Proctor v. Holden

ALPERT, Judge. This is an appeal by John P. and Deborah Proctor, and Freeman & Kagan, Inc. from a jury verdict entered in favor of Michael and Deborah Holden in the Circuit Court for Talbot County. Count I of appellees’ Complaint alleged breach of contract by the Proctors for their failure to return the $20,000 deposit despite appellees’ inability to obtain the financing provided for in the contract. Count II of the Complaint alleged a breach of a fiduciary duty by Freeman & Kagan by: (1) failing to disclose all pertinent information to the Holdens, (2) drafting and inserting an ambiguous and contradictory financing clause in the contract, and (3) improperly urging the Holdens to increase their purchase offer by $7,000, the amount of the realtor’s commission.

Upon jury verdicts in favor of the Holdens, judgments were entered for the release and return of the $20,000 escrow against the Proctors, and for $1.00 in compensatory damages and $10,000 in punitive damages against Freeman & Kagan. Both defendants appealed. FACTS The material facts, which are not in dispute, follow. In April 1985, appellees Michael and Deborah Holden decided to relocate from Ocean City, Maryland to the Mid-Shore area in order to be closer to their families in Baltimore and Annapolis.

The Holdens contacted Charlotte Valliant, a real estate agent associated with appellant Freeman & Kagan, Inc., a real estate brokerage in Easton. For more than a month, Valliant showed the Holdens homes in the Talbot County area, some listed with Freeman & Kagan and some listed with other brokers. Also, on a weekly basis Valliant sent appellees a list of new properties, as well as information about properties which had not yet been listed, ⁵ but of which she had knowledge. During this period, Valliant was actively seeking a home for appellees.

On May 24,1985, Valliant showed Michael Holden a home located on Edgeview Road, near Royal Oak, which the then owner, Howard Gillellan, had just listed with Freeman & Kagan at a price of $169,500. Upon Valliant’s urging that the house was a “tremendous buy” and that it was “grossly under-priced,” Michael Holden submitted a contract offer in the amount of $170,000 cash, the only contingency being that Deborah Holden be allowed to inspect the property prior to noon the next day. Because the Holdens could not make the trip to Freeman & Kagan’s office that day to sign a contract, their offer was submitted by telegram, the text of which was dictated by Tim Kagan. In exhorting appellees to submit an offer, Valliant related to the Holdens that there was strong interest in the Gillellan property, and that any delay could mean the loss of the property.

In fact, Mr. Holden was told that another full-price contract had been submitted by another client of Freeman & Kagan. In a phone conversation with Kagan and Valliant, Michael Holden specifically requested that either Valliant or Kagan personally sponsor, present, and urge their offer upon Mr. Gillellan, the owner. Nevertheless, only the listing agent, Marshall Bailey, presented both contracts. Gillellan accepted the other contract submitted by appellant Deborah Proctor.

According to Bailey, Gillellan accepted the Proctor contract, at least in part because of his fear of losing both offers if he waited for Mrs. Holden’s inspection and approval of the home. The Proctor contract was for $169,500 and was subject to a financing contingency. Although apparently losing the Gillellan home, appellees remained in contact with Charlotte Valliant during the months of June and July, 1985. On July 14, 1985, Valliant called and informed the Holdens that they could buy the Gillellan property from the Proctors for $203,000.

Almost immediately Michael Holden contacted Delphine Amrhun, Office Manager at Magnet Mortgages, a mortgage compa ⁶ ny located in Ocean City, about obtaining a $150,000, 30-year term loan for the property. On July 24, 1985, the Proctors signed a 24-hour listing agreement with Freeman & Kagan. Later that same day Michael and Deborah Holden visited the property where they met and spoke directly with Deborah Proctor for the first time. Asked about the possibility of owner-financing, Deborah Proctor responded that she would not hold any financing, and in addition she wanted settlement within 30 days.

Michael Holden responded that even though he had already submitted a mortgage application to Magnet Mortgages 60 days was needed; after some discussion Proctor agreed. Thereafter, at the Freeman & Kagan office, Valliant prepared for the Holdens’ signature a standard fill-in-the-blanks contract then in use by the Talbot County Board of Realtors. $210,000 was inserted in the blank for purchase price 1 . In addition, a mortgage contingency clause was completed, which is set out in full infra. The contract also stated: “Time is of the essence of this agreement.” The Holdens tendered a $20,000 deposit with their contract, to be held in an interest bearing account by the broker, Freeman & Kagan.

The Proctors accepted the contract on July 26, 1985. On approximately August 1, 1985, Delphine Amrhun of Magnet Mortgages telephoned Michael Holden to advise him that he would not qualify for a $150,000 30-year loan; moreover, she intimated that no lender employing standard FNMA/FHLMC guidelines would qualify him for such a loan because of his high debt to earnings ratio. Amrhun later confirmed this in a letter to Holden dated August 8, 1985. Holden then submitted a mortgage application to Second National Building & Loan on August 9th, which similarly was rejected on August 12th. ⁷ Michael Holden also approached the Talbot Bank for a loan.

