Union Trust Co. v. Rosenburg

Mitchell, J., delivered the opinion of the Court. On July 27th, 1936, Benjamin Chipman and Rose Chip-man, his wife, executed a mortgage to Rosella Rosenburg et al., on fee simple property known as No. 36 Hopkins Place, and located in the City of Baltimore, to secure the ⁴¹¹ payment of a loan in the sum of $50,000. The mortgage contained the following covenant: “And it is covenanted that until default be made in any covenant or condition of this mortgage (but not thereafter), the said mortgagors, their heirs, successors or assigns shall have possession of the property, upon paying in the meantime all taxes and assessments, public dues and charges levied or assessed or to be levied or assessed on the mortgaged property and on the mortgage debt and interest, which mortgage debt and interest, taxes, assessments, public dues and charges the said mortgagors covenant to pay when legally due.” Subsequently the said mortgagors, subject to the lien of the above mortgage, executed a mortgage on the same property to the appellant, the Union Trust Company of Maryland, to secure the payment of a loan of $19,000. Later, upon default of the mortgagors, the last mentioned mortgage was foreclosed under proceedings instituted in the Circuit Court of Baltimore City, and the property sold to Kenneth A. Bourne, and by deed dated the 7th day of January, 1932, conveyed by Bourne to the appellant.

Title to the property, subject to the first mortgage, continued to be vested in the defendant until divested by the foreclosure of the first mortgage, under which latter proceedings the appellees became the purchasers; the property being conveyed to them by a deed from the trustee dated February 16th, 1935. Some time shortly after October 28th, 1933, the quarterly interest on the first mortgage due on October 27th, 1933, not having been paid, a conference was held between representatives of the first mortgagees and those of the Union Trust Company, the then holder of the legal title and party in possession of the property. This conference finally resulted in a verbal understanding between the conferees, to the effect that the first mortgagees would postpone a foreclosure and permit the appellant to continue its ownership and management of the property ; it being understood that from the income the appellant would “pay all the debts, the upkeep, including Laxes, ⁴¹² and insurance and such expenses,” and at the end of any half year, pay to the appellees, “as interest against the amount of accumulated interest, the sum that remained in surplus over and above the expenses during that period.” The Union Trust Company continued the ownership, possession, and management of the property, until finally ousted by the second foreclosure. Meanwhile the company failed to pay taxes for the years 1934 and 1935, due the State of Maryland and the Mayor and City Council of Baltimore, or to pay any interest on account of the first mortgage.

Section 69 of Article 81 of the Code of Public General Laws of Maryland, as amended by Laws 1931, ch. 414, provides: “All State, county and city taxes on real estate shall be liens on the real estate in respect of which they are levied from the date they become payable.” Section 48, as amended by Laws 1931, ch. 500: “All ordinary State taxes levied upon assessments made by the county commissioners or the Appeal Tax Court shall be payable on and after the first day of January of the year for Which they are levied.” And section 40 of Article 4 of the Code of Public Local Laws (Baltimore City), after providing for the passage of an ordinance fixing the rate of taxation, states: “The taxes levied under said ordinance in the month of November in each year shall be the taxes to be collected for the fiscal year next ensuing after the said month of November, and shall be due and may be paid to the City Collector on or after the first day of January next ensuing.” It is therefore apparent that taxes for the year 1935 were due on January 1st of that year, and these, plus the taxes for the previous year, amounting to the sum of $1,867.19, represent the total taxes which accrued during the period in which the appellant owned and managed the property, and which it did not pay, but which the appellees did pay. Claiming the above total as being due them under the covenants contained in their mortgage, the appellees filed their bill of complaint against the appellant, in which it ⁴¹³ was alleged that, independent of any understanding between the parties, the appellant was liable to them for such taxes as accrued upon the property during the period in which it held title to the same. The case was heard upon bill, answer, and testimony; and from a decree of the court in favor of the appellees for the amount of said taxes, this appeal is taken. A stipulation found in the record shows a deficit, due the first mortgagees under the foreclosure of their mortgage, of $22,926.49.

