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Vol. IV.)

BANK OF COMMERCE v. LANAHAN.

(No. 12.

COURT OF APPEALS OF MARYLAND.

(To appear in 45 Md.)

DEED OF TRUST DISTINGUISHED FROM MORTGAGE. PRESUMPTION OF

GOOD FAITH AND DILIGENCE ON THE PART OF A TRUSTEE SETTING ASIDE TRUSTEE'S SALE. INADEQUACY OF PRICE.

BANK OF COMMERCE v. 'LANAHAN.

A deed dated the 17th of November, 1874, from Edwin Walters and wife to Thomas M.

Lanahan, trustee, contained the following recital: “Whereas, the said Edwin Walters stands justly indebted unto sundry persons in various sums and amounts of money which he is at this time unable to pay; and whereas, he has asked an extension of his creditors of their several claims of nine, twelve, fifteen, and eighteen months, with interest from the day of the execution of these presents; and whereas, said request has been granted to said Walters upon the condition that he shall execute these presents for the purpose of securing the payment of their respective claims in the manner, upon the conditions and with the priorities hereinafter provided, as the same shall fall due and mature. Now, for the purpose of securing the payment of his said creditors their respective claims, as above set forth, these presents are executed.”. The deed then continued: “Now, in consideration of the premises, together with the sum of five dollars, &c.,” “the said Edwin Walters and Virginia Caroline Walters, his wife, do hereby bargain and sell, assign, transfer, and make over and convey to the said Thomas M. Lanahan, his heirs, executors, administrators, and assigns, all and singular their right, title, interest, and estate, both at law and in equity, jointly and severally, in and to all and singular, those several pieces or parcels of land and improvements, situated," &c. [Here followed a description of the property intended to be conveyed.] “ To have and to hold, &c., unto the said Thomas M. Lanahan, his heirs and assigns forever. In trust and confidence, nevertheless, and for the purposes following, that is to say: That if the said Edwin Walters shall pay each and all of his said creditors, having claims against him on the day of the date of these presents, the amounts due and owing to them, with interest, as the same shall fall due and mature, as above set forth and provided for, in nine, twelve, fifteen, and eighteen months, then this deed of trust shall be void, and the said Thomas M. Lanahan, trustee as aforesaid, shall

reconvey the above described property to the said Edwin Walters, his heirs or assigns." It was further provided that in case of default in the payment of any one or more of the said creditors, any instalment or portion of their claim as the same should mature, it should be lawful for the said Lanahan to take possession of the said property, and to sell the same in his discretion at public or private sale, and for the most money that could be realized therefor, &c. The proceeds of such sale to be applied: 1st. To the payment of all expenses, including commissions to the trustee. 2d. To the payment of a judgment in favor of said Lanahan of $30,000, with interest. 3d. The balance to be applied to the payment of the other creditors of said Walters, who were such on the day the deed was executed, and if anything remained, the same to be paid to the said Walters or his assigns. It was covenanted in the deed that until default the grantor should retain the possession and use of the property. The instrument was duly acknowledged, and the grantee made affidavit that the consideration was

true and bonâ fide as therein set forth. Held : 1st. That the foregoing deed was not a technical mortgage within the contemplation of

section 5 of article 64 of the Code, but a deed of trust, clearly denominated such by

section 55 of article 24 of the Code. 2d. That being a deed of trust, and not a mortgage within the meaning of section 5 of

article 64 of the Code, it was not necessary to the validity of a sale under the deed that it should be made in the county where the property was situated, and advertised

in a newspaper printed in said county. Bad faith or negligence on the part of a trustee in the sale of trust property will not be

presumed, but, on the contrary, the presumption is that he has discharged his duty

Vol. IV.)

BANK OF COMMERCE •. LANAHAN.