Mr. Jeffrey Hefflebower, a senior vice president of the bank, testified, however, that Talbot did not offer long-term fixed rate mortgages. It was Hefflebower’s understanding that Holden was seeking a short-term loan that would be paid off from the proceeds of the sale of a business. Hefflebower also stated that although the property was appraised and the application was ready for the Committee’s decision, the bank took no final action and neither accepted nor rejected Holden’s application. Holden testified that he assumed the bank’s silence meant the loan was rejected.

At the request of the realtors, Mr. Talbot Roe of United Mortgage contacted Holden. Mr. Roe stated that he could help the Holdens obtain a loan through a group of investors “who didn’t care what the risk was.” Holden testified that he was not interested in Roe’s offer on the basis of his being told by two reputable banks that he could not afford the loan. Holden notified Charlotte Valliant by letter of his inability to obtain financing and requested the return of his $20,000 deposit. In response, Tim Kagan of Freeman & Kagan, in a letter dated August 20, 1985, informed the Holdens that the Proctors had agreed to finance the purchase pursuant to the adjustable rate terms stated in the contract.

Specifically, in a letter addressed to Mr. Kagan, the Proctors expressed their willingness to finance the Holdens’ purchase with a $150,000 mortgage at an initial 10% interest rate, the interest rate to be adjusted annually by no more than 2% up or down and a 4% lifetime cap. Three points were to be paid the Proctors by the Holdens. The Proctors also requested that the Holdens forward a financial statement and credit references. The Holdens rejected this offer of owner financing and again requested a refund of their deposit.

The Proctors refused. Accordingly, Freeman & Kagan did not release the funds, and the Holdens filed suit against the Proctors to compel release of ⁸ their deposit, and against Freeman & Kagan for breach of fiduciary duty. Both defendants have appealed the jury’s verdict against them and we address each argument in turn. I. PROCTOR v. HOLDEN The Proctors present the following questions: 1.

Did the court err in declining to decide the legal issues submitted upon cross motions for summary judgment? 2. Did the court abuse its discretion in declining to decide questions of law relating to the construction of the contract? 3. Did the court err in submitting the case to the jury with instructions that the construction of the contract was for the jury? 4. Did the court err in permitting extrinsic evidence to go to the jury, when the contract was unambiguous on its face? 5; Did the court err in permitting testimony concerning the re-sale of the property which was the subject of the contract? 6.

Did the court err in failing to instruct the jury as requested by the Proctors? A. Questions 1-4 We note that although appellants list six questions, they do not address each one. Instead only one “argument” is presented in the brief. We, too, shall not address each question individually because, upon analysis, we conclude that six issues are not raised.

Questions one through four are premised on an affirmative answer to the question: Did the court err in concluding the Proctor-Holden contract contained an ambiguous financing clause and consequently permitting the jury to consider the Holdens’ efforts to procure financing? Be ⁹ cause we answer this question in the negative, questions one through four must be resolved adversely to appellant. The essence of appellants’ argument is that the Holdens forfeited their right to the return of their deposit by not fulfilling their obligation under the financing clause. Specifically, appellants assert that appellees breached the contract (1) by not applying for a mortgage within five days of acceptance of the contract, and (2) by rejecting the Proctors’ offer of owner financing.

We disagree with both assertions. The specific contract language underlying this dispute is paragraph 7, the “Financing Contingency,” which reads: FINANCING CONTINGENCY—This contract is contingent upon the Buyer obtaining a Purchase Money Loan as follows: Amount borrowed at least $150,000.00. Interest rate not greater than 11%. Period of amortization 30 years.

Payments made on a monthly basis. Payoff of mortgage in 30 years. Required mortgage points paid by buyer. Adjustable rate mortgage starting at 10% interest with a 4% life cap.

Buyer agrees to apply for said mortgage within five days of acceptance and to pay the normal closing costs in obtaining same. Buyer to receive mortgage committment and approval on or before Sept. 7, 1985. Should Buyer be unable to obtain said mortgage and Buyer so notifies the Seller or his agent on said date this contract will be null and void of no force or effect, all deposits returned and all parties to this contract released of all liability hereunder. Thus, the clause provides for both a fixed rate conventional mortgage and an adjustable rate mortgage.

Appellants argue that the clause should be read in the disjunctive despite the omission of language to that effect. We see no error in the trial judge’s determination that the financing contingency is ambiguous inasmuch as the terms are obviously inconsistent. Clearly the Holdens were not agreeing to obtain a mortgage with both a fixed rate and an adjusta ¹⁰ ble rate. If read in the disjunctive, the terms of the mortgage are unclear: Does the language “Period of amortization 30 years.

