Plaza Corp. v. Alban Tractor Co.

Prescott, J., delivered the opinion of the Court. After reargument, the original opinion is modified so as to read as follows: The decision in this case depends upon the relative priority of two mortgages—one covering both real estate and chattels personal, and held by the appellant; the other covering chattels personal, only, and held by the appellee. On December 26, 1950, John B. Gaither, Jr., Inc. (Gaither) was incorporated by the filing of articles of incorporation with the State Tax Commission designating its principal office as 3544 Milford Mill Road, Baltimore County, Maryland, this being also the address given for the resident agent, John B. Gaither, Jr., who was president of the corporation. After the incorporation, a number of amendments were filed with the State Tax Commission enlarging the general purposes of the corporation and changing its stock structure, but in no way affecting the change of the location of its principal office from Baltimore County to Baltimore City, although it did ⁵⁷⁵ establish a business office at 10 West 25th Street in Baltimore City. 1 On October 20, 1954, Gaither purchased from the appellee, Alban Tractor Co., Inc. (Alban), certain construction equipment, and executed and delivered, unto Alban, a conditional contract of sale in the amount of $203,195.62 covering said equipment.

This conditional sales contract was recorded on the same day in Baltimore City, and immediately assigned to the Union Trust Company. On December 1, 1954, Gaither executed a mortgage to the appellant, Plaza Corporation (Plaza), covering a part of the same personal property mentioned in Alban’s conditional sales contract above, additional personal property and certain real estate. This mortgage was forwarded, on the same date, to the Clerk of the Circuit Court for Baltimore County for recording. On May 6, 1955, Gaither was in default in its payments due under the conditional sales contract, given to Alban and transferred by it to the bank.

On that date Alban paid, in full, the amount due to the Union Trust Company under the assignment of the conditional sales contract, sold to Gaither additional equipment for a price of approximately $119,000 and took from Gaither a chattel mortgage on the additional equipment as well as the equipment that had been named in the conditional sales contract, the latter including a substantial part of the same property that had been included in Plaza’s chattel mortgage. This mortgage to Alban was recorded on the same day in Baltimore City. On November 5, 1956, Herbert L. Wynne, the attorney named for the purpose of foreclosure in the Alban mortgage, filed a petition for the sale of the mortgaged chattels in Circuit Court No. 2 of Baltimore City, and, after a decree appointing him trustee to make sale, proceeded to advertise the chattels for sale. On November 15, 1956, Gaither executed a Deed of Trust ⁵⁷⁶ for the benefit of creditors to Herbert H. Hubbard and Sidney Waldman, trustees.

On November 29, 1956, Mr. Isekoff, the attorney named for the purpose of foreclosure in the Plaza mortgage, notified Wynne that Plaza had filed foreclosure proceedings in Baltimore County on November 27, 1956. The real estate named in the Plaza mortgage was sold and the sale reported to the Court in the Baltimore County proceedings, but the sale was not ratified or confirmed by the court at the time of the trial below, insofar as the record herein discloses. On December 1, 1956, Wynne, as trustee aforesaid under the Alban chattel mortgage, proceeded to sell the chattels named in the Alban mortgage, these chattels bringing $148,500 (which amount was insufficient to pay Alban in full), consisting of $67,200 for the chattels named in both the Alban and Plaza mortgages and $81,300 for those named only in the Alban mortgage. Plaza filed exceptions to the ratification of the sale by the court in Baltimore City.

Pursuant to a stipulation entered into at the trial on May 29, 1957, this sale was ratified, without prejudice to all of the exceptions and contentions of Plaza. In September, 1957, the chancellor signed a decree in which he dismissed Plaza’s exceptions on the ground that Plaza had made no showing of a lien on any of the chattels sold, and, therefore, was without right to urge its exceptions; and directed the trustee, as all parties had agreed thereto, to pay forthwith to Alban the sum of $70,000 and to deposit the balance of the fund in certain institutions, subject to the further order of the court. • There was no testimony offered to show that Plaza had actual notice of Alban’s conditional sales agreement when it took its chattel mortgage; or that Alban had actual notice of the Plaza mortgage when Alban received its mortgage. I It will be noted at the outset that Plaza makes its claim as a senior encumbrancer and filed exceptions to the ratification of the sale made under the Alban mortgage. Ordinarily, the holder of a prior mortgage has no standing in court to file ⁵⁷⁷ exceptions to the ratification of a sale made under a junior mortgage; because, generally, such a sale is made subject to the prior mortgage and does not affect the rights of the prior mortgagee.

