Elkton Electric Co. v. Perkins

²²⁷ Offutt, J., delivered the opinion of the Court. .William T. Warburton, a citizen and resident of Elkton, in Cecil County, Maryland, at the time of his death, which occurred on February 28th, 1922, owned and possessed an estate of some magnitude, embracing both real and personal property. At the same time he was heavily indebted to a number of persons, among whom was the Second National Bank of Elkton, of which he had been president, and which was also deeply involved. Shortly after his death the Comptroller of the Currency of the United States, having determined that the Second National Bank was insolvent, appointed Thomas W. .Perkins a receiver for it, and he thereupon filed in the District Court of the United States for the District of Maryland a creditor’s bill against the executor and the heirs of William T. Warburton, alleging that he was insolvent at the time of his death, and in which he asked that court to assume jurisdiction of the estate of William T. Warburton and to administer and distribute; the same, and to order a sale of if for the benefit of his creditors. The defendants answered that bill, and, after testimony in connection with the pleading’s had been taken, the court declined to assume jurisdiction of the decedent’s personal estate,'but did determine that William T. Warburton died insolvent and did assume control of his real estate, and appointed Thomas W. Perkins, Henry L. Constable and Henry A. Warburton receivers to take charge thereof, and by its subsequent order directed, them to sell certain described parts of the real property owned by the decedent at the time of his death.

Ait the time of his death William T. Warburton was interested in the property known as the Gfilpins Falls hydro electric plant, which supplied electric current throughout a large .part of Cecil County, dust what that interest was is the principal and controlling question in the case, and we will refer to it at more length later. Now if is sufficient to say that some years before his death he conveyed that property to trustees, who in turn conveyed it by a mortgage deed of trust to the Union Trust Company of Baltimore, trustee, to' secure an issue of 'bonds. The trust company was removed ²²⁸ as trustee and Mr. .Clarence W. Pei’kins substituted for it, and he, after the appointment of receivers by the federal court, filed in the Circuit Court for Cecil County a bill of complaint, later consolidated with a second bill to much the same effect against those receivers and the several persons interested in the property, in which, stated in very general terms, ho asked that court to assume jurisdiction of the trust created by the deed to the Union Trust Company, to determine the nature and extent of the property of the Gil-pins Falls trust estate, to adjudicate the validity and priority of any liens asserted against the property, to decree a sale of it for the satisfaction of liens against it, and for the appointment of receivers to aid in effecting the relief thus prayed. In the proceeding thus instituted Thomas W. Perkins and J. Wesley McAllister wore appointed receivers, and subsequently (before final decree) they were authorized and directed to sell the property, and in pursuance of that authority and direction they reported to the court a private sale of it to the Elkton Electric Company, as the highest bidder, for $15,000.

Exceptions to that sale were filed, and, pending the final disposition of them, the court asked for further bids on the property. As a result sealed bids were submitted, and again the Elkton Electric Company was the highest bidder at $100,000. Exceptions to that sale were also filed by the purchaser on the ground that the receivers could not convey a marketable title, for several reasons, the most important of which was that the property included real estate belonging to William T. Warburton at the time of 'his death, and that the Federal court, having assumed jurisdiction thereof, the State court could not have, and, in fact, had not acquired, any right or jurisdiction to sell it. These exceptions were all overruled, and the sale finally ratified to the appellant, which thereupon took the appeals which bring the matter before this Court.

The objections offered by the appellant to the sale can be thus stated, (1) that the property was,'at the time the bill of complaint in this case was filed, in the custody and control of a Federal court, and that in consequence the State ²²⁹ court could only exercise a jurisdiction ancillary to its administration there, which was not broad enough to permit it to order a sale of the property; (2) that even if the State court had the power to sell, it had no power to refuse to ratify the bid of $75,000 made by the appellant, and (3) that if it had potential authority to sell, the State court could not in this case exercise that power because it had under the pleadings no power to order a sale before any final decree, and (I) that the receivers had no marketable title to at least part of the property sold. ' The first proposition rests upon the theory that the interest which William T. Warburton had in the property known as the Gilpins Falls Hydro Electric Trust Estate at the time of his death was real and not personal property, and that the United States District Court, having assumed jurisdiction of all the real estate of which he died seised, necessarily assumed jurisdiction of his interest in that company, and that in consequence the Circuit Court for Cecil County could not, and in fact did not, acquire jurisdiction over said property, and that all its acts in reference thereto were coram non jvdicoj null and void. Before dealing with the legal principles involved in that contention we will state the facts out of which it grows. The Gilpins Falls Hydro Electric Trust Estate, to which we will hereafter for convenience refer as the Gilpins. Falls Trust Estate, was organized for the purpose of producing and selling electric current in Cecil County, Maryland.

