Bachrach v. Washington United Cooperative, Inc.

Delaplaine, J., delivered the opinion of the Court. In 1928 an association was formed in the City of Washington with the object of providing a place for a summer camp for Jewish children. A committee, consisting of Harry Bachrach, Dr. Hyman Colodny and Joseph A. Rinis, purchased for that purpose a farm on the Patuxent River in Anne Arundel County, Maryland. In acquiring the land as joint tenants, the three men assumed the mortgages thereon (the first for $1,400, and the second for $800)), gave a third mortgage for $1,900, and paid $871.04 in cash.

In 1929 the association was incorporated in the District of Columbia under the name of Washington United Cooperative, Inc. But during the following twelve years, Bachrach refused to become a member of the corporation, and threatened to sell his interest in the property unless he was paid the sum of $1,000, which he claimed he had contributed. The corporation, however, claimed that he had not contributed more than $200. In 1941 the corporation filed a suit to strike out a judgment which had been recovered by Maurice Haimowich, of Washington, against Bachrach on a confessed judgment note, alleging that the note had been given without consideration merely for the purpose of enabling Haimowich to sell the camp property under execution. Before the case was heard, Bachrach died and his interest in the real estate passed to the two surviving joint tenants.

Shortly afterwards his brother, Israel Bachrach, appellant, purchased the first and second mortgages, which were in default, the third having been paid, and assigned the first mortgage to Louis M. Strauss, his attorney, ³¹⁸ for the purpose of foreclosure. On August 1, 1941, the assignee sold the property at public auction to the appellant for ?1,700. The sale was finally ratified by the court on September 5, 1941. On November 10, 1941, the corporation brought the instant suit to set aside the foreclosure sale on the ground of fraud.

The amended bill of complaint alleged that Israel Bachrach said “continued the efforts of his deceased brother to euchre and defraud the plaintiff corporation out of its property.” The chancellor overruled a demurrer to the amended bill. It is the opinion of this court that the demurrer should have been sustained, because the amended bill did not allege specific charges of fraud. As the particular acts of fraud relied on must be specifically charged, a bill of complaint making only general allegations of fraud is demurrable. Payne v. Payne, 97 Md. 678, 685 , 55 A. 368 .

It is also our view that the mortgagors and the assignee should have been parties to the suit. It is a fundamental rule that all persons interested in the subject matter of a suit must be made parties to it, for it is the constant aim of equity to award complete relief by determining the rights of all persons interested in a suit, thus settling the whole controversy and preventing future litigation. Waring v. National Savings & Trust Co., 138 Md. 367 , 114 A. 57 . The United States Supreme Court has definitely held that a trustee who has sold property under foreclosure proceedings is a necessary party to a suit brought to set aside the sale.

Ribon v. Chicago, R. I. & P. R. Co., 16 Wall. 446 , 21 L. Ed. 367 . In his decree passed on May 20, 1942, the chancellor rescinded the order of ratification of sale and annulled the deed from the assignee to the purchaser. The appeal is from that decree. Under the Maryland Mortgage Act, it is permissible to insert a clause in any mortgage authorizing the mortgagee or any other person named therein to sell the mortgaged property on such contingencies as may be therein expressed; but before the per ³¹⁹ son so authorized shall make such sale, he shall give bond to the State and shall give such notice as may be' stated in the mortgage, and if there be no agreement as to notice, then he shall give twenty days’ notice by advertisement of the time, place and terms of sale.

Code, 1939, Art. 66, Secs. 6, 8, 9. The Act provides that the court having chancery jurisdiction where the sale is made shall have full power to hear and determine any objections which may be filed against the sale by any person interested in the property, and may confirm or set aside the sale. After confirmation by the court, and upon payment of the purchase money, the sale shall pass all the title which the mortgagor had in the property at the time of the recording of the mortgage. Code, 1939, Art. 66, Sees. 10, 12.

Until a sale is reported by the mortgagee, the proceedings are ex parte; but after the report is made, an apportunity is afforded to all interested parties to make objections to the sale. Judge Bryan explained the Act as follows: “The purpose of this legislation was to provide a more expeditious, and less expensive, method of enforcing mortgages than the former proceeding by formal bill in equity, but not, by any means, to impair or defeat the right of the mortgagor to be heard in defense of his property; and in enabling him to make any objections against a sale, which would take away his title, the statute has preserved to him his unquestionable right to show that the mortgage was invalid, and therefore did not justify a sale of his property. Under a formal bill in equity, the court in a proper case decrees that a sale shall be made, and appoints a trustee to execute its decree; and, after the sale is made, it hears objections to the mode in which it has been conducted; but, in proceedings under the statute, the question of sale comes before the court for the first time when the sale is reported for ratification, and then all objections against the sale are to be heard and determined. The difference is that in the one case the propriety of making a sale is decided before the de ³²⁰ cree is passed, and in the other all questions are decided on the ratification.

The right of the mortgagor to make his defenses is the same in each case.” Albert v. Hamilton, 76 Md. 304, 308 , 25 A. 341, 342 . It is essential to the prompt administration of justice that the rule be inviolably observed that no court shall set aside a foreclosure sale merely because of harmless errors or irregularities committed in connection with the exercise of the power of sale, or for any slight or frivolous reasons not affecting the substantial rights of the parties. Public policy requires that the ratification of a lawful judicial sale shall be final and conclusive, unless the purchaser was precluded by fraud from making seasonable objection to its ratification. It requires substantial grounds to justify a court in setting aside a judicial sale when lawfully made, for otherwise the public would be loath to bid for property thus offered.

So the law is firmly established in Maryland that the final ratification of the sale of property in foreclosure proceedings is res judicata as to the validity of such sale, except in case of fraud or illegality, and hence its regularity cannot be attackéd in • collateral proceedings. Brown v. Gilmor’s Ex’rs, 8 Md. 322, 326 ; Bank of Commerce v. Lanahan, 45 Md. 396, 410 ; Felgner's Admr's v. Slingluff, 109 Md. 474, 480 , 71 A. 978 ; Barroll v. Benton, 121 Md. 174 , 88 A. 101 ; Bainder v. Sound Building & Loan Ass’n, 161 Md. 597 , 158 A. 2 . However, a court of equity has the power to set aside a foreclosure sale upon an original bill for fraud filed by the mortgagor or any other party interested, where fraud has been discovered after the ratification of the sale, even after the decree has become enrolled. The question presented for our consideration in this case is whether there was evidence of fraud on the part of Israel Bachrach, appellant, sufficient to justify the de- • cree of the chancellor.

The law presumes that the mortgagee or assignee has discharged his duty faithfully in the exercise of the power of sale in a mortgage. Conse ³²¹ quently the party seeking to have a sale vacated on the ground of fraud has the burden of proof. Where a foreclosure sale has been finally ratified in accordance with established chancery practice, and the sale is impeached on the ground of fraud, the alleged acts of fraud must be clearly established by proof and must be of such a character as to appeal strongly to the conscience of the court, before the sale will be set aside. Burch v. Scott, 1 Gill & J. 393, 425; Shryock v. Morris, 75 Md. 72, 80 , 23 A. 68 ; Connaughton v. Bernard, 84 Md. 577, 590 , 36 A. 265 ; Gottschalk Co. v. Samuelson, 128 Md. 541 , 97 A. 1003 .

It is also well settled that a decree assailed on the charge of fraud will not be set aside for any