Thomas C. Basshor Co. v. Carrington

Boyd, J., delivered the opinion of the Court. There are nine appeals in this record, which were argued together. Four bills of complaint were filed by Edward C. Carrington, Jr., receiver of the Hammond Ice Company, the Assets Realization Company and the International Trust Company of Maryland, trustee. For convenience we will refer to them by number as they appear in the record.

In the first the Thomas C. Basshor Company, Ormond Hammond, Patrick Martin, William H. Evans, C. H. Basshor, and Frederick Dallam were defendants; in the second the De La Vergne Refrigerating Machine Company, Messrs. Hammond, Martin, Dallam and Charles T. Westcott were defendants; in the third Messrs. Hammond, Martin, Basshor, Evans, Dallam and John A. ⁶²⁴ Sheridan were defendants, and in the fourth Messrs. Hammond, Martin, Evans and Dallam were defendants.

The four bills are substantially the same, excepting in the tenth and eleventh paragraphs and in some particulars mentioned in an agreement of solicitors. Only the first was inserted in the record, together with the titlings of-the other cases, the names of the defendants and the two paragraphs j ust mentioned. The Assets Realization Company was a holder of 354 bonds issued by the Hammond Ice Company, and the International Trust Company is the substituted trustee, under a mortgage or deed of trust given to secure bonds of the Hammond Ice Company. Messrs.

Westcott, Martin, Evans, Basshor and Dallam composed the building committee of the Hammond Company and Mr. Hammond was the contractor for building an ice plant to be known as Plant No. 2 of that company. It is alleged in the first bill that moneys were improperly paid to the Thomas C. Basshor Company by Hammond, upon the. authority and order of the other defendants in that case; in the second that they were likewise paid to the De La Vergne Refrigerating .Machine Company by Hammond, on the orders’ of the other defendants; in the third, that- they were so paid to John A. Sheridan by Hammond on the order of the other defendants, and-in the fourth, that they were so paid to Hammond on the orders of those defendants. As the appeals before us are from orders overruling demurrers, interposed by the defendants, and as they practically present the same questions, we will now consider the first bill mentioned and will then briefly refer to the fourth, as the appellants claim there is some distinction between it and the other three. The first alleges that the Hammond Ice Company, being about to build and equip another plant for the manufacture of ice, in order to provide the funds determined to issue 1,400 bonds of $1,000 each to be secured by amortgage or déed of trust; that in the mortgage the company covenanted with the trustee and the holder of the bonds that the proceeds from them should be used for the purposes therein set out and none other—the purpose being to build and equip ⁶²⁵ a complete new plant of a designated capacity, to purchase and acquire the necessary ground, property and materials for the erection and construction of storage houses and of a stable and to purchase and acquire all necessary and suitable ice wagons, trucks, horses and harness.

A contract between the Hammond Ice Company and Hammond, which is spoken of in the bill and other papers as “Exhibit A” is filed, whereby Hammond undertook to do all that was to be done with the money as stated, and also to provide $125,000 working capital for the use of the company. In Exhibit A the company authorized the building corrtmittee to enter into such contracts as might be necessary to obligate the company to deposit the entire issue of bonds with a syndicate manager, but they were not to be sold at less than eighty per cent of their par value. The building committee and Hammond were authorized to place any or all of said bonds, or the cash received from them, as security for any advance or loan which they thought wise and proper to make or obtain, for the purpose of facilitating the purchase and acquisition of the real and personal property and the erection of the plant. The consideration for what Hammond undertook to do was $1,400,000 of bonds and $2,800,000 of stock, and it was agreed in Exhibit A that the bonds, or the money derived from the sale thereof, or from a loan secured by them, and the stock “shall be delivered to the party of the first part (Hammond) in installments from time to time as the work on the plant progresses, upon orders or certificates of said Biálding Committee until the completion and acceptance of said plant,” when the balance and the stock were to be delivered to Hammond, less $125,000 capital.

