to its own decisions in the .same causo and between the same parties. '“Where, upon appeal, the Appellate Court decides a question presented by tbe record, and tbe cause is remanded, the decision is binding both upon tbe Court below and the Appellate Court, and cannot be reversed upon a second appeal." Emory & Garret vs. Owings, et al., 3 Md. Rep., 178 . Preston vs. Leighton, 6 Md. Rep., 88 .

Hammond’s Lessee vs. Inloes, 4 Md. Rep., 138 . Eyler & Matthews vs. Hoover, Ex’r of Crabbs, 8 Md. Rep., 1 . Mong vs. Bell, 7 Gill, 246 . Brotan vs. Sumerville, 8 Md. Rep., 444 . “All that is necessary to render the decision binding, is to sbow there was an application of the judicial mind to the precise question adjudged." Alexander vs. Worthington, 5 Md. Rep., 471 . ¹³² The eminent counsel who represent the appellees in this cause, admit ££the rule of law which precludes a trustee from purchasing from himself, is based upon sound principles and an enlarged public policy.” The reason of the rule, they insist, should not however •be lost sight of: A trustee may, under certain conditions, purchase from his £cestui que trust.’ ” The transaction must he for a consideration adequate, and the “cestui que trust” must have full knowledge of all material circumstances, that he may be able to judge of the propriety of the transaction.

The trustee must conceal nothing which may assist in forming the judgment. When, however, the trustee purchases from himself, the “cestui que trust” may, irrespective of the fairness of the transaction, rescind, if he elects to do so, within a reasonable time. They insist, "it should be borne in mind, however, that the rule of law here referred to, grew out of transactions quite different from the one before the Court.” Nevertheless while the mischiefs which the rule referred to, was intended to present, could rarely, if ever, grow out of a transaction like this, it was conceded for the purpose of this argument, that the rule invoked, applies. They contend, that the rights of rescisión is in the stockholders,-and not in the directors of the appellants; that the stockholders ratified the transaction, with full knowledge of the law and -the facts.

They assert, that the right to-rescind, implies the duty of restoring or refunding the purchase money paid, and other moneys received under the contract, rvhich has not been done, or offered to bo done in this case. In response to this latter and minor objection, the appellants allege there was nothing received by them which should have been refunded; that the assets of the company, of which Sherman was a director, were appropriated by him, to make the payments received, and that he is still in arrear to the appellants, for money had and received to their use. The matters of account between the appellants and appellee, are so numerous, intricate and involved, that ¹³³ It is impossible for this Court to decido, what amount of assets, belonging to the former, were in the hands of tbe latter, at the date of the supposed payments, without the adjustment of the accounts by an audit. If tbe allegations of the appellants be true, there was nothing actually received by them.

Equity would not under such circumstances require an offer to refund, as a condition precedent to the right or act of rescisión. It is no objection to the form of the bill that such an offer is not made under the circunistances of this case. The necessity or propriety of a tender, or offer to refund, depending entirely upon the existence of the facts, of bona fide payments. If that fact should appear from an Audit of the accounts, it would be ground for tbe Court to require repayment of t¡ie amount advanced, before tlie execution of a reconveyance, but it is not so controlling as to suspend the power of this Court, in granting the more partial relief by injunction.

Both the tribunals, who have previously considered this case, concur in considering the appellee, The Hoffman Steam Coal Company of Allegany County, as standing in the shoes of Sherman and .Dean, and equally affected with notice. No change, that we are aware of, has been wrought by the new testimony, in this aspect of it. The allegations of the bill and answers, the evidence, admissions and arguments of counsel, as well as the opinion of the Courts, all indicate, that the main question to be decided on this appeal is, whether the sale to Sherman and Dean lias been ratified by the stockholders, under the circumstances prescribed by tbis Court in its former opinion. The law announced on the former trial of this case, by the Court of Appeals, to which we are bound to conform, not less by its intrinsic merit than the weight of authority and precedent, is as follows: “In this State, as elsewhere, it is well settled, that trustees cannot purchase at their own sales, either directly or indirectly, and if they do, such purchase will be set aside on the proper and reasonable application of the parties in ¹³⁴ terested.” Richardson vs. Jones, 3 G. & J., 184 . “This doctrine which is applicable to trustees, applies also to purchases, by persons acting in any fiduciary capacity, which imposes upon them the obligation of obtaining the best terms for the vendor, or which has enabled them to acquire a knowledge of the property.’ The authorities, supporting it, are numerous and uncontradictory.

