McDaniel v. Hughes

Collins, J., delivered the opinion of the Court. This is an appeal from an order of the Circuit Court for Cecil County overruling the exceptions of Alice L. McDaniel, appellant, to an account filed by James W. Hughes, as trustee. For a proper understanding of this case, it is necessary that the facts be recited in detail. In 1920 Marshall D. McDaniel, now deceased, who was an excessive drinker of alcoholic liquors, sold his remainder interest, then contingent, in a tract of land known as Shady Beach, consisting of 1,368 acres near North East in Cecil County, Maryland, for $500.00.

He later sought to get back his estate. After extended litigation he succeeded in doing this. In order not to make a similar mistake, in January, 1932, he made a deed of trust of this estate, including that part known as the Cameron Farm consisting of 125 acres, more or less, to his brother, Alexander H. McDaniel, of Wilmington, Delaware, reserving unto himself the power to dispose of it by will. Within ²¹⁰ a year he became dissatisfied with the trusteeship because he thought his brother “ruled with a tight rein”.

He then retained Henry A. Warburton and James W. Hughes as his attorneys to attack this deed of trust. The court, however, refused to annul the deed and assumed jurisdiction of the trust. The facts hereinbefore recited are set out in the case of Hughes v. McDaniel, 202 Md. 626 , 98 A. 2d 1 , which involved the parties here. On May 23, 1939, Alexander H. McDaniel, the trustee, received an offer of $8,400.00 for the Cameron Farm from the Arundel Corporation and on July 12, 1939, he received offer of 8,640.00 from John J. Monaghan Company, realtors, of Wilmington, Delaware.

On July 26, 1939, he filed a petition through Albert Constable, solicitor, in which he stated that there were no assets in his hands and that he had been obliged to advance from his own funds money for the support of the cestui que trust. He also recited the aforesaid offer from Monaghan and asked authority of the court to make the sale. Attached to that petition was an affidavit from three real estate men in Cecil County stating that in their opinion this tract of land was worth $6,000.00. A show cause order was signed by the chancellor and a copy served on Marshall D. McDaniel and Alice L. McDaniel, his wife.

Marshall' and Alice answered this petition through Henry A. Warburton and James W. Hughes, solicitors, reciting, among other things, that the offer set forth in the petition was in fact the offer of Alexander H. McDaniel and that as trustee he should not be authorized or permitted to sell any part of the trust estate to himself. As a result of that answer the chancellor refused to order the sale. On October 23, 1939, Marshall and Alice, by Henry A. Warburton and James W. Hughes, solocitors, filed a petition reciting that they had received from Albert E. Fletcher a bona fide and definite offer of $10,000.00 for the Cameron Farm; that it would be to the benefit and advantage of said trust estate- to accept said offer, as there was a mortgage on the tract, of which the Cameron ²¹¹ Farm was a part, of $7,500.00 and from the proceeds of said sale that mortgage would be paid and the trust estate would be saved interest thereon at six per cent per annum. On November 13, 1939, Alexander, as trustee, by Albert Constable, solicitor, filed a petition reciting that under directions of the court he had advertised the 125 acres and had received an offer from Fletcher of $10,000.00 and recommended to the court the acceptance of said offer.

On December 18, 1939, the chancellor ordered that the offer of Fletcher be accepted and instructed the trustee to report the sale subject to ratification by the court. On January 17, 1940, an order was signed by the chancellor reciting that Alexander McDaniel had asked leave to retire and resign the trust. The chancellor ordered that Alexander be released and discharged and he appointed James W. Hughes and Albert Constable as trustees, in the place and stead of Alexander “to perform the trust reposed in said retiring Trustee under the Deed of Trust aforementioned insofar as they have not yet been performed by the retiring Trustee.” On January 19, 1940, Hughes and Constable, as trustees, filed a report that they had accepted the offer of $10,-000.00 by Fletcher for the Cameron Farm and had received $1,500.00 as part of the purchase price. This sale was ratified by the court, after order nisi, on April 10, 1940.