Article 66, sec. 7 (c), Code (1957); 2 Jones, Chattel Mortgages and Conditional Sales, sec. 694. However, the stipulation of the parties herein was made before the sale was ratified and transferred the claims of all of the parties to the chattels sold from the chattels to the proceeds of their sale. This, the parties had a right to do and the stipulation effectively placed before the court the respective claims of Alban and Plaza to the proceeds of the sale. Willard v. Ramsburg, 22 Md. 206, 215, 216; In re Sachs, 30 F. 2d 510, 511 (C. C. A. 4th Cir.).

Cf. 2 Jones, op. cit., sec. 779. II We shall next consider the question of the jurisdiction and/or venue of the court in Baltimore City to appoint a trustee and order the sale of the mortgaged property. The appellant claims that the court below (and all other courts) lacked jurisdiction or venue because Alban’s chattel mortgage was not recorded in Baltimore County, in accordance with Article 21, secs. 45 and 46 (Code 1957), which requires that a chattel mortgage be recorded in the “county or city” where the mortgagor resides, but was only recorded in Baltimore City. It argues that the provision “at any time after filing the same (the mortgages or certified copies) to be recorded to submit [them] to a court of equity” contained in sec. 6 of Article 66 (Code 1957), prevented the court in Baltimore City from acting under the procedure authorized by said section, without the mortgage having first been filed for record in Baltimore County.

The chattels involved herein were sold under said section 6. 2 It will be noted that this section does not confer special and extraordinary powers of jurisdiction upon the equity courts. Foreclosure of mortgages after default has long been ⁵⁷⁸ peculiarly within a court of equity’s jurisdictional powers; and the above section simply provides an expeditious and economical summary modal procedure for the exercise of an ordinary jurisdiction. Cockey v. Cole, 28 Md. 276, 283, 284; Warehime v. Carroll Co. Build. Assoc., 44 Md. 512, 516, 517 .

We think the appellant, having consented and stipulated that the court ratify and confirm the sale and that the claims of all the parties to the chattels be transferred to the proceeds of the sale thereof, is in no position to challenge the power of the court below to make the sale. The sale under the decree did not pass the title to the property sold until the sale was ratified and confirmed. Before ratification the transaction was merely an offer to purchase which had not been accepted. The court was the vendor acting through its agent, the trustee, who had been appointed to make the sale.

When he reported the offers of the bidders for the property to the court, no contracts of sale had been completed and no title had been transferred to the prospective purchasers. But, when the offers were accepted and the sales to the respective bidders were ratified and confirmed (and the purchase money paid), the contracts of sale became complete and the title to the property sold passed. Hanover Fire Ins. Co. v. Brown, 77 Md. 64, 71 , 25 A. 989 , 27 A. 314 ; Talbert v. Seek, 210 Md. 34, 41 , 122 A. 2d 469 .

The appellant, having consented to the above, cannot now request its disaffirmance. Ill The Chancellor held that Alban’s conditional contract of sale from Gaither (although assigned to the Union Trust Company) was duly recorded and long antedated Plaza’s mortgage; and, therefore, at the time Plaza recorded its mortgage in December, 1954, Gaither had no “title or ownership” in the chattels named in Plaza’s mortgage. It is generally held that a conditional vendee, especially when he has made part payment of the purchase price as in this case, acquires a special property which he may mortgage. 10 Am. Jur., Chattel Mortgages, sec. 27; Annotation, Ann. Cases 1913 C, 329.

Laying aside for the time being the question of whether ⁵⁷⁹ or not Alban’s conditional sales contract was recorded in the proper place, Alban has no standing in this case under the conditional sales contract. It assigned the same to the Union Trust Company, which it had a right to do, and its assignee acquired the same rights that the vendor had. Burrier v. Cunningham Piano Co., 135 Md. 135, 142 , 108 A. 492 . However, when Alban paid off the indebtedness due the Union Trust Company, it took a chattel mortgage on, at least, some of the chattels named in the conditional sales contract and other personal property.

