Nelson v. Hagerstown Bank

Ciuor, J., delivered the opinion of this Court. The controversy in this case grows out of the conflicting claims of the creditors of Thomas Buchanan, late of Washington County, deceased. It appears from the record, that in June, 1851, Thomas Buchanan purchased the Hagerstown Foundry from James R. Jones, and on the 27th of that month mortgaged it, together with “all his interest in all the real estate ” of his grandfather, the late Judge Thomas Buchanan, to Jones, to secure the payment of five thousand seven hundred dollars, with interest. His interest in his grandfather’s real estate consisted of one twenty-fifth part thereof as devisee under his grandfather’s will. It appears that he died about the 7th of March, 1854, leaving personal assets which were administered by his sister, Harriet Dugan, and Mr. George Schley, but which were totally insufficient to pay his debts. Judge Buchanan’s real estate had been sold by J. Dixon Roman, as trustee, under a decree passed in October, 1853, but the sale had not been ratified before his death. His interest in that estate amounted to 03,678.12, which remained in the hands of the trustee, audited to Thomas Buchanan. On the 24th of April, 1857, the appellees, for themselves and all other creditors of said Thomas, treating this fund as real estate, filed a — 68 — bill against Mrs. Harriet Dugan and her husband, Mrs. Dugan being his sister and his only heir at law, and against Mrs. Dugan and Mr. George Schley, his administrators, and J. Dixon Roman, the trustee, asking that this money might be applied to the payment of their debts, alleging the insufficiency of the personal assets. The claims of the creditors who filed, accrued between the 30th of November, 1853, and the 10th of January, 1851, as appeared by the exhibits filed with the bill, and amounted in the aggregate to a sum of money more than the amount in controversy. The answers of the administrators admitted the insufficiency of the assets of the personal estate of the intestate, to pay his debts. Roman admitted he had the fund as stated, and Dugan and his wife admitted that Mrs. Dugan was his only heir at law, that his estate was insolvent and totally insufficient to pay his debts, and believed that he was indebted to the complainants as stated, but they say they are advised that the said Thomas Buchanan in his lifetime being largely indebted,to 'Miss Charlotte J. Nelson, and intending to secure her in her just debt, did, on the-day of-, execute and deliver to her a deed of all his interest imthe real estate whereof his father, the late Judge Thomas Buchanan, died, seized and possessed, and although said deed was not recorded as required by the Acts of Assembly, they are advised that in a Court of Equity it will be regarded as an equitable deed, and entitled the said Charlotte J. Nelson to the benefit of the same, and made the deed an exhibit with their answer, which will be found in the record as a deed from Thomas Buchanan to Miss Nelson, dated February 2^11, 1851. After these •answers. were filed the Judge of the Circuit Court, at March Term, 1859, of the Court, passed a decree referring the case to the Auditor to take proof, and state such accounts as the parties might desire to-illustrate their claims. Under this reference the Auditor stated three — 69 — accounts, winch wore filed in this cause on the 19th of May, 1859. By the first account, the claim of Miss Nelson was rejected as a specific lien, but she was allowed to come in as a general creditor, receiving her proportion of the fund in controversy. On the 9th of June, 1859, the appellees, the complainants in the bill, filed their exceptions to the Auditor’s report, upon the ground that Miss Nelson’s claim was not proved, and full proof was demanded ; and -also upon the ground that it was completely barred by limitations which was plead and relied upon against the claim. Before the Court took any action on these exceptions, Miss Nelson, during the November Term, 1859, of the Court, filed her petition asking that her claim might be set up on the footing of an equitable mortgage, to be considered and treated as a preferred lien upon the fund, by reason of the conveyance relied on by Dugan and wife, in connection with certain letters written by Thomas Buchanan to her and others. After proof was taken to authenticate the letters and documents relied on, the case was set down for final hearing, and the claim of Miss Nelson was rejected as a preferred lien, but allowed as a general creditor by the Circuit Court of Washington County. From the decree of the Court Miss Nelson appealed, because she was not allowed a preference, and the Hagerstown Bank and other creditors appealed because she was allowed a distributive share of the fund. We have, therefore, to review the decree and determine whether Miss