Lubin v. Klein

³⁷⁰ Sybert, J., delivered the opinion of the Court. This case involves the priority of claims made for the proceeds from a foreclosure sale of real estate which had been mortgaged by Max Frohwirth and Pnina Frohwirth, his wife. After the foreclosure sale, the auditor distributed funds sufficient to satisfy first and second mortgages (which are not involved in this appeal), and then distributed the balance of the proceeds — $2,356.12—to the appellants, Libby Lubin and Gilbert Lubin, who held a third mortgage on the property. The appellees, Joseph Klein and wife, who were judgment creditors of the mortgagors, filed exceptions to the auditor’s account.

Judge Raine, in the Circuit Court for Baltimore County, sustained the Kleins’ exceptions and ordered the $2,356.12 applied on their judgment. The Lubins appealed from the order. The record shows that on November 3, 1961 one Morris Frohwirth, acting as attorney-in-fact for Max and Pnina Frohwirth, executed the appellants’ mortgage pursuant to a general power of attorney given to him on October 31, 1961 and recorded on November 6, 1961. The mortgage was recorded on December 4, 1961.

The controversy now before us arises because of the fact that the power of attorney was not acknowledged as is required by Code (1957), Art. 21, Sec. 23, of powers of attorney which authorize the sale and conveyance of real estate. The Kleins, appellees, filed an original attachment proceeding on December 1, 1961 against Max and Pnina Frohwirth as absconding debtors and caused the writ of attachment to be posted on their property on the same day. They obtained final judgment against the Frohwirths on July 6, 1962 and filed it as a claim in the foreclosure proceedings. The appellees contend that in the absence of any acknowledgment on the power of attorney the mortgage executed pursuant thereto is unenforceable both at law and in equity, and that they, as judgment creditors, are entitled to the balance of the foreclosure funds.

On the other hand, the appellants, while conceding that the power of attorney is defective at law because it lacks the required acknowledgment, contend that their mortgage is nevertheless entitled to priority over the subse ³⁷¹ quent judgment lien of the appellees on the theory that it is an equitable mortgage. 1 It is well settled in this State, since Dyson v. Simmons, 48 Md. 207 (1878), that generally where an instrument intended to operate as a mortgage fails as a legal mortgage because of some defect or infirmity in its execution, an equitable mortgage may be recognized, with priority over judgments subsequently obtained. See also Jackson v. County Trust Co., 176 Md. 505 , 6 A. 2d 380 (1939); Western Bank v. Union Bank, 91 Md. 613 , 46 Atl. 960 (1900); cf. Berman v. Bermam, 193 Md. 614 , 69 A. 2d 271 (1949). The theory underlying the equitable mortgage doctrine is that an instrument which is intended to charge certain lands, even though defectively executed, is nevertheless considered to be evidence of an agreement to convey, and a court of equity should enforce the obligation despite the technical defects in the instrument. The case before us is not one, however, where the defect complained of occurred in the mortgage itself.

It occurred rather in the document which sought to invest the attorney-in-fact with power to execute the mortgage. The reasoning in Jackson v. County Trust Co., supra, recognizes power to convey or charge the land as a condition precedent to the invocation of the equitable mortgage doctrine. In that case, in which a mortgage executed without an