Donald v. Chaney

W. ALBERT MENCHINE, Judge. This appeal is a spin-off from real estate mortgage foreclosure proceedings instituted in the Circuit Court for Anne Arundel County on behalf of Huffman, et ux., mortgagees against Herring Bay Partnership (Partnership) and others, mortgagors. The waterfront real estate of substantial acreage had been operated as a marina with slips for 200 boats. The appellants, Robert B. Donald, Arnold C. Gay and Donald E. Zinn (Claimants), occupied a dual role in the proceedings: (1) as three of four limited partners in the Partnership 1 and (2) as Claimants to a distributive share of the proceeds of the mortgage sale as creditors of the Partnership.

The Appellees, Steuart Chaney, Richard Chaney and George M. King (Purchasers), were the high bidders for the property at $1,150,000 at the mortgage sale. Claimants’ entitlement to payment from the proceeds of sale was junior to all other creditors. Those proceeds were insufficient to pay Claimants in full unless Purchasers were ⁴⁶⁸ required to pay interest upon the unpaid balance of the sales price from ten days after the date of the court’s ratification of the sale (December 27, 1982) to the date of settlement. Claimants filed a petition seeking a court order “to require assignee to collect and purchaser to pay” such interest.

Purchasers answered the petition seeking dismissal on equitable grounds. The assignee for foreclosure did not respond to the petition and has taken no position with respect to the dispute. The relief sought by Claimants was denied by the chancellor and on appeal the Court of Special Appeals affirmed in a unreported opinion. We granted certiorari to consider the question.

Claimants contend that the general rule applicable to sales at foreclosure requires purchasers at mortgage sale to pay interest upon the unpaid balance of the purchase price from the date prescribed for settlement to the actual date thereof, and that there are no equitable considerations justifying relaxation of the rule. Purchasers contend that under the facts and circumstances of the case, determination of the question fell within the judicial discretion of the chancellor and that the same was properly exercised. The general chancery practice concerning interest payments on sales under court decree is of ancient lineage. Chancellor Bland, in Brown v. Wallace, 2 Bland 585 , 594 (same case 4 G. & J. 479, 486 ) (1830), had declaréd: “It is a general rule as to sales under decrees of this Court, that the purchaser always pays interest, according to the terms of the decree, from the day of sale, whether he gets possession or not.

His getting possession is, in no case, allowed to be a condition precedent to the payment of either principal or interest of the purchase money. The purchaser is presumed to regulate his bidding with a view to the known powers and rules of the Court as to delivering possession. There is, therefore, nothing in this objection, even supposing this purchaser himself to have been in no default; and, by promptly ⁴⁶⁹ giving his bond, to have so clothed himself with an equity to demand a delivery of possession immediately after the sale had been finally ratified.” (Emphasis added.) Again in Wagner, et al. v. Cohen, 6 Gill 97, 102-03 (1847), it was said: “It is certainly true that a contract of sale made between the Court as the vendor of the property, through the agency of a trustee, and the purchaser, is never regarded as consummated until it has received the sanction and ratification of the Court____ “Although this is the character of the imperfect right acquired by a purchaser at a sale of this kind; yet, it gives to him, an inchoate and equitable title which becomes complete by the ratification of the Court. When this is accomplished, the ratification retroacts, and he is regarded by relation as the owner from the period of the sale.

He is as such proprietor entitled to the intermediate rents and profits of the estate; he cannot escape from the sale, because, he may believe it to be disadvantageous, and is bound to pay interest on the purchase money from its date; and has, therefore, a direct and strong interest in protecting the property from injury, and rendering it as productive as possible.” (Emphasis added.) To the same effect is Latrobe and Whistler v. Winans, 89 Md. 636 , 43 A. 829 (1899), wherein it was said at page 655, 43 A. 829 : “If the delay in completing the contract be attributable to the purchaser, he will be obliged to pay interest on the purchase money from the time the contract ought to have been carried into effect____” That the general rule should not be applied inflexibly, however, was made clear in Oldenburg v. Regester, 118 Md. 394 , 85 A. 411 (1912). The late Judge Urner, after noting that settlement had been delayed by the filing of exceptions to the sale in no way induced by action of the purchaser, and after recognizing that the cases cited supra had declared a general rule that the purchaser is ordinarily liable ⁴⁷⁰ for interest upon the unpaid purchase price upon ratification of sale, said at page 398, 85 A. 411 : “The cases cited were concerned with conditions altogether different from the present, and the rule invoked is not one of absolute and unvarying application. In a very recent case this Court has manifested its disposition to be governed by equitable considerations in dealing with such questions. Leviness v. Consol.

Gas Co., 114 Md. 573 [ 80 A. 304 ].” 2 In Oldenburg, supra, the purchasers had filed exceptions to a sale conducted in March, 1910, because examination of the land records disclosed an unreleased mortgage for $15,000. Although the mortgage had been paid prior to the sale, the purchasers were not so informed. When so informed, the exceptions were voluntarily dismissed and the sale ratified in October, 1910. At settlement shortly thereafter, the trustee demanded payment of interest by the appellants for the period of delay.

