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By David H. Fishman
Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC
Baltimore, MD
March 17, 2009
This report attempts to gather all reported cases and important
unreported cases decided by the Maryland State and Federal
courts in the past calendar year in the area of “traditional”
real estate law. Detailed treatment is given to cases with
something interesting or amusing to say. Cases in the areas of
zoning, land use, insurance and torts usually are not included.
The year 2008 was marked by several important discussions of
areas which have not been talked about for many years, as well
as a couple of cases of first impression. Of particular note is
the Wildwood Medical Center case, which is a good
discussion of the law of partnership property, and the Gables
on Tuckerman Condominium case, a definitive opinion about
condominium casualty insurance. Both are worthy of close study.
An amusing case was Royal Investment Group in the Court
of Special Appeals, where a prospective purchaser of property
demolished the improvements on the property and built a new
house, but never went to closing.
As might have been expected, foreclosure cases got a lot of
attention in 2008, continuing into early 2009. Most of the
problems mentioned in the cases will be handled by the new
legislation passed by the 2008 session of the General Assembly
and the 2009 changes to the Maryland Rules, which go into effect
on May 1. In 2007, The Baltimore Sun made something of a
crusade out of the case of Mr. Atta Poku, neglecting to recite
most of the facts bearing on the equities in the case. This
vividly illustrates the famous quip by the late A.J. Liebling
that, “Freedom of the press is guaranteed only to he who owns
one.” The case was ended by the Court of Appeals’ decision on
January 10, 2008, which denied Mr. Poku’s claims. And in
February, the Court of Appeals decided in Griffin v. Bierman that the Maryland notice requirements are constitutional, thus
forestalling what would surely have been hundreds of cases by
foreclosed mortgagors claiming that the notices they received
did not meet constitutional muster.
The new statutes of 2008 would not change the result in the Poku
case, but will have a definite impact on a number of situations
which have been litigated in the past. The requirement for
attempting to get actual notice to the record title owner and to
the occupants of foreclosed properties will be much greater in
the future.
My selection of hits follows:
1. What is “partnership property”? - Wildwood Medical Center,
L.L.C. v. Montgomery County, 405 Md. 489, 954 A.2d 457 (Aug. 22,
2008, Per curiam) – In 2007 the Court of Special Appeals
decided in the case of Montgomery County v. Wildwood Medical
Center, 176 Md. App. 731, that land titled in six
individuals and trusts was not “titled” in the partnership, so
that when a deed to the partnership was recorded as part of the
conversion of that partnership to an LLC, $88,000 of transfer
tax was due. The decision was a 2 to 1 decision, with Judge
Theodore Bloom writing for the majority. Some of you may recall
that Judge Bloom’s scholarly opinion took us back to the days of
livery of seisin prior to 1766. However, Judge Bloom died before
the mandate was issued in the case. The Court of Appeals granted
cert. and after finding that the Court of Special Appeals
opinion of 2007 was a nullity because of the death of the
author, reversed the holding of the Court of Special Appeals and
in a per curiam decision, held that the deed recorded in
connection with the conversion of the partnership to an LLC was
exempt from transfer tax under Tax-Property Article § 12-108
(y)(2).
This decision by the Court of Appeals comports with the
understanding of most practitioners in the area of partnership
law. Maryland law does not require that record title to property
be in the name of the partnership in order to transfer
partnership property in the course of business. Partnership
property held in the name of one of the partners may be
transferred to the partnership, but the property titled in the
names of various of the partners but treated for all purposes as
partnership property, is deemed to be partnership property and
there is no need to first file a deed transferring record title
into the exact name of the partnership before the partnership
can be converted to an LLC and file a confirmatory deed which is
exempt from recordation and transfer taxes.
The Court of Appeals found that the distinction made by Judge
Bloom in the Court of Special Appeals between “title” and
“ownership” would resurrect an empty technicality long put to
rest by Maryland case law. The Court of Appeals reaffirmed that
partnership real property can be held by one or more persons
without reference to the partnership in the instrument
transferring the property to them, but still be partnership
property. Hopefully, this will put to rest any question
regarding the ways in which a partnership may own its property.
