William Danzer & Co. v. Western Maryland Railway Co.

⁴⁵¹ Offutt, J,. delivered the opinion of the Court. On or about February 4th, 1931, William Danzer & Co., Incorporated, herein called Danzer Company, owned a tract of ground adjacent to the right of way and tracks of the Western Maryland Railway Company, herein called railway company, between Madison and Antietam Streets, in Hagerstown, Maryland, on which it operated a general lumber business. The property was improved by a mill, sheds, an office building, and other structures, and on it were three sidings, connecting it with the tracks of the railway company. On or about the date aforesaid these buildings were damaged or destroyed by a fire said to have originated in a collision bétween an engine operated by the railway company and one of its cabooses which contained a “live fire,” and which it had placed on one of these three sidings or spurs.

The loss caused by the fire was partly covered by insurance, and, after the insuring companies had paid to the Danzer Company the amounts due -under their policies, they united with it in an action in the Court of Common Pleas of Baltimore City against the railway company, to recover the loss which they and the Danzer Company had respectively suffered as a result of the fire on the ground that such loss had been caused by the defendant’s negligence. On January 9th, 1932, the railway company filed in the Circuit Court of Baltimore City its bill of complaint against the plaintiffs in the action in the Court of Common Pleas, in which it asked that they be enjoined from prosecuting the same because, it said, the Danzer Company’s predecessors in title had agreed to release it from any liability for any loss from fire caused by its locomotives, cars, or engines; that the Danzer Company with knowledge of these agreements had adopted and ratified the same; that it was therefore estopped from prosecuting the action; and that, since it was estopped, it had no rights to which the insurance companies, claiming as its subrogees and through it, could be subrogated, and that that defense was not cognizable in a court of law. The basic facts out of which that defense arises are these: On March 26th, 1908, George, Hobbs & Eogtman, a part ⁴⁵² nership, who then owned the property, applied to the Western Maryland Railroad Company, predecessor of the Western Maryland Railway Company, for the construction of a spur or siding connecting their property with the railroad company’s tracks. The railroad company granted the application upon terms and conditions contained in a written agreement, herein called Agreement No. 1.

Under that agreement the cost of the improvement was first to be paid by the applicant, but to be repaid by the railroad company at the rate of two dollars per car consigned to or received from the applicant’s plant, and, when such payments equaled the cost of construction “so as to vest title to said side tracks and coal bins” in the railroad company, the applicant should have a revocable license to use the same. Among others the agreement contained these provisions: “The first party shall have the right to use without cost the whole or any part of said side track in connection with other business than that of the said second party, when the said side track is not occupied by the said second party, * * * (The party of the first part being the railroad company, and the party of the second part, the partnership.) And the said second party further agrees that it will indemnify, protect, and save harmless said first party against loss and damage or expense by fire to cars and their contents standing upon said side track or coal trestle which have been placed there for use of said second party. “And the said second party releases said first party from all claims of whatsoever character for damages resulting to the property of said second party by reason of fire originating from the engines and locomotives of the first party and resulting in the burning or destruction of or injury to the property of the second party “This agreement shall be binding upon the successors, heirs, executors, administrators and assigns of the respective parties hereto. “And in ease the second party shall assign or lease or otherwise convey the property with which said siding and coal bins are connected, written notice ⁴⁵³ thereof shall he given to the first party and the first party shall not be under any obligation to switch on said side track or coal trestle, carloads, consigned to or from such assignee, lessee, or grantee, until such assignee, lessee or grantee shall have accepted in writing all the provisions of this contract.” In May, 1908, George, Hobbs & Eogtman sold and conveyed the property to the West Side Lumber & Door Company, a corporation, and it applied to the Western Maryland Railway Company, which had succeeded the Western Maryland Railroad Company, for the construction of a second siding on its property. That application was granted and the siding constructed under an agreement similar in its material particulars to Agreement No. 1. Thereafter the West Side Lumber l& Door Company leased a part of the property to the Oak Hill Lumber Company, and in 1914, upon the application of that company, a third siding was constructed by the railway company under an agreement of the tenor and substance of Agreement No. 1, in which the lessor as owner of the fee joined.

