Whitlock Cordage Co. v. Hine

⁹⁸ Boyd, C. J., delivered the opinion of the Court. This is an appeal from a decree passed in the case of Lord v. Sprigg, rescinding the ratification of Auditor’s Account Ho. 17, in so far as it directed the distribution of $3,521.45 to the Lawrence Cordage Works . (now Whitlock Cordage Co.), and decreeing that the appellant pay to the receivers the said sum awarded to it by said account. The case of Lord v. Sprigg was instituted on June 2nd, 1893, for the purpose of winding up the affairs of the firm of Chas.

W. Lord & Co. Hpon the filing of the bill Winfield J. Taylor was appointed sole receiver of the firm, and, upon his petition, an order was passed directing him to continue the business until the further order of the Court. On the same day Mr. Lord made a deed of trust to said Taylor of his individual property for the benefit of his creditors. Both trusts are being administered in Circuit Court Ho. 2 of Baltimore City. Taylor, as receiver, conducted the business, under authority from the Court, for about eighteen months, and negotiated an agreement of compromise with the creditors of the firm at forty cents on the dollar.

He made substantial losses and on January 14th, 1895, the Court appointed Samuel D. Schmucker co-receiver. Winfield J. Taylor having retired, and Judge Schmucker having died, W. Starr Gephart and Herbert M. Bruñe are the present receivers. Shortly after Judge Schmucker was appointed, the assets remaining in the receivers’ hands were sold and the money realized was distributed. Exceptions were filed to the audit, and the Court was called upon to determine the priorities of the creditors in the insolvent receivership.

The case was brought to this Court, and is reported as Diamond Match Co. v. Taylor, 83 Md. 394 . As seen by that case, many of the creditors agreed to accept forty cents on the dollar, payable in notes, the assets to remain in the hands of the receivers as security for the payment. In continuing the business, with the sanction of the creditors, the receiver, Mr. Taylor, incurred debts for goods purchased from cred ⁹⁹ itors of the firm, and also from persons not such creditors. He paid most of the composition notes and compromised with certain creditors, who had attached the individual property of Charles W. Lord, at a rate in excess of forty per cent.

Exceptions were filed to the auditor’s accounts, wherein commissions were allowed the receiver and he was credited with the total sums paid by him in settlement of the attachment suits .against Charles W. Lord. The account showing the receipts and disbursements of the joint-receivers was ratified and confirmed, but the exceptions to the other accounts were sustained. On October 31st, 1895, another order was passed referring the case back to the auditor with directions to make distribution of the funds in the receivers’ hands to the first, second and third classes as set out in 83 Md.—the first having priority over the other two classes, and the second over the third. The appellees are in the third class, as is also the appellant, unless it can establish its claim for a priority as hereinafter shown.

The method of distribution was affirmed by this Court. The case was before us again, reported as Gephart v. Taylor, 124 Md. 111 , but the questions then disposed of are not involved in this appeal. By different auditor’s accounts the creditors of the first class were paid in full and some payments were made to those of the second class. On March 19th, 1895, the Lawrence Cordage Works filed an account in the receiver’s case showing a balance due it of $1,713.57, and attached to that account are the following papers: “Baltimore, RTovember 28th, 1894.

As receiver of Charles W. Lord & Company I undertake and agree to pay to the Lawrence Cordage Works, or its assigns, $250 on December 4th, 1894; and $250 in weekly instalments thereafter, until my indebtedness, as receiver, to the Lawrence Cordage Works, which now amounts to $2,343.57, shall have been paid in full, with interest thereon from RTovember 1st, 1894. (Signed) Winfield J. Taylor, Receiver of Chas. W. Lord & Co. ¹⁰⁰ For value received, I hereby guarantee the punctual performance and payment to the Lawrence Cordage Works, and its assigns, of the within undertaking and obligation of Winfield J. Taylor, receiver, and each and every instalment thereof. Witness my hand and seal this 28th day of Hovember, 1894.

(Signed) Chas W. Lord (Seal)”. Several payments were made by the receiver, thus reducing the claim to the amount stated above. When Charles W. Lord made a deed of trust he held amongst other property 64 40/100 shares of the capital stock of the Peabody Heights Co. That stock became very valuable—there having been cash dividends of $275.00 and $125.00, and the stock finally realizing $350.00 per share, in May, 1912. There was filed on December 21., 1894, in the trust estate of Charles W. Lord, the following paper: “In the Circuit Court Ho. 2 of Baltimore City.

