Baker v. Meloy

Jones, J., delivered the opinion of the Court. This is an appeal from an order of Circuit Court No. 2, of Baltimore City, overruling exceptions filed in this cause by the *6 appellant to the ratification of an auditor’s account and finally ratifying said account. The controversy raised by the appellant’s exceptions grew out of the following facts. The Massachusetts Building Company being the owner of a building in the city of Baltimore conveyed the same to John W. Linton by whom in the month of October, 1899,-it was conveyed to the Atlantic Trust and Deposit Company. These conveyances were made subject to two deeds of trust held at the time by the Mercantile Trust and Deposit Company—the first of these deeds of trust securing bonds to the amount of $300,000, and the second to the amount of $150,000. To these bonds there were attached the usual coupons, representing the instalments of interest to accrue, which on their face were payable “at the office of the Mercantile Trust and Deposit Company of Baltimore, in the city of Baltimore,” on the first day of August and the first day of February. A sale of the property in question was made under the second deed of trust and the proceeds of sale proved insufficient to pay the bonds secured thereby. At the time of the sale the appellant was the holder of certain of these bonds and the appellee held certain coupons which had been detached from these same bonds before they passed to the appellant. The appellee now brings in these coupons and claims to have them paid out of funds produced by the sale made under the deed of trust upon equality with the bonds held by the appellant. The auditor in making distribution of the funds stated two accounts “A” and “B” in accordance with instructions from the respective parties. In account A the claim of the appellee was disallowed ; and in account B the same was allowed equally pro rata with the bonds of the appellant. Each party excepted to the account which was stated contrary to the instructions given in his behalf. The Court below, upon the testimony taken by both parties before the auditor and returned by him, rejected account A and ratified account B. The exceptions of the appellant to account B state that he excepts to the allowance of the claim of the appellee “based *7 on $3,725, coupons bought” by him (appellee) ‘‘when overdue, from the assignee of R. C. Flower and Company.” ist. Because it never was the intention of said R. C. Flower and Company to buy said coupons from their holders but to advance money to the Atlantic Trust and Deposit Company to pay the same. 2nd. Because the holders of said coupons at the time they were paid the money for them had no intention of selling them or knowledge that they were doing so. 3rd. Because the appellant purchased the bonds to which said coupons had been attached, with no notice either actual or constructive that said coupons had not been paid in the usual course of business. The appellee testified that he acquired the coupons in controversy from a Mr. Manfull who owned them at the time as far as he (the appellee) knew ; and from whom he had information that Manfull had purchased the coupons from R. C. Flower. When the original holders of these coupons, or the holders who detached them from the bonds, received payment for them this payment was made to them at the office, in Baltimore City, of the Atlantic Trust and Deposit Company rnrough checks of R. C. Flower & Co. drawn upon R. C. Flower & Co., bankers of New York, which checks were endorsed and collected. The question raised by the exceptions of the appellant to the claim now made by the appellee is whether this transaction, between the holders who received payment for their coupons in the manner described and R. C. Flower & Co. is to be held as a purchase of the coupons by R. C. Flower & Co. or as a payment of them for account of the Atlantic Trust and Deposit Company to the extinguishment pro tanto, as against the bonds here in question, of the lien under the deed of trust securing them. There is no question that the appellant acquired in good faith the title of such holders of the bonds and stands before the Court now in their place with such rights as they would have if here. On the other hand it is conceded that the appellee took no better title, as against these bonds, to the coupons now held by him *8 than could be asserted by R. C. Flower & Co., who acquired them when they were overdue and in the manner mentioned. The determination of the rights of the parties before the Court depends therefore entirely upon the solution of the question just stated and it is the only question in the case. There seems to be no real difference between the counsel, who have ably presented the respective contentions in the case as to the legal principles which must control in its consideration, and the question the Court has to deal with is principally, if not exclusively, one of fact. Beyond, therefore, averting to one or two settled principles of law conceded to have application to the question here involved, we need make little reference to adjudicated cases since each case in its facts presents its own peculiar considerations for determining the conclusions reached. As reflecting upon the inquiry we are to make, the following quotation from 2 Cook on Corporations, sec. 771, p. 1742, will be appropriate. “ When coupons are presented for payment and are cashed, they are held to be cancelled so far as the bonds and other coupons are concerned. Even though a third person was buying them instead of the company