2. Mistaken Improvements to the Property of Others - Royal
Investment Group, LLC v. Wang, 183 Md. App. 406, 961 A.2d 665 (Graeff,
J., December 4, 2008) - What happens when you build a house
on property you do not own? Nothing good! Can you make the
property owner reimburse you for what you spent? Probably not!
There is a surprising amount of case law on the subject. It can
depend on whether the construction results from a mistake (or
innocent mistake), or a knowing act. One would assume that a
mistaken improver is treated better than a person who knowingly
improves the property of another. But common law held mistaken
improvers in ignominy, viewing them as officious intermeddlers.
The Royal Investment case involved a contract for
purchase of property from Mr. Wang, probably as a “tear down”.
Royal negotiated several extensions of closing and price
changes, but did not close at the required time. However, it
entered the property, demolished the existing home, and built a
new house over a period of 20 months from April 2005 to July
2007 for which is expended about $729,000. In October 2006,
Royal sued Wang for specific performance and damages. Wang
counter-claimed for trespass and ejectment. During the pendency
of the case, Royal continued building the house. The trial court
ordered Royal to stay off the property and found for Wang. It
also awarded Wang attorney fees of $180,000.
Since the result was that Mr. Wang now owned a new house on his
property, Royal sued him for unjust enrichment. Judge Graeff
denied Royal’s claim for injust enrichment, based on a ruling
that it was not “inequitable” for Wang to keep the house without
paying for it. In other words, Wang was enriched but not
unjustly. The Maryland law is that a person who officiously
confers a benefit upon another is not entitled to restitution.
Anyone interested in this subject is invited to read Prof.
Dickinson’s article, “Mistaken Improvers of Real Estate”, 64 N.
Car. L. Rev. 37 (1985). He has a nice discussion at pp. 59 – 61
of those “off the reservation” cases where the improver’s acts
either are not the result of mistake, or are so outrageous that
justice requires that relief be denied. He would probably view
Royal Investment as one of the outrageous cases.
3. How does one exercise an option? Carefully! – Elderkin v.
Carroll, 403 Md. 343, 941 A.2d 1127 (Cathell, J., Feb. 14, 2008) – The Elderkin case involved an option for sale of land. The
suit was one for specific performance and was tried without a
jury. The trial court decreed specific performance against the
seller, and the Court of Appeals granted certiorari before the
matter was heard in the Court of Special Appeals.
This case had several unusual aspects. The Court of Appeals
found that there had been at least three attempts to exercise
the purchase option. The option required timely delivery of two
copies of the contract of sale signed by the buyer, together
with a check payable to the seller for the amount of the deposit
specified in the contract. The option expired on June 30, 2005.
The purchaser submitted a contract in April and the seller
pointed out several deficiencies in the contract. The purchaser
than asked its realtor to prepare another contract, and the
seller’s attorney in May advised of deficiencies in the new
attempt to exercise the option. These included an incorrect
settlement date, failure to pay the $50,000 deposit to the
seller, and inclusion of the financing contingency. The seller
said nothing and on June 30, the purchaser’s attorney reached
the seller’s attorney who said that he was under no obligation
to give the purchaser an explanation of the deficiencies in the
latest attempt to exercise the option. Another contract was
submitted on that day, but with the deposit payable to broker
rather than to the seller. On July 1, the seller’s attorney sent
a letter informing the purchaser that the attempt to exercise
the option was neither unequivocal nor in accordance with the
terms of the option.
