Freestate Land Corp. v. Bostetter

Smith, J., delivered the opinion of the Court. We shall here hold that the Court of Special Appeals was right for the wrong reason in Bostetter v. Freestate Land ⁵⁷² Corp., 48 Md. App. 142 , 426 A.2d 404 (1981). Hence, we shall hold, as did it, that a trial judge erred in his determination that Julian L. Oliver and Irene Burris were the owners of stock in Freestate Land Corp. Accordingly, we shall modify and, as modified, affirm the judgment of the Court of Special Appeals. We specifically disapprove of the basis for its decision.

It was of the view that this result was dictated by what it perceived as a failure of proof of an organizational meeting of that corporation. We shall first set forth the dramatis personae in an effort to clarify somewhat the confusing facts here. Then we shall discuss the litigation in the circuit court and the issue addressed by the Court of Special Appeals. After that we shall provide a synopsis of the evidence adduced.

Our discussion of the law will then follow. i Dramatis personae Martin V. B. Bostetter — a Washington County attorney who apparently is responsible for the imbroglio now before the Court. He died in 1968. Martin V. B. Bostetter, Jr. — son of Bostetter, one of his executors, and a member of the Maryland and Virginia Bars. He practices in Alexandria where he apparently is a federal bankruptcy judge.

It was he who prepared the articles of incorporation for Freestate Land Corp. Freestate Land Corp. — a Maryland corporation. It apparently was set up by Bostetter to take title to a farm Bostetter was selling as assignee of a mortgage. Bostetter desired the farm because it was adjacent to his home farm. Julian L. Oliver (Oliver) — a friend of Bostetter for many years who maintained an office in the same building as Bostetter.

According to Oliver, they "were associated in many business transactions. [Bostetter] was [Oliver’s] personal attorney and friend.” Oliver was in the réal estate business. Irene R. Burris — Bostetter’s longtime secretary who ultimately became an officer and director of Freestate. ⁵⁷³ James C. Rice — Bostetter, Jr.’s law partner and half brother who was one of the incorporators of Freestate. Edward S. Routon — Oliver’s now deceased brother-in-law who resided in Arlington, Virginia, was one of the incorporators of Freestate, and was procured by Oliver to bid in the farm which Bostetter was selling. ii Summary of facts producing this controversy We believe the chancellor was absolutely correct when he said in this case: "This is certainly a most confused state of facts. The Court believes and finds that the circumstances under which this undertaking got started were strange in that it is clear and all parties seem to agree that Mr. Bostetter, Sr. was in fact the Assignee for foreclosure on the mortgage which he in fact was the purchaser of and that he was the Freestate Corporation and that he directed all these things to take place and much of what took place, funds that changed hands or were transferred, were done from a trust account which is certainly highly irregular if not even more suspect, and Mr. Bostetter by his own conduct apparently was so lax in handling the corporation, because I suspect that he didn’t plan on dying anytime soon, because if he had, no one would leave things in such a deliberate bad shape for his heirs, but through either deliberate neglect or benign neglect or whatever there is certainly tremendous neglect to the corporation.

Somebody earlier today said that this was a case in which one could chase his own tail around and around and I would have to concur because when you try to have to determine what came first, the chicken or the egg.” In 1965, a mortgage was assigned to Bostetter for the purpose of foreclosure and collection. As such assignee, he sold approximately 102 acres of land at public sale for a stated consideration of $36,350. The tract’s place of beginning, as called for in the deed, was "a large marked walnut tree, a corner of lands of Martin V. B. Bostetter and ⁵⁷⁴ the beginning of a Deed from Jacob Bostetter and wife to John Seibert bearing date the 6th day of April, A.D. 1829.” The reported purchaser was Freestate Land Corp., a Maryland corporation. The incorporators of Freestate were James C. Rice, Edward S. Routon, and Betty L. Mattos.

Pursuant to the articles of incorporation, they were to be the original directors and to serve "until the first annual meeting, or until their successors [were] duly chosen and qualified ....” No minutes of an organizational meeting of the corporation have been found. Oliver says Bostetter told him that he, Oliver, was president and that Bostetter procured Oliver’s signature as president on a note of Freestate to Bostetter dated June 4,1965, in the amount of $32,715. Rents from the farm were collected and deposited in Bostetter’s trust account. Bostetter drew a check on that trust account to Freestate in July 1968 for the net stun in that account which belonged to Freestate.

