Commercial Building & Loan Ass'n v. Robinson ( 1900 )

I concur with the views expressed by the Court upon the two main questions, that the covenant of the mortgagor to pay ground rent and taxes on leasehold mortgaged premises runs with the land, so that the mortgagee may sue the assignee of the mortgagor for breach occurring while he held the equity of redemption, and that the mere fact that the lien of the mortgage is extinguished by foreclosure, does not extinguish the covenant, but I do not concur in the refusal to allow the appellant to recover the instalment falling due July 1st, 1897, nor in the disposition made of the whole case, and I shall therefore give expression to the views which I entertain.

The record does not contain a copy of the mortgage, but he appellant caused a copy to be printed in his brief, together with the opinion of the Court below, which was also omitted from the record. There was no averment in the bill that the mortgage contained the usual clause that until default made, the mortgagor and his assigns should retain possession of the mortgaged property, and because of this defect in the bill, and the absence of a copy of the mortgage in the record to supply this defect, the demurrer is held by the Court to have been properly sustained. But at the argument of the case in this Court, it was agreed by counsel, as I distinctly remember, that as the questions presented were important, and that, as shown by the opinion of the Court below, the case was heard and determined upon its merits, that the copy of the mortgage printed in the brief should be considered as if incorporated in the record. Had it been so treated, it follows, from the views expressed by the Court, that the demurrer should have been overruled, and the decree dismissing the bill reversed, and in view of the agreement referred to, I am not able to concur in the disposition of the case as determined by the Court.

The legal principles involved, though artificial, are well settled, and the difficulty in the case is found in their correct application. These principles are stated with great clearness by Mr. Platt in his work on Covenants, (L.L. Vol. 18, side page 490) to which reference may be made for a most instructive exposition of the law upon that head, reproducing only a single line which states the fundamental proposition to be kept in view; viz., that "the assignee's obligation to perform the covenants running with the land, arises and endures, solely on the score of privity of estate." This Court has often illustrated this principle as in Hintze v.Thomas, 7 Md. 346; Donelson v. Polk, 64 Md. 501 and other cases. Mr. Platt also observes on page 465 that "by far the greatest number of cases regarding the liability of assignees (upon covenants) has arisen on demise of leaseholds," but it does not follow that the same privity of estate, which is requisite in those cases, may not exist between parties in other relations than those arising upon a mere assignment of leasehold estate. Indeed it is common knowledge that there is privity of estate growing out of other relations, and no satisfactory reason can be adduced for holding that it does not exist between mortgagor and mortgagee. On the contrary Mr. Coote in that division of his work on Mortgages, L.L. Vol. 3, side page 326, 327, which treats of privity, says: "The rights, powers, and interests of mortgagor and mortgagee are in many instances grounded on their respective estates in the land; * * * * * and it may under some circumstances become essential to ascertain whether there is at common law, any, and what privity of estate between the parties, * * * * It is with deference suggested that so long as themortgagor or his heir is in possession of the land, and the legal ownership is in the mortgagee, there must subsist a tenancy between the parties; otherwise the mortgagor or his heir must hold in fee and as disseisor, * * * * The mortgagor inpossession must hold of some one, and to say that his possession is that of mortgagor, is in fact leaving the question undecided." In Jamieson v. Bruce, 6 G. J. 74, the Court speaks of the mortgagor in possession as "the mortgagee's tenant." And inGeorges Creek Coal Co. v. Detmold, 1 Md. 237, Mr. Coote's doctrine was distinctly announced, and the covenant for possession by the mortgagor was declared to be a redemise; and that decision was confirmed and extended in the recent case of Richardson v. Balt. Del. R.R. Co.,89 Md. 126. Nor is the relation of landlord and tenant, which thus exists between mortgagee and mortgagor, necessarily terminated by mere default. It continues until actual entry by the mortgagee, or other legal dispossession of the mortgagor. That was the very point raised and decided in Richardson's case, supra, where a mortgagor after default made was allowed to recover in ejectment against a third party who had entered as a trespasser, and that decision is a striking indication of the spirit which guides the Courts of this period in dealing with questions of this character. The relation of landlord and tenant between the appellant and Blay being thus established, their privity of estate follows as a necessary consequence, and when he conveyed to the appellee his equity of redemption, he divested himself of his privity of estate with the appellant and transferred it to the appellee. Blay's covenant with the appellant to pay all ground rent and taxes for which the property mortgaged should become liable, when payable, was inserted in the mortgage for the benefit of the mortgagee, and became one of the terms and conditions of the redemise to Blay, operated by the covenant for possession until default. When Blay assigned to Robinson, he transferred to him his privity of estate with the appellant, and by reason of that privity, Robinson became liable to Hunting for every breach occurring during his holding of the estate, for which Blay would have been liable if he had not assigned. Blay's covenant in the mortgage was made with the owner of the legal estate of the leasehold. It was made for the benefit of the covenantee in his holding of that estate, and cannot properly be regarded as a collateral covenant.

