Hagerstown Furniture Co. v. Baker

Pattison, J., delivered the opinion of the Court. In this case, the appellees, Clarence H. Baker and Daisy S. Harper, executors of Solomon' Baker, deceased, on the second day of December, 1927, filed their bill in the Circuit Court for Washington County, against the Hagerstown Furniture Company, a corporation doing business in that county, asking that a receiver, or receivers, be appointed for it. • The bill alleged that the company was incorporated in 1885, with a capital stock of $9,000, consisting of ninety shares each of the par value of one hundred dollars. It then alleged that its stockholders at the time of filing the bill were Henry F. Wingert, ten shares; Miller Wingert, ten shares; Lewis P. Wingert, ten shares; William Wingert, ten shares; Martha A. Wingert, ten shares; Mrs. Julia Reamer, ten shares; John G. Ernst, fifteen shares; and Solomon Baker, deceased, fifteen shares. At such time Henry F. Wingert, William Wingert, Lewis P. Wingert, and John G. Ernst were the directors of the corporation.

The vacancy caused by the death of Solomon B¡aker, a director, had not then been filled. Its officers were Henry F. Wingert, president; William Wingert, vice-president; Lewis P. Wingert, treasurer; and John G. Ernst, secretary. ⁵⁵¹ The hill further alleged that, at that time, the Hagerstown Furniture Company, which we will hereafter call the “furniture company” was indebted to the estate of Solomon Baker in the sum of $2,500, consisting of two notes, one for the sum of $1,500 and the other for $1,000, which were then due and owing, and for the payment of which demand had been made, but because of the impaired condition of the furniture company’s credit it was unable to pay the same or to borrow money with which to pay them. In addition thereto, the furniture company was owing- the First National Bank of Hagerstown, Md., $16,637.14, with interest from November 12th, 1927, and costs, upon a judgment entered upon the four notes of the furniture company, for the following amounts: (1) $5,000, dated April 14th, 1927, payable thirty days thereafter, signed by Lewis P. Wingert, treasurer; (2) $2,000, dated April 24th, 1927, payable thirty days after date and signed by John G. Ernst, secretary; (3) $3,000, dated September 25th, 1927, payable sixty days after date and signed by John G. Ernst, secretary; (4) $5,000, dated October 17th, 1927, payable sixty days after date and also signed by John G. Ernst, secretary. It was alleged in the hill that the first of these notes was borrowed to loan to the Ilagerstown Silk Company, a corporation in which William Wingert had a controlling interest, and in which the furniture company, John G. Ernst, and Solomon Baker had no interest.

The money so borrowed to loan to the silk company was under a resolution passed on April 14th, 1927, at a meeting of that date, attended by Henry F. Wingert, William Wingert, Lewis P. Wingert, John G. Ernst, and Solomon Baker. That in the passage of said resolution Henry F. Wingert, William Wingert and Lewis P. Wingert voted in the affirmative, and John G. Ernst and Solomon Baker voted in the negative. The bill further alleged that, since 1924, Henry F. Wingert, William Wingert, and Lewis P. Wingert, three of the directors of the company, have borrowed large sums of money from the furniture company for themselves, the silk company and the Antietam Knitting Company, two corporations, in ⁵⁵² which, they were largely interested. That much of the money was borrowed without the knowledge and authority of Ernst and Solomon Baker, the other two directors of the furniture company, and without the authority of the board of directors of that company.