Nelson was entitled to have her claim allowed in either aspect. We agree with the Circuit Court that the estate of Thomas Buchanan had not been converted from realty into personalty at the time of his death, as the sale of Roman, as trustee, had not been ratified. The fund in controversy is,- therefore, to be treated as assets from the sale of real estate, and distributed as such to his creditors. In this case we are asked specifically to — 70 — enforce, set up and sustain a secret agreement to execute a mortgage between a nephew and his aunt, and to give to the aunt, in virtue of that secret agreement, the entire fund now in controversy. The rule that equity regards as done that which was agreed to be done, it is admitted will authorize an agreement to execute a mortgage to be treated in equity as a mortgage, provided it can be done consistently with the rights and equities of others, and in a reasonable time after the alleged promise was made. But a Court of Equity will not enforce a specific performance of a contract for a mortgage on real estate, unless the contract is plain, explicit, and in writing, for rvhere there is doubt created on the mind of the Court, no relief will be granted. Does the evidence in this case manifest with sufficient certainty an agreement on,the part of Thomas Buchanan to secure the money advanced to him by his aunt by a mortgage of his interest in his grandfather’s real estate ? For the purpose of establishing such an agreement Miss Nelson has relied on certain papers and letters executed and written by Thomas Buchanan in his lifetime. The first is a paper signed by him, dated the 27th of February, 1851, but not acknowledged and recorded, by which, for the consideration of $8,200, he conveyed to her “all his share of and interest into any and all property of what kind or nature soever, which was given, devised and bequeathed to his father, James A. Buchanan, late of Washington County, deceased, by and under the iast will and testament of his grandfather, Judge Thomas Buchanan.” From an examination of that conveyance, in connection with the will of Judge Thomas Buchanan, and the fact that his father, James A. Buchanan, died years before his grandfather made the will, we must conclude he" designed, at the time he signed this instrument, to transfer to his aunt the interest he had acquired in his grandfather’s estate ; we will not impute to him bad faith — 71 — and fraud in the description of the property, as a Court of Equity never assumes fraud. We are of opinion that he made a mistake in the manner of the devolution of the interest attempted to be conveyed, and on an application to a-Court of Equity the deed would have been reformed to carry out the intention of the party. No application was ever made to reform the deed or make it valid and operative, and from the subsequent correspondence of the parties in reference to security for the money loaned or about to be loaned, we may infer that this instrument, thus defectively executed, was not regarded as sufficient security by her and her legal adviser, yet she appears to have retained and preserved it, and we suppose as evidence of the indebtedness of her nephew to her, in which character we shall have occasion to consider it in a subsequent part of this opinion. Another paper was introduced as evidence, in connection with the letters, of a promise or intention to mortgage, and that was an unexecuted mortgage, prepared, at his. request, by Mr. Clagett, sometime in the year 1851, by which he conveyed all his interest in the property in controversy to Miss Nelson, but this deed was never called for or paid for by Thomas Buchanan, as the witness states, and was delivered, many years after his death, to Miss Nelson’s counsel. As this mortgage was not written by Thomas Buchanan, and was not seen by him, a Court of Equity would not enforce such a contract, unless it ivas sustained by other evidence than the mere parol proof of Mr. Clagett, who says he was requested to draw it by Mr. Buchanan, but it is contended by the learned counsel for the appellant that the correspondence, taken in connection with this mortgage, establishes the contract relied on and sought -to be enforced. All the letters in evidence to prove the contract were written between the 24th of October, 1850, and 30th of June, 1851 ; they furnish the most conclusive proof that the nephew wanted the use of the — 72 — aunt's money, was importunate to obtain it, and finally received from her three thousand two hundred dollars, to secure which a mortgage was contemplated to” he executed, but the terms were not agreed upon, when he addressed to herjon the 16th of June, 1851, a most loving and earnest letter, suggesting strong reasons for not executing a mortgage, as it would be calculated to impair his credit, with assurances that her money would be