In Smith's Leading Cases, vol. 1, part 1, 7th American Edition, note to Spencer's Case, side page 140, it is said to be settled "that when the relation of tenure is created by a grant, all the covenants of the grantee for himself and his assignees which affect the land granted, will be a charge on it, and bind every one to whom it may come by assignment." And it follows from what has been said that Blay's covenant with the appellant to pay the ground rent and taxes must be regarded as made in his capacity of grantee under the redemise, and it has been repeatedly held in this State that covenants for payment of rent and taxes under ordinary leases run with the land. Mayhew v. Hardesty, 8 Md. 479; Lester v. Hardesty, 29 Md. 50;Worthington v. Cooke, 52 Md. 309; Donelson v. Polk,64 Md. 501.

In Post v. Kearney, 2 Comstock, 394, the covenant was to pay all rates, taxes and assessments imposed upon the premises. An assessment of $700 was imposed under the statute relating to the opening of streets, and the Court said: "This covenant affected the value, and the mode of enjoying the demised premises. It was more than a covenant collateral to the land, and was, therefore, assignable." Mr. Washburn in his work on RealProperty, vol. 2, p. 14, says "covenants which form a part of the consideration for which the land, or some part of it, is parted with, between the covenantor and the covenantee, run with the land." Blay's covenant with the appellant formed part of the consideration for which it parted, under the redemise, with its right of possession as mortgagee. It was upon this principle that the case of Norman v. Wells, 17 Wendell, 136, was decided, and which carried the power of covenants to run with the land to the extremest limit allowed by law, extending the rule to a covenant not to erect another mill on land in the neighborhood which defendant had leased, because the covenant was to be performed for the benefit of the estate demised, though not relating to it, and to be performed off of it. I am not to be understood as adopting all that was said in that case, and cite it only to show the principle upon which I think the covenant in this case is fairly brought within the rule stated by Mr. Washburn.

In Masury v. Southworth, 9 Ohio St. 340, the Court said:

"The real question must be, the covenant being one which may be annexed to the estate and run with the land, whether such was the intention of the parties." And in view of all the authorities, which I have examined, I am clear in the conclusion that this is a covenant which may and which the parties intended should run with the land. There is no conflict or inconsistency between this view and the decision in Glenn v.Canby, 24 Md. 127, where the covenant to pay the mortgage debt was held not to run with the land. There was a covenant also in that case to pay the insurance and taxes, and the Court was careful not to embrace within the scope of the decision that covenant, which had by former decisions of this Court been held to run with the land; as to taxes in the cases heretofore cited, and as to insurance, in Thomas v. Von Kapff, 6 G. J. 372. The decision in 24th Md. was put distinctly and exclusively upon the ground that the debt of the mortgagor was a mere personal liability, not relating to nor affecting the condition, quality or value of the land, and that performance of the covenant would at once divest the covenantees of their interest in the land, so that the covenant by its very nature was incapable of adhering to and passing with the land. But the taxes and ground rent here are not debts of the mortgagor at all, except as they become such by their assumption under his covenant, and the performance of that covenant for their payment, would not divest the covenantee of its interest in the land, but would enhance its value as security for the mortgage debt by extinguishing, to that extent, a paramount charge upon the land. In 24th Md., the Court stated that privity of estate was a fundamental requisite to the right of recovery, but it did not intimate any absence of such privity. It did set forth the particulars in which the covenant failed to meet the requirements of the law in order to run with the land, and the inference is strong that if the covenant for taxes and insurance had been the subject of the suit, it would have been enforced against the assignee of the mortgagor. What has been said, I think, sufficiently answers the first ground taken by the learned judge below, that the covenant for taxes and ground rent is subordinate to and collateral with the covenant for the mortgage debt, and that if the latter cannot run with the land, neither can the former.

