Larkin v. MacLellan

Offutt, J., delivered the opinion of the Court. William T. Larkin, a lawyer, and Harry H. Maclellan, a builder, some time prior to Eebruary 19th, 1915, conceived a plan of purchasing a lot of ground on Lakeview Avenue, in Baltimore City, and improving it by the construction of four apartment houses, and on that day they executed the following agreement: “It is hereby mutually agreed by and between Harry H. Maclellan and William T. Larkin that in consideration of the services already performed and such further' services as is consistent with their duties in the construction of the four apartment houses to be built on Lakeview Avenue, in Baltimore City, the said parties above mentioned do hereby agree to divide the net profits that may accrue after the payment of all bills, labor, etc., for the construction of said four apartments, as follows: “The said Harry Maclellan 'shall receive out of the net profits the sum of $30.00 per week, accounting from the day the construction work is started on the property, and shall continue until the four apart- ⁵⁷³ meats are completed, and after the payment of this sum of money to the said Harry Maelellan out of the net profits that shall accrue from the sale of rents, shall be divided on the basis of one-half to the said Maelellan and the said Larkin. “The said Maelellan agrees to superintend the construction of the said four apartments, and the said Larkin agrees to render such legal work from time to time as the said Maelellan shall authorize.” At that time they did not own the lot, and neither of them contemplated furnishing any money to execute the plan, which was to he carried out on credit, hut with the aid and advice of Messrs. Charles E. Stein and Herman Scherr, the owners of the land, they secured the land and the funds to carry out their proposed operation in this way: On May 3rd, 1915, Larkin and Maelellan procured the incorporation of the Lakeview Building Company of Baltimore City (herein called the Lakeview Company), for convenience in carrying out this plan, and on July 12th, 1915, Messrs. Scherr and Stein conveyed the land to that company for $23,000..

On the same day Harry H. Maelellan entered into a contract with the Lakeview Building Company to complete the four apartment houses for $50,654.92 in cash and “upon the completion of said houses, and the release of the bond given in this matter, free of all claims and obligations of said bonding company to its obligees, the said contractor shall receive 1,225 shares of the capital stock of the said owner company subject to additions and deductions as hereinbefore provided and that such sum shall be paid by the owner to the contractor and his sub-contractors in current funds, and only upon certificates of the architect * * * The contractor is to be paid only his actual payroll, not to exceed four thousand dollars and to receive no compensation for superintendency, and only to employ such common labor and mechanics as is actually necessary to properly complete this work in manner and form.” In order to secure the money ⁵⁷⁴ needed to build tbe houses, the company executed to Messrs. Stein and Scherr a first mortgage for $78,000 on the property, and they agreed to advance $55,000 in cash to pay the cost of constructing the houses, and in order to better secure-the payment of the mortgage the- South Western Surety Insurance Company executed a “completion” bond to Messrs. Stein and Scherr for $55,000, guaranteeing the completion of the houses in conformity with the requirements of the building contract. Before the surety company executed that bond, and as conditions essential to its execution, it had demanded that Larkin and Maclellan and their respective wives execute to the company an indemnity bond, and that all the stock of the Lakeview Company be issued, endorsed in blank and delivered to it.

Accordingly Mr. Larkin and his wife. and Mr.. Maclellan and his wife, on July 12th, 1915, executed to the surety company an indemnity bond for $55,000, in which-they bound themselves to indemnify it against any loss sustained in consequence of its suretyship on the “completion”' bond, and the Lakeview Company at or about the same time issued to William T. Larkin 1,245 shares of its stock, to Harry H. Maclellan 1,245 shares and to Herbert N. Maelellan 10 shares, being the entire issue authorized by its charter, and the certificates for these shares endorsed in blank were turned over to the surety company.. Prior to the issuance of that stock, certificates had been issued for three shares of the capital stock of the company to Herbert N. Maclellan, three shares to John N. Driver, and three shares to William T. Larkin for organization purposes, and the certificates issued to Driver and Maclellan for their stock were endorsed in blank by them and delivered to Larkin, who held them at the time the 2,500 shares referred to above were issued. After these several transactions had been completed, the work of constructing the houses began and proceeded until some time in the summer of 1916, when it came to a temporary stop.

