Baltimore High Grade Brick Co. v. Amos

Schmucker, J., delivered the opinion of the Court. The bill in this case was filed by the appellant against the appellees to recover the sum of $13,682.85, being the price of certain bricks sold by it to the appellee, Amos, and used in the erection of buildings on forty-nine leasehold lots of ground in Baltimore city. The bill as amended sought to subject to the payment of the plaintiff’s claim both the fee-simple and leasehold estate in the lots of ground, and to that end to set aside the leases of the lots and three mortgages thereon from the appellee Devilbiss to the appellees Spalding and Singer, and the assignment by Singer of his interest in the mortgages to the appellee ⁵⁸³ Savage, and also to have Spalding, Singer and Amos all declared to be personally liable for the plaintiff’s claim. Those of the charges contained in the bill, which it is necessary for the purposes of this opinion to notice, are first, that Amos was the true owner of the leasehold estate in the lots and that Devilbiss in whose name the title stood had no interest in them, but held them solely for the benefit of Amos; secondly, that Spalding and Singer the owners of the fee in the lots and Amos the true owner of the leasehold were jointly interested as partners in the erection of the houses and were the persons for whose benefit the bricks had been purchased and used ; thirdly, that the three mortgages on the leasehold from Devilbiss to Spalding and Singer were fictitious and fraudulent and without consideration, but were executed in pursuance of a fraudulent scheme on the part of Spalding, Singer, Amos and Devilbiss to procure the lots to be improved in value by the erection of the houses thereon at the expense of the appellant and other creditors who furnished materials for building the houses; fourthly, that Savage the assignee of Singer had such actual and legal knowledge of the true nature of the mortgages as to make his title subject to the equities of the appellant.

The appellees Spalding, Singer and Savage all answer denying the charges of the bill so far as made against them respectively and asserting that the mortgages were bona fide and not fictitious or fraudulent and were made for the consideration therein set forth. Amos and Devilbiss also answer but they both admit that the former was the true owner of the leasehold in the lots and that the latter held the title thereto merely as an accommodation and for the benefit of the former. Devilbiss goes further and asserts in his answer that he was entirely ignorant of the contents and character of the leases, mortgages, agreements and other papers, relating to the lots or the erection of the houses thereon, which were from time to time signed by him, and that he signed them merely as a matter of accommodation to Amos, who was his employer, upon the assurance of Amos made through his foreman Sion ⁵⁸⁴ aker that no trouble would arise from such signing. He further averred that he had no interest whatever in the title to the lots or in the erection of the houses thereon other than that he had been employed to work on the houses at daily wages as a carpenter, and that so far as he was concerned the recitals of the three mortgages were fictitious and untrue.

The appellant called all of the appellees as its witnesses except Spalding who went upon the stand as a witness for the appellees, so that we have before us the versions of the transaction given by the various participants in it. The testimony, with the exhibits produced in evidence, fills nearly five hundred pages of the record, and we cannot in this opinion do more than state the conclusions at which we have arrived after carefully examining it, with a brief reference to some of the more material parts of the evidence upon which they are based. We find the substantial facts of the case to be as follows: Spalding and Singer owned as tenants in common a large lot of vacant ground at the corner of Twenty-second street and the York turnpike on the outskirts of the improved portion of Baltimore City. For the purpose of marketing this property to advantage they divided it into forty-nine small lots about fifteen feet wide, upon each of which they placed a ground rent of from $120 to $150 per annum, and entered into a bonus building operation with Amos to improve the leasehold estate in each of the lots by the erection of a dwelling thereon.

As an inducement to him to undertake the improvement of leaseholds charged with such heavy rents they agreed to donate to him as a bonus a certain sum of money for each house, amounting in all to $40,000, to be paid in seven instalments as the work on the houses progressed. They also agreed to advance further sums toward the payment for materials to be used in the construction of the houses, amounting in all to $35,800. The $40,000 bonus was to be an out and out contribution by Spalding and Singer toward the erection of the houses and was not to be returned to them, but ⁵⁸⁵ the $35,800 was to be in the nature of a loan to be secured by mortgages upon the houses. Amos was unwilling to become lessee of the forty-nine lots because of the personal liability he would have to assume under the covenants in the leases for the payment of the rents, and so it was agreed that the leases creating the rents might be made to Devilbiss who had consented to act as lessee and was not financially responsible.

