Clemens v. Union Trust Co.

Mitchell, J., delivered the opinion of the Court. The appeal in this case is from an order passed by the Circuit Court of Baltimore City on the 7th day of November, 1935, dismissing an amended bill of complaint filed by Lennox B. Clemens, trustee, the appellant, against the Union Trust Company of Maryland, a corporation, Charles Ruzicka and James B. Diggs, trustees, and the Royal Realty Corporation, appellees. The amended bill of complaint, in substance, alleges that prior to January 27th, in the year 1931, the appellant was indebted to the trust company for unsecured loans aggregating the sum of $71,000, and that on said date negotiations between the appellant and the trust company resulted in the execution of a mortgage from the former to the latter, securing, to the extent of the value' of the property therein described, said prior indebtedness.. The mortgage was duly recorded.

Its preamble recites the authority of the mortgagor, as trustee under the will, of Mary Clemens, to execute the same; a loan of $71,000, as of the date of the mortgage, to be paid, with interest, in the meantime, half-yearly, at the rate of six per cent, per annum, in one year from date of the mortgage; and further recites the execution and delivery of a ne ⁵²³ gotiable promissory note of even date, by the mortgagor to the mortgagee, for the principal of said loan and the interest to accrue thereon, payable in one year from date at the same rate of interest. The mortgage covered two unimproved lots or parcels of land, located within the limits of the City of Baltimore, and particularly described therein, which, according to the testimony of the appellant, contain in the aggregate thirty-five acres, and are susceptible of development as a desirable residential section. Among the terms and conditions of the mortgage which more particularly bear upon the instant case, are the following: (a) The usual provision that upon default being made in any covenant or condition of the mortgage, then the whole mortgage debt thereby secured shall be deemed due and payable forthwith, whereupon it shall be lawful for the mortgagee, its successors and assigns, or its attorney or agent, “to sell at public auction, the property hereinbefore described, in whole or separate parcels at the option of the party, selling, according to the provisions of article 66 of the Code of Public General Laws of this State, * * * which sale shall be made upon the following terms, viz.: all cash upon ratification of the sale, or such other terms as the party selling may deem expedient.” (b) Provision declaring the assent of the mortgagor to the passing of a decree for the sale of the mortgaged property “in whole or separate parcels at the option of the party selling,” in accordance with the general provisions of the Code relating to mortgages in the city of Baltimore. While the mortgage, as hereinbefore indicated, recites a contemporaneous loan, the appellant by his own testimony establishes the fact that it was given to secure a previous existing indebtedness, and that a check for the amount of the mortgage, passed to him by the mortgagee on the day of the transaction, was forthwith indorsed and redelivered to the mortgagee in settlement of said prior indebtedness. ⁵²⁴ Notwithstanding, as will be hereinafter observed, that our conclusion in the main is based upon the general principle that, in the absence of fraud, final ratifications should not be disturbed through collateral attack, we deem it expedient to review the undisputed facts as revealed by the record, and supported by the testimony of the appellant himself.

These facts are as follows: (a) That the appellant at the time of executing the mortgage,- and at the time of its foreclosure, was a member of the Baltimore City Bar, and actively engaged in the real estate business. (b) That nothing was ever paid by the mortgagor, or on his behalf, upon said mortgage, and that taxes and assessments for the years 1931, 1932, 1933, and 1934 were permitted by the mortgagor to accumulate, resulting in imminent danger of a sale of the mortgaged property under tax proceedings by the City of Baltimore. It maybe added that the aggregate of these taxes, including" interest and penalties, was the sum of $4,590.08, and that they were paid solely by the mortgagee, as late as September 29th, 1934. Furthermore, the mortgagee, as early as April 17th, 1933, wrote the mortgagor calling the latter’s attention to his previous promise that the then existing taxes would be paid; and the mortgagor, replying thereto on the following day, asked for further extension, assuring the mortgagee of an arrangement with the city tax authorities to protect the property from the danger of a tax sale, and that every effort was being-made to pay the taxes at as early a date as possible.