[No. 12

faithfully, and that presumption prevails until it is made to appear otherwise by those seeking to impeach the sale. The fact that a sale of trust property took place on the day of the general state election

does not, of itself, constitute a sufficient ground for setting it aside. Inadequacy of price alone is not sufficient to vacate a sale, unless it be so gross and

inordinate as to indicate some mistake or unfairness in the sale, for which the purchaser is responsible, or misconduct or fraud on the part of the trustee.

APPEAL from the circuit court for Baltimore County, in equity.

The appeal in this case was taken from an order of the court below, passed on the 3d of January, 1876, finally ratifying a sale of certain real estate, situated in Baltimore County, made by Thomas M. Lanahan, trustee, by virtue of the following deed :

This indenture, made this 17th day of November, 1874, between Edwin Walters and Virginia Caroline Walters, his wife, of the city of Baltimore and State of Maryland, of the one part, and Thomas M. Lanahan of the same place, trustee, as hereinafter stated, of the other part, witnesseth: whereas the said Edwin Walters stands justly indebted unto sundry persons in various sums and amounts of money which he is at this time unable to pay; and whereas, he has asked an extension of his creditors of their several claims of nine, twelve, fifteen, and eighteen months, with interest from the day of the date of the execution of these presents; and whereas, said request has been granted to said Walters, upon the condition that he shall execute these presents for the purpose of securing the payment of their respective claims, in the manner, upon the conditions, and with the priorities hereinafter provided, as the same shall fall due and mature.

Now for the purpose of securing the payment of his said creditors their respective claims as above set forth, these presents are executed.

Now in consideration of the premises, together with the sum of five dollars in hand paid by the party of the second part to the parties of the first part, the receipt whereof is hereby acknowledged, the said Edwin Walters and Virginia Caroline Walters, his wife, do hereby bargain and sell, assign, transfer, make over, and convey to the said Thomas M. Lanahan, his heirs, executors, administrators, and assigns, all and singular, their right, title, interest, and estate, both at law and in equity, jointly and severally, in and to all and singular those several pieces or parcels of land and improvements, situated in Baltimore County, in the State of Maryland, and likewise in the parishes of St. Martin and St. Mary, in the State of Louisiana, and severally described as follows: [Here followed a description of the property.]

Together with all the buildings and improvements situated upon each and ail of the above described tracts of land situated in Maryland and Louisiana, and all the rights, privileges, and appurtenances thereunto belonging, and together with all and singular the personal property of every kind and description now upon the premises above described, in the states of Maryland and Louisiana.

To have and to hold all of the above described property, real and personal, situated as aforesaid, in the states of Maryland and Louisiana, unto the said Thomas M. Lanahan, his heirs and assigns forever. In trust and confidence nevertheless, and for the purposes following, that is to

VOL. IV.)

BANK OF COMMERCE v. LANAHAN.

[No. 12.

say: That if the said Edwin Walters shall pay each and all of his said creditors, having claims against him, on the day of the date of these presents, the amounts due and owing to them, with interest, as the same shall fall due and mature, as above set forth and provided for, in nine, twelve, fifteen, and eighteen months, then this deed of trust shall be void, and the said Thomas M. Lanahan, trustee as aforesaid, shall reconvey the above described property to the said Edwin Walters, his heirs or assigns. But in case the said Edwin Walters shall fail to pay at maturity any one or more of his said creditors any instalment or portion of their respective claims or demands against him, as the same shall mature, then it shall be lawful for the said Thomas M. Lanahan, trustee as aforesaid, to at once take possession of all of the above described property, and to sell the same in his discretion at public or private sale, and for the most money that can be realized therefor, and upon such terms as to the credit payments as he shall think best calculated to promote the interests of all parties concerned in this trust, and the proceeds of all such sales shall be applied and appropriated by the said trustee as follows, that is to say:

First. To the payment of the expenses incurred in the creation and execution of this trust, including such commissions to the said trustee, for his trouble and responsibility in the premises, as is usually paid to receivers for like services by courts of equity in the State of Maryland.

