Turk v. Grossman

Parke, J., delivered the opinion of the Court. The questions on these appeals arise on demurrers to pleadings in equity. A bill of complaint was filed in the Circuit Court of Baltimore City by Lloyd E. Mitchell, Incorporated, and Elise A. Grossman, against Karl Turk, Sr., individually and as sole remaining executor of the estate of Heinrich Turk, deceased, Margaret M. Turk, wife of Karl Turk, Sr., Herman 0. Weinholt, and W. Graham Boyce, defendants.

By agreement of the parties Thekle Weinholt, wife of the defendant, Herman 0. ⁶⁵⁰ Weinholt, was made a party defendant as though she had originally been a party defendant, and all the allegations of the bill and its amendment and the subsequent pleadings are to be considered and taken as fully applicable to her as a party defendant and united and uniting therein. The plaintiffs are creditors of Heinrich Turk, a decedent, and they sue in behalf of themselves and all other of his creditors. The defendants filed a combined demurrer and answer. The bill of complaint was later amended by the addition of a paragraph which sets forth similar alleged facts with reference to additional shares of stock of which the plaintiffs were unaware, as well as of the transactions of the defendants with respect to the same, when the original bill was filed.

The defendants again demurred and answered, and the plaintiffs demurred to sub-paragraph 5 of the second paragraph of the answer. The matter came before the chancellor on demurrer, and he, first, overruled the demurrer to the bill of complaint and, in turn, overruled the plaintiffs’ demurrer to the specified portion of the answer of defendants. From these rulings both sides have appealed. The two appeals are on the same record, and here docketed in the order of the pleadings.

The parties are shown to stand in these relations. Elise A. Grossman is a resident of Baltimore City and the former wife of the decedent, Heinrich Turk, from whom she was divorced in 1925. The other plaintiff is a corporation of Maryland, with its principal place of business in Baltimore City. Each of these plaintiffs is a creditor of Heinrich Turk.

The defendant Karl Turk, Sr., is a brother of the decedent, Heinrich Turk, and the husband of Margaret M. Turk. Herman 0. Weinholt married the defendant Thekle Weinholt, the sister of Heinrich Turk and of Karl Turk, Sr. The other defendant, W. Graham Boyce, is the chairman of the board of directors, and the secretary and treasurer, of The Porcelain & Manufacturing Company of Baltimore, a corporation of Maryland which is engaged in the manufacture of porcelain enamel. The natural and corporate defendants ⁶⁵¹ live and have their residences in Baltimore City, with the single exception of Margaret M. Turk, who lives in Baltimore County.

The pleadings and exhibits are voluminous, and their contents will be summarized so as sufficiently to present the questions raised by the demurrers. Heinrich Turk died testate in Baltimore County on November 7th, 1934. He named as his executors his second wife, Eileen Turk, and his brother Karl Turk, Sr., a defendant. The will was duly admitted to probate in Baltimore County on December 20th, 1934, and letters testamentary were granted on that day to his executors, who gave bond in the substantial sum of $1000.

The plaintiff Elise A. Grossman filed, on June 5th, 1935, in the Orphans’ Court of Baltimore County, a petition whereby she sought to establish her claim against the estate by virtue of a contract, which had been made on October 14th, 1925, between her and the testator. As a result of an agreement entered into by the claimant and the personal representatives of the testator, she withdrew the petition on December 17th, 1936, and two days later filed her claim against the estate of the testator in the principal amount of $25,500. With the acquiescence of the personal representatives, the Orphans’ Court of Baltimore County duly passed this account. The plaintiff corporation filed its claim in the sum of $2058.10 on October 20th, 1936, and the same day it was likewise passed.