This effectively put an end to the conditional sales contract, insofar as the chattels that were covered by both of the instruments involved herein were concerned, even had there been a reassignment of the conditional sales agreement to Alban. While it is not universally so held, the weight of authority, supported by reason, is that the legal effect of a conditional vendor’s taking from the vendee a chattel mortgage on the same chattels that have been conditionally sold amounts to a waiver by the vendor of the reserved title and constitutes the transaction an absolute sale, with title to the chattels passing to the vendee. It is impossible for the title to the chattels to reside in both the conditional vendor and the vendee at the same time; and, if the vendor takes a chattel mortgage on the same chattels covered in the conditional sale to secure payment of their price, he thereby admits that title is in the vendee. The result of which is that the vendor either waives his reserved title, or the sale becomes absolute, which amounts to the same thing. 47 Am.

J'ur., Sales, sec. 974; Anno., 95 A. L. R. 332; 3 Jones, op. cit. 1229. Consequently, the question that we must determine is: Which of the two chattel mortgages, Alban’s or Plaza’s, has priority ? IV The Chancellor further held: (a) that Alban’s chattel mortgage had been properly recorded in Baltimore City in accordance with sections 45 and 46 of Article 21 (Code 1957), 3 as Gaither had effectively changed its corporate residence from Baltimore County to Baltimore City, because “for all ⁵⁸⁰ practical purposes” Gaither had its principal office in Baltimore City at the time Alban’s mortgage was executed and recorded; and (b) that Plaza’s mortgage was not recorded either in Baltimore City or Baltimore County, as it had not been “chattel indexed or recorded” among any records. These findings were made before our decision was rendered in the case of O’Toole Tire Co. v. Gaither, Inc., 216 Md. 54 , 139 A. 2d 252 .

(a) We think the O’Toole case, supra, is controlling here, and definitely shows that this ruling of the Chancellor cannot be sustained. There, we held that the corporate residence of Gaither, as of November, 1956, had not been changed from Baltimore County to Baltimore City; therefore a deed of trust for the benefit of creditors recorded in Baltimore City conveyed no title to the trustees. Judge Hammond, for the Court, so clearly and fully set forth our reasons for so holding, with the supporting authorities, that it is unnecessary to repeat them here. The parties to that suit were not the same as those in the case at bar, but there was no evidence adduced in the trial below which differs enough from the O’Toole case to warrant a departure from our conclusion therein.

We, therefore, hold that on December 1, 1954, the date of the Plaza mortgage, and on May 6, 1955, the date of the Alban mortgage, the corporate residence of Gaither was in Baltimore County; hence, in accordance with sections 45 and 46 of Article 21 (Code 1957), the proper place for their recordation was in Baltimore County. (b) As stated above, Plaza received its mortgage from Gaither, covering both real estate and chattels personal, on December 1, 1954. On that same date, it was mailed to the clerk of the Circuit Court of Baltimore County, together with a letter directing that the mortgage be recorded and a blank check be made payable to the clerk for the recording costs. The letter, the check and the mortgage were received by the clerk on December 2, 1954.

He recorded the mortgage and indexed the same among the Land Records, but failed to list the same ⁵⁸¹ in the chattel index. He also issued a receipt for recording the mortgage and filled in the blank check for his recording fees. Sections 26 and 27 of Title 2 of the Baltimore County Code (Everstine 1955) 4 provide that the clerk of the Circuit Court for Baltimore County shall keep a full and complete general alphabetical index for the Chattel Records; and that when he receives an instrument for recording which affects the title to, or any interest in, both “land and personal property,” such instrument “shall be * * * recorded in such Land Records only, and not in such Chattel Records, but in such case, the general alphabetical index for Chattel Records * * * shall include a notation that such instrument has been recorded among such Land Records; and such notation in such indexes shall have the same effect as if such instrument were recorded in full among such Chattel Records * * *.” The appellee contends that Plaza had previously had instruments recorded relating to both real and personal property and knew of the clerk’s duty to index such instruments in the Chattel Record index as well as the Land Record index; and it was Plaza’s duty and responsibility to see that the clerk properly recorded its mortgage. Alban further claims that as Plaza failed in this respect and the clerk failed to record properly the Plaza mortgage, in fact and in law, has not been recorded; hence, under the provisions of Article 21, section 48, Plaza’s mortgage, as between Plaza and Alban, is invalid and of no effect.

