Milton Sommers, Inc. v. Equitable Bank, National Ass'n
Docket: No. 1346
Court: Court of Special Appeals of Maryland; July 8, 1988; Maryland; State Appellate Court
The case involves a dispute between Milton Sommers, Inc. and Equitable Bank regarding the priority of their respective claims on real property owned by Norman Whittington, who is not a party to the case. Equitable Bank had previously provided a commercial loan in 1978 secured by a mortgage on property owned by various partnerships, including Whittington. In 1982, Sommers obtained a confessed judgment against Whittington and Robert Chamberlin, totaling $104,466.68, later increasing to $152,713.21 after interest and fees, although Whittington was never served notice of this judgment.
In 1983, Equitable entered a Mortgage Modification Agreement with the mortgagors, which included additional security from land known as 'Long Farms,' owned solely by Whittington at that time. Sommers recorded the confessed judgment in Somerset County on May 3, 1982, while Equitable recorded its modification agreement on March 29, 1983.
Equitable subsequently filed a declaratory judgment action asserting that Sommers' judgment did not create a lien on 'Long Farms' since it was against a partnership and not Whittington personally, and/or that it was not a final judgment. The trial court found that Whittington had not been served notice of the confessed judgment, ruling in favor of Equitable, thus preventing Sommers from obtaining a superior lien on 'Long Farms' due to the lack of proper service as required by the rules.
The central issue is whether Equitable can challenge the Sommers judgment. Sommers contends that the rules governing confession of judgment aim to protect defendants by ensuring they receive notice, and these rules were not intended to allow subsequent mortgagees to contest priority. He references Newark Trust Co. v. Trimble to support that Rule 645 (now Rule 2-611) was designed for the benefit of debtor-defendants.
The ability of Equitable to mount a collateral attack on the judgment is restricted, primarily to situations where a lack of jurisdiction is evident on the record. A judgment from a court of general jurisdiction can only be contested for jurisdictional issues if they are apparent in the record. In this case, Whittington did not receive service of process, a point conceded by Sommers. Citing Fisher v. DeMarr, it is established that a judgment rendered without jurisdiction is void and can be directly or collaterally attacked by those affected, whereas a merely erroneous or voidable judgment is typically not subject to collateral attack.
Despite Equitable’s interests being negatively impacted if Sommers' lien on 'Long Farms' is valid, the court determined that it had jurisdiction. The procedural deficiencies in the case rendered the judgment merely erroneous or voidable, thus not open to collateral attack. Additionally, the mortgage note included a 'warrant of attorney' clause, allowing for the confession of judgment without notice or trial by jury, further complicating Equitable's position.
Judgment was entered against 'Norman T. Whittington, Jr. and Robert L. Chamberlin Jr. Co-partners trading as Shores Company and The Cameron Company.' According to 47 Am.Jur.2d Judgments, a court must have jurisdiction for a judgment to be valid, including judgments by confession. The principle presumes that a court of general jurisdiction acted properly unless proven otherwise. In Maryland, this presumption applies, and compliance with former Rule 645(a) was confirmed, which allows for judgment by confession without prior notice to the defendant. However, there was non-compliance with the notice requirement of section (b). This procedure does not inherently violate due process. The judgment becomes effective upon entry, based on the debtor's authorization in the note, and jurisdiction is established at that time. The judgment can only be attacked by the defendant-debtor for lack of notice, who must show a meritorious defense to open, modify, or vacate the judgment. The debtor, Whittington, acknowledged awareness of the judgment and made payments, indicating acquiescence. Therefore, while the notice deficiency exists, it does not invalidate the judgment unless the debtor presents a valid defense.
The Court's procedure outlined in *Tyrrell v. Hilton* establishes that a judgment deemed void due to lack of jurisdiction must be struck. However, the plaintiff's lien is preserved to protect against loss if they later prevail on the merits. This preservation aims to prevent harm to both parties, allowing the defendant an opportunity to plead any defenses. In the current case, a recorded judgment put Equitable on notice of its validity, regardless of Whittington's actions. Equitable's failure to conduct a judgment search or their decision to proceed with the 'Mortgage Modification Agreement' resulted in adverse consequences. The judgment was reversed, and the case was remanded for further proceedings, with costs assigned to the appellee.
Both parties acknowledged a valid prior deed of trust held by John Hancock Mutual Life Insurance Company, which is not involved in the current litigation. The trial's outcome will hinge on the priority of the parties' interests relative to John Hancock. Neither side called witnesses; Equitable sought a stipulation of facts, which Sommers did not agree to. Sommers did not object during the trial, thus the trial procedure stands unchallenged. The facts were distilled from submissions by counsel. Sommers accepted the validity of Equitable's mortgage and the recordation process. Although Transcontinental Mortgage Company had obtained a confessed judgment against Whittington, Sommers merged with Transcontinental and assumed its debts. Equitable did not contest Sommers' standing or the validity of the debt owed to him.
Sommers questioned the filing of an amended complaint, but docket entries indicated that Equitable filed both a 'Request for Leave' and the amended complaint, which added a new count. The trial court granted a continuance, shifting the trial date. Any procedural errors regarding the amended complaint were waived due to Sommers' lack of objection or argument during the trial, as per the relevant rules.
The trial court did not render a decision on Count I of the amended complaint. It acknowledged that Whittington and Chamberlin had been general partners in several businesses that failed financially starting in the mid-seventies, with their assets disposed of years prior. Because no ruling was made on Count I, the matter of whether Sommers’ confessed judgment was binding on Whittington in his individual capacity is not before the court, as per Rule 1085. Rule 2-611(d) mandates that if there is a substantial basis for an actual controversy regarding the merits, the court must open, modify, or vacate the judgment by confession and allow the defendant to respond. Former Rule 645(d) contained similar provisions, stating that if evidence showed substantial grounds for controversy, the judgment would be vacated or modified, allowing for a trial. The parties assumed that former Rule 645 governed the application of Sommers’ confessed judgment, although this assumption is not addressed, with the current Rule 2-611 and former Rule 645 noted as substantially similar.
