State v. Title Guarantee & Trust Co.

Parke, J., delivered the opinion of the Court. The two appeals on this record bring up for review the action of the chancellor in dismissing the objections to the plan of reorganization and of reopening of the Title Guarantee & Trust Company, that were made by James E. Hancock and other depositors of that corporation, and in later passing a decree approving the plan; and, consequently, involve a consideration of these acts in connection with the provisions of chapter 529 of the Acts of 1933. On February 20th, 1933, the State of Maryland filed its bill of complaint against the Title Guarantee and Trust Company for the appointment of a receiver for the defendant corporation. The defendant appeared and answered on the institution of the proceedings, and the state bank commissioner was immediately appointed receiver on the bill and answer.

The receiver proceeded with the discharge of his duties, and the record discloses that, in the course of his administration, at least several plans of reorganization of the corporation were submitted, considered, and discussed. Eventually, George Forbes, the chairman, and seven members, of a committee who acted in béhalf of a group of depositors, and Edgar G. Miller, Jr., a depositor* filed in the cause, on February 12th, 1934, a petition which recited the failure of a particular effort to agree on a plan of reorganization, and expressed a conviction that any further effort would be futile, and prayed that the chancellor should direct the receiver to proceed at once with the liquidation of the ³⁸¹ corporation, and should appoint a special counsel to scrutinize the conduct of its corporate affairs by its officers and directors as stated in a report made to the petitioners by their counsel, William Milnes Maloy, and to make known to the court in what respect, if any, such officers and directors had incurred a legal liability by their acts. The Maloy report was filed with this petition and was, also, filed as part of the subsequent petition of James E. Hancock and seventeen other depositors. This second petition was filed in the cause on November 15th, 1934.

Hancock and three of the other petitioners had united in the first petition, and the second petition was filed for the benefit of not only the original petitioners, but also any other depositors of the same class who might thereafter join in the petition. The object of this petition was to have the chancellor refuse to approve a proposed plan of reorganization of the corporation, which the petitioners anticipated would be subsequently submitted to the court for approval; and to direct and require the receiver (a) to enforce the statutory liability of the stockholders of the corporation on their corporate stock; (b) to enforce by appropriate suits and proceedings the alleged respective statutory liability of the directors and stockholders for the declaration and payment of unearned dividends upon the stock of the corporation for the years 1928 to 1932, both inclusive; and (c) to enforce against the directors the amounts for which they might be liable for losses sustained by reason of their neglect and default in the discharge of their official duties. On their petition, eight other depositors came in and made themselves parties to the petition of James E. Hancock. On November 17th, 1934, Raymond M. Duvall, who was a party to both the prior petitions, filed a separate petition in which he dissented from the proposed plan of reorganization and elected to take, and applied to the court for the ascertainment of, the fair liquidated value of his claim as a depositor, and requested the payment thereof in cash.

At the conclusion of his petition, Duvall stated that his dissent ³⁸² and election were an alternative to the relief prayed in the petition filed on November 15th, 1934. The anticipated plan of reorganization, and the proceedings had in respect, to its adoption, were filed in the cause on December 3rd, 1934, in the form of a petition and report of the receiver. By these documents it was made certain that the board of directors of the Title Guarantee & Trust Company had proposed a plan for the reorganization and reopening of. the company, and for the establishment of the Title Mortgage & Management Company; that the plan was filed with the bank commissioner of Maryland, pursuant to the provisions of article 11 of the Code of Public. General Laws, as amended by the Acts of 1933, ch. 529, of the General Assembly of Maryland; that the board of directors of the Title Guarantee & Trust Company had certified to the bank commissioner, that notice of the approval of the plan and a summary of its terms had been mailed to all depositors and creditors of the company at their respective addresses as shown by its books; and that on October 17th, 1934, the bank commissioner of the State of Maryland, under and by virtue of section 9C of article 11 of the Code of Public General Laws of Maryland, as added by chapter 529 of the Acts of 1933, had, after study and investigation, approved the plan of organization as submitted by the board of directors of the company, and that a notice to the company’s stockholders, depositors, and other creditors of this approval and of the fact that a copy of the plan had been filed with the bank commissioner and was open for inspection in his office or in the office of the receiver, had been duly published in two daily newspapers of Baltimore City.

