Western National Bank v. Jenkins

Burke, J., delivered the opinion of the Court. The Roland Realty Company, a building corporation, hereinafter called the Realty Company, executed and delivered a mortgage to Alfred Jenkins Shriver on certain property described in the mortgage to secure the payment of three negotiable promissory notes made by the mortgagor i» the order ’of the mortgag.ee. One of these notes was for the sum of $62,700.00, and payable one year after its date, and the other two being for the interest to accrue on said principal sum,— each'being for the sum of $1,881.00, and payable in six and twelve months respectively after date. The notes and mortg’age were dated the 1st day of August, 1911, and the mortgage was recorded among the Land Records of B'altimore City.

A second mortgage on the property, bearing the same date, was executed by the Realty Company and delivered to Alfred Jenkins Shriver to secure the payment of the sum of $5,000.00 and interest thereon. The circumstances, briefly stated, under which these mortgages were made are as follows: On July 11, 1911, an application was made by the Realty Company .to. Alfred Jenkins Shriver for a mortgage loan on property located on the north side of 37th street, in ihe City of B'altimore, between Chestnut and Elm avenues. The application stated that it was proposed to erect upon the land a certain number of dwellings therein described, which it was represented in the application would cost between twenty-one and twenty-two hundred, dollars each; and further that the actual cost of the land to the appellant was $15,333.33.

Certain representations as to improved land arid sales in the-locality were also made. The amount of the loan applied for was $66,000.00 at 6% payable semi-annuállyfór one year, and the appellant, agreed to give-a bond'of a B'altimore City bonding compariy -for the amount of the mortgage for the completion of the building^. ²⁴¹ It also agreed to pay a commission of 5% on the amount of the mortgage loan and a title fee,— the amount of which was not at that time fixed, but which was subsequently agreed to be 1% of the mortgage loan. The applicant further stated that it expected to provide the additional money, over and above the mortgage loan, necessary to complete the buildings from the sale of other real ©state and general credit. This application was made by Charles L. Pulton on behalf of the Realty Company.

Mr. Shriver brought the application to the attention of Robert IT. Jenkins, who agreed to make a mortgage loan of $62,700 instead of $66,000 as applied for, —it having been found that the dwellings proposed to he built could be erected for a less sum than that stated in the application. This reduced amount was satisfactory to the applicant, and it agreed to accept it The loan was to be put through either on July 26th or August 1, 1911. There is some conflict in the evidence upon this, but it is not of any importance in this case.

The Realty Company was not able to give the completion bond provided for in the contract, but it gave a bond with individual sureties. It was agreed that Mr. Jenkins should draw his cheeks to the order of the mortgagor for the amount of the loan, who in turn should pass the money over to Alfred Jenkins Shriver, as trustee, for deposit as a special fund in the Western National Bank, and applied by him to the construction of the buildings in accordance with a schedule of payments agreed upon by the parties. The Realty Company did not have title to the land on July 26, 1911, hut it expected to perfect its title .by August 11, 1911. As Mr. Shriver was about to leave the city, the following things took place on July 26, 1911, in connection with the loan.

On that day two checks were drawn, by Robert H. Jenkins as follows: “Baltimore, July 26th, 1911. The National Bank of Baltimore: Pay to the order of the Roland Realty Company forty-two thousand, seven hundred dollars. $42,700.00. Robert IT. Jenkins.” ²⁴² This check was endorsed as follows: “1.

Pay to the order of Alfred J. Shriver, Trustee in the matter of the Roland Realty Company for R. H. Jenkins. Roland Realty Company, by Charles L. Pulton, President.” “2. Por deposit to aect. of Alfred J. Shriver, trustee, in matter of Roland Realty Company, for R. H. Jenkins, per Z. Bond Evans.” “No. 6. Baltimore, Maryland, July 26th, 1911.

Maryland Trust Company: Pay to the order of Roland Realty Company twenty thousand dollars. Robert H. Jenkins.” The endorsement on this check was as follows: “1. Pay to the order of Alfred J. Shriver, trustee, in the matter of the Roland Realty Company, for R. H. Jenkins. Roland Realty Company, by Charles L. Pulton, President.” “2.

Por deposit to account of Alfred J. Shriver, trustee, in the matter of the Roland Realty Company, for R. H. Jenkins per Z. Bond Evans.” The checks were delivered to the Realty Company, and Z. Bond Evans, whose endorsements appear thereon, was a clerk in Mr. Shriver’s office. These checks were deposited in the Western National Bank under the above endorsements and were, paid, and the proceeds carried to the credit of Mr. Shriver, as trustee, in that bank. On the deposit book of the bank the following notation appears: “Western National Bank of Baltimore, July 26. Cash, $62,700.

Alfred J.'Shriver, Trustee, in the matter of Roland Realty Company, for R. H. Jenkins.” ²⁴³ The bank agreed to- pay 3% on the deposits. The two mortgages were executed on July 26th, 1911, and held by direction of Mr. Shriver until August 1, 1911, when it was expected that the mortgagor would then have title, and the transaction would be finally closed. Upon the return of Mr. Shriver to the city about September 17, 1911, he found that the transaction had not been put through as previously arranged. Mr. Robert II.