There was nothing new or unusual in having the leases in a bonus building operation made to one who is a figure head instead of to the real lessee, in order to enable the latter to avoid, the continuing responsibility for the payment of the rent which the law imposes on the lessee under his covenants. The evidence shows that has long been customary in bonus building in Baltimore City and it is a practice which might naturally be expected to arise out of the state of facts incident to such transactions. If in the present case after the leases had been made to Devilbiss he had assigned the leasehold to Amos before Amos began to build the houses thereon and contract debts for that purpose, the professed purpose of using Devilbiss as the formal lessee would have been fully accomplished, and the arrangement would not have injuriously affected the rights of any third parties. At the time when this building operation was undertaken the mechanic’s lien law was still in force in Baltimore City and it became important for the parties to the operation to devise or arrange some plan by which mortgages, to secure the, $35,800 to be advanced tow'ard the purchase of building materials, could if possible be placed upon the property in such manner as to become an immediate lien and thus take precedence of any liens of mechanics and material men which might otherwise attach to the property before the monny was advanced.

Prior to the passage of the Act of 1882, ch. 471, a mortgage could have been put upon the lots, before the commencement of the buildings, to secure advances of money thereafter to be made to the builder and its lien would have attached to the property from the date of its execution, but since the passage of that Act the case has been different. ⁵⁸⁶ Sec. 2 of Art. 66 of the Code, as it has stood since the passage of the Act of 1882, provides that “no mortgage or deed in the nature of a mortgage shall be a lien or charge for any sum or sums of money to be loaned or advanced after the. same is executed except from the time said loan or advance shall be actually made; and no mortgage to, secure future, loans or advances shall be valid unless the amount or the amounts of the same and the times when they are to be made shall be specifically stated in said mortgage; this not to apply to mortgages to indemnify the mortgagee against loss from being endorser or security * * * *. ” Such was the state of .the law when the leasing and improving of these lots of ground was undertaken. The whole forty-nine lots were not included in one set of conveyances, they were divided into three groups one of seventeen and the other two of sixteen lots each ; and a separate set of papers, lease, mortgage, bonus agreement, &c., were executed for each group. These three sets of papers were made between the same parties and were identical in their terms. They were all prepared at once and were all executed at the same time by the lessee and, so far as the principles involved in this appeal are concerned, the entire undertaking may be discussed as a single transaction.

Amos had frequently before conducted bonus building operations and in some of them he had used a builder named David C. Slonaker as a formal lessee and when he determined to embark upon the present one he applied to Sloanaker to again act for him as lessee but Sloanaker refused because he thought, as he said upon the witness stand, that “it was not a safe job.” He however procured Devilbiss, who was a pecuniarily irresponsible laborer and carpener, to act for Amos as lessee of the lots, upon the assurance that he would get into no trouble by doing so. Devilbiss being thus assured executed not only the leases and mortgages but all other papers which it was appropriate for the lessee of the lots to execute in the plan which was adopted for procuring the erection of the houses. ⁵⁸⁷ That plan was as follows : For each group of lots a lease for ninety-nine years, in usual form, creating the ground rents was made by Spalding and Singer and their wives to Devilbiss. On the same date other papers relating to the same lots were executed as follows : First. An agreement stipulating that Devilbiss .would erect a dwelling of a specified character on each lot and that Spalding and Singer would for the purpose of assisting him in the erection of the houses pay absolutely to him the bonus therein stated in seven instalments at specified stages in the progress of the buildings.

Amos endorsed on this agreement a guaranty of its performance on the part of Devilbiss. Second. An agreement between Amos and Devilbiss by which the former agreed to sell to the latter all of the materials required for the erection of the houses and the latter agreed to procure Spalding and Singer to guarantee, to the former, payment for such materials to a specified extent amounting to about seven hundred dollars per house. Third.

