Webb & Knapp, Inc. v. Hanover Bank

Brune, C. J., delivered the opinion of the Court. The Hanover Bank, of New York City, and John W. Ludewig, as executors and trustees of the estate of the late William Woodward, Jr. (sometimes collectively referred to below as the “Trustees”) filed a bill in equity in the Circuit Court for Prince George’s County in which they reported a contract for the sale of a tract of approximately 2227 acres of land in that County, and the improvements thereon, known as “Belair Farm”, to Webb & Knapp, Inc., at a price of $1,187,500, and asked the court to ratify the contract and to appoint a trustee to. convey all right, title and interest of the parties to the cause to the purchaser under the contract. The decedent’s will was probated in New York, his domicil; and ancillary letters testamentary were issued to the executors in Maryland after an authenticated copy of the will had been duly recorded in Prince George’s County. The purchaser and all persons known to have an interest in the property under the will of the decedent were duly joined as parties defendant.

Some of the individual defendants were infants. Wilmer D. Pyles, Esq., was appointed guardian ad litem for them and, as such, he filed an answer to the bill and exceptions to the ratification of the contract of sale. Exceptions to the sale were also filed by William J. Levitt and Norman Adolf, each of whom was a would-be purchaser of Belair Farm. 1 After a hearing on April 11th and 12th, 1957, and the taking of considerable testimony, the Circuit Court entered an order on April 29th, 1957, refusing to ratify the proposed sale to Webb & Knapp, Inc., and ordering a resale after notice to all persons known to be interested in the purchase of Belair and after public advertisements of sale to be published in Prince George’s County, Washington, Balti ²³⁵ more, Philadelphia and New York newspapers. Appeals were entered by Webb & Knapp, Inc., and by Adolf.

Adolf claims to be also an appellee as against Webb & Knapp, Inc. (referred to below as “Webb & Knapp”). The other appellees are the guardian ad litem, Levitt and the Trustees. The Trustees state in their brief that they have presented to the trial court, and that there is in the record, all pertinent information concerning the decision to sell the real estate in question, the negotiations leading up to the contract of sale and the facts touching upon the sale which developed subsequently. They further state that all interested persons have been made parties, that adverse interests are represented by independent counsel or by the guardian ad liiem for the infants, and that the Trustees take no position on this appeal.

None of the adult individual beneficiaries under the decedent’s will have taken any part in the proceedings in this case. There is little, if any, dispute about the salient facts which are these: The late William Woodward, Jr., owned Belair Farm, which had been in his family for two or three generations. He operated it as a farm and used it in connection with his racing stable. The main house is some two hundred years old, and was originally built for Governor Ogle.

It has been considerably modernized as a dwelling. Belair is located some 15 or 18 miles from Washington, about the same distance from Annapolis and roughly 25 miles from Baltimore. (The distances from Washington and Annapolis are stated differently in the Bank’s brochure and in the appraisal by Cruikshank Company, both referred to below.) It is traversed by U. S. Route 50 and by the new Washington-Annapolis expressway, and a branch freight line of the Pennsylvania Railroad runs along part of the western boundary. The tract is also near U. S. Route 301 and the Baltimore-Washington expressway.

All parties agree that the most profitable use for the tract is for residential purposes. The buildings other than the colonial Ogle mansion would be scrapped, and much of the wooded area, which is considerable, would doubtless be cut over for development purposes. ²³⁶ No member of the family of the decedent wishes to occupy the property. The Woodward estate is said to amount to approximately $12,000,000. Estate and inheritance taxes and other expenses are estimated at approximately $7,000,000.

Cash is needed to pay the taxes. For these reasons the Trustees have concluded that Belair Farm should be sold. Their judgment in reaching this decision is not challenged. The problem of how best to go about selling it faced the Trustees.

They had a 1953 appraisal of the farm made in connection with the estate of William Woodward, Sr., of $300,000. Following the death of William Woodward, Jr., The Hanover Bank asked one of its Baltimore correspondents to recommend two experienced real estate dealers to make a new appraisal. Two well known Baltimore real estate men were so recommended and were employed. In March, 1956, they submitted an appraisal of the property as a farm as of the date of the decedent’s death, October 30, 1955, of $435,000.

In May, 1956, the Trustees received an indication that the property could be sold for $720,000. They then decided to employ Cruikshank Company, of New York, to appraise the property. The Cruikshank appraisal was made by or under the direction of that Company’s Executive Vice-President, Mr. Gordon Kyle. That Company and Mr. Kyle have made many appraisals both in and around New York City and in a number of different localities elsewhere in the United States.

Most of their work, according to the lengthy list of appraisals and the list of impressive clients submitted by Mr. Kyle, would appear to have been in the New York metropolitan area. Their out of town work appears to have been mostly in urban or industrial appraisals. Mr. Kyle made an appraisal of Patuxent Park, Maryland, which is said to be about 100 miles from Belair, but is not otherwise clearly described. The Cruikshank appraisal was submitted to The Hanover Bank under date of June 11, 1956.