The first publication was on October 19th and the last on November 2nd. The receiver, who under the law is the bank commissioner, called the court’s attention to the circumstance that the depositor who had objected to the plan and elected to take, the liquidated value of his deposit represents an amount of less than one-half of one per centum of the deposit liability of the company, and that the other depos ³⁸³ itors who have objected'to the legality and propriety of the plan have an aggregate deposit of less than four per centum of such deposit liability. The receiver further reported that under the plan of reorganization the present stockholders were required to subscribe not less than $250,000 to the new common stock to be issued according to the plan, but that this amount had not been subscribed, and suggested that, if the court adopt the plan, it should make it subject to the requirement that the full amount of said stock subscription of $250,000 be obtained within ten days from the date of the approval. The report, also, stated that the Reconstruction Finance Corporation might decline to make the loan provided for in the plan until the final termination of all litigation arising out of the petitions of the depositors, and that this litigation might be protracted, and that, therefore, the receiver recommended that, if the court should approve the plan, the condition should be prescribed that the Reconstruction Finance Corporation express its willingness to make the loan notwithstanding the pending litigation.

In addition to the prayer for the chancellor’s approval of the plan, the receiver requested the passage of an order fixing and determining the present cash value of the interest of Raymond M. Duvall on the basis of a judicial liquidation of the company: and of such orders as the chancellor might deem proper with respect to the plan and the termination of the receivership. On this state of the pleadings, the chancellor passed his decree on December 17th, 1934, wherein he affirmed that, “counsel having agreed that said report should be treated as in the nature of a demurrer to the petition aforesaid” of James E. Hancock and certain other depositors, he had, after full argument and consideration, dismissed the petition mentioned. An appeal was taken from this decree and also from the decree passed on January 2nd, 1935. After reciting that the legal prerequisites to anadjudication had been met: that the full sum of $250,000 had been paid on account of ³⁸⁴ the new stock to be issued under the plan; that Raymond M. Duvall, who had a claim as depositor in the sum of $13,305.74, had applied to the court for the ascertainment of the fair liquidation value of his claim; that no other depositor or unsecured creditor had made a similar application; that the plan of reorganization had been submitted for his approval; and that James E. Hancock and certain other depositors had objected to the approval being granted on the ground that the plan was illegal, but had requested the court to direct the receiver to institute certain suits,and proceedings against the stockholders and directors of the company—the chancellor declared in this second decree that, after due consideration and hearing, the plan is authorized by section 9C, as added by chapter 529 of the Acts of 1933, and is proper and reasonable and should be approved.

After these preliminary recitals, the chancellor decreed that the plan be approved, but reserved the right to revoke this approval and allowed ninety days from December 7th, 1934, to the Reconstruction Finance Corporation to effect the loan contemplated by the plan. The court further reserved for future determination the matter of attorney fees covering the reorganization of the company; the question of the apportionment of such fees as between stockholders and depositors or any of them; and the termination of the receivership, which was reserved until the liquidation value of the dissenter to the plan is fully determined. Upon petitions, the Fidelity & Deposit Company of Maryland, the Consolidated Gas, Electric Light & Power Company of Baltimore, and the Fidelity Trust Company, which were largely interested either, as depositor, creditor, or, stockholder, and which all severally favored the plan of reorganization, were allowed to intervene and become parties to the extent of the proceedings relative to the plan of reorganization and the objections to this plan. The. two decrees of the chancellor were made upon the papers, and proceedings in the cause, and any doubt with reference to what.effect was to have been given to the factual statements made by the pleadings could have been ³⁸⁵ well dispelled by a written agreement, but none was made.

In the chancellor’s first decree, however, the statement appears that, by agreement of counsel, the report of the receiver “should be treated as in the nature of a demurrer to the petition” of James E. Hancock and others. As this is evidently the assumption made in the passage of both decrees, all the well pleaded allegations of fact in this petition will be taken as true. The plan of reorganization which was approved by the chancellor is necessarily a lengthy instrument, and even a summary of its provisions would entail a statement that would contain numerous terms which would not be pertinent to the questions raised on this record. So, in the consideration of this case, only those provisions which relate to the controversy at bar will be stated, since the general scheme of the projected reorganization follows common lines, and presents no objectionable features of equitable cognizance.

The petitioners do not assail the constitutionality of chapter 529 of the Acts of 1933 nor of any of its parts. See Nagel v. Ghingher, 166 Md. 231 , 171 A. 65 ; Bowles v. M. P. Moller, Inc., 163 Md. 670 , 164 A. 665 ; Homer v. Crown Cork & Seal Co., 155 Md. 66 , 141 A. 425 . They attack the plan as invalid and illegal on the ground that the plan is not within the contemplation of the act mentioned, and, if so, its provisions are so inequitable to the unsecured depositors and creditors that the chancellor’s approval is not within the exercise of a sound judicial discretion, and should be reversed. The questions raised have been presented and argued with zeal and ability, and it remains for the court to state the reasons for its conclusions. 1.

