Chesapeake Isle, Inc. v. Rolling Hills Development Co.

Finan, J., delivered the opinion of the Court. This appeal, which reaches the Court on an agreed statement by the parties in lieu of pleadings and evidence, arises out of a suit for Declaratory Decree (Md. Code, Art. 31A), interpreting certain release provisions in a mortgage executed between appellants (mortgagors) and appellee (mortgagee). An opinion was filed by the lower court on May 19, 1966, but additional issues arose, giving rise to a second petition for the interpretation of the release provisions, and for the appointment of a trustee. It is from the court’s second opinion, dated February 3, 1967, that this appeal is taken.

Robert M. Brinley contracted with the mortgagee for the purchase of 270 subdivided building lots, in addition to extensive recreational and commercial acreage. The contract (which was subsequently supplemented by modifications not germane to this appeal) called for a total purchase price of $197,000, of which $19,500 was to be paid down, $32,500 paid at settlement, and the remainder of $145,000 secured by a bond and mortgage. The initial agreement also made provisions for the “release” clauses, the second of which stated: “That said party of the first part shall further release from the lien and effect of said mortgage and bond such lots or parcels of land in the amount of FOUR THOUSAND ($4,000.00) DOLLARS for every ONE THOUSAND ($1,000.00) DOLLARS paid by said party of the second part or his assigns against the principal and interest of said mortgage and bond; that such value for purposes of the aforemen ⁴⁵¹ tioned releases shall be based upon the aforementioned lot (values) as indicated on an attached plat of land affixed hereto and made -t part hereof by reference, and not improvements thereon.” (Emphasis supplied.) Robert M. Brinley later assigned his rights and delegated his liabilities under the contract to appellants-mortgagors, consisting of four corporations of which Brinley was president. In accordance with the terms of the contract, the attorney for the mortgagee prepared a mortgage providing for payment on August 15, 1966 of $5,000 on the principal, plus interest at 5)4%, followed by semi-annual payments of $10,000 and interest at 5)4%, according to standard amortization tables.

In addition to a subordination clause, the mortgage contained the following two “release” clauses: “(1) By virtue of Mortgagors’ downpayment of FIFTY THOUSAND DOLLARS ($50,000.00) on the mortgage premises, they shall be entitled to releases without further consideration, upon their request, to ary lots or parcels of land up to the total value of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) as such values are indicated on a certain plat entitled ‘Lands of Rolling Hills Development Corporation made by Edward H. Richardson Associates, Inc., Consulting Engineers’, Newark, Delaware, dated January 15, 1960, revised May 27, 1964, revised June 2, 1964, and initialled by all parties hereto, excluding any improvements. “(2) The Mortgagee herein further agrees that after the release values are used up as set out in Paragraph (1) hereof, that it will release from the lien of this Mortgage such other lots or parcels of land on the basis of Four (4) to One (1); that is, FOUR THOUSAND DOLLARS ($4,000.00), as such values are indicated on the aforementioned plat, upon the request of Mortgagors and the payment by Mortgagors of every ONE THOUSAND DOLLARS ($1,000.00) against the principal and interest of said Mortgage and Note.” (Emphasis supplied.) ⁴⁵² The question to be decided is whether the lower court erred when it construed Release Clause No. 2 to mean that the mortgagee need only release lots at the ratio of $4,000 for each $1,000 of principal paid, disregarding for purposes of credit under the release clause payments against the interest on said indebtedness. Appellants contend that the clear language of both the mortgage and the initial agreement established the four-to-one release ratio on payments of “principal and interest.” Therefore, the value of property released should equal four times the sum of the principal and interest payments. For example, the February 15, 1967 payment of $10,000 plus $3,850 interest would permit the release of property