The sum of their appraisals of four tracts comprised in Belair, plus $100,000 for buildings, was $977,550, which they rounded off at $975,000. Following the receipt of this appraisal, the Trustees prepared a brochure which, among other things, described the ²³⁷ property as consisting of “approximately 2,280 acres of gently rolling countryside which is readily adaptable for development purposes”, stated that the property had good asphalt or gravel roads “connecting the several centers of activity”, spoke of the main house built in 1746 for Governor Ogle and its surroundings, gave the general location of the property and stated “Price $1,250,000.” It also stated that further particulars could be obtained from The Hanover Bank, and gave the name of Mr. B. Spier as the person to whom inquiries should be addressed. Three officials of the Bank testified — Mr. Mapes, a Vice President, who was in direct charge of administering the Woodward estate, Mr. Spier, an Assistant Vice President in the real estate division (a part of the Personal Trust Department), and Mr. Blake, a Vice President in charge of the real estate and mortgage department. They testified that this property was handled in accordance with the Bank’s usual policy which had been developed over many years.

They asserted that the best results were obtained by stating an asking price, which was likely to be somewhat above what they would be willing to accept. In this instance they and Mr. Eudewig had added a little more than 25% to the amount of the Cruikshank appraisal, and with the approval of The Hanover Bank’s Trust Investment Committee, given in June, and of their co-executor and co-trustee, Mr. Eudewig, used this figure in the brochure. There had been close relations for many years between The Hanover Bank and the Woodward family — one or more of the decedent’s relatives having held high office in the institution and the Trust Department having been active in the affairs of the family. Mr. Eudewig had been secretary to the decedent’s father and had been intimately associated with Woodward family financial matters for years.

The will of William Woodward, Jr., conferred extensive powers upon his executors and trustees, among them the power “To purchase, acquire, hold, manage, partition and to sell, exchange, convey, mortgage and grant options for the sale or exchange of real estate, or any interest in real estate, at such times ²³⁸ and for such prices, upon such terms and in such manner as they may deem advisable.” Mr. Ludewig appears to have followed every move and recommendation of The Hanover Bank in this matter and to have left the initiative entirely in the hands of the Bank. He had a personal familiarity with Belair Farm which very likely exceeded that of any of the Bank officials, but the negotiations to which we now turn were carried on by The Hanover Bank. Mr. Ludewig was consulted or informed from time to time of developments and his consent or approval was asked and given whenever necessary. That was apparently about the extent of his participation.

The circulars or brochures were sent out about September 8th or 9th, 1956, and were in the hands of the recipients on or about the 10th. Somewhat more than 1400 copies were sent out to real estate brokers and operators: 59 to New York, 52 to Prince George’s County, 451 to Baltimore, 568 to Philadelphia, 259 to Washington, and -20 to persons who had previously made inquiries. There was no newspaper advertising, but press releases were issued, which, because of the Woodward fame in racing, received widespread publicity along the eastern seaboard. Some 120 inquiries resulted up to September 20th.

One offer of $1,000,000 was received, but rejected. Though the maker of this offer was known to Mr. Mapes, no effort was made to follow it up because, Mr. Mapes said, the offeror indicated that this was as high as he would go. The situation changed materially when Mr. William Zeckendorf, President of Webb & Knapp, Inc., a large real estate developer, telephoned officials of the Bank on Thursday, September 20th, and offered $750,000 for the property. In the course of a single telephone conversation with Mr. Blake, Mr. Zeckendorf raised his offer to $1,100,000.

He confirmed this by a letter dated September 20th, 1956, which stated: “This will confirm Webb & Knapp’s offer in behalf ²³⁹ of one of its corporations to purchase the above identified property [Belair] as follows: Price: $1,100,000 Terms: All cash Commissions: Net “This offer is made to you for immediate acceptance. We would appreciate your prompt advice.” In the telephone conversation Mr. Blake had told Mr. Zeckendorf that the offer would have to be acted upon by the Trust Investment Committee (the “Committee”), which was to meet on Tuesday, September 25th. Mr. Zeckendorf agreed. The officials of the Bank having the sale of Belair in charge prepared a memorandum for the Committee which recommended acceptance of the $1,100,000 offer.

Mr. Ludewig approved. On the morning of the 25th, Mr. McNeil, President of The Hanover Bank, telephoned Mr. Zeckendorf and induced him to raise the offer to $1,187,500. This brought the offer up to the Bank’s net asking price after deducting commissions (for which Webb & Knapp were to assume liability) computed at 5% on $1,250,000, or $62,500. The memorandum to the Committee was revised in ink to reflect the verbally increased offer.

Mr. Ludewig was not then consulted; his approval was assumed. On the afternoon of September 24, 1956, a New York broker representing Mr. Levitt, who is also a large real estate developer and is widely known as such, telephoned The Hanover Bank to make an appointment for Mr. Levitt to come in to discuss Belair. There is some question as to just what was said in the conversation, but we think it quite clear that it was evident to the Bank that Mr. Levitt wanted to discuss the purchase of the property. He was given an appointment for the 26th.

