Hebron Savings Bank v. City of Salisbury

Hammond, C. J., delivered the opinion of the Court. Hebron Savings Bank (Hebron) sued the City of Salisbury (the city) to recover damages alleged to have been suffered as a result of the demolition by the city, without giving notice to Hebron, of a residence on which it held a mortgage. Judge Travers held that the ordinance under which the city acted is valid and constitutional, and that since the city had acted in a governmental capacity it enjoyed immunity from suit even if it acted improperly or illegally. We agree with the first holding which is not challenged on appeal (see Burns v. Midland, 247 Md. 548, 552-553 ), but disagree with the second.

The case was briefed and argued here on an agreed statement of facts. James Hurley and Margaret, his wife, ²⁹⁷ bought an old house on East Church Street in Salisbury in 1963 for $6,000 and spent some $1,500 on non-structural renovations. In March 1966 they borrowed $20,000 from Hebron and secured the loan by a mortgage covering the Church Street property, a vacant lot, and a building on Monticello Avenue. Hebron’s appraisers valued the Church Street house and lot at $5,000 and $1,000, respectively, the Monticello Avenue property at $22,000 and the vacant lot at $3,000.

In June 1966 the city addressed a letter to the Hurleys that was served on Mrs. Hurley, advising them that the Church Street house was in violation of the city Housing Code and that listed structural defects must be repaired or corrected within sixty days. The letter advised the Hurleys that they could appeal the order to the city Board of Adjustments and Appeals within thirty days. The city had caused the land records and the tax records to be checked to determine ownership. Although the Hebron mortgage was duly recorded, it was overlooked, and the city was not aware of its existence until claim for damages was made.

Mr. Hurley discussed the situation with the director of the city’s Bureau of Inspections in the hall of the courthouse and later obtained from him a list of persons who repaired or demolished houses. Several days later, Mr. Hurley asked if the Fire Department would burn the house, and after a visit to the site it was decided that the house was too close to other properties to be burned safely. Thereafter Mr. Hurley appeared at City Hall and advised, the Director and a secretary that he was not going to make repairs and desired the city to obtain bids for the demolition of his house. Mr. Hurley admitted these conversations but denied he authorized demolition.

The house was demolished by the city in December 1966 without notice to Hebron. The Monticello Avenue property was released from the mortgage by Hebron prior to the demolition upon receipt of $14,946.83, the proceeds of a private sale. After the demolition the original vacant lot and the newly become vacant lot were sold at foreclosure sale for $2,500 and (ap ²⁹⁸ parently) $500, respectively. There remained a principal deficiency of $1,955.56 and a claim to $311.34 interest to November 12, 1969. “The bank did not make any effort to enter a personal judgment against Mr. and Mrs. Hurley [who had separated in the course of the events enumerated earlier] for the deficiency or make any other effort to collect said deficiency from them,” and it may reasonably be inferred that this was because there was nothing to collect.

There was testimony from Hebron that the Church Street house was still worth $5,000 when it was torn down and testimony by city inspectors that it was unfit and unsafe for human habitation. It is agreed that the Charter of Salisbury authorizes the regulation and inspection of buildings and structures and the demolition of them when dangerous or insecure, and provides that the city may “require that such buildings and structures be made safe or taken down.” The Charter further provides that in order to preserve “the cleanliness, health, peace and good order of the community * * * and to suppress, abate and discontinue or cause to be suppressed, abated, or discontinued, all nuisances * * * the council may pass all ordinances or bylaws from time to time necessary.” Pursuant to its delegated power, the city enacted a housing code. Article II, § 8A-22 defines an unsafe building (“unsafe, unsanitary, unfit for human inhabitation * * * not provided with adequate egress * * * a fire hazard * * * [or] otherwise dangerous to human life”). Section 8A-23 says: “All unsafe buildings are hereby declared illegal and shall be abated by repair and rehabilitation, or by demolition in accordance with the following procedure.” Section 8A-24 provides that when a city building inspector finds any building unsafe he shall give written notice (by registered or certified 'mail or by personal service) “to the owner, agent or person in control of such building * * * stating the defects thereof.” The notice shall require “the owner” within sixty days “either to complete specified repairs or improvements, or to demol ²⁹⁹ ish and remove the building * * *.” Section 8A-26 gives a right of appeal “except in cases of emergency” to the Board of Adjustments and Appeal “to show cause why [the owner] should not comply with such notice.” The parties differ as to whether Hebron was entitled to notice under the ordinance or as a matter of due process.

Article I, § BA-1 of the Housing Code defines owner as used in the Code as follows: “Owner. Includes his duly authorized agent or attorney, a purchaser, devisee, fiduciary and a person having a vested or contingent interest in the property in question.” A mortgagee comes within the definition for several reasons. In Maryland the mortgagor of real estate is regarded as the beneficial owner of the mortgaged property but the mortgage conveys the whole legal estate to the mortgagee, subject generally to the condition subsequent that upon due payment of the mortgage debt and on performance of all the covenants by the mortgagor, the mortgage deed is avoided. Williams v. Safe Deposit & Trust Co., Trustee, 167 Md. 499, 504 .

In addition, an “owner” under the definition of the Housing Code is one “having a vested or contingent interest in the property in question,” and clearly this included Hebron. The provisions of the Code as to notice must be deemed to reflect the need to meet the requirements of due process of law in the situations they deal with. See Burns v. Midland, cited earlier, where at page 558 of 247 Md. this Court said: “The Mayor and City Council of Midland, an incorporated community, was authorized by the Legislature to pass such an ordinance as the one here involved. Nevertheless, the procedure under such an ordinance, if the enactment is to be valid, must provide for the fundamentals of due process of law. “A basic requirement of due process in any adversary proceeding, whether that proceeding be private litigation or the exercise of governmental power against an individual, is that the person ³⁰⁰ proceeded against be given notice and an adequate opportunity to contest the claim against him. * * *.

These requirements may not be applicable when the necessity for summary action in an emergency situation to protect the public health or safety is clear. * * *. Absent such an emergency, even though the scope of a legislative enactment is within the police power, action under the enactment is invalid unless the procedure complies with constitutional requirements. * * See too Jarvis v. Baltimore City, 248 Md. 528 . What then are the consequences of the city’s failure to observe the requirements of due process spelled out in its Housing Code ? We think that under the circumstances in this case if the house had any actual value to Hebron as of the time it was torn down, the demolition amounted to a taking of Hebron’s property for which the city must pay compensation.

Under the police power the State or its authorized agency or subdivision may prevent an owner of property from using it in a manner that inflicts or threatens public harm or from permitting it to remain in a condition to inflict or threaten such harm.