Isle of Thye Land Co. v. Whisman

BARNES, J., delivered the opinion of the Court. On February 22, 1971, the Circuit Court for Prince George’s County, in equity, (Robert B. Mathias, J.) filed a decree in a suit for declaratory judgment pursuant to the Uniform Declaratory Judgment Act, Code (1957), Art. 31A, § 1 et seq., instituted by the appellee and cross-appellant, Harriet B. Whisman, administratrix of the estate of James J. Whisman, deceased (her late father), against Ralph F. Triska, one of the appellees who was the principal promoter of an elaborate development of land in Prince George’s County known as Tantallon on the Potomac (Triska), and the appellants and cross-appellees, Isle of Thye Land Company, a corporation which continued the development of Tantallon (Isle of Thye) and its successor corporation, Prestwick, Inc. (Prest ⁶⁸⁵ wick). Judge Mathias decreed that the provisions of a written contract, dated June 14, 1960, as amended by a later written contract made “as of” September 14, 1960, between Dr. James J. Whisman, the decedent of the administratrix, Harriet B. Whisman, and Triska (the contract) were declared to be binding on Isle of Thye and Prestwick; that the administratrix had the right to exercise the option provided in the contract to take either a 3y2 % interest in Prestwick or the sum of $100,000.00; and that if the election was to take the $100,000.00, the administratrix should have judgment for that amount against Isle of Thye and Prestwick, jointly and severally, together with interest from the date of the exercise of the option. The correctness of these rulings is presented to us by these appeals and cross-appeals.

The Tantallon development was previously before us in regard to one of its zoning aspects. See MacDonald v. Board of County Commissioners for Prince George’s County, 238 Md. 549 , 210 A. 2d 325 (1965), in which this Court reversed the order of the Circuit Court for Prince George’s County sustaining the action of the Board of County Commissioners for Prince George’s County in the rezoning of 29 acres of land from the R-R (Rural Residential) zone to the R-H (Multiple Family, High Rise Residential) zone so that Isle of Thye could not erect righ rise apartments on the 29 acres. This decision of the Court had a peripheral effect upon the contract as we will point out later in this opinion. At the time of trial before Judge Mathias six witnesses testified, i.e., James R. Thompson, a golf course architect who became a shareholder and officer of Isle of Thye (Thompson) ; Triska, who had conceived the Tantallon development and had made the contract with Dr. Whisman; Edward W. Nylen and John D. Gilmore, attorneys for Triska who handled the settlement under the contract and who prepared many of the relevant documents; Durand Holladay, who testified in regard to the financing provided by Continental Mortgage Investors (Continental) and the transfers to Prestwick; and, fi ⁶⁸⁶ nally, Edward J. Cook, who for part of the relevant period was’ Triska’s partner.

A substantial amount of evidence was produced and a number of elaborate documents were introduced into evidence. Dr. Whisman was not available for testimony, having died on October 7, 1964. The record extract consists of 433 printed pages. Judge Mathias, after hearing all of the evidence and the arguments of counsel for the respective parties, filed a detailed and carefully considered Memorandum and Opinion, making certain findings of fact and conclusions of law to which we will later refer in this opinion.

Triska and his partner, Cook, conceived a plan for a luxurious residential real estate development complete with marina, golf course, country club and other amenities in the southwestern portion of Prince George’s County on Swan Creek which empties into the Potomac River. For a detailed description of this concept, see the majority and dissenting opinions in MacDonald, supra ( 238 Md. at 551 and 582-84, 210 A. 2d at 326 and 344-45). As early as 1958 Triska and Cook began assembling the 655 acres of land which were to be used in the creation of the Tantallon development. A key parcel of land in this contemplated development was a tract of approximately 107 acres owned by Dr. Whisman.

