Mayor and Council of Rockville v. Walker
| Decision Date | 01 September 1993 |
| Docket Number | No. 189,189 |
| Citation | 100 Md.App. 240,640 A.2d 751 |
| Parties | MAYOR AND COUNCIL OF ROCKVILLE v. Thomas J. WALKER, Jr., Substitute Trustee. , |
| Court | Court of Special Appeals of Maryland |
Roger W. Titus (Paula T. Laboy and Venable, Baetjer and Howard, on the brief), Rockville, for appellant.
Albert D. Brault (Janet S. Zigler, James M. Brault and Brault, Graham, Scott & Brault, on the brief), Rockville, for appellee.
Argued before GARRITY, WENNER and MOTZ, JJ.
On December 3, 1993, we issued our initial opinion in this appeal, Mayor and Council of Rockville v. Walker, 98 Md.App. 398, 633 A.2d 479 (1993) (Rockville II ). Shortly thereafter, appellee, Thomas J. Walker, Jr., Substitute Trustee for Equitable Federal Savings Bank (collectively, "Equitable") filed a motion for reconsideration. After consideration of that motion and the response to it, for the reasons set forth within, we have concluded that the motion has merit. Accordingly, we grant the motion, withdraw our initial opinion, and issue the following opinion in its place.
This appeal has its genesis in an agreement (the Agreement) between the Mayor and Council of Rockville (the City) and New Rockville Town Center Partners (the Developer) 1 for the sale and development of a portion of the City's "Mid-City Urban Renewal Project." The Agreement, and later a deed from the City to the Developer, gave the City the right to re-enter the property, terminate the Developer's interest, and revest title to the property in the City if the Developer defaulted on the Agreement. The Developer subsequently defaulted, the City re-entered, and we found, in Hadid Land Development Corp. v. Mayor and Council of Rockville, No. 88-1339 , that the City's re-entry was valid.
In Mayor and Council of Rockville v. Walker, 86 Md.App. 691, 587 A.2d 1179 (1991) (Rockville I ), we held that a deed of trust granted by the Developer to Equitable subsequent to the Developer's deed from the City was extinguished by the City's re-entry unless Equitable's secured loan to the Developer was authorized by the Agreement. The City's right to re-enter was specifically "subject to any rights or interests provided in Article VI of [the] Agreement for the protection of mortgage holders." Id. at 702, 587 A.2d 1179. Since there was an inadequate basis on which to determine whether Equitable's secured loan to the Developer was authorized by the Agreement, however, we remanded the case to the Circuit Court for Montgomery County for an evidentiary hearing on that issue. Id. at 703-04, 587 A.2d 1179. On remand, the circuit court held that Equitable's secured loan to the Developer was authorized by the Agreement and thus survived the City's re-entry and, therefore, that Equitable could proceed with its foreclosure of the deed of trust securing its loan to the Developer. This appeal followed.
On appeal, the City asserts that the circuit court erred in determining that Equitable's secured loan to the Developer was authorized by the Agreement, for the following reasons:
1. The Bank's attorney knew of, but made no effort to comply with, the requirements of the Agreement;
2. The loan was merely a land loan with no required purpose or disbursement mechanism that would provide funds for, and assure completion of, construction of improvements;
3. The loan was not for the full amount of financing necessary to complete the improvements as required by Section 2.01(c);
4. The loan was for a period of less than five (5) years in violation of Sections 1.01(j), 2.01(c) [as amended] and 2.06(b);
5. The loan did not contain any provision authorizing the City to cure a default by the Developer as required by Section 3.08; and
6. Neither the Bank nor the Developer gave notice to, or obtained the approval of the City, prior to making the loan or placing a lien on the property, in violation of Sections 2.01(c) [as amended], 2.06(b) and 6.01.
In our December 3, 1993 opinion, we devoted most of our attention to the last of these issues. Rockville II, 98 Md.App. at 401-08, 410-11, 633 A.2d 479. We concluded that Equitable did not obtain the rights of a third party beneficiary of the Agreement between the City and the Developer because the failure to provide notice of the Equitable financing to the City meant that Equitable's deed of trust was not an authorized lien under Article VI of the Agreement. Id. at 411, 633 A.2d 479. Equitable filed a motion urging reconsideration of this holding on two grounds: (1) it "violated the law of the case doctrine" and (2) it was wrong on the merits. We need not determine if our holding violated law of the case principles because, on reflection, we believe we were wrong on the merits.
