Angelos v. Maryland Cas. Co.

• Decision Date: 12 December 1977
• Docket Number: No. 331,331
• Citation: 380 A.2d 646,38 Md.App. 265
• Parties: Peter G. ANGELOS et al. v. MARYLAND CASUALTY COMPANY.
• Court: Court of Special Appeals of Maryland

Page 265

38 Md.App. 265

380 A.2d 646

Peter G. ANGELOS et al. v. MARYLAND CASUALTY COMPANY.

No. 331.

Court of Special Appeals of Maryland.

Dec. 12, 1977.

Glenn B. Harten, Prince Frederick and Michael A. Anselmi, Baltimore, for appellant, Peter Angelos.

Gregory S. Hrebiniak, Washington, D. C., with whom were M. Carr Ferguson, Asst. Atty. Gen., John J. McCarthy, Edward J. Snyder, Washington, D. C., and Jervis S. Finney, U. S. Atty. and Herbert Better, Asst. U. S. State's Atty., on the brief, for appellant United States.

Gordon C. Murray and Julian I. Jacobs, Baltimore, with whom were Allen Handen, Prince Frederick, on the brief, for appellee.

Argued before DAVIDSON, LOWE and WILNER, JJ.

LOWE, Judge.

The Circuit Court for Calvert County was called upon to determine the priorities to the surplus proceeds from a second mortgage foreclosure sale as between the holder of a third mortgage, Peter Angelos, and a judgment creditor, Maryland Casualty Company. The Angelos' third mortgage had been executed before, but recorded after, the institution of a suit by Maryland Casualty Company, whose debt had been subsequently reduced to judgment. The court applied the doctrine of lis pendens and awarded the fund to the judgment creditor. Angelos, the third mortgagee, appealed.

A further complication arose after that appeal when the United States of America was permitted by this Court to intervene. The intervenor is asserting tax liens against the surplus from the foreclosure sale by the second mortgagee. The ultimate right to the proceeds depends upon facts not in this record, and while we find the trial court's judgment to have been in error, we cannot finally determine the full extent of the rights of the parties without further fact-finding.

The initial case which brought on the appeal arose when John and Carolyn DeVaughn, who had come upon bad times, executed to their attorney, Peter Angelos, a third mortgage in the amount of $50,000 as consideration for his legal services. The record is not clear as to whether that consideration was to cover only past services or was intended to include advances for future services. A week after the DeVaughns executed the mortgage, but before Angelos recorded it, Maryland Casualty Company claims to have sued ¹ the DeVaughns, presumably under an indemnity agreement for $690,357.00 which Maryland Casualty had apparently paid on account of the DeVaughns under a bonding agreement. A companion suit sought to enjoin the DeVaughns from divesting themselves of their residence, the subsequent sale of which provided the funds under dispute here. ²

The chancellor entered judgment on behalf of Maryland Casualty Company under the doctrine of lis pendens. Lis pendens literally means a pending action; the doctrine derives from the jurisdiction and control which a court acquires over property involved in an action pending its continuance and until final judgment is entered. Under the doctrine, one who acquires an interest in the property pending litigation relating to the property takes subject to the results of the litigation. It is clear that the doctrine has no application except where there is a proceeding directly relating to the property in question, or where the ultimate interest and object of the proceeding is to subject the property in question to the disposal of a decree of the court. Feigley v. Feigley, 7 Md. 537, 563; see Applegarth v. Russell, 25 Md. 317.

We need not decide the unlikely prospect that the petition for an ex parte injunction to restrain the sale of land preserving an asset for a general creditor was sufficient to comply with the Feigley requisite that the proceeding relate directly to the property in question, since Angelos' property interest was acquired through a mortgage obtained prior to the commencement of the litigation upon which Maryland Casualty's lis pendens claim rests, and therefore is not subject to the operation of the doctrine.

Md.Code, Real Prop. Art., § 1-101(c) defines the term "deed" as used in the Real Property Article to include, among other things, "mortgage". Subsequent § 3-201 states that:

"Every deed (or mortgage), when recorded, takes effect from its effective date as against the grantor, . . . and every creditor of the grantor with or without notice." (emphasis added). ³

Although the mortgage was recorded after the suits were filed, under the statute it took effect against Maryland Casualty as of the date of mortgage, which was (assuming the title report to be correct) nearly a month before the suits were filed.

