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BANK OF COMMERCE v. LANAHAN.
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 his 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 hin 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 E.c'r v. Clarke, 5 Ark. 321; Sargent v. Howe, 21 III. 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 of Wilson, ante, p. 260.
BANK OF COMMERCE v. LANAHAN.
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 of Gould, 12 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 credit
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
Bank OF COMMERCE v. LANAHAN.
agreement stipulated for “ a deed of trust” which should“ provide, first, for the payment of the liens and encumbrances due and owing upon the property, and secondly, for the payment of all the other creditors of said Edwin Walters, in equal proportions, and the balance, if any, to be paid over to said Edwin Walters.
Deeds for the protection of creditors may be divided into three classes. The first includes mortgages properly so called, that is, conveyances from the debtor to the creditor, expressed to be for the security of indebtedness due the latter, or for his indemnification against a particular loss, and with a clause of defeasance contained in the instrument. In such case, while the conveyance, after failure to perform the condition within the time specified, is apparently absolute, a purchaser from the grantee, without statutory aid given to the sale, does not acquire the land, but only the charge upon the land. In this class, or amongst mortgages properly so called, are embraced mortgages in trust, where the debts are specified, and the creditors either named or designated, and described in the instrument, but because of the great number of such creditors, or of other circumstances making a conveyance directly to them inconvenient, the mortgage is made to mortgagees who combine the office of trustees with that of mortgagees. These instruments, having the form of mortgages, are attended in general with the same statutory incidents. The second class consists of conveyances which are absolute in form, but being intended as securities of debt only, courts of equity, upon proof of the fact, will give effect to the intention, except as aguinst the rights of bona fide purchasers, or other intervening equities. The third class consists of deeds of trust like the present. It is believed that the provisions of the Code, under the title Mortgages,” which have been invoked by the appellant, art. 64, sections 7 and 14, have reference to instruments of the first class only, namely, mortgages properly so called. A reason can be perceived why guards or restrictive provisions of this kind should be thrown around such instruments - mortgages intended as such and given as the ordinary security for debt — but none whatever for applying them to conveyances to trustees for the payment of creditors generally. Charles v. Clagett, 3 Md. 82; Stockett v. Holliday, 9 Ib. 480, 492, 499; White v. Malcolm, 15 Ib. 541 ; Phillips v. Pearson, 27 Ib. 256 ; Reeside v. Peter, 33 Ib. 120; McIntosh v. Corner, 33 Ib. 598, 607.
ALVEY, J., delivered the opinion of the court.
This appeal presents the case of exceptions to a sale made under a deed of trust, and reported for ratification by the court, as required by the Code, art. 81, sections 107 and 111, as reënacted with amendments by the Act of 1874, chapter 483.
The deed was made by the grantor in pursuance of an agreement with his creditors for an extension of time on his indebtedness; and the appellant, according to the allegation in the exceptions filed, is the holder of part of the evidences of such indebtedness of the grantor intended to be secured by the deed, and has thus become interested in the execution of the trust.
The ratification of the sale is excepted to on several grounds : First, because the property, although situated in Baltimore County, was sold in Baltimore city, regardless of that provision of the Code, art. 64, section
BANK OF COMMERCE v. LANAHAN.
14, which requires that all mortgage sales shall be made in the county or city where the mortgaged premises are situated. Secondly, because the notice of sale was not given by advertisement in some newspaper printed in Baltimore County, where the property is situated; the Code, art. 64, section 7, requiring that all mortgage sales made in pursuance of the power authorized to be inserted in any deed of mortgage, where the notice is not provided for in the mortgage, or otherwise agreed upon, shall be made after twenty days' notice of the time, place, and terms thereof, by advertisement in some newspaper printed in the county where the mortgaged premises may be located. Thirdly, because the sale was not fairly made ; that it was made on the day of a general state election; and that the property was sold for a grossly inadequate price.
The two first grounds relied on, those relating to the notice and the place of sale, are involved in and dependent upon the question, whether the deed of the 17th of November, 1874, under which the sale was made, is a mortgage, such as is contemplated by the Code, art. 64, section 5, which provides that in all mortgages there may be inserted a clause authorizing the mortgagee, or any other person to be named therein, to sell the mortgaged premises; the following sections, 7 and 14, before referred to, baving reference to the manner of executing the power authorized to be inserted by the 5th section.
