Mattingly Lumber Co. v. Equitable Building & Savings Ass'n

Shehan, J., delivered the opinion of the Court. ' The appellants, the Mattingly Lumber Company and the Goddard Millwork and Lumber Company, are both bodies corporate, and assignees of J. Hurst Purnell of the obligation upon which this suit was brought. These companies sued the Equitable Building and Savings Association of Baltimore City to recover the sum of $2000, hypothecated with it by J. Hurst Purnell under an agreement in writing. The right of recovery was denied by the defendant in three demurrer prayers, which were granted, and, from the judgment entered on the verdict for the defendant, this appeal is taken. J. Hurst Purnell, operating as J. Hurst Purnell, Incorporated, and herein referred to as Purnell, was engaged in the business of building and selling houses.

In order to finance his operations a plan was devised, whereby a deed for the property sold was given by Purnell to the purchaser. A first mortgage was given to some financial institution to secure a loan with which to make the first payment. A second mortgage was then given, the ⁴⁰⁵ payment of which was guaranteed by Purnell in a hypothecation agreement, which in this case provides that, at the request of Purnell, the Equitable Building and Savings Association of Baltimore City has granted a loan of $5000, applied for by Robert E. Sandell and Elsa 0. Sandell, his wife, to be secured by a second mortgage on 4403 Wickford Road.

The first mortgage for $7500 was held by the Safe Deposit and Trust Company of Baltimore City. The hypothecation agreement further provides that, “in consideration of $1.00 and of the making of said loan and any other loan that may be made at the request of the party of the first part, it, for itself, its successors and assigns hereby guarantees the payment of all such loans in full, both principal and interest, according to the terms thereof. And as additional security for all such loans the party of the first part will from time to time deposit with the party of the second part in Book No. 5118 such sums as shall be fixed in the applications for loans and any and all money so deposited is hereby assigned to the party of the second part so that in case of default in any of said mortgages and the consequent sale of the mortgaged property all or any part of the money so deposited may be applied by the party of the second part to make up any deficiency shown by the auditor’s account in the proceedings to foreclose any such mortgage or mortgages. All money on deposit in said Book No. 5118 shall be entitled to the regular dividends paid by the party of the second part to free shareholders.

The money required to be deposited as cash security for this loan is $2000 and when the mortgagors have paid $4000 on the principal of this loan and there has been no default, the party of the first part shall have the right to withdraw $2000.” This suit was brought to recover this $2000, in view of the provisions of the hypothecation agreement. The $4000 was not only paid, but the entire mortgage debt of $5000 was paid in full on September 4th, 1931, and, at the time of the payment and of the demand for the refund of $2000, it was shown that no default had oc ⁴⁰⁶ curred as stated in the hypothecation agreement. Nevertheless, the appellee contends that it is entitled to retain that sum, so hypothecated, as security for the payment of all other mortgages, whether for the payment on this property or on other properties, made at the request of Purnell. During the period from 1929 to 1933 Purnell had erected several houses on certain of his lots and sold them, adopting the plan for financing their purchase above indicated.

These properties, upon which there were mortgages to the appellee, were made at the request of Purnell, and known as, first, 4300 Wickford Road, sold to John Elmer and wife, upon which a second mortgage of $5000 was given. As additional security $1750 was pledged, with the right to withdraw it when $3500 was paid on account of the mortgage. Second, 4403 Wick-ford Road, sold to Robert E. Sandell and wife, upon which a second mortgage of $5000 was given, and $2000 was deposited as additional security for the loan, with the right to withdraw it when $4000 was paid on account, as above indicated, and concerning which the above hypothecation agreement was made. This is the property, the mortgage and the payment which are here involved.

Third, 4419 Wickford Road, sold to Leonard B. Nelson and wife, upon which a second mortgage of $3900 was given and a deposit of $1063 was made, with the right of withdrawal when $2600 was paid on account of the mortgage. Fourth, 4417 Wickford Road, sold to John Hanson Mitchell and wife, upon which a second mortgage for $3300 was given, and upon which there was a cash deposit, for additional security, of $413, with the right of withdrawal when $826 was paid on account of the mortgage. It should be here stated that the appellee permitted the withdrawal of the $413 hypothecated by Mitchell in connection with the sale of the property when the payment of $826 was made. This hypothecation and withdrawal were under the same terms and conditions as that of the Sandell transaction.

This action upon the part, of the parties will be later referred to, as it aids in the construction of the hypothecation agreement, ⁴⁰⁷ by showing the manner in which these agreements were regarded by Purnell and the appellee. The property of Leonard B. Nelson, or 4419 Wickford Road, was sold under foreclosure proceedings, and the auditor’s account of May 20th, 1937, shows a deficiency of $2751.98, and this deficiency was entered against the bank book and deposit of Purnell, charging the money, hypothecated by him with respect to the property 4403 Wickford Road, with the deficiency resulting from the default and foreclosure on property of Leonard B. Nelson or No. 4419 Wickford Road. On June 12th, 1933, the appellants, as assignees of Purnell of the said $2000, demanded its payment, but the appellee refused to pay this money for the reason above recited, and the appellants brought suit for its recovery, which action was disposed of in the lower court as above indicated. The case herein involves the construction of the hypothecation agreement, as it relates to the deposit of the $2000 and the right of its withdrawal by the appellants.

There are well established rules to aid the courts in construing contracts, where there is doubt as to the intention of the parties. The language employed, the subject matter of the agreement, the circumstances surrounding its execution, and its purpose and design, have always been accepted as guides of first importance in arriving at the intention of the parties. Lambdin v. Dantzebecker, 169 Md. 240, 245, 246, 247 , 181 A. 353 ; Danzer & Co. v. Western Maryland Railway Co., 164 Md. 448, 462 , 165 A. 463 ; Myers v. Myers, 153 Md. 44, 48 , 137 A. 501 ; Ess-Arr Knitting Mills v.