Burroughs v. Garner

Moore, J., delivered the opinion of the Court. ³⁰⁴ This appeal involves the interpretation of several release of lien provisions contained in a “deferred purchase money” second deed of trust. We are asked to determine whether the trial court (David Gray Ross, J.) correctly ruled, in an equity proceeding in which a real estate foreclosure and an action to enjoin it were consolidated, that the appellees-mortgagors 1 were entitled to the release of 29.8 acres out of a 147.8 acre tract pursuant to the terms of the second deed of trust. I In September 1971, the Brandywine Farms Joint Venture consisting of 11 members was formed pursuant to a written agreement for the purpose of acquiring and developing, for residential purposes, 147.8 acres of unimproved land in Prince George’s County. 2 The purchase price of $406,654.60 was paid by the assumption of an existing first deed of trust in the sum of $97,089.60, a second deed of trust securing three separate notes 3 aggregating $216,034.44, and cash in the sum of $93,530.56, plus assorted closing costs. ³⁰⁵ The second deed of trust dated September 24, 1971 was on a standard form generally in use in Prince George’s and Montgomery Counties and in the District of Columbia. In addition, several typewritten provisions were included to allow the orderly and periodic recording of subdivision plats and the release of parcels from the deed of trust lien.

These provisions now stand at the heart of the controversy between the parties in light of the Joint Venture’s default in 1977 and its subsequent desire to have a portion of the property released from the deed of trust lien. Before recounting the events leading up to this litigation, it is necessary that we set out the pertinent typewritten sections of the deed of trust. With respect to plats of subdivision and similar type instruments, the deed of trust imposed mandatory duties upon the trustees at the request of the Joint Venture: 1) That the Trustees hereunder, without further authority from the parties secured hereby, and without any fees or payments on account of said notes secured hereby, shall be authorized and required at the party of the first part’s request, at any time and from time to time, to join in the recording of and to execute consents and approvals with respect to plats of subdivision, street dedication plats or deeds, sanitary sewer, water, storm drainage, gas, electricity, telephone and other utility rights-of-way and easements, declarations of covenants, agreements and other similar-type instruments which may be required at any time and from time to time with respect to the orderly development of the property. (Emphasis added.) Three separate typewritten paragraphs dictated the circumstances under which releases from the deed of trust lien could be obtained.

Twenty-five acres were to be released from the deed of trust lien based upon the consideration ³⁰⁶ provided by the cash payment at settlement. This twenty-five acre release was governed by the following provision: 4) The Trustees are authorized without further approval by the noteholders to execute one or more releases of the property conveyed herein at the request of the maker hereof or its successors and assigns, of 25 acres in one or more parcels upon the following conditions: (a) Payment from the maker hereof or its successors or assigns to the party secured hereby of the sum of $10.00; (b) Recordation among the Land Records of Prince George’s County, Maryland of a plat subdividing at least the amount of acreage which is to be released hereunder; (c) That the property not released hereunder shall have an easement as wide as required by the subdivision requirements of Prince George’s County so that said property will not be landlocked. Said right of way may be either dedicated by record plat or granted in the release to be executed hereunder. As part of the development plan, the deed of trust provided for additional acreage to be released “subsequent to the release of the twenty-five acres” described in the foregoing paragraph.

It provided that upon the payment of “any and every” required installment of principal, “there shall be released from the lien of this Deed of Trust an amount of acreage computed at the rate of $2,750.00.” (Emphasis added.) If both interest and principal were paid in advance of the mandated schedule, then “anv of the land secured herein may be released . . . from time to time upon payment on account of the debt secured hereby of . . . $2,750.00 per acre.” (Emphasis added.) ³⁰⁷ No provision was made in the deed of trust instrument for the location of property to be released within the 147.8 acre tract except for a requirement that “all releases subsequent to the 25 acres to be released at no cost to the maker hereof shall be contiguous and adjacent to said 25 acre tract.” 4 Sometime in April 1972, the Joint Venture engaged the services of W. Stanley Machen, a professional surveyor of many years’ experience, to assist them in the work of subdivision and development. He subsequently drafted three successive preliminary plats of subdivision for portions of the property which were all given preliminary approval by the Maryland-National Capital Park & Planning Commission’s Prince George’s County Planning Board. Mr. Machen also prepared a final plat dated June 1,1978 encompassing 50.069 acres, to which reference is hereinafter made. From the beginning the Joint Venture was unable to make the scheduled payments of interest and principal due under the second deed of trust.