1. As to the question of the character of the deed, upon careful examination of its provisions, we are of opinion that it is not a technical mortgage, within the contemplation of the 5th section of the 64th art. of the Code referred to, but a deed of trust, clearly denominated such by the Code, art. 24, sec. 55. It is a deed of trust to secure debts; and while it has some of the attributes of a mortgage, yet it presents features which distinguish it from that class of security strictly considered. By the legal, formal mortgage, as distinguished from instruments held to be mortgages by construction of courts of equity, the property is conveyed or assigned by the mortgagor to the mortgagee, in form like that of an absolute legal conveyance, but subject to a proviso or condition by which the conveyance is to become void, or the estate is to be reconveyed, upon payment to the mortgagee of the principal sum secured, with interest, on a day certain ; and upon non-performance of this condition, the mortgagee's conditional estate becomes absolute at law, and he may take possession thereof, but it remains redeemable in equity during a certain period under the rules imposed by courts of equity, or by statute. 1 Fish. on Mort. 7 ; Jamieson v. Bruce, 6 Gill & John. 72 ; Evans & Iglehart v. Merriken, 8 Ib. 39. And in accordance with this description of a strict legal mortgage is the formula given in the Code, art. 24, sec. 60. We do not, however, for a moment intimate that a mortgage can be in no other form than that here given ; but the form to which we refer clearly indicates the attributes and essential qualities of a strict legal mortgage, as distinguished from a deed of trust, such as that now before us. This deed was made for the benefit of all the grantor's existing creditors; and the grant was made to and the estate vested in but one of those creditors, in trust to secure his own debt and the debts of all the other creditors, in the manner and upon the terms specified in the deed. Lanahan is the trustee, and the creditors are cestuis que trust, not mortgagees, strictly and technically such. Upon default of
BANK OF COMMERCE v. LANAHAN.
payment, these creditors, as mere cestuis que trust under the deed, could not take possession of the estate and apply the rents and profits to the discharge of their claims; nor have they any right of foreclosure, such as a mortgagee would have under a technical mortgage. Charles v. Clagett, 3 Md. 94, 95. Their Only remedy is the enforcement of the trust, and to execute the trust requires the property to be sold. Indeed, if this instrument were declared to be a mortgage, as contended by the appellant's counsel it should be, it would be difficult to maintain its validity at all, except as to the claim of Lanahan, the trustee. His is the only claim the amount of which is mentioned in the deed ; in fact he is the only
l creditor named; the names and amounts of none others are stated. Now it is provided by the Code, art. 64, sec. 2, that "no mortgage, or deed in the nature of a mortgage, shall be a lien or charge on any estate or property for any other or different principal sum or sums of money than the principal sum or sums that shall appear on the face of such mortgage, and be specified and recited therein, and particularly mentioned and expressed to be secured thereby at the time of executing the same; this not to apply to mortgages to indemnify the mortgagee against loss from being indorser or security.” It is plain, therefore, that this deed would be seriously imperilled by declaring it to be a mortgage, or even a deed in the nature of a mortgage; as the amounts of the debts intended to be secured, with one exception, are not made to appear on the face of the deed, nor specified and recited therein. This is not required in a deed of trust for the benefit of all the creditors of the grantor such as that in the present case.
The case of Wilson v. Russell, 13 Md. 495, relied on by the counsel of the appellant, and where the instrument in question was sometimes spoken of as a deed in the nature of a mortgage, and sometimes as a deed of trust, does not support the position of the appellant's counsel in this
There the deed was not a conveyance for the benefit of creditors generally, nor an assignment of the property of the grantors for the payment of their existing debts; but it was intended to secure two named parties the payment of an old debt, and certain notes agreed to be loaned under the deed ; the amount thereof being specifically stated on the face of the instrument. It was not pretended, in that case, that the deed was a technical mortgage.
Being of opinion that the deed before us is not a mortgage within the meaning of the Code, art. 64, sec. 5, it follows that the requirements of the 7th and 14th sections of the same article of the Code have no application to the sale made and reported by the trustee in this case.
2. Having determined that the deed is not a mortgage, but a deed of trust, and therefore not within the meaning of the Code, art. 64, sec. 5, the next question is, was the sale fairly made, and for a price that ought to be sanctioned by the court? And upon careful examination of all the evidence that the record contains we can have no hesitation in saying that there is nothing disclosed that would have justified the court below in refusing ratification of the sale. It is certainly true that the trustee was in duty bound to offer the estate under the best possible advantage for the interest of those for whom the trust was created. He was bound to due diligence in giving full and proper notice, so as to invite full and