Kernan v. Carter

Boyd, C. J., delivered the opinion of the Court. This ease is before us on an appeal from an order sustaining a demurrer to and dismissing an amended bill filed by the appellant, and on another appeal from an order refusing to grant the appellant leave to amend that amended bill. The plaintiff, Eugenia L. Reman, is the widow of James L. Reman, who died on the 14th of December, 1912, leaving surviving him his widow and two* sons and a daughter’. In 1887 the plaintiff was upon an inquisition adjudicated a lunatic upon the petition of her husband, who was appointed by the Circuit Court of Baltimore City the committee of her person and estate.

The finding still remains in force and she is confined in Mount Hope Retreat, where she has been for many years. The hill alleges that for many years prior to and ever since the death of her husband she “has'been and is non compos mentis and incapable of acting for and in her own behalf with respect to any business matters, propn erty rights or interests whatsoever, and incapable and dis.abled at all times, both at and since the death of her said husband, from making any election with respect to accepting or renouncing the provisions made for her in bis last will and testament” and that “she was and bad been and is still disabled and incapacitated from taking any steps whatsoever, from instituting any proceedings, or causing any steps to be taken or proceedings to be instituted, to question or deny the validity of” a deed of trust, a deed of assignment or a deed of conveyance, which will be later referred to in this opinion. That paragraph of the bill concludes, “and that her disability and incapacity in all the respects, aforesaid, have been caused by the fact that she has been at all ⁵⁸⁰ times bereft of her reason and of all understanding of her rights, interests and matters aforesaid.” On the 20th of April, 1911, James L. Kernan executed a “deed of conveyance” to the James L. Kernan Company of Baltimore City, Incorporated, for a property which is therein described. The lot fronts partly on Howard street and partly on Eranklin street, and is improved by a hotel and theatre.

The property is described as being in fee simple, except a portion of it which is subject to an annual rent of $04.00. That deed also included personal property, the businesses> franchises, good will, etc. The consideration is stated to be 5,000 shares, of preferred stock of the James. L. Keman Company, of the par value of $100.00 each, and 997 shares of the common stock of that company, of the same par value, all of which stock is said in the deed to' have been issued and certificates thereof delivered to said Kernan, in accordance with a resolution of the stockholders duly passed at a meeting held in Baltimore on the 15th of April, 1911, in compliance with the provisions of' section 35 of Article 23 of the Code. The deed also refers to a decree of the Circuit Court of Baltimore City, dated January 28th, 1887, being the proceeding in which the plaintiff was adjudicated a lunatic, and to section 13 of Article 45 of the Code, for the right of the grantor to sell and convey the real estate.

On the 20th of April, 1911, being the same day the deed of conveyance was made, a “deed of trust” was made by said Kernan, as party of the first part, to Frederick C. S'chanberger and Shirley Carter, parties of the second part, in which it is recited, that, whereas the party of the first part had granted and assigned to the parties of the second part, upon the trusts therein set out, the 5,000 shares of preferred stock, and he was about to cause the same to be transferred to them on the books of the company, and desired to have the trust upon which they were granted and assigned fully set out in that instrument of writing, so that the same might be recorded, therefore, in consideration of the premises and ⁵⁸¹ of tlie sum of $10.00, he granted, bargained and sold, asr signed, transferred' and confirmed unto the parties of the second part, and the survivor of them, and the successors of the survivor of them, as therein provided for, the 5,000 shares of preferred stock in trust for the purposes therein, set forth. They were to hold the said shares of stock, collect the dividends and income, and pay over the net dividends and income therefrom to the said Keman during his life, and after his death to hold Said shares for the following purposes: to collect and pay over the net dividends and income from 3,400 shares of that stock to the James Lawrence Ker-’ nan Hospital and Industrial School of Maryland for Crippled Children, during the joint lives of the trustees, and upon the death of either of them, the survivor to transfer and assign the said 3,400 shares to said hospital and industrial school. It- was then provided that of the remaining 1,600 shares of preferred stock they were to hold 534 shares for each of his two sons and 532 shares for his daughter. The provisions of the trusts for each of them are set out at length, and under certain contingencies the share left to a son or daughter was to go to St. Agnes’ Hospital.

