Case Title: Custer v. 9305

Citation: 345 Md. 284

Docket Number: 51/96

State: maryland

Court: Maryland Supreme Court

Date: 1997-04-10T00:00:00Z

Document:
Custer Environmental, Inc. v. 9305 Old Georgetown Road Partnership
et al., No. 51, September Term, 1996.
[Landlord-Tenant - Tenant asserts trial court error in distributing
escrowed rent to landlord.  Held:  Record on appeal insufficient to
determine whether forfeiture of rent required by zoning violation.]
Circuit Court for Montgomery 
County Civil Case Nos. 118019 
and 118020 
IN THE COURT OF APPEALS OF MARYLAND
No. 51
September Term, 1996
____________________________________
CUSTER ENVIRONMENTAL, INC.
v.
9305 OLD GEORGETOWN ROAD 
PARTNERSHIP et al.
____________________________________
Bell, C.J.
Eldridge
Rodowsky
Chasanow
Karwacki
Raker
Wilner, 
JJ. 
____________________________________
Opinion by Rodowsky, J.
____________________________________
Filed:  April 10, 1997
This landlord-tenant case involves entitlement to rents paid
into a court registry escrow fund during the tenantUs occupancy for
a use that violated the propertyUs existing zoning.
The landlord is the appellee, 9305 Old Georgetown Road
Partnership (Partnership).  The tenant is the appellant, Custer
Environmental, Inc. (Custer).  The demised premises are the terrace
level and first floor of a building at 9305 Old Georgetown Road in
Bethesda.  That location is in an R-60 zone (residential, one-
family) under the Zoning Ordinance of Montgomery County, Maryland.
Following the expiration in January 1991 of the one-year term under
a prior lease between the parties, and following a period of month-
to-month tenancy, the parties entered into two new leases, each for
the term of one year commencing April 1, 1993.  The rent under the
lease for the first floor was $1,355 per month, and the rent for
the terrace level was $995 per month.  Paragraph 3 of each lease,
entitled "USE," stated that "[l]essee will use and occupy the
Demised Premises for office and commercial purposes."  
On February 2, 1994, an inspector from the Montgomery County
Department of Environmental Protection served Custer with a notice
of a zoning violation, described as "operating a general business
in the R-60 zone."
Custer reacted by stopping its rent payments.  On March 16,
1994, the Partnership filed two actions for summary eviction
against Custer in the District Court of Maryland, sitting in
Montgomery County.  The actions sought unpaid rent and repossession
-2-
of the premises under Maryland Code (1974, 1996 Repl. Vol.),
§ 8-401 of the Real Property Article (RP).  Trial was set for March
30, 1994, at which time Custer prayed a jury trial.  
CusterUs demand for jury trial triggered the operation of RP
§ 8-118.  In relevant part that statute provides:
"(a) ... In an action under § 8-401 ... of this
article in which a party prays a jury trial, the District
Court shall enter an order directing the tenant ... to
pay all rents as they come due during the pendency of the
action, as prescribed in subsection (b) of this section.
"(b) ... The District Court shall order that the
rents be paid into the registry of an escrow account of:
"(1) The clerk of the circuit court[.]
....
"(d) ... Upon final disposition of the action, the
circuit court shall order distribution of the rent escrow
account in accordance with the judgment.  If no judgment
is entered, the circuit court shall order distribution to
the party entitled to the rent escrow account after
hearing."
After the two summary eviction cases had been transferred to
the Circuit Court for Montgomery County, Custer there instituted a
third action (Civil #118368) against the Partnership and three of
its partners as a non-jury action.  The complaint in Civil #118368
alleged that the defendants had misrepresented the zoning status of
the property by failing to disclose that it could not be used for
offices 
and 
commercial 
purposes 
and, 
alternatively, 
by
affirmatively misrepresenting the zoning.  The defendants answered
and filed a counterclaim, together with a jury trial demand.  The
counterclaim alleged a breach of the lease contract, interference
-3-
with the PartnershipUs advantageous relationship with the holder of
the mortgage on the premises, and constructive fraud by virtue of
CusterUs agent or attorneyUs having failed to change the "USE"
provision of the lease, as the parties allegedly had agreed to do
in negotiations.  CusterUs answer to the counterclaim raised, inter
alia, a defense of illegality of the contract sued upon.  
Custer vacated the premises in mid-July 1994 and ceased paying
rent into the court registry.  By an order entered in September
1994, the circuit court ordered Custer to pay into the registry
funds equal to the rent for July, August, and September of 1994 and
the rent for October, prorated through the fourteenth day of that
month.  That order also consolidated the three cases for trial. 
Trial was had before a jury for five days ending September 11,
1995.  The court submitted the case to the jury on three special
issues.  The juryUs answers to the first two issues made it
unnecessary to consider the third issue concerning damages.  The
