Riggs Nat. Bank of Washington, D.C. v. Wines

• Decision Date: 15 May 1984
• Docket Number: No. 1291,1291
• Citation: Riggs Nat. Bank of Washington, D.C. v. Wines, 474 A.2d 1360, 59 Md.App. 219 (Md. App. 1984)
• Parties: The RIGGS NATIONAL BANK OF WASHINGTON, D.C. et al. v. Robert Horace WINES and Willam F. Lake, Trustees. Sept. Term 1983.
• Court: Court of Special Appeals of Maryland

Page 219

59 Md.App. 219

474 A.2d 1360

The RIGGS NATIONAL BANK OF WASHINGTON, D.C. et al. v.Robert Horace WINES and Willam F. Lake, Trustees.

No. 1291 Sept. Term 1983.

Court of Special Appeals of Maryland.

May 15, 1984.

G. Vann Canada, Jr., Rockville, for appellants.

Joseph V. Truhe, Jr., Rockville, with whom were Miller, Miller & Canby, Rockville, on brief, for appellees.

Argued before MOYLAN, WILNER and BISHOP, JJ.

WILNER, Judge.

On or about October 8, 1976, Juliet D. Wines and Louise P. Lake sold a certain tract of land in Montgomery County to The Greenberg Company.Part of the purchase price--$55,000--was to be paid over a five-year period, that obligation being evidenced by a promissory note and secured by a purchase money deed of trust on the property.

The deed of trust, dated October 8, 1976, recites the debt, describes the property, and provides, in relevant part: "The lien hereof shall be subordinate to the lien of any Deed of Trust or Mortgage from a recognized lending institution, the proceeds of which are to be applied to the erection of improvements on property herein described."(Emphasis supplied.)

The instrument named Robert W. Lebling and S. David Elling as trustees for Ms. Wines and Ms. Lake.It provided, finally, that any default by the debtors in the payment of any prior lien would cause the entire debt to mature and permit immediate foreclosure.

On June 18, 1980, Montgomery Knolls II Limited Partnership(MKLP), which had succeeded Greenberg in title, executed a note and deed of trust in favor of The Riggs National Bank of Washington, D.C. (Riggs) to evidence and secure a construction loan in the amount of $1,620,000.Although the deed of trust is not in the record before us, we are informed that it covered not only the land purchased from Wines and Lake but an adjacent lot as well.The record does not reveal the exact size of the adjoining lot, although it was apparently larger than the lot purchased from Wines and Lake.The record also fails to indicate whether there were any other encumbrances upon the adjoining lot.James L. Trimble and Jerome P. Griffin were named as trustees for Riggs.

Contemporaneously with the execution of the note and deed of trust to Riggs, MKLP and the respective trustees under the two deeds of trust (Trimble, Griffin, Lebling, and Elling) entered into a subordination agreement which provided, in relevant part, that

"the lien of the Deed of Trust dated October 8, 1976 ... from [sic, to]Robert W. Lebling and S. David Elling, Trustees, securing Juliet D. Wines and Louise P. Lake ... shall be, and the same is hereby agreed to be junior and subordinate to the lien of [the Riggs deed of trust] securing [Riggs] in the full principal sum of [$1,620,000]."

This subordination agreement had been drafted by Riggs' counsel and was sent to Lebling along with a subdivision plat.

The subdivision plat, which had been signed by all four trustees--Lebling and Elling on behalf of Wines and Lake and Trimble and Griffin on behalf of Riggs--showed the combination of both parcels, without separate designation, subdivided into 24 lots.The plat is dated March 14, 1980, and was recorded June 16, 1980.

On November 5, 1981, Wines and Lake filed an action at law in the Circuit Court for Montgomery County against Riggs, MKLP, and an MKLP general partner alleging fraud, breach of contract, and negligence with respect to the June 18, 1980, subordination agreement and seeking money damages.The essence of this action was that the plaintiffs, through their trustees, agreed to subordinate their deed of trust to that running in favor of Riggs upon the representation and understanding that the proceeds of the Riggs loan would be used exclusively for the construction of improvements on the property secured by their deed of trust, and that Riggs instead permitted the proceeds to be used to finance construction on other property.

The same day, Lebling and Elling commenced a foreclosure proceeding under the Wines-Lake deed of trust.As part of that proceeding, they filed a petition asking the court to declare the lien of that deed of trust superior to the lien of the Riggs deed of trust.They sought to adopt, in this petition, the averments made in the Wines-Lake declaration filed on the law side of the court, a copy of which was attached as an exhibit.Eventually, Robert Wines and William Lake were appointed as substitute trustees, replacing Lebling and Elling.

While these proceedings were pending, Riggs foreclosed on its deed of trust and sold the combined properties.The fight then presumably centered on the proceeds from the sale.On August 29, 1983, the court entered an order in the equity proceeding granting Wines' and Lake's motion for summary judgment and declaring that (1) the June, 1980 subordination agreement is null and void, and (2) the lien of their deed of trust is senior to that of Riggs.The motion was based largely on a Virginia case, First Funding Corporation v. Birge, 220 Va. 326, 257 S.E.2d 861(1979).

Riggs has appealed, contending that the Virginia case is not apposite, that the court"made findings of fact not supported by the record," and that the court erred in finding that Lebling and Elling exceeded their authority in entering into the subordination agreement.

In considering Riggs' complaint, we observe by way of preface that the court made no findings of fact, either in its order or at the hearing on appellees' motion.Nor did the court ever mention the Virginia case.The order, which simply made the two declarations noted, gave as a rationale "the reasons set forth in Plaintiffs' Motion."From the contentions made in that motion and at the argument on it it would seem that the court's order necessarily rested on sub silentio determinations that (1) the Wines-Lake deed of trust was intended to be subordinate to the Riggs lien only to the extent that the proceeds of the Riggs loan were used for improvements on the Wines-Lake property, (2)the trustees had no authority to enlarge that subordination, and (3) the subsequent subordination agreement, by purporting to enlarge the subordination, was therefore ineffective.That was generally the subject matter of the Virginia case.

In First Funding Corp. v. Birge, the plaintiff Birge, by two separate contracts, sold two unimproved, non-contiguous lots to Quatmann, who planned to construct one house on each.Each contract called for a deed of trust to secure the note and required the trustees thereunder "to subordinate the said deed of trust to any bona fide construction and/or permanent loan or loans placed from time to time upon the subject property or any portion or portions thereof, without curtailment and at no cost to Purchaser."An additional clause stated: "Seller also agrees to subordinate to a Construction Loan issued by an authori[z]ed lending institution."

At settlement, the two lots were conveyed to Quatmann by one deed, although separate notes and deeds of trust were executed to evidence and secure the respective deferred purchase money obligations.The obligation, in each case, was to become due in June, 1976"or upon the sale of the house to be constructed on the hereinbefore described property, whichever first occurs."Each deed of trust provided that "the lien of this deed of trust may be subordinated to any bona fide construction loan placed with a reputable lending institution without the necessity of joinder by the holder of the note."

Quatmann obtained a construction loan of $160,000 from First Funding Corporation.The loan was evidenced by one note and secured by one deed of trust on both lots.Birge's trustees(who happened to be members of the law firm that prepared the papers for First...