The Agreement sets out a comprehensive framework establishing the rights of the City and of mortgage holders and their relations to one another in the event the Developer defaults on its obligations to either of them. Article VI of the Agreement is captioned "Mortgage Financing; Rights of Mortgage Holders." Section 6.01 provides that the Developer "shall not engage in any financing or any other transaction creating any mortgage ... except for the purpose of obtaining (i) funds only to the extent necessary for making improvements on such Parcel and (ii) such additional funds, if any, in an amount not to exceed the purchase price, if any, paid by the Developer to the City for the Parcel." Additionally, Section 6.01 provides that "[t]he Developer shall notify the City in advance of any financing, secured by mortgage or similar lien instrument, it proposes to enter into with respect to such Parcel, and shall promptly notify the City of any encumbrance or lien that has been created on or attached to the Parcel, whether by voluntary act of the Developer, or otherwise, of which the Developer has notice."
It seems to us quite clear, indeed not even the City really claims to the contrary, that as between the Developer and the City the notice provision in Section 6.01 must be read as a covenant, not a condition. Thus, the Developer's agreement to provide notice to the City "of any financing secured by [a] mortgage" on the property was a promise, not a condition precedent. The Developer's failure to provide notice to the City when it obtained "financing secured by [a] mortgage" from Equitable was a breach of that promise to the City. The Developer's failure to provide this notice was not, however, a failure to perform a condition precedent relieving the City of its agreement to subordinate its rights in the property to those of the mortgagee, Equitable. Accordingly, as between the two parties to the contract--the City and the Developer--the Developer's breach of its promise to provide notice to the City did not relieve the City of its obligation to subordinate its rights to the mortgagee, Equitable. The Developer's breach of its promise to notify did not in and of itself provide the City with a defense to avoid its obligations under the contract.
The City seems to suggest, however, that the failure to provide it notice of the financing had a very different result as to Equitable. Specifically, the City claims that because Equitable was a third party beneficiary 2 of the subordination clause in the Agreement between the Developer and the City, the lack of notice is fatal as to Equitable's claim that its lien is superior to the City's rights.
There is simply no support for such a claim. Rather, as Professor Corbin has explained:
If the contract between the promisee and the promisor is a bilateral contract, the promise made for the benefit of a third party may be unconditional or it may be conditional on performance of the return promise or tender thereof. If unconditional, a breach of duty by the promisee [the Developer] will not affect the right of the beneficiary [Equitable] against the promisor [City]. If conditional and dependent, on the other hand, a failure by the promisee to perform his part may terminate the duty of performance by the promisor.
4 Arthur L. Corbin, Corbin on Contracts § 819, at 277-78 (1951 & Supp.1993) (footnotes omitted) (emphasis added). Thus, because the Developer's breach was admittedly of an "unconditional" promise, it does not "affect the right of the beneficiary [Equitable] against the promisor [the City]." Id. See also, Restatement (Second) of Contracts § 309 cmt. b (1981); Schneider Moving & Storage Co. v. Robbins, 466 U.S. 364, 376, 104 S.Ct. 1844, 1851, 80 L.Ed.2d 366 (1984) ().
The above discussion, it seems to us, is illustrative of a fundamental difficulty with the parties' analysis of the issues in this case. (In fairness, we believe this difficulty contributed to our reaching what we have now concluded was an incorrect result in our December opinion.) Namely, the parties persist in characterizing Equitable as a third party beneficiary. If this is the proper mode of analysis, i.e., if Equitable is truly only a third party beneficiary, we now believe it is clear that the notice provision is not a condition to Equitable's ability to assert its lien. It seems to us, however, that the discussion of third party beneficiaries may have just unnecessarily and improperly complicated this case.
The usual method of analyzing cases like the one at hand is very different. The present action was commenced by Equitable when it "initiated foreclosure proceedings" against the Developer's deed of trust. Rockville I, 86 Md.App. at 695, 587 A.2d 1179. The City intervened in the pending foreclosure action as a matter of right because it then owned the property. Id. The City asked the circuit court to...
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