On the 22nd of April, 1911, he made what is spoken of as a “deed of assignment,” in which he stated that he had assigned to Frederick C. Schanherger 385 shares of the common stock of the James L. Keman Company, absolutely, and to Shirley Carter 165 shares of said stock, absolutely, and to himself 447 shares for life, with remainder as to 315 of them to said Schanherger, and as to 132 shares to said Carter, and ho desired to have said transactions evidenced by that deed so that it could he duly recorded. The deed then, in consideration of $5.00, assigned and transferred said stock according, to what was stated in the preamble. All of the deeds were promptly put on record. On the 24th of June, 1911, James L. Kernan executed his last will and testament, by which he gave to Bernard Carter and Shirley Carter, and to the survivor' of them, $20,000 in trust to invest and reinvest the same from time to time, to ⁵⁸² collect the income therefrom, and apply the net income, or soi much thereof as shall he necessary, to the proper maintenance and support of his wife, for and during the term of her natural life, and from and after the death of his wife, and after the payment of her funeral expenses, to divide the corpus of said $20,000100 and any accrued income therefrom, into two equal shares, and to pay one share absolutely to- St. Agnes Hospital and the other to the Institute of Mission Helpers of Baltimore City, to be applied by it to the education and care of the deaf and dumb or otherwise afflicted children under its care.

He then left $3,000 to each of his two sons-, and said he did not make a bequest to his daughter because he had his life insured and held the- policy for her benefit. He made the James L. Kernan Company of Baltimore City his residuary legatee and devisee. He appointed Messrs. Bernard Carter and Shirley Carter, and the survivor of them, executors, of his will, which was probated on December 18th, 1912, and letters testamentary were- granted to Shirley Carter, the survivor.

The bill asks the Court: (1) to renounce the provision made for the plaintiff in the will, and elect to take and receive, in lieu thereof, the share allowed her by law in the personal property of the estate, belonging to her husband at the time of his death; (2) to decree and declare that said Kernan died seized of all the real estate mentioned in the deed of conveyance of April 20th, 1911, and that she is entitled to dower therein; (3) that the three deeds be declared null and void, and that the plaintiff be declared and decreed to be entitled to one-third of the personal estate ánd her dowser rights in all real property of which her husband died seized; (I) that the bequests and gifts in the residuary clause of the will be declared null and void; (5) that the executor be required to pay over to a trustee to be appointed her legal share, interest and portion of all the personal estate of which her husband died possessed; (6) that the Court direct such further proceedings as may be proper and necessary to assign the plaintiff her dower; (7) that there be an account ⁵⁸³ ing -with, the defendants who have received profits, revenues, income or interest to which she was entitled, and (8) for* general relief. Section 13 of Article 45 provides that: “Where any married man or married woman is a lunatic or insane, and has been so found upon inquisition, and the said finding remains in force, or where any married man or married woman has been absent or unheard of for seven years, the husband or wife of such lunatic or insane or absent person may grant and convey by his or her separate deed, whether the same be absolute or by way of lease or mortgage, as fully as if he or she were unmarried, any real estate which he or she may have acquired since the finding of such inquisition or since the beginning of such absence.” Mr. Kernan unquestionably had the power to convey the real estate included in the deed of conveyance of April 20, 1911, by virtue of that provision of the Code—having acquired it after the finding of the inquisition. There is no reservation whatever in the deed in his favor, hut it was an absolute deed for a valuable consideration. Under the decisions in this State a husband can dispose of his personal property during his life, even if it he done with an intent to defraud his wife of any interest in it, provided he reserves no right to himself.

Hays v. Henry, 1 Md. Ch. 337 ; Dunnock v. Dunnock, 3 Md. Ch. 140 ; Rabbitt v. Gaither, 67 Md. 94 ; Brown v. Fidelity Trust Co., 126 Md. 175 ; Poole v. Poole, 129 Md. 387 . There would seem to be no doubt that a husband has equal, if not more, power as to real estate, by virtue of that statute. It is said, however, on the part of the appellant, that by this transaction Mr. Kernan simply attempted to convert his real estate! into stock of the corporation for the purpose of more readily depriving his wife of her interest by putting it in the shape of. stock which could be easily transferred. That allegation seems to us to be contradicted by the exhibits filed with the hill and nothing is ⁵⁸⁴ alleged to overcome them, but the mere allegations of fraud without stating or suggesting that there is any evidence of it outside of the instruments themselves.