On July 21, 1941, Hughes and Constable, as trustees, filed a petition in which they set out the ratification of the sale to Fletcher, that Fletcher had not paid the balance of $8,500.00 due, and that they had advised Fletcher that it would be necessary for him to comply with the terms of sale not later than July 1, 1941, but he had not so complied. They asked the court to pass an order “in the premises as may be meet and just.” A show cause order was passed on that petition ordering Fletcher to show cause on or before August 15, 1941, “why the sale mentioned in said petition and ratified on April 10, 1940, should not be set aside upon such terms as this court may prescribe.” ²¹² On August 27, 1952, -Hughes, as surviving trustee, filed his trustee’s report which covered the period up until the death of Marshall D. -McDaniel, which had occurred on April 28, 1952. On October 30, 1952, Alice L. McDaniel, administratrix pendent lite [later appointed executrix] of the Estate of Marshall Delaplaine McDaniel, through Brown and Mosebach, her solicitors, filed an exception to the trust account' of Hughes in which she set out the following facts. On October 9, 1941, the Charter of the Cecil Land Corporation was filed in Cecil County wherein the incorporators were Albert E. Fletcher, Walter E. Cooling, and Caroline McSpadden, a stenographer then employed by Hughes; the resident agent was the trustee, Hughes, and the directors were Albert Fletcher, Walter E. Cooling, Ermon W. Taylor, Dr. Wallace Johnson, Argus F. Robinson, and Hughes.

On October 20, 1941, Hughes and Constable, as trustees, conveyed the Cameron Farm to Albert E. Fletcher for the consideration of $10,000.00. On the same day as the transfer to Fletcher, he and his wife conveyed the said Cameron Farm to the Cecil Land Corporation for $10,000.00. On the same date the Cecil Land Corporation mortgaged the said real estate to the First National Bank of North East for $4,000.00. As a consideration of said mortgage it was agreed between the parties thereto that, in the event of a sale of any portion of the property so mortgaged or of the sale of any sand and gravel therefrom, fifty per cent of the funds thereby derived would be applied to the principal of said mortgage.

Hughes, although a co-trustee of the estate of Marshall D. McDaniel, was a resident agent of the Cecil Land Corporation, a member of the board of directors of said corporation, and was attorney for the First National Bank of- North East and so named in said -mortgage: It was Hughes’ purpose in selling the said real estate to himself and a group of accoeiates as the Cecil Land Corporation, that that corporation would exploit said property for the sale of real estate, sand- and gravel rights to their own profit, “to the loss of the ²¹³ said estate in derogation of his duties as trustee, to act as a faithful steward, to preserve and enhance the value of the said estate and to the exclusion of his private profit; that the misconduct of the said James W. Hughes constituted a fraud in law upon the said estate.” On April 21, 1942, the Cecil Land Corporation transferred the said real estate to Albert Fletcher, Argus Robinson and Hughes, as trustees for themselves and for the other stockholders of the Cecil Land Corporation for the sale of timber, sand, or gravel and for the purpose of paying over the net profits to the owners thereof “Albert E. Fletcher, one-sixth; Walter E. Cooling and Hilda T. Cooling, one-sixth; Ermon W. Taylor, one-sixth; Argus F. Robinson, one-sixth; James W. Hughes, one-sixth; Wallace Johnson, one-sixth.” That the above mentioned individuals received from the Arundel Corporation large sums of money for sand and gravel sold from the aforesaid property and that no part of the amount paid to Hughes came into the possession of the trust estate. The three trustees later sold other properties for large sums of money but none of the money received by Hughes had been paid into the trust estate. She asked that Hughes, individually, as trustee for the estate of Marshall D. McDaniel, as a stockholder of the Cecil Land Corporation, and as trustee for the stockholders thereof, be made to account for all sums of money received by him individually or in his representative capacity from the sale of the said Cameron Farm. The amount claimed from Hughes for the trust estate is approximately $11,-024.97.

After answer filed and testimony taken, the chancellor on July 1, 1954, overruled the exceptions to the trust account. From that order the appellant appeals. The testimony shows that on October 9, 1941, the certificate of incorporation of the Cecil Land Corporation was approved by the State Tax Commission. On October 20, 1941, Constable and Hughes, as trustees, conveyed the Cameron Farm to Fletcher.

On the same day Fletcher and wife executed a deed of this farm to ²¹⁴ the Cecil Land Corporation and on the same date that corporation executed a mortgage to the First National Bank of North East for $4,000.00. On April 21, 1942, the Cecil Land Corporation conveyed the Cameron Farm to Fletcher, Argus F. Robinson, and Hughes as trustees for the six stockholders as hereinbefore set out. This deed was eveidently made for tax purposes. Also offered in evidence were letters showing that Hughes from May 1, 1942, to March 11, 1947, was negotiating with the Arundel Corporation concerning the sale of gravel from the Cameron Farm.

