Kenly v. Huntingdon Building Ass'n

Bond, C. J., delivered the opinion of the Court. A mortgagee, purchaser of the mortgaged property at a second foreclosure sale, appeals in this case from an order setting the sale aside because of the unfavorable condition of the market and consequent low price at which the sale was made. The court, after having heard testimony on exceptions of receivers of the mortgagor company, offered the mortgagee an option of having the sale ratified upon her waiving her legal right to a judgment for a deficiency between the amount brought and the amount due under the mortgage, or of standing upon her rights and having the sale set aside unconditionally; and, the mortgagee having declined to waive her rights, the unconditional setting aside of the sale followed. The property mortgaged consists of a leasehold lot numbered 221 to 225 West Twenty-Fifth Street, in Baltimore City, and is improved by a converted brick dwelling of three stories in height, containing a room for a bank or building-association and facilities for small assemblies.

The mortgage ¹⁸⁴ was executed by tbe appellee, now in receivership, in the year 1915, to secure a loan by the appellant of $5,000 for two years, and it has been continued beyond its maturity. Interest was paid until March 18th, 1932, but not since that date, and taxes on the property are overdue and unpaid for the years after 1928. The annual ground rent is $150. Under the decree for foreclosure, the property was first offered for sale at public auction, after due advertising, on December 28th, 1932, and, the only other bid having been one of $900, the mortgagee herself bought the property in on a bid of $950; but exceptions of the receivers to this sale were sustained by the court, without prejudice to k further sale by the trustee under the existing decree.

The second sale, on April 6th, 1933, brought no new bidders, although it appears that there was a small attendance, and the mortgagee again bought the property in, this time on a bid of $1,000. The setting aside of this sale, under the circumstances recited, is the subject of the appeal. There is no evidence, and no contention, of irregularity or impropriety in procedure in making the sale. It is insisted that the price brought was grossly inadequate; but the inadequacy is attributed only to 'the inopportuneness of the time for a sale.

The mortgagee is also charged with laches in delaying foreclosure during the fifteen years since the principal became due and collectible, and until the present time of depression, but this, too, appears to be merely an objection to sale at this time. Foreclosure has not been delayed long after default. Waring v. Nat. Savings & Trust Co., 138 Md. 367, 380 , 114 A. 57 .

Continuation of a mortgage beyond the date specified for its maturity, and until default in the covenants, is entirely regular, and at the option of both parties, and is in accordance with common practice. Tessier v. Wise, 3 Bland, 28 , 35. The objection is to the accident of time and conditions rather than to continuation or delay by the mortgagee. And it is on the comprehensive ground of denial of ordinary rights and remedies at this time that the decision must be based.

Testimony as to the situation and condition of the property, and charges to be paid by a purchaser, ¹⁸⁵ seems to this court to cast some doubt on the fundamental assumption that salability of this property at a much higher price at some future time can be regarded as assured, but it is the opinion of the court that, if this could be found as a fact, the court of equity should not for that reason interpose to deny the mortgagee her legal rights under her contract and the laws of the state. No statute has been passed in this state purporting to prevent or delay foreclosures of mortgages; and it is the view of the majority of the judges that the court, having no actual statute in question before it, should not express an opinion on constitutional objections raised to such legislative measures. It seems sufficient for the purposes of this case that all of the members of the court are of opinion that a court of equity should not make such a departure from the law as this order involves. It cannot be disputed that, on the law as it has been laid down for the court, the mortgagee is entitled to apply her security to the debt by foreclosure sale, and by refusing to ratify the best sale that can now be made, so far as appears, and relegating the mortgagee to the chances of the future, the court seems to withhold or reject the law it has been appointed to administer.

The conclusions reached, and the expedients suggested, in the Wisconsin case of Suring State Bank v. Giese, 210 Wis. 489 , 246 N. W. 556 , and in other cases which have followed its suggestions, have not been overlooked; on the contrary, they have been studied carefully, but this court has not been able to reach the conclusion that it is proper for the court of equity to make these departures from the regular course of the law. It seems to us that it is not for that court to adopt a moratorium for the legal rights of litigants. The order must be reversed, and the cause remanded for the overruling of the exceptions to the sale and ratification of it, and for further proceedings thereafter. Order reversed, and cause remanded for further proceedings in accordance with this opinion, with costs to the appellant. ¹⁸⁶ Digges, J., filed, a separate opinion as follows, in which Parke and Sloan, JJ., concurred.

