Gallagher v. Bell
516 A.2d 1028 (1986) 69 Md. App. 199 (1986)
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Rule of Law:
The continuing liability of an original covenantor on a covenant that runs with the land terminates upon their conveyance of the burdened property if the parties intended that result. A covenant runs with the land if it touches and concerns the land, the parties intended it to run, and there is vertical privity of estate.
Facts:
- In 1959, F. Meade Bell and David P. Bell (the Bells), who were developers, purchased a 34.5-acre tract of land for subdivision.
- The purchase contract excluded a half-acre parcel with a tenant house and stipulated that the future purchaser of that parcel must dedicate land for streets and pay a pro-rata share for the installation of streets and utilities.
- In 1960, George and Judith Gallagher purchased the half-acre parcel and, in a separate contract, Mr. Gallagher agreed to the street dedication and cost-sharing terms.
- To secure financing, the Gallaghers needed a formal right-of-way over the Bells' property, which was not mentioned in their deed.
- On June 16, 1961, the Gallaghers and the Bells executed and recorded an agreement granting the Gallaghers a temporary right-of-way in exchange for a covenant, made for themselves, 'their heirs and assigns,' to dedicate land and share pro-rata in the cost of future streets and utilities.
- In October 1979, the Gallaghers sold their property to Deborah Camalier and provided her with a separate agreement indemnifying her against any expenses related to the 1961 recorded covenant for road construction.
- In 1983, the Bells began constructing the roads and, after Camalier refused to pay citing her indemnity agreement, they demanded payment from the Gallaghers.
Procedural Posture:
- F. Meade Bell and David P. Bell sued George and Judith Gallagher in a Maryland trial court for breach of the 1961 agreement.
- At trial, the Gallaghers argued that their liability ended when they conveyed the property because the covenant ran with the land.
- The trial court treated the nature of the covenant as a question of fact and submitted the issue to a jury.
- The jury returned a verdict in favor of the Bells for $7,000, and the court entered judgment on that verdict.
- The trial court denied the Gallaghers' motion for judgment notwithstanding the verdict (JNOV).
- The Gallaghers, as appellants, appealed the judgment to the Court of Special Appeals of Maryland, an intermediate appellate court.
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Issue:
Does an original covenantor's liability on a covenant to pay for future improvements, which runs with the land, terminate upon the conveyance of the burdened property if evidence shows the parties intended for the obligation to bind subsequent owners?
Opinions:
Majority - Wilner, Judge.
Yes. An original covenantor's liability on a covenant running with the land ends upon conveying the burdened property if the parties intended that result. First, the court determined the promise was a covenant running with the land by applying a three-part test. The covenant 'touches and concerns' the land because the obligation to pay for improvements renders the Gallaghers' interest less valuable and the Bells' more valuable. Second, the parties clearly intended the covenant to run, as evidenced by the use of the words 'heirs and assigns,' the context of the overall development, and the Bells' own actions in first seeking payment from the new owner. Third, privity of estate exists; the court adopts the modern view requiring only 'vertical privity,' which is satisfied by the succession of ownership. Because the covenant runs with the land, the court then determined that the Gallaghers' liability terminated upon selling the property. The evidence showed the Bells were not relying on the Gallaghers' personal credit but intended the obligation to attach to whomever owned the land, thus demonstrating an intent for liability to end upon conveyance.
Analysis:
This decision adopts the modern, more lenient 'vertical privity' standard for determining whether a covenant runs with the land in Maryland, simplifying the privity requirement. It establishes an important precedent that an original covenantor's liability can be extinguished upon the sale of the property, provided the parties' intent supports this conclusion. This shifts the analysis from a strict, perpetual contractual obligation to one based on the parties' demonstrable intentions, which may influence how developers and property owners draft future covenants and how courts interpret the ongoing liability of original promisors.
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