Secondly. To the payment of Thomas M. Lanahan, of Baltimore city, his personal representative or assigns, the full amount of a judgment recovered by said Lanahan against said Edwin Walters, in the circuit court for Baltimore County, in the State of Maryland, on the 21st day of August, 1874, for thirty thousand dollars, with interest until paid, and costs.

Thirdly. The balance remaining in the hands of the said trustee is then to be applied to the payment of all the other creditors of the said Edwin Walters, to whom he is indebted on the day of the date of the execution of these presents, in full, if sufficient therefor, and if not sufficient, then ratably and proportionably, and if then there shall remain a balance in the hands of the said trustee, the same shall be paid over to the said Edwin Walters or his assigns. It is distinctly understood and agreed that until default be made by the said Edwin Walters, in payment of some one or more of his said creditors, existing at the time of the execution of these presents, it shall be lawful for the said Edwin Walters to retain the possession and use of the property herein before described, provided he shall keep said property sufficiently insured in the mean time, with a provision in the policies of insurance that if any loss is sustained by fire, the insurance money is to be paid over to the said trustee for the benefit of the creditors of said Walters, as provided for in this instrument. But if said Walters shall fail to keep said property insured as aforesaid, then it shall be lawful for said trustee to take possession of the same and sell it for the benefit of the creditors as above provided. It is also agreed that it shall be lawful for the said trustee, if he shall deem it advisable and for the interest of the creditors, at any time after the execution of these presents, and before the maturity of any of the payments due by said Walters to his said creditors, and before any default VOL. IV.

35

Vol. IV.]

BANK OF COMMERCE v. LANAHAN.

(No. 12.

made by said Walters in the premises, to make sale and conveyance of any or all of the above described property, provided the said Edwin Walters shall give bis assent in writing to such sale ; and when said sale shall be thus made, the trustee shall appropriate the proceeds to the payment of the creditors of said Walters as above provided. And the said Edwin Walters and Virginia Caroline Walters, his wife, covenant to execute such further assurances as may be necessary to confirm these presents.

The deed was duly acknowledged, and the grantee made affidavit that the consideration was true and bona fide as therein set forth.

Walters having made default in the payment of the first instalment due and owing, as provided in the deed, the trustee proceeded to sell certain property mentioned in the deed, located at Canton, in Baltimore County. The notice of sale was advertised in the Baltimore Sun and Baltimore American, two newspapers published in Baltimore city, and was sold on the 2d day of November, 1875, at the Exchange Sales Rooms in said city for the sum of $31,500. The Bank of Commerce, the holder and owner of four promissory notes for $2,000 each, made and signed by Edwin Walters, payable to the order of Edward McCann, and by him indorsed to the bank, filed exceptions on the 13th of November, 1875, to the ratification of the sale. These exceptions are set out in the opinion of the court. The four promissory notes held by the exceptant constituted a part of the indebtedness intended to be secured by the aforegoing deed of trust. McCann was one of the creditors of Walters who united in the agreement for extension, and recommended the ratification of the sale. A commission issued, under which evidence was taken and returned. The exceptions were overruled, and the sale was finally ratified.

The cause was argued before Bartol, C. J., Miller and Alvey, JJ., and the decision was participated in by Robinson, J.

D. Eldridge Monroe, for the appellant. The instrument of writing, executed by Edwin Walters and wife, to Thomas M. Lanahan, is a mortgage within the meaning of art. 64 of the Code of Public General Laws, and the property therein mentioned, located in Baltimore County, should have been advertised and sold in the manner prescribed in said article, sections 7 and 14. See also Public Local Laws, art. 3, section 134. It was the conveyance of property as a security for the payment of an indebtedness in case of default, and clearly comes within the definition of Chancellor Kent, viz., " A mortgage is the conveyance of an estate by way of a pledge for the security of a debt, and to become void on the payment of it.” 4 Kent's Comm. 136; Wilson et al. v. Russell et al. 13 Md. 494 ; Flagg v. Mann et al. 2 Sumner, 533; Woodruff v. Robb, 19 Ohio, 212; Story's Equity, 1018; Wilcox v. Morris, 1 Murph. (N. C.) 116; Johnson's Ex'r v. Clarke, 5 Ark. 321; Sargent v. Howe, 21 Ill. 149; Crosby v. Huston, 1 Texas, 240, 241 ; 2 American Law Register (New Series), 641 et seq.