An inventory was filed by the executors on May 11th, 1935. The total value of the automobile ($300) and of certain stocks ($5504) returned was $5804. All the shares of stock were pledged as collateral for two loans of the testator, and their appraised value was, in each case, less than the principal amount of each loan. One of the notes was to Herman O. Weinholt for $5000 and accrued interest, and the collateral on the note was 2320 shares of the no par common stock of the Porcelain Enamel & Manufacturing Company (hereinafter to be called the Porcelain Company), appraised at two dollars ⁶⁵² a share, and eight shares of $100 par value old stock of the Porcelain Company, appraised at eight dollars a share.

The other note of $3900 and accrued interest was held by the Union Trust Company of Maryland, and for its payment were pledged 100 shares of $100 par value of old stock of the Porcelain Company, which was also appraised at eight dollars a share. Beginning with January 8th, 1935, and ending with December 19th, 1936, the aggregate of all claims passed against the estate by the Orphans’ Court was $49,795.21. A claim of the Porcelain Company for $9265 was withdrawn on October 28th, 1936, and this left the sum of the proved claims $40,530.21, but in this total the note of $5000 and accrued interest, which was held by defendant Herman O. Weinholt, was not included, as it had not been passed against the estate. No further inventory nor list of debts was filed.

On January 5th, 1937, the executors presented what purported to be the first and final account of the estate of their testator. According to the charges and allowances shown by the ex parte account, the defendant Herman O. Weinholt disposed of 2320 shares of the no par stock of the Porcelain Company at $1988.90 in excess of its appraised value; and the eight shares of the old stock of the Porcelain Company at $78.30 in excess of its appraised value. The appraised value of all the goods and chattels ($5804.00) with the gains ($2067.20) and $297.09 collected on an account made the total estate which the executors accounted for the sum of $8168.29. The executors were allowed $5150 which Herman O. Weinholt had retained out of the proceeds of the pledged stock to pay his note.

There were also allowed $588.60, which the Union Trust Company had received on its sale of the 100 shares of old stock of the Porcelain Company and the further sum of $211.40 on account of the loss on the sale of this stock below its appraised value. These allowances, with other disbursements, fees, expenses and commissions, made a total of $7235.12, and left a residue for distribution among creditors of $933.17. The di ⁶⁵³ vidend distributed among the creditors was at the percentage of .023363. So, on its claim of $2058.10, the plaintiff Lloyd E. Mitchell, Inc., received $48.08 and the plaintiff Elise A. Grossman, on her claim of $25,500 'without interest, got $595.76.

The account was verified by the oaths of the two executors, and the Orphans’ Court passed an order approving the account on the day it was filed. From that day no further accounting has been made, and no other distribution among creditors has been had, but, after the plaintiff, Elise A. Grossman, had given notice of her intention to begin the pending suit, Karl Turk, Sr., one of the executors of the estate of Heinrich Turk, notified in writing, on April 11th, 1938, the attorney of Elise Grossman that her claim was thereby disputed. The other representative, Eileen Turk, filed in March, 1938, a petition in which she alleged that she and Karl Turk, Sr., as executors of Heinrich Turk, deceased, had stated a final account on January 5th, 1937, in which was given a full and particular account of all their receipts and disbursements, and that the Orphans’ Court had passed the account, and that since then no assets of any kind had come into the hands of the petitioner as such executor. The petitioner further recited that she was informed that one claiming to be an unpaid creditor of the testator intended to call upon the executors to institute suit against relatives of the decedent for the purpose of questioning the validity of the sale of certain assets in which the decedent had an interest; and that, without desiring to prejudice the rights of the claimants in the matter, the petitioner was unwilling to proceed against such relatives and asked to be relieved of her duties as executor.

After certain preliminary proceedings, the petitioner was, on April 18th, 1938, relieved from any further performance. After these preliminary statements are made, the bill of complaint alleges that at the death of Heinrich Turk the authorized and outstanding stock of the Porcelain Company was as follows: ⁶⁵⁴ (a) 5000 shares were authorized as 7% first preferred stock of a par value of $100 a share. Of this amount 2500 shares had been issued and 1707 shares therof retired, leaving outstanding 793 shares; and (b) 3400 shares were authorized as 7% second preferred stock of a par value of $100 a share. Of this amount 2851 shares had been issued and 1843 shares thereof had been retired, leaving outstanding 1008 shares; and (c) 10,000 shares of common stock, without par, were authorized.