A guaranty from Spalding and Singer to Amos of the payment by Devilbiss of the price of materials, to the extent above mentioned, to be sold to him. Fourth. An order on Spalding and Singer from Devilbiss to pay to Amos “all sums of money due on account of my agreement with you for an advance in and about the erection of” the houses. Fifth.

A mortgage upon that particular group of the houses from Devilbiss to Spalding and Singer which is one of the three mortgages that the bill asks to have set aside and declared void. Each of these mortgages recites that it was made to secure a present indebtedness from Devilbiss to Spalding and Singer of a specified amount maturing at one year from date, (the amount being equal to the total extent of their guaranty to Amos for material to be used in the houses on the lots described in that mortgage) and also to indemnify Spalding and Singer against loss under their guaranty to Amos of payment for building materials to be sold by him to Devilbiss. The ⁵⁸⁸ defeasance is conditioned upon the payment to the mortgagees of the present indebtedness recited in the mortgage and also the protection of them from future loss by reason of their guaranty. The form of these mortgages led the appellants to contend that.they were respectively intended to charge the several groups of houses with an antecedent indebtedness of Amos in addition to making them liable to indemnify the mortgagees for any loss they might thereafter sustain by reason of their alleged guaranty, but we think the evidence establishes the fact that the two recitals in the mortgages refer to the same obligation which was in fact to secure the return to the mortgagees of such sums of money, to the extent therein mentioned, as they should thereafter advance to the builder of the houses in the course of the construction thereof.

The form of these papers would indicate to those who read them that Devilbiss was the real lessee of the lots and builder of the houses and that Amos was a material man who had made a bona fide contract to sell him the materials for their erection, and that Spalding and Singer had in reality guaranteed to Amos payment to a certain extent for these materials. The evidence satisfies us that the true transaction was not the one indicated by the papers, but it was such as we have stated it to be in the earlier part of this opinion. Devilbiss swears in the most positive manner that he merely signed the various papers bearing his signature at the request of Amos made through Slonakar and was absolutely ignorant of their contents ; that he did not erect the houses or have any interest whatever in them except that he was paid two dollars a day for his labor thereon as a carpenter; that he never purchased any materials from Amos or requested Spalding and Singer to guaranty payment for any, but that Amos was the real lessee of the lots and builder of the houses. Slonaker, who had for some years been engaged with Amos in building operations and who superintended the erection of the houses now under discussion, testified that he was employed by Amos and that Devilbiss had no connection with-the transaction except that he was employed on the houses as a ⁵⁸⁹ carpenter at two dollars a day.

Slonaker further testified that Amos had applied to him to become the nominal lessee of the lots, but he had declined because he thought it unsafe to do so and that he had induced Devilbiss to act as lessee for Amos. Amos himself testified most positively that “he was the real man” in the whole transaction and that “Devilbiss was just an actor in it.” That the papers in which Devilbiss’ name appears were “just formal papers.” That he used Devilbiss “for convenience sake” and that the latter signed whatever papers he was asked to sign and that wherever Devilbiss’ name appeared therein Amos’ name would properly appear. He further testified that he never had any negotiations with Devilbiss in reference to building materials and never sold him any materials, and that the professed sale of materials referred to in the papers was but a part of the formal transaction, and that the mortgages were in fact intended to secure advances which were to be made upon the houses, as he said, in successive instalments simultaneously with the payments of the bonus. Singer admitted on the stand that his transactions concerning these lots and houses were entirely with Amos and that he had no transactions with Devilbiss in reference to them, that Devilbiss did not owe him a dollar when the mortgages were made or at any other time and he had no recollection of his ever asking him to become his surety.

Spalding admitted in his testimony that he knew Devilbiss had no money and that he never expected him to pay for the materials used in erecting the houses. It also appears from the evidence that although $32,700 were paid out under the bonus agreement between Spalding and Singer and Devilbiss all of it was paid to Amos under the orders of Devilbiss and the latter was practically ignored in the whole transaction after the papers had been signed. It further appears from the evidence that Spalding, Singer and Amos occupied adjoining offices in the same building and that Singer and Amos had been associates from childhood and that all of them had been previously engaged either sepa ⁵⁹⁰ rately or together in many bonus building operations in Baltimore City and must have been quite familiar with the details of such transactions. Under these circumstances it would involve too great a tax upon our credulity for us to treat Devilbiss as the true lessee of the forty-nine lots, or as a real party to the various written instruments to which his signature is appended, or to treat the three mortgages in question as having been in fact intended to indemnify Spalding and Singer as guarantors of Devilbiss.