(c) The total assessment of the mortgaged property,, for state and city tax purposes, is shown to be $33,340. Briefly, except as to the actual payment of the taxes, by the mortgagee, such was the status of the transaction between the mortgagor and the mortgagee, when, on or about the 20th of July, 1934, the mortgagee Instituted' foreclosure proceedings upon the mortgage, in the Circuit Court of Baltimore City. On said July 20th, 1934, the mortgagor wrote the trust company to the effect that he had noted from the Daily Record that the company ⁵²⁵ had instituted said proceedings, requesting that if the company contemplated immediate advertisement of the property covered by the mortgage, it defer action until Mr. Hopkins, his attorney, who was handling the matter for the mortgagor, returned from his vacation, in order that an opportunity would be furnished the mortgagor and his attorney to discuss the situation with the mortgagee. On the following day the trust company, replying to the foregoing letter, requested information as to when Mr. Hopkins would return, and advised the mortgagor that it did not feel warranted in continuing the mortgage in question, because of the large amount due for taxes and interest.

Nothing further appears to have transpired between the parties in this matter until about the first part of the month of September, when Mr. Hopkins returned to the city, and, according to the testimony of the appellant, the following took place: “Q. I wish you would tell the court what, if anything, transpired after you received that letter from the Union Trust Company, dated July 21, 1934? A. Nothing, until Mr. Hopkins came back to town. Q. Then what took place? A. That was about the first part of September.

He made an appointment with the Union Trust Company, Mr. Dunn, of the Union Trust Company, to discuss the matter, and, before attending the conference, Mr. Hopkins and I talked it over, and we decided we could not do anything, except give them a deed for the property—they had refused additional security prior to that time, and there was nothing further we could do. Mr. Hopkins called Mr. Dunn up in my presence, and told him we would not attend the conference, that we could not do anything further.” About six weeks after this conversation, the property was advertised in the Daily Record, a journal of many years’ standing, principally devoted to the publication of legal notices and proceedings of the state and city courts, and circulated mainly among lawyers, realtors, and generally those interested in legal matters, especially public sales of real estate. The advertisement was in ⁵²⁶ serted at least five times during the period of four weeks preceding the sale; and the sale took place on November 21st, 1934, according to the advertisement, at 1:15 o’clock p. m., by public auction at the Real Estate Board rooms, the situs of numerous like sales. The property was sold to the Royal Realty Corporation, one of the appellees, for the sum of $20,000; and on the same day the sale appears to have been reported to the court by Charles Ruzieka and James B. Diggs, the trustees theretofore appointed to make said sale, being finally ratified and confirmed by the court on the 26th day of November, 1934.

Following the ratification of the sale, an audit of the proceeds thereof was made by the auditor of the court and filed in the proceedings on January 3rd, 1935, showing a deficit of $64,420.58; which report was finally ratified by the court, without exception, on January 15th, 1935. On the latter date a motion for a deficiency decree in personam for the said sum of $64,420.58 was made on behalf of the trust company, and- a subpoena was thereupon issued to be served upon the appellant, to show cause why such decree should not be passed. This subpoena appears to have been returned non est; but a subsequent subpoena was served upon the appellant, and the motion for a deficiency decree is apparently yet pending in the lower court. It is contended by the appellant that, notwithstanding the procedure hereinbefore detailed, he was entirely ignorant of the sale of the property until on or about January 28th, 1935; but it is admitted by him that during the interval following the date when, through his counsel, he notified the trust company that he could do no more than convey the property, he took no steps to inform himself of subsequent developments, and that he was a subscriber to the Daily Record.

