Silver Spring Title Co. v. Chadwick

Bruñe, C. J., delivered the opinion of the Court. This appeal is from a decree of the Circuit Court for Montgomery County dismissing the bill of complaint filed by the appellant, Silver Spring Title Company, Inc. (“Title Company”), against the appellee, George A. Chadwick, Jr., Trustee, (“Chadwick”). The bill sought to force the appellee to release a certain deed of trust. The appellant, as agent for two builders, prepared for them two deeds of trust and two deed of trust notes in order to procure two construction loans of $5,000 each.

A separate piece of property was to be pledged as security for each of said loans. The terms of the notes and the deeds of trust were identical. Each note was made payable to the order of Moore & Hill Company and each stated that the trustees were William A. Hill (“Hill”) and George A. Chadwick, Jr. The deeds of trust each named Hill and Chadwick as trustees. The notes and deeds of trust were duly signed and executed and the deeds of trust were recorded in October, 1949.

The notes were assigned to Chadwick and sent to him. Thereafter, in March, 1950, when construction was completed on one of the encumbered lots, the appellant telephoned Moore ¹⁸⁰ & Hill Company, payee of the notes, to ascertain the amount of payment required to cancel one of the notes and get a release of one of the deeds of trust. The appellant drew its check in the required amount, payable to Moore & Hill Company, and sent it to them with a deed of release to be executed ..by Hill and Chadwick, Trustees. This payment was passed on to Chadwick who had possession of the note.

In due course the cancelled note and duly executed deed of release were returned to the appellant. The cancelled note was endorsed: “PAY TO ORDER OF WITHOUT RECOURSE TO ME Moore & Hill Co. By Wm. A. Hill Proceeds placed to credit of George A. Chadwick, Jr., Attorney for holder of Note. Moore & Hill Co. By Wm.

A. Hill.” In December, 1950, the appellant sought to cancel the outstanding note and obtain a release of the remaining deed of trust. Substantially the same procedure was followed by the appellant except that two checks instead of one were sent to Moore & Hill Company. These checks were deposited to the account of Moore & Hill Company but the proceeds were never paid to the holder of the note, Chadwick. Thereafter, the appellant learned that Hill had died and that Chadwick refused to execute a release of the deed of trust.

Moore & Hill Company was a sole proprietorship of William A. Hill and does not have sufficient assets to refund appellant’s payments. The question is, who should bear the loss when the agent of the borrower (Title Company) pays the debt to someone other than the holder of the note? The appellant claims that Moore & Hill Company was acting as agent for Chadwick in receiving the money on these loans. This claim of agency is based upon the fact that the previous note had been paid ¹⁸¹ off in an identical manner and Chadwick had executed the necessary deed of release.

The notes used in these transactions were negotiable (LeBrun v. Prosise, 197 Md. 466 , 79 A. 2d 543 ), and of such a" character that they could and quite possibly would be negotiated and passed on into the hands of a third party. No effort was made by the appellant to discover the actual holder thereof and payment was made to Moore & Hill Company in spite