Dorsey v. Beads

Smith, J., delivered the opinion of the Court. When appellant, Harold H. Dorsey, a Carroll County builder, was not paid the full sum due him for a home he constructed on his lot and then sold to appellees, Donald A. ¹⁶³ Beads and Alice Beads, his wife, he persuaded them several months after settlement to execute a mortgage covering this sum and certain other monies said to be due him. They defaulted after making several payments. He instituted a foreclosure action.

They countered with a bill of complaint in that proceeding seeking to invalidate and set aside the mortgage and note and to enjoin the foreclosure. Upon grounds of merger, estoppel, and the Federal Truth-In-Lending Act, 15 U.S.C. § 1601 et seq. (the Act), a trial judge ruled in their favor. Dorsey appealed to the Court of Special Appeals.

He then petitioned us for the writ of certiorari prior to argument in that court. We granted the petition because we had not previously addressed a case arising under the Act. We disagree with the chancellor on all three grounds upon which he relied. Hence, we shall reverse. i.

The facts From about 1951 until just prior to his testimony in this case, Beads was employed by Exxon Corporation. His most recent position there was as a relief foreman. (He had changed jobs just prior to his testimony.) Mrs. Beads is a language arts teacher in the Carroll County schools. They owned their home in Baltimore County but desired a better one.

They came in contact with a Baltimore realtor with whom they listed their house for sale. That realtor had had dealings over prior years with Dorsey. Through the realtor the Beads and Dorsey entered into a contract by which he was to build them a home on a site to be purchased by him in Carroll County. The Beads never saw Dorsey until after the house was well under way.

The contract between Dorsey and the Beads was dated January 19, 1975. He agreed to convey certain realty to them after constructing a home "in accordance with attached plans.” The purchase price was to be $53,900.00, of which $500.00 was said to have been paid prior to the signing of the contract. The agreement provided for a second payment of $500.00 on June 15. The balance was to be paid at settlement.

It was set as on or before August 15, 1975. A ¹⁶⁴ purchase money mortgage was to be procured by the buyers or their agents with certain specified terms. The contract was to be null and void if the mortgage had not been procured by a certain date. Mortgage financing was arranged, apparently through a block of funds purchased by Dorsey for his customers through a realtor.

However, when the Beads’ realtor was unable to sell their home prior to the time for settlement, they were unable to meet the requirements of that federally guaranteed loan. Mrs. Beads was anxious to move into their new home and to have their children entered in the Carroll County schools at the beginning of the school year in September 1975. Two pre-settlement occupancy agreements were entered into between Dorsey and the Beads. The first called for possession on October 8, 1975, with the sum of $13.50 per day to be paid as rental.

It recited that the sum of $9,600.00 by way of additional deposit was to be paid. The date of settlement was extended to November 20, 1975. This agreement is on a duplicated form. We are not enlightened as to its author.

On October 20, 1975, what was termed a "Further Pre-Occupancy Agreement” was prepared by Dorsey in longhand on his letterhead. It indicated that it was intended "to clarify monies between the parties.” It recited that the original settlement date was August 15,1975; that when the house was ready for delivery the Beads could not settle; that because Dorsey was losing interest and return on his money he sought security and reimbursement; and that the rental period of August 15 to September 14,1975, was "exchanged for contract items, deletion of cellar, bath, toilet and sink, and window screens,” which "items c[ould] be later added for $400.00.” It specified a daily rental fee of $13.50 beginning September 15, 1975, and continuing until the day of settlement. This sum was to be "due monthly.” It said that the Beads were to receive "deposit credit of $9,600.00 of which $5,500.00 is paid this date.” It specified that the remaining $4,100.00 was "promised to seller & [was] to be paid after sale of [the Beads’] previous residence” on Kevin ¹⁶⁵ Avenue in Baltimore County. This sum was to bear interest at the rate of ten pereentum per annum from August 15, 1975, and was to "constitute a third mortgage on that residence.” It was stated that the sale of the Kevin Avenue property was "expected shortly.” The agreement further said that this $4,100.00 was also to "be a second mortgage against [the] new residence .. . .” Settlement was to take place during the month of November.

It was provided that in no circumstance should Dorsey fail to receive the remaining $4,100.00 before December 31, 1975. There were other provisions not relevant to this controversy. The testimony of Mr. and Mrs. Beads indicates that the sum of $5,500.00 mentioned was in fact paid by their realtor to Dorsey as an advance to them on the sale of their Kevin Avenue home. They did not testify to ever having paid the remaining $4,100.00.