verdict sheet reads:
"1.
Are the leases in question
legal         
OR
illegal     T   
"2.
If illegal is either party entitled to recover
(because the contract appeared to be legal and was
illegal because of something only the other party knew)
Yes         
No     T   "
Immediately after the jury had been discharged, the court
heard from counsel concerning the disposition of the funds in
-4-
     The order distributing the escrow is written, filed in the
1
case files, and noted on the consolidated docket entries.  It
constitutes a final judgment in the two summary eviction actions,
inasmuch as the order shows on its face that the issue of
entitlement to possession had become moot and the order terminates
the PartnershipUs claim for rent.  Whether a final judgment has ever
been entered in Civil #118368 does not affect the finality of the
judgments in the two summary eviction actions in which the escrow
was created.  See Yarema v. Exxon Corp., 305 Md. 219, 503 A.2d 239
(1986). 
escrow.  The court ruled that the Partnership should be paid from
the escrow funds an amount equal to the rent for the premises up to
the date when Custer vacated in July 1994, less the amount of the
security deposit which the Partnership was holding, independently
of the escrow, and which the Partnership would retain under the
ruling.  The balance of the escrow was to be paid to Custer.
Custer noted an appeal in all three cases.   Custer contends
1
that, because the lease was found to be illegal, the Partnership is
not entitled to any of the escrowed rent.  Prior to consideration
of the matter by the Court of Special Appeals, we issued the writ
of certiorari on our own motion in order to consider the effect of
the claimed illegality and, as part of that analysis, to discern
how determining whether a contract was illegal could be a jury
issue.  
Unfortunately, the record in this case leaves many unanswered
questions.  The trial testimony and proceedings have not been
transcribed.  Particularly noteworthy is the absence from the
original record of the courtUs charge to the jury that underlies the
special verdicts.  The principal portion of the proceedings that
-5-
     Golt v. Phillips was further explained and distinguished in
2
Citaramanis v. Hallowell, 328 Md. 142, 613 A.2d 964 (1992).  
has been transcribed is the argument of counsel concerning the
disposition of the escrowed funds.  
The essence of CusterUs position is that the juryUs conclusion
that the leases were illegal means that they are unenforceable.  If
no escrow had been created Custer concludes that the landlord would
not collect unpaid rent through judicial process and could not
recover the rental value of the premises for the period during
which the tenant occupied without paying rent.  Custer submits that
the circuit court should have approached distribution of the escrow
as if it were the PartnershipUs suit for rent and, because of the
illegality, directed payment of the entire fund to Custer.
Custer cites Golt v. Phillips, 308 Md. 1, 517 A.2d 328 (1986).
Golt asserted the statutory cause of action created by the Consumer
Protection Act.  The claim alleged misrepresentation in the rental
of consumer realty which was uninhabitable and which was unlicensed
under a Baltimore City ordinance that required multiple family
dwellings to be licensed.  We held that, by way of damages under
the statutory action, Golt was entitled to restitution of three
months rent and to consequential damages, i.e., moving expenses.2
Id. at 13-14, 517 A.2d at 334.
Custer also relies on cases involving occupational licenses
that are required for the protection of the public.  Illustrative
-6-
is Harry Berenter, Inc. v. Berman, 258 Md. 290, 265 A.2d 759
(1970), holding that an unlicensed home improvement contractor
could not recover on the express contract or in quantum meruit for
work done for a homeowner.  Golt and the occupational licensing
cases do not control the instant matter.  
McNally v. Moser, 210 Md. 127, 122 A.2d 555 (1956), sets forth
the Maryland law applicable to the alleged illegality of a lease
based on a conflict between the contemplated use of the premises
and the zoning law.  McNally held that "[o]ne may not rely on
illegality or invalidity where the doing of that said to be
forbidden may reasonably be made legal and possible through
administrative or judicial action."  Id. at 138, 122 A.2d at 561.
The tenant in McNally, a chiropractor, had leased a portion of
residential premises for a ten-year term for use as professional
offices.  The tenant, however, lived elsewhere.  In the third year
of the lease the zoning ordinance was amended to prohibit, without
a special exception, non-resident professional use of the property.
When the tenant expressed an intent to abandon the remainder of the
lease, the landlord obtained a declaratory judgment sustaining the
validity of the lease.  In affirming that judgment this Court,
speaking through Judge Hammond, relied on cases in which the
statute giving rise to the illegality argument had been in
existence before the lease was executed, as well as on cases in
which the statute was enacted during the term of the lease.  
-7-