In ■ the matter of the trust, estate of Charles W. Lord. I hereby authorize and direct Winfield J. Taylor, trustee of myself, after he has settled the expenses and paid all debts due by me individually in said Trust Estate, to transfer all the balance of property in his possession as such trustee, or to which he may be entitled to such, to Winfield J. Taylor, receiver of Chas. W. Lord & Co. (in the above Court ease of Lord v. Sprigg) for the purposes of said receivership; and I hereby assign and transfer to such receiver subject to the proper expenses and.debts of my individual.estate all my individual property for the purposes and debts of said receivership. Witness my hand and seal.

Chas W. Lord (Seal)”. On May 1st, 1912, an audit was filed in that estate by which -the Trustees (who. are the same persons as the receivers) were charged with certain amounts and were credited with certain commissions, expenditures, etc., and the 64-40/100 shares of the stock of the Peabody Heights Co.,. ¹⁰¹ subject to an overpayment by tbe trustees, were distributed to the receivers, in conformity with the assignment to Taylor on December 21, 1894. That audit was ratified May 23, 1912, and the receivers sold the stock of the Peabody Heights Co., with approval of the Court, for $22,500.00 subject to broker’s commissions and the overpayment of $4,177.33 by the trustees. On June 18, 1912, the auditor filed an account in Lord v. Sprigg (the receiver case) marked Auditor’s Account Ho. 17, by which he charged the receivers with certain amounts, including the proceeds of sale of the Peabody Heights Co.’s stock, and, after crediting them with commissions, costs, etc., distributed $3,521.45 (including $1,802.31 interest) to the Lawrence Cordage Co., $4,216.84 to balance due the creditors in Class Ho. 2, and $8,132.82 to the administrators of Charles W. Lord.

That account was ratified on 'June 29, 1912—no exceptions having been filed to it. On February 13, 1913, Horace L. Hine filed a petition in which he prayed: (1) That the order ratifying the Auditor’s Account Ho. 17 be rescinded; (2) that an order be passed requiring the administrators of Charles W. Lord to pay to the receivers the sum of $8,132.82 distributed to them; (3) that the Lawrence Cordage Works be required to pay to the receivers the sum of $3,521.45 distributed to it; and (4) that the receivers be required to distribute the said sum of $11,654.27 among all of the creditors of the third class, as defined by the decree of October 31, 1895. On February 13, 1913, an order was passed in accordance with the prayer of the petition, subject to cause to the contrary being shown on or before the 28th day of February, 1914, and providing for a copy of the petition and order being served on the Lawrence Cordage Works or Arthur George Brown, its attorney, and on the receivers and the administrators of Charles W. Lord on or before the 18th of February, 1913. A copy was- served on Mr. Brown.

On February 28th, 1914, the appellant, through John Hinkley, solicitor, demurred to the petition. On September 17th, 1913, Messrs. Sayre and Lewis, execu ¹⁰² tors of Harold R. Lewis, were made parties defendant and on that day the demurrer was overruled with leave to answer. On October 11, 1913, the appellant did file an answer which was sworn to by its treasurer.

The answer denied that the order ratifying the auditor’s account was improvidently and improperly passed, and alleged that the account contained an express adjudication by the auditor that the claim of respondent was guaranteed by Charles W. Lord, individually, and the said claim was therefore given a priority, not only over the creditors of the third class, but also over those of the second class; that the order of June 29, 1912, having been enrolled cannot now be rescinded except by a new bill filed for the purpose; that even if the lapse of time after the enrollment would not prevent it being reopened, as the fund is no longer in the control of the Court, but has been paid to the respondent, any proceeding for a refund of said amount should be brought in the form of a new action; and the Court has no jurisdiction upon the petition to set aside the decree for the payment of the money, paid over seven months before the filing of the petition, and under which decree the money has actually been paid away and is out of the control of the Court. The guaranty, assignment, etc., are then referred to and relied on. It must be confessed that it is not always easy to determine under the authorities when a petition to rescind an order or set aside a decree, which has become enrolled, should be entertained. The general rule undoubtedly is that a decree or decretal order, after enrollment, can be revised or annulled only by a bill of review or original bill and not by a petition, but there are exceptions to- the rule, equally well established as the'rule itself, which are generally classified as follows: (1) In cases not heard upon the merits.

