Ochse v. Henry

HOTTEN, J. Appellants, Steven J. Ochse and Shari Ochse (“the Ochses”), purchased residential property in Dorchester County from Appellees, William 0. Henry and Jessie Henry (“the Henrys”). The Ochses filed a “Complaint for Reformation and for Declaratory, Injunctive and Related Relief’ in the Circuit Court for Dorchester County against the Henrys regarding references in the deed concerning the ability of others to use the Ochses’ driveway. The Ochses joined Dorchester County as a defendant after the Henrys presented a 1919 deed purportedly conveying to Dorchester County a 30-foot wide strip of land over the Ochses’ property in fee simple.

The Ochses and Dorchester County filed cross-motions for summary judgment. Ruling on the motions, the circuit court held that the county owned a 30-foot wide strip of land at some unidentified location on the Ochses’ property that divided the property into two smaller separate parcels. At the conclusion of trial, the court ruled in favor of the Henrys, reserving on the question of attorney’s fees. Thereafter, the circuit court entered judgment in favor of the Henrys in the amount of $100,020.00 for attorney’s fees.

The Ochses timely appealed and posted a cash security in lieu of an appeal bond to stay enforcement of the judgment. 1 This Court ordered mediation on February 23, 2010. Dorchester County was dismissed from the case once the county conveyed its interest in the 30-foot wide strip to the Ochses. The Ochses present the following issues for our review, which we quote: ⁵²⁶ 1. Did the Trial Court err in determining that the Henrys did not breach their special warranties to the Ochses? 2.

Having found that there was a mutual mistake of material fact by the parties as to the existence of a 30-foot strip of land owned in fee simple by the County that bisected the property sold by the Henrys to the Ochses, did the Trial Court err in holding that the contract of sale was merged into the deed? 3. Did the Trial Court err in applying Maryland law to the evidence of record with respect to its finding that the Henrys did not make material misrepresentations to induce the Ochses to enter into the contract to purchase the property from the Henrys? For the reasons that follow, we shall reverse the judgment of the circuit court. 2 FACTUAL AND PROCEDURAL BACKGROUND Dorchester County sought to build a new county road to access the properties of several landowners. On March 2, 1919, the county acquired a fee simple determinable interest in a 30-foot wide strip of land from H.B. and Nora Messenger through a deed, which in relevant part, stated: if the said road is abandoned by the said County Commissioners of Dorchester County, or their successors in office, the lands hereby conveyed shall revert back to the said grantors, their heirs and assigned, so far as the same are within the bounds of the lands of the respective grantors ____ ⁵²⁷ On November 23, 1929, H.B. Messenger conveyed by deed his property to Dorchester County following a tax sale, but on June 17, 1930, Dorchester County reconveyed the same property to H.B. Messenger and Esther White Messenger. 3 On June 29, 1972, H.B. Messenger deeded a thirty-five acre parcel of land to R.T.R., Inc. The Henrys purchased the thirty-five acre tract from R.T.R., Inc. on March 19, 1987.

The Henrys constructed a culvert 4 across a branch of Marshy Hope Creek, known as the Miles Branch. The culvert allowed access to Mowbray Creek Road, a private road that ended on the other side of the Miles Branch, from the dirt driveway on the property. The Henrys resided in a farmhouse on the property and constructed a second home on the property. Following an unsuccessful attempt to sell the second residence, the Henrys subdivided a 4.791 acre parcel around the second residence, reserving 15.209 acres on the larger parcel to meet the 20 acre critical area requirement.

Dorchester County approved the subdivision on July 22, 1998. The Henrys, thereafter, listed the subdivided parcel for sale as a residence on a 4.791 acre parcel that was owned in fee simple. The Henrys provided disclaimers to prospective purchasers, verifying that there were no recorded or unrecorded easements other than for utilities. Mr. Henry gave the Ochses tours of the subdivided property and its boundaries on at least three occasions.

On September 13, 2001, the Ochses entered into a contract with the Henrys to purchase the subdivided property. ⁵²⁸ The Henrys conveyed a fee simple interest in approximately 4.791 acres to the Ochses as tenants by the entireties on December 14, 2001. The deed from the Henrys to the Ochses indicated that the interest was “SUBJECT, HOWEVER, to the rights of others legally entitled to the use of a ‘Driveway,’ for purposes of ingress, egress and regress” over the property. At closing, the title company agent advised the Ochses that the reference in the deed to the use of a “Driveway” simply referred to utility easements. On December 11, 2007, the Ochses filed a complaint against the Henrys, seeking reformation of the deed, a declaratory judgment, injunctive relief, and damages for breach of contract, breach of special warranties, and fraud in the inducement.

