Perkins v. Leviness

Boyd, C. J., delivered the opinion of the Court. This is an appeal from a decree dismissing a bill of complaint of the receiver of the Maryland Insurance Agency Company against the appellees to recover what the bill alleges to be unpaid subscriptions to the capital stock of the company. The printed record contains 440 pages and is very confusing, owing to a great extent to the fact that much of it is taken up with objections, and arguments of solicitors and the rulings of the Court during the taking of the testimony. As the ease is presented by the record, it is. difficult to understand what some of the rulings, were, but thei important questions are fow and comparatively free from difficulty.

One peculiarity about the case is that Mr. LeViness, named as a defendant, seems, to be more or less affiliated with the plaintiff, and the other five appellees, are the real defendants. He filed a separate answer and had no solicitor representing him. So when we speak of the defendants, we will generally mean the five. The defendants and several others gave their notes to the company in March or April, 1910, for $3,000 each, and the plaintiff claims that they were given for stock subscribed by them, and that inasmuch as. the company was insolvent the directors, had no power to cancel those notes and release them from the subscription.

The five defendants contend that they gave the notes as loans to the company for the purpose of securing a building in Baltimore City and ²⁵⁴ further developing the business of the company, and while they admit that they were to have the option of taking stock,, they claim that they did not subscribe to it. The minutes of a meeting of the directors held January 26, 1911, contain, among other things, the following: “Upon motion duly seconded and earned it was resolved that the president be authorized and directed to take up and return the notes held by the company issued for stock, and cancel the stock if issued therefor, as soon as practicable, according to the proper legal methods.” W. Harry Haller is the only one of the defendants, excluding Mr. LeViness, who was-present at that meeting. LeViness testified in answer to the question by the plaintiff, “What did you do, if anything, to-carry out the minute of that meeting?” “We entered into-this agreement which was finally signed by all of the defendants in this case.” The agreement referred to was executed on the-day of March, 1911, between various parties,. including all of the defendants, by which the parties to it entered into various covenants and agreements, amongst them that the parties of the first part, who were Thomas H. Haller, Emory L. Coblentz, W. Harry Haller, William A. Hahn, John O. Hendricks, William T. Griffith and Motter Brothers. & Co., should sell their stock to Mr. LeViness, and he agreed, to pay the notes of the other defendants in this case, which had been given to the company. There is nothing in that agreement to suggest that those notes were given as subscriptions to the capital stock of the company, but on the contrary a recital in it is, “And whereas the parties of the second and sixth parts have loaned to the said Maryland Insurance Agency Company promissory notes for sundry sums of money,” and that it was understood and agreed that the notes were to be discounted by the company and that the company would pay on account of each of them, semi-annually, the sum of $250 and interest until they were paid. “The parties of the second part” were those who are now defendants in this case, excepting Mr. LeViness, and he was the party of the ²⁵⁵ sixth part.

The stock of the parties of the first part which was to he sold and transferred is specifically set out—showing that each of five of them had five shares and each of the other two had three shares of the stock of the Agency Company, for which they had paid. Without deeming it necessary to refer to all of it, we are convinced by the evidence in this record that neither of these five defendants made subscriptions for thirty shares of stock. The understanding was that the proceeds of the notes given by them to the company were to he used in erecting a building in Baltimore for the company, and for some other purposes, and that the parties who gave the notes were to home the option of taking thirty shares of the stock of the company after the building wm erected, but it never was erected. W. H. Haller testified, “When the building was completed and the other agreements were carried out I was to have the option of taking thirty shares of the capital stock of the Agency Company for that note.

It was said and understood by everybody in the concern that there was no obligation on my part to take the capital stock if the buildings were put up or the obligations carried out.” Dr. Fahrney said, “I was to have an option on the stock in case the building was put up.” After the agreement of March, 1911, a certificate for thirty shares of stock was presented to him by Mr. LeViness and someone else and he told them that he did not subscribe for any stock, that he had an option on the stock if the building went up. They told him they wanted to take up his note, and asked him to endorse the certificate so that they could resell it and he did so. The certificate in his name was No. 4-5, was cancelled and certificate No. 50 was issued to Joseph L. Stafford for the thirty shares which the stub shows were transferred from Harry P. Fahrney and Stafford paid the company for them. It would, therefore, he impossible to hold Dr. Fahrney for1 them, and there could be no recovery against him.

The evidence of Mr. Newman also shows that he gave his note to help in getting a lot and putting ²⁵⁶ up a building “and it was optional to me whether I should in the future take stock or not.” The evidence shows that there was the same understanding with Messrs. Nicodemus and Hahn, who were sick and unable to testify. The entries in the books of the company tend to sustain that condition. The company never erected the building and if there was no other defense it might well be urged that the company or its receiver could not recover for the stock by reason of the fact that the subscriptions, if made at all, were made for the specific purpose which was never carried out.

