Mercantile Trust & Deposit Co. v. Gottlieb-Bauernschmidt-Straus Brewing Co.

Urner, J., delivered the opinion of the Court. This is a special ease stated under the general equity rules Nos. 47-49 (Code, Article 16, sections 206-8), and its object is to obtain a determination of the question as to whether the ⁵⁰⁴ proceeds of the sale of certain properties, released from the lien of mortgages given by the Gottlieb-Bauernschmidt-Straus Brewing Company to the Mercantile Trust and Deposit Company of Baltimore, Trustee, are applicable to the payment of tire costs of certain improvements to the plant of the former company. The admitted facts are set forth in the statement filed and in exhibits to which it refers and whose recitals are conceded to be correct. The Brewing Company, on August 10th, 1901, executed and delivered to the Trust Company two deeds of trust, one securing $5,625,000 of first mortgage bonds, and the other $3,500,000 of second mortgage income bonds, all of which have been issued and are now outstanding.

Each of the deeds of trust contains provisions that— “It shall and may be lawful for the Brewing Com-X>any, its successors or assigns, by and with the consent and approval of the Trustee, or its successor or successors in the Trust by this instrument created, at any time or times hereafter, to exchange for other property, or sell or lease for any terms, renewable or otherwise, any part or parts of the hereby mortgaged property, free, clear and discharged of and from the lien of this mortgage, * * * Provided, however, that the * * * proceeds of any sale so made shall, at the option of the Brewing Company, be invested by it either in the improvement of any other part of the said premises hereby mortgaged, or in the purchase of other property, real or leasehold, suitable to promote the business of the Brewing Company, or other securities or property, real, leasehold or personal, which property so purchased * * * shall be subject to all the trusts, and with all the powers in grantor and grantee hereby declared (including that of sale, lease, and exchange) of and concerning the property described in this Indenture of Mortgage, and shall be conveyed to the Trustee * * * subject to the same trusts herein declared.” ⁵⁰⁵ It was provided that the assent of the trustee to the sale, exchange or other disposition by the Brewing Company of any of the mortgaged property, should, with respect to real or leasehold estates, or stocks of other companies, he expressed by the joinder of the Trustee iu the transfer, and that as regards personal property, other than leasehold or stocks of other companies, the trustee’s consent should be implied, in the absence of the communication of its dissent in writing to the proposed transferee, the object of this stipulation being “to allow the Brewing Company to use and employ the personal property, other than leasehold, and stocks in other companies, hereby conveyed, and to dispose of the same, or any part or parts thereof, until default hereunder, by sale or otherwise, as often as may be found expedient for the Brewing Company in the proper conduct of its business, so as to manage the same as the Brewing Company may deem best for the useful and profitable government of its affairs.” A provision then followed that if any property should bo sold the proceeds of which were not necessary in the opinion of the Brewing Company to he reinvested for the business, the moneys thus derived should be paid to the trustee to he invested in the sinking fund prescribed by the deed of trust. The practice of the trustee, when assenting to a sale and executing a release of any part of the mortgaged property, was to require the proceeds of the sale to be deposited in its hands pending their reinvestment. When the statement of the present case was filed in August, 1913, the trustee held for the sales of property account the sum of $55,662.62. In the previous March $21,211 had been paid out of tlie account for improvements at a plant of tlio Brewing Company known as its “Globe Branch.” The funds thus expended, and those now held by the trustee, were realized from property sold in pursuance of a policy formulated by the Brewing-Company in February. 1912.

This policy was adopted for ⁵⁰⁶ the purpose of concentrating the company’s operations and avoiding the loss produced by unprofitable and idle properties. By a resolution then passed by its executive committee provision was made for the consolidation of the Darley Park and Globe branches of the company, the removal of the equipment from its general bottling works, and the establishment .of separate bottling plants at the Globe, Bauernsehmidt and National branches. These changes included the construction of a “racking room, wash-house, stable and bottling house at the Globe, * * * such additions and new machinery as may be necessary at the Globe Branch Bottling House and Brewery to accommodate the business to be brought into that branch from the Darley Park Branch, new bottling house on the lot adjoining the Banemsohmid't Branch, and the removal thereto of certain machinery from the General Bottling House, and installation of such new machinery as may be necessary.” The additions, improvements and machinery thus specified were estimated to cost from $50,000 to $75,000, not including the cost of machinery to be removed from the old to the new locations. It was provided in the resolution that application be made to the Mercantile Trust Company, Trastee, for its assent to the withdrawal from the sales of property account of any funds which might come into its hands from the sale of any of the company’s property during the progress of the stated improvements.