This view of the law is consistent with the various decisions of this court. Charles v. Clagett, 3 Md. 82; Stockett v. Holliday, 9 Ib. 492; Carson v. Phelps, 40 Ib. 73; McIntosh v. Corner, 33 Ib. 605; Hooper v. Knell, 31 Ib. 555; Wilson v. Russell, 13 Ib. 494 ; Snowden v. Pitcher f Wilson, ante, p. 260.

Vol. IV.)

BANK OF COMMERCE v. LANAHAN.

(No. 12.

If the instrument in question be a mortgage, within the spirit and meaning of art. 64 of the Code, the sale was illegally made, and this court will not ratify it, as notice of the sale was not advertised in a newspaper published in the county in which the property was located, nor was it offered for sale in said county. If proper notice be not given, chancery will set aside the sale. 4 Kent's Comm. 190; 6 Madd. 15; 2 American Law Register (N. S.), 713 et seq. If a statute points out a particular mode of notice, no other mode, even though it be a better one, can be substituted. Dutton v. Cotton, 10 Iowa, 408.

The fact that the instrument clothes the trustee with power, in his discretion, to sell at public or private sale, does not release him from the obligation to sell the property in the manner provided by law. Having elected to sell at public sale, he was bound to give legal notice of the same and make sale in a legal manner.

The power to sell by the trustee was derived from the instrument itself, and was a power coupled with a trust; and the trustee being clothed with large discretionary power, whether it be a mortgage or deed of trust, he was bound to exercise that diligence and caution which a careful and prudent owner would observe in the sale of his own property. Gould, Trustee, et al. v. Chappell f Gould, 42 Md. 466, and cases therein cited; Hubbard and Wife v. Jarrell, 23 Ib. 66.

No prudent owner would have brought this property to the hammer on a day so injudicious, — the day of the state election, and under circumstances so disadvantageous; nor would he have sold it at a price so depreciated. The trustee must not only use good faith, but he must use every requisite degree of diligence to bring the property to sale under the best possible circumstances. Gould et al. v. Chappell

, 42 Md. 466 ; 2 American Law Register (N. S.), 712, and cases therein cited.

Richard J. Gittings, contra.

The instrument in question is not a mortgage, but a deed of trust. It has neither the form nor the distinctive provisions of a mortgage. A mortgage is a security to the mortgagee. This is a conveyance for the benefit of all the creditors of the grantor having claims against him, at the time of its date. A mortgage must, under the statute, express the sum or sums of money for the payment of which it is intended the mortgage property shall be charged. This deed, except as to the judgment debt, an encumbrance necessarily to be paid irrespective of the deed, specifies no amounts, and could not have undertaken to specify them, consistently with its design, being intended for the security and benefit of all creditors, without distinction, known or unknown, and whatever the amount of their respective demands. There are several provisions in it, either unnecessary in a mortgage, as that for a reconveyance by the trustee, in the event of the grantor's paying all his debts within the stipulated period, or quite beyond the scope of a mortgage, as the power of sale given the trustee, with the assent of the grantor, before default, coupled with a trust to apply the proceeds to the payment of the creditors. And, while the instrument explicitly exhibits its own nature and purpose, and declares itself to be a deed of trust for creditors, it appears from the written agreement under which it was executed that it would have been a gross perversion to have turned it into anything else. The

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