Payments made on a monthly basis. Payoff of mortgage in 30 years. Required mortgage points paid by buyer” sandwiched between the two types of mortgages apply to both, or only to the fixed rate mortgage? The court did not err in admitting extrinsic evidence to determine the parties’ intent.

See Admiral Builders Savings & Loan Ass’n v. South River Landing, Inc., 66 Md.App. 124 , 502 A.2d 1096 (1986). Thus, the next step, to determine whether the Holdens took bona fide, prompt and reasonable actions to procure financing, was a question properly presented to the jury. (1) Five Day Requirement Next, appellant alleges that the “time is of the essence clause” superimposed upon the financing contingency compelled performance in the five day period following the contract’s acceptance. According to appellants, the Holdens’ mortgage application with Magnet Mortgages, originating before the Proctors accepted the contract, does not comply with the five-day requirement in the financing contingency.

We disagree. We have found no case precisely on point, but Allview Acres v. Howard Investment Corp., 229 Md. 238 , 182 A.2d 793 (1962) is instructive. In Allview Acres the sale of a 104 acre parcel of land was contingent upon the seller’s obtention of a zoning reclassification. The issue before the Court of Appeals was whether the seller’s application to the zoning board forty-two days before the contract was signed constituted compliance with the contract.

Finding compliance, the court reasoned: We have found no case dealing with the question whether efforts, reasonable in themselves, were or were not a compliance with the contract when (absent any specific time stipulations in the contract) they were initiated before the contract was signed and were continued thereafter. In the circumstances of this case, we have no ¹¹ difficulty in concluding that the efforts were reasonable and did constitute a compliance with the contract____ Although the record does not show whether Manning, the original contract purchaser ... knew that an application had previously been filed at the time he signed the contract, the time set for settlement and common business practice strongly suggest that the purchaser was aware that the application had been initiated and that the settlement date was set with that in mind. Moreover, the absence of a date specified before or after which an application was required to be made, persuasively suggests that the fact that the application was initiated prior to the date of the contract was to have no legal consequence in the transaction. Where, as here, the application was pending and had not been decided, it seems reasonably clear to us that such application was deemed to satisfy the requirement of the clause of the contract here in question.

No possible advantage to either party and no greater prospect of success has been suggested—nor can we envision any— which might have been derived from filing the application after, instead of before, the execution of the contract. Id. at 244-45 , 182 A.2d 793 . The contingency at bar does contain a time limitation: “within five days of acceptance.” The contract sets only an outside limit of five days for the buyer to make application. We do not construe this to mean that the application may not be initiated prior to acceptance of the contract.

The purpose of the time limitation is to prevent a delay that jeopardizes the agreement. A buyer who delays in applying for a mortgage puts the settlement at risk. Setting an outside limit on the time for making a mortgage application protects the seller who is taking his house off the market. It also gives both parties peace of mind that the buyer is qualified and that settlement will take place on the stated date.

See W.B. Raushenbush, Problems and Practices With Financing Conditions in Real Estate Purchase Con ¹² tracts, 1963 Wis.L.Rev. 566, 577. In the absence of specific language to the contrary, we cannot justify penalizing a buyer who acts responsibly by initiating the financing process in anticipation of making an offer to purchase property. Cf Bushmiller v. Schiller, 35 Md.App. 1 , 368 A.2d 1044 (1977) (contract purchaser’s cancellation of mortgage application filed one day before the contract’s acceptance and failure to apply elsewhere evidenced a lack of good faith efforts to obtain a mortgage). Indeed, Holden approached Magnet Mortgages three days after being told the Proctors had decided to sell.

He testified, "... I initiated an application for a $150,000 loan. And my intention was to try to speed up the loan process in the event that we came to some kind of a deal on the house.” Moreover, the record indicates that Holden told Mrs. Proctor that he had applied for a loan at the time the two were negotiating a settlement date. Paraphrasing the Allview Acres court, supra, we perceive no possible advantage to either party, and no greater chance of success had the Holdens filed their application after, instead of before, the execution of the contract.

Indeed, after learning that their application had been rejected, the Holdens applied to Second National Building & Loan and were again rejected because of their debt/income ratio. Inasmuch as most banks follow the same guidelines, it was Holden’s “understanding ... that [he and his wife] would not qualify for any mortgage with any of those banks.” The Holdens also followed up a lead from Ms. Valliant and contacted Miss Heath at Eastern Shore Mortgage. She too stated her bank would not approve the loan. Appellants’ reliance on Traylor v. Grafton, 273 Md. 649 , 332 A.2d 651 (1975) is misplaced.

In that case the Traylors merely “inquired” at one bank about financing. There was no evidence that they ever applied for a mortgage and that their application was rejected. Nevertheless, the Traylors reassured the sellers that there was “no problem about financing.” Apparently, they were relying on an undisclosed principal to arrange financing. The Traylors failed ¹³ to appear for settlement and the sellers invoked the liquidated damages clause of the contract.

Upholding the trial court’s refusal to give a jury instruction invoking the contract’s financing