Mayor of Baltimore v. Latrobe

Boyd, J., delivered the opinion of the Court. There are two appeals in this record—the one being by the Mayor and City Council of Baltimore v. Ferdinand C. Latrobe et al., Trustees, and the other a cross-appeal by those trustees from the rulings of the Baltimore City Court. Under and by virtue of an ordinance of the Mayor and City Council of Baltimore, passed in pursuance of an Act of the General Assem-, bly of Maryland, being ch. 87 of the Laws of 1904, what is known as “The Burnt District Commission” was authorized to acquire for the Mayor and City Council of Baltimore, by various methods named in the Act, including that by condemnation, the necessary property for the purposes mentioned —one being to open public squares. Provision is made for notice to those assessed for benefits or to whom damages are ⁶²⁶ awarded in the condemnation proceedings, and the right of appeal to the Baltimore City Court is given, where the right of a jury trial is secured, and “the damages and benefits assessed by the commission to the' appellant shall be open for review and correction by the said City Court.” The statute further provides for an appeal to this Court.

Amongst other improvements proposed is a plaza along St. Paul street from Lexington to Fayette streets. Included in that territory is a lot fronting 28 feet on St. Paul street, and having a depth of 123 feet, in which the trustees have an irredeemable ground rent of $300 per annum, which we understand from the statements of counsel to be for 99 years, renewable forever, on the terms usual in such leases in the city of Baltimore and elsewhere in this State, although we do not find it so stated in the record. The Burnt District Commission condemned 28x90 feet of that lot, leaving in the rear of it 28x33 feet- It awarded to the trustees the sum of $8,000 and provided that the ground rent be reduced to the extent of $24o, leaving a rent of $60 per annum on the portion of the lot not taken. The city took an appeal and the case was submitted to the Court, without the. intervention of a jury, and it found that the trustees, as owners of the ground rent, were damaged to the amount of $2,500 by being restricted to the collection of the rent to the lot of 28x33 feet—that amount being the damage to the market value of their ground rent.

The city offered three prayers and the trustees one. The first of the city asked the Court to declare that as the undisputed evidence shows that the lot of 28x33 feet is ample security for the $500 ground rent, the trustees are not entitled to recover any compensation. The second asked it to declare' that the $300 rent continues upon the lot 28x33 feet and the owners were not entitled to compensation, and the third that if the Court, sitting as a jury, should find that the rent of $300 is fully secured by the lot of 28x33 feet, the trustees are not entitled to any compensation. That of the trustees asked the Court to say that in estimating the damages to them the Court, sitting as a jury, was to bear in mind that the ground rent would be reduced ⁶²⁷ from $300 to $60, and that the rent of $60 would be confined to the portion of the lot not taken by the city.

The Court rejected all of the prayers and each party entered an appeal to this Court. The record does not show whether the interest of the owner of the leasehold was included in the same proceeding as this, as would seem to be proper in order that their respective rights should be properly determined and adjusted, but since the argument a petition was filed in this Court by James A. Whitcomb, which alleges he is the owner of the leasehold interest and asks the privilege of filing a brief. From what is stated in that petition we infer that the proceeding was against the trustees and the owner of the leasehold interest. The latter took an appeal from the award of the commission to the Baltimore City Court, and then removed it to the Circuit Court of the United States for the District of Maryland.

According to the allegations of the petition, an appeal has been taken by the Mayor and City Council of Baltimore from the action of that Court to the United States Circuit Court of Appeals, which is still pending. It is stated in the bills of exception that the evidence introduced in the lower Court tended to prove, amongst other things, that the value of the ground rent on the entire lot was ascertained by capitalizing the $300 at 3 per centum ($10,000) and that the value of the ground rent ($300) on the 28x33 feet could be ascertained by capitalizing it at 4 per centum ($7,S°o), thus lessening the market value to the amount of $2,500, and that the value of the remaining lot after the plaza is constructed will be $15,000. As indicated by our reference to the prayers, the contention of the city is that the owners of the ground rent are not entitled to any damages, because the remaining lot fully secures their rent, and that on the part of the trustees is that the award of the Burnt District Commission followed the correct way of compensating them. The contention of the city that no damages can be allowed because the rent is amply secured by the portion of the lot not taken cannot be sustained.

Passing for the present the question ⁶²⁸ whether, when part of a lot is taken .under the power of eminent domain, on which there is a ground rent, there can be an apportionment or abatement of the rent, we cannot understand how it can be said that the owner of the ground rent is not injured by taking nearly three-fourths of the lot included in the lease. It cannot be denied that it is private property which cannot betaken for public use “without just compensation, as agreed upon between the parties, or awarded by a jury being first paid or tendered,” to use the language of sec. 40 of Art. 3 of our Constitution. The city so recognized it by the condemnation proceedings. It may be true, and the evidence tends to so show, that the portion of the lot not taken is sufficient to secure the $300 per annum, but that is not the question.

