Hoffman Steam Coal Co. v. Cumberland Coal & Iron Co.

Le Grand, C. J., delivered the opinion of this court: This is an appeal from an order granting an injunction, and from a subsequent order continuing the same, upon the hearing of a motion to dissolve, passed by the Circuit court of Allegany county, in an equity cause therein depending, in which the Cumberland Coal and Iron Company was the complainant, and Allen M. Sherman, William B. Dean, and the Hoffman Steam Coal Company, were defendants. The motion to dissolve was made by all the defendants, and, being overruled in the opinion of the court, after an amendment was made to the bill of complaint, the formal order was filed, the amended bill having been answered by all the defendants. The Hoffman Steam Coal Company, alone, appealed. The object of the bill is, to cause to have declared null and void certain deeds of lands from the complainant to Messrs.

Sherman and Dean, and the cancellation of a contract, entered into with them by the complainant, for the transportation of coal, &c., over a railroad belonging to the latter. And, also, to procure a transfer of the aforesaid lands to the complainant, the same having been conveyed, as also the contract of transportation, to the appellant. The bill prays an accounting on the part of the defendants, as to the coal, <fcc., which have been mined and transported from the lands mentioned in the proceedings; and, also, an injunction restraining the disposition and sale of any of said lands, the stock of the appellant, or the transfer of the contract relating to transportation. The whole equity of the complaint rests on two principal ⁵⁰⁰ allegations.

First, fraud, hi fact, on the part of Sherman and Dean in their dealings with the properly of the complainant; and, second, that if there be no such fraud, in fact, as to vitiate the whole transaction, the law, under the circumstances of this case, imputes such knowledge to the appellant of the relation of Sherman to the complainant and the course of his proceedings, as will affect its title with whatever infirmity belonged to his title. The principal and operative facts detailed in the bill of complaint, may be thus stated: The complainant was incorporated by the State of Maryland, at December session 1840. Andrew Mehaffey was its president from the 20th of March 1854 to the Tth of June L858. Sherman became a director, by an election to fill a vacancy, on the 21st of February 1855, and continued to be such until the 29th of May 1858.

On the 4th of April 1855, Sherman was appointed chairman of a committee to prepare by-laws, and as such, on the 4t.h day of June 1855, reported to a meeting of stockholders, that an executive committee should be created, to be constituted of three directors, two of whom to form a quorum, the committee to be appointed exclusively by the president; that in pursuance of the authority conferred upon him by the adoption of the report, the president, Mehaffey, -appointed Messrs. Sherman, Francis Bloodgood and Joseph Torrey, an executive committee, and, as such, they assumed to act on the 29th of May 1858, but they never kept any record of their proceedings. That, on the 9th of October 1855, Sherman, at a meeting of the board of directors of the complainant, held in the city of New York, proposed for the adoption of the directors, which was done, the following resolution: “Resolved, that, the president appoint a committee of tfive directors, whose duty it shall be to proceed to the company’s property in Maryland, and ascertain how much and what part of their lands can be sold without interfering with the working and facilities of the company; and if practicable, ■that they apportion and set-off, by metes and bounds, such portions as they, in their judgment, shall deem advisable, and report the result of their commission to this board at the ⁵⁰¹ earliest day practicable.” Sherman was appointed chairman of the committee, having associated with him on il, Joseph Torrey, M. N. Falls, William Petit and Francis Bloodgood. This committee was appointed by the president, Mehaffey, who, on motion, was added to it.

Only Sherman, Mehaffey and Petit acted and visited the lands. On the llth of December 1855, they made a report recommending a sale of a portion of the lands of the complainant,; a resolution was passed authorizing a sale of land for $200,000. On the 15th of January 1856, another resolution was passed, which, after referring to that of the 11 th of December, and declaring its execution to have been found impracticable, proceeds as follows: “It is understood that a sale of a less quantity of land, for $150,000, or thereabouts, may be effected, which sale, it is believed, will accomplish all the ends, &c.; therefore, resolved, that the president and secretary be, and they are hereby authorized and directed to make such sale, by executing a deed of the land to be sold, and to make and execute such covenants and agreements, on the part and in the behalf of this company, and as they may deem necessary to accomplish the ends above mentioned. Resolved, that the president be, and he is hereby authorized to modify the terms and conditions of such sale, in his discretion, if he shall deem it necessary to the accomplishment of such sale.’ ’ On the 22nd of April 1856, at the city of New York, a deed of conveyance of certain lands belonging to the complainant, and therein described, and a certain agreement relating to transportation, were executed and delivered by Mehaffey, as president, to Sherman and Dean.

This transaction was, on the 13th of May 1856, reported to a meeting of the directors of the Cumberland Coal and Iron Company, and according to the minutes of its proceedings, “after explanations” it, as well as the acts of the president and secretary, were, by the board, “unanimously approved,” and a copy of the deed, together with the agreement entered into, directed to be placed on file for future reference. On the 19th day of August 1858, the Hoffman Steam Coal Company of Allegany county was formed, under the Act ⁵⁰² of Assembly, of this State, of 1852, chapter 322. On the 20th of August 1858, Sherman and wife, and Dean, conveyed to tiie Hoffman Company, the land which had been conveyéd by Mehaffey to Sherman and Dean, and, according to the bill, were about “to execute and deliver to the said company an assignment of the aforesaid contract for transportation, or other instrument purporting to impart to the said compan3r, rights under and by virtue of the said contract.” The bill alleges the capital stock of the Hoffman Company to consist of five thousand shares, of which, they charge, “on information and belief,” Sherman and Dean became subscribers to the number of four thousand nine hundred and ninety shares; that Sherman was a subscriber for about five-eighths of the shares, and Dean for about three-eighths of the shares; and that the other two shares were nominally taken by other parties for the purpose of enabling the said parties to participate in the formation of the said company and become directors thereof. The bill charges, that Sherman, in the form of stock issued by the Hoffman Company, still retains his interest in the lands mentioned in the deed executed by the president of the complainant, and also, in the contract of transportation, and that he retains possession of the deeds and contract; that he is an officer as well as director of the company, and has and exercises entire practical control of the company, and that the change or conversion of his ownership in the lands into an interest in the stock, is a fraudulent device, for the purpose, and with the design, of evading the jurisdiction and process of the court.