For the first two payments, due September 24, 1972 and 1973, respectively, the noteholders orally agreed to accept interest payments only. In October 1974, payments of principal were made on two of the three notes in the sum of $6,585 each, and interest was also paid on each of the two notes in the sum of $4,609.50. 5 This, too, was done with the noteholders’ approval. In 1975, by further agreement with the noteholders, interest only was again accepted but the interest rate was increased to 9% and a payment in the sum of $5,233.85 was made on each of the two notes. The same payments were made in 1976.

In 1977, ³⁰⁸ however, no payments were made of either principal or interest; 6 the Joint Venture also did not pay the property taxes for 1976-77 and 1977-78, which led to a tax sale on May 8, 1978. 7 On June 18, 1978, foreclosure proceedings were instituted in the Circuit Court for Prince George’s County by George T. Burroughs and Bessie Mae Cox, substitute trustees. The foreclosure sale was scheduled for July 6,1978. Prior thereto, on June 27, 1978, the Joint Venture filed a bill of complaint to enjoin the foreclosure and for additional relief, naming as defendants the two substitute trustees and Edward C. Freeman, Joint Venture Managing Committee member. 8 The gravamen of the bill of complaint was that, in accordance with the provisions of the second deed of trust, the members of the Joint Venture were entitled to the release of 29.8 acres from the deed of trust about to be foreclosed. The 29.8 acres consisted of the 25 acres specified in paragraph 4 of the deed of trust to be released in consideration of the down payment, plus 4.8 acres on account of the principal payments made in 1974 prior to default.

It was also alleged in the bill that the advertisement for the sale of the property at public auction “includes all of the property described in the deed of trust,” and that the trustees had refused to release the portions to which the Joint Venture was entitled. The principal relief sought was not that the foreclosure sale be enjoined but that the substitute trustees release the 29.8 acres from the lien of the second deed of trust. The cases came on for hearing on July 5, 1978, one day before the scheduled foreclosure sale. Prior to the close of proceedings on that day, the chancellor ordered a ³⁰⁹ consolidation of the two cases pursuant to Rule 503.

He stated: “I will do that to give notice to any bona fide purchaser who may bid on this property tomorrow. I think it would be unfair to have someone come tomorrow and not know of these proceedings.” At the sale the following day, the property was purchased for $200,000 by the parties secured under the second deed of trust. 9 The chancellor continued the case from July 5 to July 18, 1978, when additional evidence 10 was received, oral argument was heard, and the court delivered an oral opinion. Subject to the submission of written orders, the court denied the injunction and stated it would ratify the foreclosure sale subject to the release of the 29.8 acres. The court also announced that the provision for an easement in accordance with paragraph 4(c) of the deed of trust, “so that [the remaining property] will not be landlocked,” remained to be dealt with and allowed the parties an opportunity to “work it out.” 11 No such resolution of the matter eventuated, however.

Indeed, on September 21, 1978, the chancellor signed an Order in the Joint Venture’s equity case that the substitute trustees (a) “join and execute that particular plat prepared by W. Stanley Machen, entitled, Section I Brandywine Farms...,” and (b) “execute a release, releasing from the lien in effect of the deed of [sic] trust 29.8 acres of land, said acreage to be described in the release and a copy of said release to be filed in these proceedings.” ³¹⁰ The following day, the chancellor signed an order of ratification of the foreclosure sale “subject to the release of 29.8 acres in Equity E-4618.” A week later the substitute trustees and Edward C. Freeman filed a petition for reconsideration. A hearing on the petition was had in open court on October 19,1978, and an order of denial was entered the same day. From these orders, the substitute trustees and Edward C. Freeman have appealed. They raise these issues: (a) Whether the deed of trust contained conditions precedent to the release of 29.8 acres and, if so, whether they were “in default or were waived”; (b) whether appellees are subject to equitable estoppel; (c) whether appellees are barred by laches; and (d) whether the lower court had jurisdiction.