Triska had known Dr. Whisman for some four or five years; and although he found Dr. Whisman to be somewhat eccentric, the Doctor was knowledgeable and sophisticated in regard to land development and land values. Triska outlined the proposed development to Dr. Whisman with such enthusiasm that he communicated his enthusiasm to Dr.,/Whisman who was persuaded to sell his 107 acres; but Dr. Whisman, nevertheless, desired a good price for his land, which he stated to be $3,000.00 an acre. He compromised, however, during the negotiations with Triska and finally agreed upon a cash price of $2,000.00 an acre in addition to which Dr. Whisman was to receive an interest in the proposed high rise apartment complex which was a part of the over-all plan of development. Triska testified that he explained to Dr. Whisman ⁶⁸⁷ that he had Cook as a partner and that “we ultimately would probably put it in the form of a corporation,” depending upon the financing requirements and tax consequences but “we presumed at that point it would be a corporation.” A written contract was prepared by Triska, without the assistance of counsel and signed by Dr. Whisman without the advice of counsel on June 14, 1960.

By this contract the 107 acre tract—situate in the Piscataway District of Prince George's County and being a part of “Warburton Manor” — was sold by Dr. Whisman to Triska, who deposited $1,000.00 to be applied to the purchase price upon the following terms: 1. The purchase price was $214,000.00 on the basis of $2,000.00 an acre, secured by a first deed of trust for “213,000.00 with 6% interest”; the interest only was to be paid for the first two years, beginning March 1, 1961, and payable semi-annually thereafter; after the second year, the principal of the deed of trust would be paid in 16 installments, with the right to prepay without penalty. 2. Dr. Whisman agreed to subordinate the lien of the deed of trust to “any legitimate construction loan” obtained by Triska and to release the lien at the rate of $1,-800.00 per building lot; land otherwise released would be at the rate of $2,500.00 per acre in minimum blocks of five acres, to be selected by Triska but contiguous to land previously released, with the right of Triska to select land for release “at least two points not in themselves contiguous.” 3. It was recited that Dr. Whisman reserved approximately five acres from the over-all parcel for his own use to be particularly described in the deed to be given at settlement; Triska was given the right to purchase this five acre parcel, at the option of Dr. Whisman at $3,000.00 per acre for a period of five years from the date of the contract and thereafter Triska “shall have the right of first refusal.” 4.

In addition to the total cash purchase price of $214,- ⁶⁸⁸ 000.00, Dr. Whisman was to obtain a 2% interest in “a contemplated apartment project” of Triska “or of an assignee of his.” 5. Added by an addendum to the contract of July 14, 1960, duly initialed by both parties, was a provision that at the end of six years from the date of settlement (which was to be selected by Triska but not more than 90 days from the contract date) if the approximately 1,000 unit apartment project had not been completed, Dr. Whisman, at his option, could receive in the place of the 2% interest in the apartment project, either: (a) 3% of the equity capital stock of the “holding corporation controlling the overall development of the project,” or (b) 10% of the equity capital stock of the utility corporation formed to provide sewer and water service to the project; provided that Triska, if Dr. Whisman exercised either of the options (a) and (b), supra, should have the right to satisfy the “exchange obligation” by the payment of $125,000.00 either in one payment or in equal installments over a five year period “with interest at six per cent per year on the unpaid balance.” There were also provisions that the contract of June 14, 1960, “may be assigned”; that rents, taxes, water rent, etc. were to be adjusted to the date of transfer; that, as indicated, the date of settlement should be selected by Triska, but not more than 90 days from the contract date, a failure to settle to result in the forfeiture of the deposit only and with no further liability by Triska; that Triska should select the title company; that possession be given at settlement; and, that the deed of trust securing the purchase money “shall contain those covenants listed in this Contract of Sale as desired by the parties to safeguard their interests.” The contract of June 14, 1960, was amended by a written contract “as of” September 14, 1960, which recited the execution of the contract of June 14 and that Dr. ⁶⁸⁹ Whisman was to obtain a percentage interest in the apartment project as part of the purchase price and it was provided that in the deed of trust securing the deferred purchase money that it “should contain such covenants as was desired by the parties to safeguard their interests” and that the parties “have agreed that it would not be prudent to incorporate the provision respecting the acquisition of the apartment interest in the Deed of Trust and they also desire to set forth the terms and conditions upon which the transfer of interest in the apartment project is to be made and the alternatives therefor.” The amendatory agreement then provided that: 1. Dr. Whisman upon the completion of the contemplated apartment project of approximately 1,000 units and upon other land being acquired by Triska adjacent to “said land,” Triska would transfer to Dr. Whisman a 2V-2.c/c interest “in the net equity capital of the project” (vs. 2 % in the contract of June 14). 2. If at the end of six years from the date of settlement the apartment proj ect had not been completed, then Dr. Whisman, at his option, and in lieu of the 23/2% interest in the apartment proj ect, could elect either: (a) To receive from Triska 33%% (vs. 3% in the contract of June 14) of “the equity capital stock of the holding corporation, or corporations, controlling the overall development of the project, or” (b) To receive from Triska the sum of $100,000.-00 (vs. $125,000.00 in the contract of June 14) payable at Triska’s election in one installment “at September 14, 1966, or in equal installments over a five year period with interest at six (6%) per cent on the unpaid balance computed from September 14, 1966.” It was further provided that the “covenants and undertakings” to be performed by Triska “shall survive and not merge in the deed, or deed of trust given in pursuance of the contract of sale.” ⁶⁹⁰ Triska testified, without objection, in regard to the negotiations leading up to the execution of the contract of June 14, 1960, and also explained why the amendatory contract of “as of” September 14, 1960, was negotiated and executed.

