Edelhoff & Rinke v. Horner-Miller Mfg. Co.

39 A. 314, 86 Md. 595, 1898 Md. LEXIS 7

• Court: Court of Appeals of Maryland
• Decided: January 4, 1898
• Status: Published

Opinion

Page, J.,

delivered the opinion of the Court.

The appellees have moved to dismiss this appeal, upon the ground that the bill of exception was not signed by the Judge, within the time allowed by the statute, and this motion will be first considered'.

The verdict was rendered on the 20th of April, 1897. On the 7th of May the parties agreed that the time for signing and sealing the exception should be extended for the period of thirty days from that date, and on the 17th of May the Court so ordered. On the 28th of May the parties again agreed there should be a further extension until the 15th of June, and on the 29th May the Court passed an order in conformity with the agreement. On the 10th of June the Court ordered another extension until the 28th of June. On the 23 rd June the appellees filed a protest against the signing and sealing of any bill of exception, for the reasons therein stated. The Court, however, sua sponte, on the 20th June further extended the time until the twentieth of August. Both parties agreed at the argument that the bill of exceptions was signed and sealed, and filed on the 18th of August. The question presented, depends upon the proper construction of Art. 4, sec. 170, Code P. L. L. That section provides that bills of exceptions “ may be signed” at any time within thirty days after the rendition of the verdict, &c., “ but not thereafter,” unless the time for signing the same “ shall have been previously extended by order of Court or by consent of parties,” &c. The power of the Court is here defined with respect to the time at which bills of exceptions may be signed. The Court is given power to sign within thirty days after verdict, or thereafter, when the time therefor has been previously extended by its own order, or by the consent of parties. The effect of the consent of parties in cases where the thirty days have expired and there has been no previous order of extension, is to confer upon the Court the same authority to sign, as if there had previously been an order of extension. Aside from the statute, the Judge who tried the case had power to sign and seal bills of exceptions at any time during the term at which the trial occurred, but by express permission of the Court given during the term, he could sign after the term. If presented after the term, and the parties consent that he shall sign, both parties are afterwards estopped from raising an objection as to his right and power. Thomas v. Ford, 63 Md. 348. The statute embodies this principle of estoppel against the consenting parties, and converts what had theretofore been a matter of practice, into a statutory requirement. We cannot, therefore, agree with the contention that the orders of the 17th May and of the 29th May were inoperative, because of the consent of parties previously given that the extension contained in them should be allowed. Consent alone cannot be the same as a judicial order. The former is quite sufficient to raise an estoppel; but the latter is an act demanding the exercise of discretion and judgment. Even though the parties consent, it is within the authority of the Judge to refuse to sign, in cases where in the exercise of a judicial discretion he deems it consistent with justice so to do. It is as dangerous now as it ever was, “ to allow a bill of exceptions of matters dependent upon memory at a distant period, when he may not accurately recollect them,” as was said many years ago by Chief Justice Marshall in ex parte Bradstreet, 4 Peters, 102. See Wheeler v. Briscoe, 44 Md. 311; Balt. Build. Asso., &c., v. Grant, 41 Md. 564; Marseller v. Howland, 34 Ill. Ap. 350. In this case the first order of extension was passed within the thirty days, and the second within the period of extension, both of these upon the consent of parties. The subsequent extensions were made by the Court within the life of the preceding orders. It is therefore within the rulings of this Court in Gottlieb v. The Fred-Wolf Co., 75 Md. 126. For these reasons, the motion to dismiss the appeal must be overruled.

This is an action of replevin, in which the appellant is seeking to recover the possession of certain goods and chattels from the appellees, who are trustees under a deed of trust for the benefit of creditors from the Horner-Miller Straw Goods Manufacturing Company of Baltimore City, which will be hereinafter referred to as the corporation. The articles replevied are ribbon bands, suitable to be used in the manufacture of hats. They were ordered by the corporation from the appellants in the month of May, 1895, and were delivered from time to time from the second day of August up to the sixth of September following.

The pleas of the appellees are, non cepit, property in Sheathar and Sanford, and property in the trustees.

The appellant offered evidence tending to prove, first, that the corporation was insolvent at the time of the purchase, and that its officers knew or had good reason to know of its insolvency, and had no reasonable expectation of paying the bill at maturity; and secondly, that before the goods were delivered the president and secretary induced the appellant to deliver the goods by means of certain fraudulent representation as to the corporation’s business, and its ability to pay its debts. It also appeared in proof, that on the 31st of August, 1895, the corporation executed and delivered a chattel-mortgage to Shethar and Sanford, which was not recorded until the 16th of September; and it is claimed by the appellants that this mortgage is fraudulent and void as against them for reasons that will be more fully referred to hereafter.

