Sullivan v. Mosner

Smith, J., delivered the opinion of the Court. Appellants, Timothy F. Sullivan (Sullivan) and Mary Jane Sullivan (Mrs. Sullivan), his wife, (the Sullivans) bought a partially completed home in Anne Arundel County from Municipal Savings and Loan Association, Incorporated (the Association), one of the appellees. They entered into a contract with a builder to complete the home. The Sullivans deposited with appellees, William F. Mosner (Mosner) and C. Arthur Eby (Eby), as trustees (the trustees), a sum of money equal to the amount of the contract with the builder, part of which they borrowed from the Association.

The Sullivans sued Mosner, Eby, and the Association in equity. They alleged that the trustees “carried out their duties with reckless indifference to the interest of ⁴⁸¹ the beneficiary”; that they “failed to carry out the terms and conditions of the Trust agreement with ordinary skill and diligence required of Trustees”; that they “were delinquent in carrying out their duties”; that “the trust fund did not accomplish its purpose due to mismanagement and misapplication of the trust funds by the respondent Trustees”; and that $11,918.98 had “been wrongfully disbursed from the trust fund by the defendant Trustees, said disbursements not being in accord with the terms and conditions of the said Trust Agreement,” among other things. They prayed that Mosner, Eby, and the Association might be directed “to recompense [the Sullivans] out of their private funds for all of [the Sullivans’] losses and damages”; that they also “be ordered to replace, pay back, all those funds, sums of money, improperly or wrongfully disbursed from the trust fund so that [it might be] restored to its original sum of Twelve Thousand Two Hundred Fifty Dollars ($12,250.00)”; that the trustees be removed and a disinterested party appointed to act as trustee, and that they “be awarded a reasonable attorney’s fee from respondent’s [sic] private funds for services performed in enforcing Petitioners [sic] rights under the Trust Agreement.” The president of the Association was named in the trust agreement to act in place of any trustee who might be unable to perform his duties under the agreement. The Association had made a construction loan to a contractor on subject property.

Default took place prior to the completion of the home and the Association was obliged to buy it in at the foreclosure sale. The Sullivans had been living in Pittsburgh. He went house hunting after his transfer to Maryland. After he spied this partially completed home, his inquiries led him to Frank Vavra (Vavra) who was associated with the original builder.

Vavra in turn referred the Sullivans to Mosner, the attorney for the Association. Sullivan and Mosner met relative to purchase. Sullivan was advised to have a contractor look at the house and give a ⁴⁸² price for its completion. Mosner specifically advised Sullivan to obtain a contractor other than Vavra.

Sullivan approached several contractors. Time was important insofar as the Sullivans were concerned. They ultimately selected Vavra to complete the home because he quoted the lowest price and because they believed, on the basis of Vavra’s having been involved in the original construction, having the original plans and having’ derived knowledge and familiarity from his earlier work, that he could complete the house in less time. The Sullivans ultimately purchased the home from the Association and entered into the trust agreement to which we have previously alluded.

The first paragraph of that agreement recited the deposit of $12,250.00 with the trustees; that the sum so deposited was to be placed by the trustees in such financial institution as they might deem proper; that it was not to be assignable by the Sullivans; and that the home was to be completed “on or before six months from the date [thereof].” Then follow subparagraphs (d) and (e) which are in controversy and which we reproduce in their entirety: “(d) Following inspection and approval by such person or persons as may be designated by the Trustee from time to time, the Trustee shall pay to the Owner, except as herein-above otherwise provided, the installments due in accordance with the following schedule of payments: “(e) And in addition to the Six Thousand Dollar Mortgage money that the Owners have deposited with the Trustees the said Owners also agree to deposit an additional Six Thousand Two Hundred Fifty Dollars of their own monies to be used in completion of the construction of said house and to be disbursed along with the other Six Thousand Dollars as follows: 1. Contractor shall submit a list of his ⁴⁸³ subcontractors and supplies [sic] to William F. Mosner, agent for Owner, and they shall, upon completion of their work or supplying of materials, submit bills to the agent who shall thereupon make payment of the amounts due less a retainage of ten percent. 2. The retainage shall be paid to the subcontractors and suppliers thirty days after completion of the house. 3. The difference between the amount paid to subcontractors and suppliers and the contract price shall be paid to the contractor upon completion, less ten percent which shall be paid as specified in ‘2’ above.” The agreement contained an exculpatory clause releasing the trustees from any “personal responsibility” and providing that no claim should be made against them “in excess of a sum of money paid into their hands or such balance therefore [sic] as may be remaining and undisposed of in accordance with the terms and agreements [therein] set forth.” Simultaneously with the conveyance and trust agreement a construction contract was entered into between the Sullivans and Vavra for completion of the home, which reads in part as follows: “3.

