Marcus v. Hudgins

Parke, J., delivered the opinion of the Court. A bill of complaint was filed by Selwyn W. Marcus against William H. Hudgins, William A. McFarland, J. Norris McFarland, and Joseph C. Deegan, sheriff of Baltimore City, for the purpose of having a judgment obtained on June 23rd, 1932, by William H. Hudgins against William A. McFarland and J. Norris McFarland for the sum of $28,889.50 declared null and void, or, failing that relief, be held and declared nugatory and inoperative so ⁸¹ far as such judgment has priority of lien over a judgment obtained by Selwyn W. Marcus against William A. McFarland and J. Norris McFarland on June 29th, 1932. As auxiliary relief, the complainant sought to have Hudgins enjoined from proceedings to enforce his judgment against a property known as 3405 Garrison Boulevard by writ of execution or otherwise, and also against any property of the defendants to this judgment or either of them. In like manner the'sheriff was to be enjoined from the execution of any writ issued on this judgment.

Selwyn W. Marcus is also a creditor of William A. McFarland and J. Norris McFarland on a judgment obtained against them on June 29th, 1932, for the sum of $37,039.82, less a credit of $789.30, the amount made as a result of the execution issued on this judgment, and the writ levied upon the property known as 3405 Garrison Avenue. The sheriff sold the property under the execution to complainant’s agent, who, on receipt of the deed from the sheriff, conveyed the property to the complainant on September 7th, 1932. William H. Hudgins has had issued a writ of execution on his judgment, and a levy has been made on the same property because of the claim that the earlier judgment is a prior lien to that of the later judgment of the complainant. It is out of this conflict of lien and priority that the litigation at bar arose.

After a hearing, at which the witnesses testified before the chancellor, he decreed that the judgment of William H. Hudgins was void for fraud, and the defendant and the sheriff were perpetually enjoined from levying an execution under the annulled judgment, but he further declared and adjudged that there existed an equitable lien in favor of Hudgins in the sum of $3,500 on the property known as 3405 Garrison Boulevard. The cross-appeals are by the plaintiff and the defendant William H. Hudgins. The first appeal is because of the equitable lien accorded Hudgins, and the second is because of the annulment of the judgment. The record presents a conflict of testimony, and the court will restrict its statement to the preliminary facts, ⁸² which are necessary for a comprehension of the questions for determination, and then give its conclusions of fact.

The plaintiff and William A. McFarland and J. Norris McFarland were merchants in the trade in wool in Baltimore City. They had been associated, at different times, as partners in this business, with varying financial results, and the last partnership of the series was formed in 1928, and was in effect until its voluntary dissolution about May 1st, 1930. After an accounting had been had of the firm’s affairs, the two McFarlands were found to be indebted to their former partner, the plaintiff, in the sum of $34,000, for obligations of the firm which Marcus had discharged in excess of his proportion as partner, and the plaintiff accepted of his two former associates their note dated May 1st, 1930, for this amount, without sureties or collateral, and payable one year after date without interest. During the progress of the audit, it developed that the makers of the note would be in the debt of the plaintiff, and Marcus, inquiring into their assets, discovered that one Dr. Walter F. Sowers was indebted to them in the principal sum of $10,000, which was secured by a mortgage lien on the property known as 3405 Garrison Avenue.

Before this discovery by Marcus, Hudgins, who had a residue of $3,500 due on a $6,000 fee bill against the McFarlands for valuable services rendered in lengthy litigation in respect to the amount of excess profits tax payable to the federal government during the period 1922-1927, was pressing the McFarlands for the payment of this fee out of this mortgage debt of Sowers. The McFarlands agreed to this application of the mortgage debt, but the mortgagor and mortgagees had a controversy with respect to the existence of this debt, on which interest had accumulated for a number of years, and ultimately the parties compromised for the sum of $8,000, which was to be raised by the mortgagees’ executing a release of the mortgage debt before the payment of this sum, so that the mortgagor could put through a new mortgage loan on the property for $8,000 in order to secure and pay the agreed sum to the mortgagees. In- ⁸³ eluded in this plan was the sale of a ground rent owned by the McFarlands. Sowers was visited by Marcus, and became alarmed by the inquiry of Marcus.

A conference was had by the mortgagor, the mortgagees, and Hudgins, the attorney of the latter. Acting under the advice of Hudgins, the mortgagees released the mortgage on April 2nd, 1930, and postponed the consummation of the sale of the ground rent and deferred the payment by Sowers of the agreed $8,000 until such time had elapsed that the sale of the ground rent could be completed without any danger of the purchaser, an innocent party, becoming involved in any litigation that Marcus might undertake. Marcus took no action, and at the expiration of six months the title to the ground rent was transferred, leaving the compromised mortgage debt the only asset of the McFarlands, and the plaintiff and Hudgins the only creditors. Sowers refused to pay the $8,000 to the McFarlands, and Hudgins then, about January 12th, 1931, approached the attorney of Marcus and informed him of this situation and of the agreement between the McFarlands and Hudgins that out of this sum $3,500 was to be first paid to Hudgins to discharge the residue of a fee of $6,000, due by the McFarlands for certain professional services rendered.

Hudgins proposed that a bill of complaint would be filed by the McFarlands against Sowers to have the release of his mortgage lien stricken down, and that, in the event the bill were successful, the proceeds would be divided so that Hudgins would receive $3,500, the Mc-Farlands $2,000, and Marcus the residue. The attorney did not accept the proposed alliance and agreement on this occasion. A subsequent conference was had in the latter part of the same month between Marcus, with his attorney, Philip B. Perlman, and Hudgins, and Marcus declined to accede to anything being paid to the McFarlands. According to one version of what happened at this and other meetings of the parties, it was agreed that the Mc-Farlands would not get anything, that the bill of complaint to set aside the release of the mortgage debt against ⁸⁴ Sowers should be filed by the McFarlands, and, if the suit were successful, that Hudgins was to receive $.3,500 out of the proceeds of the mortgage debt, and the residue was to be paid to Marcus.

The other version is in agreement with respect to the exclusion of the McFarlands, but differs in other respects, since it is contended that Marcus and Hudgins did not come to any agreement as to the proportions or amounts that each was to receive. The chancellor found that the weight of the testimony supported the first view, and that is the conclusion of this court. Three days after the conference of January 28th, 1931, the bill of complaint was filed in the name of the Mc-Farlands against Sowers to set aside the release of the mortgage. The complainants were successful, and on April 23rd, 1931, a decree was entered annulling the release.

An appeal was taken by Sowers on June 11th, 1931, and on February 5th, 1932, the appeal was affirmed by a divided court. Since no bond was filed when the appeal was taken to stay the proceedings, a foreclosure was had, with the .approval of Marcus, under the mortgage. deed, and ultimately the property was sold to the McFarlands for $7,600, and on March 9th, 1932, the sale was ratified. Hudgins, as trustee for foreclosure, conveyed the property to the purchasers, and simultaneously the McFarlands gave a mortgage lien on the property so bought to the Central Savings Bank, to secure a loan of $1,800, which was used to pay the costs and expenses of the foreclosure proceedings and some repairs incurred to put the mortgaged premises in condition. During the period in which these events occurred, the note to Marcus for $34,000 matured, and he endeavored to obtain a renewal note payable on demand with interest, and a power to enter a judgment by confession.

The McFarlands declined to give a demand note with the power, but did execute a renewal note on May 1st, 1931, for $34,943.23, payable one year after date, with interest from date. ⁸⁵ Shortly after the chancellor had annulled the release, the difference in the versions of what had been agreed with respect to the disposition of the proceeds of