An amended complaint naming Dorchester County was subsequently filed on April 11, 2008. The Henrys filed a counterclaim for attorney's fees based on the underlying contractual provision between the Henrys and the Ochses, which specifically survived any merger with the deed, to which the Ochses responded. On August 4, 2008, the circuit court, in its rulings on cross-motions for summary judgment filed by the Ochses and Dorchester County, declared that Dorchester County owned the 30-foot wide strip of land across the Ochses’ property in fee simple. After a two day bench trial, the circuit court concluded that the contract merged into the deed and that there was no breach of the special warranties of title. 5 The circuit court refused to reform the deed or issue a declaratory judgment with injunctive relief.

The court then entered a judgment in favor of the Henrys against the Ochses for attorney’s fees in the amount of $100,020.00 based on the “fee-shifting provision” in the parties’ contract, which specifically stated that the “fee-shifting provision” did not merge with the deed. Finally, the circuit court denied the Ochses’ request for a right-of-way by necessity because the Ochses’ property was not landlocked. ⁵²⁹ The Ochses filed a timely appeal, and we ordered mediation. As a result of the mediation, Dorchester County executed a quitclaim deed, giving the Ochses the county’s interest in the 30-foot wide strip of land over the Ochses’ property. Dorchester County was later dismissed as a party to this appeal.

STANDARD OF REVIEW When an action has been tried without a jury, we “review the case on both the law and the evidence.” Md. Rule 8-131(c). We, however, “will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Id. “The deference shown to the trial court’s factual findings under the clearly erroneous standard does not, of course, apply to legal conclusions.” Nesbit v. Gov’t Employees Ins. Co., 382 Md. 65, 72 , 854 A.2d 879 (2004). Where a case involves the “application of Maryland statutory and case law, our Court must determine whether the lower court’s conclusions are ‘legally correct’ under a de novo standard of review.” Walter v. Gunter, 367 Md. 386, 392 , 788 A.2d 609 (2002).

DISCUSSION I. Covenants The Henrys presented both a special covenant against encumbrances and a covenant of special warranty of title in the deed to the Ochses, which stated: And the said Grantors do hereby covenant that they have not done or suffered to be done any act, matter or thing whatsoever to encumber the property hereby conveyed; that they will warrant specially the property hereby conveyed; and that they will execute such other and further assurances of the same, as may be requisite. The Ochses argue that the circuit court erred in determining that the Henrys did not breach the special covenant against encumbrances or the covenant of special warranty of ⁵³⁰ title. They contend that the Henrys’ execution and recording of the 1998 subdivision plat created serious title problems for the Ochses as purchasers of the subdivided parcel. The Henrys counter that even though the Ochses did not raise the issue of special covenant against encumbrances at trial, the circuit court correctly found no breach because the Henrys were unaware of the 1919 deed and did not act to affect the title or create an encumbrance during their ownership.

A. Special Covenant against Encumbrances “An encumbrance is any right or interest held by someone other than the grantee or grantor which diminishes the value of the estate but not so much that it leaves the grantee with no title at all.” Magraw v. Dillow, 341 Md. 492, 502 , 671 A.2d 485 (1996) (emphasis added). Though it has no precise meaning, an encumbrance “includes security instruments, leases, mechanics’ liens, property tax assessment hens, easements, future interests and covenants running with the land at the time of conveyance, other than those specifically set forth in the deed.” Id. A covenant against encumbrances is a “present covenant” that is breached upon delivery of the deed if any encumbrance exists. Marathon Builders, Inc. v. Polinger, 263 Md. 410, 414 , 283 A.2d 617 (1971). “They do not usually run with the land, but serve only to benefit the covenantee.” Magraw, 341 Md. at 502 , 671 A.2d 485 (citing Levine v. Hull, 135 Md. 444, 447 , 109 A. 141 (1919)).

