Swift v. Smith, Dixon & Co.

Irving, J., delivered the opinion of the Court. On the 10th of January, eighteen hundred and eighty-five, “ The Baltimore Gazette Publishing Company ” made a deed of trust of all its assets to I. Parker Veazey, for the benefit of its creditors. The Circuit Court of Baltimore City, upon application of the trustee, took the trust under its jurisdiction, that the sanie might be administered under its direction. The auditor ^having made report to the Court, distributing the assets in the hands of the trustee among the creditors, the appellant and appellees respectively excepted to certain allowances to each other.

The Court sustained the exceptions to the ■appellant’s claim, and the same being disallowed, he appealed, and the only question before us is, whether the Circuit Court properly rejected his claim. The claim of the appellant is based on a mortgage, executed by the Gazette Publishing Company, and by George W. Cruikshank, to him on the twenty-fifth day of February, eighteen hundred and eighty-five, by which “ The Day, a newspaper published in the City of Baltimore, with the right to publish the same and the circulation and good will of the same,” “ the Associated Press franchise,” and various machinery and chattels of the concern, were conveyed to the appellant, to receive the sum of seventeen thousand dollars, payable three years after date with interest, and evidenced by the note of George W. Cruikshank, and by notes for the interest to accrue and be paid annually. The history, of this mortgage and the conditions moving to it are thus recited in its preamble: “ Whereas by an agreement dated the 11th day of February, 1884, between the said William H. Swift, one William T. Croasdale and the said George W. Cruikshank, the said Swift agreed to transfer to said Cruikshank, all his, said Swift’s estate and interest in and to ninety-four shares of the stock of the said body corporate, and to release the said company and the said Cruikshank ⁴³¹ and said Croasdale, and all other stockholders of the said company of and from all claims and demands of every kind for money loaned, and for all other claims on account of said company in publishing the newspaper called ‘ The Day,' it being thereby intended to convey, or agree so to do, by means of the transfer of said stock of said company, all interest which said Swift has in the publication called ‘The Day.' And whereas the said Swift thereby further agreed to purchase from W. J. Barn-dollar, one share of said stock held by him, and from II. S. Morrow, one share of said stock held by him, and to transfer the same to said Cruikshank, or cause them so to be transferred.

And whereas, by said agreement, the said Cruikshank, in consideration of the execution thereof, did thereby agree simultaneously with the transfer of said stock and other interest by said Swift to him, to execute a proper bill of sale by way of mortgage,” &c. Another clause recites that said agreement provided for the assignment and transfer to the said Cruikshank by said Croasdale, of all his stock and interest in the company, and to release all his claims against it. The next two clauses recite full compliance by Swift and Croasdale with their agreement, and their respective assignment of their stock, and the release of their respective claims against the company, and the stockholders thereof, and also the assignment by Barndollar and Morrow of their stock to said Cruikshank. The next clause recites the execution of the notes for principal and interest of the seventeen thousand dollars agreed upon, and that the mortgage was in consideration of the premises.

This mortgage was signed by George W. Cruikshank under his own seal, and by Win. T. Croasdale, as president of the Gazette Publishing Company who affixed the seal of the corporation. It was acknowledged before a justice of the peace for Baltimore City, by Oruikshank, on his own behalf, and by C. Augustus E. Spamer, on behalf of the corporation, he having ⁴³² been named, in the deed for that purpose. The mortgagee made the affidavit that the consideration was true and bona fide as set forth, and the mortgage was duly recorded as a chattel mortgage in the proper office.

In the distribution of the proceeds of sale by the trustee, and of all the assets of the Gazette Publishing Company, the auditor allowed the appellant for his mortgage claim, so much of the assets as were left after deducting expenses and some claims supposed to have priority ; and by that allowance, if sustained, he will receive but little more *than two-thirds of his claim. To this allowance the appellees, who are creditors of the company for dealings had with them hy the •company since the execution of the mortgage, except on the ground, that the mortgage, as an act of the company, was ultra vires, and for sundry technical reasons supposed to render the execution of the mortgage ineffectual and fatally defective on the part of the company, ■even if the company had the power under the facts to make it. The making and delivery of the mortgage hy the President on the behalf of the company, it is contended, was in violation of Article eleven and twelve of the by-laws of the corporation, and that the signature of the President is mot countersigned by the secretary as required by section three of Article seven of the by-laws. Article eleven limits the power of the directors in incurring obligations ■other than for materials and labor, and forbids them doing so without a majority vote of the directors.

Article twelve, which is especially relied on, reads as follows: “the moneys or effects of the company shall never he loaned to or used for the benefit of any person, nor shall the name of the ■company be used as drawer, acceptor or endorser except in the legitimate and proper course of the business of the ■company.” These objections and others which need not be named, were pressed with much ability and learning, and were ⁴³³ fortified with many authorities, which would be conclusive, if the facts and nature of the transaction warranted their application. We think the mortgage to Swift was good, and operative to charge the property conveyed by it, irrespective of the attempted execution by the company. At the time of its execution, Cruikshank had become the owner of all the stock of the company, and of all its property. From that moment he might have renounced his rights under the Act of incorporation, and might have conducted the business as a private individual without corporate formalities.

Being thus absolute proprietor in equity of all that -belonged to a purely private enterprise, in which the public had no interest whatever, w'e know of no principle, on the ground of public policy or otherwise, requiring his act in charging the property for the agreed indebtedness of the corporation to Swift, for loans to and claims against it, and for his stock in it sold to Cruikshank, to be denied efficacy, because he had not then re-organized the company and brought in other persons to help him to do that in a corporate way, which, we think, from the very nature of the business, he had the right to abandon entirely; and even the business if he chose. A man can certainly do what he -pleases with his own property, if he does not thereby prejudice any of the rights of subsisting creditors. It does not appear that any existing creditors were injuriously affected thereby. The appellees became such afterwards.

It is true, that the corporation, as such, united, (whether effectually or not, is immaterial to discuss,) with Cruikshank in the mortgage. Why it was thought necessary for it to do so we do not know. Its doing so has certainly complicated f¿he matter, and, as we think, diverted the mind of the Court below from the true and only equitable aspect of the case. If there had been no attempt on the part of the corporation to unite in the mortgage, and it had only been executed ⁴³⁴ by Cruikshank, who was the sole owner of all the property mortgaged, how could it have been denied operation?

And would not the persons who took stock from Cruikshank afterwards,