This appeal and cross-appeal arise out of a decision of the Court of Chancery which determined the priority of the conflicting claims of Guarantee Bank (Guarantee) and Magness Construction Co. (Magness) to the proceeds of a foreclosure sale of two parcels of land located in Mill Creek Hundred known as "Red Barn". Parcel I (improved parcel) consists of an improved parcel of land on which a restaurant formerly known as the Red Barn sits. Parcel II (unimproved parcel) is an undeveloped lot which sits across the street from Parcel I.
In 1975 Magness held a long term leasehold interest on the two parcels of land involved in this case. At this time, Magness agreed to sell this interest to one Francis Murray. The parties agreed upon a $400,000.00 purchase price with plaintiff agreeing to finance $150,000.00. The parties agreed that Magness would subordinate its purchase money mortgage to the lien of a later mortgage loan secured by Murray or Commercial Investments Corporation (C.I.C.) for certain specified purposes. The parties also agreed that Magness would take back as security a leasehold mortgage on the unimproved parcel (parcel II), and that a purchase money mortgage was to be extended to the improved parcel (parcel I) one year after closing. The relevant agreement provided in part:
On March 24, 1976 the parties went to settlement. Title was taken in the name of C.I.C., and C.I.C. gave Magness a mortgage for $150,000.00 on Parcel II (unimproved land). This mortgage was recorded on March 24, 1976.
The mortgage between Guarantee and C.I.C. was executed on March 22, 1977 and was recorded on March 23, 1977. Such mortgage covered both parcels of land and was taken to secure a note dated March 22, 1976 for the sum of $300,000 given by Francis Murray and his wife. Such monies were apparently loaned to Murray in order to fund his obligations under the original agreement for the sale of the land here in issue. Magness, however, was unaware that Murray had thus financed his down payment.
This $300,000.00 note was in large part unsecured except for the personal guarantees of one Charles Dooner and his wife, Carol Dooner. Such note was subject to demand at three month intervals. When the Dooners refused to guarantee payment at the March, 1977 interval because of Murray's poor financial condition Guarantee agreed to accept a mortgage on the property in question. This mortgage was duly recorded on March 23, 1977, one day before Magness proposed to extend its mortgage to Parcel I (improved land). When C.I.C. refused to execute the extension of Magness's mortgage to Parcel I, Magness filed this lawsuit. Magness impleaded Guarantee in order to challenge the priority of the Guarantee mortgage pursuant to the subordination cause.
While C.I.C. participated in the early stages of this case, it subsequently dropped out and was dismissed by the other parties. This was because Magness and Guarantee, notwithstanding the dispute as to priority, agreed to foreclose on the property. A subsequent Sheriff's sale was held with the proceeds being placed in escrow pending the outcome of this suit.
On May 21, 1982 Chancellor Marvel held that Magness had a first lien on Parcel II (unimproved parcel) and Guarantee had a first lien on Parcel I (improved land). On July 29, 1982 Chancellor Marvel entered an Order specifying that Magness was entitled to 34% of the escrow fund and Guarantee 66%.
The first issue we address is Magness's contention on cross-appeal that the Court of Chancery erred in finding that Guarantee had priority on Parcel I (improved land). Magness offers three arguments supporting its position.
First, Magness argues that by virtue of its original agreement with C.I.C. extending a mortgage to Parcel I a year after settlement and the equitable principle "an agreement to give a mortgage is a mortgage," it had an equitable lien on both properties well before March 24, 1977. This argument is without merit. "Where the obligee's own performance is still in the executory state, specific performance of a contract to make or to accept a loan to be secured by a mortgage will not be specifically enforced." Osborne on Mortgages, 2nd Ed. (1970) § 26 at p. 36. C.I.C.'s promise to give a mortgage on Parcel I was by its terms executory and could not have been specifically enforced until March 24, 1977. Hence Magness had no right to an equitable mortgage until March 24, 1977.
Magness next contends that it is entitled to priority since Guarantee was not a bona fide purchaser because Guarantee had notice of Magness's mortgage. This argument misconstrues the Delaware statute governing priority of mortgages, 25 Del.C. § 2106.
Magness next contends that Guarantee's mortgage fails because it was without consideration in that it covered an antecedent debt. As the Chancellor stated below that argument also fails:
Turning to Parcel II (unimproved parcel) we now address Guarantee's contention on appeal that the Chancellor erred in its ruling that Magness had priority. It is Guarantee's contention that it is entitled to first lien status on Parcel II by reason of the automatic subordination clause in the Magness mortgage which provides:
Relying on the language "to finance the Mortgagors, its Successors or Assigns, equity in the land hereinabove described and/or in the premises on which are presently located the restaurant facilities hereinabove mentioned," Guarantee argues that its lien falls within the automatic subordination provision. Magness disagrees arguing that this interpretation is inconsistent with (1) the nature and purpose of an agreement to subrogate a purpose money mortgage, (2) the intention of the parties, and (3) the terms of the agreement itself. It is unnecessary for us to construe the purpose of the agreement or the intention of the parties in that we find that the language of the subordination provision does not apply to loans made on behalf of Murray.
In construing the terms of a subordination clause in a purchase money mortgage Delaware law requires such
The remaining issues we address go to the Chancellor's determination that Guarantee was entitled to 66% of the escrow fund and Magness 34%. Both parties contend that the Chancellor erred.
Turning first to Guarantee's claim, it argues that the Chancellor erred in setting interest at 7% for each party and awarding counsel fees of 5% for each party. Guarantee argues that this is error because in the stipulated facts submitted by the parties prior to trial it was agreed that Magness' claim was for $150,000.00 plus 7% interest, without any reference to counsel fee and Guarantee's claim was for $300,000.00 plus 9% interest and 5% counsel fees. According to Guarantee, the Chancellor erred in limiting its interest to 7% and counsel fees to $15,000.00 where the 5% based on principal and interest due at the time of foreclosure would have been approximately $18,266.
When equity takes jurisdiction of a cause and decides that relief shall be granted, the relief, including damages, if any, will be tailored to suit the situation as it exists on the date the relief is granted and the choice of relief is largely a matter of discretion with the trial judge. Tenny v. Jacobs, Del.Supr., 240 A.2d 138, 140 (1968); Lynch v. Vickers, Del.Supr., 429 A.2d 497, 500 (1981); Wilmont Homes, Inc. v. Weiler, Del.Supr., 202 A.2d 576, 580 (1964); Bullen v. Davies, 209 A.2d 81, 85 (1965). Given that the parties stipulated to a single sale prior to a determination of priorities, instead of separate sales and that the parties will fully recover the amount of principle they each loaned, we cannot say that the Chancellor erred in fashioning the relief in the manner in which he did.
Implicit in our conclusion just reached is our rejection of Magness's argument that the Chancellor erred in failing to apportion the escrow fund in accordance with the appraised value of each parcel. Given that both parties agreed to a single sale and the property had been twice sold as a whole with no sale price established as to either individual parcel, we cannot say that the Chancellor abused his discretion in rejecting the testimony of valuation and ruling that there should be a pro rata distribution of the fund.
For the above stated reasons, the judgment of the Court of Chancery is