The McNally approach blends concepts of illegality with those
of supervening impossibility of performance.  For example, McNally
cites Say-Phil Realty Corp. v. De Lignemare, 131 Misc. 827, 228
N.Y.S. 365 (1928), involving premises in a residentially zoned
district that were leased for use as a drug store.  "The court held
that the lease for a use prohibited by the zoning law, was not
necessarily impossible of performance where it appeared that the
board of appeals had authority to vary the zoning law and the
tenant an obligation to seek such a variance."  McNally, 210 Md. at
138, 122 A.2d at 561.  Further, Stockburger v. Dolan, 14 Cal. 2d
313, 94 P.2d 33 (1939), "held that a lease for the drilling of oil
on land in a residential area was not illegal where it was possible
to obtain a permit."  McNally, 210 Md. at 138, 122 A.2d at 561.
The McNally Court also cited Shedlinsky v. Budweiser Brewing Co.,
163 N.Y. 437, 57 N.E. 620 (1900), where property located within 200
feet of a school was leased for use as a saloon.  The lessee
contended that the lease was illegal and void, but the court held
that the tenant had not shown "Uthat no license ever could possibly
be obtained by the lessee.U"  McNally, 210 Md. at 138, 122 A.2d at
561.
The rule of McNally was reiterated in St. LukeUs House, Inc.
v. DiGiulian, 274 Md. 317, 326-31, 336 A.2d 781, 786-89 (1975).
Compare Montagna v. Marston, 24 Md. App. 354, 330 A.2d 502 (1975)
(contract to purchase parcel in unrecorded subdivision enforceable
-8-
by buyer despite ordinance prohibiting sales of lots in unapproved
subdivisions where ordinance provided for enforcement by civil
penalty against knowing violators and by injunction at the
discretion of the county executive).
Numerous decisions, including McNally, from many jurisdictions
are cited in 3 M.R. Friedman, Friedman on Leases § 27.302b, n.1 (3d
ed. 1990), for the following statements:
"A lease made for a purpose forbidden by law is
enforceable if there is a legal possibility of validating
the purpose by obtaining a license or permit or a
variation under a governing zoning or other law.  The
tenant is therefore under an obligation to seek such
validation and, if necessary, its renewal, and is liable
under the terms of the lease, whether or not he succeeds.
He may be liable, then, despite an inability to use the
premises for his intended purpose."
Id. at 1391-92.
Under the applicable law, quoted above, the verdict sheet on
which Custer relies does not, in and of itself, demonstrate that
the circuit court erred in distributing part of the funds escrowed
under RP § 8-118(d) to the Partnership.  The verdict sheet reflects
a finding that the "leases in question" are "illegal," but the
record presented on this appeal does not inform us as to the
meaning of the verdict under the courtUs instructions.  Remarkably,
the record does not clearly inform us of the nature of CusterUs
activity on the premises.  The zoning inspector referred to it as
"a general business" in the notice of violation.  On the other
hand, an exhibit introduced by the Partnership describes a
-9-
conversation in April 1993 between CusterUs owner and two women who
were associated with a beauty salon operated on the second floor of
the building at 9305 Old Georgetown Road.  According to the
exhibit, the owner of Custer said that, in order to comply with the
zoning, "one of the professionals operating a business there would
have to live there."  The inference from this exhibit is that
Custer performed professional services, possibly environmental
engineering.  Under the Montgomery County Zoning Ordinance,
Montgomery County Code (1994), § 59-C-1.31, a use described as
"Offices, professional, nonresidential" is permitted in the R-60
zone under a special exception.  Thus, in light of the McNally
rule, the record presented to us in this case fails to show error
by the circuit court.
There is a further reason why the circuit court did not err in
its distribution of the escrow.  Each of the two leases involved
here contains the following provision:
"Should any provision of this Lease and/or its conditions
be illegal or not enforceable under the laws of the State
of Maryland it or they shall be considered severable, and
the Lease and its conditions shall remain in force and be
binding upon the parties as though the said provisions
had never been included."
The jury found that neither party was "entitled to recover (because
the contract appeared to be legal and was illegal because of
something only the other party knew)."  That verdict rejected
CusterUs claim that the Partnership had made misrepresentations to,
or defrauded, Custer concerning the use of the property.  Under
-10-
those circumstances, the above-quoted provision from the leases, at
a minimum, puts the risk on the tenant that the property may not
lawfully be used for "office and commercial purposes."  Although
neither party referred to this provision in its brief, and the
circuit court did not rely upon it, this lease provision is a
ground plainly appearing upon the record that supports the judgment
of the circuit court.  
JUDGMENT OF THE CIRCUIT COURT FOR
MONTGOMERY COUNTY AFFIRMED.  COSTS
TO BE PAID BY THE APPELLANT.