County Trust Co. of Maryland v. Stevenson
| Decision Date | 10 June 1936 |
| Docket Number | 26. |
| Citation | 185 A. 435,170 Md. 550 |
| Parties | COUNTY TRUST CO. OF MARYLAND ET AL. v. STEVENSON ET UX. |
| Court | Maryland Court of Appeals |
Appeal from Circuit Court, Charles County; J. C. Mattingly, Judge.
Bill by George H. Stevenson and wife against the County Trust Company of Maryland, formerly the Eastern Shore Trust Company, and others. Decree for plaintiffs, and defendants appeal.
Reversed and remanded.
Argued before BOND, C.J., and OFFUTT, PARKE, SLOAN, and SHEHAN, JJ.
William L. Rawls and William L. Marbury, Jr., both of Baltimore, for appellants.
R. C Cole, of Baltimore, and S. Marvin Peach, of Upper Marlboro for appellees.
George H. Stevenson and Rachel B. Stevenson, his wife, appellees filed a bill in equity in the circuit court for Charles county against the County Trust Company of Maryland, formerly the Eastern Shore Trust Company, a body corporate, and County Corporation of Maryland, a body corporate, and Joseph A. Wilmer, trustee, and M. Natalie Digges, personal representatives of W. Mitchell Digges, deceased, who was trustee, appellants.
This appeal is from a decree of the circuit court for Charles county enjoining the appellants from collecting, or taking any procedure towards collecting, a promissory note of the Oakoal Corporation, payable to the Eastern Shore Trust Company, dated June 20, 1921, at four months, for $10,000. This note was executed by the Oakoal Corporation and indorsed by H. D. Flood, E. Brooke Lee, F. Brooke Matthews, Joseph A. Wilmer, and W. Mitchell Digges. The note was further secured by a deed of trust dated June 20, 1921, from George H. Stevenson and wife to W. Mitchell Digges and Joseph A. Wilmer, trustees. This deed covered lands and premises situated in Charles county, Md., called "a part of Mt. Air," and containing about 202 acres of land.
In the deed it was stipulated that upon the sale of said lands and premises the proceeds arising therefrom, after deducting the costs incident to such sale and a reasonable commission to said trustees, should be applied as follows:
"1st. To the payment of all indebtedness now legally due and payable by the said George H. Stevenson to the said The Eastern Shore Trust Company, as well as any renewals of said indebtedness, together with all interest thereon to the date of payment.
2nd. To the payment of the note of the Oakoal Corporation for the sum of $10,000.00, dated June 20, 1921, payable to the Eastern Shore Trust Company, and endorsed as herein set forth, or any renewal of said note, together with all interest thereon to the date of payment.
3rd. And the balance, if any there be, to pay to the said George H. Stevenson, his heirs or assigns." The deed of trust authorized the trustees to rent, lease, or sell the property either at public or private sale upon such terms and for such sums as the trustees may deem advantageous. There are other provisions in the deed that are not important in the consideration of this case.
As further security on the said note of the Oakoal Corporation to the Eastern Shore Trust Company, Edgar L. Culver conveyed by an absolute deed in fee simple, dated the 17th day of June, 1921, a farm located in St. Mary's county, containing about 102 acres of land. While absolute in form, this deed was intended as an obligation securing said indebtedness, and, like other pledges, "partakes of the nature of a mortgage, and is subject to an [the pledgor's] equity of redemption." Tyng & Co. v. Woodward, 121 Md. 422, 430, 88 A. 243, 246. It is charged that this deed was delivered at the same time as the note was made, and was accepted as security therefor.
On December 20, 1922, W. Mitchell Digges, E. Brooke Lee, F. Brooke Matthews, and Joseph A. Wilmer made and delivered to the Eastern Shore Trust Company a note for $10,700. It is alleged that this note was for the same indebtedness as to principal and accrued interest thereon as the note above referred to; that H. D. Flood did not join in this note, he being dead at the time of its execution.
The note of June 20, 1921, became due and was not paid. On neither of these notes were Stevenson or Culver principals or indorsers. For brevity herein the note of June 20, 1921, for $10,000 by the Oakoal Corporation and indorsed as above stated will be referred to or designated as the "Oakoal Note."