At least one of The Hanover Bank officials who testified in this case attempted (to us rather unconvincingly) to minimize the significance of Mr. Levitt’s interest by saying that if he intended to meet the Bank’s asking price he would have said so instead of seeking an interview. Mr. Levitt’s testimony was that he wanted to ask a ²⁴⁰ number of questions, but that he was prepared first to offer $1,150,000 and, if that was not accepted, to offer the full asking price of $1,250,000. He stated an unwillingness to make offers by telephone and doubtless would have tried (as Mr. Zeckendorf did) to buy the property for less than the asking price. During the short time that the property had been on the market after issuance of the brochure Mr. Levitt and his representatives had inspected Belair on both weekends.

We see no reason to question his testimony as to his intention or his ability to make good on an offer of $1,250,000 gross (without deduction for commissions). We think that he was sufficiently well known to the Bank as to lead it to believe that he was a responsible bidder. There was testimony by a Washington lawyer that he, too, sought an appointment with The Hanover Bank for the purpose of making an offer for Belair on behalf of himself and some clients. He was given such an appointment.

There is, however, considerable confusion as to the date when he telephoned for the appointment and the date for which it was fixed. At all events, when he arrived, which may have been on the morning of the 26th, and not the 25th, as he thought, he was told that the Bank could not discuss the matter with him and one of his clients who accompanied him, because the Trustees had already made a commitment, or the property had been sold. Immediately after the Committee meeting, which was held at twelve o’clock on the 25th, Mr. Zeckendorf was informed that his offer had been accepted. About an hour later Mr. Levitt was notified that it would be useless for him to keep his appointment for the next day as a commitment had been made for the property.

This not unnaturally produced an angry telegram and telephone call from Mr. Levitt to the Bank. On the following day he had a telephone conversation with Mr. McNeil. Mr. Levitt says that Mr. McNeil told him that Spier, with whom Mr. Levitt’s appointment had been made, had not informed Mr. McNeil of the appointment. Mr. McNeil reiterated that the Bank had a commitment, and nothing of any substance resulted from that conversation.

On October 8th, 1956, Mr. Adolf, a New York lawyer ²⁴¹ and a large real estate developer on Long Island, visited The Hanover Bank and made an oral offer of $1,400,000 gross, for Belair Farm, which he confirmed by letter the next day. He, too, was informed that the Trustees had a commitment for the sale of the property. Mr. Adolf had gotten wind of the Trustees’ having received an offer of $1,250,000 before he visited the Bank. Between September 25th and October 9th, counsel for the Trustees and counsel for Webb & Knapp had been engaged in drawing the contract of sale.

It is a somewhat lengthy and carefully drafted document which spelled out the terms of the agreement fully. It covers in detail a number of matters which were appropriate for inclusion in such an agreement but which were not referred to in the brief written offer of September 20th. Some of these matters were a good deal more than mere matters of form and required consultation with the Trustees. All of the business terms appear to have been agreed to verbally by October 5th.

The contract of sale was redrafted, wras submitted to Maryland counsel for approval and was executed on October 10th. One of the terms of the contract was not put in until the day of its execution. This was the provision for ratification by the Circuit Court for Prince George’s County, as a court of equity, in addition to ratification by the Orphans’ Court for that County as originally provided. This addition was made at the suggestion of Maryland counsel for the purpose of bringing in all persons interested in the estate as parties.

On December 12th, 1956, Mr. Levitt made a written offer to the Trustees of $1,500,000 for Belair Farm. This would amount to $1,425,000 net after commissions. Mr. Welsh, one of Mr. Levitt’s attorneys, made a like offer on the same day on behalf of an undisclosed principal. The present suit was instituted by the Trustees on January 3, 1957.

Webb & Knapp had notified the Trustees on December 3rd that they had no objections to the title to Belair Farm, other than the lack of ratification of the sale and the liens of Federal and State taxes which had not been paid. Some other facts will be referred to below in connection with questions as to which they seem pertinent. ²⁴² The above lengthy recital of facts seems necessary to the consideration of the principal issue in this case. That issue is whether or not there was a lack of care, prudence and reasonable diligence on the part of the Trustees in selling Belair Farm, which resulted in their obtaining an inadequate price for the property. It seems necessary to consider several matters in seeking to resolve that issue: first, the adequacy of the Trustees’ efforts to determine the value of what they had to sell; second, their method of offering the property; third, their closing with Webb & Knapp, without endeavoring to obtain better bids, despite the known interest of at least one party whose ability to make and perform an adequate bid for this property could hardly have been in doubt.

Whether the Trustees were justified in rejecting a higher bid than Webb & Knapp’s before actually executing the Webb & Knapp contract and in rejecting a somewhat higher bid later present somewhat different questions. Before taking up these various matters it may be well to refer to some rules of law