Opinion ID: 2555748
Heading Depth: 2
Heading Rank: 2

Heading: The Case of the Missing Signatories

Text: In its first challenge to the validity of the 1992 Declaration, Petitioner argues that the 1992 [Declaration] was invalid because all of the Parcel owners[ [16] ] did not sign it. More specifically, Petitioner argues that the 1992 Declarationintended to supersede and replace in its entirely the [1981] Declaration and any other documents granting development rights in Parcel [Two]could not modify or replace the 1981 Declaration without the signatures of the Parcel Three owners, considering that the 1981 Declaration provided expressly that it may be modified or cancelled only by written instrument signed by the owners of [all] of the Parcels. Such a result, Petitioner continues, is required, because, in Maryland, the unambiguous language of the contract controls, and there is `no room for construction.' (quoting Bd. of Trs. of the State Colls. of Md. v. Sherman, 280 Md. 373, 380, 373 A.2d 626, 629 (1977)). In response, BCF contends that Petitioner's suggestion that the 1992 [Declaration is] invalid because the Parcel [Three] Owners did not join them is contrary to settled contract law. Rather, BCF argues, the parties to a contract remain free to modify the contract or create a new agreement as long as the modification does not alter or affect the rights of a party who does not join in the modification, and that so long as it does not affect the rights of a party that does not join, a contract modification is binding on those parties that join in the modification, but not on parties that fail to join in it. Because BCF (and the Circuit Court and the Court of Special Appeals) rely for support on (and Petitioner attempts to distinguish) the California Supreme Court's opinion in Hotle, supra , we shall consider that case first. In Hotle, a husband and wife opened a bank account, executing a deposit agreement that provided: [A]ll moneys now or hereafter deposited by us or either of us with the bank in this account . . . shall be the property of both of us as joint tenants and shall be payable to and collectable by either of us during our joint lives, and after death of one of us shall belong to and be the sole property of the survivor. . . . Hotle, 334 P.2d at 850. More than a decade after the bank account was opened, and without the consent of or knowledge by the bank, the husband and wife orally agreed that regardless of how title was held, all of their property had been acquired as their community property. . . . Id. Thereafter, the husband executed a will in which he undertook to dispose of all of the community property, and [wife] executed a waiver of claim to her share of the community property in view of her election to accept the terms of the will. Id. When he died, executors of his estate sought to treat the deposit agreement as modified by the couple's subsequent agreement, such that they could distribute the balance of the bank account as community property, in accordance with the terms of the will. Id. Executors of the now-deceased wife's estate, argued, however, that the [oral] agreement cannot operate to change the rights of the parties in the joint tenancy bank account, [and] that title to it therefore vested in [the wife] when she survived [the husband]. . . . Id. The California Supreme Court, speaking through Justice Roger Traynor, explained that although the deposit agreement which was in conformance with a statute existing at the time the agreement was executed, but which had been repealed by the time of the filing of the court's opinionis conclusive evidence of the intention of the depositors at that time to vest title in the survivor . . . . [i]t in no way deprives the depositors of their freedom of contract to make subsequent agreements changing their interests in the account. Hotle, 334 P.2d at 851. The court noted two cases Ehrman v. Rosenthal, 117 Cal. 491, 49 P. 460 (1897), and Fitts v. Mission Health and Beauty Shop, 58 Cal.App. 362, 208 P. 691 (1922)commenting that those cases correctly hold that two parties to a tripartite agreement cannot change it to the prejudice of the third party. Hotle, 334 P.2d at 852; see Lakeshore Commercial Fin. Corp. v. Drobac, 107 Wis.2d 445, 319 N.W.2d 839, 845 (1982) (stating that Hotle stands for the proposition that parties can change the relationships between themselves and that a new contract is valid, although such subsequent contract cannot diminish the rights nor increase the obligations of original signatories to the agreement; but, as between themselves, the assenting parties are bound). Interpreting Hotle in the present case, BCF contends that the 1992 [Declaration] could supplement the 1981 [Declaration] as between the Owner and Tenant of Parcels [One] and [Two], without the agreement of the Owners of Parcel [Three], because the[ latter] had no right whatsoever under the 1981 [Declaration] to control the nature and scope of development on Parcel [Two]. In response, Petitioner argues that the rule in Hotle is contrary to the prior holdings of this [C]ourt, . . . . [considering that] the Court has previously held that the making of a valid contract requires signatures where `the parties have made them necessary at the time they expressed their assent and as a condition modifying that assent. (quoting Porter v. Gen. Boiler Casing Co., 284 Md. 402, 410-11, 396 A.2d 1090, 1095 (1979)). Further, Petitioner contends the invention of the `no prejudice' standard for recorded instruments is unworkable and unwise, as when a later modifying document is missing necessary signatures, a title searcher will have to launch an investigation to determine whether the missing parties are prejudiced by the later attempt at modification or cancellation. Next, allowing a modification of the 1981 Declaration with less than all of the signatures required in the modification document, as Petitioner's argument goes, runs contrary to Maryland's approach to applying a reasonably strict construction when construing covenants. And finally, Petitioner urges that Hotle is factually inapposite, as Hotle did not involve documents recorded among the land recordsamong the most formal and solemn documents known to the law, and that application of the rule to the bank deposit card [in Hotle ] is a totally different circumstance than the application of the rule to formal, recorded legal instruments.
