Hall v. Barlow Corporation

Barnes, J., delivered the opinion of the Court. The appellants, W. Luther Hall and Elizabeth M. Hall, his wife (the Halls), who were plaintiffs below, brought this action in the Circuit Court for Montgomery County against The Barlow Corporation, appellee and defendant below, for reformation of a purchase money note in the amount of $352,000.00. The question presented by this appeal is whether or not the Chancellor (Shure, J.) abused his discretion in declining to permit the Halls to amend their Bill of Complaint, after a demurrer filed by The Barlow Corporation, on the grounds of limitations and laches, had been sustained. The allegations of the Bill of Complaint filed April 2, 1968, are substantially as follows : By a contract dated July 31, 1964, the Halls contracted to sell to Milton A. Barlow (Milton) improved real estate owned by them in Montgomery County known as 5510, 5514 Prospect Street and 4501, 4503 High Street in Block 3 of the Friendship Heights Subdivision.

A copy of the contract of sale of July 31, 1964, was annexed and incorporated in the bill of complaint by reference as Exhibit 1. Under the terms of the contract of sale, the purchaser of the property of the Halls was to give them a purchase money note in the amount of $352,000.00 secured by a deed of trust on the property, payable in 10 equal annual installments, plus interest. The contract of sale also pro ³¹ vided that its provisions survived the execution and delivery of the deed for the properties and were not to be merged in the deed and further that the contract might be assigned by Milton. The contract of sale further provided that “The Barlow Corporation shall guarantee payment by endorsement of the purchase money note.” On or about January 22, 1965, the foregoing contract of sale was settled at District-Realty Title Insurance Corporation, 1413 Eye Street, N.W., Washington, District of Columbia.

Title to the property sold was taken in the name of Prospect Properties, Inc., and the Halls alleged, upon information and belief, that Milton assigned the contract of sale to Prospect Properties, Inc. Milton “is president and director of both Prospect Properties, Inc. and The Barlow Corporation.” The purchase money note, annexed to the bill of complaint and incorporated by reference as Exhibit 2 “was not delivered to plaintiffs [the Halls] until on or about May 23, 1965, at which time plaintiffs executed a subordination agreement, subordinating the deed of trust securing the purchase money note” to a deed of trust securing the Riggs National Bank of Washington, D.C. in the aggregate amount of $13,500,000.00. Notwithstanding the provisions of the contract of sale, The Barlow Corporation “failed and neglected to guarantee by endorsement payment of the aforesaid purchase money note * * The Halls have made demands upon Prospect Properties, Inc. to pay the purchase money note, but it has not been paid and notice has been given to The Barlow Corporation. Demand has also been made upon the defendant corporation “to place upon said purchase money note its guarantee of payment as called for by the said contract, but the said Defendant has failed and refused so to do.” The failure of The Barlow Corporation to place its endorsement guaranteeing payment of the purchase money note was not discovered by the Halls until Jan ³² uary, 1967, when the Trustees under the $13,500,000.00 deed of trust were about to commence foreclosure proceedings which have since been consummated. The Halls, on information and belief, alleged that Prospect Properties, Inc. “is without assets, is insolvent, and is unable to make any payments on account of the Plaintiffs’ purchase money note.” The Halls have only received $35,200.00 on account of the principal amount of the note and there is presently due on the note $316,800.00 with interest at 6% per annum from January 22,1966.

The Halls prayed that (1) the purchase money note be reformed by requiring The Barlow Corporation to guarantee payment by endorsement of the note and (2) for further relief. The purchase money note, already described in part in the allegations of the bill of complaint and attached as Exhibit 2, is headed “Secured by Deed of Trust” and then identifies that deed of trust. The principal amount of $352,000.00 is payable in 10 equal installments of $35,-200.00, the first installment being payable one year after date with interest on the unpaid balance at the rate of 6% per annum. The right to prepay the note in whole or in part is reserved, but there is no guarantee of payment by endorsement by The Barlow Corporation on the note.

The contract of sale, dated July 31, 1964, attached to the bill of complaint as Exhibit 1, recites that a deposit of $20,000.00 from Milton had been received as part payment for the purchase of the properties (described by block and lot numbers in the Friendship Heights subdivision) containing approximately 47,807 square feet, the purchase price being $600,000.00 of which Milton, as purchaser, agreed to pay $100,000.00 in cash at the time of settlement, of which amount the $20,000.00 deposit should be a part. The purchaser, Milton, agreed to take the properties subject to first deeds of trust of approximately $148,000.00 and, for the balance of deferred payment of $352,000.00, he agreed to execute a second deed of trust secured on the premises payable in 10 equal annual in ³³ stallments of principal plus interest, with the first payment due on the first anniversary of the note, with the privilege of prepayment in whole or in part at any time without penalty. The sellers, the Halls, agreed to give possession at the time of settlement, which would be at the office of the Title Company searching the title. Settlement would be within 60 days after rezoning is in effect or as soon thereafter as a report on the title could be secured if promptly ordered or survey if required.

