South Baltimore Brick & Tile Co. v. Kirby

Pearce, ]., delivered the opinion of the Court. In this case are presented two appeals in one record, from an order of the Circuit Court for Baltimore County ratifying a sale of a tract of land made by trustees and receivers appointed by a decree of that Court, for the sale of the property of the South Baltimore .Tile and Brick Co., an insolvent corporation. The case was submitted for decree without testimony'upon the following agreement: “ It is agreed that the above case be submitted for decree, and that the above decree is a proper decree to be passed in this case.” The Court thereupon passed the decree agreed on, appointing Stevenson A. Williams, John'P. Horsey and George M. Sharp “ trustees to make sale, and receivers of said property, and of said corporation,” and directed that they should “ sell the real estate and plant of said corporation, dividing the same in such manner as they should deem best, and make such terms as to payment as in their judgment may be most advantageous, and they shall give at least three weeks’ notice thereof by advertising in a newspaper published in Baltimore County, and in one published in Baltimore City.” The debts of the corporation are from $60,000 to $70,000, and its property consists of six lots of land near the middle branch of the Patapsco River, aggregating 83^ acres, but the only lot here involved is Lot No. 7, on Warner’s Point, opposite to Ferry Bar Bridge, in Baltimore City, and on the Shore Line Railway, containing 16⁴ acres. It contains large deposits of fine clay for brick-making and a large plant for this business, which has been carried on there, but the plant has been neglected and is of little value.

The lot is ⁵⁵ shown to be of great value for an excursion resort, the adjoining lot having been successfully used for that purpose for some time. It has also two large wharves extending to navigable water, and is thus accessible both by rail and water. The trustees have never advertised any of the property as directed by the decree, but on the 2nd of February, 1898, sold Lot No. 7, at private sale, to John E. Kirby, for $18,000, of which $500 was paid in cash, $4,500 was to be paid on ratification of sale, and the balance to be secured by mortgage on the lot, payable in instalments in one, two and three years, with interest at five per cent, from date of mortgage. On February 26th, 1898, the receivers and trustees filed a “petition and report” setting forth that they believed it would be for the advantage of their estate if there could be a private sale of Lot No. 7, in lieu of public auction, and that a public auction would not realize as much as a private sale ; that they had diligently endeavored to sell said lot, employing brokers, and enlisting certain mortgagors of the property who were still liable upon covenants ; that the best offer received for said lot was $18,000 from said Kirby, who states he will use it as a summer resort; that larger sums were at one time suggested, but no formal offer made beyond that of Kirby; that they believed the price fair and reasonable, and submit the affidavit to that effect of two experienced brokers, and they then “pray leave to make private sale without advertisement, and for authority to accept said offer, and, leave of the Court being first had and obtained, to file this as their formal acceptance of said offer and report of sale to said John E. Kirby.” On the same day, the Court, without notice to any of the parties to the proceedings, passed an order accordingly authorizing the sale made, to be reported for final ratification.

On March 29th, 1898, Wyatt Owen filed a petition showing that he was a stockholder in the defendant corporation, and praying to be made a party in order that he might except to the sale, and the Court passed an order accordingly. On the same day he filed exceptions to the sale reported. On April ⁵⁶ 9th, 1898, Julia R. Warner and others, the mortgagors heretofore mentioned as liable on their covenants and parties to the decree, filed exceptions identical with those of Owen, and on April 21st, 1898, the defendant corporation also filed exceptions. Testimony was taken, and the exceptions were all overruled, and the sale was ratified.

From this order, overruling these exceptions and ratifying the sale, Owen and the defendant corporation have both appealed, but the Warners have not appealed. The exceptions of Owen may be condensed as follows: 1st. That the private sale made, was in violation of the terms of the decree. 2nd. That the price was inadequate, and much less than public auction would have realized. 3rd.

That the chief value of the property consisted in fine clay for brick-making, of which the general public was never informed by advertisement or otherwise. 4th. That an offer of $20,000 on better terms had been made by a responsible party since the attempted private sale. The exceptions of the defendant corporation are in substance : 1st. That as the decree and its terms were fixed by consent, a private sale without advertisement is in violation not only of the terms of the decree but of the consent which fixed those terms. 2nd.

That those who wished to bid on the property at public auction had no opportunity to do so. 3rd. That even if private sale were proper, none but the reported purchaser had opportunity to make a private bid. 4th. That the price was grossly inadequate ; and 5th. That the sale was not fairly made.

The appellees’ first contention is that neither of the appellants has any interest in the proceeds of this sale, and therefore neither is entitled to maintain these exceptions. It cannot be doubted that, ordinarily, stockholders are represented by the corporation or that receivers of corporations are, in ordinary cases, the proper persons to assert or defend the ¿fights of the corporation or of its stockholders and creditors. But this is not an ordinary case, since it is the conduct of the receivers themselves, in dealing with the property of the corporation, and of the stockholders, which is the ground of these exceptions. The ⁵⁷ corporation was priginally a party and of course a necessary party to these proceedings.