paying them, the bondholders may insist on their mortgage lien free from these purchased coupons, unless the party presenting the coupons knew that he was selling them. The reason is that it takes two parties to make a sale, and, moreover, the coupon holders might have preferred to foreclose rather than sell.” This embodies a proposition that is sustained by authority and which in the absence of authority addresses itself most strongly to reason and the common understanding. In the case of Ketckum v. Duncan, 96 U. S. 659, it is said at page 662 of the volume: “It is undoubtedly true that it is essential to a sale that both parties should consent to it. We may admit also that where, as in this case, a sale, compared with payment, is prejudicial to the holder’s interest by continuing the burden of the coupons upon the common security and lessening its value in reference to the principal debt, the intent to sell should be clearly proved. But the intent to sell or the assent of the former owner to a sale need not have been ex *9 pressly given. It may be inferred from the circumstances of the transaction. It often is.” In Woodv. Guarantee Co., 128 U. S. 416, it is said: “ The question as between payment and purchase is one of fact rather than of law to be settled by the evidence, largely presumptive generally, in the case. It is a question of the intention of the parties.” To the same general effect, though they do not bear as close an analogy to the case at bar as those just referred to, are the cases of Com. of Vir. v. Ches. & O. Canal Co. et al., 32 Md. 501, and Cameron v. Tome et al., 64 Md. 507. By these accepted tests we are to judge of and decide upon the facts before us here. The holders of the bonds and the coupons when the latter were paid in the manner described were Mr. John E. Semmes, the Traders’ National Bank, Mr. B. F. Bennett and the Western National Bank, all, both individuals and corporations, resident in the city of Baltimore. In the case of Ketchum v. Duncan, supra, which is the one most relied upon by the appellee, the Court in dealing with the evidence laid stress upon the fact that it clearly appeared therefrom that the parties, who made payment of the coupons involved in that case and who, upon the evidence there, were held to be purchasers, intended to purchase the coupons and not to pay and retire them, or to advance money to have them paid and retired,and then held that the facts and circumstances attending the transaction in question in that case were not such as to defeat that actual intention. This element of proof which operated there so strongly as a basis of the conclusions reached by the Court is present in this case but applies in a different aspect. It is made entirely clear by the evidence here that the parties who held the coupons in question in presenting them for payment did not intend to sell them but to have them paid and cancelled. Each one of these parties was examined as a witness and each of them testified with emphasis that he had no intention to sell his coupons. Mr. Semmes, the largest holder, saying that he would not have sold if the proposition had been made to him, and giving the very reason that is mentioned in the quotation from Cook on Corp., supra, that if there was to be a default *10 upon interest upon the bonds secured by the mortgage he desired to be interested in the foreclosure thereof the better to protect his bonds. Nor is it perceived how the parties representing the Atlantic Trust Co. and Flower & Co., through whom the transactions in question in respect to these coupons were had by the holders, could have been in any way misled as to the intention of the holders, or could have supposed that these holders thought they were doing anything more than getting their coupons paid and retired. In the first place these parties knew that it was against the interest of these holders to sell their coupons and leave them outstanding to the impairment of the security of their bonds, which is a circumstance strongly bearing on the question of intent. Walker v. Stone et al., 20 Md. 198, citing language from Chief Justice Shaw. But more specific grounds for holding that there could have been no reasonable mistake in reference to the attitude of the holders to the transaction in regard to the payment of the coupons are that in the case of Mr. Semmes he received payment in January, 1900, for coupons due in August, 1899, and then had no conversation in respect to the transaction that he could remember, it being apparently of a matter-of-course character. At the next transaction, in February, 1900, he expressly informed the other parties to it that he “ wanted it to be understood distinctly ” that he “ did not sell these coupons.” He “presented them for payment.” The exact answer made to this he was not able to give, but what he said as to his recollection of it went to show it was of a vague and evasive character, and such as not to give him to understand or suppose, or to suggest to him, that the transaction was to be regarded as a sale of the coupons by either side, in view of his emphatic testimony that he would -not have made the transaction on that basis, and the reasons he assigned for not being willing to do so. In the case of Mr. Bennett he testified that he had previously collected second mortgage coupons at the office of the Atlantic Trust and Deposit Company in cash and took the coupons involved in this controversy that were héld by *11 him to the same place and received the check of R. C. Flower & Co., “ per Hill,” in payment for them