They will be found brought together to a considerable number in the notes lo the case of Fox vs. McRotte, 1 White & Tudor, Leading Ca. in Eg., 105. A director in a company holds such a relation to its stockholders. After citing and quoting with approbation the decision of the Aberdeen Railway Co. vs. Blaikie, 1 McQueen Repts., 461, and Michoud vs. Girod, 4 Howard, 503 , this court proceeds: ‘These citations are sufficient to show, that the dealings of the defendant Sherman, with the property of the complainants, fall directly within the prohibition of the rule, and as a consequence are obnoxious to disavowal.’ ‘But, it is said, however this may be, the whole transaction was fully ratified and confirmed by the complainants, which ratification and confirmation, relieved it from all legal infirmity.’ An attentive consideration of its whole history, as detailed in the reeord, has not brought us to this opinion. The law governing questions of ratification like the present, is well settled.

To render the act of ratification effective and conclusive, certain considerations are necessary. At the time of the supposed ratification, the principal must have been fully aware of every material circumstance of the transaction, the real value of the subject of the contract, and this act of ratification must have been an independent and substantive act, founded on complete information and of perfect freedom of volition. “And in addition to all this, the cestui quo trust, must not only have been acquainted with the facts, but apprised of the law, how those facts would be dealt with if brought before a Court of Equity. Lewin on Trusts, (Ed. of 1858,) 615. ¹³⁵ “This last requisite it is nowhere shown in the proof, has been complied with; tint, on the contrary, it is fairly to be inferred, that the stockholders believed they were concluded by wbat bad been done, and this inference is particularly strengthened by the circumstances that the modification in the contract of transportation, was solicited and granted not as a matter of right, but as a concession on the part of the beneficiaries under it. In this view, it is not necessary we should dwell more fully on the other facts attending the negotiation and sale.

Such commentary properly belong to the final hearing.” To bring themselves within the conditions prescribed by the preceding paragraphs of this Court’s opinion, on the former appeal, lias been the object and effort of the appellees, since the causo ivas remanded for final hearing. The sale to Sherman and Dean being subject to disavowal, in consequence of the admitted relation of the former to the vendors, and the sub-purchasers being held affected by notice, actual or constructive, independent substantive ratification and confirmation by the stockholders, with full knowledge of every material circumstance of the transaction — the real value of the subject of the contract — complete information of the facts, and the law in a Court of Equity as operating on such facts, and perfect freedom of volition, were held essential to make it valid. All the testimony and argument, not relative to some one of these particulars, is therefore immaterial to our present inquiry. The learned judge who decided this case below, upon final hearing, says in his opinion: “Upon the former hearing I decided, (and as before stated it was confirmed by the Court of Appeals,) that there was no sufficient evidence of such a ratification.

But since that time, a large mass of testimony has been taken by the defendants on tills point, and no opposing testimony whatever, is presented on bebalf of the complainant. “The case now coming up before me for final hearing, upon all the testimony, and the Court of Appeals having ¹³⁶ settled the law and stated the conditions as to this question of ratification, I proceed to., examine whether this sale was ratified in accordance with, those conditions. “The first of these conditions, as stated by the Court of Appeals in the language before quoted is, ‘whether the principal was fully aware of every, material circumstance of the transaction, and the real value of the subject of the contract.’ The evidence upon this point, as now disclosed, is all upon one side. The record of the proceedings of the meeting of stockholders of complainants, held on the 1st of June 1857, (being complainant’s'own record) shows, that immediately after the meeting was organized, at the request of Seth G-rosvenor, Esqr., the Secretary read the report of the year ending June 1st, 1856, together with the deed of conveyance and contract of land sold, with the proceedings of stockholders and Board of Directors appertaining thereto, which was fully discussed and satisfactorily explained. These are the words ot the complainants own record. And I may here inquire, judging from this language alone and unexplained, ivhat was read and what was. the knowledge here communicated ?

