Jones v. John S. Stubbs & Associates, Inc.

HornEy, J., delivered the opinion of the Court. The basic question on this appeal is whether the lower court erred in its construction of the meaning of a condition in a deferred purchase money deed of trust providing for its subordination to a loan for the cost of constructing buildings on the mortgaged property. In November of 1958, John S. Stubbs & Associates, Inc., the appellee and owner of a parcel of land (containing 22438 square feet) in Kensington, Montgomery County, Maryland, executed the deed of trust to Melvin Y. Jones and John F. Terry, the appellants and trustees named therein, to secure payment to A. Gordon Stup of the mortgage note in the sum of $43,000. The agreement to subordinate contained in the original deed of trust provided: “It is agreed by the payee of the note secured hereby that this Deed of Trust is to be subordinated to a First Deed of Trust placed against the property for purposes of construction (construction loan) secured on a bona fide and recognized financial institution and also to a permanent loan placed against the property in lieu of the construction loan secured on a bona fide and recognized financial institution, provided said permanent loan is placed against the property within (1) year after completion of the building. “The Trustees herein are directed to sign said Subordination Agreement without authority from the noteholder. “The Trustees herein are further directed to sign any plat of land for recording, subdividing this property into a re-subdivision * * In January of 1959, the owner and noteholder executed an agreement as agreed by which the original deed of trust was subordinated to another deed of trust or mortgage from the owner to a building and loan association as security for a “corn ⁴⁸² bined” construction and permanent loan in the su'm of $51,000 to enable the owner to build a warehouse across the entire rear of the parcel of land.

In May of 1964, more than five years after the execution of the agreement to subordinate, the owner, having subdivided a part of the front of the parcel of land into two lots containing a total of 3306 square feet (to which the trustees named in the original deed of trust “assented” as agreed), advised the noteholder that it was ready to begin the construction of a new building and requested permission to tear down the old house on the two lots. The noteholder (and his wife) gave their permission. But, subsequently, when the owner requested the trustees to execute a second agreement under which the original deed of trust would be further subordinated to another mortgage for $65,000 to the building and loan association so that the owner could construct the other building on the two subdivided lots, the trustees refused. The owner then filed a petition in equity to compel the trustees to execute a second subordination agreement or, in the alternative, for the appointment of substitute trustees to execute such an agreement.

And when the lower court ordered the trustees to execute an agreement subordinating the lien of the original deed of trust to the proposed $65,000 mortgage, the trustees appealed. The lower court, having found that the terms of the agreement to subordinate were ambiguous, concluded that the payee of the note secured by the original deed of trust, by agreeing that his lien was to be subordinated to loans “ ‘for purposes of construction’ ” and by directing the trustees “to sign any plat of land for recording or subdividing the property into a re-subdivision,” thereby “necessarily contemplate [d] the erection of more than one building.” On appeal, the appellants-trustees contend that the terms of the agreement to subordinate did not require them to execute more than one subordination. The appellee-owner, besides claiming that it is entitled to a second subordination agreement, further contends that even if the lower court misconstrued the agreement to subordinate, its order should nevertheless be affirmed on the grounds of estoppel. ⁴⁸³ We think the lower court' misconstrued the terms of the agreement to subordinate. As we read it, the first paragraph (and the second) concerned the subordination of the original deed of trust to different types of loans (a combination of a construction and a permanent loan) customarily employed to obtain the financing