Grant v. Kahn

WOODWARD, J. This appeal arises from the decision of the Circuit Court for Montgomery County to deny the motion filed by appellant, Kareem Grant, to release the judgment levy on his residential property located at 11355 King George Drive, Unit 11, Wheaton, Maryland (“the property”). Grant acquired the property from Jeffrey Ganz by means of a residential sales contract (“the contract”), which included, inter alia, a financing contingency provision. While the contract was pending, but before settlement occurred, appellees, Stacy G. Kahn and Steven Kahn (“the Kahns”), filed a Complaint for Confessed Judgment against Ganz, and the circuit court entered a Judgment by Confession against Ganz. 1 Without any knowledge of the ⁴²⁴ confessed judgment, Grant completed the purchase of the property from Ganz several days later. Thereafter, the Kahns filed a Request for Writ of Execution by Levy on the property, which Grant then owned.

Grant responded by filing a Motion to Release Property from Levy. After a hearing, the circuit court denied Grant’s motion. This appeal followed. Grant presents one question for our review, which we have slightly rephrased: Did the circuit court err in holding that, as a matter of law, equitable title to the property did not pass to Grant, as purchaser, under a contract of sale executed and delivered prior to the entry of the confessed judgment against Ganz, as seller, because a financing contingency in the contract had not been satisfied or removed on the date that the confessed judgment was entered?

Finding error, we shall reverse the judgment of the circuit court. 2 BACKGROUND On May 29, 2007, Grant and Ganz entered into the contract whereby Grant agreed to purchase, and Ganz agreed to sell, the property for the sum of $320,000. A Montgomery County Jurisdictional Addendum to the contract contained, inter alia, the following provisions: 11. Financing and Financing Application. — THE PROVISIONS OF THIS PARAGRAPH SUPERCEDE THE FINANCING AND FINANCING APPLICATION AND COMMITMENT PARAGRAPHS OF THE MAR CONTRACT. D. Financing ... ⁴²⁵ ...

This contract is contingent on Buyer obtaining approval for loan(s) to purchase the Property (The “Financing Contingency”). This contract is contingent until 9 p.m. 45 Days after Date of Ratification (“Financing Deadline”) upon Buyer Delivering Notice to Seller on the Regional Form # 100 removing this Financing Contingency. Such notice ... shall not be accompanied by a letter from the lender (“Lender’s Letter”). If Buyer fails to Deliver Regional Form # 100 by deadline, this contingency will continue, unless Seller at Seller’s option gives notice to Buyer that this Contract will become void.

If Seller Delivers such Notice this Contract will become void at 9 p.m. on the third day following Delivery of Seller’s Notice unless prior to that date and time: a) Buyer Delivers to Seller Regional Form # 100 (if required); or b) Buyer Delivers to Seller Regional Form # 100 and provides Seller with evidence of sufficient funds available to complete Settlement without obtaining financing. Upon Delivery to Seller of either (a) or (b) above, this Contract will no longer be contingent on Buyer being approved for the Specified Financing and this Contract will remain in full force and effect. Prior to satisfaction or removal of the Financing Contingency, if Buyer receives a written rejection for the Specified Financing and Delivers a copy of the written rejection to Seller, this Contract will become void. Grant never provided Ganz with Regional Form # 100.

Nevertheless, on July 31, 2007, Grant and Ganz closed on the sale of the property. Grant delivered the purchase money of $320,000, which came from a loan for the same amount that was approved on the day of closing. In exchange, Ganz delivered to Grant a deed to the property, which was subsequently duly recorded. ⁴²⁶ On July 20, 2007, less than two months after Grant and Ganz entered into the contract, and while the contract remained executory, the Kahns filed a Complaint for Confession of Judgment, which resulted in the circuit court entering a Judgment by Confession against Ganz on July 24, 2007, in the amount of $148,929.52, plus interest of $1,094.10 and attorney’s fees of $22,339.43. On March 27, 2008, the Kahns filed a request for Writ of Execution by Levy pursuant to Maryland Rule 2-641, in which the Kahns requested that the circuit court issue a Writ of Execution directing the sheriff to levy upon the property.

On April 4, 2008, Grant filed a Motion to Release Property from Judgment Levy. The circuit court held a hearing on the motion on May 28, 2008, at the conclusion of which the court denied Grant’s motion. This timely appeal followed. DISCUSSION Grant argues that the doctrine of equitable conversion prevented the judgment against Ganz from attaching to the property.

Specifically, Grant contends that, under the doctrine of equitable conversion, on May 29, 2007, when Grant and Ganz entered into the contract of sale, Grant became the equitable owner of the property and Ganz held only bare legal title. According to Grant, because a judgment creditor’s lien cannot attach to bare legal title, the judgment against Ganz could not attach to the property after the execution of the contract of sale. Grant rejects the theory that the financing contingency in the contract of sale prevented the doctrine of equitable conversion from applying, because Grant could have waived the contingency and sought specific performance. Additionally, Grant contends that language in this Court’s opinion in Chambers v. Cardinal, 177 Md.App. 418 , 935 A.2d 502 (2007), which is contrary to his position, is merely dicta.