He delivered the records of Freestate to Oliver almost immediately thereafter. The check was deposited in an account at Hagerstown Trust Company in the name of the corporation. As directors of Freestate, Oliver and Burris passed a resolution to set up that account. So far as the record discloses, Freestate never issued stock until sometime after Bostetter’s death when stock was issued to Oliver and Burris for the amount of money they then contributed.

Bostetter, Jr., purported, after his father’s death, to have an organizational meeting of the corporation. He procured a conveyance of the land in question from the corporation to him individually. iii The litigation Subsequent to Bostetter’s death, his personal representatives entered suit against the corporation on the note to which we have referred. Judgment in favor of the estate against the corporation was entered by confession. That litigation is not before the Court in this case and is relevant only on any issue of estoppel. ⁵⁷⁵ On September 30,1971, Bostetter, Jr., and his co-executor sued Freestate and Oliver in the Circuit Court for Washington County.

The bill of complaint, as ultimately amended, named Burris and Kent N. Oliver in addition to Freestate and Julian L. Oliver as parties defendant. The bill sought a determination that actions of Oliver and Burris pertaining to the corporation were illegal. It prayed that they might be required to turn over to Bostetter’s personal representatives all books and records of the corporation and that the defendants might be required to account for all monies received. Among other things, it alleged that among the assets of Bostetter’s estate was "the entire or sole interest as a stockholder” in Freestate.

It was claimed that no organizational meeting of Freestate ever had been held, although it was acknowledged that the records of the Department of Assessments and Taxation reflected the identity of officers and directors of the corporation. At the conclusion of the case of Bostetter, Jr., et al., the chancellor granted the motion to dismiss of Oliver et al., saying: "I must say that it is certainly a confusing situation and I think that to some degree the difficulty that has encountered as of today in dealing with this case is that everybody seems to be thoroughly familiar with the facts, but the facts in this Court’s opinion cannot square with the relief that is requested in the Amended Petition. In reading the Amended Petition the Court reads that the Petitioners are requesting that this Court pass an order declaring the alleged conduct of Julian L. Oliver and Irene Burris null and void. But this Court does not have before it at this time in this record any evidence of any conduct of them other than some very general statements made by Mr. Bostetter Jr. that at some point in time he became aware of who was running the corporation.

But this Court does not find that that type of evidence is specific enough or sufficient enough to square with the allegations in the Amended Petition. And there is further a request that Oliver and Burris turn over all papers, books, instruments, checking accounts and records ⁵⁷⁶ of Freestate Land Corporation, and there has been no proof that one, any such documents exist, and two, that they are in the possession of Mr. Oliver or Miss Burris, and thirdly, there is a request for an accounting of monies received and distributed by him or her and apparently that’s what Plaintiffs Exhibit 10 is, which was listed as Freestate Land Corporation, Deposits and Paid Out. So that from the standpoint of relief sought under the Petition, the Court finds that there is no evidence which has been produced in the record sufficient to grant the relief prayed, if you can call them first and second relief prayed, and the third request is moot because apparently the information has all been supplied. The Court will grant the Motion to Dismiss.” The trial judge signed an order to that effect.

An appeal was entered by the plaintiff, Bostetter, Jr., et al. On January 21, 1976, Freestate Land Corp., Oliver, and Burris sued Bostetter, Jr., individually and as trustee and executor under the will of his father, Joanne R. Bostetter, and James C. Rice. 1 That bill prayed damages; a permanent injunction restraining Bostetter, Jr., et al. "from acting or attempting to act in the name of the Corporation as either directors, stockholders or officers”; that the deed from Freestate to Bostetter, Jr., be declared a nullity; that Bostetter, Jr., be directed to reconvey the property to Freestate, and for an accounting. The bill purported to contain counts concerned with fraud, fraudulent conveyances, etc. 2 That lengthy bill contained a number of averments including ones relative to the setting up of the corporation, the execution of the note by Oliver on behalf of the corporation to Bostetter, and the like. These included that Bostetter ⁵⁷⁷ approached Oliver "and stated that he was being investigated by the Internal Revenue Service; that he wished to divest himself of all ownership of the Corporation and that he wished to divest himself of any control over the