Mizen v. Thomas

Offutt, J., delivered the opinion of the Court. On April 6th, 1925, Jacob Mizen and Esther Mizen, his wife, being indebted to Isaac O. Rosenthal in the sum of $23,000, to secure that debt executed to him a mortgage on certain property' in Baltimore City. On August 31st, 1926, Rosenthal assigned the mortgage to the Baltimore Trust Company, which, on May 23rd, 1927, assigned it to Howell H. Thomas, the present holder, and the appellee in this case. On May 26th, 1927, default having occurred under the covenants contained in the mortgage, the assignee filed a petition for its sale, presumably under a consent to a decree of foreclosure, although that fact does not appear in the record.

But in that proceeding a decree was eventually passed authorizing a sale of the property and appointing G. Ridgely Sappington trustee to make it. The trustee in due course qualified and, on July 14th, 1927, reported to the court that he had, on July 6th, 1927, sold the property to the Laurel Development Company, of Baltimore City, for $11,600 to be “paid one-third in cash upon ratification of the sale by this court, balance in six and twelve months, or all cash at the option of the purchaser.” The sale was finally ratified, but ³¹⁶ the purchaser failed to comply with its terms, and ou August 30th, 1927, the trustee filed a petition setting out the default, and praying that the purchaser be required to pay the purchase money, and “in default thereof that the said property may be decreed to be sold at the risk of” the purchaser. A show cause order granting the relief prayed was passed, and, no cause having been shown, on September 16th, 1927, it was made final, and the trustee thereupon sold the property to the Frederick Hoad Park Building Company for $6,100. That sale was also ratified, and an audit filed and ratified, showing a deficit of $5,805.87.

Thereupon the trustee moved for a decree in personam against the Laurel Development Company for $5,670.83, the amount shown by the audit to be due from it, and at the same time the assignee moved for a decree in personam against the mortgagors for $5,805.87, the amount shown by the audit to be still due and unpaid on account of the mortgage, after crediting it with the net proceeds of the second sale. The petition against the Laurel Development Company does not appear to have been pressed, probably because it had no assets, and any further decree against it would have had no practical value. Jacob and Esther Mizen however answered the petition against them, and, after setting forth the facts to which we have referred, they said they were not interested in the resale or the deficiency resulting therefrom, but were entitled to be credited with the purchase price of the first sale, which was more than sufficient to satisfy the mortgage debt, interest, and costs, on the theory that, when the trustee allowed the sale to be ratified and stand, “said Laurel Development Company was thereby accepted not merely as the equitable owner thereafter of said property, but as the party solely entitled to any of the surplus should such resale have resulted in a surplus, and solely liable for any deficiency resulting from said resale, and that said trustee should be required to prosecute his claim against said Laurel Development Company for this reason.” In connection with those issues evidence was offered which proved “that at the original sale the defendant, Jacob Mizen, was one of ³¹⁷ the two bidders and bid for the property a sum within $100 of the price at which it was finally sold to the Laurel Development Company; * * * that the purchaser at the second sale, to wit, the Frederick Road Park Building Company, is a Maryland corporation, and that its stock is owned, one-third by J acob Mizen, one-third by his counsel, Wm. Edgar Byrd, and one-third by his son-in-law, Reuben Kipnis, the same parties being officers and directors of the company” and that “at the second sale Mr. Mizen and Mr. Byrd stood together, Mr. Byrd bidding, and that when Mr. Byrd was asked in whose name the sale should be reported, he turned to Mr. Mizen and said ‘We will report this in the name of the Frederick Road Park Building Co.,’ and Mr. Mizen replied, ‘Yes,’ whereupon the trustee was so directed,” * * * and also “that the Laurel Development Company had no assets, and that the only money which had ever been paid into its treasury was the money deposited on account of the first sale in this case, and that it had been incorporated in 1927.” The case was argued and submitted on the petition, the answers, and that evidence, and on June 5th, 1928, the court entered a deficiency decree in favor of Thomas for $5,805.87.

