Saunders v. Stradley

Powers, J., delivered the opinion of the Court. Prior to 15 December 1971, Kenneth M. Saunders and ⁸⁶ Catherine 0. Saunders, his wife, were the owners of a tract of land in Cecil County described as containing 38.50 acres, improved by a dwelling house and a barn. On that date they settled on a sale of the property to Jane L. Stradley, a real estate investor.

The price was $100,000. From the record it appears that $29,000 was paid in cash at settlement and the balance of $71,000 by a note secured by a purchase money mortgage given by the buyer to Mr. and Mrs. Saunders. It was provided that $21,000 of the deferred purchase price, plus interest, was payable on 10 January 1972, and the remaining $50,000 was payable in monthly installments of $385.91, principal and interest, beginning on 15 January 1972, with the entire balance to be paid on or before 15 December 1981. On 10 December 1973, C. Daniel Saunders, as assignee of the mortgage, filed in the Circuit Court for Cecil County an order to the clerk to docket a suit to foreclose the mortgage.

According to the advertisement later filed in the case, the sale was scheduled to be held on Saturday, 29 December 1973. On 21 December, Mrs. Stradley filed in the case a Petition To Enjoin Foreclosure Sale. The petition was signed by her attorneys, and signed individually by her. It contained her certificate that its contents were true and correct.

In the petition she alleged that she had not received notice, as required by Maryland Rule W74, and alleged that she had made the payments required under the mortgage and was not in default or arrears. On the same day, the Circuit Court for Cecil County signed an order enjoining the assignee “from proceeding with said mortgage foreclosure sale until the matter is heard fully on its merits by this Court.” A hearing on the merits was held on 9 January 1974. Mr. Kenneth Saunders and Mrs. Stradley were the only witnesses who testified at the hearing. Several exhibits were offered and received in evidence.

They related to the making of the monthly payments on the mortgage, the payment of state and county taxes on the property, and an insurance policy on the improvements. ⁸⁷ Checks by which many of the monthly payments were made showed that each was dated on the 15th of the month. Mrs. Stradley testified that she invariably mailed each payment on the same day that she wrote the check. She said also that a few of the checks were written and mailed before the due date. Mr. Saunders, on the other hand, said that each of the checks was received several days, and up to 10 or 11 days, after the due date.

The August 1973 payment seems to have precipitated the difficulties which led to the foreclosure action. Mr. Saunders, then living in Florida, wrote Mrs. Stradley on 22 August informing her that he had not received the payment due on the 15th, and commenting generally on the fact that the payments were always late. He suggested that she mail them several days early to allow for mailing time. The check, dated 14 August, and never cashed, was eventually received by Mr. Saunders on 20 September.

The postmark on the envelope indicates that it was mailed in August 1973 and, while the second digit of the date is not entirely legible, it could be read as the 16th, and no later than the 19th of August. All checks tendered for the monthly payments thereafter were rejected. The record indicates that from about that time on, there was correspondence between attorneys for the parties, but no copies of that correspondence are in the record. Mrs. Stradley placed in evidence as an exhibit the bill rendered by the Treasurer of Cecil County for county and state taxes on the property for the year July 1, 1973 to June 30, 1974.

The bill stated that the tax was due July 1, 1973, and contained a warning that, “all taxes unpaid on October 1st after due date, will draw interest from September 1st, at the rate of 2 /s% per month”. The bill was receipted, showing payment of the tax and interest on 26 December 1973. Mrs. Stradley testified that she paid the bill on that day. She explained that the interest on the taxes was less than she would have to pay somewhere else and that she normally paid the taxes late so that she could make use of the money. ⁸⁸ Questions by counsel and colloquy between them during the course of the examination of the witnesses, indicated that in early October a letter was written on behalf of Mr. and Mrs. Saunders referring to the lateness of the payments and non-payment of taxes as reasons for invoking the acceleration clause of the mortgage and for foreclosing.

In the typewritten portion of the mortgage, which details the indebtedness and the terms of payment, there is an acceleration clause which reads: “In the event of nonpayment of any installment of principal or interest, when due and payable, the whole mortgage indebtedness shall, at the option of the Mortgagees, become due and payable.” In that portion of the mortgage which is largely printed form, there are covenants to pay the mortgage debt and interest in accordance with the terms and conditions of the mortgage; to pay, when due, all water rents, ground rents, taxes, assessments, and other charges; a covenant against waste; and a covenant to keep the improvements on the property insured and to cause a standard mortgagee clause to be attached to such policies. The mortgage contains a further covenant and agreement, “That, in the event of any default in any covenant of this mortgage, * * * then the whole mortgage indebtedness shall, at the option of the Mortgagee, be and become due and payable * * *.” The mortgagor authorizes the mortgagee or his assigns, in the event of any default in any of the covenants of the mortgage, to sell the mortgaged property. Another provision is that the mortgagee may at any time waive any of the covenants or conditions, in whole or in part, without in any way releasing the mortgagors from any of the covenants or conditions of the mortgage. At the conclusion of the evidence offered at the hearing, and after arguments of counsel, the chancellor found that Mr. Saunders had, at least by implication, accepted the mail service as the means of receiving the checks.