I- concur fully in the conclusion reached by the majority opinion of this court for the reasons herein stated. On May 23rd, 1933, the chancellor, in the Circuit Court No. 2 of Baltimore City, passed an order sustaining the -exceptions of the appellee to- the ratification of sale made under foreclosure proceedings by the appellant, who was the mortgagee and purchaser at said sale, and set aside- sale. From this order the appeal here was prosecuted. The facts which the record discloses may be briefly but substantially stated as follows: On September 18th, 1915,' the appellee was the owner of certain leasehold property located on Twenty-Fifth Street in Baltimore City.

On that date it borrowed from the appellant the sum of $5,000/ represented by its five negotiable promissory notes payable to the order of the appellant; :one of said notes being for the principal sum of $5,000, payable in two years • after date, and the remaining four being for the interest to- accrue thereon, each being for the sum of $150, payable, respecr tively, at the expiration of six, twelve, eighteen, and twenty-four months after date, the date of each being, the same as that of the mortgage. As a condition precedent to the making of the loan and the repayment thereof with interest, it was secured by the execution of the mortgage. The mortgage contained the usual provisions covenanting to- pay the debt and interest when due ¿nd demandable, and, upon default in any of the covenants or conditions of the mortgage, that the whole of'the mortgage-debt secured should become due and payable forthwith. The mortgage contained an assent to a decree by the Circuit Court of Baltimore- City o-r the Circuit Court No. 2 of Baltimore City for the sale of the property mortgaged in accordance with the provisions of sections 720' to- 732, inclusive, of chapter 123 of the Acts of 1898, or any amendments or additions thereto-.

It further contained provisions for foreclosure upon default, under article 66, sections 6 to 10, inclusive, of the Maryland Code of 1901. The mortgage also- contained the usual covenants ¹⁸⁷ for the payment of taxes on the mortgaged property, and provided that, until default, the mortgagor should have possession of the property, and the further covenant to keep the improvements on the land insured against loss by fire for the benefit of the mortgagee. The principal of the mortgage was never paid or demanded until on or about December 5th, 1932; the interest on the same having been promptly paid until September 18th, 1932. On December 5th, 1932, a petition was filed by the appellant for a decree for sale under the assent clause in the mortgage; the consent and authority having been previously acquired from the equity court having jurisdiction over the receivers for the appellee, who had been appointed as such receivers some time prior thereto.

Pursuant to the decree for sale, Maurice E. Skinner, appointed thereby, made sale of the property on December 28th, 1932, and reported the sale to the court for ratification. Exceptions were filed thereto and sustained, with leave to r& sell the property. At the first sale, the property was purchased by the appellant mortgagee for the sum of $950; she being the highest bidder therefor. A second sale, after new advertisement, was had on April 6th, 1933, and resulted in sale to the same party at and for the sum of $1,000.

Whether or not there was error in sustaining exceptions to the second sale is the question before us for decision. The improvements on the property in question apparently consist of what was at one time a dwelling house, which had been converted by changing the internal arrangement for use as a banking room for building associations, and a hall on the second story for public or private gatherings. On the third floor there were several rooms constituting an apartment. The property was subject to an annual ground rent of $150.

At the time of the decree for sale there were in arrear and unpaid four years’ taxes> aggregating approximately $1,000. According to the record, there were some fourteen or fifteen persons present at the first sale, but only two bidders; the next highest bid being $925. At the second sale there were no more persons, present than at the first, although this sale had been advertised for the required period ¹⁸⁸ in both the Daily Becord and Sun, papers published in Baltimore City. At this second sale the only bidder was the appellant, to whom the property was sold, asi stated, for the sum of $1,000, although the other bidder at the first sale had been personally notified, in addition to the public advertising.

The testimony of real estate experts taken in open court at the hearing on the exceptions to the ratification of the second sale indicates that in their opinion $1,500 was a fair market value of the property. The receivers, who are the exceptants, testified that in their opinion the property was worth $6,000, although neither qualified as experts on value of real property. .The property was assessed for taxation at $9,500. The testimony of all of the witnesses indicates that the type and character of the building was a “misfit” in that locality. The record further discloses that the receivers have in hand or in fair prospect of collection an amount sufficient to pay the deficiency judgment which it is the purpose of the appellant to recover, that there are no> other creditors of the corporation, and that, should the order appealed from be affirmed, the remaining assets of the corporation would be distributed to its stockholders.

