Chapman v. Ford

Oppenheimer, J., delivered the opinion of the Court. Mc-Wieeiams, J. dissents. The appellees sued the appellants in assumpsit in the Circuit Court for St. Mary’s County to recover a sum of money alleged to be due under a mortgage by way of an additional sum, or penalty, because of the sale of the mortgaged property. Judge Dorsey, sitting without a jury, found that the property had in fact been sold by the appellants when they made a prepayment on the mortgage, although the written contract was not signed until a few weeks later, and awarded judgment to the appellees in the amount of $5500, which is ten percent of the amount of the prepayment, with interest and costs.

The appellants’ motion for a directed verdict at the close of the appellees’ testimony was denied. 1 In their appeal, they contend that the motion should have been granted, and that the Judge, in his opinions on the appellants’ motion and at the conclusion of all the testimony, was clearly erroneous in his findings of fact and incorrect in his conclusions of law. A large portion of the evidence is undisputed. On October 24, 1956, Mr. and Mrs. O. Lee Ford, the appellees, lent Mr. and Mrs. William Chapman, the appellants, $92,213.38, secured by a purchase money mortgage. The mortgage covered three pieces of property referred to as the Western Auto property, the St. Mary’s City property, and the Physic Hill property.

The mortgage indebtedness, with interest at the rate of six percent, was to be repaid in monthly installments of $778.19, beginning December 1, 1956 and continuing for the period of fifteen years, at which time any remaining balance of principal was to become due. The mortgage contained the following provisions : ⁴⁶ “Provided, however, that the Mortgagors shall have the privilege of paying in larger amounts at any time and provided further, that in the event this mortgage indebtedness is paid off prior to the fifteen (15) year period, or in the event the Mortgagors sell the property hereby mortgaged, then the Mortgagors agree to pay unto the Mortgagees in addition to the principal due with interest, a sum equal to ten (10%) per cent of the principal balance then due. And provided further, that this Mortgage indebtedness shall become due and payable in the event the mortgagors sell or convey the herein mortgaged property, together with the ten (10%) per cent additional sum as above provided.” Some years before 1962, Ford permitted Chapman to sell the latter’s Physic Hill property and apply the proceeds to the principal of the mortgage indebtedness, without the ten percent penalty. Ford testified he did this because “I didn’t want to make it hard on him, I tried to make it as easy as I could to :get him started.” During the summer of 1962, Chapman began negotiations with William F. Virnstein to sell him the Western Auto property.

In August of that year, Virnstein called on Ford several times, at the latter’s home, told Ford he wanted to buy the Western Auto property, and asked Ford to release it from the Chapman mortgage. Ford replied he would only release the .property if he were paid the ten percent. Chapman made a similar request to Ford and received a similar reply. On Aug'ust 17, 1962, Virnstein made an application for his wife and himself to the Maryland National Bank, at Leonard-town (the bank), for a mortgage loan of $25,000.

The application stated that the purpose of the loan was to pay Virnstein’s present mortgage to the bank of $2268.72, the balance “to purchase Bill Chapman’s store” (the Western Auto property). On September 7, Chapman made an application for his wife and himself to the bank for a mortgage loan of $55,000. The purpose of the loan was stated to be to pay Chapman's existing mortgage to the bank “and mortgage to O. Fee Ford.” ⁴⁷ The following events all took place on October 18, 1962: Virnstein and his wife executed a mortgage to the bank, recorded that day, on their bakery property in Leonardtown, in the principal sum of $25,000.00, securing a loan in that amount. The proceeds of this loan, after deducting therefrom the amount necessary to pay off Virnstein’s existing mortgage to the bank and costs, were deposited in the account of “W. E. Virnstein”.

The Chapmans executed a mortgage to the bank, recorded the same day, on their Western Auto property, in the principal sum of $55,000.00, securing a loan in that amount. The proceeds of the loan were deposited in the bank in a new account titled “William A. Chapman—Escrow a/c Atty. Robert E. Wigginton” (the escrow account). Virnstein drew a check on his account at the bank, payable to the order of the Chapmans, in the amount of $20,000.00.

This check represented part of the loan made by the bank to the Virnsteins the same day. There was written on the face of this check: “Dep. on Store in Lex Park” (the Western Auto property). This check was delivered to Robert E. Wigginton, the attorney and agent for the Chapmans, and Mr. Wigginton deposited this check in the escrow account. This check was paid by the bank on the same day, October 18.

Mr. Wigginton mailed to the Fords, in St. Mary’s City, Maryland, a check dated October 18, drawn on the bank, payable to the Fords, in the amount of $55,000.00 and signed “Robert E. Wigginton, Atty.—William A. Chapman Escrow Account”. This check had written on its face “Part payment on W. A. Chapman Mortgage”. Accompanying this check was a letter from Mr. Wigginton to the Fords reading as follows: “I enclose herewith check to your order in the amount of $55,000.00, which represents a partial payment on the mortgage held by you against Bill Chapman. As of October 1st, the principal balance on your mortgage amounted to $57,637.51.

