Gallagher v. Bell

WILNER, Judge. In 1960, appellants George and Judith Gallagher bought a charming Eighteenth Century tenant house situated on about a half acre of land in Montgomery County. It was, unfortunately, in the middle of a larger tract owned by appellees that was intended for eventual development. In 1961, under circumstances we shall shortly describe, the Gallaghers entered into an agreement with appellees in which the Gallaghers promised to dedicate some of their land for public streets to be built adjacent to their property and to pay a pro rata share of the cost of installing those streets and certain utilities.

The Gallaghers conveyed their property in 1980, before any streets or utilities were installed. The principal issue before us is whether the Gallaghers have any continuing liability on their promise to pay; that, in turn, depends on whether the promise is to be regarded ²⁰² as a covenant “running with the land” or as a personal promise on their part. All the land involved in this case—something more than 34x/2 acres—was once owned by the Sisters of Mercy of the Union in the United States of America, Incorporated (the Sisters). The land lies generally to the north and east of Bradley Boulevard and had access to that road by means of Kendale Road, an 18-foot private road that ran just over a mile from Bradley Boulevard to the Sisters’ “Villa Marie” Mansion House.

Kendale Road also served the old tenant house on the land. In 1959, the Sisters sold the Mansion House and some immediately surrounding acreage to the Franciscans, retaining the balance of the tract. In order that the Franciscans not be landlocked, the Sisters included an easement in the deed, giving the Franciscans the right to use Kendale Road from the Mansion House to Bradley Boulevard. Later in 1959, the Sisters sold the remainder of the tract, save only the half-acre parcel on which the tenant house was situate, to appellees F. Meade Bell and David P. Bell.

It was understood that the Bells, who are developers, were buying the 34V2-acre tract in order to subdivide and develop it, for the contract mentions “the proposed subdivision.” The last clause of the contract dealt with the excepted parcel; it provided: “The existing house and lot in Section 4 shall be excluded from this contract. Subsequent purchaser of said lot and house shall agree to dedicate half of street bounding said lot and share pro-rata cost of installing street and utilities by this purchaser of Section 4.” 1 In April, 1960, the Gallaghers purchased the half-acre parcel and tenant house from the Sisters. In the contract, Mr. Gallagher agreed “to dedicate half of streets bounding said lot and shall share pro-rata cost of installing street and utilities by F.M. and D.P. Bell.” 2 It was further agreed ²⁰³ that the contract would be binding on the principals and their respective heirs, successors, and assigns and that its provisions would “survive the execution and delivery of the deed ... and shall not be merged therein.” The purchase price of $15,600 was to be paid in cash. It appears, however, that the Gallaghers, who took title jointly, needed financing, and the Sisters permitted them to settle without full payment.

The deed, dated October 4, 1960, made no mention of the contractual covenant to dedicate half of the abutting streets or to share in the cost of installing the streets and utilities. At some point, the Gallaghers arranged for mortgage financing in order to discharge their obligation to the Sisters, but, after reviewing the various documents, the prospective lender raised a concern that, in the absence of some right-of-way agreement permitting the Gallaghers to use Kendale Road, they might be landlocked. Mr. Gallagher, a lawyer and later a judge in the District of Columbia, believed that he had some sort of easement by necessity and that a permissive easement or right-of-way was unnecessary, but the lender apparently had sufficient doubt about the matter to insist on obtaining a specific grant before proceeding to make the loan. So it was that, on June 16, 1961, the Gallaghers entered into an agreement with the Bells under which: (1) the Bells granted to the Gallaghers “a temporary right of way over that portion of the existing private road now known as Kentsdale Drive [3] leading to Bradley Boulevard from [the Gallaghers’ property] which crosses the [Bells’ property] until such time as said portion of said private road is supplanted by a dedicated and paved road giving access from the [Gallaghers’ property] to Aldershot Drive as now dedicated, at which time the right to the use of said portion ²⁰⁴ of said private road by [the Gallaghers] shall terminate” and (2) “[A]s part of the consideration for this agreement the [Gallaghers] do hereby covenant and agree for themselves, their heirs and assigns, that they will dedicate one-half of the streets bounding on their said property and shall share pro-rata the cost of the installation of said streets and the utilities by [the Bells].” The circumstances under which this agreement was negotiated and signed were in some dispute.