It is the successor, so far as the general nature and character of its business is concerned, of the Gilpins Falls Electric Company, which appears to have been a trade name for William T. Warburton, who conducted the business. Its property is made up partly of real estate, such as land, buildings, easements, &., and of personal property such as franchises, contracts, privileges, machinery, equipment and the like. Included in the real estate used by William T. Wafiburton, as a part of the electric light and power plant which he operated, were two tracts of ground, each including one or more lots, which we will for brevity describe as the Davis lot and ²³⁰ the High Street, lot, both in the town of Elkton. The Ha.vis lot was conveyed in 1895 to William T. Warburton and Isaac, D. Davis.

At that time it was and still remains an essential and necessary ¡oart of the hydro electric property plant and business operated and carried on by Warburton, and it was so used by him, although Davis owned an undivided one-half interest therein. Some time after the deed to Warburton and Davis, Davis died and, on September 23rd, 1921, subsequent to the deed of trust hereinafter referred to, his heirs at.law conveyed to William T. Warburton all the right, title and interest which D'avis had had in the property. The High Street lot was also used as a necessary and essential part of the business. There were erected on it a power house and other improvements used in connection therewith, and it was treated by Warburton apparently as an integral part, of the whole plant.

The title to it stands in the name of the Elkton Electric Light and Power Company, an inactive corporation, which is said to have owned also.the original franchise under which Warburton sold electric current in Elkton. Warburton, however, appears to have taken possession of this property and to have used it as his own in connection with the electrical business referred to above for many years prior to the execution of the deed of trust referred to below. The Elkton Electric Light and Power Company, on January 2nd, 1893, executed a mortgage deed of trust on this lot, together with all other property then owned by it, to the Chestnut Street Trust and Savings Fund Company of Philadelphia to secure an issue of bonds to the amount of $12,500. John S. Wirt succeeded that company as trustee, but at his death, which occurred some years ago, no one was appointed in his place, so that now there is no one to administer the trust.

It is charged in the second bill of complaint in the consolidated cases, and admitted in certain of the answers, that Warburton owned all of these bonds as well as all of the stock of this corporation, and that it was as result of that ownership that he treated that corporation and its property as his own. Although it is stated that that corporation has long since ceased to func ²³¹ tion, that it has neither officers nor directors, that it has held no meetings, and that it abandoned all of its property to Warburton, nevertheless the Federal Reserve Rank of Richmond, on May 6th, 1922, secured a judgment against it in the District Court of the Dnited States for the District of Maryland for $6,114.14, for an indebtedness the nature of which does not appear in the record, and that judgment was entered to the use of Thomas AY. Perkins, receiver of the Second National Rank of Elkton. With the property of the Gilpins Falls hydro electric business in that situation, AYilliam T.- Warburton and Anna M. AYarhurton, his wife, on September 20th, 1921, executed a deed and declaration of trust to Charles E. and Henry A, AYarhurton, trustees, in which they conveyed to them all the property and rights constituting the Gilpins Falls hydro electric plant or project.