Interest for that period was allowed by the auditor with exceptions overruled by the lower court. On purchasers’ appeal the decree requiring payment of interest was reversed. The Court after observing that the trustee might at any time have obviated the difficulty by causing the release to be recorded, found the record showed “affirmatively and without contradiction that the appellants [purchasers] earnestly endeavored to accomplish that result.” 118 Md. at 398 , 85 A. at 412 . ⁴⁷¹ In Raith v. Bldg. & Loan Ass’n, 140 Md. 542 , 118 A. 67 (1922), this Court gave consideration to and rejected a purchaser’s contention that equitable considerations justified relaxation of the rule. In Raith , a second mortgagee filed exceptions to the first mortgagee’s sale.

The exceptions were overruled on October 2, 1920 and the second mortgagee appealed, but without filing an appeal bond. The order of the trial court ratifying and confirming the sale was affirmed on May 21, 1921. Raith sought relief from the payment of interest on the unpaid balance during that interval. We pointed out, citing then Maryland Code, Art. 5, § 29 (1911 Bagby) 3 that an appeal without bond did not affect the rights of a purchaser at a judicial sale even if the order of ratification is reversed on appeal and that “Raith could have had possession of the properties and have been protected ... if he had complied with the terms of sale at that time.” 140 Md. at 546 , 118 A. 67 .

The order requiring Raith to pay interest upon the unpaid balance was affirmed. In Merryman v. Bremmer, 250 Md. 1 , 241 A.2d 558 (1968) where the trustees had failed to seek resale at the risk of the purchaser under then applicable Maryland Code, Article 16, § 163 (1957) 4 and the purchaser was at all times able to pay the relatively small amount involved and ready and willing to do so when the amount of that balance was made known to the purchaser by the trustees, we said: “The delay, 5 therefore, must be attributed to the trustee, ⁴⁷² Merryman, and not to Bremmer.” 250 Md. at 10 , 241 A.2d 558 . The present issue was initiated on January 25, 1983, when Claimants filed a petition to require the trustee to collect and the purchasers to pay interest on the unpaid balance of the purchase price. Purchasers answered 'Claimants’ petition, claiming relief on equitable grounds.

Trustee did not answer, taking no position on the question. The trustee did, however, file a petition for resale at the risk of Purchasers, 6 pursuant to Maryland Rule BR6. 7 On March 9, 1983, the lower court called the case for hearing on trustee’s petition for resale and Claimants’ petition ' as to interest. At the outset of that hearing the Purchasers, Claimants, mortgagees, and trustee agreed that a consent order 8 should be passed requiring resale of the property at the risk of the Purchasers unless stipulated conditions for payments to the mortgagees were met and settlement occurred. Settlement ultimately occurred at a much later date than was prescribed in the conditions of sale. 9 The trial court then proceeded to consideration of Claimants’ petition.

After hearing statements from counsel for ⁴⁷³ all parties as to their respective legal positions concerning that petition, a witness, Steuart Chaney, one of the Purchasers, was called as the sole witness. The mortgage sale itself furnishes no factual dispute. The dispute arises from antecedent, concurrent and subsequent events incident thereto that Purchasers contend give rise to equitable considerations justifying relaxation of the general rule and entitling them to equitable relief from any obligation to pay interest upon the unpaid balance of the purchase price from December 27, 1982 to the date of settlement. THE SALE Advertising of the mortgage sale advised that the property would be sold on November 8, 1982 to the highest bidder; that a deposit of $50,000 would be required at the time and place of sale, and that the unpaid balance must be paid within 10 days after ratification of the sale by the Court.

The ad was silent as to payment of interest upon the unpaid balance. The Purchasers were the high bidder at sale at $1,150,000 and the required deposit of $50,000 was made. The sale was ratified by the Court on December 17, 1982. Settlement did not occur within 10 days from that date, being delayed for a number of months thereafter.

THE ANTECEDENT, CONCURRENT AND SUBSEQUENT EVENTS The testimony of the sole witness, Steuart Chaney, is summarized in narrative form as follows: The Purchasers at the mortgage sale were Steuart Chaney, Richard H. Chaney and George M. King. Prior to the sale the witness had ongoing discussions with Herring Bay Partnership concerning the property in the early summer of 1982 after seeing the foreclosure notice. On the Friday before the sale, the witness and King (another one of the three purchasers) met with Arnie Gay and Bob DeStefano (two of the limited partners) who in their own words were the primary ⁴⁷⁴ owners and could influence the purchase price. They said they would take 1.2 million dollars and although the Purchasers were not ready to pay that much, the parties were trying to work out a scheme whereby a contract could be agreed upon before the public sale; they would attend the sale to bid whatever it took to buy it but with the understanding that if the sum bid exceeded 1.2 million dollars, they would forego the excess amount so that the property would be acquired by Purchasers at not more than 1.2 million dollars.

No such contract was agreed upon, however. Gay and DeStefano had just come to the Friday meeting from Maryland National Bank (Bank) where they had been advised that the Bank might provide financing. After discussion, King, DeStefano, Gay and the witness proceeded to a meeting with Bank officials to confirm that the Bank was going to offer a financial proposal which had been prepared by Arnie Gay and Bob DeStefano which was “Yeah, for two years we’ll give you thirteen percent money for two years at interest only.” And that was the key of the Purchasers’ fall back position and a quick settlement situation. At the time of sale, it was still Purchasers’