Court Opinion

ID: 3488529
Source: CourtListenerOpinion
Date Created: 2016-07-05 21:17:02.548132+00
Date Added: 2024-06-11T13:37:27.943077
License: Public Domain

The opinion of the court proceeds upon the theory that the specialty at bar became enforceable against any of its several subscribers when the aggregate sum of the subscriptions of the several subscribers amounted to $750,000, without reference to the total that had been deposited in money and notes with the bank before the specified day. It is submitted that there was error in so construing the contract, and that the error was founded in a failure to recognize that a right of action in the bank against a subscriber depended upon the existence not only (1) of a total subscription of not less than $750,000, but also (2) of the payment or deposit in funds, (3) by a given day, either of that amount or of that amount less the particular subscription of the severally bound subscriber, who had not performed his primary contractual promise to pay. In other words, the cause of action must exist at the time suit is brought. To sustain the action there must be not only the breach of the primary contractual obligation to pay, which gave rise to the obligor's secondary duty to pay damages in the amount of the covenant to pay, but, in addition, it is indispensable that the secondary duty continue to exist. If there be operative facts contemporaneous with the origin of the secondary duty, or subsequently occurring, whose nonexistence is a condition precedent to the plaintiff's right to a judgment, although not precedent to plaintiff's right to payment as covenanted, the action *Page 238 
will not prevail. It will be found that the allegations of the declaration aver the operative facts which established an affirmative defense. Infra.
With these preliminary principles in mind, the terms of the contract must be interpreted and construed in connection with all the circumstances set forth in the declaration. The bank was in a gravely embarrassed financial position. It had been notified by the bank commissioner that it would be closed by a fixed date, unless by that time a sufficient fund would be procured and made available as a guaranty of the depositors and creditors of the bank. No peril could be greater nor more imminent. Not only must an amount be subscribed which would be sufficient to restore the liquidity and capital assets of the bank, but the whole amount subscribed must be raised and actually be delivered in hand to the bank by the prescribed date, because a less amount would be inadequate and a deferred delivery would be too late to avert the impending disaster. So, the fundamental requisites of a remedial contract were the amount to be subscribed; the delivery to the bank by subscribers of the amount severally agreed by payment on or before the time specified, in money or in promissory notes, which had been secured to the satisfaction of the committee whose members had solicited the subscriptions and who were representatives of the subscribers in certain of the details of the transaction.
The amount and its delivery within the time designated were the three conditions precedent whose fulfillment were indispensably necessary to the creation of the contemplated guaranty fund in accordance with the contract of the subscribers. From May 26th, 1932, the date of the subscription, until June 10th, 1932, the bank was made the depositary of the money and the approved promissory notes which the contract provided should be individually delivered to the bank by the subscribers. June 10th, 1932, was the last day on which deposits could be made and the conditions precedent be performed, because the contract so specified, and time is of the essence *Page 239 
of this mercantile contract. Gill  McMahon v. Weller,52 Md. 8, 14; Gilman v. Smith, 71 Md. 171, 173, 17 A. 1035; Bohn Mfg.Co. v. Lewis, 45 Minn. 164, 47 N.W. 652 The fulfillment of these conditions precedent was necessary before the plan of relief became effective so as to make the money and notes deposited available as the specified guaranty fund.
It is submitted that this intention is clearly expressed by the paper writing which was signed by the parties, and is in complete harmony with the design of its signers and the circumstances of its execution. The introductory recital prevents a doubt. It declares that the subscribers deem it "necessary" that the "sum" of $750,000 "must" be made "available" as a "Guaranty Fund" upon the "terms and conditions" of the body of the contract of subscription and for the purpose of substituting it for an existing guaranty fund. Nor is this dominant intention inconsistent with the later clause that: "This agreement shall not be binding" unless the aggregate of such subscriptions shall be not less than $750,000. This clause must relate to an aggregate of $750,000 either in the promises to pay or in theperformance of the promises to pay. If the first alternative be true, it is limited to the promises, and, so, would not exclude other conditions which relate to the performance. If, however, the clause has reference to performance, it would necessarily embrace the promise from which the performance flowed. Therefore, in either construction, the conditions precedent would be unaffected. However, performance was of the substance, and it should be noted that the word "subscriptions" is employed in the document in the twofold sense of denoting the promise to pay, which is the more common usage, and the performance of the promise, that is the delivery of money and approved notes in payment of the amount subscribed. Thames Tunnel Co. v. Sheldon,
6 Barn.  Cres. 341, 347, 348.
It is with this second meaning that the term is used in paragraphs preceding the clause under consideration. For instance, in the phrase, "Until the repayment of said *Page 240 
subscriptions as aforesaid, said subscriptions shall constitute a guaranty fund for the protection of the depositors and creditors," the term "subscriptions" indisputably signifies the money and notes delivered that together constituted the fund whose existence depended on performance. By reading the term as meaning a fund raised through sums of money subscribed by a number of persons, a construction is given which is sensible and consistent with the objects and provisions of the contract. So, no matter how viewed, the clause in question does not limit the conditions precedent to the one whose performance was the procurement of promises to pay in the aggregate amount of $750,000.