At that time the buildings were nearly com ⁵⁷⁵ pleted, but the fund of <$55,000 had been exhausted. The company was indebted to various contractors, who were pressing for payment, the mortgage was due, and several thousand dollars more were needed to complete the construction. At this crisis in the affairs of the enterprise and its promoters, Messrs. Stein and Scherr again came to its rescue and assisted in “refinancing” it, in this way.

The original mortgage to Scherr and Stein was released, together with the “completion” and the indemnity bonds. Of the money needed to retire the original mortgage of $78,000, to take care of the most pressing of the company’s debts and to complete the buildings, $60,000 was advanced on first mortgage by the Mortgage Guaranty Company, $28,500 by Messrs. Stein and Scherr on a second mortgage, and $4,000 loaned by the German National Bank on a note endorsed by W. Monroe Schmidt, William H. Williams, John A. Fox and Charles H. Cunningham, creditors to whom the Lakeview Company was indebted. The surety company which had executed the “completion” bond, which had been released, executed a second bond guaranteeing the payment of the second mortgage, and the four creditors who had endorsed the Lakeview Company’s note also guaranteed the solvency of the surety company.

This completed the second financing of the plan of building the four houses. The compensation to bo paid to these four creditors is one of the controverted points in the case, but at this point it is sufficient to refer to the contentions of the several parties as to that. They, the four creditors, contend that when they went into the enterprise, the only stock validly issued and outstanding was nine shares, and that for their services they each received one share, for which they made a formal payment of ten dollars, its par value, and that they therefore have four-ninths of all the company’s stock. Larkin, on the other hand, contends that he “passed” them each one share of stock in order that there might be more than one man in the company, and not as compensation, and that they do not actually own any stock ⁵⁷⁶ in it, but that he owns it all, but that under an agreement made with them they are entitled to receive one hundred shares, while the appellees’ contention is that Maclellan and Larkin owned between them equally all the capital stock of the corporation subject tó a possible right of the four creditors to receive some part (uncertain in amount) of the stock for their services.

After the execution of the mortgages in July, 1916, building operations were resumed, and the houses finally completed in the latter part of that year, and in the course of time the apartments in them were rented and the rents applied to the liquidation of the company’s debts. On January 22nd, 1920, Maclellan wrote Larkin a letter in which he said in part: “I have been trying for the past several weeks to see you, but have failed to get in touch with you. I wanted to talk over the Lakeview matter. “Do you think you are treating me right and fair regarding our contract of February 19th, 1915? “This called for payment to me of $30 per week during the construction of the apartments, but which the bonding company refused the payment of this out of the mortgage money. I also paid to Herbert during the time $15 per week as timekeeper, clerk, etc. “These two items make approximately $2,000 due me, and in addition the $119 paid by me to the Lafayette Mill & Lumber Company on the judgment which you allowed them to get against me by default. “These items would amount to approximately $2,750 with interest added, and yet I have not yet received the first penny on account. “While you have had four years’ occupancy of an apartment valued at approximately $3,000 and have received commissions, etc., on the collection of rents, etc., of approximately $3,500, or a total of $6,500, besides other fees, etc. “As our agreement stated I was to be paid the $30 per week before anything else, you should at least ⁵⁷⁷ divide tip on your commission or endeavor to make the payment to me of amounts due out of the income of the property. “I requested you some time ago to let me have a statement of the expenses, rentals, etc., as I had a prospect at the time and still have of selling two of the houses for a sufficient amount to clear off all indebtedness on the property, and we could then handle the other two.” This letter was apparently not answered, and on February 9th, 1920, Harry H. Maclellan died.