Owen was the president of the corporation, and its majority stockholder when the receivers were appointed. The fact that the corporation is insolvent, and that no pecuniary interest can accrue either to it or to Owen from the proceeds of a resale, or of this sale, cannot divest Owen as president or as stockholder of the interest which, as an honest man, and a faithful officer, he should feel in realizing for its creditors the largest possible results. Beach in his work on Receivers, page 371, says : “ Stockholders or bondholders should not be allowed to intervene except under circumstances which rarely, if ever, occur.” The circumstances of this case are rare, and we think Owen was properly made a party for the purpose of enabling him to except to this sale. The cases of Warfield v. Ross, 38 Md. 85 , and Griffith v. Hammond, 45 Md. 85 , relied on by the appellee, merely decide that persons whose interests in mortgaged property will not be affected by a sale thereof under a power, or under a decree to which they are not parties, cannot except to such sale; and the case of Glenn, Trustee, v. Williams, 60 Md. 116 , simply states the general doctrine that in ordinary suits against a corporation, stockholders are not proper parties.

On the contrary, in Wagner v. Cohen, 6 Gill, 97 , Cohen, who was a stockholder in the Holliday Street Theatre, which had been sold under a decree, filed exceptions to the ratification of the sale, and also a petition to restrain the reported purchaser from using the theatre while the exceptions were pending, and the Court held on this petition that, though his interest as a stockholder was merged in the decree, he retained an interest in the proceeds of sale, and was entitled to institute that proceeding; and in the succeeding case of Cohen v. Wagner, 6 Gill, 179, the exceptions just mentioned were heard and determined without question by counsel or Court. We shall not hesitate, therefore, to consider the case upon the merits. The general principles which must control all such cases are too familiar to require consideration. We have only to ⁵⁸ apply them to the facts of this case with such sound and just discrimination as we may, though the task is not wholly free from difficulty.

Much of the testimony we do not think it necessary to consider, nor do we regard the testimony of Mr. Haman and Mr. Owen, the chief witnesses, as in any serious conflict. The general exceptions to the testimony of Owen are not sustained by the production of any authority, and we can perceive no reason for its exclusion; nor of those portions of his testimony detailing interviews between himself and Judge Sharp and Mr. Williams — which were specially excepted to. These gentlemen, as receivers, are direct parties to the inquiry now under consideration, and could have testified, had they thought it necessary to do so. The offer of Hunecke and Meeter we think is competent testimony, to show that a resale is not a “mere experiment,” but that there is reasonable gi-ound for anticipating fair competition at such resale.

In Wickes v. Westcott, 59 Md. 282 , where a bidder at a sale, excepting to a ratification thereof, said, “ he presumes he will advance his bid upon a new offer of the property ”— the Court said: ‘‘This is equivalent to saying such is his present purpose, and is, perhaps, as positive as one should be forced to speak.” Here Meeter and Hunecke have covenanted for a definite advance, and it is to be presumed they will adhere to that purpose. Our decision will be based upon what we understand to be undisputed facts, and the first important fact is, that the form and terms of the decree were the result of consent, for it can hardly be supposed, that if the receivers agreed upon had proposed that a decree should be passed providing for private sale without advertisement, that this would have been assented to either by the defendant corporation or its creditors, who were parties to the proceedings, or without such resistance as Owen might have been capable of offering. The decree plainly directs a public sale in requiring ‘ ‘ at least three weeks’ notice thereof by advertisement.” The purpose of advertisement is to let the public know what, and what ⁵⁹ manner of property is brought into market. Kaufman v. Walker, 9 Md. 240. “ The direction of a decree requiring advertisement is perhaps more essential to the safety of persons interested in the sale than all others, because, unless public notice is given, competition, so indispensable to the dispositioti of property at its full value, can never, or very rarely, be secured." Glenn v. Wootten, 3 Md. Ch. 394 . “No deviation from the terms of a decree is more obnoxious to objection than selling at private sale, when the decree directs a public sale.” Latrobe v. Herbert, 3 Md. Ch. 377 .

We do not question, where the terms of the decree have not been fixed by the consent of parties, and the acceptance of the Court, that such provisions as are directory merely and relate to the mode of enforcement, may be modified by the Court. Dawes v. Thomas, 4 Gill, 333 . We might perhaps go farther, and say that even where terms not merely directory have been agreed on by the parties and accepted by the Court, they may still be modified by the Court, in some emergencies, though we are not to be understood as so deciding — but it would not follow if we did so hold, that we must approve the modification of this decree, when and as made by the Circuit Court. In Kelso v. Jessop, 59 Md. 114 , a public sale was directed by testator’s will and also by the decree passed in aid of the will, and the Court there said that while the provision of the will in that respect did not deprive the Court of all discretion over the sale, yet it was not to be disregarded altogether in passing upon the question of the ratification of the sale reported, and this, too, where a public sale had once been attempted before reporting a private sale.

The Chancellor’s burden of judgment in this respect is transmitted to us with this appeal, and we are bound to act as if the property were our own, or held by us in trust. That is to say, “ reasons which would induce us, as proprietors, or as trustees, to set aside a sale made by our agent, should determine us, discharging the duties of a Chancellor, to refuse our approbation to a sale made by a trustee.” Andrews ⁶⁰ v. Scotton, 2 Bland, 638 . The appellees, upon this point, cited in their brief from Tyson v. Mickle, 2 Gill, 383 , the following language of Judge Dorsey: “ Had the trustees, instead of accepting the offer and making the sale as they did, reported the aforegoing facts to the Chancellor, and asked his permission to sell the property on the terms proposed at private, instead of public sale, as directed by the decree, can it be doubted that he would have granted the authority they solicited? We think not.” But it will be remembered that there the property had been previously twice offered at public sale pursuant to the decree, and the distinction thus indicated is broad and fundamental.

In Tyson’s case, if the trustees, without ever advertising, had asked permission to