Gregory v. Chapman

Urner, J., delivered the opinion of the Court. The Druid Ridge Cemetery of Baltimore County was incorporated on January 14th, 1896, under the general corporation laws of Maryland. Its charter declared that it was not organized for profit and that it would have no capital stock. Upon the day of its incorporation it acquired by deed a tract of 200 acres of land in Baltimore County.

This was in excess of the quantity of land it could hold under the law, but the conveyance was subsequently sanctioned by the Act ⁴⁹⁸ of 1900, Chapter 537. There was no purchase price mentioned in the deed, hut contemporaneously with its execution tiie parties entered into a written agreement in which the consideration was. expressed. The agreement recited that the deed had been executed by Charles Tyler as owner and holder of the land for himself and his associates, whose interests were divided into ten thousand shares and were held in specified proportions, and it provides that the corporate grantee should pay to the holders of the shares thus defined, as the purchase price of the property conveyed, one-half of the proceeds of all sales of the use of lots in the cemetery for burial purposes. It was agreed that certificates for the shares should be issued by the corporation and be transferable on its books, and that the shareholder’s half of the proceeds of the sale of lots should be divided among them according to their several interests on the first days of January and July in each year.

It was further provided that the company should apply the remaining half of the proceeds of such sales to preserving, improving and embellishing the cemetery grounds and its avenues, paths and roads and to defraying its incidental expenses. There was a provision that the lots should be sold at prices to be established in the by-laws of the company, first adopted after the agreement, and should not be changed without the written consent of a majority in interest of the shareholders. This contract was entered upon the minutes of the corporation, and was recited in a later agreement between the parties, executed and acknowledged on March 23rd, 1897, and filed for record the following month with the deed, which had not previously been recorded. In the last mentioned agreement, it was stated that the title conveyed by the deed was intended to be clear of an outstanding mortgage on the land for $25,000.00, which the grantor had proposed to pay from the proceeds of the sale of 1000 shares in the cemetery, and it was agreed, in lieu of this arrangement, that the corporation should assume the mortgage in consideration of the transfer of that number of shares to a designated person for the company’s ⁴⁹⁹ use.

The transfer of the shares is admitted in the agréement to have been made prior to its delivery, and the amount they represented, estimated at $25,000.00, was invested in a mausoleum erected in the cemetery at a total cost of $56,000. On the day of the execution of the first agreement referred to the company adopted by-laws which included a regulation establishing the prices for the sale of burial lots. Provision was also made for the issuance of certificates of indebtedness if the company should incur debts for services rendered or material furnished in preserving or improving the cemetery. These certificates were to be transferable by delivery, unless otherwise provided by their terms; and it was made the duty of the trustees of the cemetery to set aside from the proceeds of sales of the use of lots such sums as they might deem necessary to pay the certificates at their maturity.

The right to vote at the meetings of the corporation was conferred upon holders of certificates of indebtedness and owners of burial lots, but this privilege was not given the holders of land share certificates. The company began its operations without capital, and it was required from the outset to contract debts and borrow money in order to develop the land it had acquired and make it available for cemetery purposes. There was expended for roads and grading, the construction of an entrance building and a mausoleum, the making of a lake, the erection of fences, and for other improvements, a total of about $80,000.00. In addition to this outlay the company had to provide approximately fifteen thousand dollars a year for operating and maintenance expenses.

The sales of lots were not sufficiently rapid and numerous to produce the funds necessary to meet these heavy demands, especially in view of the appropriation of half the proceeds to the land shareholders. It was consequently neeessary to gradually increase the issues of indebtedness certificates. They eventually aggregated $142,203.00 and represented practically every class of expenditures made by the company, as they were issued not only for improvements but also on account ⁵⁰⁰ of loans contracted to meet tlie current cost of operation, interest on existing debts, reduction of the mortgage, and in some instances, apparently, for shares due holders of land certificates. In 1910 the company owed, besides the certificates of indebtedness, and exclusive of interest, a balance of $15,197.00 on the mortgage, $25,000.00 on promissory notes, $900.00 on what the record describes as comptroller’s notes, $13,569.60 on open accounts and $15,835.11 on land shares, making total liabilities of $212,704.71.

Its assets, apart from the cemetery grounds and improvements, consisted of accounts receivable to the amount of $17,574.17 for lots sold, about $400.00 in cash, and some implements and other chattels whose value is not ascertained. At this period burial lots having an aggregate area of 11 acres had been sold for approximately $245,000.00, of which $100,000.00 had been distributed in semi-annual dividends to the holders of the land certificates, and the residue applied to improvements, current expenses and fixed charges. The amount required annually for these purposes was from $7,000.00 to $9,000.00 in excess of the company’s available income, and after its operations had been conducted under these difficult conditions for fourteen years a proceeding, such as the present, for a receivership and dissolution on the ground of insolvency appeared to be unavoidable. A bill having that object in view was filed in the Circuit Court for Baltimore County on October 15th, 1910.

