Neeb v. Atlantic Mill & Lumber Realty Co.

Shehan, J., delivered the opinion of the Court. The Atlantic Mill & Lumber Realty Co, Inc., and others, creditors of Edgar Keefer and Mary Catherine Keefer, his wife, filed their bill of complaint against Wm. E. Neeb and Anna P. Neeb, his wife, and Charles R. Neeb, and John S. Mahle, attorney named in a mortgage from Edgar Keefer and Mary Catherine Keefer to Charles R. Neeb, and Edgar Keefer and Mary Catherine Keefer, his wife. The purpose of the bill of complaint was to have declared a lease from William E. Neeb and wife, and held through assignment by Edgar Keefer and wife, and a ²⁹⁹ mortgage for $2000 from Edgar Keefer and wife to Charles R. Neeb, to be null and void, and also to declare a certain mortgage from Edgar Keefer and wife to The Atlantic Mill & Lumber Realty Co., Inc., to be a first lien upon the property involved in this case, consisting of three lots of ground located at Harford Park in Baltimore County, and further to restrain John S. Mahle, attorney, from proceeding with a foreclosure of the mortgage from Keefer and wife to Charles R. Neeb, instituted by him.

The facts alleged in the bill and sought to be established by the testimony in support of the relief prayed are, in substance, that William E. Neeb and his wife were the owners in fee simple of the three lots of ground in Baltimore County above mentioned, and known as Nos. 77, 78 and 79 in Block No. 5 on a plat of Harford Park, and located on Wentworth Road. William and Charles Neeb are brothers. They conducted as partners a plumbing business and operated a corporation known as The Windsor Construction Company, which engaged in improving and selling real property. At the time of the transaction in question Edgar Keefer was employed by William and Charles Neeb, or this corporation, in the capacity of salesman for houses on a commission basis.

The evidence shows that he was not a partner, and did not share in profits, and was not engaged in joint ventures with them. In June, 1937, Keefer’s employment as a salesman terminated because of business conditions. He was then desirous of establishing a business of his own, for the purchase of land, building of houses, and sale of such property. He approached Charles R. Neeb, with whom he seemed to be in closer relations than with William E. Neeb, for the purpose of purchasing the lots above mentioned, planning to improve them and then to sell at a profit.

Charles carried the proposition as made by Keefer to his brother. William offered to sell the lots in fee simple for $700. Keefer, it seemed, had had business reverses and did not have the money with which to purchase the lots. After some negotiations it was agreed ³⁰⁰ that William would lease the property to him for ninety-nine years, reserving an annual rent of §78.

The lease originally was made to Clayton W. Bordley, a “straw man” and by him assigned to Keefer; it was dated June 24th, 1937, and was properly recorded in Baltimore County. The capitalization of the rent at six per cent would be §1300, and the difference between the §700 above mentioned and this capitalization was §600. This §600 was paid by William E. Neeb to Keefer and in turn Keefer paid §500 of it to Charles R. Neeb and the remaining §100 he paid for expenses of the transaction and other incidentals. The §500 payment is the subject of some controversy and difference of' understanding between the parties as to its purpose.

Charles R. Neeb, who had loaned to Keefer and wife §2000 on a mortgage, testified that Keefer had paid him the §500 as a bonus for making this loan. Keefer testified that §500 was paid to Neeb for making the loan, for extending him some credit with respect to plumbing for the house to be built, and for other services and advice rendered by Charles R. Neeb or to be rendered by him. This §600 was not deducted or paid out of the §2000 loan, but arose out of the transaction relating to the lease. Charles R. Neeb, the mortgagee, paid by check to Edgar Keefer and his wife the entire amount of the mortgage, which covered the three lots above mentioned.

The mortgagee retained no part of the mortgage loan. When the §2000 was paid to Keefer and wife they immediately endorsed the check and turned it over to John S. Mahle, trustee, under agreement for its distribution, as the construction of the proposed improvements on the property progressed. This agreement between Keefer and wife and John S. Mahle, trustee, will be hereafter further considered. Charles R. Neeb was not a party thereto.

All of these papers, namely, the lease, the mortgage, and the agreement, were executed on June 24th, 1937. Keefer had purchased, on the morning of June 24th, 1937, from the appellants, the lumber in question, and this contract was reduced to writing. Charles R. Neeb was not a party to ³⁰¹ it. In pursuance of the agreement, the lumber company supplied lumber and materials to Keefer, and later on became apprehensive of the ability of Keefer to pay for the same and requested of him a mortgage upon the property to secure the indebtedness, and in November, 1937, Keefer and wife executed a mortgage to the lumber company for §985 upon said leasehold property, and the mortgage was promptly recorded, as has been the mortgage for §2000 from Keefer to Charles R. Neeb.

In January, 1938, the mortgage being in default, John S. Mahle, the attorney named therein, began foreclosure proceedings and advertised the property for sale, whereupon the bill of complaint was filed for the purposes above recited. Answers were filed by the defendants, testimony was taken in open court and a decree was passed declaring both the lease from William R. Neeb and wife and held by Edgar Keefer and wife, and the mortgage from Keefer and. wife to Charles R. Neeb, to be null and void, and declaring the mortgage from Keefer and wife to the lumber company to be a first lien upon the property, and also granting the other relief prayed. From this decree the appeal here is taken. The questions presented for consideration are whether the mortgage, supplemented by the agreement as to the distribution of its proceeds, was for a future advance, and void under section 2 of article 66 of the Code; and, second, was the lease and the mortgage made for the purposes of hindering, delaying, and defrauding the creditors of Edgar Keefer, in violation of sections 4, 6, and 7 of article 39B of the Code, and, therefore, void.

The appellees contend that the arrangement whereby the proceeds of the mortgage loan of §2000 was paid by check to Keefer and wife and by them endorsed to John S. Mahle, as trustee, who, by agreement with Keefer, undertook to pay the same to Keefer in installments to be measured in amount by the work on the house, as it was from time to time completed, constitutes an arrangement for future advances within the above provisions of the Code of Public General Laws, and, therefore, void. ³⁰² The contract in writing between Mahle and Keefer to effectuate this purpose in substance recites that Keefer and wife borrowed from Charles R. Neeb the sum of $2000 upon the representation and promises that the said sum will be employed and used exclusively in improving the lots of ground referred to, and provides that, in order to carry out this agreement, this sum of $2000 be deposited with Mahle as trustee, who shall deposit the same in such financial institution as he may deem proper, and that the premises shall be improved before September 15th, 1937, in accordance with certain plans and specifications lodged with the trustee, who is authorized to pay said deposit to the owner in six installments, which are defined with respect to the completion of certain parts of the building, with the right in the said John S. Mahle to foreclose the mortgage in case of default. This court has decided that such a mortgage and agreement does not, under article 66, section 2, constitute an agreement for future advances. New Baltimore Loan & Savings Assn. v. Tracey, 142 Md. 211 , 120 A. 441 ; Edelhoff v. Horner-Miller Mfg. Co., 86 Md. 595 , 39 A. 314 ; and Western National Bank v. Jenkins, 131 Md. 239 , 101 A. 667 , where the facts in substance and effect are almost identical with the facts in this case.

In the case of New Baltimore Loan