Their position is simply that they went to settlement and thus they thought nothing more remained to be paid. Ultimately, a conventional mortgage was procured through a Baltimore building and loan association. The summary of the transaction with the borrowers as shown on the settlement sheet reflected the contract sale price of $53,900.00 and certain settlement charges bringing the gross amount due from the borrowers to $56,055.40. The borrowers were credited with a mortgage of $45,000.00 plus a "deposit or earnest money” in the amount of $11,100.00 "paid by or in behalf of borrower.” It showed $44.60 payable to the Beads, the "borrower.” Dorsey was credited on the settlement sheet with the $53,900.00 purchase price and certain tax adjustments.

He was charged with certain settlement charges, the sum necessary to pay off a first mortgage loan to a Westminster bank, and the sum of $11,100.00 as "deposit of purchaser.” It reflected a balance due by Dorsey to the settlement attorneys of $433.09. Dorsey testified that it was necessary that the settlement sheet reflect this $11,100.00 credit or the mortgage loan would not have been obtainable. He said he did this without ¹⁶⁶ receiving any cash from the Beads. He indicated that this sum probably worked out to be what was needed to get through settlement.

The Beads’ home on Kevin Avenue was sold and settlement for it took place in March of 1976. The sale price apparently was about $19,000.00. The Beads say they received nothing at settlement. No settlement sheet relative to that transaction is in evidence.

In addition to his regular employment, Mr. Beads did some work for Dorsey. Dorsey said Beads told him that he could not use any of the sums so earned to pay the balance due Dorsey because they had borrowed for carpeting and new furniture. It was necessary to pay the sums thus earned on that loan. Dorsey said he was approached by Mr. Beads after the sale of the Kevin Avenue property when there was no money left from it to pay Dorsey.

Beads asked that arrangements be made for them to pay some amount each month on the sum remaining due to Dorsey. Ultimately, the Beads executed a mortgage to Dorsey in the amount of $5,000.00 under date of May 14, 1976. The accompanying note specified that interest was to be at the rate of eight per cent per annum and that consecutive monthly installments of $100.00 were to be paid. An amortization schedule was provided.

It is not disputed that this mortgage is in default. It is impossible to reconcile the account between the parties on the basis of this record, nor are we required to do so. Dorsey says, and the Beads do not dispute him, that the only sum paid him directly by them was $500.00. He further states that the only other sum received by him from or on behalf of the Beads prior to settlement was the amount of $5,500.00 advanced by their realtor.

Dorsey says no money was paid to him at settlement nor were any sums paid on his behalf other than that which came from the mortgage made by the Beads. The settlement sheet reflects payment on behalf of Dorsey of $40,501.65 to a Westminster bank and payment of certain settlement charges, including a commission of $2,695.00 to the realtor. Rent for the 148 day period from September 15, 1975, to settlement on February 10, 1976, at $13.50 per day works out to $1,998.00. No ¹⁶⁷ mention of rent appears on the settlement sheet.

Dorsey says no rent has ever been paid to him by or on behalf of the Beads. Dorsey testified that never prior to this had there been a case where he had constructed and then sold a home and had left the settlement table with money yet due him. He said this had occurred in a small percentage of instances since the settlement here. He further testified that never before this had he taken back a purchase money mortgage, nor has he taken any since then.

Dorsey said he does not get involved in procuring financing in the instances where he builds and sells a home. This is done by a realtor. In advance of this transaction, however, as previously indicated, because of the then tight money market, he had paid a realtor a certain amount of money to procure funds to be reserved for financing Dorsey’s sales. The ultimate mortgage loan to the Beads did not come from that source.

Dorsey said he has never been paid any fee for financing any transactions on behalf of his purchasers. ii. The proceedings in the circuit court Dorsey assigned the mortgage to his attorney for foreclosure and collection. Thereupon the Beads filed a bill of complaint seeking to invalidate and set aside that mortgage and promissory note. They sought and obtained an ex parte injunction prohibiting the sale pending determination of the case on its merits.