The contract of sale was not under seal. Attached as an addendum to the contract of sale was a single sheet of legal size, single spaced “Conditions”, signed by the Halls as sellers and Milton as purchaser. In relevant part they provide: “ (1) Property shall be zoned C-2. “(2) Montgomery County Zoning Ordinance as presently administered by the Department of Inspections and Licenses, shall continue to permit in not more restrictive form Apartment-Hotel under the C-2 zoning classification. “ (3) Purchaser shall bear cost of rezoning in Appeal No. C-1353. “(4) The purchase money note secured by a second deed of trust shall contain the following provisions: (a) The Note Holders agreed to subordinate this Deed of Trust to a bona-fide bank, insurance company, savings and loan association or similar financial institution constri, ction loan and the original permanent loan. (b) The Barlow Corporation shall guarantee payment by endorsement of the purchase money note.

(c) Note Maker shall purchase and deliver to Note Holders at time of subordination a fully paid one-year term noncaneellable life insurance policy upon ³⁴ the life of Milton Barlow, in the amount of the unpaid balance of said note, payable upon his death to the Note Holders. In the event the building to be erected upon the subject property is not substantially completed within said one-year policy period, the policy shall be extended for additional periods of not less than three months each until the said building is substantially completed. (d) Note Maker shall select a General Contractor fully experienced and capable of erecting the proposed building not later than the closing of the construction loan. Said contractor shall be under contract to complete construction of building in accordance with plans and specifications within a period not to exceed two (2) years and shall give customary guarantees of performance of said construction contract to both the Note Maker and Note Holder.

(e) Note Maker shall give to Note Holder assurances of performance to the extent as may be required by the Construction Lender. (f) Holder of the construction loan or the original permanent loan shall not institute proceeding to foreclose until they shall have first given written notice, mailed postage prepaid, 45 days prior thereto to the last known address of the Note Holders. (g) Note Maker, prior to commencement of construction, shall give evidence of financial ability to complete the building project, if the loan commitment ³⁵ does not exceed construction contract cost. (h) Note Maker represents that Milton Barlow now is and will continue as the chief executive officer of Note Maker until the substantial completion of the building to be erected upon subject property. “(6) This contract may be assigned, without personal liability to Milton Barlow.” On May 28, 1968, The Barlow Corporation filed a demurrer upon two grounds only: “1.

That the Bill of Complaint is barred by the Statute of Limitations. “2. That the Bill of Complaint is barred by Laches.” A hearing was requested and an argument was made by the parties before the Chancellor on the demurrer. On November 8,1968, the Chancellor filed a written opinion indicating that in addition to the claim that the suit was barred by the Statute of Limitations and by Laches, The Barlow Corporation “by Supplemental Memorandum urges that the Bill of Complaint must fail because there is an adequate remedy in law, and equity therefore lacks jurisdiction.” The Chancellor further indicated that, in his opinion, the three year Statute of Limitations, Code (1957), Art. 57, § 1, was a bar to the suit inasmuch as the cause of action accrued on January 22, 1965, and suit was not filed until April 2, 1968, or more than three years after the cause of action accrued, and also, that the Halls were guilty of laches, having “accepted the Note without endorsement and proceeded under its terms thereof for a period of years. There was no impediment to ability to take action at any time after settlement.” The Chanceller was also of the opinion that there was no showing that the remedy at law was not adequate ³⁶ stating that, “While the suit asks for endorsement at this time it is solely a damage action for money alleged to be due because of defaults upon the Note.” The Chancellor then entered an order on November 8, 1968, that the demurrer be “sustained without leave to amend.” Thereafter, on November 15, 1968, the Halls filed their motion for reconsideration of the opinion and order of November 8th alleging in part that: “Plaintiffs have alleged in their Bill of Complaint facts which while permitting the Court to make the finding as to laches and limitations that it has, do not set forth all of the facts that they have at their command which they may use in asserting their claim against Defendant.