Of this amount 9596 were issued and outstanding. Certain of these shares were represented by certificates of old common stock of a par value of $100 a share, exchangeable for four shares of the common stock without par value. Heinrich Turk had been associated with the Porcelain Company and had been its president until approximately six months before his death, when he was summarily removed from all official position with the company. About two months before his death Turk was in financial distress.

He then borrowed of his brother-in-law Herman O. Weinholt, a defendant, the sum of $5000, for which a promissory note of like amount was given on September. 27th, 1934, by the decedent and his wife, Eileen Turk, with 2320 shares of no par common stock and forty-eight shares of the common stock (old) of a par value of $100 a share of the Porcelain Company pledged as collateral security. All of the shares of the no par common stock and eight shares of the common stock (old) were registered in the sole name of Heinrich Turk, but forty shares of the common stock (old) were registered in the joint names of Heinrich Turk and Eileen Turk, his wife, and the survivor of them. The note was drawn to become due on June 6th, 1935, with authority to call for additional security, and upon a failure to comply with the terms of the note authority was conferred, without further notice, to sell the collateral at public or private sale for the purpose ⁶⁵⁵ of satisfying the debt, with any excess or deficiency to be paid or received as the case may be. The defendant Karl Turk, Sr., had been for many years officially connected with the Porcelain Company, and when Heinrich Turk died was a director and its president.

W. Graham Boyce, a defendant, had been for a number of years before the death of Heinrich Turk a director and the secretary and treasurer of the company. At the time of the death of the decedent, he was the chairman of the board of directors. It is stated that these and the other defendants, by reason of their official positions and close relationship, were in possession of full information as to the financial position of the Porcelain Company, its present and prospective earnings, and the intrinsic value of its shares to the exclusion of all others. No published statement in reference to the condition of the company was generally available of a later date than that published on May 24th, 1934, for the fiscal year which ended on March 31st, 1934.

Under these alleged conditions, it is charged that the defendants had entered into a concerted plan to acquire for their own benefit the shares of stock of Heinrich Turk, and that their efforts continued after his death until their purpose had been achieved by the methods set forth in the bill of complaint. The will of Heinrich Turk is dated April 19th, 1934, a few days less than seven months before his death. By this instrument is indicated that the testator made his testamentary disposition in reference to a substantial estate. He devised and bequeathed all his property to the Safe Deposit and Trust Company of Baltimore as trustee to pay the net income therof to Eileen Turk during her widowhood, and, at its end, the testator directed that his estate be divided into four trusts.

The income from the designated first trust to be paid to his wife until her death, and upon her death, the corpus of the trust shall fall into and become equal parts of the other three trusts. Every one of the other three trusts was for the separate use and benefit of one of his two daugh ⁶⁵⁶ ters and a son, so that the income thereof should be applied by the trustee to the extent deemed necessary toward the support, education, and maintenance of such child until the age of thirty be reached, when the trust should cease and the one-third so held should become the absolute property of the particular child and beneficiary. In the event of the death of such child” before the age of thirty, with or without issue, the testator made gifts over so as to cover these contingencies. Ample power and discretion were conferred on the trustee in the administration of the trusts, and the trustee was specially authorized, under prescribed conditions, to use the corpus of the trusts for the support, if need be, of the beneficiaries, and to make advances.