There were two plaintiffs in the proceeding, one of whom was a creditor upon an open account and promissory note, and the other a lot owner and holder of both land and indebtedness certificates. The company filed an answer admitting its insolvency and consenting to such action in the premises as the Court might deem proper. An order was thereupon passed appointing receivers. Shortly after entering upon their administration they filed a petition to have the holders of the land certificates made parties to the proceeding in order that their interests might be protected, and that the purchaser of the company’s unsold land might acquire title ⁵⁰¹ free of any claim based upon these obligations.

The petition contained a list of the land shareholders, and the Court ordered that they be made parties and notified by the usual process. In the meantime, on application of the receivers, the publication of a notice to creditors had been directed. Eumerous answers were filed by holders of land shares and by claimants belonging to each of the other classes we have described. There was a great divergence in the views presented as to the rights of the various respondents and as to the proper disposition of the cemetery and the proceeds of the land if decreed to be sold.

After a full hearing the learned Court below passed a decree dissolving the company-on the ground of insolvency and providing for the sale of its property and franchises. The decree directed that the sale be made subject to the outstanding mortgage and to the proviso that the purchaser should covenant and agree to hold and invest $40,000.00 of the purchase price as a.fund to meet and comply with all obligations theretofore assumed by the cemetery company, or the receivers, for the perpetual care of lots sold for burial purposes, and should further covenant and agree to set apart, invest and hold such portion of the proceeds of lots thereafter sold as might be necessary to provide for their perpetual care and maintenance. It was determined by the decree that out of the money arising from, the sale of the cemetery the expenses of the receivership proceeding be first paid, that the sum of $40,000.00 be invested in the name of the purchaser for the purpose previously indicated, and that the residue of the proceeds of sale be divided into two equal portions, one of which should be distributed to the holders of land shares, and the other applied, first to the payment in full of comptrollers’ notes and open .accounts, and next to the certificates of indebtedness and promissory notes. There is no appeal from this decree in so far as it adjudicates the insolvency of the company, effects its dissolution and directs a sale of its property, but two holders of certificates of indebtedness have appealed from that portion of ⁵⁰² the decree which prescribes the mode of distributing the proceeds of sale.

Pending this appeal the receivers made and reported to the Court a sale of “all the unsold land and improvements, personal property, rights, privileges and franchises” of the Druid Ridge Cemetery Company, “as an entirety and as a going concern” for $205,000.00, subject, to the mortgage for $15,197.00 and to the condition that the property he maintained as a cemetery, and that provision he made in the manner prescribed by the decree for the care of burial lots theretofore and thereafter sold. Exceptions to the sale were filed by holders of promissory’ notes and certificates of indebtedness, who questioned the adequacy of the price at which the property was sold, and asserted that, the sale was not made advantageously in view of the pendency of an appeal from the decree determining the disposition of the proceeds. It was stated that parties interested in the fund would have bid at the sale if their rights had been finally and favorably adjudicated, but that they were precluded from doing so on account of uncertainty as to the result of the appeal. The purchaser also excepted to the sale in order to obtain the judgment of the Court as to the validity of his title.

All the exceptions were overruled and the sale ratified, and from this action the except-ants have appealed. These latter appeals were brought up in a supplemental record and have been argued with the appeal taken from the decree under which the sale was reported. The purchaser is the only party who raises in this Court any question as to the decree in so far as it directs the sale of the cemetery. While he is desirous of consummating the purchase, he is doubtful as to the title because of the fact, appearing of record, that some of the resident holders of land share certificates were not summoned in the proceeding.

The point is made that such certificates, and the agreement under which they were issued, may have created a lien on the land, and that a decree for sale clear of such lien could not be affected unless all the lienors were duly ⁵⁰³ notified by summons as to tbe resident, and publication as to the non-resident parties. It is suggested further that the case does not show conditions which make it proper to apply the rule of representation as between the present and absent defendants. In our opinion there is no difficulty as to the title. Whatever interest the land certificates represented in the proceeds of the sale of burial lots, it is clear that they constituted no lien upon the land out of which the lots were formed.

The agreement which provides for these certificates is entirely incompatible with the existence of such a .lien. It not only permits but requires the vendee to lay out and sell the land for burial purposes and expressly limits the vendors’ claims to one-half of the proceeds of the sales as the measure and source of payment. An interest amounts to a lien only where it is susceptible of enforcement by the sale or appropriation of the property to which it relates. Jordan v. Reynolds, 105 Md. 294 ; Eschbach v. Pitts, 6 Md. 71 ; 25 Cyc. 660.

In this case it is evident that such a right could not be exercised consistently with the contractual duty imposed upon .the vendee company to re-sell the land. The decree of the Court below, therefore, did not disregard any interest which may disturb the title, and the purchaser’s exception on this ground was properly overruled. The other exceptions to the ratification of the sale are not supported by any evidence from