And under an agreed statement of facts, it is shown that, during the period in which title to the property was vested in the appellant, disbursements thereon exceeded income accruing therefrom to the extent of $3,451.39. The statement does not accurately show the comparative receipts and disbursements for the period accounting from the date of the verbal understanding between the parties and the date the appellant ceased to hold title to the property; but it does, however, show that receipts for the year 1934 exceeded disbursements by the sum of $1,297.46, the taxes for that year, as stated, not being paid. In the brief and oral argument on behalf of the appellant, it is contended: (a) That the verbal understanding between the parties hereinbefore set forth, under which the appellant was to continue for an indefinite period to control and manage the property which it then owned, estops the appellees from now claiming reimbursement for said taxes, and that they are precluded from asserting such claim by virtue of the covenant to pay the taxes set forth in the mortgage, (b) That if, under the facts in the case, the appellees are not precluded from asserting their claim by reason of their course of dealing with, the appellant, then the question which arises is whether a party purchasing fee simple property, subject to the operation and effect of a first mortgage, thereby becomes personally responsible to the mortgagee for taxes paid by the mortgagee for the period during which such purchaser holds title to the property. With reference to the first contention, it can hardly ⁴¹⁴ be seriously maintained that the verbal understanding between the parties was binding upon either of them.

At best, it was a mere postponement of the foreclosure of the first mortgage at a time when the appellant was the holder of the legal title, in full control and management of the property, and thereby collecting all revenues accruing therefrom. Up to a short while before this conference, the appellant had apparently paid the taxes; and it recognized its obligation to the first mortgagees by paying the interest on their mortgage down to the 27th of July, 1933. The conference resulted from the failure of the appellant to meet the quarterly interest payment falling due on October 27th, 1933; and after some discussion, in which it developed that the appellant would not then meet the payment, it was agreed that the relations between the parties would remain undisturbed by a foreclosure of the first mortgage; it being expressly understood that the appellant would meanwhile continue to collect the revenues accruing from the property, pay the current expenses thereon, including taxes, and pay the surplus, if any, of revenues over and above disbursements, on account of the interest due on the first mortgage, at semiannual intervals. It is definitely shown by the record that no consideration passed to the appellees for this further indulgence; while on the other hand, the staying of the foreclosure of the first mortgage furnished opportunity, which was readily accepted by the appellant, in which possibly to protect its interests in the property.

As has been stated, there was no definite period stipulated in which the arrangement wras to continue; and it is shown that the appellant made no further payment on account of the interest, and failed to pay any taxes accruing after the date of the conference; although it is shown that for at least during the year 1934 it collected revenues in excess of disbursements for that year amounting to $1,297.46; and that it did not pay the taxes for said year amounting to $955.06, notwithstanding the excess revenues would have justified such payment. Passing for the moment questions which will later be ⁴¹⁵ dealt with, arising out of the covenant to pay taxes, as contained in the mortgage, we cannot agree that the result of the conference had any effect upon the then legal rights and liabilities of the respective parties. In the last analysis, the promise of the appellant to pay the taxes was but an affirmation on its part, as the then owner of the property, to do what it was already legally obligated to do. The real questions, therefore, before us for consideration are: (a) Whether, under the facts in this case, the covenant in the mortgage to pay the taxes runs with the land and binds the assignees of the mortgagors, notwithstanding that the word “assigns” is omitted from the strict wording of the covenant; and (b) Whether the claim for reimbursement for taxes which accrued and became demandable upon the property during the period in which the appellant held the legal title thereto, and which have been paid by the appellees, is recoverable in a court of equity, or must be asserted in a court of law.

In 7 R. C. L, 1099, sec. 16, it is stated: “It is an essential quality of a real covenant, that it relates to the realty, having for its object something annexed to or inherent in or connected with land or real property; and a covenant is said to run with the land when either the liability to perform it, or the right to take advantage of it, passes to the vendee or other assignee of the land.” The same authority, at page 1100, cites Spencer’s Case (4 Coke 16,1 Smith’s Leading Cases, [9th Am. Ed.] 174) as a leading case on the subject, and lays down the rule: “That when the covenant extends to a thing in esse, parcel of the demise, annexed and appurtenant to the thing demised, it shall go with the land, and shall bind the assignee, although he be not bound by express words. * * *