(2) Where the circumstances are such as to satisfy the Court that the decree should be set aside, and (3) where the decree was entered by mistake or surprise. As this question not infrequently arises, it will perhaps be well to recall what has been decided in this State, even at the risk of making ¹⁰³ this opinion longer than desirable. In Oliver v. Palmer, 11 G. & J. 136 , the defendants were returned summoned, and, not appearing, the complainants obtained a decree declaring that they were entitled to some relief and an order for a commission to take proof in support of the allegations of the bill. The Court held that a bill or petition could be filled to vacate the enrollment of a decree alleged to have been obtained by surprise, and to let in the defendant to answer.

The Court referred to the decision in Benson v. Vernon, 4 Bro. Par. Cases, 546, in which the defendant was in contempt for not answering and the bill was taken pro confesso, and said: “In neither case were the merits of the defendant’s case developed. In each, the object and design would be the same, to get rid of the decree, that defendant’s defense to the merits might be let in.

In point of principle, it seems to us difficult to distinguish the cases. Technically it may be true, that in the one case, the decree would be on the merits, and the other not; but in point of fact, in neither case would the decision be on the merits of the defendant’s case, not having filed his answer, or taken his testimony.” The Court said: “Had the design been to set aside the decree for fraud, the remedy would clearly have been by bill of review, and not by petition.” That case makes some explanation of what is meant by “the merits” and “surprise,” as used in this connection by the authorities. In Marbury v. Stonestreet, 1 Md. 147 , many cases are cited, and the Court said: “From these cases it appears, that there has been no settled practice on these subjects.” The Court also spoke of the practice when the Lind had been distributed, which we will refer to later. Thruston v. Devecmon, 30 Md. 210 , and Herbert v. Rowles, 30 Md. 271 , are good illustrations of the two classes of cases.

In the former it was held that a petition filed after enrollment which suggested fraud and malpractice, not in reference to obtaining the order of ratification, but in regard to the claims allowed the appellee, was not sufficient. J edge Alvey said: “The only proper modes recognized by law, for reversing or annulling a decree or a decretal order, after en ¹⁰⁴ rollment, in the absence of surprise or irregularity in obtaining it, are by bill of review for errors apparent on the face of the proceedings, or for some new matter discovered since the order or decree passed, or by original bill for fraud.” ■ He referred to the fact that the proceeding' in Oliver v. Palmer was of an ex parte character, and the petition wras filed on the' ground of surprise, and there was no allegation of fraud. He quoted from that case, where it was said: “Had the design been to set aside the decree for fraud, the remedy would clearly have been by bill of review, and not by petitionIn Herbert v. Bowles it was held that in cases not heard upon the merits, and in which it is alleged the decree was entered by mistake or surprise, or under such circumstances as should satisfy the Court, in the exercise of a sound discretion, that the enrollment ought to be discharged and the decree set aside, relief can be given on petition. Judge Robieson said: “The decree in such cases being by default, and not upon the merits, the cause Of the default can never be the subject of inquiry until the decree has been pronounced, and generally not until after the term has passed.

Without the exercise, therefore, of this power in the Court to vacate the enrollment, a party against whom a decree had been entered and enrolled by mistake or surprise, and without any laches on his part, would be without redress, however meritorious his defense may have been.” Then after showing that a bill of review would be of no avail, because the claim for relief is not based on error apparent in the decree or newly discovered evidence, and as there was no fraud in obtaining the decree, he could not file an original bill on that ground, he added: “Accordingly it is laid down by the most eminent elementary writers, and fully sustained by adjudged cases, that where a case has not been heard upon the merits, the Courts will, upon good cause being shown ‘exercise a discretionary power of vacating an enrollment and giving the party an opportunity of having his ease discussed,’ 2 Daniel Ch. Prac. 1230; 2 Madd. Ch. 466.” ¹⁰⁵ In First Nat. Bank v. Eccleston, 48 Md. 145 , it was held that the enrollment of a decree passed by default, without a hearing upon the merits, may be vacated, to let in a meritorious defense, upon petition, without a bill of review or an original bill for fraud.

In Gechter v. Gechter, 51 Md. 187 , it was said that the power of the Court to vacate under a petition a decree not only alleged to be procured by fraud, but which was also a surprise to the party, cannot be considered an open question, since the decision of Herbert v. Bowles, supra. In Patterson v. Preston, 51 Md. 190 , a petition was filed to have an order of ratification of sale passed about eight years before rescinded. An audit had also been ratified distributing the proceeds of sale. Judge Millee said: “We entertain no doubt as to the power of a Court of Equity, upon a proper case being made by the alleged purchasers, to rescind an ox’der ratifying a sale reported by its trustee.” An order dismissing the appellant’s petition was reversed and the cause remanded to the end that the sale be