Hagerstown Manufacturing, Mining & Land Improvement Co. v. Keedy

The bill of complaint in this case was filed in the Circuit Court for Washington County by the appellee against the appellant to procure a rescission of a sale of certain real estate made by the appellant to the Maryland Beneficial Association of Washington County. The sale was made in October, 1890, and the bill was filed in August, 1895. In January, 1895, the Beneficial Association made a deed of trust for the benefit of its creditors to the appellee, who was authorized to file the bill by anex-parte order of the Court under whose supervision he was administering the trusts of the deed.

It appears from the record that the appellant, in the legitimate exercise of its corporate powers, undertook to lay out in town lots and expose for sale a tract of land owned by it lying in the suburbs of Hagerstown. At a public sale of these lots the Beneficial Association purchased seven of them at an aggregate price of $1,085; payable one-third cash and the balance in one and two years. The lots were paid for by the Beneficial Association according to the terms of sale, and on October 24th, 1892, they were conveyed to it by a deed which it placed on record a few days thereafter.

The bill of complaint sets up title to the lots in the appellee as trustee under the deed of trust from the Beneficial Association, and relies upon two grounds for the relief for which it prays. These grounds are, first, a want of power in the association to purchase and hold the lots, and secondly, that their purchase was the result of a fraudulent combination between the directors of the two corporations. In amplification of the second ground the bill avers that two of the directors were common to both corporations, that the Beneficial Association was insolvent to the knowledge of the appellant when the purchase was made, and that the purchase was not made for the bona fide purpose of investment, but as a speculation. The prayer of the bill is that the appellant may be required to repay the price paid to it for the seven lots, with interest, upon receiving a conveyance of the lots.

The appellant answered the bill neither admitting nor denying the want of capacity in the Beneficial Association to purchase the lots, denying any knowledge of its insolvency, and emphatically denying the allegations of fraud set up in the bill, and insisting that the sale was made in perfect good faith by the appellant.

The appellee, to support the allegations of the bill, introduced the testimony of two witnesses, Forbes and Barrick, of whom the former was president of the Beneficial Association and the latter was its general agent. These witnesses not only failed to prove the charges of fraud contained in the bill, but testified in substance that the lots were bought for investment by the association in pursuance of a previous agreement or understanding arrived at by its directors at a conference at which they were all present, and that no action had been taken by the appellant to induce or procure the purchase of the lots by the association. No acts or conduct were proven on the part of any of the directors of either corporation from which a fraudulent purpose could be fairly inferred. Two of the directors were shown to be common to both corporations but that fact alone, while it inclines us to look carefully into their conduct, does not afford ground of legal presumption of illegality or unfairness in transactions between the two corporations. Booth v. Robinson et al., 55 Md. 441. The lots were sold at public sale and there is no testimony impeaching the fairness of the sale.

Nor does the record show that the Beneficial Association was insolvent at the time of the purchase. The only testimony on the subject of its financial condition at that time is that of the witness Forbes, who says that although the association had been in business for but a short time (less than one year), it already had 1,400 members, and was in receipt of an income over and above all expenses of from $40 to $100 per week and had $700 out on mortgage and had no debts. The evidence on this subject is incomplete, but it neither proves nor indicates insolvency.

The purchase of these lots may have been unwise or indiscreet, but we find no evidence in the record sufficient to sustain the charges that it was the result of a fraudulent combination between the directors of the two corporations, or that the sale was not fair and bona fide on the part of the appellant.

We now come to the contention of the appellee that the purchase of the lots of ground was not within the corporate power of the Beneficial Association. The appellee's brief was prepared, and his argument in this Court was made upon the theory that the purchase of the lots was ultra vires the corporation and was for that reason altogether void, but the bill of complaint is drawn upon a different theory. It does not allege or assume a total want of capacity on the part of the association to purchase or hold real estate or even that the conveyance of the seven lots in question did not operate to vest the title to them in the association. The bill assumes that the title did pass to the association, for it distinctly avers that, under the deed of trust from that body to the appellee, "the title to the said lots became vested in the said Martin L. Keedy, trustee," and the prayer for relief is not that the purchase should be declaredultra vires or void, but it is for a reconveyance of the land to the appellant and a repayment by it of the purchase money. The allegations touching the incapacity of the association are simply that the lots were purchased not for investment but for speculation, and that their purchase was incompatible with the purposes for which it was incorporated, and in fraud and derogation of the rights of its policy holders.

If, however, we assume, for the purposes of this opinion, that the scheme and allegations of the bill are in strict accord with the argument and contention of the appellee's counsel we do not think the case presents any such incapacity on the part of the Beneficial Association to purchase the land in question, as can be availed of by the appellee to maintain the present proceeding.

It appears from the record that this association was incorporated in February, 1890, for the purposes indicated by its title, by filing a certificate of incorporation under the provisions of Article 23 of the Code. The certificate is in the usual form and contains no recital or enumeration of the powers to be exercised by the corporation but simply refers in that connection to the provisions of the Code of Public General Laws. Under sec. 53, of Art. 23, of the Code, this association, in common with all others formed under the provisions of that Article, had power to acquire by purchase and to hold any real or personal property necessary to enable it to carry on the operations or fulfil the purposes named in its certificate of incorporation.

The Beneficial Association thus having by law the capacity to purchase and hold real estate under some circumstances, and having purchased the lots of ground in controversy and taken a conveyance of them, the question remains whether, in the absence of fraud, the appellee as its assignee is entited to maintain the present bill upon the mere ground that the association exceeded its powers in making the particular purchase. The weight of authority is plainly against the right of the appellee to do so.

It has been repeatedly held in Maryland and elsewhere that when a corporation has by its charter or by general statute power to hold land for some purposes or to a limited extent, its right to take and hold any particular parcel of land, is a matter solely between the corporation and the State and can be called in question only in a direct proceeding instituted by the State for that purpose. Cowell v. Colorado Springs Co., 100 U.S. 55;Hamsher v. Hamsher, 132 Ill. 273; Heironimus v. Sweeney,83 Md. 160; Hanson v. Little Sisters of the Poor, 79 Md. 441;In re Stickney's Will, 85 Md. 107

The doctrine that, even where a corporation has no power to take or hold real estate, a deed made to it is not void but voidable, and that only at the suit of the State, has found strong support. Union Nat. Bk. v. Matthews, 98 U.S. 263; Reynolds v. First Nat. Bank, 112 U.S. 405; Fritts v.Pullman Co., 132 U.S. 282.

The appellee having failed to show a state of facts entitling him to the relief prayed for in his bill upon the ground of fraud practiced upon the Beneficial Association in the sale to it of the seven lots of ground, and not being entitled to raise in this proceeding the question of the capacity of the association to purchase the lots, it follows that the decree appealed from must be reversed and his bill dismissed.

Decree reversed with costs and bill dismissed.

(Decided June 15th, 1900.)