It also charges, that the Hoffman Company had, before the execution and delivery to the said company of the deed by Sherman and Dean, and before its agreement to purchase the lands thereby conveyed, and before the formation of any contract, whereby the 'said company was to acquire or enjoy any of the advantages conferred by the said contract for transportation, and that the defendant Dean also had, before he entered into the purchase of the lands, or into the contract for transportation, full notice of the frauds in said sale, in the procurement, origin, formation, execution and delivery of the deed, and of ⁵⁰³ the contract for transportation, and of all the facts relating thereto. In addition to the fraud alleged in the procurement of the deed and contract by Sherman, the bill alleges, the price agreed to be paid for the land to be grossly inadequate, and the terms of the contract of transportation to be ruinous to the Cumberland Coal and Iron Company. It also denies there has been a payment according to the terms of the purchase, and asserts that Dean was but a mere “representative man,” by which is meant one without pecuniary substance. The gravamen of the bill is, that Sherman, with others, but principally Avith Mehaffey, conspired to despoil the complainant of its property by proceedings conducted by them, as its officers, and that full knoAvledge of all the facts and circumstances Avas had by the Hoffman Company, Sherman being, practically and really, the company; and that, whether or not there be sufficient evidence of fraud in fact on the part of those charged Avith it, nevertheless, in the contemplation of the law, the transaction is such as will be declared null and void, and of non-effect, on grounds of public policy.

Sherman and Dean, in their answers, deny all fraud, the latter disclaiming all knowledge of Sherman or of his transactions until he became connected Avith the purchase of the land. The Hoffman Company in its answer, sworn to by its president, S. Brooke Postley, admits the formation of the company, and that Sherman and Dean conjointly took the capital stock thereof to the extent of 4990 shares, and avers that the other ten shares were, at the same time, subscribed for by other parties, and denies that it is true that the said ten shares Avere nominally subscribed for by so,id other parties, and says they Avere paid for by such other parties, and were not subset ibed for on behalf of Sherman and Dean or either of them. It states that Sherman and Dean have since sold, actually and bona fide, a large part of their stock, so that they are not the large holders they originally were. It denies the frauds alleged in relation to the conveyance and contract of transportation, and insists, that even if they existed, the company had no knowledge of them, but became the purchaser of said property,. ⁵⁰⁴ and assignee of said contract, of transportation, bona fide and for a full and valuable consideration.

It admits the mining of coal on the property, and sets up, as a confirmation of the original deed and contract, the fact of the receipt by th.e complainant of the price of transporting under the contract. A great deal of testimony was taken, on the side of the complainant, to show, what is alleged to be, the unconscionable character of the contract, and that what was done at the meeting of the stockholders of the Cumberland Coal and Iron Company, held on the 1st of June 1857, other than the voting for president and directors, was unauthorized, and that of 27,997 votes cast, 22,508 were given by proxy; that the parties voting by proxies were only empowered to vote for president and directors, and several parties were examined to show, that they, as stockholders, had no knowledge whatever of the conveyance to, and contract with Sherman and Dean, and never intended to ratify them. It is not necessary the testimony, on the one side or the other, should be critically examined, inasmuch as, on this appeal, the chief inquiry will be, whether the Hoffman Company has a standing in court as an independent litigant, and as a bona fide purchaser for value, and without notice of the circumstances preceding and conducing to its acquisition of title. Much was said, and earnestly said, in argument, in impeachment of the integrity of the actors in these transactions, and, especially, in the arraignment of the honesty of Sherman and Mehaffey; fraud, studied and systematic, was imputed to them throughout the whole of their dealing with the matters involved in this controversy.

Whatever may have been their true motives of action, the facts disclosed in evidence do not demand that we should brand them as wilfully dishonest. .One of the most distinctive features in the histoiy of the development of the mineral regions of our Slate lias been, the insane spirit of speculation which has characterized it at almost every step. Honest men, as well as dishonest men, uninfluenced, by the disastrous failures of their predecessors, have, from time to time, embarked in enterprises under the delusive hope of speedily, and as it were by magic, ⁵⁰⁵ realizing princely fortunes, and have only been awakened to a sense of the unreality of their calculations and hopes, by the crash occasioned by their utter prostration and ruin. This spirit of wild speculation ordinarily blinds those who are engaged in it, and subjects them to the condition in which the}r are unable to see things as others see them. Legal disabilities rarely occur to them; it being, with most of them, an axiom of public or political economy, that the exchange of one article for another, at fictitious rates, and without the bestowal of labor on either, increases the value of both.

Men, involved in transactions of this kind, very frequently, without the slightest consciousness of dishonesty of purpose, do things which the law condemns, and which it declares to be of no value. It is to guard against this proneness to a nonobservance of what is strictly right and proper in the dealings of corporations, the law has wisely interposed its checks and prohibitions; and, we think, in the present aspect of this case, these are all sufficient to justify the action of the