His representatives claimed that, under the terms of the contract of February 19th, 1915, he was entitled to share in the profits arising from the construction of the four houses and to a performance of that contract. The appellants denied this claim on the ground that, when the project was in financial difficulties in 1916, Maclellan wholly abandoned the enterprise, perforin ed no further services, and surrendered any interest he had in it or under the contract, and the controlling question in this case is whether Maclellan did abandon the enterprise before the completion of the houses. As a result of that controversy the bill of complaint in this case was filed. In it the complainants, after setting out the facts upon which their contention was based, asked in substance for the following relief: (1) that the four creditors and William T. Larkin, defendants, be required to discover all shares of the capital stock of the Lalceview Building Company issued to or acquired by either of them, their relation to the company and the considerations paid for their stock or other interest in it, and to account for all money received from or paid to the corporation by the said defendants; (2) that the Lakeview Company be required to discover all stock issued by it and to account for all rents, profits, etc., received by it; (3) that the contract of February 19th, 1915, be construed and that Larkin be declared ⁵⁷⁸ to hold whatever interest he had in the company in trust for himself and the complainants; (4) that the trust be terminated and Larkin required to assign to the complainants one-half of any interest he had in the corporation; (5) that the interest of the parties in the corporation be fixed, and (6 and 7) that .the defendants be enjoined from disposing of or encumbering the stock of the corporation whether issued or not.

Answers were filed by the several defendants which, while differing sharply as to their relative rights inter sese, agreed that Maclellan had no interest whatever in the corporation or the contract. Testimony relating to these issues was taken and, after a hearing and submission, the court decreed: (1) that the contract of February 19th, 1915, was valid and subsisting; (2);,that the Lakeview Company and the defendant Larkin pay to the complainants $30 a week, accounting from the date of the commencement of the four houses to their completion;.(3) that the 1,245 shares of the stock of the Lakeview Company were valid and represented the interest of.the complainants in the corporation; (4) that the corporation enter the 1,245 shares of stock in the name of the complainants on their books; (5)- that the defendants account to the complainants- for all money received and disbursed in connection with the four houses between February 19th, 1915, and the date of the decree, and that the case be referred to an auditor to take such account; (6) that the preliminary injunction be continued until the ratification of the auditor’s account to be stated, and (7) that William T. Larkin pay the costs of- the proceeding. • From that decree each of the six defendants appealed separately to this Court. Notwithstanding the number and the variety of interests involved in this case, and the conflict between them, the controlling and decisive facts and the questions arising from them are few and, comparatively speaking, plain. The principal and most important question is whether Maclellan ever surrendered his interest in the contract of February 19,1915, ⁵⁷⁹ or in the apartment houses built under it.

Other material questions subsidiary to that are: (1) What is Maclcllan’s interest in the Lakeview Company; (2) What rights or claims have the four creditors, Williams, Schmidt, Cunningham and Fox in or against that company; and (3) Is Maclellan entitled to receive $30 a week for his work on the buildings in addition to his share of the profits at the time ? Our first inquiry is a question of fact and depends upon the weight to be given to the evidence, documentary and testimonial, relating to it. The appellants contend that Maclellan abandoned the enterprise, and the contract, and they base that contention upon two alleged facts: (1) that he declared that he had abandoned it, and (2) that after it got into financial distress in 1916 he never did any work in it at all. The api polices, however, contended that, regardless of the proof as to what he may have said, he did not abandon the contract, because he completed all the work, which, in the contract, he had promised to do, and we will now examine the evidence bearing on these respective contentions.

Facts may be proven either by direct proof of their existence or non-existence, or by the admission of the person sought to be charged with them, and the evidence in this case contains both kinds of proof. Before considering the evidence relating to what Maclellan did, it is necessary, to any fair judgment of its value, to determine what it was that'he agreed to do. Without referring in detail to the evidence, it is sufficient to say that it shows that Maclellan was a builder, and not a lawyer, a promoter, or a financier, and that it was because he was an experienced builder that Larkin sought his aid in developing the land on Lakeview Avenue. Knowing his qualifications, Larkin drew the contract of February 39th, 1915.