The Court of Appeals reviewed all of the rules relating to the
exercise of options, particularly the requirement that
acceptance be unequivocal and in accordance with the terms of
the option. In fact, the exercise must be “in exact accord with
the terms of the option”. The Court discussed in detail the 1992
case of Beckenheimer’s, Inc. v. Alameda Associates Ltd. Partnership, 327 Md. 536, and the more recent case of David
A. Bramble, Inc. v. Thomas, 396 Md. 443 (2007).
Applying all the rules, the court found that the defect in the
exercise of the option which was the ultimate failure in every
attempt by the purchaser was the failure to submit a deposit to
the seller, payable to the seller, with the contract. The court
detailed other material defects, and then considered the
purchaser’s argument that the failure of the seller’s attorney
to explain the defects in each of the submitted contracts,
despite the purchaser’s repeated requests to the seller’s
attorney to do so, constituted bad faith. This is just another
manifestation of what seems to be a trend in Maryland. Parties
who do not have express contract rights are raising the “good
faith and fair dealing” argument to create rights not in the
contract.
The Court of Appeals disagreed. The court looked at cases where
there is some duty to inform the other party regarding some
aspect of the transaction. A seller may not act in a manner that
improperly attempts to defeat the exercise of the purchaser’s
contract rights, but this does not impose on the seller an
additional duty to make the sale easier for the buyer. The court
reviewed the Court of Special Appeals decision in the Monro
Muffler/Brake case from 2006, 166 Md. App. 695, which held that
there was no duty to inform a lessee that the deadline for
exercising a renewal option had passed. Here, there was no
evidence of a deliberate act on the part of the seller to
frustrate the purchaser’s rights under the purchase option. The
seller did not insert terms repugnant to the purchaser, rather
it was the purchaser who inserted additional terms that failed
to abide by the negotiated terms. Judge Cathell said that “we
hold a failure to inform the holder of an option right of
material deficiencies when that right is attempted to be
exercised, generally does not constitute a violation of the good
faith requirement.”
4. The Unincorporated Condominium Association – Pines Point
Marina v. Rehak, 406 Md.613, 961 A.2d 574 (Harrell, J., December
11, 2008) – What happens to an unincorporated council of
unit owners in a condominium which allows its corporate charter
to be forfeited? Suppose it has instituted a lawsuit while its
charter was forfeited? The Pines Point case deals with this
question. The marina condominium, or “dockominium”, had a
construction defect claim. It discovered the defect by October
4, 2003. The three year statute of limitations would expire
October 3, 2006. The Council of Unit Owners filed suit in August
of 2006 alleging poor workmanship and defective construction. In
October of 2005, SDAT forfeited the Marina council’s charter for
failure to file the annual personal property tax return. The
council revived its corporate status in December of 2006.
Standard corporate law is that the suit would be dead for
failure of the plaintiff to have a valid corporate charter at
the time of filing, and failure to revive the charter until
after expiration of the Statute of Limitations. However, with a
condominium, § 11-109 of the Maryland Condominium Act allows a
council of unit owners to be incorporated or unincorporated, and
says that a Council “even if unincorporated, is constituted as a
legal entity for all purposes”, with power to sue in its own
name on behalf of itself or two or more unit owners. The Court
of Appeals concluded that the failure to have a corporate
charter is not fatal to a suit by a condominium council of unit
owners. This puts it in category different from business
corporations. However, the suit here was brought in the name of
a corporation, and needs to be amended to be brought on behalf
of an unincorporated association of unit owners.
This is where the reasoning of the Court of Appeals gets a
little difficult. The Court remands the case to the trial court
to determine if the amendment of the suit to be in the name of
an incorporated association relates back to the date of the
original action. In other words, rather than just deciding the
case, it is remanded for the waste of more time and legal fees
to determine if the amendment to change the name of the
plaintiff from a corporation to an unincorporated association
relates back to the date of original filing of the case. It
probably would be difficult to explain to the clients why the
Court of Appeals could not have decided this simple question
without the need for more testimony, legal memoranda and time of
the trial judge.