Triska, after the contract of June 14 had been executed, took the contract to his attorney, Gilmore, for review and to discover whether it would fit into the project as then proposed. Gilmore recommended that Triska seek to negotiate with Dr. Whisman for the elimination of the “options” from the deed of trust inasmuch as Gilmore was of the opinion that these options would impose an obligation running with the land which “would have inhibited, if not prevented, their obtaining a development loan which they needed to develop the property.” These “options” were the “covenants” which the contract of June 14 permitted the parties to insert in the deed of trust to protect their interests. Triska proceeded with negotiations with Dr. Whisman to that end and, although it required “a great deal of discussion,” including a representation by Triska to Dr. Whisman that his yielding on this point was essential to the project, the supplemental or amendatory agreement of September 14, 1960, was agreed upon with the amendments already set forth. These new terms were actually agreed upon before or at the settlement on September 14, 1960, but were not reduced to writing by Gilmore until sometime after settlement, the written supplementary or amendatory agreement, however, being “as of” September 14, 1960, the settlement date.

At the settlement on September 14, the papers indicated an additional consideration of $100,000.00. The transfer tax and the federal tax stamps noted on and affixed to Dr. Whisman’s deed of the property showed a total consideration for the transfer of $311,200.00, even though the cash balance due under the contract was only $210,200.00, Triska having paid a cash deposit of $1,-000.00. Triska testified that his partnership with Cook was formed in 1961. An unexecuted copy of the written part ⁶⁹¹ nership agreement was offered and received into evidence.

This unexecuted and unconformed copy indicates that it was to be executed sometime in January, 1961, but the proposed acknowledgment indicates an execution sometime in August, 1961. A letter from Gilmore to Triska and Cook, dated June 26, 1961, strongly suggests that the formal partnership agreement had not been executed at the time of that letter, in that a proposed Exhibit A for inclusion in the partnership agreement was enclosed in that letter. This Exhibit A, which refers to the partnership agreement made “as of” January 1, 1961, is a “balance sheet” reflecting the partnership assets and liabilities, excluding cash and personal property (which were to be in the amount determined by the partnership accountant using standard accounting procedures) and significantly Item 8 — under the heading “Parcel of Land Acquired from James J. Whisman” — indicates a cost of the parcel of $211,200.00* with mortgages of $210,200.00. The asterisk refers to the following: “* (Plus equity in other property per agreement with Whisman).” Gilmore, at Triska’s request prior to the execution of the amendatory agreement of September 14, 1960, prepared articles of incorporation for Isle of Thye; and it was incorporated on February 20, 1961.

Isle of Thye did not actually begin to do business until September 29, 1961, when the partners had obtained financing. Triska testified that the corporate form for developing the Tantallon project was dictated by Wallace Investments, Inc. (Wallace). Thompson joined the project because he had been helpful in introducing Triska and Cook to the Wallace people. He became a 25% stockholder in the corporation in return for his services as a golf course architect in the design and construction of the Tantallon golf course and country club.