That deed conferred upon the trustees plenary powers as to the operation and management of the property, authorized them to sell, lease or mortgage it, limited their liability under it, provided for the payment of the net income to the cestui que trust, and for the issuance of “beneficial certificates,” and for its final conversion and distribution at the end of twenty-one years after the death of the survivor of certain persons named in it. It contains, among others, the following provisions which, as peculiarly germane to the question before us, may be referred to seriatim: “To collect and receive all rents, profits, avails and accretions from or to the aforesaid trust property, .'■state or corpus, and semi-annually or oftener, at their convenience, to distribute such portion thereof as they may in their discretion determine to be fairly distributable net avails,- net income and net proceeds to and among the several cestui que trust as their interest may appear, * * * “In further trust in favor of all and singular the aforesaid cestui que trust according to the respective beneficial interest or part of each in the trust estate hereunder and in all accretions and avails thereto, and to all said cestui que trust shall issiie proper certifi ²³² cates of beneficial interests or parts, all of which and all others which may hereafter be issued in exchange, addition or substitution therefor shall be deemed parts hereof and conclusive evidence of the ownership of the respective interests or parts in this trust estate, * * * “The said trustees and their successors are hereby empowered, in any lawful • manner and form, to borrow money and fix the terms of any loans and give any pledge, mortgage or other security therefor which they may deem wise, and no person dealing with said trustees and their successors shall in any event be bound to see to the application of any purchase money, proceeds or other avails or accretions of the transaction, and any lawful transfer of any part of said trust estate and property executed by said trustees and their successors shall pass a title thereto to the grantee thereof good both at law and in equity, free clear and discharged from all the trusts hereby created. * * * “The beneficial holder of any certificate or part hereof or cestui que trust has no right, title or interest, legal or equitable, in any specific part of the trust property and estate hereunder, but is entitled to his respective part of said property and estate, avails, accretions, acquisitions and proceeds when said property as aforesaid is converted into cash, and in the meantime to his part of its avails, accretions and proceeds as herein provided. * * * “To convert all and singular the said trust estate into money and distribute the net proceeds, avails and accretions thereof among the persons at the time of such conversion holding and owning beneficial interests therein, as evidenced by the certificates therefor issued by the said trustees or their, successors as hereinbefore provided, but.said trustees and their successors may, in their uncontrolled discretions, defer or postpone such conversion and distribution except that the same shall not be postponed beyond thé end of twenty-one years from and after the death of the last survivor of the persons hereinafter named and described in paragraph No. 20 hereof, and pending such ²³³ postponement and until tbe conversion thereof, the interests of the cestui que trust shall be considered for purposes of transfer or otherwise, solely as personal property, and * * * “At the end of twenty-one years from and after the death of the survivor of the following named persons, that is to say: Charles E. Warburton, Henry A. Warburton, Henry A. Warburton, Jr., William T. Warburton of Henry, Helen J. Warburton and Richard Banks Warburton, and of the lawful issue now living of any of them (unless this trust estate shall theretofore have been otherwise lawfully terminated), all the property of every kind then held hereunder shall be sold by the trustees and equitable distribution thereof made of the net proceeds of such sale among the persons then duly entitled thereto.” No cestuis que- trust aro named in the deed nor does it appear that any “beneficial certificates” were ever issued. Prior to the execution of that deed Warburton had applied to the Public Service Commission of Maryland for authority to execute it, and in his application he had filed a detailed schedule of the property included in the hydro electric plant and business, which he proposed to convey in the deed above referred to, and in that schedule he included the Davis lot and the High Street lot, to which he had not at that time the i’ccord title. The Public Service Commission, upon such representations, authorized the execution of the deed, and thereafter the trustees applied to it for authority to execute a mortgage deed of trust on the property to secure bonds to the amount of $'750,000. ' The Commission also authorized the execution of that deed, but limited the amount of bonds to be issued without its further order to $125,000.