The covenant that the grantor has not encumbered the property has been codified in Md.Code (2010), § 2-110 of the Real Property Article (“R.P.”), which states: A covenant by the grantor in a deed “that he has done no act to encumber the land” has the same effect as if he had covenanted that he had not done, executed, or knowingly suffered any act or deed whereby the land granted, or intended to be, or any part of it, is or will be charged, affected, or encumbered in title, estate, or otherwise. ⁵³¹ “The special covenant against encumbrances, expressed either in the abbreviated form of [R.P.] § 2-110, or in the traditional common law forms, warrants that the land conveyed is free of encumbrances created by the grantor.” Magraw, 341 Md. at 503-04 , 671 A.2d 485 (emphasis in original). When “a special covenant against encumbrances is given, a grantor will not be held liable for the acts of a predecessor in title who encumbered the property.” Id. at 504 , 671 A.2d 485 (emphasis in original). The Henrys’ recording of the subdivision plat in 1998 created the 4.791 acre parcel. The Ochses characterize the county’s interest as an encumbrance.

However, the Henrys’ subdivision and recording of the 1998 subdivision plat did not encumber the property because the Henrys did not own the 30-foot wide strip of land previously deeded to Dorchester County. The 1919 deed to the county from the Henrys’ predecessor gave the county actual title to the 30-foot wide strip of land, which is substantially more than a mere encumbrance. See Magraw, 341 Md. at 502 , 671 A.2d 485 . While diminishing the value of the overall estate, the grant to the county left the Henrys’ predecessor, and later the Henrys, without title to the 30-foot wide strip of land.

As such, the county held the 30-foot wide strip in fee simple, leaving the Henrys as grantors with no interest in the 30-foot wide strip. Accordingly, the Henrys did not breach the special covenant against encumbrances because the county’s interest was not an encumbrance. As the Ochses note, the circuit court incorrectly reasoned that there was no breach of the special covenant against encumbrances because there was no breach of the special warranty of title. While related, the covenants are distinct. “In contrast to a special warranty, the protection afforded by a covenant against encumbrances is not limited to claims ‘by, through or under the grantor’; rather it extends to claims by third parties that may reduce the value of the property.” Dillow v. Magraw, 102 Md.App. 343, 368-69 , 649 A.2d 1157 (1994).

The covenant against encumbrances “ ‘protects the covenantee, its successors and assigns, against rights or interests in the property conveyed which subsist in third persons ⁵³² and diminish the value of the estate even though they are consistent with the passage of the fee in the estate.’ ” Id. at 369 , 649 A.2d 1157 (quoting Marathon Builders, 263 Md. at 416 , 283 A.2d 617 ) (emphasis in original). Here, the county’s interest was in fee simple, so the Henrys could not pass the estate in fee and, thus, did not breach the special covenant against encumbrances. B. Covenant of Special Warranty of Title In Gittings v. Worthington, 67 Md. 139, 150 , 9 A. 228 (1887), the Court of Appeals originally distinguished covenants of special warranty and general warranty as follows: special warranties [are] distinct covenants that [the grantor is] not to be answerable for any losses which might occur from the assertion of a title superior to his own; that if he is required to protect [the grantee] from [claims of superior title], he is in effect made to give [the grantee] all the benefit which could be derived from a general warranty____ More recently, in Dillow, 102 Md.App. at 365 , 649 A.2d 1157 (citing 20 Am.Jur.2d Covenants, Conditions, and Restrictions, § 53 (1965)), we expanded on the issue: [A] special warranty does not protect the grantee from claims of superior or paramount title. A covenant of special warranty, in contrast to a covenant of general warranty, is limited as to the persons or claims to which it operates.

It protects the covenantee against claims by, though or under the grantor, but does not warrant title “against a claim under a title against, or superior to, his grantor.” This common law principle has been codified in R.P. § 2-106: A covenant by a grantor in a deed “that he will warrant specially the property hereby granted” has the same effect as if. the grantor had covenanted that he will warrant forever and defend the property to the grantee against any lawful claim and demand of the grantor and every person claiming or to claim by, through, or under him. ⁵³³ The Ochses rely on Iula v. Progress Federal Savings and Loan Association, 247 Md. 421 , 231 A.2d 510 (1967), and Marcus v. Bathon, 72 Md.App. 475 , 531 A.2d 690 (1987), to support their contention that the Henrys breached the covenant of special warranty of title. In lula, the mortgagor of a parcel of real property sold a small section of the property to Baltimore County, but later mortgaged the entire property, including the previously sold portion, with a covenant of special warranty of title. 247 Md. at 423 , 231 A.2d 510 . The mortgagee foreclosed on the property and sold the entire parcel to satisfy the mortgagor’s debt. Id. at 423 , 231 A.2d 510 .