The same day he received the certificates of stock he made the deed of trust, by which he1 transferred all of the preferred stock to the trustees for the trusts referred to above, and he assigned 550 shares of the common stock to 'Messrs. Schanberger and Car- ■ ter, absolutely, in the proportions mentioned above, and 447 shares to himself for life, with remainder to those' parties, absolutely, and did not reserve the right to assign or sell the interests of the remaindermen in the 447 shares. We will speak later of the transfer of the stock, but the deed of the real estate was in our judgment beyond the attack of the plaintiff, as it was an absolute sale without any reservation or control over that property. The controlling interest in the company was1 in the hands of others', and if he was a director, or even president, such a position would' not give him the control of the property for his own benefit.

His duty was to the company, and we find nothing in this bill and exhibits which would justify us in holding that he was not authorized to malte the deed under the statute quoted. . We have not overlooked the point made by the appellant that section 35 of Article 23 of the Code was not complied with, but we think that has no merit. In the first place, the appellant could not object to that, if there is any irregularity about it. The object of the statute is to prevent a corporation from paying in stock an exorbitant price for the property —in short, from issuing watered stock.

It would be impossible in many, perhaps most cases, to pay for stock in property if no one in any way interested in the person proposing to sell property for stock could taire part as a stockholder. The statute says that “no stock shall be counted whose owner or holder is interested in such services or property.” Section 36 of Article 23 provides “that the valuation placed by the stockholders upon such services or property at the meeting duly warned, as aforesaid, and the propriety of their action ⁵⁸⁵ accepting the same and issuing the agreed number of shares therefor, shall in the absence of actual fraud be conclusive against and binding npon any and all creditors of the corporation.” Surely the appellant is in no better position than creditors would be to raise any question about it. The “actual fraud” spoken of in the statute, means of course, the fraud in issuing the stock for services or property. If the bill is anything like correct in stating the value of the property conveyed for the stock to be worth about $1,400,000.00 no one interested in the corporation can complain of the stockholders who took part in that transaction giving 5,000 shares of preferred stock and 997 shares, of common stock, each of the par value of $100.00—in all a par value of $599,-700.00.

The bill is replete with charges of fraud—based on the theory that all of these transactions! were with the deliberate intent to defraud the unfortunate plaintiff of what the bill asserts were her marital rig'hts. TVhile it is not necessary to set out in the bill all the evidence a plaintiff may have knowledge of, there must be something more than the plaintiff’s conclusion as to the purpose and intent of a party, in making written instruments brought before the Court, and the plaintiff calling' them fraudulent or characterizing the plan as a scheme to perpetrate a fraud on a helpless lunatic does not make it so. It would he difficult to find a record in which there are a bill in equity and exhibits^ where the exhibits themselves, when given fair and unprejudiced consideration, meet so many of the allegations of fraud in the bill more clearly than those in this caso do. There is no concealment—on the contrary there was an open hook from beginning to end.

Those exhibits do not in our opinion furnish ground for the charge of fraud that is made. In the first place, what possible motive could Mr. Kernan have had in defrauding his unfortunate wife of her rights in his. property after his death? He must have been a very unusual and very peculiar man if, ⁵⁸⁶ in order to give one-half of his property to such a worthy charity as a hospital and industrial school for crippled children, he would purposely and intentionally go to work to defraud his insane wife. If anyone wanted to make provision for such charities and other objects, and had such an estate as he had—theatre and hotel properties—the reasonable and natural thing for him to do was just what Mr. Kernan did do.

If the statement in the hill as to the value of the property is correct then the shares of stock he left to each of his children were worth considerably over $100,000.00, and he certainly had the right to say how much of his estate should go to each of them. He could not well have made suitable provisions for the crippled children without organizing a corporation, and probably could not have arranged for as much income out of the portion of his estate he wanted to give to that institution in any way other than the one he adopted. If he had simply made a will—directed a sale of his property and left such portion to the different persons and objects he had in view, it would have been next to impossible to have realized as much out of his properties as he could by the plan he adopted. Or1 if he had devised this property to trustees for the benefit of the Hospital for Crippled Children and others it could not have been done as well as by the plan he adopted.

So far as the realty is concerned, we are not prepared to hold that even if a husband conveyed his real property and put it in the shape of stock or other personal property, partly because of the mental condition of his wife, and his knowledge of the fact that in case of his death before her his real estate would be encumbered by her dower in it, he could not do so under section 13 of Article 4>5 of the Code, and convey a good title, free and clear of her interest in the property, or in the language of the statute, “as fully as if he were unmarried.” These papers were executed and Mr. Kernan died prior to the Act of 1916, Chapter 325, and hence there is no question as to its effect on