Foreman v. Melrod

• Decision Date: 01 April 1970
• Docket Number: No. 296,296
• Parties: , 8 UCC Rep.Serv. 67 Earl M. FOREMAN et ux. v. Leonard S. MELROD, to the Use of Krick of Maryland, Inc.
• Court: Maryland Court of Appeals

Page 435

257 Md. 435

263 A.2d 559, 8 UCC Rep.Serv. 67

Earl M. FOREMAN et ux. v. Leonard S. MELROD, to the Use of Krick of Maryland, Inc.

No. 296.

Court of Appeals of Maryland.

April 1, 1970.

Thomas P. Smith, Hyattsville (Karl G. Feissner and Feissner, Kaplan & Smith, Hyattsville, on the brief), for appellants.

Warren K. Kaplan, Washington, D. C. (Melrod, Redman & Gartlan, Washington, D. C., and Gorman E. Getty, Cumberland, on the brief), for appellee.

Before HAMMOND, C. J., and BARNES, McWILLIAMS, FINAN, SMITH and DIGGES, JJ.

BARNES, Judge.

This appeal presents to us for decision the question of whether or not the Circuit Court for Allegany County (Naughton, J.) properly held that the parol evidence rule would make inadmissible in evidence the defense of the appellants, Earl M. Foreman and Phyllis R. Foreman, his wife, to the collection of a promissory note for $90,000, that there was a contemporaneous oral agreement that the note was to be collected only in the event that Leonard S. Melrod and Krick of Maryland, Inc. (Krick) had exhausted their legal remedies against the payees of the note and others. Judge Naughton, in view of his holding, found that there were no relevant facts in dispute, that the appellee, as plaintiffs below, were entitled to a summary judgment as a matter of law and granted such a summary judgment against the Foremans.

The facts, appearing in the depositions, pleadings and affidavits, are as follows: Krick is a general plumbing and contracting corporation that performed certain labor and services for Arnold A. Heft, a contractor, on an apartment complex in Montgomery County known as Versailles Plaza East. Mr. Foreman, a member of both the bars of Maryland and the District of Columbia, represented Heft in 1966. On November 30, 1966, the balance due Krick by Left was $90,417.72. On that date, in order or induce Krick to release its lien on the newly erected building, Heft and his wife Sylvia executed a promissory note to the order of Krick in the amount of the balance of the indebtedness. This Heft note was payable as follows: $22,684.48 on January 30, 1967, and $22,684.48 on the last of each month thereafter until the entire amount was paid, with interest at the rate of 6% per annum payable when the principal amounts were paid. It was also provided that if any installment of interest or of principal was not paid when due, all installments at the holder's option, should become due and payable. There was also a provision that if an attorney were used to collect the note or any security or guaranty given for it, an attorney's fee of 15% of the principal and interest should be added to the amount of the note. Jules S. and Marlyn S. Minker signed an endorsement and guaranty of payment of this note.

As collateral security for the payment of the Heft note, Krick was given a third deed of trust for the amount of that note on the Versailles Plaza East property and Mr. and Mrs. Heft assigned to Krick the promissory note of the appellants, Earl M. and Phyllis R. Foreman for $90,000 payable to the Hefts. The Foreman note, dated November 30, 1966, was for $90,000, with interest from date at 6% per annum, 'the said principal and interest being all due and payable one (1) year from the date hereof.' There was a provision for a 10% attorney's fee if the services of an attorney were needed for collection of the note. There was also a provision waiving presentment, demand, protest and notice of dishonor. The Hefts placed an endorsement on the back of the Foreman note as follows:

'Pay to the order Of Leonard S. Melrod, Esq., to be held in accordance with the terms and conditions of a Collateral Security Agreement dated November 30, 1966, and entered into by and between Arnold A. Heft, Sylvia E. Heft, et al., Krick of Maryland, Inc., a Maryland Corporation, and Leonard S. Melrod.'

The Collateral Security Agreement referred to in the endorsement on the back of the Foreman note, was executed by Versailles Plaza East Limited Partnership by Arnold A. Heft, Jules S. Minker, S. Robert Baldinger and Carl Oppenheim, as general partners, as well as the other parties already mentioned. It recited the execution of the Heft note; that this note was received by Krick on the understanding that additional security as recited in the Collateral Security Agreement would be provided; that the Versailles Plaza East Limited Partnership had agreed to give a third deed to trust on the Versailles Plaza East property as collateral security and that the 'Hefts have further agreed to collaterally secure the (Heft) Note by pledging all of their right, title and interest in and to' the Foreman note for $90,000 dated November 30, 1966, with 6% interest 'principal and interest all due and payable on November 30, 1967.'