There were many prayers asked for on the trial—the appellant having presented twenty-eight and the appellee ten— and it is to the action of the Court in disposing of them, that this appeal is taken.

The appellee interposed special exceptions to many of the prayers of the appellant, and these will now be considered.

In the 1st and 8th instructions asked by the appellant, one of the facts upon which the plaintiff’s right of recovery depended, was that it was agreed between the parties, “ at the time ” of the making of the chattel mortgage, that the same was not to be recorded; and the special exception is there was no legally sufficient evidence of such agreement. It must be noted that the prayer requires the jury to find there was such agreement, and that it was entered into at the time the mortgage was made. Now there was evidence tending to prove there was an agreement of such a character made at a time which does not appear, and the Court in the appellants’ second and thirteenth prayers instructed the jury upon that condition of the proof. If there was such agreement made after the execution and delivery of the mortgage for a valid consideration, and for the purpose of deceiving the creditors of the corporation, it was a fraud and the mortgage in that event would offer no obstruction to the plaintiffs’ right of recovery. This the Court rightly ruled in granting these last mentioned prayers. But the first and eighth prayers of the appellant go much farther— they are based upon the theory that evidence had gone to the jury from which they could find that such agreement was made at or before the making of the mortgage. We do not think this theory can be maintained. The testimony of Mr. Putzel substantially is that at a meeting of the creditors of the corporation, at which either Shethar or Sanford was present, he heard that there was an agreement not to record the mortgage. Conceding, however, that Shethar or Sanford was present, and having heard the statement, was bound in foro conscicntiae to reply, there is nothing in the statement that could warrant the jury in finding that the agreement was made at the time of the making of the mortgage. The same criticism may be made with respect to the evidence of Mr. Horner. He states, “ the chattel mortgage was not to be recorded, that was understood * * it was to be renewed every two weeks.” He does not give the agreement, nor by whom it was so understood. If he intended that the agreement not to record was made prior to or contemporaneously with the mortgage ; or that the agreement was a condition precedent to the completion of the transaction, it should have been stated in such terms as would enable the jury reasonably to draw such inferences. As the.evidence stands, the understanding may have been on the part of Mr. Horner only, or it may have arisen after the transaction had been completed; or grown up out of an intention on the part of Shethar and Sanford (known to Mr. Horner), which they were at liberty to carry out or not at their own pleasure. Such testimony we do not think was sufficient to support the theory of these prayers.

The appellees also excepted specially, on the ground of want of evidence; 1st to the 3rd, 4th, 10th, 12th, and 15th prayers of the appellant, that at the time of the execution of the chattel mortgage it was agreed that the mortgagors were to remain in possession of the chattels conveyed, with the power to sell and dispose of them ; 2nd to the 5th, that the mortgage was given for money to be advanced from time to time after its execution and delivery ; 3rd to the 6th, that the mortgage was given in consideration of the payment of $25,000 and only $10,000 were in fact paid ; and 4th to the 17th, that after the execution of the mortgage, the property transferred, with the knowledge of Shethar and Sanford, was so intermingled with the after-acquired property of the corporation as not to be distinguishable therefrom.

The chattel mortgage to Shethar and Sanford was executed by the corporation and delivered on the 31st of August. On its face, it purports to have been given in consideration of the sum of $25,000 due to them from the corporation. It conveys all the “braids, bands and sundries,” machinery and all other goods and chattels then in the factory. It provides that until default the corporation shall possess the mortgaged property; and after default that the mortgagees may take possession, &c. ; and on payment of the said sum on or before the first day of May next, it is to become null and void. It assuredly cannot be contended successfully that by any of these provisions or all of them taken collectively authority is conferred upon the mortgagors to sell the goods and chattels, or intermingle them .with such chattels as it might thereafter acquire. It was executed by the president, vice president and treasurer of the corporation, and it is contended that in the absence of express authority, these officers had no power to pledge its assets. The evidence shows that under and by virtue of the contract Shethar and Sanford, on the day of the execution of the mortgage, paid five thousand dollars ; and a like sum on the fourth of September. These sums were received by the president, and were duly deposited in the National Marine Bank to the credit of the corporation, and were checked upon and used for the benefit of the latter in the ordinary course of business. Now while it may be true, as a general rule, that ministerial officers of a corporation without authority expressly conferred or to be implied from previous conduct, cannot pledge the property of the corporation, yet when a mortgage of its chattels has been made by such officers for the purpose of securing funds to pay its debts and continue its business, and it receives the full benefit of the transaction, without objection being made, it will be presumed to have authorized or ratified the acts of its officers. Pittsburgh C. & S. R. R. Co. v. The K. & H. Bridge Co., 131 U. S. 371; 5 Thompson on Corporations, sec. 6175. This principle is founded on considerations of common honesty. One who neglects' to disavow promptly the act of his agent, but on the contrary receives and appropriates to his own use the benefit thereof, ought not to be permitted afterwards to relieve himself of the burdens of the transaction by denying the authority of the agent. In such a case he makes the act his own. Stokes v. Detrick, 75 Md. 263; Cresswell v. Lanahan, 101 U. S. 347.

