Stebbins-Anderson Co. v. Bolton

Henderson, J., delivered the opinion of the Court. This appeal is from a decree of the Circuit Court for Baltimore County, in equity, overruling exceptions to an auditor’s account in a mortgage foreclosure case and ratifying the account. It is stipulated that the decision shall also apply to another claim of the appellant in another foreclosure case where the facts are similar. The appellant, a judgment creditor in the amount of some $8,800, had contended that it was entitled to the entire surplus from the mortgage sale, over and above the mortgage debt and other charges, in the amount of $2,879.77, to the exclusion of mechanics’ lien claims totalling $2,964.27.

The appellant was one of the claimants to the extent of $757.22. The auditor disallowed the judgment claim and apportioned the surplus between the mechanics’ lien claimants. The appellant duly excepted to the account, asserting the priority of its judgment. The facts are virtually undisputed.

It was shown that Edgar W. Weal, Jr. and wife purchased from George H. Suter and wife lots numbered 50, 51, 52 and 53 in a subdivision known as Catonsville Manor, on September 2, 1952, for the sum of $750. A deed was executed on September 18, and duly recorded. On September 30, 1952, the Weals entered into a contract of sale at the same price to Scheide Construction Company, and another contract of sale from the construction company to the Weals whereby the company agreed to construct on the property a bungalow according to plans and specifications, at a price of $13,250, of which $2,750 was acknowledged to have been paid, and the balance of $10,500 was to be financed by a mortgage. The construction company agreed to complete the house in a workmanlike manner, ¹⁸⁷ and to convey the lot and improvements to the Weals upon completion.

The Weals paid $2,000 to the construction company at the time the contracts of sale were executed. These contracts were not recorded. On January 26,1953, the Weals executed a deed to the construction company, which was duly recorded, and on the same day joined with the construction company in a $9,000 mortgage to The Towson Building Association, Inc., which was duly recorded. Presumably the money was paid to the construction company for use in the building operation.

Materials were delivered to the site and building began on February 5, 1953. On May 21, 1953, the appellant obtained from the construction company a mortgage for $8,800, payable in three months, on certain other lots and houses owned by it, but not upon the lots here in question. On the same day it obtained a confessed judgment note from the construction company in the same amount. On or about June 22 the construction work stopped.

On August 6 the appellant entered the judgment by confession. On September 4, 1953, the construction company informed the Weals that it had abandoned the work and conveyed the property to the Weals without any further payment by them. The house being uncompleted, the Weals ordered materials that were duly delivered and attempted to complete the work. They did not learn of the judgment until after the deed to them was recorded.

Mechanics’ liens were thereafter filed to the extent of $2,964.27, most of these claims being for materials furnished after September 4. On March 29, 1954, The Towson Building Association, Inc. instituted foreclosure proceedings. The legal principles involved seem to be well-settled. It is a general rule that the holder of an equitable title or interest in property, by virtue of an unrecorded contract of sale, has a claim superior to that of a creditor obtaining judgment subsequent to the execution of the contract.

Caltrider v. Caples, 160 Md. 392 , and cases cited. For the purposes of this rule it appears to be quite immaterial whether the credit was extended prior ¹⁸⁸ or subsequent to the execution of the contract. Cf. Kinsey v. Drury, 146 Md. 227, 232 , Cramer v. Roderick, 128 Md. 422, 429 , and Valentine v. Seiss, 79 Md. 187 . “The effect of such a contract is to vest the equitable ownership of the property in the vendee, subject to the vendor’s lien for unpaid purchase money, and to leave only the legal title in the vendor pending the fulfilment of the contract and the formal conveyance of the estate.

The right of the vendee to have the title conveyed upon full compliance with the contract of purchase is not impaired by the fact that the vendor, subsequently to the execution of the contract, incurred a debt upon which judgment was recovered. A judgment creditor ‘stands in the place of his debtor, and he can only take the property of his debtor subject to the equitable charges to which it is liable in the hands of the debtor at the time of the rendition of the judgment’.” Kinsey v. Drury, supra. This has been the law at least since the decision in Hampson v. Edelen, 2 H. & J. 64 (1807). Except where modified by statute it is the rule in other states.

See Note 87 A. L. R. 1505, and 3 American Law of Property, § 11.29. It is- an application of the familiar doctrine of equitable conversion. Cf. Skinner & Sons’ Co. v. Houghton, 92 Md. 68, 86 .

The rule does not depend upon actual notice to the creditor, although it is argued that that was the factual situation in the Caltrider case, supra. “* * * a judgment creditor is not in the position of a bona fide purchaser, and his claim is subject to prior, undisclosed equities. ‘He is neither in