It is possible that conditions may at sometime exist that will materially lessen the value of the remaining lot, and make it worth less than $15,000, but, if there be no danger of that, the evidence tends to prove that it is now what is called a 'three per centum ground rent—that is to say, by reason of the security which the lot in its entirety affords, it is worth in the market $10,000—while it will only be a four per centum ground rent after the portion condemned is taken, which is only worth $7,500. The record, which'is very meagre, does not show when the lease was made, but prior to the enactment of the statute prohibiting them, irredeemable ground rents were permitted in this State, and, as this is said to be one, the lease must have been executed before the statute referred to. The parties then had the right to agree upon the amount of rent to be reserved, and the quantity of land to be included, and upon what principle can the city of Baltimore, or any other corporation authorized to exercise the right of eminent domain, say that nearly three-fouths of the fland included in such a 'ease by the contract of .the parties can be taken without any compensation to one of the contracting parties? It might under some circumstances be very small, or the benefits authorized to be assessed might be equal to the damages awarded, but surely it cannot be said that an owner of an interest in land who can obtain $10,000 for it is not en ⁶²⁹ titled to any compensation when it is shown that his interest will only be worth $7,500 after the public takes what it wants'.

In Mayor, etc., of Baltimore v. Rice, 73 Md. 307 , this Court had under consideration the question of compensation to a lessee, whose lease was only for a year at a time, in a proceeding relative to the opening of a street. It was there said “In this State no man’s property can be taken for public use before he is paid the value of it. The evidence tended to show that Rice’s brick yard, though held by a precarious tenure, had a large market value. A thing is worth what it can be sold for. * * * It is not a question of the permanency of his title to real estate, but of the saleable value of such interest as he had." We cannot close our eyes to the fact, which is frequently before us, that ground rents, especially in Baltimore City, are constantly being sold and have market values (resembling somewhat those of bonds and stocks), depending upon the manner in which they are secured and the length of time they are to continue.

As under our system the taxes are paid by the owner of the leasehold interest, when well secured they are in demand and frequently realize prices far beyond what they could have been capitalized at when the leases were originally made. We do not doubt the correctness of the rulings of the Court in rejecting the prayers offered by the city. The remaining, and we must confess somewhat difficult, question is, what rule shall prevail in this State, where the system of ground rents is peculiar, when a portion of a lot subject to an irredeemable ground rent, renewable forever, is taken under the power of eminent domain ? When the entire lot included in the lease is taken the question is one of comparatively easy solution, but when, as in this case, only a portion is condemned many difficulties are suggested, and it is not easy to adopt a general rule that'will always do full justice to the condemning party, the owner of the fee and the leaseholder.

The condemning party, as a rule, ought not to be required to pay for the two interests more than the portion taken would be worth if owned by one person. It is said in ⁶³⁰ Lewis on Eminent Domain (2nd ed.), sec. 483: “When there are different interests or estates in the property, the proper course is to ascertain the entire compensation as though the property belonged to one person, and then apportion this sum among the different parties according to their respective rights ” In Gluck v. Baltimore, 81 Md. 320 , this Court, through Judge JVIcSherry, said “The owner of the leasehold, and the owner of the reversion, together hold the fee-simple estate. Each has a distinct estate or property. ‘The interest of a termor, in the eye of the law, is just as potential as that of the owner of.the fee, although in fact it may not practically be so valuable. B. & O. R. R. v. Thompson, 10 Md. 87 ,’ ” and after stating that such interests are protected by Art. 3, sec. 40, of the State Constitution, Judge McSherry added, “Whatever be the method of ascertaining the values of these distinct interests, it is evident that the sum of those values must be the full value of the property taken.” The method of determining the amount which the condemning party ought, as a general rule, to be required to pay is therefore quite well settled, although there may be exceptions to that rule as indicated below, but whether the general rule applies or not the question still remains, how are the damages to be apportioned between the reversionary and leasehold interests?

In considering that it may not be out of place, before citing authorities on the subject, to endeavor to ascertain the practical results from the several methods adopted. If the whole lot is worth $60,000, and the part left is worth $15,000, prima facie that taken should be valued at $45,000; as the damage to the two interests, but still the-inquiry is, how much to each ? If the method adopted by the Court below is followed, the reversioner would be entitled to $2,500, plus the whole rent on the remaining lot, and the leaseholder to $42,500 of that fund, and if the remaining lot is worth $15,000, and there is a four per centum ground rent on it for the whole rent ($300), then each of them would have a value of $7,500 in that—thus making the leaseholder’s interest in the whole, including the damages paid him» ⁶³¹ $50,000 and the reversioner’s interest $10,000. If on the other hand the reversioner is paid $8,000 out of the $45,000, there would be left for the leaseholder $37,000, and as his rent would be reduced from $300 to $60, if the latter be capitalized at 3 per centum ($2,000), the leaseholder would have an interest in the remaining lot worth $13,000, which added to the damages received by him would be $50,000—the same that he would have by the other method, the only difference being that by the first method he would receive more cash, and by the latter have a larger interest in the remaining lot.