The above recital of facts substantially describes the situation of the parties involved at the time of the financial embarrassment of the Oakoal Corporation. Out of failure to pay its note and the abandonment of the enterprise for which this money was borrowed arose the controversies which lead to the institution of this suit.
The Oakoal Corporation, of which Edgar L. Culver was president and George H. Stevenson was vice president and manager, was interested and engaged in the development of a fuel process which was unsuccessful. Both of these men were large stockholders in this corporation. The Eastern Shore Trust Company, holding this unpaid original note and the deed of the Culver property and the beneficial interest under the Stevenson deed of trust, and the note of $10,700 of four of the indorsers of the original note, all of which were held as collateral, began to concern itself with the recovery on its collateral in order to liquidate the original indebtedness. The Culver property had been conveyed to it by a deed absolute in form, and was held for the sole purpose of securing the said $10,000 note. The Stevenson security, in the form of a deed of trust, was given to secure, not only the original note of $10,000, but any other indebtedness of Stevenson to the Eastern Shore Trust Company, of which there was a considerable amount. The express terms of this deed of trust have been previously stated. These two securities, according to the answer, were given because of the requirements of the indorsers of the note and were not only to secure the original note, but were to secure these indorsers against loss because of their suretyship. According to the statements and allegations in the answer, the Stevenson security and the Culver security were equal and independent in their undertakings, and there is no distinction in the order in which the Trust Company might proceed to realize upon the Oakoal note.
Mr. and Mrs. Stevenson had subsequently given to the Eastern Shore Trust Company a mortgage dated August 21, 1924, on this property for $12,000, to secure a loan of $9,500 and an additional loan of $2,500. With this situation concerning the collateral, it evidently seemed expedient to the Eastern Shore Trust Company to undertake to realize on the Culver property. The sale of the property presented less difficulties because of the situation with regard to the title and the fact that it was unencumbered, and, having equal standing with the Stevenson collateral, the company had the right to select either as a means of recovery. With the consent and approval of Mr. Stevenson and his wife, as alleged in the answer, the Eastern Shore Trust Company endeavored to sell or dispose of the Culver farm in order to liquidate the loan, and, after repeated efforts, the farm was sold and conveyed, on February 4, 1924, to the Washington Home Builders Association, Inc., for a consideration of $15,000, $1,000 of which was paid on account and the balance of $14,000 was secured by a note and mortgage of even date, to the Eastern Shore Trust Company and payable in three years. After holding this property, by virtue of the deed and mortgage, the Association evidently became unable to perform its obligations with respect to the mortgage, and, by arrangement with the Trust Company, reconveyed the property to it on January 22, 1935, and took a release of the mortgage. The result of this transaction left the Trust Company, the indorsers on the note, the four makers of the note of $10,700, and Culver and the Stevensons in substantially the same position with respect to the property and to the various obligations as they were in before this sale to the Association, except as to the $1,000 paid on account by the Association to the Trust Company.
It is unfortunate that some definite statement was not made as to its application, but, in the absence of this, we must assume that it was applied or used in the manner ordinarily required as to proceeds of sale of collateral; that is, it was credited on the obligation for which the farm was held as security. Assuming this to have been done, there is an outstanding indebtedness as to principal on the Oakoal note of $9,000. We have now come to the real question in this case. Did the sale of the Culver property for $15,000, being in excess of the note of June 20, 1921, for $10,000, under the facts above recited and set forth in the answer, and hence admitted to be true, constitute, first, a payment of the note? Second, did that sale and cash payment of $1,000 and the receiving of a mortgage of $14,000 for the balance constitute a novation of the obligation of $10,000, and thus, in either event, release all parties to the original transaction, and particularly George H. Stevenson and his wife, of their obligation with respect to the Oakoal note, and any renewals thereof, and thereby discharge them from their obligation under the deed of trust?
If the transactions above recited between the Eastern Shore Trust Company and the Washington Homebuilders Association constitute either payment or a novation, then the obligations of the defendants in this suit are...
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