The bill recited the contract of sale and the purchase price specified therein; the settlement, "at which time [, it said,] the purchase price was paid in full. ..”; execution of the deed at settlement; their taking possession prior to settlement; that on or about May 14, 1976, Dorsey came to their home stating that he had not been able to collect about $5,000.00 "owed him from the realtor involved in the transaction,” that he desired that they pay him this sum, and then presented to them the note, the loan disclosure statement, and an agreement as to the contractual rate of interest; that ¹⁶⁸ he advised them "that they were required to pay him the monies which he demanded and he further required them to execute” the various documents including the second mortgage; that they executed the instruments and began making payment on the note and mortgage "under the mistaken belief that they were liable to Defendant, Harold H. Dorsey”; that they stopped making payments in January of 1978; that the mortgage was assigned for foreclosure and sale had been scheduled; that there was no consideration for the mortgage and note; that they were not indebted "for any monies whatsoever under the mortgage or otherwise”; that Dorsey fraudulently induced them to execute the mortgage and note by telling them that they were liable for these sums "when in fact... at the time he made said representations he knew that they were not liable and he did not disclose the facts of the matter to the Plaintiffs concerning who was liable to him for said monies”; that he failed to comply with Maryland Code (1975) § 12-401 et seq., Commercial Law Article, concerning secondary mortgage loans; that Dorsey "failed to advise the [Beads] that they had the right of recission with regard to the Note and Mortgage which they executed”; and various other items not here relevant. The allegation of the Beads relative to § 12-401 et seq. of the Commercial Law Article concerning secondary mortgage loans was held to be without foundation. No cross-appeal on that point was filed. The Beads contended that under the Act Dorsey was a creditor as defined in the statute, the chancellor said, "We 1635 to disclose to the Beads their right of recission under the Act; and that since this was not done the Beads were not obligated to Dorsey, the bill of complaint having amounted to notice of intent to rescind.

In response to Dorsey’s contention that he was not a creditor as defined in the statute, the chancellor said,"We believe he has misconstrued that definition.” He went on to say, after quoting from the Act and from Eby v. Reb Realty, Inc., 495 F.2d 646 (9th Cir. 1974): The credit extended by Dorsey to the Beads was ¹⁶⁹ not an isolated instance. Dorsey, in our opinion, is clearly at least an arranger of credit and as such was required to comply with 15 U.S.C. § 1601 , et seq. when he extended credit to the Beads. He found the bill of complaint to be sufficient notice under § 1635 (a) of recission by the Beads. We need not decide this latter point.

The trial judge also rested his decision upon the established principle of law that a deed made in full execution of a contract of sale of land merges the provisions of the contract therein, including all prior negotiations and agreements leading up to the execution of the deed, becoming the final and exclusive agreement between the parties by which their rights are to be determined. Under this he held that Dorsey could not be heard to contend that the mortgage represented a sum still due him since this would be "inconsistent with the deed and . . . would tend to contradict it.” He pointed out, "There is nothing in the contract of sale that would indicate any agreement that the terms of the contract made prior to the deed were to survive the execution of the deed.” Finally, he held "that Mr. Dorsey, having misled the lending institution and the settlement attorneys as to the actual down payment made by the Beads, is now estopped to assert a claim inconsistent with his previous action.” iii. Merger The deed here recited $5.00 and other good and valuable considerations. It did not say, as many deeds do, "the receipt whereof is hereby acknowledged . ...” 1 ¹⁷⁰ The definitive case in Maryland on the parol evidence rule, with which the doctrine of merger is intertwined, is Rinaudo v. Bloom, 209 Md. 1 , 120 A.2d 184 (1956).

There Chief Judge Bruñe said for the Court, "[T]he consideration stated in a deed may usually be contradicted and the true consideration may be shown by parol. Koogle v. Cline, 110 Md. 587 , 73 A. 672 [(1909)].” Id. at 8. The cited case does indeed so hold. In Barrie v. Abate, 209 Md. 578 , 121 A.2d 862 (1956), cited by the chancellor, Judge Delaplaine said for the Court: It is an accepted rule that a prima facie presumption arises from the acceptance of a deed that it is an execution of the entire agreement for the sale of the realty, and the rights of the parties in relation to the agreement are to be determined by the deed.

However, parol evidence may be given of collateral facts relating to an agreement for the sale of realty, even though a deed has been executed, if the. facts are consistent with the deed and do not tend to contradict it. Stevens v. Milestone, 190 Md. 61, 65 , 57 A.2d 292 [(1948)]; Edison Realty Co. v. Bauernschub, 191 Md. 451, 458 , 62 A.2d 354 [(1948)]. [Id. at