In that contract the consideration is described as “services already performed and such further services as is consistent with their duties in the construction of the four apartment houses,” etc. At that time the only service rendered by Maclellan had been the preparation of plans and ⁵⁸⁰ specifications for the houses, and he had had nothing to do with securing funds to finance the enterprise, or with the manner in which that financing was to be done, nor did he at any time render such service. The thing which the contract specifically required him to do was “to superintend the construction of the said four apartments” and there is nothing to be found in the record to indicate that he agreed to do anything more. It is true that in the “builder’s contract” of July 12th, 1915, he agreed to complete the buildings for $50,654.92, but the evidence deprives that fact of its apparent significance by demonstrating that, as between Larkin and Maclellan, those figures were not intended to define Maclellan’s undertaking, but were only used to measure the liability of the surety on the “completion bond,” since it was conceded by Larkin that he and Maclellan agreed that the cost of constructing the buildings would exceed that sum. In his testimony he said: “As far as the cost of those buildings were concerned, that was done with Mr. Maclellan after all of those estimates were brought in, and Carl Otty and he got together and agreed upon the costs, adding in that ten per cent, for contingencies — in other words the cost of these buildings were to be the amount of $55,000, plus the twenty-five per cent, which was the agreed credit to come from the sub-contractors, and that amount totaled, adding ten per cent, for contingencies, was to be the estimated cost Maclellan was to build these buildings for.” So that the services which under the contract Maclellan was required to render in order •to entitle him to the benefits of the contract was “to superintend the construction” of the houses, and the question is, did -he do that.

The evidence on that issue is conflicting, but the conflict does not relate to Maclellan’s services during the entire period occupied in the construction of the buildings, but to only that'part of it following October 15th, 1915. ■ The substance of the complainants’ testimony relating to this issue is this: William E. Eox, a paper hanger and a ⁵⁸¹ brother of one of the defendants, saw Maclellan in the building twice in the month of January, 1916, talking to workmen employed in its construction. Thomas J. Rohe, a cement contractor, testified that he did work (although not continuously) on the buildings between November 15th, 1915, and February 7th, 1916, and that during that period he took his ciders from Maclellan. James A. Marrian, Jr., who was, in 1915 and 1916, in the marble and tile business and supplied the marble and tile work for the building, testified that the work his firm did was, “as is the ease in all operations, is almost the last part of the work on any building,” and that while engaged in it Maclellan superintended the work and was the only one they “really depended upon.” John T>. Hopkins, a painter, testified he worked on the houses from April, 1916, until November of the same year, said that during that time he saw Maclellan about the building every day or two and that ho talked with him about repairing cracks in the porch columns in the week before he left.

William C. Ward, a carpenter, said that he worked on the buildings from September or October, 1915, until “six weeks after Christmas of the year 1915,” and that during that period Maclellan was about the buildings as superintendent of construction “practically every day,” and when he left in February, 1916, one of the apartments was tenanted. And to the same effect is the testimony of Grover O. Ward. Ohristolph Schmidt, a carpenter, said that he worked on the buildings from about July 1st, 1915, to the middle of October of the same year, and that he went back in November, 1916, to do some weather stripping and repair some locks, and that the last as well as the first work was under Maclellan’s superintendence. Charles C. Kraus, who did the “cornice sheet metal” work and the tinning on the front porches of the buildings, testified that he was at work there from November, 1915, until February or March, 1916, and that during that time Maclellan was superintendent of construction of the buildings.

Clarence Elderkin testified that he saw Mac ⁵⁸² lellan at the building every week in 1916. Nellie Maclellan, the,widow of Harry H. Maclellan, testified that she went to the buildings on one occasion in October, 1916, and found her husband there, and that while she was there a workman employed about the buildings asked him some questions and he went out of the room with the workman. Harry Herbert Maclellan, a son of the decedent, said that, until he left the city in September, 1916, he knew his father was superintendent of construction of the buildings; and Mrs. Gertrude Maclellan Kiehno, a daughter, testified that she accompanied her mother on the occasion when, in October, 1916, she visited the buildings, and that she saw her father giving instruction to a workman employed about the buildings. In addition to this testimony, George P. Zouck, President of the Consolidated Engineering Company, by which Maclellan was employed, testified that in the latter part of January, 1920, just before his illness, Maclellan had brought him the contract between him and Larkin, and had asked the witness to raise $10,000 to pay off the creditors, and that after that, a few days béfore Maelellan’s death, Larkin came to* Zouck’s office about the $10,000, and the