II Appellants contend, in effect, that there were both general and specific conditions precedent to the release of the 29.8 acres from the deed of trust and that these conditions remain unsatisfied. The general conditions include the standard deed of trust provisions requiring the mortgagors to keep current the payments of principal, interest, and taxes. The claimed special conditions were the conditions set forth in the typewritten section of the deed of trust: (1) payment of the sum of $10.00; (2) recordation of a plat subdividing the acreage to be released; and (3) the preparation of an easement protecting the remaining property from being landlocked. Appellants assert that both the appellees’ default and their failure to record a plat of subdivision bar them from any entitlement to a release.

Appellees, notwithstanding their default, claim a right under Leisure Campground v. Leisure Estates, 280 Md. 220 , 372 A.2d 595 (1977) to a release of the acreage in question. They concede' the existence of the three specific conditions upon the execution of a release from the lien of the deed of trust but contend that the chancellor correctly found that the first was de minimis, that the second was waived, and that ³¹¹ the third could be accomplished by appropriate language in the court’s order. We begin with the Leisure case. There, the mortgagor in a purchase money mortgage transaction involving 154 acres near Ocean City appealed from an order ratifying a foreclosure sale of the property.

It was contended that, under the terms of the mortgage, the mortgagor was entitled to the release of 40 acres in consideration of $75,000 paid at the time of settlement. 12 The mortgagee contended that the mortgagor’s right to the release of the 40 acres was lost upon default under the mortgage, or, at all events, when foreclosure was initiated, and also that the release clause was unenforceable because it did not specify the location of the 40 acres. Vacating an order of the Circuit Court, the Court of Appeals held, in an opinion by Judge Digges, that the right to request the release “survived both default and foreclosure, and that the clause in question is enforceable — ” 13 Id. at 222 , 872 A.2d at 597. The following rule was enunciated: “Consequently, we now hold that, absent a contractual provision to the contrary, if a mortgagor makes full payment for a partial release of property prior to a default, he is not prevented from enforcing his accrued rights under the clause so long as he is capable of doing so without interfering with any interest nonparty bona fide purchasers have acquired at a foreclosure sale.’’ Id. at 225, 372 A.2d at 598-99 . ³¹² The Court, therefore, rejected the mortgagee’s primary contention that the mortgagor’s failure to request the release of the 40 acres until 3 days prior to the foreclosure sale divested it of its release right. Judge Digges stated: “Therefore, the mortgagor’s default in this case did not extinguish its release right inasmuch as full payment was made prior to default, and there is nothing in the instrument indicating that the parties intended the right to be divested upon default or foreclosure.” Id. at 226 , 372 A.2d at 599 .

There are striking parallels between the facts and circumstances in this case and those in Leisure. That the security device in the instant appeal is a deed of trust, rather than a mortgage, is not a point of distinction. 14 In each case a deferred money purchase of unimproved acreage acquired for purposes of development by the mortgagor was involved. Default on the mortgage occurred in each instance. Similarly, no request for a release was pressed until after default and after the commencement of foreclosure proceedings. 15 In our ³¹³ judgment, the rule of Leisure is controlling, for the following reasons: (1) Brandywine Farms made full payment for the release of the 25 acres at the time of settlement in 1971 and of the 4.8 acres by payments toward principal in 1974, long before the default in 1977 and foreclosure in 1978.

(2) There are no provisions in the deed of trust which disallow release subsequent to default or the institution of foreclosure proceedings, nor is there anything in the record indicative of an intention to defeat vested rights of release. (3) Release of the 25 acres was contemplated to take place in the future and such release or releases by the trustees were authorized “without further approval by the noteholder,” upon the conditions specified in the second deed of trust. 16 (4) Release of acreage in consideration of payments of principal was mandated by the provision that: “Upon payment of any and every required installment of principal, there shall be released from the lien of this Deed of Trust an amount of acreage computed at the rate of $2,750.” (Emphasis added.) (5) The appellees’ request for the release after default but prior to the foreclosure sale did not interfere “with any interest nonparty bona fide purchasers have acquired at a foreclosure sale.” Leisure, id. at 225, 372 A. 2d at 598-99 . One of the substitute trustees, Mr. Burroughs, announced at the sale that there was a pending suit involving the property, and, indeed, the purchasers at foreclosure were the noteholders themselves. ³¹⁴ We are not unmindful that appellants, in an effort to avoid the impact of Leisure, contend that recordation of a subdivision plat and payment in full of the entire indebtedness upon default, preclude release after default in this case. Their position cannot be sustained.

