Cornell v. Duer, 307

Decision Date02 April 1970
Docket NumberNo. 307,307
Citation263 A.2d 858,257 Md. 446
PartiesGeorge L. CORNELL et al. v. A. Adgate DUER et al.
CourtMaryland Court of Appeals

David MacDonald, Silver Spring, for appellants.

John C. Joyce, Hyattsville (Duckett, Orem, Christie & Beckett, Hyattsville, on the brief) for appellees.



Mr. and Mrs. George L. Cornell (the Cornells), having been victimized by a Montgomery County real estate promoter, who was in no way associated with the appellees, were denied the relief they sought in the Circuit Court for Montgomery County, and now turn to this Court for help.

It all started in January of 1965 when the Cornells sold the property which they owned at 4715 Miller Avenue in Bethesda, Maryland to 4718 Bethesda Avenue Inc., (Zipkin), a creature of one Norman N. Zipkin, for about $290,000, and took back a purchase money deed of trust securing a promissory note for $55,000, on which only interest at 6% would be payable for five years, after which the principal amount would be due.

The deed of trust contained a provision, not uncommon in transactions of this sort:

'It is understood and agreed that the holder of the note secured by this Deed of Trust will authorize the within named trustees to subordinate this Deed of Trust to a bona-fide construction loan made by a reputable lending institution, provided that this Deed of Trust is not thereby reduced to less than a second deed of trust of record.'

For two years, nothing much happened. The Cornells received the interest called for by the note until 29 January 1967. In April of 1967, Zipkin negotiated a construction loan for $3,525,000 with Long Island Savings Bank (Long Island). After the closing, Long Island's title company requested that the Cornells subordinate their deed of trust to the construction loan.

With commendable diligence, the Cornells' counsel asked for a copy of the deed of trust to Long Island, which was sent to him by the title company. He then wrote a letter to Long Island:

'I represent Mr. and Mrs. George L. Cornell who hold a purchase money deed of trust on property in Bethesda, Maryland, which they sold to 4718 Bethesda Avenue, Inc. one or two years ago. This same property is the subject of the deed of trust dated April 24, 1967, made by 4718 Bethesda Avenue, Inc. to secure a loan of $3,525,000 by your Bank.

'My clients have been asked to subordinate to your deed of trust and I am seeking information so that I can make a recommendation. Will you please send me a copy of the promissory note and the 'Loan Agreement'? Also, please state whether plans for the construction of the proposed building have been submitted to you, whether you have examined the same, what type of structure, is to be erected, what is the estimated cost of the building and who made such estimate. Also, if the loan agreement does not indicate, please state the schedule upon which the loan moneys will be paid to the borrower, and what precautions you will take to see that this schedule is adhered to. Also, please describe what completion and/or lien bonds the borrower will be required to post.

'Your cooperation in this matter will be sincerely appreciated.'

About 10 days later, Long Island's counsel replied:

'Your letter of May 22nd, 1967 directed to our client, The Long Island Savings Bank, has been forwarded to this office.

'Enclosed please find copies of the documents you requested.

'The construction plans which have been examined by our client, call for the erection of a 15 story concrete and brick apartment building containing 260 apartments and basement garages for 171 cars. The estimated costs of the building is $4,740,000.00 and said estimate was made by William M. Throckmorton, M.A.I., of Washington, D. C.

'On site inspections will be made by an architect who will certify that the necessary work has been done before payments are made by our client.

'No completion bond is required. If there are any questions please do not hesitate to contact the undersigned.'

In August 1967, the Cornells subordinated their deed of trust to the construction loan upon the understanding, effected by an assignment from Zipkin (which was assented to by Long Island), that the obligation which the Cornells held would be satisfied, with interest, from the last proceeds to be withdrawn under the construction loan agreement.

What neither the Cornells nor their counsel knew was that contemporaneously with the closing of the loan from Long Island, Zipkin had borrowed $200,000 1 from Trade Bank and Trust Company of New York (Trade Bank) and had assigned, with the consent of Long Island, $75,000 and interest from the second and third payments and $50,000 and interest from the fourth payment to be withdrawn under the Long Island construction loan agreement, as security for the repayment of the loan made by Trade Bank. Ten days after the loan was made Trade Bank filed a financing statement with the Clerk of the Circuit Court for Montgomery County, and later joined with Long Island in assenting to the assignment which Zipkin gave the Cornells.

The check for the $200,000 loan was drawn to Zipkin's individual order on instructions from Zipkin as president of the borrower. Zipkin deposited the check in the account of The Wheeler Corporation (another Zipkin enterprise, which was the general contractor on the Bethesda job) with Suburban Trust Company, in Hyattsville, and within a month or so, the entire sum had been dissipated, about half of it being used, according to the Cornells, for purposes unrelated to the Bethesda project.

By December, 1967, after it had disbursed more than $700,000 in construction loan funds, Long Island had received notices from three subcontractors of their intention to assert lien claims against the project, and ultimately Long Island gave Zipkin notice of its intention to terminate further advances. Even after this action, however, Long Island disbursed $50,000 in January 1968, of which $10,532.16 went to Long Island, for interest on the construction loan; $22,467.84, to its title company; and $17,000...

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