On the contrary we are satisfied that Devilbiss was a mere man of straw in the whole business and that Amos was the real man and was known to and dealt with by Spalding and Singer as such, and that in equity Devilbiss must be treated as a mere trustee holding the title for Amos who must be regarded as the real owner of the leaseholds and builder of the houses thereon and the real party instead of Devilbiss to such of the papers and conveyances already referred to as are valid and binding instruments. As we have come to the conclusion that the alleged purchase of materials from Amos by Devilbiss and the guaranty by Spalding and Singer of the payment therefor were not real but were fictitious transactions it follows as a matter of course that the three mortgages under consideration are invalid. Nor can we agree with the learned Judge below that, even if the three mortgages in the present case be regarded as advance mortgages, they fully comply with the statutory requisites as to such mortgages and are therefore valid. In our opinion they fall far short of a compliance with the requirement, of sec. 2 of Art. 66 of the Code, that the amount or amounts of the advances and the times when they are to be made shall be specifically stated in the mortgage.

If it be-true, as was testified by Amos, that the understanding between the parties was that these advances were to have been made in seven instalments simultaneously with the payments of the bonus, the mortgages totally fail to comply with the law as they specify neither the times nor the amounts of the payments. If on the other hand we attempt to apply the re ⁵⁹¹ citáis in the mortgages, touching the liability of the mortgagees for materials under their alleged guaranty, to the future advances to be made by them to Amos the mortgages still fall far short of the requirements of the law, for the only things specified in them are the outside limit of the guaranty for materials and the portion thereof to be applicable to each house without giving any information as to the important element of the times at which the advances are to be made. As the earlier part of sec. 2, of Art. 66 provides that no mortgage shall be a lien for any sums of money to be loaned or advanced after its execution except from the time such loan or advance shall be actually made, it becomes necessary to insist upon a strict compliance with the next clause of the section which requires all such mortgages to specifically state the amounts of the advances and the times when they are to be made in order to enforce the obvious policy of the law upon that subject which is to afford to the public, when about to deal with the mortgaged property or its owners, accurate and reliable information as to the extent of the liens thereon and the times from which they become effective. The mortgages having been in fact intended to secure future advances and failing to comply with the positive requirements of the section last referred to of the Code they are under its express provisions altogether invalid.

We think that the appellant as a subsequent creditor of Amos, whom we have held to be in equity the real mortgagor in this case, was entitled to institute this suit to set the mortgages aside. In the cases of Warner v. Rice, 66 Md. 437 ; Brown v. Macgill, 87 Md. 161 , and Scott v. Keane, 87 Md. 709 , subsequent creditors of the grantor were permitted to assail conveyances that were held to be void because against the policy of the law without reference to the real motives of the grantors in making them. There is at least equally strong ground for holding that the appellant as a subsequent creditor is entitled to assail the mortgages in this case which are contrary to the express provisions of the statute law. We also think that the natural result of the retention in ⁵⁹² Devilbiss of the leasehold title to the lots and the execution by him of the mortgages thereon at the request or with the connivance of Amos, when the latter intended to contract as he subsequently did contract debts for materials with which to build the houses, was to hinder, delay and defraud the creditors of Amos and the mortgages were void for that reason without reference to the opinion which their authors may have had as to their right to make them, and the appellant although a subsequent creditor was entitled upon that ground also to file the present bill to set them aside.

Williams v. Banks, 11 Md. 199 ; Moore v. Blondheim, 19 Md. 175 ; Matthai, Ingram & Co. v. Heather, 57 Md. 484 ; Folsom v. Deitrick Fertilizer Co., 85 Md. 70 . Although Singer was tenant in common with Spalding of the vacant lot, and of the forty-nine ground rents into which it was converted by the leases, and he agreed to furnish one-half of the money to be advanced under the mortgages, he was pecuniarily unable to meet