There was some evidence that at least one of the Bells refused to grant the right-of-way without the concomitant promise to dedicate and pay and that, given the position taken by their prospective lender, the Gallaghers really had no choice but to sign the agreement. The agreement was signed, however, and was recorded by the Bells among the county land records. Years passed without further contact between the parties. The Bells were small developers, building only a few homes a year, and, when they turned to develop the tract purchased from the Sisters, they started in the area of Bradley Boulevard.

Their progression toward the area of the Gallagher property was interrupted for several years by a State sewer connection moratorium decreed in the early 1970’s. At some point in late December, 1978, or early January, 1979, David Bell took to the Gallaghers a subdivision plat showing two proposed roads abutting their property—White Post Court on the north and Kendale Road on the west. The plat contained on it an “Owners Dedication” dedicating the necessary land for the roads shown on the plat. As with the 1961 agreement, there is some dispute as to how and when Mr. Bell presented the plat, but it is clear that the Gallaghers wrote on it “no objection,” signed it, and returned it to Mr. Bell.

They almost immediately had second thoughts, however, and, on January 5, 1979, wrote to the Bells withdrawing their “no objection” and signatures. The purported withdrawal notwithstanding, the plat was recorded, thereby carrying out one of the two covenants undertaken by the Gallaghers in their 1961 agree ²⁰⁵ ment and permitting the Bells to proceed with their development plans. Ten months later, in October, 1979, the Gallaghers sold their property to Deborah Camalier. Ms. Camalier, who became aware of the recorded 1961 agreement between the Gallaghers and the Bells, apparently insisted on an indemnity from the Gallaghers.

The Gallaghers thereupon signed and delivered to Ms. Camalier this agreement: “Consonant with the contract of sale of the residence at 9703 Kentsdale Drive, Potomac, Maryland, entered into between George R. and Judith K. Gallagher (sellers) and Deborah Camalier (buyer), on October 22, 1979, sellers agree to indemnify and to save the purchaser harmless against any agreement on file in the courthouse in regard to the expense of the road construction along the property lines of the above residence.” The Bells finally got started on the roads in the area of the Gallagher/Camalier property in 1983. In July of that year, they made demand on Ms. Camalier for some $18,000. When Ms. Camalier refused payment, relying on her indemnity agreement, the Bells made demand on the Gallaghers, and, when they rejected the demand, the Bells filed this lawsuit. It is undisputed that, at the time the suit was filed, the streets for which contribution was sought had not yet been completed.

The Gallaghers defended the action on a number of bases, including that the covenant they made in 1961 was a covenant running with the land and that their liability on it terminated when they conveyed the property to Ms. Camalier in 1980. If there is any continuing liability on the covenant, they argued, it is that either of Ms. Camalier or Mr. and Mrs. Sindelar, to whom Ms. Camalier conveyed the property in December, 1983. Regarding the nature of the covenant to be a factual matter, however, the court submitted the issue to a jury, which returned a verdict for the Bells in the amount of $7,000. ²⁰⁶ From the judgment entered on that verdict and the court’s refusal to grant a judgment n.o.v., the Gallaghers have brought this appeal. Although four issues are stated, three pertain to whether, as a matter of law, their 1961 covenant ran with the land.

The Gallaghers contend that the nature of the covenant was an issue of law to be decided by the court, that it should not have been submitted to the jury, and that, on this record, the court should have declared the covenant to run with the land. If it ran with the land, they continue, their liability under it ended when they conveyed the property. The fourth issue challenges the admission into evidence of their 1980 indemnity agreement with Ms. Camalier. Nature of the Covenant Covenants made by parties to the conveyance of an interest in land may be regarded as being either personal in nature or as running with the land.

The difference, as observed in 5 R. Powell, The Law of Real Property, § 673[1], p. 60-36, “hinges upon whether the original covenanting parties’ respective rights or duties can devolve upon their successors.” Normally, the question of whether a covenant runs with the land arises when either the party seeking to enforce the covenant is someone other than the original covenantee or when the party against whom enforcement is sought is someone other than the original covenantor. The issue then becomes whether the non-covenantee who has in some manner succeeded to the interest of the covenantee can enforce the covenant or, conversely, whether the non-covenantor who has succeeded to the interest of the covenantor is liable on it. This case is different. Here, the plaintiffs and the defendants are the original contracting parties.