Other papers, including a prospectus, agreements, etc., are referred to and one of the agreements was between the City Trust and Banking Company, the building committee, acting on behalf of the Hammond Company, and Ormond Hammond, by which a loan of $300,000 was secured and placed to the credit of Hammond in a special account “to be withdrawn upon checks executed by him, accompanied by certificates or orders of the building committee, and to be used on ‘account ⁶²⁶ of the purchase and acquisition of the property, real, personal and mixed, and the erection of the plant known as Plant No. 2 in Baltimore City, and the storage houses and other property and effects incident thereto, which are particularly described in the said Exhibit hereto attached, as Exhibit A.” The bill then charges that on November 20th, 1902, Hammond drew a check upon the account to the order of the T. C. Basshor Company for $21,000 and the other defendants executed and delivered contemporaneously with the check, an order and certificate directing the payment thereof out of said special account, and the check was paid to that company. It is then specifically alleged that the check was not given for anything in connection with the construction, equipment, or acquisition of Plant No. 2, that at the time the work of acquiring property and constructing the plant had not been begun, no payment was due under Exhibit A nor was the check given for any of the purposes to which, by the terms of the mortgage'and contracts, the fund on deposit in said special account was to be devoted, “but it was in fact given in payment of personal debts of said Hammond to the said Thomas C. Basshor Company, wholly unconnected with the construction of said Plant No. 2, or the acquisition of property therefor. ” It is alleged that the company, Hammond and C. H. Basshor had full notice and knowledge of the purposes for which the fund was deposited and to which it was devoted, and that the payment of the check was a diversion of said fund from said purposes, and that Messrs. Martin, Evans and Dallam “had also full knowledge of the fund out of which said check was being paid, and at the time of the issue of the said certificate either knew that said check was not given for any of the purposes to which said fund was devoted, or made no inquiry and recklessly and negligently executed and delivered the said certificate.” It further charges that the Hammond company became insolvent, default was made in the payment of the interest on the bonds, the property was sold and the proceeds paid a little less than 15 per cent on account of the bonds, which remain unsatisfied and unpaid, except to the ex ⁶²⁷ tent of that dividend, and claims that the defendants are jointly and severally liable and accountable for said entire sum of money with interest. The bill prays that the defendants and each of them be required to bring into court and to pay the plaintiffs the said sum of $21,000 with interest from November 20th, 1902, and for general relief.

The demurrers allege the following grounds : 1. That the plaintiffs have not stated in the bill such a case as entitles them to any relief in equity : 2. That there is a misjoinder of plaintiffs and that the Assets Realization Company and the International Trust Company of Maryland, trustee, are improperlyjoined therein because there is no privity between them and the defendants, to enable the plaintiffs to maintain said bill against the defendants : 3. That the bill is multifarious because of the joinder of the several plaintiffs therein : 4.

For other reasons to be shown at the hearing. The demurrers were sustained as to the Assets Realization Company, and the bill dismissed in so far as it was the bill of that company, and were overruled as to the other two plaintiffs. From that action of the Court the defendants appealed. The agreements filed as exhibits with the bill sustain the allegations made therein, in reference to their contents.

In addition to the one between the company and Hammond, known as Exhibit A, there was one made between the building committee, Hammond and a certain Frank J. Kohler, who was designated the “Syndicate Manager,’’ which is called Exhibit D, and another was made between the City Trust and Banking Company, the building committee and Hammond, called Exhibit E. Exhibit A was expressly made a part of each of those and both were signed by all the members of the building committee, as well as by Hammond. It was by the last one (Exhibit E) that the loan of $300,000 was provided for and it was placed to the credit of Hammond with the Trust Company, with the provisions as to the withdrawal of the money above set forth. Large powers were vested in the building committee by the Hammond Company, and the members of that committee were fully advised as to the terms of ⁶²⁸ the agreements, including their duties, powers, etc. By Exhibit A they were authorized by the company to enter into such contracts and agreements as were necessary for the sale, use, or disposition of the bonds, including a loan to be secured by them for the purpose of facilitating the purchase and acquisition of the property and the erection of the plant, and Exhibit E refers to the powers and authority vested in them by Exhibit A to make or secure loans or advances. As that committee was authorized to act for the Hammond Company, any contracts made by them within the power and authority granted them, would, of course, be binding on the company.

Whether or not they had knowledge of what the check to the T. C. Basshor Company was given for, or recklessly and negligently executed and delivered the certificate, is a question of fact; but for the purposes of the demurrers must be assumed to be true. The first question then is, whether a Court of equity has jurisdiction to give relief, if the facts be as alleged in the bill, which we must assume to be true. It would seem to be clear that this deposit must be treated as a trust fund. It was a special deposit, to be used for specific purposes and could only be withdrawn in a way clearly designated.

The Hammond Company had covenanted with the trustee and the bondholders that the proceeds of the bonds should be used for the purposes named in the mortgage “and none other',' and in order to protect the company and the bond holders the agreements above referred to were entered into. Although Mr. Hammond was the president of the Hammond company, in this transaction he was a contractor and the building committee ■ represented the company and at the same time undertook to do what would be necessary for the protection of the bond holders. Hammond was a party to the several agreements and knew he had no right to use the money excepting for the purposes designated. It is true it was deposited in his name, but it could not rightfully be withdrawn excepting for some of those purposes and then only on the order or certificate of the committee.

Even if he had partly performed his contract, Hammond was not authorized ⁶²⁹ to withdraw any of the fund upon his own checks, but was required to accompany them by the certificates or orders of the building committee and that committee had no authority to give such certificates or orders excepting “in installments from time to time as the work on the plant progresses.” This fund was therefore as clearly impressed with a trust as if it had been in terms delivered to the committee in trust, to be paid out according to the terms of an instrument creating such trust. If that be not so then such arrangements (intended to enable a company or individual to borrow money for the purposes of purchasing property