We are of opinion, therefore, that the corporation having received the money of Shethar and Sanford, and applied it to its own use, cannot now repudiate the act of its officers. The plaintiffs’ sixteenth prayer was properly refused. The consideration set forth in the mortgage is the sum of $2$,000, due from the mortgagor to the mortgagees. After the execution of the instrument that sum was in the hands of Shethar and Sanford, and the corporation could draw on it at its own pleasure. There is no evidence that the mortgage was executed for the purpose of securing other sums to be thereafter advanced. The sum to be secured having been particularly mentioned, the mortgage cannot be within the inhibitions of sec. 2 of Art. 66 of the Code. Nor is there any evidence of any commingling of goods with the knowledge or consent of either Shethar and Sanford, and without such knowledge or consent, the lien of the mortgage could not be impaired. Krenzer v. Cooney, 45 Md. 591.

The mortgage also provides that the corporation shall remain in possession of the goods ; but there is no right or power of sale reserved by any of its provisions to the grantor. Aside from that instrument, was there any contract or understanding between the parties permitting the corporation to sell for. its own use or otherwise ? Mr. Horner testifies that “ Shethar and Sanford were to sell the product of the company that “ these were to be billed from Shethar and Sanford, and to have on the bills ‘ Manufactured by the Horner-Miller Straw Goods Mfg. Co. of Baltimore;’ ” and that ‘ ‘ all orders taken by the company were to be turned over to them.” Sanford states that “ all the merchandise included in the mortgage had to pass through his hands in this way, viz., the merchandise was delivered to purchasers, a memorandum thereof was sent to his firm, who sent the bills to the purchasers and collected the money due thereon. ” Thus it seems the corporation was authorized to find purchasers and deliver the goods ; but the bills were to be made out in the name of Shethar and Sanford, and were to be sent to and collected by them. An arrangement like this obviously was not intended to subserve the interests of the corporation, but it was entered into for the benefit of Shethar and Sanford, to enable them more certainly to secure the prompt payment of the corporation’s notes as they became due. These notes given for the money advanced by the firm, were ten in number, each for $2,500, and,were payable the first one on the 1 5th of December, 1895, and the others respectively on the first and fifteenth of each successive month. Both parties relied on the sale of goods to enable the corporation to meet these obligations. It was therefore for that reason that it was understood that the corporation should deliver the goods to purchasers in the name of Shethar and Sanford and remit the bills to them, to be collected by them. It was in fact but little more than authorizing the corporation to act as the agent of Shethar and Sanford to dispose of the goods for their benefit, without power to collect the purchase money. There is no evidence in the case of authority to the corporation to make sales for its own use and benefit.

It has been held by some Courts that a mortgage conveying a stock in trade and containing an express covenant, or accompanied by an independent agreement, permitting the mortgagor to remain in possession with power to sell for his own use and benefit is fraudulent in law. First Natl. Bank v. Lindenstruth, 79 Md. 139. But that is not the question now before us. In this case the mortgage contains no covenant permitting the mortgagor to sell, and the verbal agreement which accompanied it contemplates only sales for the use and benefit of the mortgagees. The cases cited by the appellants belong to the class in which the mortgagor is authorized to sell or dispose of the mortgaged property for his own use. Freeman v. Rawson, 5 Ohio, 1; Russell v. Winne, 37 N. Y. 591. See Pierce on Mortgages of Merchandise, secs. 114 et seq.