Specifically, on or about May 21, 1965, the attached letter was signed by Milton A. Barlow and delivered to Norman M. Glasgow, then counsel for Plaintiffs, in which letter there is contained a repetition of the promise to have the note the subject matter of this action endorsed by Barlow Properties, Inc. The Bill of Complaint in this action was filed April 2, 1968, and consequently the action is not barred by limitations because it was filed within three (3) years from the renewed promise.” The attached letter of May 21, 1965, addressed to the then counsel for the Halls is as follows: “Under the addendum to the above sales contract, Dr. and Mrs. Hall agreed to subordinate their loan under provision 4 thereof and there is submitted herewith a request for such subordination together with the necessary documents to accomplish the same. “Paragraph 4(a) — This shall be accomplished when the subordination agreement is executed by the Halls. The necessary documents relating to the placing of the construction and original ³⁷ permanent loan have been transmitted to you for your review and approval. “Paragraph 4(b) — It is my understanding that the Halls will produce at settlement their note to which there will be affixed an endorsement by Barlow Properties, Inc. guaranteeing payment. “Paragraph 4(c) — A fully paid one year noncancellable life insurance policy upon the life of Milton Barlow in the amount of the unpaid balance of the note payable to note holders delivered herewith. Should the construction period for the buildings extend beyond the one year period the life insurance policy shall be extended during period of construction until the building is substantially completed. “Paragraph 4(d) — The general contractor for the project is the George A. Fuller Company of New York City, a nationally recognized construction company. A copy of the contract to be executed for the completion of the building has been furnished to you as well as a draft of the letter by the George A. Fuller Company guaranteeing completion of the project. “Paragraph 4(e) — The building and loan agreement with the Riggs National Bank will be executed when the plans and specifications are completed and the guaranteed cost of the building is established.

This agreement, together with the guarantee of completion by the George A. Fuller Company, are the documents required by the construction lender. “Paragraph 4(f) — The deed of trust securing the construction and permanent loan shall provide for a 45-day period of notice prior to foreclosure. “Paragraph 4(g) — The loan commitment in the amount of $13,500,000 exceeds the cost esti ³⁸ mate for construction prepared by the George A. Fuller Company to be $12,100,000. Other costs for architectural engineering, etc. total $1,-100,000. There is enclosed a copy of a letter by George A. Fuller Company estimating the building cost to be $12,100,000.00. There is also enclosed a schedule of ‘other costs.’ “Paragraph 4(h) — I represent that I, Milton A. Barlow am President of Prospect Properties, Inc. and will continue as such until the substantial completion of the building to be erected upon the subject property. “Respectfully submitted, “PROSPECT PROPERTIES, INC. “/s/ Milton A. Barlow, “President.” The Barlow Corporation filed an “opposition” to the motion of the Halls for reconsideration, and after argument, the Chancellor, on December 6, 1968, gave an oral ruling as follows: “Gentlemen, as you may recall I had this case in my office for consideration for several months and considered the matter carefully.

This was demurrer and it was decided purely and simply on the basis of the legal principles involving demurrers, to wit: That you assume that which was pleaded is factually correct if proven and you decide whether there is a cause of action. “This is a suit against the Barlow Corporation. While I alluded to another matter, I was clearly convinced principally that the statute began to run immediately and the other matters alluded to by both parties are actually extraneous to any hearing on a demurrer. It was suggested this new letter is not by one of the defen ³⁹ dants but by Prospect Properties through an agent. “I am of the opinion that this matter is one of those rare situations where they cannot make out a case in equity, and this is why I sustained without leave to amend. After careful consideration, I think my original ruling must stand.” A timely appeal was taken from both the Order of November 8th and the “Ruling” of December 6, 1968.

The Halls present two questions to us on this appeal: 1. Did the Chancellor err by abusing his discretion in not allowing the Halls to file an amended Bill of Complaint? 2. Did the Chancellor err in concluding that the three year statute of limitations barred the cause of action of the Halls for reformation of the purchase money note ? Inasmuch as we have concluded that the Chancellor abused his discretion in not allowing the Halls to file an amended bill of complaint, we do not reach the second question raised by the Halls, except as its subject matter may relate to our discussion of the first question.

It is well settled that the allowance of leave to amend is within the sound discretion of the trial court and that we will not disturb the lower court’s ruling unless it has clearly abused its discretion. As Judge Oppenheimer, for the Court, stated in Town of Somerset v. Montgomery County Board of Appeals, 245 Md. 52, 61 , 225 A. 2d 294, 300 (1966): “We have repeatedly held that an order denying or allowing an amendment will not be reversed in the absence of a clear showing of an abuse of discretion.” (citing prior Maryland cases) It is also well settled that amendments are to be fully allowed to the end that cases will be tried on their mer ⁴⁰ its rather than upon the niceties of pleading. Maryland Rule 320 d 1 (b) expressly provides, in part, that “An amendment shall not be made without leave of court but leave to amend shall be freely granted in order to provide justice." (Emphasis supplied.) As Judge Horney, for the Court,