Jenkins became apprehensive about the loan, and expressed a desire to call it off. After a number of interviews between Alfred Jenkins Shriver and Charles L. Fulton, the Realty Company entered into the following agreement on October 4, 1911, under which the loan was made: “Roland Realty Company, in connection with the construction of thirty-three houses on the north side of Thirty-seventh street and concerning the deposit of sixty-two thousand, seven hundred dollars in the Western National Bank: “Whereas the Roland Realty Company has agreed to execute and deliver for the purpose of having the same recorded certain mortgages, being dated the 1st day of August, 1911, to Alfred Jenkins Shriver, who in turn is about to assign the mortgage for sixty-two thousand, seven hundred dollars to Robert II. Jenkins; “And whereas bonds have been executed of date of August 1st by the said Roland Realty Company, and certain sureties therein named to secure the completion of thirty-three houses on Thirty-seventh street between Chestnut and Elm avenues, and which lots of ground are fully referred to in said mortgage; “And whereas it was agreed for the purpose of insuring the prompt construction of said houses according to the terms of said bond, according to the plans and specifications referred to in said bonds, and especially that they should he completed within the period of time mentioned in said bonds, that the title to said property, subject to said mortgages, would be transferred to Alfred J. Shriver, trustee, by a deed duly exe ²⁴⁴ cuted and acknowledged, but to be held by said trustee and not recorded until some default should occur in constructing said thirty-three houses according to the provisions indicating the periods of time within which the stages of construction should proceed as hereinafter set forth in the schedule attached hereto, or that some default should occur in any of the covenants of said mortgages. “And it is also agreed that should any such default occur that said deed shall, at the option of the trustee is hereby fully authorized and empowered to take possession of said property, and either, in his discretion, to complete said houses from the funds on deposit in the Western National Bank, and should additional funds be necessary he is further authorized to borrow other funds that may be necessary to complete said houses according to said' plans and specifications, and he shall have full power to sell, lease, mortgage or otherwise dispose of said property, in his discretion, for the purpose of executing all the agreements in connection therewith, and after deducting all expenses which he may incur for the purpose of completing said houses, including the usual commissions to the trustees, commissions to a builder, if it may be necessary to employ a builder, at 10 per cent., the" usual commissions to real estate brokers for the purpose of either leasing, selling or mortgaging said property, and he shall pay the balance, if any, to the said Roland Realty Company. • “It is also agreed that the said trustee may, on the demand of the mortgagee, return the remainder of said fund to the mortgagee, should any such default occur, or he may, at the option of the said mortgagee, apply the same to the completion or construction of said houses. “Should any such default occur in the completion or the construction of said houses, the trustee shall have J. S. Downing or some other experienced builder examine said houses and certify to the trustee that the ²⁴⁵ work lias not progressed according to the schedules hereinafter set forth and according to the plans and specifications and the bond, and the period of four days shall elapse from the time that the trustee may mail any such notice to said Roland Realty Company at its office in the City of Baltimore, at 1024 Fidelity Building, before the trustee shall declare a default and take possession of the property, the trastee may, in his discretion, for good and reasonable cause shown, waive any default. And it is further agreed that should any default occur that interest paid by the Western National Bank shall he paid over to the mortgagee, hut the amount of interest so paid shall be credited to the said the Roland Realty Company on account of the interest due on the mortgage.

Should the interest on the mortgage not he paid when due, the trustee is hereby authorized to pay the interest and to deduct the same from the payments due to said Roland Realty Company for work done and due to it for the construction of said houses. “It is agreed that the work of constructing said houses shall begin without any delay on the fifth day of October, and it is agreed that it shall he completed as to the stages of completion and within the periods of time hereinafter set forth in the schedules attached hereto and which is considered a part hereof. “In testimony whereof witness the corporate seal of the said Roland Realty Company and the signature of its President. Roland Realty Company, (Seal) By Charles L. Fulton, President.” Before this paper was executed Mr. Shriver assigned the mortgage to Mr. Jenkins by assignment dated October 1, 1911. Attached to this agreement was a schedule of items and the periods of time within which the houses should be completed, and the times when the amounts Mr. Shrivea*, as trustee, should pay to the Realty Company out of the special deposit for the construction of the houses. ²⁴⁶ The work of construction began promptly, and Mr. Shriver, as trustee, paid out of the trust fund during the course of the work the sum of $40,425, and the balance of the special deposit, as will hereafter be seen, was used in the completion of the dwellings. In' the application for the loan the Realty Company stated, as we have said, that it expected to get the additional money needed for the completion of the dwellings from the sale of other real estate and from general credit.

This credit is obtained at the Western National Bank which began on July 28, 1911, to make loans to the Realty Company upon its promissory notes endorsed by Charles L. Fiilton and David M. Fulton. It began these loans with no idea of a mortgage security,—relying largely upon what it supposed to be the financial responsibility of David M. Fulton—, and continued them until September 19, 1912, at which time the indebtedness of the Realty Company to the bank upon demand loans amounted to $35,000.00. About that date the bank deemed it advisable to get from the Realty Company some further security. This matter was turned over to Mr. W. Bums Trundle, its counsel, who caused, an examination of the title of the Realty Company’s property to be made.

The bank knew1 of the Jenkins and 'Shriver mortgage at the time it began advancing money to the Realty Company, and David M. Fulton testified that he told the bank that the money deposited “covered this piece of property, and that amount of money was expected to build the houses,—to be drawn out at certain intervals as the houses were built.” Mr. Trundle, after the examination of the title, reported to the bank “that from- the facts stated in connection with the mortgage of the Roland Realty Company to Alfred Jenkins Shriver and the advances made by him, Alfred Jenkins Shriver, to said company, after the date of the mortgage, that it was evidently intended to be a mortgage to secure future advances.” With full knowledge of the two mortgages, and after being advised by its counsel, the bank procured a mortgage from the Realty Company to Edwin T. Dickerson, who was acting in its be ²⁴⁷ half, for $35,000.00. This mortgage was dated September 21, 1912, and was assigned by Mr. Dickerson to the bank on October 11, 1912. The bank then notified Mr. Shriver that the Jenkins mortgage was void, and that the Dickerson mortgage was the only valid lien on the property, and also informed him that the bank proposed to1 attack the