Blaustein v. Aiello

Prescott, J., delivered the opinion of the Court. The issue herein involved is a narrow one and not difficult of solution. The chancellor overruled appellant’s exception to an auditor’s report, and he has appealed. The sole question to be determined is whether appellant, who claims as an assignee of the balance due on a note secured by a second deed of trust, is entitled to a priority over the holder of a note secured by first deed of trust in the distribution of the proceeds of a foreclosure sale of the real property named in both trusts.

On September 30, 1958, Home Federal Savings & Loan Association (Home) entered into two construction loan agreements with Forest Knolls, Inc., a corporation engaged in building dwellings. By the terms of these agreements, Forest Knolls agreed to construct six residences upon vacant lots; in return, Home agreed to lend Forest Knolls $84,000 to be advanced in the future in accordance with schedules set forth in the agreements. These schedules provided that the final portions of the loans, amounting to $2,800 for each' house, were to be made “when [the dwellings were] FULLY COMPLETED, graded and landscaped; Release of Liens for all labor and materials submitted in proper form.” The agreements further provided that if- the real estate were encumbered without the consent of the lender, the lender would be under no obligation to make “further payments.” In accordance with these agreements, a note and deed of trust were executed by Forest Knolls. The trust was recorded in the land records of Montgomery County on October 9, 1958, at 1:08 p.m., and the deed of trust under which the appellant claims was recorded one minute thereafter.

After all payments under the first trust had been made (to the extent, at least, of four of the houses) and foreclosure proceedings under said trust had been held, the balance due on the second trust note was assigned to appellant’s attorney in fact. No claim for this ³⁷⁷ balance was filed with the auditor, but an exception to the auditor’s report was filed before it was ratified. No question is here raised concerning the procedure. After hearing, the chancellor overruled the exception.

The appellant contends: (1) that the first deed of trust was one to secure future advances; 1 (2) that the lien of the trust under which he claims attached before the “final payments” of $2,800 each were made; (3) that the final payments were voluntary and not obligatory under the terms of the trust, as the houses had not been completed nor had releases of liens been obtained; and (4) that Home, the holder of the first trust, had actual knowledge of the second trust at the time of the voluntary payments. From these premises, he argues that his claim is superior to that of the holder of the first trust. For the purposes of this case, we shall assume, without deciding, that appellant’s contentions (1), (2), and (3) above are correct. In Frank M. Ewing Co. v. Krafft Company, 222 Md. 21 , 158 A. 2d 654 , we held, in accordance with the great weight of authority, 2 that a