and collected the check, and said upon cross examination that he had not noticed that there was any point in the check being drawn by Flower & Co. instead of the Atlantic Trust and Deposit Co., that he calculated he was receiving “ a check for the payment of the coupons” and “ didn’t feel specially interested whether it was drawn by Flower & Co. or the Atlantic Trust Co.” He further testified in chief that he received the check “ from the principal party that transacted the business at the Atlantic Building” and according to his recollection “his name was Hill,” and on cross-examination that, according to his recollection, Hill had, on the occasion, when he had previously received cash for coupons presented, directed “ the cashier to pay for the coupons,” and that according to his recollection his conversation was with Hill. The point of his testimony is that he went for payment of the coupons here in question that were owned by him to the same place at which he had had his coupons paid previously ; had the transaction with the same party who directed the payment on the previous occasion and thought he was receiving payment for these just as he had been previously paid—there only being a difference in the mode of payment; and he was allowed to think so without an intimation, or a suggestion, or any circumstance, other than the difference in mode of payment, to put him on his guard in a matter in which he was to be held as having made a contract of sale by having an intention imputed to him contrary to the actual fact. The other two holders of coupons here in controversy were the two banks that have been named. The persons, Mr. Williams and Mr. Ewalt, who were entrusted with the collection of the coupons held by these banks both testified distinctly that they had no intention of selling the coupons, and had no thought of any transaction in regard to them other than to present them and have them paid. Further than this these witnesses were mere agents of the banks for the purpose of collecting the money for the coupons, and had no authority *12 to sell; and those who dealt with them must be held to have known this in the absence of authority exhibited which they should have called for, if the transaction, in reference to the coupons, was to be anything more than payment of them in the regular course of business. In the case of- the witness Ewalt who collected the coupons for the Western National Bank he testified that upon presenting the coupons at the office of the Atlantic Trust and Deposit Company he was tendered the check of R. C. Flower & Co. “per Hill” which appears in the record; that he then told the party tendering the check what his instructions were from the bank which were to get the actual cash for the coupons; that the person so tendering the check sent for some one in the office and inquired “if he had sufficient money to cash this check and the answer was no;” that then the party who had tendered the check asked witness to wait a moment and he would get the money for the check ; that the money was produced and “the actual cash” was given to witness according to “instructions and that when the cash was thus delivered to witness he took the check and endorsed it as it appears in the record “Western Nat. Bank of Balto” “By T. B. Ewalt, A. C.” Upon such a state of case to hold the transaction described by this witness as a purchase by R. C. Flower & Company of the coupons which were delivered by him is to sanction it as such in this instance, as well as in the case of Mr. Semmes already alluded to, against not only the actual but the expressed intention of the parties to be affected. The testimony which has been under consideration shows clearly that the holders- of the coupons in question in parting with them, as has been described, did not intend the transaction as a sale; and that "the representatives of R. C. Flower & Co. not only had good reason to know, but must have known that the holders did not intend a sale of the coupons, and did not know or have reason to suppose that they were intended to be or would be treated as the subject of purchase by Flower & Co. This would seem to be quite sufficient to protect these holders against any secret purpose of Flower & Co. *13 or agreement or understanding between Flower & Co. and the Atlantic Trust and Deposit Co. whereby money was to be paid for the benefit of that corporation to prevent default under the mortgage or deed of trust while Flower & Co. would share in the security of the bondholders by treating the money advanced by them as a purchase of a part of that security. If a transaction of the character of those we are considering can only be a sale when both parties are consenting to a sale; or when circumstances are such that it would be inequitable to otherwise regard it, can such as the evidence we have adverted to discloses here, be regarded as a sale of the coupons in question either as a matter of fact or a matter of equity ? There are other features of the case however appearing from the evidence which go to emphasize a negative to this inquiry. Flower & Co. had contracts with the Atlantic Trust and Deposit Co. which brought them into close relations with it. They held the company’s stock to a large amount. Members of the firm had official positions in the corporation that gave them large influence in its affairs. They were its fiscal agents ; had agreed to sell a large amount of its stock. From all of these considerations they were greatly interested in the success of the corporation which would have been most unfavorably