Friendship Heights Citizens Committee v. Barlow

Menchine, J., delivered the opinion of the Court. Friendship Heights Citizens Committee (Friendship Committee) instituted separate suits at law in the Circuit Court for Montgomery County, seeking damages and declaratory relief against Milton A. Barlow and others 1 (known here as No. 156, September Term, 1974) and against Suburban Trust Company (known here as No. 157, September Term, 1974). All defendants in both cases filed motions raising preliminary objection pursuant to Maryland Rule 323 upon the ground that Friendship Committee lacked legal capacity to sue. The trial court granted the motions and dismissed the actions.

Friendship Committee has appealed. The issue presented for our consideration is extremely ⁶³⁷ narrow in scope. We find the legal principles controlling its determination to have application to both cases. We emphasize at the outset that the decision we announce is restricted to Friendship Committee’s capacity to sue and we make no finding upon the question whether either action as presently formulated will survive demurrer or other motions as to any or all of the parties defendant. 2 We have not examined the declarations from the viewpoint of their legal sufficiency. 3 We have examined the allegations of the declarations only to determine whether they are such as give rise to a right on the part of Friendship Committee to invoke the aid of judicial power under the circumstances they outline.

We find that they do give rise to such right. The allegations may be summarized as follows: 1. The individual defendants are former elected members of Friendship Committee. The corporate defendant dealt with the individual defendants during their stewardship and engaged in business transactions purporting to bind Friendship Committee. 2.

That during the course of their terms of office the individual defendants conspired with each other and with agents of the Suburban Trust Company to borrow money for illegal or unlawful purposes, and did in fact cause notes or other evidences of debt to be executed by Friendship Committee by which it became obligated to Suburban Trust Company for the sum of $1,250,000.00, although the purposes for which said monies were to be used were unlawful, illegal and ultra vires. 3. That while occupying such offices the individual defendants continued to conspire with each other ⁶³⁸ to use, and did in fact use, the major portion of the proceeds of the borrowed money, all with the knowledge and approval of Suburban Trust Company, for the purchase of parcels of land from some of the individual defendants at grossly inflated prices at a time when other land of equal or superior utility was available at lower prices and did conspire to pay, and did in fact pay, to a defendant real estate commissions for such sales. 4. That the loan and deed transactions were illegal and void because they were authorized by less than a majority of the elected members of Friendship Committee. 5. That the loan and deed transactions were illegal and void because such transactions were beyond the power and authority conferred by statute upon Friendship Committee. 6.

That profits stemming from the illegal transactions have been retained by the defendants. 7. That during the terms of office of thedndividual defendants Friendship Committee had upon deposit in the Suburban Trust Company the sum of $300,000.00 upon which it was receiving annual interest at the rate of 7 1 /i%, but that the individual defendants conspired together and with agents of Suburban Trust Company to use the said sum to reduce the principal balance of Friendship’s 5 3 A% loan, although no principal payment was required to be made until 1975. That the effect of such transaction was to cause Friendship to lose and Suburban to gain F/2% per annum on the said monies from the date of actual payment to the date when such payment would have fallen due without any benefit to Friendship Committee. 8. That the advance payment was made shortly before newly elected members of Friendship Committee took office following their election ⁶³⁹ and was intended to serve their predecessors private purposes and to prevent their successors from effectively functioning in the conduct of the duties committed to Friendship Committee by the Legislature of Maryland, and 9.

That the individual defendants, during their terms of office before their successors were elected and qualified, entered into contracts or agreements whereby valuable property rights and easements of Friendship were transferred without legislative authority. That a public corporation, without express power to sue, may have inherent power to do so in some circumstances is well-established. A leading case on the subject is City of Toronto v. Bowes, 4 Grant 489 (Court of Error and Appeal of Upper Canada, 1854). In Bowes the Mayor of Toronto secretly planned to deal in a bond issue for the issuance of which he thereafter became an advocate.

The Court at 503 declared, “The settled rule is, that he who is entrusted with the business of others cannot be allowed to make such a business an object of interest to himself.” Adding at 506: “The cases are well known in the law books, both of England and Scotland, particularly with regard to the purchasing in of debts, with eases and compositions, and the like, where the law obliges the persons in the particular situation of trust, in all things relative to the estate of those for whom they are entrusted, to act for them and not for themselves. The reason is, the law will not allow them to act otherwise for the danger of their situation. And another reason may also be assigned namely, that the law in no case will permit persons who have undertaken a character or a charge to change or invert that character by leaving it and acting for themselves, in a business in which their character binds them to act for others. “* * * but it was said that the defendant was the ⁶⁴⁰ Mayor of the City of Toronto, and not an agent for the Corporation, and it was strenuously argued that none of the authorities apply to such a case. “I cannot accede to that argument. Reason and authority are against it.

The large estates belonging to the City of Toronto, and the income which they produce; the ample public revenue derived from taxation; all their complicated transactions, pecuniary and otherwise, are under the management of the Common Council. Now it is impossible to deny that these important rights have their corresponding duties. This is in substance and effect a trust. There is no magic in a name.

The Common Council is in fact entrusted with the management of the affairs of the city of Toronto, and I am at a loss to discover why the rule applicable to every other case of trust should not be applied to this. If the rule be one of pressing necessity in cases of ordinary trust, why is it to be abrogated where the trusts are of such vast magnitude and importance? Why is the principle to be held inapplicable when the probabilities of an abuse of trust are so greatly multiplied? Such a determination in a country, the local concerns of which are managed to so large an extent by corporations of this sort, possessed of such extensive powers, would be productive, in my opinion, of the worst consequences to the moral and material interests of the community.” (Italics in original.) In Antieau’s Municipal Corporation Law, Vol. 2 (1973), it is said in § 15 A.31: “Where local government officers and employees are themselves recipients of municipal funds improperly disbursed, the law is clear that the public servants must return these funds in a suit brought by the local government or a taxpayer thereof.” ⁶⁴¹ In Jersey City v. Hague, 115 A. 2d 8 (Supreme Ct. of N. J. 1955), the capacity of Jersey City to sue was questioned but sustained, the Court saying at 15: “* * * the first count alleges that the defendants as individuals and as public officials ‘did steal and did unlawfully, fraudulently, corruptly and with gross breach of trust, extort and appropriate to themselves property of the city, to wit, money.’ * * * the city has the power to bring suit for the recovery of its property in the same manner as natural