safe, and indicating how it would be paid. Most of the money advanced to him was after this letter, and no subsequent letter is produced to her from him. Prom their mutual silence we may infer that she thought the investment perfectly- safe without the mortgage. The counsel for the appellees insisted that all this evidence was not sufficient under the fourth section of the Statute of Prauds to establish a contract for a mortgage on real estate, whilst it was earnestly contended by the counsel for the appellant that it was too late to object to the character and sufficiency of the evidence, where no exceptions to it had been taken by the appellees in the Court below. The view which we have taken of this case dispenses with the necessity of determining these questions, for assuming the promise to execute a mortgage on real estate to be proved as required by the Statute of Prauds and the terms of the contract established, against whom are we called oh to set it up and enforce it ? Not against Thomas Buchanan, he is not alive to give an explanation of his conduct and vindicate himself from the imputation of bad faith or gross negligence ; not against his heirs at law, for his only heir says she has no interest in it, his estate being insolvent; not against creditors existing at the time of the promise ; but we are asked to set it up against subsequent creditors, who, during the lifetime of Thomas Buchanan, and up to the time of his decease, so far as they had any possible means of judging, considered him the real and bona fide owner' of this very property, for Mr. Roman swears that — 73 — lie promised to give them a mortgage on the same property. As an authority to justify us in enforcing this specific lien, we have been referred to the case of Alexander vs. Ghiselin, 5 Gill, 138. In that case the contract sought to be enforced was of a recent date, and the equity of the strongest character, appealing to the conscience of the Court, Mrs. Ghiselin having released her valid mortgage on real estate in favor of Mr. Glenn, on the assurance by Mr. Ghiselin that he would secure her money by a mortgage on his negro property. It was a struggle for priority between Mr. Alexander and the existing creditors of Ghiselin, and Mr. Alexander having used more diligence obtained a promise from Mr. Ghiselin to give the mortgages to secure the debts, and which this Court decreed to be specifically performed. But this is a case of subsequent creditors, for whose benefit the Registry laws were enacted, and comes within the principles of the decision of this Court in the case of the General Insurance Company vs. The United States Insurance Company, 10 Md. Rep., 517. Speaking of the Registry laws, the learned Judge says “they were designed to avoid abuses and deceits by mortgages, and pretended titles, and for the protection of creditors and purchasers, and should be construed so as to effect that end.” In addition to the Registry laws the Legislature, by the Act of 1846, chapter 271, required the mortgagee to attach to his mortgage, at the time of its execution, an affidavit that the consideration mentioned was true and bona fide, designed, no doubt, to protect the public from fraudulent transfers in the nature of mortgages and secret sales. This Act was subsequent to the contract of Alexander and Ghiselin, and has received a judicial interpretation in the case of Cockey vs. Milne’s lessee, 16 Md. Rep., 200 ; in delivering the opinion of the Court Justice Bartol says : “In our opinion it was designed not merely for the prevention of fraud, but for the benefit of credi — 74 — tors, who may claim against such an instrument as void in law under the Act, however the question of actual fraud rhay stand.” After this judicial exposition of the law as applicable to mortgages really executed, acknowledged and recorded, without the affidavit being attached of the bona fides of the consideration, we think it our duty to declare that Courts of justice will not permit these laws, made for the prevention of fraud and the protection of purchasers and creditors, to be avoided by the substitution of a parol promise, or a written communication, that the party in possession of the property, and the ostensible owner of it, will at some indefinite period of time execute a mortgage on it. To sanction such an evasion of the law would be highly injurious to the public interest, in derogation of the rights of creditors, and well calculated to destroy confidence among commercial men. But the counsel for the appellees insist that if the appellant ever had an equity which she could enforce, she has lost it by limitations, laches, and lapse of time. What will be considered laches and lapse of time will depend upon the facts and circumstances of each particular case. In McKnight vs. Taylor, 1 Howard, 168, the Supreme Court said that