The surviving widow, Eileen Turk, in the effort, it is alleged, to protect her interests under the will, went to the defendant Weinholt and offered to pay his note against her and the testator in full, so as to obtain the release of the collateral, but he declined and refused to do anything in connection therewith until its due date of June 6th, 1935. She then sought information with reference-to the value of the shares, and was told by the defendant W. Graham Boyce that he had been purchasing over the past-year or so small lots of stock at an average price of two dollars a share. This is the appraised value in the inventory filed by the executors, and it is based upon information furnished the appraisers by the defendants, Karl Turk, Sr., and W. Graham Boyce, who did not give the said Eileen Turk, an executor and beneficiary under the will, the benefit of their knowledge of the actual condition of the company, and its reasonable business prospects. The facts as here set forth are alleged in the first paragraphs of the bill of complaint, and the succeeding paragraphs aver the acts done in pursuance of the plan of the three defendants, Karl Turk, Sr., Herman O. Weinholt, and W. Graham Boyce, to acquire the stock of the testator for distribution among themselves at less than its actual value, to the prejudice of his general creditors ⁶⁵⁷ and beneficiaries under his will.

The three are jointly charged with the formulation and execution of the undertaking in whose accomplishment the parties are charged with having adopted suitable means to their joint purpose. In the pursuance of their common enterprise, their acts were at times severally done, although every one was responsible for the other, and all jointly responsible, because of their common bond which united them in a single objective. Thus they are alleged to have inserted, through the defendant Weinholt, in The Daily Record, a daily newspaper of Baltimore City, largely devoted to the publication of legal opinions, of the advertisements of judicial and other sales, and of legal notices, a single advertisement of the sale on June 10th, 1935, of 2320 shares of the no par common stock, and 48 shares of the common stock, of the Porcelain Company for cash. The place of sale was in the sale room of a firm of auctioneers, and nothing was set forth in the advertisement with reference to the corporate stock of the industrial enterprise of the corporation which had issued the stock, or the place of its business, its principal office, or its financial position.

No other advertisement was inserted, nor was any other method used to attract attention or to enlist the interest of investors, nor were prospective purchasers, who were known to the defendants, informed of the sale. In addition to these allegations, it is averred that on the day of sale, and at the hour and place advertised, the whole 2320 shares of the no par common stock were offered as a single lot or block and so sold, without any attempt to sell any lesser amount or in smaller units or blocks. It is stated that the widow and one Henry Evans, the representative of the brokerage firm of Stein Brothers and Boyce, were the only bidders, and the shares of stock so offered were sold to said representative for $6800, which was $1988.90 net in excess of the debt to Weinholt, and so that much beyond what Weinholt had the power to sell and give title. The forty-eight shares of the common stock pledged were not sold.

These shares were represented by two certificates. The one for ⁶⁵⁸ eight shares was delivered to the executors as that had been issued to the decedent and the other certificate for forty shares was delivered to Eileen Turk as it was held by the decedent and Eileen Turk so as to go to the survivor. The further averments are that the stock was not listed on any stock exchange, and the sale was purposely chilled by the insufficiency of the advertisement, by the failure to notify persons who were known by the defendants to be interested in the acquisition of the stock, and by the withholding of all information with respect to the corporation and its affairs which would tend to disclose the intrinsic value of the stock, and so induce competitive bidding by those who, if put upon inquiry by adequate notice, could seek and would obtain a knowledge of the stock’s actual value, which otherwise would remain the exclusive advantage of the defendants at the time of the offer for sale. It is alleged that the defendants thus deliberately prevented a sale of the stock at its real value, and thereby caused the estate of Heinrich Turk to become insolvent.

The 2320 shares of no par stock thus sold for the lump sum of |6800 to Henry Evans are charged to have been bought by him as the mere agent and conduit of title in a succession of intermediate transfers whereby the defendants, Karl Turk, Sr., Herman 0. Weinholt, and W. Graham Bóyce became the owners of said shares of stock, and the same were distributed among the three of their nominees in such proportion as they had agreed, but which is unknown to the complainants, except that Herman 0. Weinholt retained one-third of said 2320 shares of stock in the joint names of himself and Thekle Weinholt, his wife. It is set out in the bill of complaint that information was sought by the plaintiffs of the defendants in regard to the distribution of said block of stock, and this information was refused, but the statement was made that Karl Turk, Sr., did not hold any of such shares, but that his wife and a defendant herein, Margaret M. Turk, may have acquired certain of said ⁶⁵⁹ shares.