In a predecessor case, the Court of Appeals set aside the foreclosure sale based on the title defect from the mortgagor’s sale of a portion of the property. Id. (citing Carozza v. Peacock Land Corp., 231 Md. 112 , 188 A.2d 917 (1963)). The property, without the previously sold portion, was resold at a lower amount, and the mortgagee then sued for damages.

Iula, 247 Md. at 422-23 , 231 A.2d 510 . The lower court entered summary judgment for the mortgagor for the difference in value between the entire parcel and the parcel less the previously sold portion. Id. at 425-26 , 231 A.2d 510 . The Court of Appeals upheld that decision because the mortgagor breached the covenant of special warranty of title by conveying a portion of the property.

Id. at 426-27 , 231 A.2d 510 . Here, however, the issue stems from a conveyance to Dorchester County in 1919, well before the Henrys took title to the property. While the Henrys’ subdivision of the 4.791 acre plot in 1998 separated that parcel from the lot, the county owned the 30-foot wide strip of land since 1919. Therefore, at the time of subdivision, as well as the time the Henrys purchased the land, a section of the parcel was owned by the county, so the title defect was created by the Henrys’ predecessors in 1919.

Unlike the mortgagors in lula who were responsible for the title defect that occurred during their ownership, the Henrys were not responsible for the defect in title that arose from the 1919 transfer to the county because it was not during their ownership. ⁵³⁴ In Marcus , a purchaser of real property sued the seller, alleging fraudulent misrepresentation as to the quantity of the parcel and, alternatively, mutual mistake of fact as to the quantity of land. 72 Md.App. at 478 , 531 A.2d 690 . The purchaser also alleged that the seller breached the covenants against encumbrances, of special warranty, and of further assurances contained in the deed. Id. The controversy arose out of the sale of land that the seller, relying on a recent survey, advised was 5.9455 acres “more or less.” Id. at 480-81 , 531 A.2d 690 .

A survey by the state a year after the sale determined that the actual area was only 4.944 acres. Id. at 481 , 531 A.2d 690 . The lower court granted summary judgment for the sellers with respect to all claims. Id. at 478 , 531 A.2d 690 .

This Court held that summary judgment was properly granted on the issue of fraudulent misrepresentation because the sellers were relying on a surveyor’s computation of the acreage and had no reason to know there was a miscalculation. Id. at 483 , 531 A.2d 690 . We also upheld summary judgment as to breach of the covenant of special warranty because there was no covenant concerning the quantity of the land conveyed; thus, there could be no breach. Id. at 486 , 531 A.2d 690 .

In their brief, the Ochses cite the following language from Marcus : Where a deed containing covenants of special warranty and of further assurances sets forth a specific metes and bounds description of the property conveyed[,] the representation of the quantity of acreage within the metes and bounds cannot be construed as an express or implied covenant of quantity and will be rejected if inconsistent with the actual area. Very little stress is placed on words of general description as to the extent of a conveyance, such as an estimation accompanied by the words “more or less,” when the instrument also contains a particular description of the property conveyed. Id. (internal citations omitted).

The Ochses contend that this passage implies that there is a breach of the covenant of special warranty of title when the specific metes and bounds ⁵³⁵ description, rather than the acreage, of the property conveyed is inaccurate. This case mirrors Marcus in that the overall quantity of land conveyed was slightly less than the quantity listed on the deed. The slight deviation in acreage alone, in accordance with Marcus , does not, however, breach the covenant of special warranty, interpreting as “more or less.” The Ochses, nevertheless, assert that the 1998 subdivision plat and the 2001 deed incorrectly stated the metes and bounds of the property and should have set forth boundaries for two smaller, separate parcels divided by the 30-foot strip. 6 While we recognize that the facts present more than a mere misstatement of acreage, the 30-foot wide strip had been owned by Dorchester County since 1919, well before the Henrys purchased the property. Furthermore, while the subdivided parcel did not come into existence as a separate parcel of land until 1998 under the Henrys’ ownership, the lack of title to the 30-foot wide strip of land dates back to 1919.

Therefore, the circuit court correctly determined that the Henrys did not breach the covenant of special warranty of title.

II

Merger The Ochses argue that the facts presented at trial clearly establish the existence of fraudulent misrepresentation or mutual mistake. The Ochses make this argument because either fraudulent misrepresentation or mutual mistake prohibits merger of the contract for sale into the deed, which would allow them to sue for breach of contract. In response, the Henrys state that the Ochses’ only argument at trial in support of merger prevention