The requirement of recordation of a plat, which applies only to the 25 acres, is a condition precedent to the execution of a release by the trustees; recordation may occur prior to default or thereafter. The instrument does not require recordation prior 'to default. Again, the provision requiring payment in full of the entire indebtedness upon default is standard and was undoubtedly present in Leisure; it has no bearing upon the mortgagors’ right to request a release for which full payment was made prior to default. We recognize that appellants’ claims stem in part from the chancellor’s determination that a condition precedent existed when he said: “You have to come to grips with the question as to (4)(b), whether or not the recordation ahiong the Land Records is in fact a condition precedent.

Two, the release: I find it as a fact that it is a condition precedent, but at the same time that reasonable efforts have been made on the part of the petitioner in this case to put a plat on record, they have done everything they can. The failure of the trustees to sign that release [plat] amounts to a waiver of that condition, and therefore, while it isn’t [sic] a condition precedent, it has been waived.” (Emphasis added.) It is apparent, however, that the above analysis was not appropriate for it failed to make a crucial distinction between a vested entitlement to a release under the principles of the Leisure case and mere conditions placed upon the formal execution of the release by the trustees. In our view, under the terms of the deed of trust, the appellees upon the payment of $93,530.56 at settlement obtained a vested right to have 25 acres released from the lien of the second deed of trust. The conditions expressed in the deed of trust were not ³¹⁵ conditions upon the appellees’ right to the release, but rather they were conditions precedent to the trustees’ execution of the release.

Of course, the release of lien as to the additional 4.8 acres is not bound by the conditions at all, since the deed of trust separately provided for an absolute and mandatory release of acreage upon every payment of principal. The language of the deed of trust is clear, unequivocal, and free from ambiguity, and it places this case squarely within the holding of Leisure. Appellants have also challenged the release provisions, asserting that the failure therein to describe and identify the property with sufficient certainty is a fatal flaw because “there are no facts in the instant case to suggest that the parties intended the mortgagor to select the acreage to be released.” We return, for the moment, to Judge Digges’ opinion in Leisure Campground v. Leisure Estates, 280 Md. 220 , 372 A.2d 595 (1977), where the Court dealt with the failure of the release clause to specify the location of the 40 acres. The Court stated: “While it is certain that the parties could have been more explicit, we believe the language of the release clause here — viewed in light of the fact that the mortgage was executed for the purpose of facilitating a land development venture to be undertaken exclusively by the mortgagor — clearly and unambiguously entitles the mortgagor to request and have released forty acres of its choice.

Under these circumstances, it is inconceivable to us that, if the mortgagee or some third party was meant to have any control as to which parcel of land was to be selected for release, there would be no additional words intimating that intention.” Id. at 227-8 , 372 A.2d at 600 . And the Court made the additional observation that: “It is clear that the provision before us giving the mortgagor the right to select enables the court, with the aid of a sufficient description provided by the mortgagor as to the acreage so selected, to ³¹⁶ determine with certainty what property the parties intended to cover in the clause — under these circumstances, the tract to be chosen by the mortgagor is the property intended by the parties. See Lambert v. Jones, 540 S.W.2d 256, 259 (Tenn. App.), cert. denied, Tenn.

Sup. Ct. (1976). We conclude that where, as in the present case, the parties evidence an intent that the mortgagor is to select the land, such an agreement will not be unenforceable merely because there is not a metes and bounds description of the portion to be released. It would be wholly unreasonable, and would greatly reduce or destroy the efficacy of partial release clauses, to require such specificity at the time the parties make the mortgage contract.” Id. at 229-30, 372 A.2d at 601 .

In the instant appeal, the second deed of trust evidences an intention by the parties to the transaction that the Joint Venture would direct the residential development of the 147.8 acre tract. While the trustees were required to give their consent and approval to plats of subdivision and other similar instruments prepared by the Joint Venture under the terms of the second deed of trust, they had no official role in the preparation of subdivision plans. We believe that all of the circumstances presented in this case indicate that the Joint Venture, as the owner and developer of the Brandywine Farms tract, was to develop the tract as it best saw fit. There is no language in the second deed of trust indicative of an intention to allow the trustees or noteholders any input into the selection of property to be released, and