In November, 1920, the E. H. Shreiner Lumber Company succeeded to and acquired all the rights and obligations of the Oak Hill Lumber Company. On May 9th, 1925, after the lease to the Oak Hill Lumber Company had expired, receivership proceedings were instituted against the West Side Lumber & Door Company, in the course of which the receivers conveyed its property to Charles M. Danzer and Charles S’. Lane, who conveyed it to the Maryland Lumber & Millwork Corporation. In the meantime the railway company and its predecessor had repaid the cost of constructing the sidings, and title to the same had become vested in it.

The Maryland Lumber & Millwork Corporation desired the reconstruction and relocation of the Oak Hill Lumber Company siding, and also to take title to the three sidings, and, to’ effect that purpose, in March, 1926, entered into’ an agreement with the railway company which recited the preceding agreements to which we have referred, and that each of the parties had ⁴⁵⁴ succeeded to the rights of its predecessors. The effect of that agreement was to vest title to the sidings in the lumber company, and it contained use and release clauses similar to those found in the preceding agreements. All of these agreements contained a clause that they should bind “the successors, heirs, executors, administrators and assigns of the respective parties thereto.” As a result of receivership proceedings instituted in March, 1928, all the property of the Maryland Lumber & Millwork Company was sold and conveyed h> William Danzer & Co., Incorporated, its present owner, subject to a mortgage dated September 22nd, 1925, the principal and interest of which amounted to $50,162.89, to the Maryland Surety & Trust Company. William A. Danzer, president of William Danzer & Co., Incorporated, was also president of the Maryland Lumber & Millwork Corporation when it executed the agreement with the railway company, and executed the same as its president, and he occupied the same position at the time of the receivership'.

Inasmuch as the sole purpose of the bill is tO' prevent the defendants from invoking the aid of the only tribunal which under our Constitution and laws is competent to try the issue, to determine whether the fire which caused the loss of which it complains was caused by the negligence of the Western Maryland Railway Company, for the purpose of this proceeding that corporation necessarily concedes and assumes that such loss was occasioned by its negligence, so that that question, as a question of fact, is not in issue here. It also appears from the bill that, in part at least, it is based upon the assumption that the knowledge of William A. Danzer of the several agreements to which reference has been made is imputed to William Danzer & Co., Incorporated, of which he is the president. The defendants in their answer deny that the personal knowledge of William A. Danzer is to' be imputed to William Danzer & Ob., Incorporated, and deny that it had any knowledge of said agreements, and further deny that it is in any way bound by them to release the plaintiff from the loss ⁴⁵⁵ occasioned by the fire caused by plaintiff’s negligence. They further state that, at the time of the collision which caused the fire, the defendants’ engine and caboose which collided occupied the said siding in violation of said agreements, were stored there for purposes having no relation to the business of William Danzer & Co., Incorporated, or any person served by said siding, and further alleged that it had repeatedly protested against such use of its property, but that the “fire was the direct result of unlawful, unauthorized use by the plaintiff of Danzer Company’s property, not for the purpose of receiving and delivering freight for Danzer Company or even for other shippers, but for continuous storage and shifting of cabooses.