The bill of complaint, however, on information received from other sources which the plaintiffs believe to be reliable, avers that the 2320 shares were divided among the defendants, and are still held by them or their nominees. In this connection, the plaintiffs allege that the defendants have steadfastly endeavored to conceal from the plaintiffs herein, and from Eileen Turk, widow, and, before her renunciation, a co-executor, the knowledge of who are the actual purchasers of the stock sold. In consequence of this conduct, it is stated that the plaintiff, Elise A. Grossman, did not know for some months that the sale had been made, notwithstanding she was the largest creditor of the testator, and was engaged in negotiations with the executors for the purpose of the establishment and satisfaction of her claim as creditor. She was not aware until some time in 1937 that defendant Herman 0.

Weinholt had acquired a large block of the stock of the Porcelain Company, and thereupon she had caused an investigation which, notwithstanding the obstructions interposed by the defendants, had resulted during the course of three months in the discovery of the substantial allegations of the present bill of complaint. The complainants charge that the eight shares of the common stock of the Porcelain Company, which had been returned by Herman O. Weinholt to the executors after the payment of the note to Weinholt, were thereafter offered at public auction, after the insertion of a single advertisement of the sale in The Daily Record. The sale was on June 27th, 1935, and the stock was bought by one Harry C. Goudy at the price of $18.75 a share. The buyer is a brother-in-law of the defendant Karl Turk, Sr., and the plaintiffs aver, on information and belief, that the purchaser acted as the agent of this defendant to acquire the stock for him.

In the bill of complaint it is averred that at the death of Heinrich Turk he was the owner of 100 shares of the old common stock of the Porcelain Company which had a par value of $100 a share, and that the testator had ⁶⁶⁰ pledged these shares, endorsed in blank, to the said company, as collateral security for a note of $7000, dated March 31st, 1934, and payable one year after date, to the said company. One Frank Roberts was the accommodation maker of the note, for the benefit of Turk, who had endorsed the note. After the note fell due, which was after the endorser’s death, the defendants, Karl Turk, Sr., and W. Graham Boyce, who were the chief executive officers of the Porcelain Company, caused the publication of a single advertisement of sale to be made in the Daily Record and sold, on July 8th, 1935, the shares at public auction for approximately $140. The stock was bought in for the Porcelain Company, and was subsequently transferred to the defendants, or some of them, but when said transfer took place and what price was paid therefor by the defendants is not known to the plaintiffs, who have sought the information, but the defendants have declined to give it on the ground that the shares did not belong to the estate of Heinrich Turk, but had been purchased from him by Roberts for the sum of $7000.

The bill of complaint denies this reason is valid, and alleges that, in pursuance of the same hereinbefore described plan, the stock was purchased on behalf of the defendants, W. Graham Boyce and Karl Turk, Sr., at a wholly inadequate price. The complainants further show that the defendants decline to state whether the note empowered the Porcelain Company to purchase the securities pledged as collateral, and, on information and belief, allege that the pledgee was not so authorized. Without going into the details stated which illustrate the value of the stock, it may be said in summary that it is further alleged that the intrinsic and actual value of the shares of stock which were sold at the three sales of June 10th, and 27th, and July 8th, 1935, within a period of a few days less than a month, was greatly in excess of the respective sums realized at such sales. It is charged that this grave inadequacy in price is attributable to the defendants, who, with full knowledge of all these facts and especially the real worth of the stock, ⁶⁶¹ deliberately withheld the information they had from prospective bidders so as to enable the defendants to acquire these shares of stock at prices greatly below their real value.

