Mayers v. Krawshaar

Sloan, J., delivered the opinion of the Court. Lowis Mayers, defendant (appellant), had a judgment entered July 11th, 1929, on a judgment note dated July 9th, 1929, against the plaintiff (appellee), her husband, Paul Krawshaar, William E. Ilayen and Louise U. Hayen, his wife, and Joseph F. Croft and Elizabeth Croft, his wife, for $5,800 as collateral security or guaranty of a mortgage to him from the Community Manufacturing Company for a like amount of $5,800, dated July 9th, 1929, on certain real and personal property located in Baltimore County. Concurrently with the execution of the mortgage and the signing of the judgment note, an agreement was entered into between all of the parties to the judgment, three of the provisions of which, necessary to an understanding of this case, are as follows: “And we hereby jointly and severally, agree to indemnify and save harmless said Lowis Mayers, Baltimore, Maryland, his heirs, personal representatives and assigns, against any loss, damage or liability, not exceeding the aforesaid sum of fifty-eight hundred dollars ($5800.00) which it may suffer or incur through the making of any loan or advance to said borrower, or through permitting said borrower to create other liabilities to said association. “This guaranty shall be a continuing one and shall bind the undersigned and their respective heirs, executors and administrators up to an aggregate amount of Fifty-Eight Hundred Dollars ($5800.00) for all loans and advances made by said Lowis Mayers, Baltimore, Maryland, to or for said borrower, or on account of the latter’s liabilities to it, until notice in writing has been received by said mortgagees and accepted by it from the undersigned of a desire to terminate this guaranty, the undersigned remaining liable for all obligations of the borrower not exceeding the aforesaid sum contracted before the receipt of such notice. ¹⁷² “It is further agreed that in the case of default of said mortgage that the mortgagee therein shall first proceed against the factory property to obtain whatever money can be obtained therefrom before proceeding against the individual signers.” The mortgagor defaulted in the payment of principal and interest on the mortgage debt, and on the 26th day of August, 1930, after three weeks advertisement, the real estate described in the mortgage was sold to William E. Hayen, Joseph F. Oroft, and Paul Krawshaar for the sum of $3,300, and the personal property,. consisting of machines (principally sewing) and equipment, to Jacob Dashew, for $675, and the sales ratified September 30th, 1930. Mrs. Krawshaar, on April 14th, 1931, paid $900 on account of the judgment debt, and on July 24th, 1931, $100, and later (date not appearing) $111, making a total sum of $1,111 paid by her.

Joseph E. Oroft on February 2nd, 1931, paid $1,000. All of the payments were made about eighteen months after the sale, leaving a balance, with various charges and credits, of $596.11 (estimated) due and unpaid on the mortgage debt and interest. The plaintiff, Elizabeth Krawshaar, filed a bill in which she prays a discovery and the writ of injunction to restrain the defendant from proceeding against her on the confessed judgment as against her, and that her liability on it be decreed to be terminated. The injunction was decreed as prayed; hence this appeal.

In her bill the plaintiff, besides asking a discovery, assigns as reasons why she should be relieved of any further liability on the confessed judgment: 1. That the defendant granted an extension of time to the mortgagor without the consent of the guarantors and accepted a bonus or consideration for the same from it. There is no proof of either, the fact being that he proceeded with the foreclosure of the mortgage thirteen days after it became due. 2. That the real estate mortgaged was sold to Joseph ¹⁷³ Croft, William E. Hayen, and Paul Krawshaar for $3,300, and because the mortgagee’s attorney and the mortgagee himself have neglected and abandoned the foreclosure proceedings and have failed to collect the purchase money, and have failed to exercise due diligence in the application of the proceeds of sale to the mortgage debt which the plaintiff has guaranteed, whereby, on account of a changed and vanished real estate market, the plaintiff “through lapse of time” has been prejudiced.

Her husband was one of the purchasers at the mortgagee’s sale, and the plaintiff was and is one of the guarantors of the mortgage so foreclosed, along with her husband, his associates in the Community Manufacturing Company and their wives; but as such guarantors they are in much the same position as the mortgagor or principal debtor with respect to their right to demand prompt action in the collection of the principal debt by the creditor. As said by Lord Eldon in Eyre v. Everett, 2 Russ. 381, quoted by Judge Alvey in Freaner v. Yingling, 37 Md. 491 , 499: “The surety has no right to say that he is discharged from the debt which he has engaged to pay, together with the principal, if all that he rests upon is the passive conduct of the creditor in not suing. He must himself use diligence, and take such effectual means as will enable him to call on the creditor either to sue or to give him, the surety, the means of suing.” And by the same chancellor, in Wright v. Simpson, 6 Ves. 734, “The surety is guarantor and it is his business to see whether the principal pays and not that of the creditor.” That is not exactly the situation in this case. The complaint of the plaintiff is that the delay in closing the sale of the real estate is wholly the fault of the defendant, and that she should not be penalized either on account of the cost due to .the lapse of time or, in the event of a resale, of a disappearing real estate market.