The first three of these directors, being a majority and representing a majority of the stock of the comP'any, used their positions to borrow money from the furniture company for themselves and for corporations in which they were interested; that the furniture company holds notes against the Hagerstown Silk Company and William Wingert, Henry F. Wingert, and Miller Wingert, aggregating $2,275 ; a note against Henry F. Wingert and Miller Wingert for $500, and five notes against Henry F. Wingert, William Wingert, and Miller Wingert, amounting in all to- $3,500. The bill alleged that the aforesaid notes were given for money received by the Hagerstown Silk Company and by Henry F. Wingert, William Wingert, and Miller Wingert, without the authority of the board of directors of the furniture company. It also alleged that the Antietam Knitting Company, a corporation in which William Wingert had a controlling interest, and in which Ernst and Solomon Baker had no interest, was indebted to the furniture company in the sum of $150, on a check signed, “Hagerstown Furniture Co. by Lewis P. Wingert, treasurer,” in February, 1927, for $700, without the authority of the board of directors of the furniture company. The bill further alleged that a petition had been filed in the United States District Court for the District of Maryland against Henry F. Wingert, Lewis P. Wingert, Miller Wingert, Martha A. Wingert, Hagerstown Silk Company, and the Antietam Knitting Company, to have them declared bankrupts and the matter of their adjudication was, at that time, pending in said court; that the forty shares of the capital stock of the furniture company in the name of Henry F. Wingert, Miller Wingert, Lewis P. Wingert, and Martha A. Wingert, had been given as collateral for notes due by them to the Hagerstown Bank, and ten shares of the furniture company given as collateral for notes due by them to ⁵⁵³ the Mechanics Loan & Savings Bank of Hagerstown, Md., for sums greatly in excess of the valne of said stock; and that the said H. E. Wingert, Miller Wingert, Lewis Wingert, and Martha A. Wingert have, as a matter of fact, no interest in the furniture company; that Henry E. Wingert, president of the furniture company, had made demand on that company for money alleged to be due him as salary, though he was, at the time of such demand, indebted to the furniture company in a sum larger than that claimed to' be owing him as salary; and, unless restrained hy the court, Lewis P. Wingert, treasurer, is liable to draw money out of bank and pay the same to Henry E'.

Wingert, when the same should be applied in part payment of Henry F. Wingert’s indebtedness to the furniture company. The bill further alleges that the furniture company, since its organization in 1885, to the death of Solomon Baker in May, 1927, had been under the direct management of Solomon Baker and John G. Ernst; that it was well managed, enjoyed a good name in the business world; and its credit high, and, until 1925, was a very prosperous company, but since the entry of the confessed judgment against it, in favor of the First National Bant of Hagerstown, for the sum of $16,637, on November 12th, 1927, and the creation of the debt owing to it by the silk company and Henry F. Wingert, William Wingert, Lewis P. Wingert and the Antietam Knitting Company, it is unable to meet its obligations and to buy material and conduct its business in the usual manner; that the said furniture company “is not insolvent” and “has assets amply sufficient to pay all its debts and obligations, but in order to protect the assets and business of the said company and continue the business of the company, it will be for the benefit of the creditors and stockholders that a receiver or receivers bo appointed to take charge of the property, assets and business of the company and continue to operate the same under the direction of this court until the samo can be sold and the proceeds applied to the payment of its debts and the remainder to the stockholders of the company.” ⁵⁵⁴ The immature company, through its president, Henry E. Wingert, filed its answer, in which it admitted the incorporation of the furniture company in 1885, the amount of its capital stock, the holders of such stock, and the amount alleged to be due and owing by it to the estate of Solomon Baker. It admitted the existence of the notes upon which judgment by confession was entered against it in favor of the First Rational Bank for .the amount named in the bill, but alleged that the judgment was entered without knowledge or consent of the defendant, and that two of the notes upon which judgment was entered were not due at the date of the entry of the judgment; and that the judgment entered was not the “usual judgment by confession” but entered on judgment notes and without the consent of the defendant. It likewise admitted that the $5,000 borrowed of the First Rational B'ank of Hagerstown was borrowed to ba loaned to the silk company, but denied that Ernst and Baker voted against the resolution upon which the loan was made.