As a direct consequence of their concerted and successful action, the estate of Heinrich Turk became insolvent and the general creditors, including the two plaintiffs to this bill of complaint, received less than three per centum (.023363%) of their claims. The fiducial relation of Karl Turk, Sr., as an executor of the decedent, and of Herman 0. Weinholt and the Porcelain Company as holders of the stock of the decedent as collateral security for their respective demands against the decedent, were known to each other and to the defendants, Margaret M. Turk, the wife of Karl Turk, Sr., Thekle Weinholt, wife of Herman O. Weinholt, and W. Graham Boyce. The bill of complaint asserts that these defendants had full knowledge of the facts and circumstances under which the shares of stock were sold and acquired as heretofore stated; and with such knowledge united in the execution of the plan to secure the shares of stock of the decedent in the Porcelain Company at greatly less than their actual value.

The time of filing the bill of complaint is explained by the secrecy and concealment practiced by the defendants, which deprived the plaintiffs of the knowledge of the material facts upon which this bill of complaint depends, until the recited facts came to their knowledge within the past three months which preceded the filing of the bill of complaint. Eileen Turk having resigned as executrix, Heinrich Turk is the sole surviving executor, but the bill of complaint not only accuses him of maladministration, breaches of trust, and a refusal to answer pertinent inquiries with reference to the affairs of his testator’s estate but also of declining to recognize any duty to perform or obligation to meet either as surviving executor or as an individual in connection with the matters and things set forth in said bill of complaint. ⁶⁶² On the theory that the plaintiffs are without adequate relief at law, and that the adjudication of the question involved is not within the jurisdiction of the Orphans’ Court of Baltimore County but is peculiarly within equitable cognizance, the plaintiffs have had recourse to a court of equity in order: (a) that every one of the defendants may be separately and together restrained and enjoined by preliminary injunction, and thereafter perpetually enjoined and restrained by permanent injunction, from selling or transferring all or any part of the shares of stock of the Porcelain Company, sold or purported to be sold on June 10th, 1935, by the defendant, Herman O. Weinholt, and purchased by or transferred to them or any of them, and now owned by them or any of them, to any person whatsoever; and (b) that the equity court assume jurisdiction over the administration of the estate of Heinrich Turk and the disposition of the assets of the said Heinrich Turk, both real and personal; and (c) that the defendants and every of them be required to discover unto the plaintiffs the full number of shares of the Porcelain Company coming into their hands which formed a part of the estate of the said decedent at the time of his death, and the circumstances under which such shares have come into their hands, the prices paid by them for such shares, and the disposition made by them of said shares; and (d) that the defendants be required to answer, but not under oath, certain numbered interrogatories attached to the bill of complaint; and (e) that the defendants and every of them be required to account to the estate of Heinrich Turk for any ,benefit, profit or advantage, including dividends thereon, received or to be received by them for or on account of the shares of the Porcelain Company which formed a part of the estate of Heinrich Turk at the time of his death, and the difference between the price paid and the highest intermediate value of said shares before the filing of the bill; and (f) that the court appoint a receiver to take charge of all the undistributed assets of the decedent, both real and personal, and to ad ⁶⁶³ minister the same subject to the further order of the court; and (g) that the plaintiffs may have such relief as their case may require. The demurrer of the defendants is combined with an answer in which the defendants deny the material allegations upon which the equity of the plaintiffs depends. With the issues of fact thus raised by the denials of the answer, the chancellor had no concern, in disposing of the question presented by the demurrer.

In electing thus to plead, the defendants must be taken to admit, for the purpose of the demurrer, the well pleaded averments of fact as contained in the bill of complaint, and, upon this assumption of their verity, this court is limited on these appeals to the determination of the legal sufficiency of the facts so averred, and thus accepted by the defendants as true, to show equitable grounds for the relief prayed. The effect of the facts averred in the text of the