Hall v. Barlow

• Decision Date: 07 January 1971
• Docket Number: No. 179,179
• Citation: 260 Md. 327,272 A.2d 386
• Parties: W. Luther HALL et al. v. Milton A. BARLOW.
• Court: Maryland Court of Appeals

Page 327

260 Md. 327

272 A.2d 386

W. Luther HALL et al. v. Milton A. BARLOW.

No. 179.

Court of Appeals of Maryland.

Jan. 7, 1971.

Ferdinand J. Mack, Rockville (Shadoan & Mack, Rockville, on the brief) for appellants.

Paul Martin Wolff, Washington, D.C., (Paul R. Connolly, Thomas E. Patton and Williams & Connolly, Washington, D.C., on the brief) for appellee.

Argued before HAMMOND, C. J., and BARNES, McWILLIAMS, FINAN, SINGLEY, SMITH and DIGGES, JJ.

FINAN, Judge.

The appellants brought this action in contract premised on the appellee's breach of implied warranty in failing to obtain the endorsement of The Barlow Corporation on a purchase money promissory note on which $316,800.00 was due and owing. ¹ Moorman, J., sitting without a jury found the claim barred by limitations; however, anticipating the possibility of appeal and seeking to relieve the parties from circuitous litigation, the court proceeded to decide the case on its merits, finding in favor of the appellee-defendant. For the reasons which follow, we think the judgment of the lower court should be reversed.

This action was instituted by the plaintiffs (appellants), W. Luther Hall and Elizabeth M. Hall, his wife, against Milton Barlow and Prospect Properties, Inc. defendants below, in a five count declaration filed August 2, 1967, and amended to two counts on April 8, 1968. The first count in the amended declaration is against Milton Barlow for breach of his implied warranty that he had authority to secure the endorsement of The Barlow Corporation to the note. The second count is against Prospect Properties, Inc., for money due on the note. (Judgment was rendered against defendant, Prospect Properties, Inc., from which it did not appeal.) The action arose out of a transaction whereby the Halls negotiated the sale of property on Prospect Street and High Street in Friendship Heights Subdivision, Chevy Chase, Maryland, to Milton Barlow for the sum of $600,000.00 for which the note was given as part of the purchase money.

Milton Barlow was president of Prospect Properties, Inc. and of The Barlow Corporation. He was also one of the three directors of each corporation. His wife was vice-president of both and a director of both. All of the stock of Prospect Properties, Inc. was owned by The Barlow Corporation. All of the voting stock of The Barlow Corporation was owned by Milton Barlow. The nonvoting stock was owned by a trust established by Milton Barlow for his children. Additionally, Mrs. Hall testified that, at one point in the negotiations between the parties, Milton Barlow stated 'I am the Barlow Corporation.'

The contact of sale was executed August 3, 1964. It was agreed that the contract could be assigned by Milton Barlow without his incurring any personal liability and it was subsequently assigned. The parties also executed an 'Addendum to Annexed Contract,' which addendum was to be considered a part of the total agreement for the sale of the property. The addendum begins with the provision that 'The contract shall be subject to the following conditions:' and then five provisions are recited. These included provisions relating, among other things, to zoning and a deed of trust. Provision number four states: 'The purchase money note secured by a second deed of trust shall contain the following conditions: (b) The Barlow Corporation shall guarantee by endorsement the purchase money note.' Condition number six states: 'This contract may be assigned without personal liability to Milton Barlow.' Numbered paragraph 17 of the contract also provides 'That the provisions hereof shall survive the execution and delivery of the deed aforesaid and shall not be merged therein * * *.' Milton Barlow signed both the contract and the addendum and assigned the contract to Prospect Properties, Inc.

On or about January 18, 1965, settlement occurred and title was passed to Prospect Properties, Inc. At this closing, which was held in the offices of the District Realty Title Insurance Company, Washington, D. C., there were present Milton Barlow and his attorney, Mr. Carmody; the Halls; Mrs. Edwards, a real estate agent; and Mr. Glasgow, the Halls' attorney. The appellee believes it significant that at this meeting neither the Halls nor their attorney mentioned in any way paragraph 4(b) of the addendum, whereby The Barlow Corporation was to guarantee the purchase money note. On January 22, 1965, Prospect Properties, Inc. executed and delivered to District Realty Title Insurance Company the purchase money note and a deed of trust in favor of the Halls. Milton Barlow and his wife signed the instruments in their capacities as officers of Prospect Properties, Inc.