affected by a default in payment of the interest upon the mortgage bonds that encumbered its property. There were strong impelling reasons therefore for them to pay the coupons here in question rather than permit a default in their payment. Now it is urged that the holders of the coupons were put upon inquiry because the coupons were paid with the checks of Flower & Co. instead of in cash or by the checks of the Atlantic Trust and Deposit Co. If they had made this inquiry the considerations just mentioned would have given them good reason for supposing that Flower & Co. intended to make payment of the coupons they presented especially when these were coupled with the fact that they were actually paying, as the evidence shows, the first mortgage coupons. While the circumstances alluded to were calculated to put the *14 holders off their guard in making their transactions with Flower & Co., they on the other hand imposed a duty on the latter of more frankness in dealing with the holders than the evidence shows they observed ; and they should not be permitted by their mere silence, when there was good reason for them to believe that such silence was deceptive, to entrap the holders who presented their coupons into making a sale to their prejudice and contrary to their actual intent. The weight of considerations such as those here alluded to was recognized in the decision of the case of Wood v. Guarantee Co., 128 U. S. supra. It is urged also that the holders of the coupons were put upon inquiry because payment was made to them at a different place from that specified on the face of the coupon! If the representatives of Flower & Co. had good reason to know or believe what the actual intention of the holders of the coupons was when they delivered the coupons and received payment for them, as we think the evidence shows they had, the circumstance just mentioned can have no weight. But apart from this the evidence shows that the office of the Atlantic Trust and Deposit Co. was the place where the coupons were being paid and was so recognized and was the place resorted to by those seeking payment. One of the witnesses testified to having gone with his coupons to the Mercantile Trust and Deposit Co. to present them for payment and was there directed to go to the office of the Atlantic Trust and Deposit Co. Importance is attached by the appelle to the testimony of the witness Albertson who held the position of secretary and treasurer of the Atlantic Trust and Deposit Co. during the time the transactions in question with the holders of the coupons occurred, except the first one with Mr. Semmes when he was in the office of the company but in another capacity. Under the circumstances of this case however but little weight attaches to his testimony. He testtifies in >a positive manner that Flower & Co. “bought” the coupons in controversy. This however under the circumstances of the case was but the expression of opinion. Whether Flower & Co. bought the coupons *15 was not a palpable fact but depended on facts and circumstances and was a matter of deduction from these. He also testified to what the books of the Atlantic Trust and Deposit Co. show as to the account between the company and Flower & Co.; and to the absence of any memoranda or entries of the coupon transactions. The affairs of the corporation, as developed in the evidence, were too much under the control of Flower & Co. to make the showing of the books of the Atlantic Trust and Deposit Co. a very potent probative force in reference to a question of this character and under the circumstances of this case. The absence of these transactions from the books of the company is what these circumstances would lead us to expect. The radical weakness of this testimony however is that it does not at all affect the real question in the case upon the facts developed. It is immaterial how the transactions here involved were treated as between Flower & Co. and the Atlantic Trust and Deposit Co. The real question is what was the intention of the holders of the coupons in controversy in these transactions and whether Flower & Co. must not be held to have known that intention. A further consideration that weighs against the testimony of this witness is that his knowledge of what he testifies to is, as to the character of the dealing in respect to the coupons, almost entirely derived from or based upon information received from Mr. Small a member of the firm of R. C. Flower & Co. and Mr. Hill the representative of that firm at the office of the Atlantic Trust and Deposit Co. and a vice-president of that corporation—both of whom could have spoken with better knowledge of the matters to which he testified, and yet neither of them was examined as a witness nor was it explained why. In this connection it may also be added that it does not appear that any effort was made to secure the testimony of R. C. Flower who may be supposed to be able to testify with knowledge of the facts deemed important to the appellee. No reference has been made to the exceptions to testimony filed by the respective parties because to do so could have no significance beyond the requirements of the present case; and here the decision is not dependent *16 upon the testimony excepted to and it has not influenced the conclusions reached. (Decided April 2nd, 1902.) From the foregoing views it will appear that we find there was error in the order of the Court below ratifying account B as stated by the auditor and the order will be reversed with costs. Order reversed with costs and case remaiided.