The Gallaghers are being asked to perform on a promise they made directly to the Bells. The issue is still important, however, for, although the courts are not unanimous in this view, there is a body of law to the effect that, if the covenant runs with the land, ²⁰⁷ the liability of the covenantor ends when he conveys the burdened land. We shall explore this further at the end of this Opinion. The earliest source generally cited for the concept of a covenant running with the land and being enforceable by or against persons other than the original contracting parties is Spencer’s Case, 5 Co.Rep. 16a, 77 Eng.Rep. 72 (QB 1583).

The plaintiff there leased certain property to S for a term of 21 years. S, for himself and his executors and administrators, promised in the lease that he, his executors, administrators, or assigns would build a brick wall on the premises. S assigned his leasehold interest to J, who then assigned it to Clark. When the wall was not built, Spencer sued Clark on the covenant.

Although the Court denied recovery, it set out in its opinion a number of principles for determining when such extended liability would accrue. The two major criteria, known generally as the “in esse” and “touch and concern” tests, were summarized nearly three centuries later in Lynn v. Mount Savage Iron Co., 34 Md. 603, 634-35 (1871), as follows: “1st. That when the covenant extends to a thing in esse, parcel of the demise, the thing to be done by force of the covenant is in a manner annexed and appurtenant to the thing demised, and shall run with the land, and shall bind the assignee, although he be not bound by express words', as if the lessee covenant to repair the houses, this is parcel of the contract, and extends to the supporting of the thing demised; but, because the covenant in that case was in respect of a thing which was not in esse at the time of the demise made, but to be newly built after, and therefore bound only the covenantor, his executors or administrators, and not the assignee, the covenant did not, by the law, annex. 2nd. But if the lessee had covenanted for himself and his assigns, that they would make a new wall upon some part of the thing demised, that forasmuch as it is to be done upon the land demised, that it should bind the assignee; for although the covenant doth extend to a thing to be newly made, yet ²⁰⁸ it is to be made upon the thing demised, and the assignee is to take the benefit of it, and therefore shall bind the assignee by express words.” (Emphasis in original.) The questions addressed in Spencer’s Case have been before the courts many times and in many different contexts over the past 400 years, and, not unexpectedly, the principles laid down in that case have undergone some refinement.

Powell notes that “[t]he elements most often said to be required for covenants to run at law are that: (1) the covenant ‘touch and concern’ the land; (2) the original covenanting parties intend the covenant to run; and (3) there be some form of privity of estate.” A fourth requirement, “sometimes mentioned,” is that the covenant be in writing. § 673[1], pp. 60-37, 60-38. The Maryland cases, of which there are a plethora, seem to fall into four basic categories: leases containing covenants by the tenant to pay rent or taxes or to keep the demised property insured, or by the landlord, primarily in ground rent leases, to convey the reversion; 4 mortgages containing covenants by the mortgagor to pay the mortgage debt, keep the property insured, rebuild or repair in the event of damage, or pay ground rent and taxes; 5 covenants by the grantee in a deed to build or maintain some improvement or provide some service on the land conveyed; 6 and ²⁰⁹ cases in which a grantor or lessor imposes restrictions on 1 ^ the use of the land conveyed or leased for the benefit of other land. 7 Because each of these categories presents somewhat different considerations, we occasionally find the Court stressing one or two factors to the exclusion of others; but, on the whole, it seems that the four criteria mentioned by Powell are also required in Maryland. (a) Touch and Concern The “touch and concern” test is a key one. As early as Glenn v. Canby, supra, 24 Md. at 130, the Court announced as “established doctrine” that “a covenant to run with the land must extend to the land, so that the thing required to be done will affect the quality, value, or mode of enjoying the estate conveyed, and thus constitute a condition annexed, or appurtunent to it____” See also Whalen v. Balto. & Ohio R. Co., supra, 108 Md. at 20, 69 A. 390 : “The question as to whether the covenant runs with the land does not depend on its being performed on the land itself, but its performance must touch and concern the land, or some right or easement annexed or appurtenant thereto....” Each covenant carries with it a burden (to the covenantor) and a benefit (to the covenantee), and the language used to determine whether the covenant “touches and concerns” the land sometimes depends on whether the assignee in question is the plaintiff or the defendant.