Without commenting upon this unusual circumstance, we will now proceed to detail the reasons set forth in the amended bill of complaint for attacking the final ratifications of the sale, and the auditor’s report thereon. First, they are designed to contest the sale because ⁵²⁷ of the manner in which it was advertised, although the advertisement was inserted in accordance with the decree of the court which appointed the trustees to make the sale. That decree, passed on July 17th, 1934, empowered the trustees “to make the said sale, having given at least three weeks notice by advertisement inserted in such daily newspaper or newspapers published in the City of Baltimore as they shall think proper, of the time, place, manner and terms of sale”; and as hereinbefore stated, the several advertisements appearing in the Daily Record covered a period of more than three weeks. It is further contended by the appellant that a lack of discretion was exhibited by the trustees in their failure to post a notice of the sale upon the mortgaged property; that the sale should have been held thereon, instead of in the Real Estate Board rooms; that no personal notice of the sale was served upon the mortgagor; that the advertisement of sale fixed 1:15 o’clock p. m. as the time at which it was to be made, whereas the property is reported to have been sold at 1 o’clock p. m.; that the purchaser was a subsidiary corporation or real estate holding company of the mortgagee; that the purchase price for the property was grossly inadequate; the failure of the appellant to receive notice of the filing of the auditor’s account; that the trustees designedly refrained from seeing that the sheriff served the writ of subpoena directed to the appellant, following the motion of the trust company for a deficiency decree; and, generally, that through an unfair arrangement between the mortgagee, the purchaser, and the trustees, a fraud was practiced upon the mortgagor.

In dealing with these several matters, it should be borne in mind that the proceedings now before us represent a collateral attack upon the final ratifications of the sale and the auditor’s report, as distinguished from exceptions to the sale and auditor’s report; and that while a judicial sale and auditor’s report, before ratification, may be successfully contested upon matters of irregularity, such matters, after ratification, ordinarily ⁵²⁸ form no basis for collateral attack, unless they are interwoven with fraudulent designs. In Jones on Mortgages (8th Ed.), sec. 2137, it is stated: “After a confirmation of the sale and final decree, on application to set aside the sale, decree of confirmation and final decree, reasons founded on irregularities in making the sale are not available, unless a sufficient excuse is shown for failure to present such reasons in opposition to the application to confirm the sale. In general it may be said that objections to a sale based upon errors in the proceedings or in the decree will not be considered.” Considering the several criticisms of the manner in which the sale in this case was conducted, and passing for the moment the patent fact that they each concern matters which, in the absence of fraud, should have been raised by exceptions duly filed prior to the passage of the respective orders finally ratifying the sale and the auditor’s report, do they mount up to that degree of irregularity which would justify a court of equity in annulling the final ratifications by the lower court? The record shows that the advertisement inserted in the Daily Record was captioned, in large display type, “Trustees’ Sale of Valuable Fee-Simple Unimproved Property, Suitable for Development, Situate on the North Side of Northern Parkway, East of York Road”; and in regular type, a full and particular description of the property, by metes and bounds, courses and distances, is given.

While the mortgage provides for a cash sale, in the discretion of the party selling, upon final ratification, or such other terms as such party may deem expedient, the terms under which the property was advertised are one-third cash, one-third in six months, and one-third in twelve months from date of sale. It was said in Kres v. Hornstein, 161 Md. 1 , 155 A. 171 , 173: “The Daily Record is a most valuable medium of reaching professional bidders. But, in order to reach the general public, most prudent owners would at least insert a short notice in a paper of wider circulation, ⁵²⁹ giving the attractive features of the property and referring to the more extended description in the Daily Record. We have noted a practice of this sort in a number of cases.

We are not to be understood, however, as holding that a failure to do this would in itself be a sufficient ground for setting aside the sale.” In that case exceptions were raised to the ratification of the sale; and the propriety of its conduct involved the serious discrepancy of failing to disclose in the advertisement that an improvement upon the property, described as a “two-story building with store front,” was in fact a large brick warehouse under a five-year lease at an annual rental of $2,000, with an option to the tenant to renew the lease for an additional five years