The principle laid down in these cases is a highly salutary one; it is founded upon the reason that a power to the mortgagor to sell the goods and chattels conveyed for his own use has the effect of hindering and delaying creditors. A chattel mortgage containing a covenant permitting this to be done leaves the mortgagor in full control of his property and business, and at the same time operates as a “ shield against the attack of creditors.” But no such reasons can be assigned in a case where the agreement accompanying the mortgage only authorizes the mortgagor in possession to find purchasers and to deliver the chattels on behalf of the mortgagee and for his benefit. Such an agreement, if made and carried out in good faith, is not open to the objections we have just stated ; it cannot operate to hinder, delay or defraud creditors ; and in the absence of proof of actual fraud, ought to be respected. This subject was ably discussed by Mr. Justice Brewer in the case of Etheridge v. Sperry, 139 U. S. 266. There the decision turned on the question as to the ruling in the State of Iowa. After a review. of the cases from that State, and after determining that the settled construction of the doctrine by those Courts was that a power of sale to the mortgagor for the benefit of the mortgagee does not, as matter of law, invalidiate a chattel mortgage, the learned Judge concludes his opinion by saying: “ So, if the question were open or a new one unaffected by any settled law of the State, we incline to the opinion that the question is not one of law, so much as it is one of fact and good faith, and that the decision of the Supreme Court of Iowa rests on sound principles.” Manhattan Brass Co. v. Webster Glass, &c., 37 Mo. App. 145; Sims v. Hodge, 50 Hun, 410; Largent v. Brown, 3 Wash. Ter. 102; Howard v. Rohlfing, 36 Kan. 357; Murray v. McNeally, 86 Ala. 234; Means v. Dowd, 128 U. S. 273. From what has been said, it follows that there is no error in the rulings of the Court upon the several special exceptions of the appellees, to the appellants’ prayers.

The appellants’ fourteenth and eighteenth prayers should have been refused.

The remaining prayers of the appellant having been granted, we are now to consider those allowed by the Court on behalf of the appellees.

The main legal proposition, contained in all of the prayers on both sides, is conceded. That is, that if the appellant were induced by the fraud of the officers of the corporation to make sale of the goods in question, upon becoming cognizant of the fraud, they had the right to rescind the contract and demand the return of the goods. But the jury in this case would not be warranted in finding there was such fraud, even though the corporation was in fact insolvent, unless its officers at the time of the purchase had no reasonable expectation of making payment at the maturity of the bill. Powell v. Bradlee, 9 G. & J. 222; Diggs v. Denny, ante, p. 116.

There were therefore two questions before the jury of the first importance. First, was the corporation insolvent when the purchase was made, and second, if it was, had its officers then a reasonable expectation of being able to make payment when the bill became due.

The first prayer of the appellees instructed the jury that if they found the corporation was insolvent when the pur chase was made, yet if its officers had a reasonable expectation to pay the account when due, “based on all its resources, including assets in hand and available, its lines of credit, and money to be realized from the sale of manufactured products, and 'that,” &c. This prayer not only required the jury to find whether its officers had a reasonable expectation, but it determined for them the basis upon which that was to be decided; they were told it was on.the basis of “ all its resources, including assets in hand and available, its lines of credit, and money to be realized in the future from the sale of its manufactured products.” It was not necessary in determining the question of reasonbleness to consider whether the company was able to meet all its obligations to other parties. Peters v. Hilles, 48 Md. 512. It is easy to understand how a person having in view his business, his assets and his credit, may reasonably expect to be able to pay a claim at a specified time, although in point of fact he would be unable to discharge all his indebtedness. And yet the general indebtedness, and the time or times when it or any part of it becomes due may, indeed must be, an important factor in determining whether such expectation is reasonable or not. This Court in Peters v. Hilles (supra), said that “ general indebtedness was a matter that might very properly be considered by them (the jury) in the solution of the inquiry,” and we may now add, that if it was proper, it ought to be included in any statement that undertook to instruct the jury as to the basis upon which their decision of the matter must rest. The gravamen of the whole inquiry the jury were called on to make, was as to the bona pides of the corporation in making the purchase. If it acted honestly, if in the reasonable exercise of an honest judgment, its officers believd it would be able to meet the bill when it matured, it cannot be put on the footing of one who has acted fraudulently. Diggs v. Denny (supra). The prayer would have been wholly free from objection if it had required the jury to find there was a “reasonable expectation,” but if it was proposed to instruct as to the “basis ” of a reasonable expectation, it is manifestly error to affirm that an expectation based only upon assets and credit, and that utterly ignores the general financial condition of the person, no matter how stringent and pressing it may be, is necessarily a reasonable expectation. It is entirely possible the general indebtedness may be of such a character and amount, and in part or in whole to mature at such periods, as to stamp any expectation of being able to pay a particular indebtedness at a specified time, as utterly unreasonable. In such a case it cannot be questioned that the general indebtedness would be a most important factor in the consideration of a question whether the expectation of being able to pay the particular account was reasonable or not. In the case at bar the evidence shows the corporation owed large sums of money, and we are of opinion that if it was proposed to instruct the jury as to the basis upon which the alleged expectation rested, they should have been told to consider such general indebtedness as affecting the reasonableness of such expectation. We think therefore there was error in granting this prayer.

(Decided January 4th, 1898).

The defendant’s 5th and 7th prayers were granted properly.

For error in the defendant’s first prayer the judgment must be reversed and new trial awarded.

Judgment reversed and new trial awarded.