The Maryland Court of Appeals, on several occasions, has defined the “touch and ²¹⁰ concern” test in terms of whether performance of the covenant will “tend necessarily to enhance [the] value [of the land] or render it more convenient or beneficial to the owners or occupants.” Whalen v. Balto. & Ohio R. Co., supra, 108 Md. at 20 , 69 A. 390 ; Md. and Pa. R. Co. v. Silver, supra, 110 Md. at 516, 73 A. 297 . That, of course, looks at the issue essentially from the benefit point of view. Powell, at § 673[2], p. 60-41, states that the generally accepted test for the “touch and concern” test is that proposed by Dean Harry Bigelow; i.e., “[I]f the covenantor’s legal interest in land is rendered less valuable by the covenant’s performance, then the burden of the covenant satisfies the requirement that the covenant touch and concern land.

If, on the other hand, the covenantee’s legal interest in land is rendered more valuable by the covenant’s performance, then the benefit of the covenant satisfies the requirement that the covenant touch and concern land.” Both Tiffany (3 H. Tiffany, The Law of Real Property, (3d ed. (1939)) and the Restatement of Property (§ 537 (1944)) generally adopt this more complete way of viewing the criterion. Tiffany states, at § 854, p. 455, “Ordinarily, ... a covenant is regarded as touching and concerning the land if it is of value to the covenantee by reason of his occupation of the land or by reason of an easement which he has in the land, or if it is a burden on the covenantor by reason of his occupation of the land.” 8 ²¹¹ Here, of course, we are concerned only with the running of the burden, for the party seeking to enforce the covenant is the original covenantee. There is no doubt that the covenantees would be benefited by performance of the promise; their interest in their land is obviously rendered more valuable by it.

It is equally true that, in terms of Dean Bigelow’s test, the Gallaghers’ interest in their property was immediately and continually rendered less valuable by the covenant. Even under the Restatement benefit-oriented test, the fact is that, while the particular covenant was a detriment to the Gallaghers, the transaction from which that covenant arose was of benefit to them. In return for their promise, they received a right-of-way that, at least arguably, they did not otherwise have and that was essential to avoid their being landlocked. Appellees throughout have regarded the extension of that right-of-way as valuable consideration and have not suggested that it does not bear a reasonable relation to the burden imposed on the Gallaghers.

Covenants to pay money have often been found to run with the land. See Chesapeake Ranch Club v. CRC Members, 60 Md.App. 609, 615 , 483 A.2d 1334 (1984); Powell, supra, § 675[2], p. 60-90; American Law of Property, supra, § 9.13, pp. 380-82; compare Sanitary Facilities II v. Blum, 22 Md.App. 90 , 322 A.2d 228 , cert. denied 272 Md. 748 (1974). In the cases cited in footnotes 4-7, supra, the Court of Appeals has found covenants to pay rent and taxes, to keep demised or mortgaged property insured, to ²¹² repair or rebuild such premises, and to build and maintain railroad depots and facilities on conveyed land to “touch and concern” the land. See also Maher v. Cleveland Union Stockyards, 55 Ohio App. 412 , 9 N.E.2d 995 (1936).

Certainly, this covenant has no lesser connection to the land. Under any of the tests noted, it clearly “touches and concerns” the land owned by the Gallaghers. (b) Intent The second factor mentioned by Powell is whether the parties intended the covenant to run with the land. Both the Restatement (§ 531, pp. 3196-98) and Powell (§ 673[2][b], pp. 60-47, 60-48) make clear that the benefit or the burden of a covenant will not pass to a successor in interest unless the parties intended that result. 9 Unlike the “touch and concern” test, which looks objectively at the nature and quality of the covenant and seeks to measure the relationship between its performance and someone’s enjoyment of land, the intention requirement “focuses on the subjective state of mind of the original covenanting parties.” Powell, supra, at p. 60-49.

Subjective intent is generally a question of fact for resolution by a jury, and, thus, if the issue is in dispute, it is ordinarily inappropriate for a court to decide it on motion. See Berkey v. Delia, 287 Md. 302 , 413 A.2d 170 (1980); DiGrazia v. County Exec. for Mont. Co., 288 Md. 437, 445 , 418 A.2d 1191 (1980). But that is not an absolute prohibition.

Like any other question of fact, if, after viewing the evidence and all reasonable inferences from it in favor of ²¹³ the non-moving party, the court is able to determine an answer as a matter of law, it may do so by granting a motion for judgment