5. What happens when a mortgagor prevents ratification of a
sale? – Thomas v. Dore, 183 Md. App 388, 961 A.2d 655
(Moylan, J., December 4, 2008) – It is very common for the terms
of a foreclosure sale to include a provision for the purchaser
to pay interest on the unpaid purchase money from the date of
sale through the date of settlement. What happens when the
mortgagor files exceptions, takes appeals, delays hearings, and
otherwise prevents settlement from occurring? Why should the
purchaser at foreclosure pay interest when he is prevented from
closing?
That was the situation dealt with in the Thomas v. Dore case, where the sale was held on November 29, 2006, the sale was
reported to the Circuit Court on December 7, with a show cause
date of January 7, 2007. The mortgagor filed exceptions to the
sale which were overruled, and the sale was ratified only on
March 23, 2007, rather than on the expected date of January 8.
Even though this was only a slight delay, Thomas, the successful
purchaser, moved for abatement of interest. The Circuit Court
denied the motion because the foreclosure ad said, “in the event
settlement is delayed for any reason, there shall be no
abatement of the interest.” The Circuit Court denied the motion
without even considering the merits of the purchaser’s position.
The trustees in the foreclosure had suggested that the
additional interest shall come out of the surplus proceeds which
would otherwise be paid to the mortgagor.
Judge Moylan considered the recent law on this subject,
particularly Baltrotsky v. Kugler, 395 Md. 468 (2006) and White v. Simard, 152 Md. App 229 (2003). While it was
true that the terms set forth in the ad prohibited the abatement
of interest, the Court of Appeals had decided in Donald v.
Chaney, 302 Md. 465 (1985), that a purchaser at a judicial
sale will be excused from the requirement to pay interest on the
unpaid balance on three grounds, the third of which was if the
delay was caused by the conduct of other persons beyond the
power of the purchaser to control or ameliorate. Judge Moylan
treated the matter as an aspect of equity jurisprudence and said
that the terms of the written contract represented by the terms
of the sale could be varied on the basis of public policy. The
exercise of discretion pursuant to equitable principles is an
aspect of the public policy of the state. This justifies the
abatement of interest.
Rather than granting the purchaser’s motion for abatement, the
Court of Special Appeals remanded this case to the trial court
because the trial judge had not held a hearing to consider the
circumstances of the delay and the merits of the purchaser’s
request. Once again, there will be further delay, another
hearing, more attorney’s fees, and more disadvantage to the
purchaser on an issue that on the surface appears to be one that
the Court of Special Appeals could easily have decided finally.
6. Fraudulent Concealment of Material Defects - Rhee v.
Highland Development Corp., 182 Md. App. 516, 958 A.2d 385
(Deborah S. Eyler, J., Oct. 7, 2008) – Highland built a
housing development on an ancient cemetery in the 1980’s. It hid
the existence of the cemetery in its subdivision filings with
Howard County and sold it to a consumer purchaser in the 1980’s.
Rhee bought the house on the cemetery site from the original
purchaser in 1991, and in 2004 learned about the cemetery. Rhee
sued Highland for fraudulent concealment, but the Circuit Court
granted Highland’s motion to dismiss for lack of privity.
The Court of Special Appeals reviewed the elements of a cause of
action for fraudulent concealment, one of which is that “the
defendant owed a duty to the plaintiff to disclose a material
fact”. Here there was suppression of the truth by Highland with
an intent to exclude suspicion about its housing project. The
elements of the action were there, except there were no direct
dealings between Rhee and Highland, so the issue was whether a
builder’s duty to refrain from intentionally concealing a
material defect in the property extends to subsequent purchasers
of the property.
Rhee relied on Diamond Point Plaza Ltd. Partnership v. Wells
Fargo, 400 Md. 718 (2007) for the principle that a defendant
who makes a misrepresentation can be liable to the “class of
people” the defendant has reason to expect will rely upon the
misrepresentation. Judge Eyler said that Maryland adopted
Section 531 and 533 of the Restatement (2nd) of Torts in
the Diamond Point case. It was foreseeable to Highland
that later purchasers of the house would rely on its acts of
suppression of evidence of the existence of the cemetery on this
lot.