According to my records, this would leave a balance due as of October 1st of $2,637.51. At the present time we did not have sufficient funds to pay you in full; however, we expect more funds in the near future, at which time we may ⁴⁸ be in a position to pay the balance due, plus interest to date.” The Fords did not deposit the check until November 23, 1962; when they deposited it, they noted thereon that it was accepted under protest and reserved any rights accruing to them under the terms of the Chapman mortgage. On October 29, 1962, Mr. Wigginton mailed to the Fords a check dated that day, drawn on the bank and payable to the Fords, in the amount of $2,914.01 and signed “Robert E. Wigginton Atty. William A. Chapman Escrow Account”.

This check had written on its face “Bal. Mtg in full plus Interest and 10% on Principal balance due.” An accompanying letter from Mr. Wigginton advised the Fords that the check covered the principal due of $2,637.51, interest of $12.75 and 10% penalty of $263.75. This check was deposited also by the Fords on November 23, 1962, after they had noted thereon that it was accepted under protest and that they reserved any rights accruing to them under the terms of mortgage. It is undisputed that, as of October 18, the principal balance of the Chapman mortgage, as stated in Mr. Wigginton’s letter, was $57,637.51.

The two checks sent by Mr. Wigginton to the Fords, on behalf of the Chapmans, of $55,000 and $2,-914.01 paid the remaining principal, with interest. The ten percent penalty was added to the amount of the latter check; it is the failure to pay that additional sum on the $55,000 payment which is the subject of this litigation. The bank statement of the escrow account shows that the only deposits in that account were the $55,000 received by the Chapmans from the bank and the $20,000 paid to the Chapmans by the Virnsteins as part of the proceeds of their loan by the bank. The Chapmans drew a check on this account in the amount of $2,609.36 to the bank, in accordance with their loan application of September 7, to pay off their indebtedness to the bank.

Therefore, the October 18 check to the Fords, from this account, in the amount of $55,000, necessarily included a part of the $20,000 which had gone into the account from the Virnsteins’ payment to the Chapmans. A written contract of sale was entered into, between the Chap-mans and the Virnsteins for the Western Auto property, dated ⁴⁹ November 1, 1962. The purchase price was $125,000, of which, the contract stated, $20,000' “has been paid at the signing hereof.” The contract provided that the balance of $105,000 was to be paid, with interest at the rate of six percent, over a period of 115 months, in monthly installments of $1202.88. Possession of the property was not delivered until November 1, at which time the Virnsteins began to receive the rentals from the property.

Taxes and insurance were adjusted as of that date, and interest was allowed on the $20,000 deposit from October 18. No settlement sheets were produced. At the trial below, Chapman was called by the Fords, presumably as an adverse witness. The Fords also put Virnstein on the stand and his pre-trial deposition was put in evidence by them.

The Fords’ brief alleges that a reading of the testimony of Chapman and Virnstein “shows that they were both evasive and reluctant to give direct answers” and our own reading of the record supports that statement. Chapman first admitted that he arrived at the terms of the sale with Virnstein sometime in October, although he later attempted to change his testimony as to the time of the agreement. Virnstein testified that, on October 18, he and Chapman had agreed on the pnce and the down payment, as well as on the major details. Virnstein stated that he never knew what the monthly payments would be until just before the November 1 contract was signed, but Ford testified that Virnstein, on one of his visits to the Ford home in connection with the purchase of the property “around August” had stated that he had made an agreement to pay over $1200 a month.

As the written contract shows, the monthly payments were to be $1202.88. All of the documents and financial transactions which have been set forth were offered as part of the appellees’ case. In his first opinion denying the appellants’ motion, Judge Dorsey said: “It appears to the Court from all the circumstances surrounding this transaction that it is an attempt designed to evade the penalty clause in the mortgage.” In his second opinion after the conclusion of all the testimony Judge Dorsey stated: “It is inconceivable that the escrow agent, an attorney, would have drawn on the deposit placed in the escrow account by Virnstein unless the transaction ⁵⁰ had been fully consummated by the Defendants and Virnstein, the purchaser. “All of the documentary evidence leads the Court to the conclusion that a legal and binding sale took place on October 18, 1962 between the Defendants and Virnstein, and that in an attempt to evade the penalty clause, it was not formalized by a Written Contract until November 1, 1962.” The appellants contend that, even if an oral agreement of sale and purchase had been made by October 18, 1962, which they deny, that agreement was not enforceable because it had not been in writing and was therefore unenforceable under the Statute of Frauds. Even in equity, they argue, the agreement would not have come under the partial performance exception, because even if part payment had been made,