The petitioners maintain that the statute does not authorize the plan of reorganization of the Title Guarantee & Trust Company nor its approval by the bank commissioner. The corporation was created by chapter 425 of the Acts of 1884, with the name of the Maryland Title Insurance & Trust Company, and was empowered to examine titles ³⁸⁶ to property and to guarantee or insure owners and mortgagees of real or leasehold property against loss by reason of defective title, liens, or other encumbrances; and to guarantee and insure the fidelity of fiduciaries. The powers so granted by the act of incorporation were greatly enlarged by chapter 663 of the Acts of 1894, which enacted an additional section 8, authorizing the corporation, inter alia, to have all the powers of a natural person to buy, sell, lease, or otherwise acquire and hold real and personal property, to lend money upon real or personal security, to borrow money for its corporate purpose, to receive money on deposit, to collect ground rents, interest on mortgages, dividends of all kinds, and to have the management and custody of all kinds of property upon such terms as it may arrange. Upon the grant of these further corporate powers the act made the corporation subject at all times to the terms of chapter 109 of the Acts of 1892, providing for the examination and report at stated times of trust, guaranty, loan, and fidelity companies, and the deposit of prescribed securities in a defined amount with the treasurer of the State for the protection of depositors; and of chapter 279 of the Acts of 1892, preventing any corporation, which shall act in certain fiduciary capacities without bond or security other than its own obligation, incurring the liability of a surety upon any bond of any sort or description.

The name of the corporation was changed to Title Guarantee & Trust Company, and its directorate was authorized to be increased to not more than twenty-five members, by chapter 118 of the Acts of 1900. By chapter 321 of the Acts of 1920, the original Act of 1884, ch. 425, incorporating the company under the name of the Maryland Title Insurance & Trust Company, was further amended by the addition of a section 9, conferring upon the corporation, whose name had been changed by amendment to its present corporate designation, all the powers given to trust companies under article 11 of the then Annotated Code of Public General Laws (vols. 1, 2, 3, and 4, Acts 1912, ch. 21, 1914, ch. 16, 1918, ch. 144) or under any ³⁸⁷ additions thereto or amendments thereof. The last amendment of the charter has reference to the corporate directors and is found in chapter 367 of the Acts of 1924. All of these amendments are to the original Act of 1884, chapter 425, which created the corporation, and their titles specifically describe the one subject embraced by the enactment and so comply with section 29 of article 3 of the Constitution of Maryland, and are not in violation of sections 33 and 48 of the same article.

Phinney v. Sheppard-Pratt Hospital, 88 Md. 633, 637-639 , 42 A. 58 ; Jackson v. Walsh, 75 Md. 304, 311, 314 , 23 A. 778 ; Hodges v. Baltimore Union Pass. Ry. Co., 58 Md. 603, 620 ; Gans v. Carter, 77 Md. 1, 8-10 , 25 A. 633 ; Brown v. Md. Telephone & Telegraph Co., 101 Md. 574, 582 , 61 A. 338 ; Jeffers v. City of Annapolis, 107 Md. 268 , 68 A. 553 . Neither is the legislation within the denunciation of sections 33 and 48 of article 3 of the Constitution, because the powers granted were either not obtainable under the general incorporation law then in force or were more extensive than by general statute provided.

Code, art. 11 and art. 23; Const. art. 3, sec. 48; Hodges v. Baltimore Union Pass. Ry. Co., 58 Md. 603, 620, 621 ; Reed v. Baltimore Trust & Guarantee Co., 72 Md. 531, 532-535 , 20 A. 194 ; Mealey v. City of Hagerstown, 92 Md. 741, 743-747 , 48 A. 746 . It follows, from this review of the statutes, that the Title Guarantee & Trust Company was, in the exercise of its corporate powers, both a bank and a trust company when on February 20th, 1933, the State of Maryland filed the bill of complaint to have the court assume jurisdiction over its property and business for final liquidation.

Code, art. 11, secs. 8 and 9, 51, 52. While the receivership under those proceedings was subsisting, article 11 of the Code of Public General Laws, title “Banks and Trust Companies,” subtitle “Bank Commissioner,” was amended by chapter 529 of the Acts of 1933, which became effective on April 21st, 1933. Section 9C of this enactment provides that: “Whenever the Bank Commissioner is in possession of any banking institution, as receiver, he may per ³⁸⁸ mit it to reopen upon such conditions as he may approve, and take such steps as may be necessary to wind up any court proceeding which may be pending.” By section 51 of article 11, every trust company, no matter how incorporated, is granted the powers, and is made subject to the provisions, of this article, with certain reservations, which are here immaterial, with respect to any special rights, privileges, or powers under its charter, if the company were organized and doing business prior to April 8th, 1910. And section 52 declares that the words “banking institutions,” as used in article 11, shall be held to mean incorporated banks, savings institutions, and trust companies.

Since the Title Guarantee & Trust Company was both a