Commercial Building & Loan Ass'n v. Robinson

Boyd, J., delivered the opinion of the Court. - This appeal was taken from a decree sustaining a demurrer and dismissing the bill of complaint filed by the appellant against the appellee. The facts alleged in the bill which are material to the questions involved, are as follows : Robert A. Blay, who was the owner of the leasehold interest in twelve lots of ground, which had been assigned to him by the original lessee, conveyed said lots to the appellant, subject to the terms of the lease, by a mortgage dated December 9', 1895, to secure the moneys and payments mentioned in said mortgage “by the terms of which, among other things, said Blay covenanted to pay all taxes, ground rents, public dues and charges as and when the same became due and payable.” On the 2nd of April, 1896, Blay and the appellant entered into an agreement by which they ⁶¹⁷ agreed to apportion the amount of money advanced by the association between the several properties and that the lot known as 1210 Guilford avenue, should be held liable and subject only to the sum of $1,100.00, and the proportionate payments according to the plan of the association. On the 5th of May, 1896, Blay assigned that lot to the appellee “subject to the payment of the annual rent of one hundred and forty-three dollars, payable semi-annually on the first days of January and July in each year, and to the operation and effect of a mortgage from said Blay to said Commercial Building and Loan Association of Richmond, Virginia, to secure the loan of eleven hundred dollars.” The bill also alleges that the appellee entered into and remained in possession of the premises until the 8th day of July, 1897, upon which day a trustee, appointed in a cause wherein the appellant was complainant and Blay was defendant, sold said lot for default in the conditions of the mortgage for the sum of seven hundred dollars, “ which sum was grossly insufficient to pay the mortgage debt, costs and accumulated expenses upon the propertythat during the time of his possession the appellee allowed the city and State taxes on said property for the year 1896 and due on the 1st day of January, 1897, to remain unpaid, amounting with interest and charges to $58.42, and also two instalments of ground rent due by and issuing out of said lot on the first day of January, 1897, and the first day of July, 1897, amounting to $71.50 and interest, and that the appellant was obliged to and did pay said sums of money. It then prays for a money decree against the appellee for the amount of said rent, taxes and interest so paid and for further relief.

The questions presented are important, and by reason of some differences of opinion between the members of this Court, who sat in the case, which have been for the most part reconciled, it has not been decided as soon as would otherwise have been done. Neither the lease, the assignment to Robinson, nor the mortgage, was filed as an exhibit, and in passing on the de ⁶¹⁸ murrer we are confined to such references to them as are in the bill. Although it is alleged that Blay, by mortgage, conveyed the lots subject to the terms of the lease, it does not state that there was any provision in it permitting him or his assigns to retain possession of the property until default and we would not be justified in assuming that there was or may have been such a provision. In this State, unless the mortgage does contain some provision to that effect, the legal title is vested in the mortgagee and he has the absolute right of possession in the premises until the mortgage is paid.

Jamieson v. Bruce, 6 G. & J. 72 ; Duval v. Becker, 81 Md. 537 ; Richardson v. B. & D. R. R. Co., 89 Md. 126 . Such a mortgage on leasehold property is an assignment' of the term. In Mayhew v. Hardesty, 8 Md. 479 , Hardesty, who was the holder of an overdue mortgage on the leasehold interest, was held liable on a covenant to insure, which was in the lease, the Court saying “ that when a party takes an assignment of a lease, as in the present case, the whole legal estate passes and he thereby becomes liable on the real covenants, whether he became possessed or occupied the premises in fact or not." That case has been followed in Lester v. Hardesty, 29 Md. 50 , and other decisions in this Court, and the principle thus announced as to the effect of a mortgage on leasehold property after defaidt is equally applicable to a mortgage that does not contain a provision for the mortgagor to remain in possession. In both instances the legal title and right of possession are in the mortgagees.