We do not overlook the fact that although the reversioner’s interest may be worth $10,000, the capitalization at 3 per centum in the market, still the leaseholder might say that he could sell his interest on a basis that would allow a capitalization of the rent at the rate of 4 per centum, for example, and hence the leasehold in the whole lot would be worth $52,500, instead of only $50,000. But it is impossible to provide by a general rule for all contingencies in such cases, and after all it is for the jury to determine what their respective interests are worth; and we are therefore of the opinion that owing to the peculiar character of this class of property, if it be proven that the reversioner’s interest was worth $ 10,000 and the leaseholder’s $52,500, the latter sum could be allowed, although the whole property,:if no ground rent had been on it,would only have been worth $60,000. We say that because each is entitled under the Constitution to be compensated in damages for the amount of his interest taken, and if it be true that the values of the two interests are more than what the lots would be worth, if owned by one person, the necessities of the case require an apparent exception to the general rule announced above, as to what the condemning party must pay. It was said in Gluck’s case that “the owner of each separate interest has the constitutional right to be fully compensated before his estate can be lawfully taken for a public use,” and as the two interests are not only distinct, but may be somewhat conflicting in a case of this character, we must, in order to do justice to both and ⁶³² to comply with the requirements of the Constitution, recognize an exception to the general rule.

Indeed when a piece of property which is subject to an ordinary lease for a short term is taken, it may happen that although the owner of the fee is allowed full value for the property, the tenant must also be paid a large and substantial amount in addition, by reason of the value of his lease. But the jury, or other tribunal authorized to make the award, should always keep the value of the entire property in mind, and should limit the whole amount to be paid to that value, unless it is clearly shown that the lessee is entitled to more than the difference between what they allow the reversioner and what the whole property would be worth in the market, if there had been no ground rent. The reversioner is undoubtedly entitled to what his interest is worth m the market and prima facie the leasehold is charged with that value. Of course we are aware that the market value - may vary according to the conditions of the money market and other circumstances, but so will the leasehold interest vary and the jury must be governed by the values of each, at the time.

We have seen that the leaseholder practically gets the same compensation whether the one or the other of the two methods above-mentioned be adopted, but it is manifest that this may not be so with thereversioner, or possibly with others. If all but a few feet, or a few inches, of a lot be taken (not being enough to secure the whole rent), while the compensation in cash allowed might be correspondingly increased over what he is allowed when the remainder of the lot is sufficient to secure the ground rent, still placing the whole of the rent on the part not taken might work great injustice. In the first place the original lessee would still be liable for the rent under his covenant in the lease, notwithstanding he has assigned it, for the owner of the fee can proceed against the original lessee by virtue of his covenant, or against the present holder of the lease by reason of his privity of estate. Hintze v. Thomas, 7 Md. 346 , and many other cases so deciding.

As irredeemable ground rents were not prohibited in this State until 1884, it is readily seen that ⁶³³ there may still be a great many persons living, who entered into covenants to pay the rent in such leases made prior to that time, and indeed there may be many lessees who entered into covenants in leases made since that date who have assigned them but could only relieve themselves of the covenant to pay by redeeming the rent under the Acts of 1884, 1888 or 1900 (according to the dates of leases), now codified in Code of 1904, Art. 53, sec. 24. If the original lessee be dead, or financially irresponsible, and the lease be assigned to some one from whom the rent cannot be made, the reversioner cannot recover, and, if the remainder of the property be insufficient, he would in many cases be without any effective remedy, and yet it might in some cases affect the amount he would receive out of the damages allowed, if such a rent is still to be retained by him. If it does not so affect it then the leaseholder might suffer, for the amount paid to the reversionor might be considered in allowing compensation to the leaseholder, and he would still be liable for the whole rent as long as there was privity of estate, if he was an assignee, or as long as he was financially responsible, if he was the original lessee. It would seem therefore that the more equitable method would be to apportion or abate the rent, if that can be done, and hence we will now determine that precise question.

It was said at the argument that the case of Gluck v. Baltimore, supra, w'as thought by the lower Court to settle it, and it is so contended by the City Solicitor, as well as by the counsel for the leaseholder in the brief filed by him. It must be conceded that that case does give considerable ground for that contention, but when it is limited, as all decisions must be, to the facts and conditions shown to there exist, it is by no means conclusive of what is now before us. Gluck was the owner of a leasehold interest, under a lease executed on April 14th, 1885, for twenty years, which was not renewable. When it was heard in this Court ten years of the term had expired, and the intention of the parties is very clearly indicated by the terms of the lease that the lessee’s interest should cease at the ⁶³⁴ end of the term, and it was provided that a building to be erected by the tenant should become the property of the lessor at that time.

The tenant was even prohibited from assigning or sub-letting the premises without the consent in writing of the lessor. The rent reserved was $ 1,000 per annum payable monthly. When therefore the city of Baltimore took the front part of the premises, including a portion of the building and an elevator, it was an easy matter to determine the loss to the tenant for the ten or eleven years he still had the right to the property and the damages sustained by him to the buildings, and the injury to the fee could be determined without difficulty. The latter belonged to the lessor, and at the expiration of the lease he was to get the