The chancellor ⁸⁹ then stated that under those circumstances, the date of mailing is the date of payment. He concluded that all of the payments in issue were made, at least in that manner, on or before the due date, and that there was no default in the mortgage installment payments. The chancellor rejected the argument concerning Mrs. Stradley’s default by failure to pay the real estate taxes on time. He did so by saying that it wasn’t the non-payment of taxes that caused the bringing of this foreclosure proceeding.

Undoubtedly, the judge made that comment because of the wording used by the assignee in his order to the clerk, which initiated the foreclosure case as far as the court records are concerned. The order directed the clerk to docket the suit as titled for foreclosure of the mortgage, and contained the phrase, “ * * * default having occurred by reason of non-payment of principal and interest in the terms thereof sk * * ” The chancellor announced that he would sign a decree permanently enjoining sale of the property under foreclosure. Such a decree was signed on 11 January 1974, and filed on 14 January. It decreed: “That the said C. Daniel Saunders, Assignee, be and he is hereby enjoined from foreclosing the property of the Respondent, Jane L. Stradley, as set out in said proceedings for any alleged violations up to and including the date of the hearing on January 9, 1974, * * We have noted that the petition to enjoin the foreclosure contained an allegation that the petitioner had not received notice as required under Rule W74.

The complete reference is Maryland Rule W74 a 2 (b). That subsection requires that in addition to the publication of the notice of sale, the person authorized to make the sale shall send a notice of the time, place, and terms by registered mail to the mortgagor, not earlier than 20 days and not later than 5 days before the date of sale. Although the record does not affirmatively show it, there is an indication in the record that such a notice was sent and returned undelivered. It is obvious that ⁹⁰ the purpose of the notice was in fact accomplished because the mortgagor’s petition to enjoin the sale was mailed to the assignee more than five days before the date of sale.

We assume that there was no issue on this point before the chancellor because he did not decide it and, since it was not decided below, it is not before us in this appeal. Maryland Rule 1085. Likewise, there is nothing properly before us in this appeal concerning the propriety of the order signed by the judge on the same day the petition to enjoin was filed, in which order the assignee was enjoined from proceeding with the foreclosure sale. While it was not so labeled, the order constituted an ex parte injunction.

Under Maryland Rule BB72 a, an ex parte injunction shall not be granted unless it appears that immediate, substantial, and irreparable injury will result to the applicant before an adversary hearing can be had. This subsection also contains a provision that the judge may, in his discretion, communicate informally with the person against whom the injunction is sought, or his attorney. Subsection b of Rule BB72 requires that an ex parte injunction shall give the adverse party leave to move for a hearing on not more than two days’ notice, and that it shall expire by its terms within a time which shall not exceed ten days. Rule BB75 provides that such an injunction shall not be issued unless a bond is filed in such amount as may be determined by the court, with such surety as may be approved by the clerk or with other security approved by the court.

The Rule also provides that in the case of extraordinary hardship the requirement of surety or other security may be dispensed with, but there is no authorization in the rule to dispense altogether with the requirement that a bond be filed. For the very reason that questions of whether an ex parte injunction should or should not be issued are ordinarily moot before the case can reach an appellate court, the equity courts should be especially alert to see that the parties comply with the applicable rules before an ex parte injunction is ordered. We call attention to the fact that the ⁹¹ order entered below was not based on a showing that irreparable injury would result before an adversary hearing could be had. The order was entered 8 days before the scheduled sale and, even considering intervening holidays at that time of year, we think an adversary hearing could have been scheduled and held.

We note that the record does not show that there was any attempt to communicate informally with the assignee. The order did not give the adverse party leave to move for a hearing on not more than two days’ notice, and it did not state by its terms that it would expire on a specified date. The order did not require the filing of any bond, with or without surety or other security. In spite of its infirmities the ex parte injunction became moot when the time for the scheduled sale of the property passed.

It is only the final injunction, ordered by the court on 11 January 1974, which is before us in this appeal. We now determine whether the assignee should or should not have been enjoined from foreclosing for any alleged covenant violation up to the date of the January 9th hearing. To do so, we must analyze in more detail just what a foreclosure proceeding is in the law of Maryland, how and when issues are raised, and whether the assignee in this case, by any pleading he filed, limited the issues by excluding or waiving failure to pay taxes when due as a default. If the assignee did not so limit the issues, then the chancellor erred when he decided that “we can eliminate that point completely”.

The subject matter of mortgage foreclosure in Maryland has always been within the ordinary jurisdictional power of the equity courts, independently of any consent by the mortgagor, or provisions of the mortgage. Only the procedure has changed. Originally the jurisdiction of the court could be invoked only by filing a bill of complaint to foreclose the mortgage. The case followed the regular course of equity pleading.

In Venable, The Law of Real Property and Leasehold Estates in Maryland (1892), the author says, at 215: “After the pleadings * * * are filed, if the facts ⁹² stated in the bill are denied in the answer, evidence is taken. If the case is admitted or made out, the court passes a decree * * *.” At one time the decree was for “strict foreclosure”, which simply amounted to extinguishment of the mortgagor’s right of redemption. Later it became the practice for the decree to order that the property be sold, and to appoint a trustee to make the sale, which was then reported to the court for ratification. Professor Venable goes on to discuss the more recent method of foreclosure of mortgages under a power of sale contained in the mortgage.

He says, at 219-20: “These Statutes were not intended