Free State Bank & Trust Co. v. Ellis

• Court: Maryland Court of Appeals
• Writing for the Court: Argued before GILBERT; GILBERT
• Citation: Free State Bank & Trust Co. v. Ellis, 411 A.2d 1090, 45 Md.App. 159 (Md. App. 1980)
• Decision Date: 07 March 1980
• Docket Number: No. 865,865
• Parties: FREE STATE BANK & TRUST COMPANY v. A. James ELLIS.

Page 159

45 Md.App. 159

411 A.2d 1090

FREE STATE BANK & TRUST COMPANY v. A. James ELLIS.

No. 865.

Court of Special Appeals of Maryland.

March 7, 1980.

James C. Chapin, Upper Marlboro, with whom were John C. Joyce and Duckett, Orem, Christie & Beckett, Greenbelt, on the brief, for appellant.

Thomas P. Smith, Hyattsville, Shelly E. Mintz, Baltimore, and Baskin & Sears, Hyattsville, for amicus curiae John and Claire M. Buete.

Anthony J. McMahon, Washington, D. C., with whom were Anderson Pendleton, McMahon, Peet & Donovan, Washington, D. C., on the brief, for appellee.

Argued before GILBERT, C. J., and THOMPSON and LISS, JJ.

GILBERT, Chief Judge.

Free State Bank & Trust Company (Bank) has come to this Court in an effort to reverse a judgment of $80,000 against it for negligence in releasing collateral that had been pledged in order to secure a loan. At the same time the Bank seeks to vacate a post-trial order of the Circuit Court for Montgomery County in which that court awarded certain substituted collateral to the appellee, A. James Ellis. The Bank is joined in the latter effort by John and Claire M. Buete, who assert that the post-trial order deprived them of their property without due process of law. We, by order, permitted the Buetes to file an amicus curiae brief in the case. For the reasons stated infra, we affirm the judgment entered on the jury's verdict, but we vacate the post-trial order.

-THE FACTS-

Ellis was a member of the Board of Directors of the Bank and of its Executive Committee. In March 1974, Ellis obtained a loan from the Bank for $300,000. As collateral for the loan, Ellis furnished the Bank with a second deed of trust on his residence, but because his equity in the home was insufficient, he assigned to the Bank a promissory note in the amount of $200,000, payable to Ellis by Mr. Jerry Wolman. The note was secured by a second deed of trust on Wolman's home. Both the Wolman note and the second deed of trust had been held by Ellis as security for debts owed to Ellis by Wolman and W. W. A., Inc., a Wolman owned corporation. Ellis did not participate in the Board of Directors' vote on the loan.

Subsequently, Wolman had a buyer for his residence, and he approached Ellis for a release of the collateral in order that he could effect the sale. Ellis said that Wolman should work it out with the Bank, and that anything they agreed to do would be all right with him so long as he remained secured. The record is not clear as to exactly what next happened, but there came a time when the Board of Directors of the Bank was asked to accept a "wraparound deed of trust" in the amount of $160,000, securing a note for the same sum, as collateral for the loan to Ellis instead of the $200,000 collateral previously posted. The substitution of the collateral was discussed and a vote taken. Ellis abstained from voting. It is clear from the testimony that the Board voted approval. The "wraparound deed of trust" and note it secured were payable to Wolman by Dr. and Mrs. John H. Palmer, the purchasers of the Wolman residence. Wolman endorsed the Palmer note to the Bank as follows:

"Pay to the order of Freestate (sic ) Bank to be held as collateral and for collection.

s/ Jerry Wolman"

The note recites that it is "(s)ubject to further terms and conditions as set forth in Deed of Trust bearing even date and securing" Wolman. The trustees under the Palmer-to-Wolman deed of trust seemingly remained as trustees. Notwithstanding the authorized release of the Ellis Deed of Trust, the $200,000 note from Wolman to Ellis is still in possession of the Bank. ¹

Dr. and Mrs. Palmer, for a time, divided their payments between Suburbia Federal Savings and Loan, the holder of the first deed of trust on the Palmer residence, and the account of Wolman at Free State. After Wolman assigned his interest in the Palmer note to the amici, Mr. and Mrs. Buete, the Palmer payments were credited to the account of the Buetes.

Somewhere along the way, Ellis became aware of the fact that the Bank had released his secured interest in the Wolman residence and had received in substitution what he described as "a piece of paper, one hundred sixty thousand dollars, from Dr. Palmer to Mr. Wolman. What value it is to me, I don't know."

Ellis sued the Bank in a five count declaration. The trial judge directed verdicts as to two counts and the case went to the jury on count I, breach of contract; count II, negligence; and count III, conversion. The jury found for Ellis on the negligence count, and as we have previously stated, assessed his damages in the amount of $80,000.

The Bank advances three reasons why it believes the trial court should be reversed. We shall discuss each issue in the order they have been put to us by the Bank.

I.

"The trial court erred in denying the Bank's motion for directed verdict where Ellis failed to introduce evidence of the commercially reasonable standard of care to which the Bank was held."

The Bank, in its argument, seeks to have us adopt a rule that expert testimony is required in order to establish a negligent deviation from the "commercially reasonable standard" against which the Bank's actions are to be measured, citing, Crockett v. Crothers, 264 Md. 222, 285 A.2d 612 (1972); Tempchin v. Sampson, 262 Md. 156, 277 A.2d 67 (1971); Johns Hopkins Hospital v. Genda, 255 Md. 616, 258 A.2d 595 (1969); and Fink v. Steele, 166 Md. 354, 171 A. 49 (1934). The Bank contends that such testimony is needed "to provide the jurors with any understanding of the 'commercially reasonable' standard against which they were to measure the Bank's actions." Because Ellis produced no expert testimony, the Bank concludes that he failed to meet the burden of proof and that, therefore, the trial court should have directed a verdict in the Bank's favor.

The Bank then quotes from Third National Bank v. Boyd, 44 Md. 47, 64, 22 Am.Rep. 35, 41 (1874), where the Court said a bank was " 'to exercise such care and diligence in the custody or keeping of them (a customer's bonds) as at the time, banks of common prudence in like situations and business, usually bestowed in the custody and keeping of similar property belonging to themselves. . . .' " The Bank interprets that language, in the light of Crockett, Tempchin, Genda and Steele, to mean that "expert testimony" must be produced by a plaintiff, suing a bank for negligence, to establish the reasonable and accepted standard of care that banks in the community exercise in their dealings with customers, and then demonstrate that the defendant bank failed to meet that standard. The Bank, in the instant case, asserts that the reasonably accepted standards, dealing with transactions such as that involved in the matter sub judice, are "assuredly beyond the common knowledge of the jurors." We have a different view.

Although there may be situations that necessitate expert testimony relative to the standard of care required of a bank in dealings with customers, this case is not of that category. Certainly, no expert testimony was needed to show that banks do not ordinarily release the collateral of a customer and take in substitution thereof a paper writing which is not collateral, and which does no more than allow the bank to collect monies due on the collateral and credit it to the account of another. No expert testimony is needed to show the jurors that banks do not ordinarily release a deed of trust that secures a $200,000 promissory note payable to the bank's customer and which has been assigned to the bank as collateral for the customer's loan, and accept as substitute collateral a note secured by a deed of trust, payable to a party other than the bank's customer, and which is not even assigned to the bank, except, for all practical purposes, for collection. No expert testimony is needed to demonstrate to the jury that by doing what it did in the instant case, the Bank stripped its customer of his security for a $200,000 loan to another party.

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