From that decree this appeal was taken. The only question presented by it is whether, where a trustee, appointed to make sale of mortgaged property to satisfy the debt secured by the mortgage, reports a sale of the property to a purchaser, and permits the sale to be finally ratified, and subsequently, upon the failure of the purchaser to comply with the terms of sale, asks permission to resell the property at the purchaser’s risk, the mortgagors remain liable for any deficiency which may result after applying the net proceeds of the resale to the payment of the amount due under the mortgage, plus interest and costs. Appellants’ theory is that, when the trustee- elected to stand by the sale to the Laurel Development Company, as he did in asking that it be resold at the purchaser’s risk instead of asking that it be set aside, he substituted the purchaser’s obligation for the mortgaged property, and thereafter held the property, not as security for the mortgage debt, but as ³¹⁸ security for the purchaser’s obligation, and that the mortgagors, having lost their property, were entitled to be credited with the proceeds of its sale. Appellee, on the other hand, asserts that neither the ratification of the sale to an irresponsible; and defaulting purchaser, nor the resale at the purchaser’s risk, could affect the liability of the mortgagors for the payment of the,mortgage debt, nor their liability for the payment of any deficiency resulting from the inadequacy of the mortgaged property to satisfy that debt.

If we disregard technicalities, and look only at the actualities, the case is rather a simple one. The trustee attempted to sell mortgaged property to a purchaser who happened to be wholly worthless and irresponsible, but the sale was never consummated because the purchaser failed to comply with its terms. The property was then resold at the purchaser’s risk, but the proceeds of the resale were not sufficient to pay the mortgage debt. Prior to the resale the title to the property remained in the mortgagors, because it could not have been divested except by deed, and no deed was given, and after the resale a part of the mortgage debt still remained due and unsatisfied.

The mortgagors had received full value for the debt, and the property pledged for its payment had, after a fair and public sale, failed to produce a fund sufficient to satisfy it. Under such circumstances, did the act of the trustee in asking for a resale, or the decree of the court ordering such resale, release the mortgagors from their obligation to pay such part of the debt as remained unsatisfied after the net proceeds of the resale had been applied to its payment. It is settled in this state that, where property is conveyed by mortgage to secure the payment of a debt, that the debt is the principal incident of the transaction, and títat the .conveyance is no more than security for its payment, and accessory and appurtenant to it. Timms v. Shannon, 19 Md. 297; Harris v. Hopper, 50 Md. 357 ; Washington Fire Ins.

Co. v. Kelly, 32 Md. 421 ; McCracken v. German Fire Insurance Co., 43 Md. 371 . And this court, in the case of ³¹⁹ Washington Fire Insurance Co. v. Kelly, supra, said : “Mortgages are now universally regarded, in courts of equity, as mere securities for the payment of money. The mortgagor is still the substantial owner of the property. He can sell, convey, devise or further encumber it, at pleasure, so long as the right of redemption exists.

It may be taken for his debts under execution, and conveyances of it must be recorded under our registry laws. By the decisions of this court the respective interests of mortgagor and mortgagee have been frequently and clearly defined. In Ford v. Philpot, 5 H. & J. 315, filie mortgagor/ say the court, fis considered the substantial owner of the property mortgaged; the debt due is all the mortgagee, or those claiming under him, can demand; and although the legal estate is in the mortgagee, it is merely to secure the payment of the debt, and that effected the mortgagor must be restored to his original condition, the unfettered owner. The property mortgaged is substantially his, liable to the incumbrance of the debt; subject to that responsibility he can sell it to meet any other claims or demands, to whom he pleases.

And in Evans v. Merriken, 8 G. & J. 74 , it is said, fihe mortgagee must be considered as having an estate or interest in the subject-matter of the mortgage, not absolute it is true, because such an estate is not imported by the terms of the mortgage deed, but an interest commensurate with the legal object contemplated to be attained by it, as a security for the payment of the debt due from the mortgagor to the mortgagee. That view of the respective interests of the mortgagors and the mortgagees in mortgaged property and the debt thereby secured is also implicit in the statutes dealing with such interests. Baltimore City Charter, sec. 720 et seq.; Code, art. 66. But if the debt is the principal, it cannot, except by agreement of the parties, be satisfied by a sale of the property mortgaged to secure its payment, unless such sale produces a fund sufficient to pay the mortgage debt, accrued interest, and costs.