A good deal has been said about these defendants being in a pool, so that they could control the company, and Mr. LeViness, who was one of the principal witnesses for the plaintiff said, “in view of the fact that they had subscribed to such large sums of the capital stock we were to give each member of the pool an equal voice in the management, but that pool agreement was never carried out, never entered into.” He was then asked: “The pool agreement was never carried out? A. No, sir; never entered into.” There can be no possible doubt, therefore, that the record shows beyond all reasonable controversy that the thirty shares of stock alleged to have been subscribed by each of these defendants was never unconditionally subscribed. We might refer to other parts of the record in support of the conclusions we have reached as to the facts, but deem it unnecessary to do so, and will now consider the important question remaining, whether in view of the decisions of this Court in Peninsula Trust Co. v. Johnson, 128 Md. 535 , and Perkins v. Peninsula Trust Company, 130 Md. 220 , the defendants are precluded from taking advantage of the defense relied on. It is unfortunate, if they are, for it would not speak well for the administration of justice if a Court of Equity is compelled, through its receiver”, to exact money of parties which it is satisfied they do not owe, merely because of other decisions rendered under a different state of facts. ²⁵⁷ In Peninsula Trust Co. v. Johnson , Dr. Johnson, a stockholder of the Maryland Insurance- Agency Company, filed exceptions to- an auditor’s account distributing the assets- of the latter company in the hands of the receivers—Mr. Gill then being a co-receiver of Mr. Penkins, but was afterwards released, as he was in the military service.

The contention was made and sustained that the money claimed by the Peninsula Trust Company was due on promissory notes of the Agency Company given to enable it to- purchase its own stock. Juwe Belscoe, in speaking for the Court, said: “There can he no question, it seems to ixs, after a careful examination of the record in this case, that the funds and money borrowed fro-m the appellant company were obtained and used for the purpose o-f retiring certain notes held by the company issued for stock and for the purpose of cancelling the stock obligations of certain stockholders who were not satisfied with the- management of the company.” After referring to the resolution, of January 25, 1911, quoted above, the opinion proceeded, “Subsequently the money was borrowed from tbe appellant company and applied to the liquidating of certain notes and cancelling the stock subscriptions of some of the stockholders.” The question whether the trust company had knowledge o-f that fact was then discussed and decided. In Perkins v. Peninsula Trust Company it was shown that there had been two auditor’s accounts stated distributing .assets in the hands of the receivers o-f the Agency Company. After the lower Court had sustained the exceptions of Dr. Johnson to- the second auditor’s account, which action was affirmed by xxs in the ease above referred to, the- receivers filed a petition to have the ratification of the first account, which had not been excepted to, vacated and set aside.

The lower Court passed a decree dismissing the petition but on appeal we reversed that decree and remanded the cause for further proceeding’s. The effect of the decision in the Johnson case is, therefore, the important question. Although it ²⁵⁸ will be seen from what we have quoted above from that opinion that we decided that these notes were given for stock of the company, and that the trust company had furnished the money with which to take up the notes and cancel the stock, having such knowledge of the facts as to prevent its recovery from the Agency Company, our decision was based on the facts then before us, and the conclusions reached by us on those facts are not necessarily binding on these defendants. It was in effect conceded in the Johnson case that the notes were given for stock subscribed.

In the appellee’s brief it was said: “There is really but one question involved in this appeal, and that is as follows: Whether or not- the trust company had- notice that the agency company was borrowing these monies for the purpose of taking up- the notes of its stockholders given in payment of stock.” The last paragraph was printed in large caps, and in the brief of the appellant it is said: “Notes were given by the subscribers in payment for their stock.” That was, therefore, practically a concession! in the case, and the controverted question was whether the Peninsula Company had such knowledge as bound it. LeViness was instrumental in procuring the notes and he testified in that case that they were giten for subscriptions, and Dr. Johnson’s evidence was to that effect so far as he was concerned, although he did not pretend to know upon what terms these five defendants had given their notes-—he did not even know them. The evidence of Mr. Hehl, the expert called by the appellant in this case, shows that on the books the notes were treated as liabilities of the company, which actually made payments on them and reduced the amounts. There was, therefore, nothing on the books to show that these parties had subscribed for stock.

Indeed it is difficult to understand the theory- of the appellant, for if the appellees each subscribed for $3,000 of stock, why should there be a claim for only $2,750, when the company paid the $250 ? Neither of these five defendants testified in the Johnson case, nor were they parties to it. There is nothing definite ²⁵⁹ in the record to show that they even knew of the proceeding, while if was going on, and there is certainly nothing to suggest that they knew that they might be affected by anything that would be done in that case. It is true that Mr. Oscar B. Ooblentz, a brother of Mr. Emory L. Ooblentz, who is a party to the agreement of March, 1911, was present during part of the trial, taking notes of the evidence of some of the witnesses, and he examined some of the hooks, of the company prior to that time, but it is clearly shown that he wasi present and examined the books at the instance of bis- brother, who testified: “At the time he came I represented nobody except myself * * * I happened to find out in some way it was coming up, and he had some business in Baltimore.

I suggested he come here and hear the testimony. I had not been employed at that time by anybody. My reason for baving him there was nothing more than a matter of pride because I had acted as attorney for carrying the transactions through and had been paid a fee for it.” He was referring to the matters provided for in the agreement of March, 1911, and testified that he did not think that the defendants, even knew that his, brother was, present. Again he said: “I was a party to the agreement personally and I felt I wias justified, and feel so yet, in taking such steps as, I could to see that wimt had been agreed upon there was finally done.” Mr. Oscar B. Coblentz testified that during the hearing of the Johnson case he talked with Mr. Gill, who was, then a co-receiver, and with Mr. Perkins, and suggested that they summon the Frederick people to explain the circumstances under which the notes were given, but they declined and said that, those parties could not be affected by the result, of that case.

The appellees also offered to prove by him that he had made some suggestions to Mr. Miles,