The Owner shall pay the Contractor for the performance of the contract the sum of twelve thousand two hundred fifty ($12,250.00) dollars as follows: A. Contractor shall submit a list of his subcontractors and supplies [sic] to William F. Mosner, agent for Owner, and they shall, upon completion of their work or supplying of materials, submit bills to the agent who shall thereupon make payment of the amounts due less a retainage of ten percent. B. The retainage shall be paid to the sub ⁴⁸⁴ contractors and suppliers thirty days after completion of the house. C. The difference between the amount paid to subcontractors and suppliers and the contract price shall be paid to the contractor upon completion, less ten percent which shall be paid as specified in ‘B’ above.” The contract was dated November 8. Work was to “be completed within forty-five days,” which would have permitted the Sullivans to move in by the first of the year, if not by Christmas.

The first payment to Vavra was made on November 22, 1968. Mosner said on that date Vavra came to his office with bills for certain materials he had purchased for the house and for work that Vavra and his employees had done. Mosner told him he could pay him for the materials, but he could not give him any money for his own expenses because under the contract he had to wait until the job was finished. As Mosner put it, Vavra at that point “jumped up and down and raised the roof,” but Mosner stood firm.

Vavra said he would call Sullivan and get him to call Mosner. Mosner’s version of the call he then received from Sullivan is as follows: “Mr. Sullivan told me Mr. Vavra had called him, told him of my conversation with Vavra, that I wouldn’t give him any money, and told me Mr. Vavra said he was going to pull off the job, that he had to have money to pay his people as work progressed, and that if he didn’t get it he was going to leave. Mr. Sullivan told me that he had to get the house finished and he had to work along with Vavra, and it was all right for me to. go ahead and make the payments to Vavra as well as paying for the materials. So I did.” Vavra confirmed that he presented Mosner a bill that included labor, that he told Sullivan to call Mosner and that he told Sullivan if he did not get the money he ⁴⁸⁵ would walk off the job.

Vavra further stated that he returned to Mosner’s office later in the day and received the money. Sullivan denied the conversation. The chancellor said: “In answering that, which this Court feels to be the main issue of this case, the Court finds itself in a position of having to believe or disbelieve opposite testimony, that of the Trustee, Mr. Mosner, and that of the Complainant, Mr. Sullivan.” The chancellor made a finding of fact that the conversation took place, saying: “Now, Mr. Sullivan takes the stand and says never was there any conversation about this in any respect and completely denies any knowledge of it whatsoever. Because of other inconsistencies, as the Court sees it, in Mr. Sullivan’s testimony, and because of no inconsistencies in Mr. Mosner’s testimony, this Court finds as a matter of fact that Mr. Mosner received authority from Mr. Sullivan before any and all payments were made to Mr. Vavra.” Instances have been known in which contractors have not moved in the performance of their duties with the dispatch desired by those who employed them, a vice not confined to contractors.

Vavra fitted into that category. The house was not completed within the 45 days specified in the contract. He ultimately was discharged by the Sullivans. It is conceded that the trustees have but a few hundred dollars remaining in their hands.

Disbursements to Vavra as related in a letter from Mosner to counsel for the Sullivans would appear to total $7,133.61, although the Sullivans state in their brief that the amount paid Vavra is $5,648.61. Be that as it may, some of the disbursements to Vavra were for materials and some for ⁴⁸⁶ labor. In a letter to the Sullivans’ counsel after Vavra was discharged, Mosner stated: “Many of the payments listed above are not the total bill, but are less ten per cent; and the amount of this retainage which I hold — exclusive of that due Vavra — totals $386.48. This means that there is only $198.38 in the trustee account for other claims. “In addition to the Notices of Intent recited in your letter, I have received one from Southern Concrete Co., Box 303, Leonardtown, Maryland, in the amount of $90.13.