Baltimore City Charter, sec. 731A; Code, art. 66, sec. 24. And if a sale of the mortgaged property fails ³²⁰ to produce a fund sufficient to pay the mortgage debt, interest, and costs, the mortgagee may proceed as a common creditor against the mortgagor for the balance, or he may proceed against any additional security' which he may hold for that purpose (Andrews v. Scotton, 2 Bl. Ch. 668, etc.; Johnson v. Hines, 61 Md. 138 ; Jones on Mortgages, sec. 1227), unless by his deed or acts in pais he is estopped from any further proceedings for the collection of the debt. There is nothing in the record which indicates that the mortgagee, by any act or deed of his own, estopped himself from collecting the full amount of his mortgage debt and interest, unless it may be inferred (1) that the trastee, in allowing the sale to the Laurel Development Company to be ratified, acted as the agent of the mortgagee, and (2) thereby elected to accept the personal obligation of the purchaser as a complete satisfaction of the mortgage debt.

But we know of no principle of law which would permit such an inference from the facts of this case. The foreclosure proceeded under the statute (Baltimore City Charter, sec. 720), and the bond which the trustee was required to give ran to the State, and was for the protection of all persons interested in the mortgaged property. Code, art. 66, sec. 7. He was appointed by the court, which was not bound to accept any nomination by the mortgagee, and he was answerable to the court for the faithful and complete discharge of the trust reposed in him.

He was the officer of the court, and not the agent of any particular party to the cause, and his acts done in the execution of his trust are not to be regarded as the acts of the parties, for he is not their agent, but the agent of the court. He was appointed solely to' perform a special limited duty, which was to' sell the mortgaged property in the manner prescribed by the decree to the best advantage, and he had no concern in the satisfaction of the mortgage debt further than to see that the property pledged for its payment brought the best price obtainable. He had no authority either express or implied to bind the mortgagee by any agreement for the release or satisfaction of the mortgage debt, and so far as the proceeds of any sale of the mort ³²¹ gaged property which lie might make would satisfy that debt, it would be treated as satisfied, but no further, irrespective of any act of his. In dealing with that general question, Chancellor Bland, in Andrews v. Scotton, supra, said: “On considering the nature- of sales under the authority of the court of chancery, the first inquiry which suggests itself is, who are the real parties to the contract ?

This very ide-a of a. contract implies that there is -oiie party able and willing to contract, and another to- be contracted with. It implies a perfect capacity and free will, in each of the parties to the agreement. To -a contract of sale-, made under a decree of this court, neither of the litigating parties can be- considered as the vendor; although they, with others, such as creditors, who may be allowed to- come in afterwards, may be- very materially interested in the sale. The plaintiff cannot be considered as the vendor; because, oftener than otherwise, he has no title, always states his inability to sell, and prays the court to decree that a sale be made.

The- defendant cannot be the vendor; because he always positively refuses- to part with his property, unless forced, o-r sanctioned in doing so by the power of the court. If then, neither of the litigating parties can be separately deemed to be the vendor, it is clear that they cannot both together, be so considered. But such sales are always made by an age-nt; in England, by a master, in this state, by a trustee. Private contracts may be made and executed in person, or by attorney; but the attorney is never considered as -o-ne of the contracting parties, he exercises no will or powers of his own, he is merely the medium or conduit through which tho will of the contracting party is expressed.

The master or trustee is the mere attorney of the court, acting under a specially delegated authority. 1785, cli. 72, see. 7; Ap-ril, 1787, eh. 30, sec. 5. And, in no case, is a master o-r trustee- authorized to do- more- than to accept an offer or proposal to contract, which is of no sort of validity unless it be -accepted, ratified and confirmed by the court. It is the court itself, for the benefit of all interested, therefore, -who is the vendor in such cases. * * * Henee it is evi ³²² •dent, that considered the bidder or purchaser as a contracting party, on the one side, dealing with the court as the contracting party on the other, and who was, in fact, the vendor. That the court was to be considered as the proprietor and principal, and the trustee as the mere agent, having no right or power whatever, other than as a mere attorney.

Hence it is clear upon principle, and also upon authority, as well in this state, as in England, that the court of chancery, and not its trustees, is in all cases to- be considered as the party •contracting, or as the real vendor, Gibson’s Case, 1 Bland, 138 .” Returning to the question first .stated, which is whether the act of the trustee in allowing the sale of the property to the Laurel Development Company to be ratified, and in re^ .selling it at the purchaser's risk, substituted the obligation of the purchaser for the obligation of the mortgagors, it is .apparent that the solution of it depends largely upon what is meant by a “sale.” If the property was actually sold to the Laurel Development Company, and the trustee, with the knowledge and assent of the mortgagee, actually accepted