It also admitted that money was loaned to Henry F. Wingert and William Wingert, the exact amount of which was not available to it at the time, but denied that Lewis P. Wingert had borrowed from the furniture company any money for the use of the Hagerstown Silk Company or the Antietam Knitting Company, or for himself, and also denied that any money or sums of money loaned by the Hagerstown Furniture Company to Henry F. Wingert and William Wingert were borrowed without the knowledge or consent of Ernst or Baker, or without the authority of the board of directors of the company, and averred that it was not advised as to William Wingert’s interest in the Antietam Knitting Company, nor was it advised as to the Antietam Knitting Company’s indebtedness to the furniture company. It, however, admitted the allegation of the bill that a petition in bankruptcy had been filed against Henry F. Wingert, William Wingert, Lewis P. Wingert, Miller Wingert, and Martha A. Wingert, and the Hagerstown Silk Company, and the Antietam Knitting Company. It also admitted the allegations that the forty shares of stock of the furniture company, in the name ⁵⁵⁵ of Henry F. Wingert, Miller Wingert, Lewis P. Wingert, and Martha A. Wingert, had been given as collateral for n.otes due by them to the Hagerstown Bhnk, and ten shares given as collateral for notes due and owing by William Wingert to tbe Mechanics Loan & Savings Bank of Hagerstown, but, it seems, denied the allegation that the sums borrowed thereon were in excess of tbe value of tbe stock, and that they had no interest in the company. The answer denied that the furniture company was unable to meet its obligations and to buy material and conduct its business in tbe usual manner, and that it would be for the benefit of the creditors and stockholders that a receiver or receivers be appointed and that the same was necessary to protect the assets and business of the company.

The answer further avers that Henry F. Wingert, president of the company, had been appealed to whenver the company needed funds to meet its obligations and that he, as president, has not been advised of any serious or pressing need for funds or1 for any serious financial embarrassment of the company. _ This answer was filed December 14th, 1927. On April 16th, 1928, “tbe president, directors and company of the Hagerstown Bank, a corporation, and John G. Ernst, Victor E. Onshwa and Clarence H. Baker” filed their petition in this case, in which they expressed a desire to be joined with the plaintiffs Clarence H. Baker and Daisy A. Harper, executors of Solomon Baker, deceased, and asked to be made parties plaintiff with them and be allowed to join in the prayer asking that receivers be appointed for the furniture company. In this petition it was alleged by the bank that they held, at that time, forty shares of the stock of the furniture company, as pledgee of Henry F. Wingert, Miller Wingert, Lewis P. Wingert and Martha A. Wingert, viz: ten shares of stock in the name of Henry F. Wingert, ten shares of the stock in the name of Miller Wingert, ten shares in the name of Lewis P. Wingert, and ten shares in the name of Martha A. Wingert. This stock they alleged was transferred to the bank as pledgee under a decree of the Circuit Court for Washington County in Ho. 10677 Chancery, passed on tbe 31st day of ⁵⁵⁶ March, 1928, in a proceeding instituted by the president, directors and company of the Hagerstown Bank against Henry F. Wingert, president of the furniture company, to have said stock transferred to it, and the proceeding in that case was, by said petition, made a part of it.

The petition further alleged that of the stock of the furniture company, fifteen shares were held by Ernst, ten shares by Victor FT. Cushwa, which last named shares were bought by Cushwa from the Mechanics Loan & Savings Bank, pledgee of William Wingert, but for which he held no certificate, as Henry F. Wingert, the president of the furniture company, had refused to issue a new certificate to him for the same, and eleven shares by Oarence A. Biaker. The. petition further alleged that the management of the furniture company, notwithstanding the above alleged facts, was still in the hands of Henry F. Wingert, president and director; William Wingert, vice-president and director; Lewis P. Wingert, treasurer and director; and John G. Ernst, secretary and director; that because of the pendency in the United States District Court for the District of Maryland of the bankruptcy proceedings against Henry, William and Lewis Wingert, the indebtedness of Henry F. Wingert, William Wingert, and Miller Wingert to the furniture company and their individual indebtedness to numerous persons, banks, and corporations, their credit, as well as the credit of the Hagerstown Furniture Company, had been impaired and damaged, so that the business; of that company could not properly be conducted under their management. It was further alleged that the bank filed its proceedings against Henry F. Wingert, president, to have said stock transferred to it as pledgee, and, after the passage of the decree directing said stock to1 be so transferred, the bank and other stockholders made written requests to John G. Ernst, secretary, to call a special