Alexander McDaniel, called as a witness by the appellant, testified that while he was trustee he had negotiations with the Arundel Corporation which had paid the sum of $22,000.00 to the life tenants and to him as trustee for gravel dug from the farm. Arundel stopped digging in 1935 or 1936, several years before Alexander resigned as trustee. John A. Engar, called as a witness by the appellant, testified that he was a superintendent of floating equipment of the sand and gravel department of the Arundel Corporation. He also testified that his company paid Fletcher, Robinson and Hughes, trustees, between April 30, 1942, and May 31, 1948, $55,149.85 for sand and gravel.

Walter F. Cooling, produced as a witness by the appellee, testified that in 1941 both he and Fletcher were employed by the Conowingo Power Company. Fletcher told him of the proposed purchase of the Cameron Farm and offered him a half interest if he would raise the sum of $8,500.00. Cooling was unable to get this money and Fletcher tried elsewhere. Fletcher approached Cooling again and told him he had a certain time in which to make settlement.

Ermon Taylor, the father-in-law of Cooling, Argus Robinson, and Dr. Wallace Johnson, were approached about the property. Fletcher then called a meeting where financial arrangements were made for the formation of the Cecil Land Corporation. Cooling said he put' $1,400.00 in it and received a one- ²¹⁵ sixth interest. Fletcher contributed his down payment of $1,500.00.

Cooling was made secretary of the corporation. Fletcher had told him that he though they could sell water front lots, and that he, Fletcher, had knowledge of sand and gravel deposits around North East and he was also considering a dry land operation. At the actual forming of the corporation he, Fletcher, Robinson, and Hughes were present. Fletcher did most of the “ground work.” He said it took four or five months to form the corporation.

Argus F. Robinson, at the time of the hearing in this case, was president of the Peoples Bank of Elkton. He testified that early in 1941, when he was cashier of the bank, Fletcher approached him with the idea of participating in the purchase of the Cameron Farm and wanted help in financing. He was told that Fletcher had made a deposit on the property and needed money to complete the purchase because a man in New York, who was to finance the deal, had died. Five people were interested as a group in the purchase and Fletcher suggested that Hughes buy the remaining interest and Hughes was retained by this group to form the corporation.

At the beginning of the transaction there was no idea that Hughes would participate. Each of the six participants paid $1,000.00 for the stock and advanced the corporation $400.00. He said at a subsequent date in 1949 a portion of the property was sold to John J. Prial and others. Mr. Mosebach, the present attorney for the appellant, represented Prial at that time.

Mr. Mosebach made an objection to the title. The matter was discussed with Marshall and Alice McDaniel in the presence of the notary, Fletcher and himself, and the McDaniels executed a quit claim deed of the farm. The McDaniels seemed very willing to do this. The consideration of the deed was $1.00 which was not paid, but later the trustees paid the McDaniels $100.00 as a gift.

The transaction with the McDaniels was not hurried in any respect. They chatted a few minutes before actually signing the quit claim deed. The profits from ²¹⁶ the corporation were divided among the- six share holders.- James W. Hughes, testifying as a witness for the appellant and in his own behalf, told of the difficulty in getting Fletcher to complete the purchase- of the farm for $10,-000.00. .He said that in September or October of 1941 Fletcher and Robinson told him an attempt was being made to organize a local company to purchase the property. He was invited to become a stockholder to the extent of a one-sixth interest, five-sixths of the stock of the corporation having already been subscribed.

Robinson was of the opinion that .the farm could be divided and sold as water front lots. He testified that he was employed to prepare the charter of the Cecil Land Corporation while he was co-trustee of the McDaniel estate and that he contributed $1,400.00 to the corporation. He said he knew when he prepared the articles of incorporation that Fletcher intended to convey to the corporation. Several months after the corporation purchased the property it was decided to open negotiations with the Arundel Corporation.

Prior to that time he had had no contact, with Arundel. As a stockholder of the Cecil Land Corporation, he shared in the monies received from Arundel. He further testified that the,McDaniels were in constant communication with him and Albert Constable, the other trustee, and were fully informed of all that was taking place. They were aware of and entirely agreeable to the transaction when made and made no objection whatever to it..

The sale to Fletcher was made “on the rather strong urging” of Marshall and Alice. This sale was entirely bona fide. No one else had any interest in it at that time. He did not have any interest in the transaction as a. purchaser of any interest until the group considering the incorporation had decided to carry out the program, and asked him to prepare the papers for them and finally asked him to purchase the remaining one-sixth interest in that corporation.

He did not participate in any way in the financing previous to that time. This was more than a year after the sale had ²¹⁷ been ratified by the court. While the negotiations were in progress for the sale of the farm to Fletcher, Marshall and Alice talked to him about the matter and expressed their pleasure that an arrangement was being made whereby Fletcher would not lose his deposit on the property.