Connolley v. Harrison

Thompson, J., delivered the opinion of the Court. John F. Connolley, Jr., appellant, the contract purchaser of a parcel of land in Ocean City, Maryland, filed a bill of complaint in the Circuit Court for Worcester County to compel specific performance. The contract, dated May 15, 1971, was entered into between him and the Harrisons, the sellers. Connolley also asked the court for a declaratory judgment declaring that a deed of trust executed between the Harrisons’ grantor (appellee-Royer) and the Harrisons created an invalid restraint on alienation.

The trial judge, Judge Daniel T. Prettyman, denied specific performance and found that no invalid restraint on alienation existed in the deed of trust from the appellee-Royer to appellees-Harrisons. FACTS On August 8, 1970, Eva Lee Royer, Hale Harrison, Helen Harrison Faucette and John Henry Harrison (all appellees in the instant case) entered into an agreement whereby Royer agreed to sell certain property in Ocean City, Maryland, to the Harrisons in fee simple. The purchase price was $100,000.00. The Harrisons made a down payment of $20,000.00 and on November 12,1970, executed an $80,000.00 promissory note, with interest at 7% per year, and a deed of trust on the land as security for the balance of the total purchase price.

All three of these documents were recorded in the land records of Worcester County. Each contained or incorporated documents that did contain the following clause from the sales contract: “The Buyer shall have the right to prepay the aforesaid Note after two (2) years from the date of said Note, but as a condition thereof, the Buyer and Guarantors shall pay to the Seller all interest which would be due on said Note had it run its full term. The Buyer shall have the right after two (2) ⁴⁸⁷ years from the date of said Note to sell the subject property without the consent of the Seller. Any subsequent purchaser, however, shall be bound by all the terms of this contract so long as the Seller’s Note remains unpaid in any part.

The Buyer’s purchaser or purchasers may then assume said Note as additional obligors and take the property subject to said Deed of Trust and payment of said Note shall not be accelerated for reason of said sale.” On May 15, 1971, the Harrisons and the appellant entered into a conditional sales contract whereby the Harrisons agreed to sell to the appellant a portion of the aforementioned property. The total purchase price was $110,000.00. The viability of this contract was made subject to three distinct conditions being met, but we are concerned with only one: “This contract is subject to the sellers obtaining a satisfactory release and settlement of the present outstanding mortgage against the property.” Settlement was to take place on or before August 13, 1971. Just prior to that date the Harrisons’ agent, George Purnell, informed appellant that they would not go through with settlement because they could not “get out of the mortgage.” The Harrisons failed to appear at the time and place designated for settlement.

Connolley attended, with funds sufficient to consummate the transaction and was ready, willing and able to settle. RESTRAINT ON ALIENATION Appellant contends that the trial court erred in finding that the above quoted language in the deed of trust from Royer to the Harrisons did not create an invalid restraint on alienation. Assuming, without deciding, that the sentence, “The Buyer shall have the right after two (2) years from the date of said Note to sell the subject property without the consent of the Seller” creates an invalid restraint on ⁴⁸⁸ alienation, it can be severed from the instrument without destroying the instrument’s overall validity or the validity of any other provisions if it is not so interwoven as to be logically inseparable from the rest. Northwest Real Estate Co. v. Serio, 156 Md. 229, 232 , 144 A. 245 (1929); Jones et al. v. Northwest Real Estate Co., 149 Md. 271, 279 , 131 A. 446 (1925).

See also Baldwin v. Grymes, 232 Md. 470, 473 , 194 A. 2d 285 (1963); Nicholson v. Ellis, 110 Md. 322, 333 , 73 A. 17 (1909). In the instant case we find that the clause prohibiting for two years the sale of the property by the Harrisons without Royer’s approval is severable from the clause which prevents prepayment or anticipation of the note for two years and from the clause which accelerates the amount due under the note if the note is prepaid. The latter two clauses, unlike the first, are not intended to prevent the sale of the property. They are intended to protect the grantor’s investment, to insure her a maximum return and perhaps to take advantage of favorable income tax treatment.