The reasons alleged for sustaining the exceptions are that the sale was unfairly made; that the property was not sufficiently advertised; that the proceeding was not instituted in good faith; that the principal of the mortgage had been in default since September 18th, 1917; and that the price for which the property was sold was grossly inadequate. There is no- evidence whatever that the sale was not properly and fully advertised, or that the sale was not fairly made in every respect; but, on the contrary, it is abundantly shown by affirmative testimony that the sale was fairly made after full advertisement. The question therefore resolves itself into whether the price for which the property was sold is so grossly inadequate as to be indicative of fraud, requiring the sale to be set aside. The annual ground rent of $150, capitalized at six per cent., represents a claim prior to the mortgage of $2,500, to which must be added four years’ accumulated taxes, amounting in ¹⁸⁹ round figures to $1,000.

The purchase price was $1,000; so that the net obligation assumed by the purchaser is $4,500. There also appears from the record to have been a permanent right of way passing through the rear of the building. There is no testimony as to what this incumbrance amounts to in dollars; but it is at once obvious that the property is less valuable thus incumbered than it would be without the incumbrance. Under these circumstances I am unwilling to say that the property was sold for such a grossly inadequate sum as would require the setting aside of the sale.

Especially is this true in a case like the present, where the exceptions are to the ratification of a second sale of the property, with no bona fide offer of an increased price, or any reason to suppose that a subsequent sale would result in a larger price. It is well-settled law in this state that mere inadequacy of price, standing alone, unaccompanied by any circumstances indicating an unfair sale, is not sufficient ground for refusal to ratify a sale. Cohen v. Wagner, 6 Gill, 236 ; Garrittee v. Popplein, 73 Md. 322 , 20 A. 1070 ; Johnson v. Dorsey, 7 Gill, 269 ; Hintze v. Stingel, 1 Md. Ch. 283 ; Glenn v. Clapp, 11 G. & J. 1 ; Thompson v. Ritchie, 80 Md. 247 , 30 A. 708 ; Noles v. Peter, 150 Md. 700 , 137 A. 916 ; Lewis v. Beale, 162 Md. 22 , 158 A. 354 . But it is urged that the appellant has been guilty of laches in not foreclosing the mortgage and selling the property during the period when real estate prices were much higher and the market more active.

I do not deem it necessary to discuss at length this objection except to point to the fact that the appellant evidently loaned the money for the purpose of investment, that it was an accommodation to the borrower, and satisfactory to the lender so long as the covenants of the mortgage were complied with. It is true that the appellant could have foreclosed the mortgage at any time after September 18th, 1917; but it is. equally true that the appellee could have settled the mortgage at any time subsequent to that date, if it so desired, or, if the market was. propitious, could have sold the property either subject to the mortgage or freed ¹⁹⁰ therefrom by paying it. Under such circumstances, the length of time which the mortgage© permitted the mortgage to stand, upon the payment of interest ánd compliance with the covenants therein, can in no manner estop her from the-full legal rights and remedies which she might'have had, had she foreclosed the day after the principal of the mortgage became due. The real ground of contention of the appellee, and that sustained by the chancellor, is that, by reason of the depressed economic conditions prevailing at the present time, and especially in respect to the real estate market, it would be inequitable and unjust for a court of equity to permit the enforcement of the legal rights of the appellant.

It is contended that a court of equity has the inherent power to deny a clear legal right whenever the enforcement of such right, in the judgment of the chancellor, would work an injustice to the party against whom such right was sought to be enforced. This is an important question, perhaps of more importance at the present time than at any otjher time in the history of this country. There is a marked difference in the opinion of lawyers and judges throughout the country on this point, as exemplified by articles contained in legal periodicals and the decisions of the courts. In view of the constitutional mandate, as contained in the United States Constitution, art. 1, sec. 10, and article 44 of the Declaration of Rights of Maryland, which latter provides, “That the provisions of the Constitution of the United States, and of this State, apply' as well in'time of war as in time of peace; and any departure therefrom, or violation, thereof, under the plea of necessity, or any other plea, is subversive of good government and tends to anarchy and despotism,” by which the action of this court is controlled, it is our duty to protect and enforce every clearly defined legal right, and this without regard to the presence or absence of real or fancied emergencies.

Courts of equity are as much bound by the Constitution and law in the enforcement and protection of clearly defined legal rights as are