The appellant answers by saying that its mortgage was properly recorded by it; that Baltimore County was the “residence” of Gaither, the mortgagor, and, in compliance with sections 45 and 46 of Article 21, Baltimore County was the only correct location in which to record the mortgage; that indexing an instrument is not an essential part of its recording; and that the mere failure of the clerk to fulfill his statutory duties did not prevent the mortgage from being “re ⁵⁸² corded” after it had been properly deposited with him for recording. This presents for our determination the important question as to whether the failure of the clerk to index the Plaza mortgage in the general alphabetical index for chattel records prevented it from being “recorded” under the provisions of sections 45, 46 and 48 of Article 21. Registration systems are purely of statutory origin, and the convenience or inconvenience of searching the records as well as the authority and effect of the registry acts are subjects of the legislative will. It is stated in 4 American Law of Property, sec. 17.25 that: “In spite of the fact that the whole doctrine of record notice has been developed on the basis of what a prospective purchaser will find if he makes a proper search in the indices of grantors and grantees, only a few of the statutes make the index an essential part of the record.

(The text lists only five states.) * * * Be that as it may, the rule appears to be well established that in the absence of statutory provision to that effect, an index is not an essential part of the record. In other words, a purchaser is charged with constructive notice of a record even though there is no official index which will direct him to it. * * * Nevertheless, it is a rebuke to legislators, and to the legal profession, that with the few exceptions noted in the next paragraph, the courts must determine priorities on the basis of an outmoded and generally unused system of indices.” (Emphasis added.) The above is based upon the theory that although it is provided by statute that the registrar shall make an index for the purpose of affording a correct and easy reference to the books of record in his office, the index is designed, not for the protection of the party recording his conveyance, but for the convenience of those searching the records; and, instead of being a part of the record, it only shows the way to the record. See also 8 Thompson, Real Property, (Permanent Edition), sec. 4379 ; 5 Tiffany, Real Property, (3rd Ed.), ⁵⁸³ sec. 1274; Annotation: 63 A. L. R. 1057. Cf.

Standard Finance Co. v. Little, 159 Md. 621 , 152 A. 264 . However, we are not dealing with a situation exactly as is contended by the appellant with reference to the indexing of its mortgage. The requirement of section 26 of the Baltimore County Code, supra, that in cases where an instrument affects the title to, or any interest in, both land and personal property that the clerk “shall include a notation that such instrument has been recorded among such Land Records” is not for the sole purpose of affording a correct and easy reference to the book where the instrument is recorded; for the language which follows, “and such notation in such indexes shall have the same effect as if such instrument were recorded in full among such Chattel Records,” makes the entry or notation in the chattel index constitute an essential part of the actual recordation of the instrument in the Chattel Records. If this were not so, we would have this anomalous situation: We would have a registry statute requiring the clerk to keep a set of Land Records, a set of Chattel Records and a separate general alphabetical index for each; when an instrument is presented for record that covers both real and personal property, the statute provides that it shall be spread upon the Land Records and not upon the Chattel Records, but a notation thereof shall be made in the general index of the Chattel Records, which shall have the same effect as though it were spread in full upon the Chattel Records; if this be treated as a mere failure to index and not as a lack of a complete recording, there would be no possible way for a subsequent prospective purchaser or creditor to locate the instrument dealing with personal property without a search of the Land Records, something that no one would do.

We, therefore, rule that the provision of said section 26 that requires a notation in the general Chattel Record index when an instrument is recorded which affects both land and personal property is an integral part of such instrument’s recordation with reference to personalty. Plaza delivered its mortgage which covered both real and personal property to the clerk at his office for the purpose of recording, together with the costs for such recording. The ⁵⁸⁴ clerk spread it upon the Land Records and the general index of the Land Records, but failed to comply with the statute in noting the same in the general index of the Chattel Records. Who must suffer for the clerk’s