Maryland Casualty contends, however, that the Angelos mortgage is not a valid mortgage because "there was some question as to what was the consideration for this mortgage in the court below." The argument that follows is based upon comments made by the chancellor which raised some question as to the validity of the mortgage on the basis of some evidence that part of the consideration may have been for future rather than present services.

"We think there is a substantial question in this case. It is whether this mortgage is valid at all because we apprehend that under the Maryland law a mortgage as argued by Mr. Handen must be given for present consideration and an affidavit to that effect must be entered into. The testimony clearly shows that the mortgage in this case was given in an attempt to secure these attorneys for work which they had done for their clients extending for some period of time in the past and contemplating perhaps some future work but not as much future work as apparently was done.

In any event, we prefer to say that let's assume for the purpose of argument that this was a valid mortgage although we have grave doubts about that."

The chancellor's reference to the necessity for present consideration in a mortgage, like that of appellee who has parroted him, was apparently misconceived by his contemplation of the law as it existed prior to the legislative amendment in 1972 by Chapter 349. All of the authority they rely upon was predicated upon the old statute and such cases are therefore inapposite in light of the new law presently codified in Real Prop. Art., § 7-102(b), ⁴ which reads:

"(b) Priority of future advances. If after the date of the mortgage or deed of trust, any sum of money is advanced, any endorsement or guaranty is made, or the liability under an indemnity agreement arises, priority for such sum of money or for any indemnity arising under the endorsement, or guaranty, or indemnity agreement dates from the date of the mortgage or deed of trust as against the rights of intervening purchasers, mortgagees, trustees under deeds of trust, or lien creditors, regardless of whether the advance, endorsement, or guaranty was obligatory or voluntary under the terms of the mortgage or deed of trust."

We can benefit interpretively here from the relatively new legislative procedure of supplying commentary explaining the effect of statutory changes. The extensive comment following that section includes the explanation that:

"The change abolishes the distinction as to whether the advance was obligatory or voluntary under the terms of the mortgage, and makes all future advances date back to the date of the mortgage so as to squeeze out the intervening rights of third parties." (emphasis added).

It is apparent then that as to Maryland Casualty the subsequently recorded Angelos mortgage prevails because executed before appellee's suits were filed, regardless of whether the consideration was present or future.

Unfortunately, it is not so simple as between Angelos and the United States of America who was permitted to intervene due to its interest in the proceeds established by tax liens purportedly filed on August 29, 1975.

the intervenor

On July 20, 1977 the United States moved to intervene pursuant to Maryland Rule 208 a. ⁵ There having been no answer filed the motion was granted and an order permitting intervention was signed by Chief Judge Gilbert on August 9, 1977. ⁶ Although it is questionable whether we can decide issues the evidence of which is not before us, because we must reverse this case as between the original parties, we will discuss, for purposes of assisting the lower court, the priority of the intervenor as well. We are limited in our reasoning to the extent that we can base our analysis only upon the same thin evidence stipulated to in the form of a title report, which we pointed out in reaching the issue of lis pendens as the only evidence that we could find in the case of the suits relied upon by Maryland Casualty in its lis pendens assertion. But see n. 1. That report also contained the only reference to pending tax liens submitted as evidence in the case. ⁷ Without a record with more substantial foundation, our discussion is necessarily espoused somewhat in the abstract; however, we write for the guidance of the lower court, which will have the issue to decide either on remand for retrial of the Rule W75 a. proceeding or will be confronted with pending exceptions to the auditor's report. In either case, our anticipating the question will hopefully avoid the expense and delay of another appeal to this Court. ⁸ Md.Rule 1085.

The United States conceded in open court and in its brief as intervenor, that to the extent the consideration for the Angelos mortgage consisted of his past services, Angelos' claim would prevail over the government liens. This is so because except for liens subsequently discharged, the only liens filed or refiled by the government came not only after Angelos' mortgage was executed, but after it was recorded as well. The Internal Revenue Code, I.R.C. § 6323(a), clearly states that the lien imposed by § 6321 is not valid as against a "holder of a security interest," until notice of the lien has been filed. "Security interest" is defined as meaning

". . . any interest in property acquired by contract for the purpose of securing payment or performance of an...