We have not paid the parties who have filed Notices, and I cannot state whether Vavra acknowledged that the materials were actually furnished; however, Mr. Sullivan would have first hand knowledge of this himself.” It is the position of the Sullivans that no money was to be paid Vavra until construction was completed and that the Trustees were to disburse all money to the owners who in turn would pay the subcontractors and pay for supplies as work progressed. The chancellor saw the case as coming down to two issues, (1) “whether or not under clause D and clause E of this construction contract the Trustees violated their duties because of having no inspections as contended by the [Sullivans], appointing no one to make inspections, or, if the Trustees are to be believed, because of allowing Mr. Sullivan, who had no experience to be the person to do the inspecting, before payments of money,” and (2) “whether or not the payments as made by the Trustees, particularly those made directly to Mr. Vavra, were made without authority by the Trustees, without the knowledge of Mr. Sullivan, or without approval of Mr. Sullivan to make said payments.” The Sullivans contend to us that there are three issues, (1) that the “trustees did not carry out the terms and conditions of the trust agreement and did not utilize ⁴⁸⁷ the skill, diligence, and loyalty required of attorneys serving as trustees;” (2) that “the court below improperly admitted certain verbal testimony in evidence over objections,” referring to testimony relative to Sullivan’s direction that Vavra be paid contrary to the terms of the trust agreement; and (3) that the chancellor “erred in holding that wife was estopped from her claim that husband was not her agent.” We see the matter as coming down to five issues, each of which we shall discuss separately: the proper interpretation of the trust agreement, the inspection by Sullivan, the parol evidence issue with reference to the change in the trust agreement, the chancellor’s finding relative to agency, and the exculpatory clause. The chancellor said with reference to interpretation of the trust agreement: “I will first refer to the trust agreement . . . that was made between the parties on November 8, 1968. There is in this trust agreement a paragraph D . . . which reads: ‘Following inspection and approval by such person or persons as may be designated by the Trustee from time to time, the Trustee shall pay to the owner, except as hereinabove otherwise provided, the installments due in accordance with the following schedule of payments:’ Right after that is subparagraph E. “The Complainants have urged upon the Court that subparagraph D is the controlling section of this trust agreement as to the installment payments, in particular, because subparagraph D says the Trustee shall pay to the owner.

The Court cannot agree with the Complainants’ interpretation because clause D ... is absolutely incomplete if it were to stop at the end of that paragraph because it says: ‘The installments due in accordance with the following schedule of payments:’ After that is paragraph ⁴⁸⁸ E on the same page. If the parties had intended paragraph D to be controlling there would have been no reason to put in paragraph E and paragraph D would have been incomplete. The testimony of all the parties indicates that this entire transaction was done in a hurry. It was done, I would say, faster than the normal operation between parties in trying to obtain a satisfactory end result that they all hoped would be accomplished.

However, they all agree this paragraph E was, in fact, placed into the trust agreement prior to the signing by all parties at the actual time of settlement on November 8, 1968. At that date of settlement, also, the construction contract was entered into and signed and the various deeds and mortgages. “Now, if you were to read the construction contract you find in the construction contract, which is Agreed Exhibit No. 3, on the first page, starting under numeral three: ‘The owner shall pay the contractor for the performance of the contract the sum of $12,250 as follows:’ Then A, B, and C follow the same type of language as is in the trust agreement under (E), 1, 2, and 3. This makes it completely clear to the Court that this was to be controlling. “Now, what actually should be done under 1, 2, and 3? Under 1, 2, and 3, by the language of it, it is completely clear it was not necessary for the Trustees to make the payments directly to the owner, as it is urged upon the Court.

In fact, the testimony of the owner, although he had urged the Court that it should have been done that way, from exhibits and various things filed in the case shows, even on the part of the owner, that this was never contemplated, that the money be sent directly to the owner to be paid to the various individuals. There are pieces of evidence in the case where the owner has ac ⁴⁸⁹ tually written to the Trustee, Mr. Mosner, an authority to pay which would have been paid directly by Mr. Mosner. Therefore his testimony that paragraph D should be followed, that is to be paid to the owner, rather than paragraph E is without any merit whatsoever.” We think Judge MacDaniel correctly interpreted the contract. On the issue of inspection we quote a portion of the record of direct examination of Mosner: “Q. Subparagraph D of item first of your trust agreement says: ‘Following inspection and approval by such person or persons as may be designated by the trustee from time to time .' . .’ just dealing with that clause, was there a discussion as to who would be designated by the trustees to inspect and approve? “A. I doubt that there was in those exact words, Mr. Bowers.

Really this paragraph probably does not belong in this particular agreement. This is a standard form. Normally when we make a construction loan we do have someone designated to inspect and we charge inspection fees of the borrower. He has got to pay inspection fees to go for inspectors to go where-ever the place may be, Anne Arundel County, Ocean City, wherever it may be.

In this case no inspection fees were charged because Mr. Sullivan was going to let us know when it was all right to make payments. “Q. How did you know he was going to let you know? “A. We told him and he agreed he would be down there on the job and he would do it. “Q. Did you consider that satisfactory? “A. It was satisfactory to us. He was the man to live in the house and we felt if he was satisfied with the house and authorized us to pay, we ⁴⁹⁰ felt that was the best protection we could get as far as the right job being done.” Relative to Sullivan the chancellor said: “Mr. Sullivan tells the Court that he has no knowledge, does not know anything about construction, he is more or less a lamb led to the slaughter because of his lack of background, understanding, or knowledge of the building business. Introduced into the case were numerous notes left by Mr. Sullivan to Mr. Vavra which, when read, show the Court that Mr. Sullivan was a lot more knowledgeable than he would have the Court believe. The type of things that are said in those various exhibits in referehce to storm doors, electrical meter, fireplace, electrical outlets, cabinets, drawings as to how cabinets should be, and other information as to vapor barriers, other types of