The face amount of the note was $352,000 and was subordinate to a first deed of trust held by the Riggs National Bank in the amount of $13,500,000. The Halls did not receive a copy of the purchase money note until on or about May 28, 1965. Upon receipt of the note Mrs. Hall (who claimed ignorance of what a note should look like) placed it in her safe deposit box, her husband being unaware of its receipt. On May 27, 1965, the Halls executed the subordination agreement whereby their own deed of trust and the note was subordinated to the deed of trust of the Riggs National Bank. It was not, however, until January of 1967 that the Halls first realized that the endorsement of The Barlow Corporation had never been affixed to their note from Prospect Properties, Inc. Although the record would support the fact that the Halls were unaware that the guarantee of The Barlow Corporation had not been placed on their note, it would appear from the record that Mr. Barlow was quite aware of the absence of the guarantee.

Sometime after settlement on January 18, 1965, Mr. Barlow had a conversation with Mr. Glasgow, the Halls' attorney, as to what would be required before the Halls would sign the subordination agreement. Mr. Glasgow informed Mr. Barlow that the Halls wanted the note endorsed by The Barlow Corporation and shortly before May 27 or 28, 1965, Mr. Barlow orally agreed to provide the guarantee called for by paragraph 4(b) of the addendum to the contract. Mr. Barlow stated unequivocally that the note would be guaranteed by The Barlow Corporation at the meeting to execute the subordination agreement. In fact, Mr. Barlow told Mr. Glasgow to rough out a letter for his signature, setting forth the matters in the contract that required completion. Mr. Barlow agreed that he would rewrite such a letter on his stationery and sign it, which he did. This letter dated May 21, 1965, is quite important to this case and in pertinent part reads as follows:

'Dear Mr. Glasgow:

'Paragraph 4(b). It is my understanding that the Halls will produce at settlement their note to which there will be affixed an endorsement by Barlow Properties, Inc., (Barlow Corporation) guaranteeing payment.

Respectfully submitted,

PROSPECT PROPERTIES, INC.

by /s/ Milton A. Barlow

Milton A. Barlow

President'

The meeting was held on May 27 or 28, 1965, (the record not being precise as to the exact date), as a result of which the Riggs National Bank advanced a $13,500,000 construction loan to Prospect Properties, Inc. The endorsement of The Barlow Corporation was not affixed to the Halls' note at this meeting, nor did the subject come up. It would appear that the next conversation that Mr. Barlow had with anyone concerning this note was in late 1966 or early 1967, when Mr. Glasgow called on the telephone to inform him that the note had not as yet been guaranteed by The Barlow Corporation and asked Mr Barlow to remedy the situation. Mr. Barlow refused. At this time the Halls had, many months before, fulfilled all that they had promised to do under the contract or addendum. On May 22, 1968, Mr. Barlow received a letter demanding the guarantee of The Barlow Corporation on the Prospect Properties, Inc. note to the Halls. Mr. Barlow has consistently refused to secure The Barlow Corporation's guarantee on the note. The Halls in obvious frustration filed an action in contract against Milton Barlow and Prospect Properties, Inc. on August 2, 1967, and amended their declaration on April 10, 1968. It was stipulated by all parties at the hearing below that Prospect Properties, Inc. was, as of the time of the hearing, insolvent. The Halls also made an admission of fact that they had received one payment of $35,200 on the principal of the purchase money note.

For a full understanding of this case it should be noted that certain peripheral actions have been filed in the Circuit Court for Montgomery County, Maryland. Equity No. 32731 was filed by the Riggs National Bank against Prospect Properties, Inc. to foreclose its deed of trust covering the property involved in this case. ² Equity No. 34816 is an action now pending and brought by the Halls against The Barlow Corporation for reformation of the note, which is the subject of controversy in this suit, whereby they seek to have The Barlow Corporation endorse the note of Prospect Properties, Inc. In this latter suit the chancellor below sustained a demurrer to the action based on the statute of limitations; however, on appeal we reversed and remanded for further proceedings. Hall v. Barlow Corporation, 255 Md. 28, 255 A.2d 873 (1969). Also pending is Equity No. 33748 whereby the Halls are endeavoring to enforce their second trust against the Riggs National Bank. Upon argument of the case at bar, this Court was also informed by counsel for the appellants that an action was pending by the Halls against their attorney Glasgow, the nature of which was not disclosed.

In the instant case, the court below entered judgment for the Halls against the insolvent Prospect Properties, Inc., and judgment in favor of defendant Milton Barlow, from which judgment the Halls have appealed.

The lower court predicated its finding for Milton Barlow on two premises: first, the running of limitations and second, that the Halls...