It certainly imports that the minutes of the stockholder’s meeting (initiating the proceedings which led to the sale) of June 1855, were read; that the proceedings of the directors at their meetings in October, December, January and May 1856, authorizing and confirming the sale, Avere also read; that the report of the President to the stockholders in June 1856, notifying them of the sale and of the entire consideration to be paid, was also read; 'that the deed and the contract of transportation (copies of which were preserved amongst the archives of the company for future reference) were also read; that discussion thereupon took place as to the propriety and fairness of said deed and contract, and that the entire subject was fully discussed and satisfactorily explained. “It is true that the latter part of the proceedings of the same meeting if unexplained might be ambiguous. But a ¹³⁷ hast amount of testimony lias been taken since tbe former .bearing, by which it is shown conclusively, that the whole subject of this deed and contract was the first matter that engaged the attention of the stockholders at that meeting in June 1857, and that after the entire proceedings and the deed and contract had been read, discussed and fully considered, it was unanimously agreed to confirm and ratify the same. (See testimony of Beadle, Hinman, Loomis- and Mehaffey.) And the subsequent proceedings in reference to the release, are shown to have taken place just previous to the close of the meeting, and after the entire subject had been previously disposed of by a full and unequivocal ratification. (Sec testimony of Hinman, Beadle, Pettit, Mehaffey-and Loomis.”) In this copious extract, the learned judge has put the evidence in support of the fact of ratification, as forcibly ami fully as the counsel of the appellees could have desired, and as it is, obviously, partly directed to tbe argument of the Court of Appeals, at the first hearing, on the absence of proof of knowledge on behalf of the stockholders of their right to disaffirm, we have chosen to express the learned judge’s opinion, in his own language.- It was well asked, by the learned judge below, what was read, and what was the knowledge communicated ?' The documents referred to as read, and as the medium of the knowledge communicated to the stockholders, and the1 record showing all “which was fully discussed and satisfactorily explained” — after which a release was offered by Sherman and accepted by tbe stockholders, discharging the company from certain obligations imposed by the contract of transportation, — were all before the Circuit Court, and this Court, at the forme'1 hearing.

Notwithstanding which, both tribunals arrived at the conclusion that there was then no sufficient evidence of ratification/ with full knowledge of the law and the facts. The Circuit judge having now reached a different result on the final hearing, the conclusion is, that something new was elicited by the' ¹³⁸ great mass of testimony, in relation to the ratification or confirmation hy the stockholders, which was not laid before the Court before. Upon an analysis of that testimony, it is believed it will be found, that the only difference in the status of the •case, then and now is, that at the former hearing, the defendants relied on circumstantial evidence of an implied ratification, and at the final hearing, on positive proof of an express ratification. The fact of ratification, implied or express, was insisted on by the appellees, on each occasion.

The Courts continued the injunction, upon the ground that, there was not sufficient proof of a valid ratification, implied or express. At the final hearing, the injunction was dissolved, on th§ hypothesis, that a valid ratification had been proved. The additional testimony, on the subject of ratification, is mainly, if not exclusively, as to the mode of ratification, i. e. the adoption of a resolution verbally on motion, that the sale to Sherman and Dean bo confirmed and ratified. No additional testimony is offered of the character of the explanations, or the nature of the information given to the stockholders, prior to the ratification; the single additional fact, proved on this point is, that a verbal motion was made and seconded, that the sale to Sherman and Dean he confirmed and ratified, which was done.

In his opinion on the motion to dissolve in the Circuit Court, the learned judge said: “I have seen no fact'or circumstance in this case, which authorises mo to determine that the stockholders, those whose interests and righto are materially affected, (indeed the only person injured) have been made acquainted with the nature and extent of the contract and sale in this cause. And the rule being ‘that they must he aware that the transaction is of on oh a character that they -could impeach it in a Court of Equity,’ I repeat, I cannot see in the case, the least evidence to establish such a knowledge.” (Opinion of Judge Perry, p. 297, Recd.) The Court of Appeals, referring to the same argument ¹³⁹ of the appellees, that the sale had been ratified, said: “An attentive consideration of its whole history as detailed in the record, has not brought us to this opinion. The law governing questions of ratification, in cases like the present, is well settled. To render the act ol ratification effective and conclusive, certain considerations arc necessary.