A letter written to the Trust Company at that period by the President of the Brewing Company, after describing the plans already indicated and explaining that they were designed to promote large economies in manufacture and were expected to produce an increase of $100,000 per annum in the net earnings of the company, proceed as follows: “The company desires to pay for these improvements, which will amount to from $50,000 to $75,000, out of the proceeds of sales of property that it may sell while the improvements are in progress, or as soon thereafter as possible. To that end, it has placed in the hands of Messrs. Caughy, Hearn & Carter, prop ⁵⁰⁷ erty agents, for sale, the Bay Yiew, Lion, Mount and Baltimore Brewery properties; the North Street Malt T-Iou.se, and the Central Avenue and Fawn Street building, together with some sixty pieces of tenant property formerly occupied as saloons. Tile proceeds of tlie sale of any one or more of these properties will, of course, be deposited in your hands to the credit of proceeds of sale of property account, subject to the conditions applying to that fund.

This company now desires to arrange with you as Trustee that any funds coming into the proceeds of sales of property account may be withdrawn and aj>plied towards the payment of the improvements above mentioned, or to reimburse the treasury of the company for any payments it may make out of its working capital for said improvements, and additions and machinery, as the work progresses. We would thank you for an early reply, as these improvements are imperatively necessary, and should be begun without delay.” In replying to this letter the Trust Company transmitted an opinion, given by its attorneys, on the subject and said; “We iDresume that the requirements which they make in connection with the sale of this property, and the investment of the fund, can be arranged to the. satisfaction of this Company as Trustee.” The opinion, so far as it is necessary to be stated, was to the effect that the proposed application of the proceeds of sales appeared to be within the terms of the mortgages and proper to be made, provided the improvements were of a permanent character and, if made in advance of the receipt of the required fund by the trustee, were sufficiently related in point of time and otherwise to show that the expenditure was. really a reinvestment of the proceeds of the sales in question. The Brewing Company in its reply said that there would be no difficulty in its complying with the requirements of the opinion to the satisfaction of the Trust Company, and ⁵⁰⁸ that the contemplated improvements were all of a permanent character” and would “add to the value and efficiency of the plants.” In May, 1912, there was a change in the management of the Brewing Company, and its plans for the improvement of its plants were modified and enlarged. The following January its executive committee passed a resolution reciting that extensive improvements had been undertaken at its Globe and National Breweries, and that it was the purpose of the company to dispose of a large number of saloon properties, and of certain idle and abandoned brewery plants and other specified premises, all of which were no longer necessary for use in connection with the company’s business, that pending the sale of these properties the company would be obliged to make payments for the labor and materials required for the improvements and to obtain temporary loans for that purpose until the proceeds of the sale of the properties being disposed of should be received, and it was therefore resolved that the Mercantile Trust Company, Trustee, be informed of this situation so that, as requests were made from time to time for the withdrawal of funds from the sales of property account, the Trustee would be advised as to the method under which the improvements were undertaken and would accordingly assent to the proposed application of the funds.

A copy of this resolution was duly delivered to the Trust Company. On Mai*oh 27, 1913, the Brewing Company requested, and the trustee consented to, the withdrawal of the sum of $27,-214, as previously mentioned, to be used in paying for certain machinery and equipment installed in the new bottling-house at the Globe branch. Early in August the Brewing-Company applied to the trustee for the appropriation of the further sum of $55,308, from the proceeds of property sales for improvements, additions and equipment at the same plant. The trustee had in hand at that time, as already stated, a fund of $55,662.62 realized from sales, and it was willing to make the payment in question if it could do