Lastly, Grant submits that sound public policy supports a determination that equitable conversion occurred despite the financing contingency, because to hold otherwise would expose buyers who commonly rely on such contingencies to significant ⁴²⁷ risks “associated with the seller’s creditworthiness or lack thereof.” The Kahns counter that the circuit court was correct in its determination that the doctrine of equitable conversion was not applicable under the circumstances of the instant case. According to the Kahns, “[t]he ability of a buyer to specifically enforce a contract for realty is the lynchpin upon which rests the determination of whether equitable conversion has occurred.” The Kahns contend that Grant could not have obtained specific performance of the contract of sale, because “specific performance requires that all contingencies and conditions precedent be satisfied by the party demanding the same.” Here, according to the Kahns, the financing contingency remained unsatisfied and unremoved at the time that the confessed judgment was entered against Ganz, and thus equitable conversion had not occurred to prevent the judgment from attaching to the property. The Kahns also assert that Grant could not waive the financing contingency, because such contingency benefitted both Ganz, as seller, and Grant, as buyer. Finally, the Kahns contend that sound public policy supports affirming the circuit court, because fault lies with the title company that failed to bring the title examination up-to-date prior to closing.

The Kahns conclude that a contrary holding would allow judgment debtors to shelter property from liens by entering into nonbinding contracts of sale. Standard of Review Where “[t]he material first-level facts are not in dispute” and “[t]he issue decided by the circuit court, and pursued ... on appeal, is purely legal,” we decide it de novo. Howard Cnty. v. Heartwood 88, LLC, 178 Md.App. 491, 496 , 943 A.2d 22 (2008). In the instant appeal, the facts are not in dispute, and the issue on appeal is purely legal.

We therefore decide the issue de novo. We also note that “[t]he interpretation of a contract ... is a question of law, subject to de novo review.” Clancy v. ⁴²⁸ King, 405 Md. 541, 556-57 , 954 A.2d 1092 (2008) (quotations omitted). Maryland adheres to the principle of the objective interpretation of contracts. The court gives effect to the clear terms of the contract regardless of what the parties to the contract may have believed those terms to mean.

Words are to be given their ordinary meaning. If the language of a contract is unambiguous, the court does not contemplate what the parties may have subjectively intended by certain terms at'the time of formation. Rather, the court must presume that the parties meant what they expressed. Anderson Adventures, LLC v. Sam & Murphy, Inc., 176 Md.App. 164, 178 , 932 A.2d 1186 (2007) (citations, quotations, and alterations omitted).

Equitable Conversion “Equitable conversion ... is a theoretical change of property from realty to personalty, or vice versa, in order that the intention of the parties, in the case of a contract of sale, or the directions of the testator, in the case of directions in a will, may be given effect.” Coe v. Hays, 328 Md. 350, 358 , 614 A.2d 576 (1992). “The doctrine of equitable conversion and, more particularly, by contract, is [ ] well-established in Maryland.” DeShields v. Broadwater, 338 Md. 422, 437 , 659 A.2d 300 (1995). Our courts have routinely cited Thompson on Real Property’s treatment of the topic: The legal cliche, that equity treats that as being done which should be done, is the basis of the theory of equitable conversion. Hence, when the vendee contracts to buy and the vendor to sell, though legal title has not yet passed, in equity the vendee becomes owner of the land, the vendor of the purchase money. 11 Thompson on Real Property § 96.06(a) (David A. Thomas ed., 2002 & Supp.2008) (footnote omitted). See DeShields, 338 Md. at 437 ; Coe, 328 Md. at 358 , 614 A.2d 576 ; Himmighoefer v. Medallion Industr., Inc., 302 Md. 270, 278 , 487 A.2d 282 (1985). ⁴²⁹ Speaking for the Court of Appeals in Watson v. Watson, 304 Md. 48, 61 , 497 A.2d 794 (1985), Judge Lawrence Rodowsky wrote: The doctrine of equitable conversion by contract rests on the maxim that equity considers as done that which ought to be done.

Hence, an equitable conversion will place equitable title in the purchaser only if the contract is one under which the vendor would be subject to a decree for specific performance. As explained by Chief Judge Jeremiah Townley Chase for the Court in Hampson v. Edelen, [ 2 H. & J. 64, 66 (1807) ], [a] contract for land, bona fide made for a valuable consideration, vests the equitable interest in the vendee from the time of the execution of the contract, although the money is not paid at that time. When the money is paid according to the terms of the contract, the vendee is entitled to a conveyance, and to a decree in Chancery for a specific execution of the contract, if such conveyance is refused. [ ] The commentators are in accord that equitable conversion by contract takes place only if the contract is specifically enforceable. (Emphasis added).

Judge Rodowsky went on to discuss the legal effect of a judgment entered against a vendor after the contract has been made: One result of the doctrine is that a judgment entered against the vendor after the contract has been made does not become a lien on the realty. A vendor’s judgment creditor may not execute on the realty because the vendor, sometimes described as trustee for the purchaser, has a right to the balance of the purchase money but has no beneficial interest in the property. Equitable title is superi- or to a later judgment lien. Watson, 304 Md. at 60 , 497 A.2d 794 (emphasis added); accord, Caltrider v. Caples, 160 Md. 392, 396 , 153 A. 445 (1931) (stating that “ ‘[a] judgment obtained by a third person ⁴³⁰ against the vendor, mesne the making [of] the contract and the payment of the money, cannot defeat or impair the equitable interest thus acquired, nor is it a lien on the land to affect the right of such cestui que trust.’ ” (quoting Hampson, 2 H. & J. at 66 )).

In Himmighoefer , the Court of Appeals elaborated on this aspect of the doctrine: It is a general rule that the holder of an