In this way Danzer Company’s property was virtually converted into a railroad yard, not for the business of transportation but for the ultra-hazardous storage and shifting of cars and cabooses awaiting use.” They further allege that said loss was not only due to the negligence of the plaintiff in originating it, but also to its negligence in failing to arrest and extinguish it. And finally they say that the defense set up in the bill is cognizable in a court of law, that this proceeding is vexatious and dilatory, and not in good faith. The case was tried upon those issues of law and fact, and after a hearing and argument the court signed a decree in which (1) it granted a perpetual injunction as prayed in the plaintiff’s bill, (2) ordered William Danzer & Co., Incorporated, to execute and deliver a release to the plaintiff “in accordance with the provisions of the agreement” with the Maryland Lumber & Millwork Company of 1926, and (3) reserved to the defendants the right “to petition this Court on or before thirty days from the date hereof, for permission to apply to the Court of Common Pleas of this City for leave to amend the declaration in the suit herein between parties hereto, referred to in these proceedings; so that when so amended, the declaration will declare on the breach of duty, if any, the Plaintiff owed William Danzer and Company, Incorporated, which duty that Company contends required, the employees of'the Plaintiff, as soon as they had notice of ⁴⁵⁶ the fire named in such declaration, and while it was within their power so to do, to use reasonable efforts to reduce the damage to that Company’s property, by preventing the spread of the fire and extinguishing it, as soon as they could do so by such efforts, copy of such declaration to' be served on any Counsel for the Plaintiff, with leave to' it to' answer within fifteen days.” Erom that decree the defendants took this appeal. The appeal as argued in this court presents three questions: (1) Whether William Danzer & Co., Incorporated, is bound by the agreements of its predecessors in title releasing the plaintiff from liability for fires caused by its engines, cars, or locomotives; (2) if it is, do such agreements cover losses from fire caused by the use by the plaintiff of the sidings on William Danzer & Co., Incorporated, land for purposes of its own, not connected with the business of the Danzer Company or of any person served by said sidings; and (3) whether they cover the negligence of the plaintiff in failing to extinguish the fire after it had notice thereof and an opportunity to do so.

Adamstown Canning & Supply Company v. Balto. & C. R. Co., 137 Md. 199 , 112 A. 286 , is authority for the proposition that, if Danzer Company, with knowledge of the agreements, adopted and accepted the terms thereof, and accepted and used the services of the appellee given under them, it is bound by them. For in that case the court says: “If, as stated in these averments, the defendant, with full knowledge, adopted and accepted the terms of said agreements as the conditions and terms upon which it was to receive and enjoy the benefits of said siding, and the plaintiff should continue to use and operate the same, and the plaintiff, in consideration of such adoption and acceptance, did not revoke or ■ rescind said agreements, but continued to use said siding and to render the defendant said service, the defendant cannot, after inducing the plaintiff to render the service upon the conditions specified, and after receiving the benefits of services rendered upon those conditions, refuse to comply with ⁴⁵⁷ its obligations under the agreements.” Id., 137 Md. 209 , 112 A. 286, 289 . It is conceded that the contracts were made and that the appellee rendered Danzer Company services of the same character as those rendered its predecessors, so that the issues of fact are (1) whether William Danzer & Co., Incorporated, had “full knowledge of the terms of the agreement,” and (2) whether with such knowledge it adopted and accepted them. There can be no doubt that William A. Danzer, as president of the Maryland Lumber & Millwork Company, had full knowledge of the contracts, and it is also true that he is, and has been, since it acquired the property, president of the Danzer Company, that he holds about ninety per cent, of its common stock and is one of its directors.

The appellee contends that, because of his relation to the Danzer Company, the personal knowledge which he acquired through his connection with the Maryland Lumber & Millwork Company must be imputed to the Danzer Company, on the theory that it is “merely the alter ego” of Danzer. But the evidence does not support that contention. Danzer does hold ninety per cent, of the capital stock of the corporation, is its president, and one of its directors. But those facts do not merge the identity of the corporation with his.

It has other stockholders, other directors, and other officers holding common and preferred stock. It was incorporated as an independent entity by the State, and functions as such, and it is in fact separate and distinct from Danzer as from its other stockholders. There are cases, of course, in which the corporation is used as a mere shield or name for the perpetration of a fraud, in which the courts will look beyond the corporate fiction to the realities which it screens, but this is not such a case, and here Danzer and the Danzer- Company must be regarded as separate and distinct. The general rule in such a case is that the knowledge of an officer of the corporation, obtained while acting outside the scope of his official duties, in relation to a matter in which he acted for himself and not for the corporation, is not, merely because of his office, to be imputed to the corporation. ⁴⁵⁸ Fletcher Cyc.

Corp., sec. 2218 et seq., note 70, sec. 2219 et seq.; Lohmuller Bldg. Co. v. Gamble, 160 Md. 538 et seq., 154 A. 41 , and cases there cited. The inquiry therefore is whether the knowledge which Danzer had as an officer of the Maryland Lumber & Millwork Company was acquired within the scope of his duties as an officer or employee of William Danzer & Co., Incorporated. It is suggested that the fact' that he personally loaned money to the millwork company