The term being assigned to the mortgagee, he is responsible on covenants running with the land, and the assignee of the mortgagor is not responsible for defaults not occurring while he still held the leasehold interest. The liability of an assignee of the term to the original lessor, or his assignee, grows out of the privity of the estate, in the absence of some contract between them, and as long as that continues he is liable upon all covenants that run with the land, but when that relation to the land ceases his liability for future breaches of the covenants is at an end. Donelson v. ⁶¹⁹ Polk, 64 Md. 501 . It is true the bill alleges that the appellee “thereupon entered into possession of said premises and did remain in possession of the same until the 8th day of July, 1897,” but that is not sufficient to make him liable, as we have seen from the above quotation from Mayhew v. Hardesty.

In this State it has been determined that a suit at law cannot be maintained against the assignee of a lessee, after an assignment of the term by him, for breaches of a covenant which took place while he still held the leasehold interest, the remedy in such cases being in equity alone. Hintze v. Thomas, 7 Md. 346 ; Donelson v. Polk, supra. For that reason this proceeding in equity was doubtless taken, but, although Courts of Equity do not regard mortgages in just the same light as Courts of Law do, when the legal effect of a mortgage on leasehold property is to vest the title and the right of possession in the mortgagee, and thereby take them from the assignee of the mortgagor, the latter is not responsible either at law or in equity for breaches occurring after the title so passes to the mortgagee. There was no privity of contract between the appellee and the appellant, and hence, irrespective of the question as to whether the covenants in a mortgage on leasehold property for the payment of rent and taxes run with the land, the appellee would not be liable after the assignment of the term to the mortgagee.

The bill therefore, as it stands, is defective, and the demurrer was properly sustained for the reasons we have given. There is another defect in it which should be mentioned. If, as alleged, there was default on the first day of January, 1897, for non-payment of the taxes and ground rent then becoming due, unquestionably under the decision of Mayhew v. Hardesty, the appellee was not responsible for the alleged default on the first of the succeeding July, as the term was then vested in the appellant, even if there is a provision in the mortgage such as we have referred to above. The appellant and not the appellee was then liable for the ground rent, as the term had then passed out of the appellee into the appellant. ⁶²⁰ Although the mortgage was not filed with the bill, and hence we cannot consider it in passing on the demurrer, what purports to be a copy of it is in the appellant’s brief. •As we have authority under section 36 of Art. 5 of the Code, to remand the cause for further proceedings, without reversing or affirming the decree, if we be of the opinion that the purposes of justice will be thereby advanced, we will now consider the case as if the mortgage was before us.

In the copy we find that there is a provision referred to by which it was agreed that until default was made the mortgagor or his assigns might retain possession of the mortgaged property. From what we have already said it. can be seen that we are of the opinion that the ground rent falling due on the first of July, 1897, cannot be recovered, for the reasons stated, and hence we will confine further inquiry to the taxes and ground rent which matured on the first of January of that year. As between the owner of the reversion and the holder of the leasehold interest- there is no doubt that covenants for the payment of rent and taxes run with the land. It has been so decided in a number of cases in this State, among which are Donelson v. Polk, supra; Lester v. Hardesty, supra; Worthington v. Cooke, 52 Md. 297 .

In Thomas v. Von Kapff, 6 G. & J. 372 , it was held that a covenant in a mortgage on real estate to effect insurance and apply the proceeds in case of loss by fire to the reparation of the insured property was a covenant running with the land, as-it was in effect a covenant to repair and rebuild. The insurance money had been collected by the mortgagor who deposited it in bank and died before he rebuilt. A bill having been filed by the executors of the mortgagee against the administrator of the mortgagor, and the proceeds of the sale of the property and the insurance money together not being sufficient to pay the mortgage debt, the Court below decreed that the complainant had a specific lien upon the insurance money and the Court of Appeals affirmed the decree, holding that the mortgagee had a qualified lien in preference to general creditors, and ⁶²¹ also that it was a covenant running with the land. In Barron v. Whiteside, 89 Md. 448 , this Court said that a covenant in the mortgage on leasehold property by the mortgagor for himself and his assigns to pay the ground rent and taxes on the premises when legally demandable, was a covenant running with the