The money and notes deposited on or before June 10th were provisionally in the custody of the bank, which so held them until that date or the earlier fulfillment of the other conditions of delivery and amount. If, on or before the day named, all the conditions precedent were met, and there had been deposited with the bank the money and accepted notes in the aggregate sum of $750,000, the contemplated guaranty fund would have been created; the bank would have ceased to serve as depositary, and would have become a trustee to hold and use the money and notes so deposited as a dedicated "guaranty fund for the protection of the depositors and creditors of the Hagerstown Bank and Trust Company and to prevent an impairment of the capital of said institution." Perry on Trusts, secs. 242-245;McKee v. Lamon, 159 U.S. 317, 322, 16 S. Ct. 11, 40 L. Ed. 165;Rogers Locomotive  Machine Works v. Kelley, 88 N.Y. 234, 235;Nash v. Commonwealth, 174 Mass. 335, 54 N.E. 865. Subject to these uses, the rights of the subscribers were made superior to the stockholders; and the subscribers were ultimately to be repaid, within the period fixed by the committee, their respective subscriptions, at their option, either wholly or partly in money "or in the shares of stock of a corporation now existing or to be hereafter formed."
If, however, the conditions precedent were not fulfilled *Page 241 
by the day prescribed, the trust did not arise; the bank acquired no title to the fund deposited, and had the duty of returning to every one of the subscribers the money or notes which had been deposited with the bank. Addison on Contracts, vol. 3, sec. 1345; Halsbury's Laws of England (2nd Ed.) vol. 7, title Contract, sec. 396, p. 287; Machen on Corporations, vol. 1, sec. 415; Nockels v. Crosby, 3 Barn.  Cres., 814; Moore v.Garwood, 4 Exch. 681; Walstab v. Spotteswoode, 15 Mees. 
Wels., 501; Mowatt v. Londesborough, 4 El.  Bl. 1; Johnson v.Goslett, 3 C.B.(N.S.) 569; Ward v. Londesborough, 12 C.B. 252;Ashpitel v. Sercombe, 5 Exch. 147; Kremen v. Rubin,139 Md. 682, 690, 116 A. 640; Carter v. Carter, 14 Pick. (Mass.) 424;Hudson v. West, 189 Pa. 491, 42 A. 190; Fitzwilliam v.Travis, 65 Ill. App. 183; Bradford v. Harris, 77 Md. 153, 26 A. 186; Capper's Case, 1 Sim. (N.S.) 178; Aldham v. Brown, 7 El.  Bl. 164, 2 E.  E. 398; Bither v. Packard, 115 Me. 306, 98 A. 929, 932.
The primary obligation of the subscriber A was to pay his subscription. He would have discharged this obligation by making his payment to the bank as a depositary at any time from May 26th, provided it were not later than June 10th. Until the expiration of this last day the subscriber was not in default. If, on the day mentioned, the subscriber had not paid and did not then pay, he committed a breach of his primary obligation, but his secondary remedial obligation to pay the amount of his subscription in an action of debt on his several covenant depended upon the act or performance of the other several subscribers, because if the aggregate of the money and approved notes which had been deposited with the bank on or before June 10th would, with the payment of the defaulting subscriber A's subscription, have totaled or exceeded the sum of $750,000, all the conditions precedent of amount of the subscriptions, and the payment of all the amounts subscribed by the time named, would have been fulfilled; and for his failure to perform, the defaulting subscriber would have been liable in an action of debt on his covenant to pay, since *Page 242 
it was his breach which had occasioned the failure of the conditions precedent to be performed. See Scarlett v. Academy ofMusic, 46 Md. 132, 153. If, on the other hand, the aggregate of money and notes deposited on or before June 10th, together with the amount of the subscription which the defaulting subscriber and defendant A had failed to deposit, was not equal to as much as $750,000, the two conditions precedent of the payment of the fund subscribed by the time named were not met, and the failure of the conditions precedent was not due to the breach of the defaulting subscriber nor to be remedied by an action against the particular defaulter by suit, since the failure of the conditions prescribed would still independently subsist and the subscriber would not be bound because of the refusal of other several subscribers to perform as had been severally agreed. In the first assumed combination of facts, the default of the subscriber A would be the breach which would cause the fund paid in by the date specified to fail to meet the conditions precedent necessary for the contract to become operative in the creation of a trust for the uses intended. In the second assumed combination of facts, the conditions precedent would not be fulfilled and the trust would therefore not arise, whether or not the subscriber A had fully performed his primary obligation, because of the distinct default of one or more other subscribers in his or their performance of the primary several obligations to pay as agreed. The subscriber A, as well as all the other subscribers, was not jointly nor jointly and severally bound, but severally bound, so, in the absence of a wrongful conspiracy or confederation of subscriber A in the default of the other subscribers, A would not be affected by the several defaults which had resulted without any participation on A's part. Anson on Contracts (Am. Ed. Corbin) secs. 334, 335; Williston on Contracts (2nd Ed.) sec. 323. For the same reason, if either waiver or estoppel should prevent another, or all other, subscribers from relying on a discharge from the contract because of a nonperformance of conditions *Page 243 