The Collateral Security Agreement then set out in detail the delivery of the collateral security, including the Foreman Note, and provided in regard to the Foreman Note, the following:

'To the extent that the (Heft) Note delivered to Krick shall not be paid when and if the same shall fall due in accordance with its terms and notwithstanding any other remedies or security available to Krick, Melrod may, as of November 30, 1967, direct Earl M. Foreman and Phyllis R. Foreman that payment of their obligation to the Hefts, to the extent that the (Heft) Note delivered to Krick shall not have been paid, in full, as of November 30, 1967, shall be made to him to apply against the then outstanding balance of said (Heft) Note delivered to Krick * * *.' (Emphasis supplied.)

As we have indicated, at the time of the execution of these documents on November 30, 1966, Mr. Foreman was attorney for Mr. Heft. All of the papers were prepared by Mr. Foreman (or another attorney in his law office) and Mr. Foreman-although he did not execute the Collateral Security Agreement-was aware of its terms.

Prior to November 30, 1966, Mr. Foreman and Mr. Heft were joint owners of a tract of undeveloped land adjacent to Versailles Plaza East, known as Versailles Plaza West. As a part of the transaction, at Mr. Foreman's suggestion, Mr. Heft agreed to, and did sell to Foreman, Heft's 50% interest in Versailles Plaza West for $90,000. A contract of sale was prepared and the Heft interest in the Versailles Plaza West property was deeded to Foreman, the Foreman note being the method of paying for the transfer.

In accordance with the Collateral security Agreement, the Foreman note was immediately assigned to Mr. Nelrod, as attorney for Krick to be held in accordance with the provisions of that agreement. Neither the Heft note nor the Foreman note was paid when due and no payments were made on either note prior to the institution of the action at law in the present case on October 15, 1968. The plaintiff in that action-Melrod, to the use of Krick-filed a motion for summary judgment with the declaration together with the Foreman note and an affidavit in support of the motion, verifying the execution of the note by the Formans, demand for payment and failure by the makers to pay. In the affidavit of Mr. Foreman in opposition to the granting of the summary judgment is stated, in relevant part, as follows: '* * * it was the agreement and understanding of Affiant (Mr. Foreman), the Hefts, Krict * * * and Leonard S. Melrod that the note signed by Affiant and his wife was to be collected by Krick * * * or anyone else, only in the event that Krick was unable to collect its funds directly from' the Hefts, the Versailles Plaza East Limited Partnership or the guarantors, or any of them, and further that the Foreman note was 'not to be used until after Krick * * * had exhausted its legal remedies against the Hefts and the guarantors as well as after Krick * * * had caused the Trustees of the Deed of Trust aforesaid to foreclose said Deed of Trust * * *' and that it was only to the extent that Krick was unable to secure such funds after having exhausted such legal remedies and Krick was still unsatisfied, 'then, and at that time only, would Krick * * * have a right to collect the note signed by Affiant and his wife which forms the subject matter of this complaint.' It is also stated in Mr. Foreman's affidavit-and not disputed by the plaintiff and appellee-that Krick had institutes suit against the Hefts, the limited partnership and the guarantors but had not obtained judgment, and had not instituted foreclosure proceeding under the deed of trust.

As we have indicated, the trial court was of the opinion that under the proper application of the parol evidence rule the alleged contemporaneous oral agreement set out in Mr. Foreman's affidavit would not be admissible into evidence, so that there was no dispute in regard to any relevant fact and the plaintiff Melrod to the use of Krick was entitled to judgment as a matter of law. In accordance with the lower court's written opinion to that effect, judgment was entered on September 8, 1969, in favor of the plaintiff against the Foremans in the maount of $115,335.00. This sum consisted of the principal amount of the Foreman note of $90,000.00, interest of $14,850.00 and an attorney's fee of $10,485.00 representing 10% of the total of principal and interest. The Foremans took a timely appeal from that judgment to this Court.

In our opinion, the lower court ruled properly and we...