Severing this language narrows our inquiry to a determination of the validity of the first sentence of the above quoted language which in effect prevents the Harrisons from prepaying or “anticipating” the deed of trust for the first two years of its existence and which provides for acceleration of the amount due if prepayment is eventually made. In Pierson v. Pyles, 234 Md. 119 , 197 A. 2d 890 (1964), the Court of Appeals upheld a clause in a land sale contract which prevented anticipation of monthly payments against a claim that the clause imposed a restraint on alienation. In Pierson , the sale contract provided for a total purchase price of $15,000.00, payable $65.00 monthly with 4% interest imposed on the unpaid balance. The contract specifically denied the contract purchasers the right to anticipate the monthly payments.

Under the contract the purchasers were also required to pay all taxes and insurance premiums. These payments were to be paid by the sellers from the monthly installments. The contract further provided that the purchasers were not to receive a deed for the property unless and until they reduced the principal by $5,000.00 by ⁴⁸⁹ means of the $65.00 monthly payments. If and when the principal was so reduced, the sellers were required to take back a mortgage on the remainder of the debt.

At the time of the contract, June 13, 1946, assuming the taxes had remained constant, it would have taken the purchasers 273A years to reduce the principal by the required $5,000.00 and thus obtain a deed. Taxes, however, did not remain constant. They rose substantially after 1946 with the result that in 1962 when the purchasers instituted suit for declaratory relief, the unpaid balance due was $15,222.44 or $222.44 more than it was 16 years earlier. The Court of Appeals construed the contract to permit the purchasers to pay the insurance premiums and taxes over $65.00 but held the $5,000.00 reduction in principal still must be paid from the monthly payments.

The Court stated: “There was some argument advanced by the appellants that the practical effect of the contract was to impose an unreasonable restraint upon alienation. But, as the contract was construed that argument is not tenable. It may take thirty-seven more years to acquire an unencumbered title in the appellants, but it can be done if they will exercise the option given them by the decree, namely, to pay the real estate taxes and fire insurance premiums over and above the $65 monthly payments, so that this amount can be applied to principal and interest. “We do not think the situation here calls for a result which would defeat valuable contractual rights of the seller. It is reasonable to assume that the seller desired to collect 4% interest on the unpaid balance and should not be compelled to take a lump sum payment which would deprive him or his estate of that right.

Meinecke v. Goedeke, 195 Md. 373 , 73 A. 2d 445 .” Id. at 124. The Court further added: “In that regard, what we said in Abell v. Safe ⁴⁹⁰ Deposit & Trust Co., 192 Md. 438 , 64 A. 2d 722 , is applicable here. It would unduly prolong this opinion to set forth the lengthy and somewhat detailed facts surrounding that appeal in a bondholders’ suit against the trustee under a mortgage indenture and the issuing corporation. Concerning the point here involved it is sufficient to say we recognized, that where a mortgage indenture securing the payment of corporation bonds provided for redemption of only a certain number of them each year in the order of their serial numbers, and in no other way, this conferred a valuable right on the bondholders, and to redeem them in any other way was a violation of the contract by the corporation and a breach of trust by the trustee.” Id. at 125.

We hold that Pierson v. Pyles, supra, is controlling on the issue of the lack of the right to anticipate and we thus hold that said lack did not create an invalid restraint on alienation. 1 Appellant relies exclusively on Northwest Real Estate Co. v. Serio, supra, to support his contention. His reliance is misplaced. In Serio , a deed in fee simple contained, in addition to various building and use restrictions, a provision that the land should not be sold or rented for a period of approximately five years without the consent of the grantor, This provision was found to be void as a restraint on alienation and was severed from the deed. It is immediately apparent that Serio is distinguishable from the instant case.

Here, unlike in Serio , the clause preventing anticipation for two years and the clause accelerating payment of interest in case of prepayment in no way prevents the alienation of the fee. In short, neither of the clauses just mentioned violated the purpose for the rule against invalid restraints on alienation, i.e.: neither clause made the property “extra ⁴⁹¹ commercium. ” Commonwealth Realty Corporation, et al. v. Bowers et al., 261 Md. 285, 297 , 274 A. 2d 353 (1971). The question of the propriety of the clause in the Royer deed of trust which required that in the