precedent, the subscriber A would not be affected by such waiver or estoppel, unless he was included therein by reason of his participation in or authorization of the facts which constituted the waiver or estoppel. The terms of the contract are specific that the obligations of every subscriber "shall be several and not joint and no one shall be liable for the obligations of any other." Mechem on Agency (2nd Ed.) vol. 1, sec. 725. The independent breach of one subscriber in a several contract is not imputed to any other subscriber. Little v. Edwards, 69 Md. 499, 508, 509, 16 A. 134; United States v. Knox, 102 U.S. 422, 26 L. Ed. 216; Coyle v. Taunton etc. Co., 216 Mass. 156,103 N.E. 288. So, the nonperformance by other several subscribers to the contract of that which was a condition precedent to the existence of the secondary obligation, and to the remedy against the subscriber A, effected a discharge of the subscriber A from his primary obligation to pay his subscription. There are many analogous illustrations of conditions precedent whose nonperformance operated to discharge the promisor from his promise. Dalrymple v. Lauman, 23 Md. 376, 398-402; Webb v.Baltimore  Eastern Shore R. Co., 77 Md. 92, 26 A. 113; Taggartv. Western Md. R. Co., 24 Md. 563; Baltimore  Drum Point R.Co. v. Pumphrey, 74 Md. 86, 21 A. 559; Portage Co. v. Wisconsinetc. R. Co., 121 Mass. 460; Central Turnpike Corporation v.Valentine, 10 Pick. (Mass.) 142; Hughes v. Antietam Mfg. Co.,34 Md. 316, 332; Fiery v. Emmert, 36 Md. 464, 474; Hager v.Cleveland, 36 Md. 476, 490, 491; Garling v. Baechtel,41 Md. 305, 322; Musgrave v. Morrison, 54 Md. 161, 164; Gettysburgetc. Bank v. Brown, 95 Md. 367, 385, 386, 52 A. 975; Morgan v.Landstreet, 109 Md. 558, 588, 72 A. 399; Webb v. Moeller,87 Conn. 138, 87 A. 277; Sherrod v. Duffy, 160 Mich. 488, 125 N.W. 366; Brown v. Dibble's Estate, 65 Mich. 520, 32 N.W. 656;People's Ferry Co. v. Balch, 8 Gray 303; State Bank ofIndiana v. Cook, 125 Iowa 111, 100 N.W. 72.
In the case at bar the impossibility of performance of *Page 244 
the conditions precedent to the defendant's secondary or remedial obligation to pay a subscription of $10,000 in the instant case is shown by the allegations of the plaintiffs that "almost all the persons who executed said Subscription Agreement met their obligations thereunder promptly and paid the amount of their said subscriptions in cash or evidenced the same by their promissory notes properly secured as provided in said Guaranty Fund Contract; and that the amounts so promptly paid thereon in cash amount to over $300,000, and the amounts evidenced and secured as aforesaid by promissory notes on account of their subscriptions amounted in the aggregate to over $300,000."
Disregarding the fact that it does not appear that the money and notes were deposited on or before June 10th, the aggregate of these deposits was $600,000, which, with the subscription of the defendants of $10,000, was far from the $750,000 which the contract exacted should be in the hands of the depositary on or before June 10th. Under such circumstances it would have been a futile gesture for the defendants to have paid or deposited $10,000 in money or notes by the day set, since the depositary would have been bound to have refunded the deposit, because the requisite amount of $750,000 had not been raised. Supra. Here the accrued rights of action for a breach of the defendant's primary obligation is discharged by the subsequent inability of the bank to perform. The principle is thus stated by Williston: "It may seem that where performance on one side of a contract is precedent to that on the other, and the time for the prior performance has arrived, and no defense then existing, a right of action has arisen, this right of action cannot afterwards be destroyed except by payment, or release, or accord and satisfaction. Such, however, is not the case. Circumstances may arise subsequently which would justify the recovery back of the prior performance, if it had been given, and, therefore, if it had not been given but a cause of action for it arisen, to avoid circuity of action the court will deny recovery." Williston onContracts, secs. 884, 885; Machen *Page 245 on Corporations, sec. 415; Bradford v. Harris, 77 Md. 153, 158-161, 26 A. 186. See Corbin, Conditions in the Law ofContract (1918) 28 Yale Law Journal, 739; Selected Readings onLaw of Contracts, p. 871.
For these reasons, which apply equally to Nos. 46, 47, and 48, I am of the opinion that the demurrers were rightly sustained and the judgments should have been affirmed.