Triska and Cook each took a 371/2% interest in the corporate stock. It was agreed that all of the partnership assets and li ⁶⁹² abilities were to be transferred to the corporation, although it appears that the partnership was never formally dissolved. Triska testified that the assets of the partnership consisted of land, including the Whisman parcel and the engineering and promotional effort; the liabilities of''the partnership consisted of the outstanding deeds of trust and “the $100,000 owed to Dr. Whisman or whatever he elected under his alternatives.” The transfer of the land for the proj ect was made in Triska’s name—and not in the partnership name—inasmuch as all of the land had been acquired in Triska’s name only. The mechanics of the transfer to Isle of Thye appear in the minutes of the organizational meeting of that corporation on September 28, 1961, at the Hot Shoppes Restaurant in Langley Park.

The meeting was attended by Triska, Thompson, Cook and Gilmore. At this meeting at which Triska, Cook and Dorothy M. Parkison, the three directors, were present (Mrs. Parkison being replaced by Thompson) after electing Triska, President; Thompson, Vice President; Cook, Secretary and Harold Crossen, Treasurer, Isle of Thye agreed to purchase from Wallace certain parcels of land for a total purchase price of $2,104,304.00 of which $284,671.46 was to be paid in cash at settlement. Isle of Thye agreed to assume an aggregate unpaid principal balance of $819,632.54 on mortgages encumbering the properties and to give its deed of trust to Wallace to secure the balance of $1,000,000.00. The following day, Triska sold all of the land he had acquired for the Tantallon project, including the Whisman tract, to Wallace for $1,104,304.00 of which $284,-671.46 was to be paid in cash at closing.

The contract of sale between Triska and Wallace recited that Triska had paid in cash the sum of $101,000.00 for the acquisition of the Whisman property although, as we have seen, only a cash deposit of $1,000.00 had been paid by Triska to Dr. Whisman at the time of acquisition of that land by Triska. Triska testified that this additional $100,000.-00 was included in the contract of sale with Wallace because of the future obligations to Dr. Whisman. ⁶⁹³ At the same time the contract of sale with Wallace was executed, Triska, as President of Isle of Thye, executed an agreement with Wallace to purchase the same land from Wallace in accordance with the decision of the directors the preceding day. By its terms, Isle of Thye was required to pay Wallace $284,671.46 at the time of settlement. Deeds conveying the properties were executed and duly recorded almost simultaneously; other than these deeds, there was no formal transfer of the partnership assets to Isle of Thye and there was no formal assignment of the contract between Dr. Whisman and Triska to Isle of Thye.

Isle of Thye did not have the $284,671.46 to pay Wallace. Triska, however, was to receive this same sum of money in cash at the time of settlement with Wallace; and Triska and Cook agreed to lend Isle of Thye this amount and receive back that corporation’s note for that amount payable in 37 months without interest. The amount of $284,671.60 represented $184,671.46 actually invested by the partners, Triska and Cook, in the Tantallon project and the $100,000.00 which might be due to Dr. Whisman. At the settlement, a check for $284,671.60 was given to Triska by Wallace, endorsed by him to Isle of Thye and again endorsed by Isle of Thye, by Triska as its President, to Wallace.

The corporate note of Isle of Thye was duly issued but was retained by Wallace as part of the collateral Wallace required for its loan to Isle of Thye. This note was not included among the obligations of Isle of Thye in its financial statements offered into evidence at the trial. This note was never paid. It was ultimately can-celled and set up on the corporate records of Prestwick as a contribution to the capital of that corporation; but Triska received no greater interest in Prestwick as a result of this contribution to capital.

Gilmore, who had recommended that the future obligation of the partners to Dr. Whisman not be a matter of record, suggested the device of loading this obligation into a note of Isle of Thye as a convenient means of af ⁶⁹⁴ fording the parties the amount needed for its payment without having it appear in the record as a part of the purchase price for the Whisman land. Both Triska and Thompson testified that the $100,000.00 Whisman payment was an obligation of Isle of Thye. Cook testified that he understood that the additional $100,000.00 included in the corporate note was to be used to pay Dr. Whisman in the event he elected to take the $100,000.00 rather than a stock interest. Gilmore testified, on cross-examination, that there was no question in his mind that the additional compensation to Dr. Whisman was part of the purchase price for the Whisman land and that the Whisman land had become a part of the Tantallon project.