According to the record, the defendant agreed to accept a mortgage for the purchase money from the purchasers provided the defendants in the guaranty judgment would pay the deficiency after the credit of the purchase money, less the accrued interest, costs, and ¹⁷⁴ expenses of foreclosure. A deed to the purchasers was prep.ared and -a mortgage in which the wives of the purchasers were named as mortgagors. The transaction as outlined fell through,- the defendant alleges, because Hayen’s wife was not living'with him and her signature could not be had, the plaintiff saying it was because she declined to do any more signing. After the sale, as stated in the answer, the defendant, through his attorney,- “after bringing pressure to bear against the defendants (in the confessed judgment),” “finally persuaded the complainant and her husband, Paul Krawshaar, to agree to pay the sum of one thousand dollars ($1,000) and Joseph E. Croft and Elizabeth Croft to pay one thousand dollars ($1,000)-on account of the indebtedness to said Lowis Mayers.” The plaintiff’s testimony is that she agreed to pay $1,000 if Croft did likewise.

The sale had been ratified, but the property had not been conveyed to the purchasers because of the failure of their wives to yield to the demands of the mortgagees’ attorney that they join, though a purchase-money mortgage without the wives’ joinder would have' freed the property of their right of doyer as against the mortgagee. However, the defendant mortgagee then agreed to take the property himself at $3,300, but no proceedings were ever had to substitute him as the purchaser. In demanding payment from the judgment defendants or any of them, after the sale, it could only have been on the theory that the sale price of the mortgaged real estate had been definitely ascertained at $3,300, as the mortgagee, plaintiff in the confessed judgment, had no right to proceed against such defendants until the balance due- and unpaid on the mortgage debt had been determined by a foreclosure, and this could only be done upon the sale, ratification, payment, of the purchase money, and. an auditor’s report. The defendant, in his brief, to relieve himself of responsibility for the- delay, cites several cases to the effect that a trustee appointed to foreclose a. mortgage is an officer of the court and the court is the vendor, acting through the trustee as its agent.

Royal Ins. Co. v. Drury, 150 Md. 211, 222 , 132 A. 635 ; Columbia Paper Bag Co. v. Carr., 116 Md. 541, 543 , 82 A. 442 ; Williams v. Fidelity & Deposit ¹⁷⁵ Co., 121 Md. 222, 225 , 88 A. 119 ; Gittings v. Morris, 156 Md. 565, 575 , 144 A. 836, 927 . Those authorities do' not strictly apply to this case. This sale was made by the attorney named in the mortgage as the agent of the mortgagee (not appointed by decree), under the provisions of article 66 of the Code, when “the jurisdiction of the court became complete on the report of the sale.” Wilson v. Walls, 9 Md. 356, 459 ; Warehime v. Carroll County Building Assn., 44 Md. 512, 517 .

In discussing the power conferred on mortgagees by article 66 of the Code, this court, in an opinion by Judge Miller in Chilton v. Brooks, 69 Md. 584, 587 , 16 A. 273, 274 , said: “This law grants exceptional privileges to mortgagees. They, or their assignees, can sell at once upon default without the delay of first obtaining a decree for that purpose; and what is more important they can become purchasers at their own sales without having their title impeached upon that ground. Code, art. 64, sec. 13 (now article 66, sec. 14). In this case the appellees availed themselves of this privilege.

They were therefore bound to act with strict impartiality in regard to the sale. Being both vendors and purchasers there was greater reason for diligence and effort on their part to obtain the best price, ‘and the court is called upon to exercise more care and strictness in passing upon the sale thus made.’ ” The plaintiff could not have complained of any delay of the defendant in foreclosing his mortgage (Freaner v. Tingling, supra), but after a sale was made and ratified, and no sound reason being given for the failure to' complete it by the delivery of a deed and a purchase-money mortgage, with no fault of this plaintiff, or the other defendants in the confessed judgment, that the sale of the mortgaged real estate was not consummated, they are entitled to a credit of $3,300 on the mortgage debt as of the day of ratification of the sale. 3. The plaintiff also alleges as a reason for her release from the obligation as a guarantor of the mortgage debt that the defendant, through his agent and attorney, Harry Fine, had interfered with and prejudiced her right of contribution “against the said William E. Hayen and Elizabeth N. Hayen, ¹⁷⁶ his wife, by depriving her of the benefit of the lien of the said confessed judgment through various waivers and releases of the said judgment and the lien thereof from certain properties of said William Hayen and wife, the value of which properties were much in excess of the said judgment, without any consideration therefor, or reduction of the said mortgage debt and without the knowledge and consent of the complainant * * *” have assisted and enabled the said William E. Hayen and wife to completely divest themselves of all their real assets so that “they are now destitute and insolvent, thereby defeating the complainants’ rights to obtain contribution from them under said judgment and guaranty agreement.” The evidence is- that on November 15th, 1929, a deed was made to- Hayen of a lot of 50 feet by 100 feet on the Coleraine Road in Baltimore County (consideration not given), on which he erected a house, and on December 5th, 1929, sold the house and lot for $3,650. The deed to him, amongst other conditions and restrictions, provided that no house should be erected at a cost of less than $3,500, so- that he must have had invested in the lot not over $150 if he complied with the conditions of his deed.

He did not have title to the lot when he gave the confessed judgment on July 11th, 1929, more than two- months before the Coleraine Road lot was conveyed to> him. In order to dispose of the property and enable the purchaser to finance his purchase through a mortgage to- a building association, it was necessary to- obtain a waiver of the lien of the judgment. The building of houses and the sale of them wasi the business in which he was engaged, a fact that must have been known to- the plaintiff, whose husband, Paul Krawshaar, had been associated with him in the Community Manufacturing! Company for