Accordingly, on October 10th, 1921, the trustees executed to the Hnion Trust Company a mortgage deed of trust to secure an issue of first mortgage gold bonds to the amount of $'750,000, and actually issued bonds to the amount of $125,-000.00. ²³⁴ The record contains only a partial and incomplete extract from that mortgage and fails to show that it contains any provision authorizing a foreclosure or authorizing the trustee to institute such a proceeding as this to protect the interests of the bondholders, but inasmuch as it was tacitly admitted in this Court that it did contain such provisions, we would assume, if necessary, that it- did grant such power to the trustee. After the execution of that mortgage, bonds to' the amount of one hundred and twenty-five thousand dollars were issued, and delivered to the Second National Rank of Elkton on account of an indebtedness of William T. Warburton to it, and bonds to the amount of one hundred and twenty-one thousand dollars, of those delivered to the bank, are now held by its receiver, and the remaining four bonds are in the possession of Johnson Brothers of Harford County. Notwithstanding the execution of the deed of trust- to which wc have referred, William T. Warburton continued' to manage and operate the electric business, collected its revenues, and treated it as his own property, until the time of his death. After the death of William T. Warburton, Charles E. Warburton, one of the trustees named in the deed from William T. Warburton and wife to Charles E. and Ileniy A. Warburton, resigned from the trust-, and J. Wesley Mc-Allister was duly appointed in his place, so that when the bill of complaint, to which we will presently refer, was filed, among others, the following persons had, or claimed to have, an interest in the property of the Gilpins Falls Trust Estate r Thomas W. Perkins, receiver of the Second National Bank, which holds bonds secured by the mortgage to the Union Trust Company to the amount of $121,000 as well as unsecured claims, and the judgment obtained by the Federal Reserve Bank of Richmond against the Elkton Electric Light and Power Company which was entered to his use; Thomas.

W. Perkins, Henry L. Constable, and Henry A. Warburton, receivers of the real estate of William T. Warburton, appointed by the United States District Court upon a creditor’s ²³⁵ 1)111 tiled therein by Thomas W. Perkins; Henry A. Warburton and J. Wesley McAllister, trustees under the deed from William T. Warburton; and Clarence-W. Perkins, substituted trustee under the mortgage- deed of trust to the Union Trust Company. On July 20th, 3922, Clarence W. Perkins, substituted trustee, filed in the Circuit Court for Cecil County a bill of complaint, against Henry A. Warburton, in his own right and as trustee under the deed and declaration of trust dated September 20, 1921, as executor of the last will and testament of William T. Warburton, deceased, and as receiver of the District Court of the United States for the District of Maryland, Edna A. Warburton, his wife, Anna M. Warburton, J. Wesley McAllister, as trustee under the deed and declaration of trust dated September 20, 1921, and Henry L. Constable, as receiver of the District- Court of the United States for the District of Maryland, Thomas W. Perkins, as receiver of the District Court of the United States for the District of Maryland, the Second National Bank of Elkton, in Cecil County, Charles E. Warburton and Anna Louise Warburton. In that bill he prayed for the following relief: (1) That the court assume jurisdiction of the trust created by the deed from William T. Warburton et al. to Henry A. Warburton et al., and supervise, direct and control the income and property thereof; (2) that it declare the Davis lot above referred to to be the property of the -trust estate; (3) that the Court declare the property of the Elkton Electric Light and Power Company to be the property of the trust estate; (4) that the heirs and personal representatives of William T. Warburton be required to convey and assign to the trustees of the Gilp-ins Palis Trust Estate- all property standing in the name of William T. Warburton. at the time of his death, used by him as part of the electric business and pledged by him as p-art of the security for the bonds secured by the mortgage, as well as all stocks, bonds and other securities of the Elkton Electric Light and Power Company held by said Warburton at- his death; (;5) that it ²³⁶ require the trustees of the Gilpins Falls Trust Estate to account for all the real and personal property constituting the trust estate;- (6) that they be compelled to account for the receipts and expenditures received and made by them in the operation of said property; (I) that the court require said trustees to give an adequate bond. J. Wesley McAllister and Henry A. War burton demurred to that bill, while Thomas W. Perkins and Henry L. Constable, receivers, answered it, concluding their answer in these words; “It is not only proper that this court should assume jurisdiction of the real and personal property, franchises and rights, constituting said Gilpins Falls Hydro-Electric Trust Estate, but that on account of the gross irregularities and confusion, existing in the affairs of the late William T. Warburton, it is essential for the protection of the creditors of said William T. Warburton and all persons having an interest in his estate and affairs, that this court should take jurisdiction of said trust estate, supervise the administration thereof, and see to the proper and lawful application and distribution of the revenues and income thereof. “Wherefore, having fully answered said bill of complaint, these defendants submit themselves to the jurisdiction of the court in the premises.” Before the demurrers were disposed of, Clarence W. Perkins, substituted trustee, filed a second bill of complaint in reference to the same subject matter, in the same court, against all the defendants named in the first bill, and aRo against the Elkton Electric Light and Power Company.

