Layton v. Petrick

Singley, J., delivered the opinion of the Court. This litigation, which evolved from an attempted assignment of a lease, has been pending in the Circuit Court for Harford County since November, 1971, and is making its second visit to this Court. The factual background which gave rise to the litigation is simple. Paul J. Petrick and Margaret Petrick, his wife, (the ⁴²³ Petricks) are the owners of a 37.166-acre tract near Joppa, Maryland.

Approximately 1.72 acres of the tract were occupied by Evershield Products, Inc. (Evershield), substantially all of the stock of which was owned by the Petricks. On 3 October 1969, as an incident to the acquisition of the stock of Evershield by Micamatix Corporation (Micamatix), the Petricks entered into an indenture of lease with Evershield, which purported to lease to Evershield a parcel 500 feet by 150 feet, improved by an office and machine shop then occupied by Evershield. 1 The lease was for an original term of 40 years, with an option to renew for an additional term of 59 years. The rent reserved for the original term was $3,300.00 per year, net of all property expenses, which were deemed to be additional rent for the purposes of the lease; for the first five years of the renewal term, rent was fixed at 6% per annum of the appraised value of the land subject to the lease; for the next five years, at 7%, and then for the balance of the renewal term, at 8%, in each case again net of all property expenses. Although forms of acknowledgment had been appended to the lease for the Petricks and Evershield, these forms were never completed.

The lease was not recorded until May, 1971. In that month, some 17 months after the execution of the lease, Evershield and Micamatix 2 joined in an assignment of all their interest in the lease to Robert P. Layton, a member of the New York bar, as additional security for the payment of a note evidencing a loan of $30,000.00 made by Layton to Evershield. The assignment gave Layton the right to possession in the event of a default in the performance of the covenants of the lease or in the performance of the provisions of the loan agreement or other security instruments. The assignment was executed in behalf of ⁴²⁴ Evershield and Micamatix, but was not acknowledged by either of them.

Commencing in August, 1971, and continuing until February, 1972, Layton paid rent to the Petricks. There was testimony that payments of $1,850.00, and $131.00 in court costs, were made to obtain dismissal of an ejectment action brought by the Petricks. The record does not reveal against whom the action was instituted. Payments of rent ceased apparently in accordance with the terms of an oral stipulation between the Petricks and Layton pending disposition of the action for specific performance brought by Layton against the Petricks.

In November, 1971, as a result of a default in the payment of the Evershield note, Layton filed a bill of complaint in the Circuit Court for Harford County against the Petricks seeking specific performance of the lease of which he was the assignee and an ex parte injunction restraining the Petricks from entering the leased premises. The injunction issued, pending negotiations. After several months of preliminary sparring, the Petricks filed an answer to the bill of complaint and a motion for summary judgment, both of which were largely grounded on the point that the 1969 lease, being for a term of more than seven years, was required to be recorded by Maryland Code (1957, 1966 Repl. Vol., 1969 Cum.

Supp.) Art. 21, § 1 (a); and that since it had not been acknowledged, Code (1957, 1966 Repl. Vol.) Art. 21, § 12, it could not be recorded, see Clarke v. Brunk, 189 Md. 353, 360 , 55 A. 2d 919, 922 , (1948). After a hearing, the motion for summary judgment was granted, but no written order was entered by the chancellor. An appeal was taken to this Court which we dismissed on 6 February 1973, relying upon Kennedy v. Foley, 240 Md. 615 , 214 A. 2d 815 (1965).

When the case returned to the trial court, Layton countered with a motion for reargument which was followed by the Petricks’ motion ne recipiatur and motion to strike. On 22 August 1973, the motion for summary judgment was denied. A series of delays followed at the request of both parties, and an evidentiary hearing was eventually held on ⁴²⁵ the bill of complaint and answer on 16 April 1975. From an order dismissing the bill for specific performance, Layton appealed to the Court of Special Appeals.

We granted certiorari before the case was heard by that court. We think the chancellor was pertially correct when he applied the recordation statute which was in effect in 1969, when the lease was executed. At that time, Code (1957, 1966 Repl. Vol., 1969 Cum.

Supp.) Art. 21, § 1 (a) provided: “No . . . estate above seven years, shall pass or take effect unless the deed conveying the same shall be executed, acknowledged and recorded as herein provided; . . . and provided, further, that whenever a lease or sublease to which this section shall apply has been executed, but has not been acknowledged or recorded ... as herein provided, such lease or sublease shall, notwithstanding the provisions of this section, be valid and binding, and of full force and effect both at law and in equity, between the original parties to such lease. . . .” (emphasis supplied). It was his interpretation of the effect of the statute which must be reexamined, however. The chancellor found as a fact that neither the lease nor the assignment had been acknowledged at the time of execution; that inexplicably, an unacknowledged copy of the lease had been caused to be recorded among the land records of Harford County in May of 1971, prior to the institution of the action for specific performance, despite the provisions of the Code requiring recorded instruments to be acknowledged. There was a further finding that the assignment had never been recorded among the land records although what purported to be an acknowledgment had somehow been completed on 7 November 1973, well after the institution of this proceeding.

The chancellor determined, and we agree, that the unacknowledged lease was valid as between the Petricks and ⁴²⁶ Evershield, the parties, despite the fact that the absence of the acknowledgments may not have been corrected by the curative act, Code (1957, 1966 Repl. Vol., 1971 Cum. Supp.) Art. 21, § 99. While none of our cases may flately so hold, see, however, Adams v. Avirett, 252 Md. 566, 568 , 250 A. 2d 891 (1969); Note, Absolute Necessity of Acknowledging a Deed of Gift in Maryland, 12 Md. L. Rev. 166 , 173 (1951), it is palpably clear that the thrust of the present curative act, now Code (1974), Real Property Article § 4-109 (c) (1) and (4) is directed at a defective acknowledgment, and not at the complete lack of an acknowledgment of consideration or disbursement.

In any event, the new curative act, § 4-109, is by its terms not applicable to a defective grant recorded before 1 January 1973 if the defect, as it was here, is challenged in a judicial proceedihg commenced by 1 July 1973. For reasons to be developed, we think that the rights and responsibilities of the parties to the lease do not hinge entirely on the curative act. More than three decades ago, Maryland landlords and tenants adopted a practice of not recording long-term leases for commercial and mercantile properties, apparently because of the reluctance of one or both of the parties to make a public disclosure of the amount of rent reserved, particularly in instances where the rent was fixed as a percentage of sales. In 1948, our predecessors decided two cases which unsettled the business community.

Both involved unrecorded leases for terms greater than seven years. In Hyatt v. Romero, 190 Md. 500 , 58 A. 2d 899 (1948), the lease was for an initial term of six years with an option to renew for an additional period of six years. The Court concluded that, since it was not the intention of the parties that a new lease be entered into upon exercise of the renewal option, the lease was actually for a period of more than seven years, and, therefore, could pass no legal interest or estate in the land if not recorded as required by Code (1939) Art. 21, § l, 3 ⁴²⁷ which was then in effect, but that a tenancy, upon all terms of the lease except as to duration, would be implied from the lessee’s occupancy of the premises and the payment of rent which was accepted by the lessor. Exactly two months later, the Court decided Darling Shops Delaware Corp. v. Baltimore Center Corp., 191 Md. 289 , 60 A. 2d 669 , noted in 9 Md. L. Rev. 362 (1948).

There, the tenancy was for a term of 10 years, but the lease was not recorded. Relying on Hyatt v. Romero, supra,