He further testified that the partnership assets were transferred by the partnership to Isle of Thye, which acquired all of the obligations of record which Triska and Cook had previously assumed. He stated that Triska and Cook “were the promoters of this [the Tantallon] project” and that whatever contracts Triska and Cook entered intq “were for the benefit of whatever vehicle they chose to carry forward the development of the project.” In his opinion, however, the obligation was only that of Triska and not of Isle of Thye or of Prestwick. Subsequent to the transactions of September 28 and 29, 1961, Isle of Thye began the development of the Tantallon project which Triska had outlined to Dr. Whisman. Several subsidiary corporations were formed to develop specific parts of the over-all project, including Hat-ton Point, Inc., to construct the golf course and country club and Tantallon Towers to erect the apartment project.

Thompson became President of Hatton Point, Inc., and approximately four fairways of the golf course were built on the Whisman land, occupying about 35 acres of that tract. Land used by Hatton Point, Inc. for the construction of the golf course was leased from Isle of Thye on an established value of $3,000.00 an acre, although no formal lease appears from the record to have been executed. A special exception to permit the construction of the golf course had been obtained under the ⁶⁹⁵ Prince George’s County Zoning Ordinance and the golf course was completed in the summer of 1962 as a part of the over-all plan for Tantallon by Theodore Robinson, the author of the over-all plan for the project. After the organizational meeting of Isle of Thye, quarterly payments on account of principal and the semi-annual payments of interest were made by Isle of Thye.

Triska testified that after the organizational meeting, he had no personal or individual interest in the project (apart from his home) and that he had no further dealings with Dr. Whisman other than in his capacity as President of Isle of Thye. Triska required Isle of Thye to perform all the obligations which he had to Dr. Whisman under the contract. He further testified that Dr. Whisman “always knew that it [the Whisman property] was going to be transferred into a corporation * * * he knew it was going to be a corporation.” Dr. Whisman at one time had requested Isle of Thye to delay an interest payment in that he had too much income during the particular period and wanted a delay in payment until the next quarter. Isle of Thye agreed to do this.

In its letter of October 15, 1963, Isle of Thye confirmed its willingness to defer the quarterly interest of $3,153.00, as well as the principal payments due in October and December. The letter further states: “The reason I am writing this letter is that our lender wants to have some notification to you that we were prepared to meet our payments.” The letter is signed by Triska, “President, Isle of Thye Company.” Cook, by an agreement made “as of” September 9, 1964, sold to Triska and Thompson capital stock in Isle of Thye and his interest in the Isle of Thye note. On September 30, 1964, at a special meeting of the directors and stockholders of Isle of Thye, all directors and officers resigned, their resignations were accepted and Triska, Thompson and Justine A. Straus were elected directors. Triska was elected President; Thompson, Sec ⁶⁹⁶ retary-Treasurer and Straus, Assistant Secretary.

An offer of Triska and Thompson to obtain a new loan to refinance existing obligations of the corporation and to sell existing deferred purchase money notes received by the corporation for the sale of lots was accepted. The president and secretary were authorized, on behalf of Isle of Thye, to form a new Maryland Corporation to be known as Prestwick, Inc., Triska and Thompson to take the stock in the new corporation in their individual names as between them and the corporation and third parties, but as between them and Isle of Thye as nominees for Isle of Thye so that it would be the sole owner of all issued and outstanding stock of Prestwick and to vote such stock to obtain a loan from Continental Mortgage Investors, a Massachusetts business trust (Continental) in the amount of $4,500,000.00 with the understanding that Isle of Thye should convey all of its property and assets to Prestwick in exchange for all of its capital stock with the further understanding that Triska and Thompson should transfer the stock of Prestwick to Isle of Thye, subject to such pledge agreements as it might make in connection with obtaining such loan agreement. The purpose of the transfer to Prestwick was to obtain a “clean” corporation for Continental who insisted upon this as a condition precedent to making the loan. Prestwick had already been