The second ground taken by the Court below was that the mortgage had been extinguished by the foreclosure sale, and that the vitality of all the covenants had been necessarily destroyed thereby. The authority relied on for this position is Hitchcock v. Merrick, 18 Wis. 361. That case is cited in 1 Jones onMortgages, sec. 77, to sustain the statement that such a covenant cannot be enforced after the debt is discharged, and that the effect upon the covenant is the same, whether the mortgagor voluntarily pays the mortgage debt, or whether it ispaid by the mortgagee buying in the mortgaged premises at a foreclosure sale, but it is manifest in either case, that fullpayment of the debt is meant, since only after full payment, the mortgagee could have no interest in, or right under the covenant, the sole purpose of which was to protect the security held in the land for the mortgage debt. But here the mortgage debt has not been paid, either by foreclosure, or by voluntary payment of the deficiency after foreclosure. The bill avers, and the demurrer admits, that Keech, the trustee, under the decree, "sold the mortgaged premises to Allen D. Crutchfield for the sum of seven hundred dollars, which sum was grossly insufficient to pay the mortgage debt." It is therefore clear that the appellant couldnow maintain an action against Blay upon his covenant to pay the mortgage debt, and that the mortgage is not extinguished as a result of the foreclosure sale, and the Court below was therefore incorrect in stating, as it did, that "if effect were given to appellant's contention, it would be to raise a subordinate covenant of the collateral to a higher position than the main covenant." Neither the covenant to pay the mortgage debt, nor the covenant to pay the ground rent and taxes, have lost their vitality. Both are still in existence and of the same binding force now as before the sale. It may be presumed, that the mortgagor, Blay, is insolvent, or the appellant would have resorted to his covenant to pay the mortgage debt, but insolvency, if he be insolvent, cannot change the character or quality of the covenant, or destroy an existing right of action thereon. Though he be insolvent, to-day, he may be solvent to-morrow, and the appellant cannot be deprived of its right to reduce its cause of action to judgment, and await the contingency of future realization. If that covenant be enforceable now, the covenant for payment of ground rent and taxes must also be enforceable now — and if it ever bound the appellee it must continue to bind him now. Moreover, an examination of the case ofHitchcock v. Merrick, supra, shows that after purchase by the mortgagee at foreclosure sale, and before suit brought on thecovenant, the mortgagor voluntarily paid the deficiency. The mortgagee was afterwards obliged to redeem the premises, which were sold for certain taxes assessed upon them between the execution of the mortgage and the foreclosure sale, and the Wisconsin Court held that as the whole mortgage debt was paid, the covenants designed for its security were gone. It does not appear, that it would have so held, if the whole mortgage debthad not been paid. But if it be assumed that such would have been held by that Court, the decisions elsewhere upon that point are not in accord with that view. In Lockwood v. Sturtevant,6 Conn. 382, it was held "even where the mortgage debt was extinguished, the mortgage still remains in force notwithstanding, and of consequence the covenants to secure that title;" And in White v. Whitney, 3 Metcalf, 81, it was held likewise, CHIEF JUSTICE SHAW saying that a conveyance of an equity of redemption is of an estate to which covenants real can be annexed, and that where such an estate is conveyed, and the grantor covenants to pay off and discharge the mortgage, and does so, "still the covenants in futuro, and all covenants runningwith the land continue to be operative." Art. 16, § 187 of the Code, referred to by the Circuit Court as authorizing a personal decree against the mortgagor for any deficiency on sale, was obviously enacted to avoid the delay and expense incident to a separate suit upon the covenant, and the remedy is cumulative. That section can in no manner affect the question whether the covenant runs with the land, or whether it is extinguished by foreclosure without payment in full of the mortgage debt.

In Barron v. Whiteside decided in this Court June 21st, 1899, 89 Md. 448, taxes and ground rent were allowed a mortgagee, under a similar covenant, as against the assignee of a mortgagor, under a deed of trust for the benefit of creditors, and while that case is not necessarily decisive of the present case, I think the principles by which we were there controlled lead naturally to the conclusion reached here.