The Court held that the principle of Diamond Point should
extend to later purchasers of a house. If a developer’s active
concealment keeps the first purchaser in the dark, the developer
should not be protected from liability for fraud just because
the defect does not become manifest until after the property has
changed hands.
This case was the subject of an excellent article by Kevin
Shepherd in The Daily Record of December 15, 2008. Anyone
interested in the subject is referred to that article for a more
comprehensive discussion.
7. Is Maryland a “One Action” State? – No! And does Maryland
love seals? - Yes! – Wellington Co., Inc. Profit Sharing Plan
& Trust v. Shakiba, 180 Md. App. 576, 952 A.2d 328
(Hollander, J., July 2, 2008) – This case raises the
question of whether a creditor can bring separate legal actions
on a promissory note and under a deed of trust. There are states
in the west which are “one action” states, where the creditor is
put to an election of remedies. Maryland is not such a state.
Here a creditor brought action to collect a 2001 loan evidenced
by a note and secured by a deed of trust. The action was brought
based on a covenant in the deed of trust to pay the debt. The
debtor filed a defense of limitations because the note was not
under seal and was more than three (3) years old. The Circuit
Court after a bench trial gave judgment for the debtor. Creditor
appealed claiming that the covenant to pay the debt in the deed
of trust is separate from the note, that the deed of trust was
executed under seal, and that therefore a twelve (12) year
Statute of Limitations applied.
The Court of Special Appeals analyzed the nature of the deed of
trust and noted that this was not a foreclosure proceeding, but
rather an action at law to enforce either the note or the deed
of trust and to obtain a legal remedy – monetary damages.
Therefore, the question before the Court was whether the deed of
trust was a separate enforceable contractual obligation of the
borrower. The Court held that the note and deed of trust are
separate enforceable contracts. In the course of its discussion,
it gave a history of mortgages and deeds of trusts and discussed
the differences between them. At page 597, Judge Hollander
commented on the various weapons in the creditor’s arsenal which
can be used for collection of a debt. The covenant to pay in the
deed of trust is separately enforceable.
The Court then went on to an extended discussion of specialties
and the Statute of Limitations applicable to documents under
seal. There is also a similar discussion by Judge Hollander of
documents under seal in one of the unreported cases on the list, County Commissioners for Carroll County v. 40 West Builders,
Inc. decided on February 11, 2008. Once again, we can thank
Kevin Shepherd for an extensive analysis of both the Wellington case and the Maryland law relating to
specialties. His article appeared in The Daily Record of
July 14, 2008. As unlikely as it seems, the subject of seals
continues to arise.
8. Permitted treatment of your co-owner – Frock v. Frock,
CSA No. 32, Sept. Term 2007 (Salmon, J., March 21, 2008) –
The Frock case from Carroll County, which perhaps deals with
property popularly known as Frock’s Farm, was litigation between
Vincent Frock and his parents. Leaving aside the many
disagreements between the parties regarding ownership of the
farm and the right to partition, the parents included in the
suit a count against their son for intentional infliction of
emotional distress. This stemmed from several incidents
including one occasion when Vincent came toward his parents with
a knife and said “I am going to slash your tires”, and another
occasion when the father, who was on a tractor, heard three
shots and saw Vincent on the porch with a gun pointed in his
direction. He heard five more shots which struck the tractor
wheel rim and the coupling beneath the seat on the tractor.
Vincent was arrested and convicted of first degree assault and
sentenced to 15 years imprisonment. This was the intentional
conduct by Vincent alleged to cause emotional distress to his
parents.
The trial court did not agree, and found that this conduct was
not, as a matter of law, so intense as to constitute the
“severe” emotional distress required by Maryland law to recover
for the tort. I don’t comment on the wisdom of the Judge’s
ruling, but it does appear now that it is acceptable to fire a
gun at your co-owner without being liable for intentional
infliction of emotional distress. Just be sure that your shots
don’t hit the co-owner!
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