it is not merely in analogy to the Statute of Limitations that a Court of Equity refuses to lend its aid to stale demands; there must be conscience, good faith, and reasonable diligence to call into action the powers of the Court. When these are wanting the Court is passive and does nothing; laches and .neglect are always discontinued. See Story’s Equity, 1520, Hanson and Wife et al. vs. Worthington et al., 12 Md. Rep., 418 ; Glenn, Adm’r de bonis non of Lindenberger, vs. Hebb’s Adm’r et al., 17 Md. Rep., 260. What, then, are the facts and peculiar circumstances of this case? Miss Nelson knew she had no mortgage, and is presumed to have known it as early as the 27th of June, 1851 ; at that time , her nephew had mortgaged the property to Jones ; that — 75 — lie was ostensibly the owner of the same, dealing with it as his own and contracting debts on the faith of his ownership of it, and though he lived nearly three years thereafter she made no demand for a mortgage, and no effort to enforce her claim by any proceedings, either at law or in equity. We find no evidence in the record of the payment of any interest to her on account of the debt, or any demand on her part for the payment of the debt and interés!. After his decease, there is no evidence that she took any action to have her claim established as a debt entitled to preference and priority, and this Court, in the case of Clabaugh and Landers vs. Byerly, 7 Gill, 358, held that a party had lost his equity by delaying to file his bill in one year and five months. See also White vs. White, 1 Md. Ch. Dec., 53 ; Hertle vs. McDonald, 2 Md. Ch. Dec., 128 ; Chew vs. Farmers’ Bank of Maryland, 2 Md. Ch. Dec., 231 ; Hughes vs. Jones, 2 Md. Ch. Dec., 289. Miss Nelson has not attempted to account for or excuse her delay. As she has slept upon her rights and not used reasonable diligence to enforce them, the subsequent creditors have very properly relied on laches and lapse of time to defeat her secret equity. Our next duty is to review the appeal taken by the Hagerstown Bank and other creditors against allowing Miss Nelson a share of the fund in controversy as a general creditor. Miss Nelson advanced to her nephew three thousand two hundred dollars ; to that amount she is a creditor, entiled to a pro rata share of the assets, unless her claim is barred by the Statute of Limitations. The Circuit Court allowed it, notwithstanding the plea, and we approve of the decision. The instrument executed by Thomas Buchanan on the 27th of February, 1851, we have said would have been referred on application to a Court of Equity to carry out the bona fide intention of the assignor and made valid and operative to the assignee, provided the application had been made in a reasonable — 76 — time, and not to operate to the prejudice of subsequent creditors. We have said that we thought it inconsistent with the rights of subsequent creditors to decree a specific performance of the contract set up by Miss Nelson, but we are of opinion she ought to be considered a creditor to the amount of her advances made on the faith of the promise of her nephew and the instrument defectively executed, .being of opinion that the circumstances will justify this species of relief under the principle recognized in 1 White & Tudor’s Leading Cases in Equity, 527, where it is said, “ When the specific execution of a parol agreement cannot be decreed, in consequence of the uncertainty in the terms, or of the statute being relied on, the Court will, if there is no remedy at law, or it is uncertain or embarassed, or' under circumstances of special equity, decree compensation to the extent- of the purchase money paid.” See the cases there cited, and also King’s Heirs and others vs. Thompson and Wife, 9 Peter’s S. C. Rep., 218. We consider and recognize this defectively executed instrument as evidence of an indebtedness under the hand and seal of Thomas Buchanan to his aunt, and as the assignment and transfer proved inoperative, and she received nothing by virtue of it, she has for the amount of money'advanced a bona fide and subsisting debt against the estate of Thomas Buchanan, and as her claim was filed before the expiration of twelve years she is not affected by the Statute of Limitations. On the appeal of the Hagerstown Bank and other creditors, we affirm the decree of the Circuit Court. We concur with the Circuit Judge, that Mr. Roman, the trustee, under all the facts and circumstances, is only answerable for the amount of interest received by him. We will sign a decree affirming the decree of the Circuit Court of Washington County on both appeals. The costs to be equally divided and paid by the appellant and appellees, and the cause — 77 — remanded, to be settled in conformity to the views expressed in this opinion. (Decided 17th May, 1867.) Decree affirmed and cause remanded.