I am informed that there has not been uniformity of opinion upon this question among the members of the Supreme Bench of Baltimore City one of the Judges having heretofore decided adversely to the views expressed by Judge Stockbridge, a case in all respects similar to this, except that there the bill alleged that the mortgaged premises were insufficient in value to satisfy the debt, should foreclosure proceedings be taken, and that plaintiff's security for her debt had been impaired by the wrongful act of the defendant in not paying the ground rent and taxes. The alleged insufficiency was established by testimony, and a personal decree was granted for the amount of the taxes and ground rent which defendant should have paid. Here the insufficiency is established, not by testimony of market value but as the result of actual sale. I cannot discriminate that case from this upon any sound legal principle.

The Court holds that the appellee cannot be made responsible to the appellant for the ground rent falling due July 1st, 1897, because default had been previously made in the non-payment of the instalment falling due January 1st, 1897, and because on that default, the term passed out of the appellee into the appellant, and the appellant, and not the appellee, was liable for the ground rent; and this is held to be the necessary result of the decision in Mayhew v. Hardesty, 8 Md. 479. But that was a case in which the assignee of the original lessor sought to recover under a covenant in the lease, (not in a mortgage,) to keep up the insurance on the improvements on the demised premises, from Hardesty, who held a mortgage thereon from the assignees of the original lessees, after default made by Hardesty's mortgagor, and it was held that though Hardesty had never actually entered, yet the effect of the default, (as between Mayhew and Hardesty,) was to pass the whole legal estate to Hardesty and that he thereby became liable to Mayhew on the real covenants. I do not of course question the authority of that decision, and if this were a suit by Hunting, the original lessor, against Robinson, the appellee, I should concede that the appellant and not the appellee was liable to Hunting for the unpaid ground rent accruing after default made under the mortgage. The original lessor has always a double remedy for his ground rent and taxes, one founded on privity of contract, against the original lessee, and another founded on privity of estate against him in whom, from time to time, the term may be vested, for such default as occurs during his holding of the term.

But I cannot perceive how it follows from this that the appellant cannot recover from the appellee, as assignee of Blay and under Blay's covenant in the mortgage, ground rent which accrued during the appellee's occupation and enjoyment of the premises. The fact that the appellant had become liable to Hunting under the covenant in the lease for this very ground rent, only by reason of the breach of the covenant in the mortgage made by Blay himself and his assigns with the appellant, to pay such ground rent, should, in my opinion, be a strong reason for sustaining instead of destroying his recourse to that covenant made with him alone, and for the specific purpose of protecting his mortgage debt against default in the payment of said ground rent either by Blay or any assignee of Blay in actual lawful possession of the mortgaged premises as the appellee was. The covenant in the mortgage was in effect a covenant of indemnity against any loss to the appellant by reason of default in the payment of said ground rent concurrent with the occupation and enjoyment by the appellee of the mortgaged premises. I do not perceive that this covenant in the mortgage can be impaired by the fact that upon appellee's default under the mortgage the term passed from him to the appellant, and that the appellant thereby became liable to Hunting under the covenant in the lease.

If it was in accordance with sound legal principles, as I believe it was, to hold in Richardson v. Balt. Del. BayR.R., supra, after default made by a mortgagor, where by the terms of the mortgage notice was required to be given before enforcing the remedy for default, that the mortgagor is nevertheless entitled to maintain an action of ejectment against those relying simply on the mortgage, why should it not be equally in accordance with sound legal principles to maintain the right of action upon the mortgagor's covenant in this mortgage, the mortgagor, notwithstanding the default, being still in the possession and enjoyment of the estate. If the mortgagor in possession after default, is to enjoy the privileges of ownership, why should he not also bear the burden? We said in Richardson's case "The mortgagor, when there is a covenant for redemise, is regarded both at law and in equity as the substantial owner of the property and if there be a redemise of the property by which the legal title and right to possession are vested in the mortgagor until default, can there be any reason why these rights cannot be continued, even after default, by agreement of the parties?" Here the mortgagor, after default, by tacit agreement was allowed to continue in possession until another default was made, and could have maintained ejectment under such possession, and I am unable to see why he should not continue liable to the appellant under his covenant with him until actually dispossessed. I think the decree should be reversed and the cause be remanded for further proceedings.

(Filed February 16th, 1900).