At the lime of the supposed ratification, the principal must have been fully aware of every material circumstance of the transaction, tiro real value of the subject of the contract .and bis act of ratification must have been an independent and substantive act founded on complete information and of perfect freedom of volition. And in addition to all this, the cestui que trust must not only have been acquained with the facts, but apprised of the law, how those facts would he dealt with if brought before a Court of Equity. This last requisite it is nowwbere shown in tbe proof, has boon complied with.” Thus it appears, in the judgment of both tribunals, tbat the appellees had failed on the motion to dissolve, to show a ratification by the stockholders with knowledge of tbe facts and the law. If so, what additional proof of-knowledge of facts and of lav/, is conveyed by the evidence, that a verbal motion to ratify and confirm, was made and adopted; after which, a committee was appointed to receive a release offered by Sherman.

The testimony at the first hearing, represented the release as obtained, as a matter of favor, after a declaration by G-rosvenor, that they no longer had any claims on Sherman and Dean. Commenting on which, this Court said: “It is fairly to be inferred, that tbe stockholders believed they were concluded by what had been done, and this inference is particularly strengthened by the circumstance, that the modification in the contract of transportation was solicited and granted, notas a matter of right, but as a concession on the part of tho beneficiary under it.” To repel this presumption, the appellees proved that it was after a vote' of ratification and confirmation had been ¹⁴⁰ passed, and other business intervened, that the subject of the release was introduced and its acceptance determined. The learned judge below sajes: “And although as stated by the Court of Appeals, it was a fair inference from the proceedings of the stockholders in reference to the release or modification of the transportation contract, that the parties believed they were concluded by what had been done, as that modification was granted not as matter of right, but as a concession on the part of Sherman and Dean; yet as these proceedings are now explained by the testimony since taken, no such inference can now be drawn.” We cannot concur in this deduction, for reasons which will be assigned, in the progress of our view of this testimony. To recur to the questions, what was read, and what was the knowledge communicated?

Passing over the initiatory proceedings, the. report to the stockholders of June 3rd, 1856, was read; which after reciting the resolution, adopted at the annual meeting of 1855, authorising the President and Directors to “sell such portion of the property of the company as they may deem advisable, and to institute and carry into effect such other measures as they may think proper for the interests of the company,” communicated as follows: “In pursuance of and by the advice of the Board of Directors, I have negotiated and completed a sale of a portion of the unworked lands of the company for the sum of ($140,000.) A larger sale was contemplated, but our chief object, the development of our property, encouraging and directing enterprise to the most accessible portion of the coal field, and furnishing additional transportation for our oivn railroad, was accomplished by this limited sale of a few hundred acres. Other considerations than price induced me to affect this sale, for in addition to the price received for the lands, the revenue from our railroads will be enhanced equal to $500 per acre for every acre sold from profits of transportation alone, coal necessarily passing over the company’s road, and that destined for ¹⁴¹ ?£lie canal, being shipped from its wharves at Cumberland. * * * *• * The extinguishment of the bonded debt has been a leading feature in the policy pursued by all -the boards ■of directors since the organization of the company. * * * * X therefore have appropriated a portion of the proceeds of sale to the further extinguishment of the bonds to the amount of §112.000.” It is said the deed and transportation contract wore read at the same time. Those being couched in technical terms, conveyed no precise information to the hearers. Their import and effect were interpreted through the annual report of the President, just read in the presence of Sherman to the stockholders, according to which, in addition to the price received, the revenue from the tolls or the compauy would be enhanced $500 per acre from profits of transportation alone.

They are assured that $355,000 is now the entire debt of the company, that they are possessed of more than one-ball' of the entire “Great Vein” of Allegany County, as yet comparatively undeveloped, and facilities for mining and transporting 250,000 tons with an increase in the same ratio each succeeding year. The report conveys no information of the terms of the contract or the obligations assumed by the Cumberland Coal and Iron Company for the transportion of coal. There is no reference in it to deeds, contracts or maps. The Hoffman mine is not mentioned except incidentally thus: “This sale renders it expedient, to extend to the Hoffman mine, the company’s road, which it is expected will be completed in all this month, and I would earnestly recommend its further extension to the justly celebrated ‘Astor Mine,’ which has at great, cost been thoroughly developed and equipped” The Hoffman mine was then sold ! what was spoken of as expedient, the President had