In that bill the complainant asked for the following relief: (1) the appointment of receivers to take charge of the property of the Gilpins Falls Thust Estate, “including therein the franchises and real and personal property, legal title to which stands in the name of Elkton Electric Light and Power Company, and any and- all real and personal property, howsoever owned or held; which is in the possession of said Warburton ²³⁷ and McAllister as trustees, or is operated as part of or in connection witli said Gilpins Palis blydro-Eleetrie Trust Estate,” with power to continue and conduct 'the business to which the property was applied, (2) that all property standing in the name of the Elkton Electric Light and Power Company, operated and used as part of the Gilpins Falls Trust Estate, he declared to he the property of said estate and subject to the lien of the mortgage to the Union Trust Company, (3) that said Elkton Electric Light tand Power Company be required to convey said property to Warburton and McAllister as trustees of said Gilpins. Falls Trust Estate, (4) that the court adjudicate and determine the priority of all liens against the estate, (5) that the receiver of the Second National Bank he restrained from executing on the judgment of the Federal Reserve Bank against the Elkton Electric Light and Power Company, ((>) that pending a final decree all persons be restrained from seizing or levying upon any part of the property of the Gilpins Falls Trust Estate, (7) that the property he sold and the proceeds distributed among the claimants thereto according' to their legal priorities, (8) and that the case be consolidated with the case above referred to. Several of the defendants having- filed combined answers and demurrers to the second bill of complaint, tho cases were set down on the bills, answers and demurrers, and the court on September 21st, 1922, after the hearing, filed an order and decree overruling the demurrers to the first bill of complaint, sustaining the demurrers as to the relief prayed in the first paragraph of the second Mil, and overruling the demurrers as to the remainder of said bill; consolidating the two cases; assuming jurisdiction of the trust estate known as the Gilpins Falls Hydro Electric Trust Estate; requiring the trustees of said estate to give bond in the sum of $25,000; requiring them to give a detailed account of the trust property; and to make and state monthly accounts of their receipts and disbursements in the operation of said estate; enjoining the execution of the judgment of the Federal Reserve Bank against the Elkton Electric Light and Power Company, and requiring the trustees ²³⁸ to state an'account of all the receipts and disbursements'‘in said trust estate from its beginning. Subsequently Henry A. Warburton, in his own right and as trustee of the Gilpins Falls Hydro Electric Trust Company, answered the consolidated bills, admitting' in substance their averments, and at the same time.

J. Wesley McAllister, his co-trustee, filed an answer admitting, generally the averments of the bill, and consenting to the court’s assuming jurisdiction of the trust estate, and to the appointment of receivers to take charge of, manage and operate it, and on the same day these two trustees asked to be relieved of the further administration of the trust created by the deed of trust dated September 20th, 1921. Thereupon the Circuit Court for Cecil County appointed Thomas W. Perkins and J. Wesley McAllister receivers of the Gilpins Falls Hydro Electric Trusi 'lístate. Af[er.that, on December 29th, 1922, Clarence W. Perkins, .substituted trustee, filed, a petition .asking the court.to authorize a sale of the entire Gilpins Falls Trust Estate property, including the. Davis lot and the High, Street lot, before .a final decree, under the authority of section 222, article 16, C. P. G. L. of Md. Upon the filing of that application .the court passed an .order requiring all persons interested.do show cause on or before a day certain why said order should not be passed a.s prayed, and ’notice of. this application and order was given to all persons interested either by the sheriff or .through the mails.

After the time for showing’ cause against the application as fixed in the order had passed, and after the court had heard testimony as to the wisdom and propriety of .an immediate sale of the property, it passed, oh January 39th, 3923, a decree for the sale at public or private sale of the property, which in part contains these statements : “And it having been made to appear to the court by proof and testimony in open co.urt, and the court being satisfied, first, that at.