Generally, [w]here the language of [a] contract is unambiguous, its plain meaning will be given effect. Aetna Cas. & Surety Co. v. Ins. Comm'r, State of Md., 293 Md. 409, 420, 445 A.2d 14, 19 (1982); see Kasten Const. Co. v. Rod Enters., Inc., 268 Md. 318, 330, 301 A.2d 12, 19 (1973) ([T]he Court may not, under the guise of construction, rewrite the contract made by the parties. . . .). There are exceptions, however, to this rule. For instance, the common law rule is that even where the contract specifically states that no non-written modification will be recognized, the parties may yet alter their agreement by parol negotiation. 2 JOSEPH M. PERILLO & HELEN HADJIYANNAKIS BENDER, CORBIN ON CONTRACTS § 7.14 (Rev. ed. 1995) (internal quotation marks omitted); see Univ. Nat'l Bank v. Wolfe, 279 Md. 512, 522, 369 A.2d 570, 576 (1977) (holding that parties may modify their original agreement orally notwithstanding a written agreement that any change to a contract must be in writing); Freeman v. Stanbern Const. Co., 205 Md. 71, 78, 106 A.2d 50, 54 (1954) (The rule has been accepted . . . that, even though a written contract stipulates that it may not be varied except by an agreement in writing, nevertheless the parties, by a subsequent oral agreement, may modify it by mutual consent.). Thus, in some instances, the lawwhether it be the common law of contracts or statutory provisionsmay operate to allow supplementation or even modification of the express terms of a valid contract. See Mortgage Investors of Wash. v. Citizens Bank and Trust Co. of Md., 278 Md. 505, 509, 366 A.2d 47, 49 (1976) (recognizing the rights of parties to make . . . contracts as they please, so long as they are consistent with law ) (emphasis added); Drobac, 319 N.W.2d at 845 ([I]t is the law, not private agreements, which determines the essential elements of a valid contract.). The issue in the present case, then, is whether allowing a declaration, requiring certain parties to be signatories to it in order for a modification to be effectual, to be modified with the written consent of less than all of the parties required by the original undertaking, is such an exception. It appears that this is an issue of first impression in Maryland. [17] Maryland jurisprudence has considered with some frequency allowance of the modification of contracts. See, e.g., Comptroller of the Treasury v. Citicorp Int'l Commc'ns, Inc., 389 Md. 156, 185, 884 A.2d 112, 129 (2005) ([P]arties to a written contract are usually free to modify or terminate . . . contract[s] by separate agreement. . . .); Charles Burton Builders, Inc. v. L & S Constr. Co., Inc., 260 Md. 66, 88, 271 A.2d 534, 545 (1970) (quoting Freeman, 205 Md. at 80, 106 A.2d at 55) (Attempts of parties to tie up by contract their freedom of dealing with each other are futile.); see also CORBIN ON CONTRACTS, supra § 7.14 ([C]ontracting parties cannot today restrict their power to contract with each other tomorrow.). Because we think the rule enunciated in Hotle and elsewherethat two parties to a tripartite agreement may modify the original agreement, provided such modification in no way prejudices the interests of the third, non-consenting partyis consistent with this pragmatic policy favoring recognition of modification of contracts, we adopt it. [18] Such a conclusion is in line with nearly every jurisdiction of which we are aware that has decided the issue. See Drobac, 319 N.W.2d at 845 ([T]hey cannot contract with each other by way of a modification in a manner that affects the rights of an original contracting party who is prejudiced by the new agreement and has not assented to it.) (emphasis added); Hening v. Maynard, 227 Va. 113, 313 S.E.2d 379, 382 (1984) ([E]xisting restrictions cannot be amended or terminated unless all parties affected by the restrictions . . . agree to the amendment or termination.) (second emphasis added); Spiegel v. Hays, 103 Ga.App. 293, 119 S.E.2d 123, 128 (1961) (It is a general rule that the terms of a tripartite agreement cannot be modified to the detriment of one of the parties by the others without his consent.) (emphasis added); see also 17A C.J.S. Contracts § 410 (1999) (The terms of a tripartite agreement cannot be modified to the detriment of one of the parties by the other two without the former's consent.); Amelia H. Boss, Panacea or Nightmare? Leases in Article 2, 64 B.U. L. REV. 39, 76-77 (1984). But see Utils. Ins. Co. v. Stuart, 134 Neb. 413, 278 N.W. 827, 832 (1938). That Maryland courts apply a reasonably strict construction, see Miller v. Bay City Property Owners Ass'n, Inc., 393 Md. 620, 634, 903 A.2d 938, 946 (2006), to the interpretation of restrictive land covenants does not necessitate a different conclusion. Applying properly a reasonably strict construction to interpretation of restrictive covenants means that if there is ambiguity in [a restrictive covenant's] meaning, any doubt should be resolved in favor of the unrestricted use of the property, if it reasonably can be done. Baltimore Butchers Abattoir & Live Stock Co., Inc. v. Union Rendering Co., 179 Md. 117, 123, 17 A.2d 130, 133 (1941). Acceptance of the present propositionwhether two parties to a tripartite agreement may modify the original agreement, provided such modification in no way prejudices the third partydoes not require us to interpret or construe either the 1992 or 1981 Declarations. That is, the 1981 Declaration provides unambiguously that all owners of the parcels that are the nominal subject of the declaration are supposed to consent normally to any modification of that document. The legal issue with which we grapple, however, is, this language notwithstanding, whether the owners of Parcels One and Two could execute validly the 1992 Declaration without the consent of the Parcel Three owners. Because this is a purely legal issue that does not require us to interpret or construe restrictive covenants, the concept of reasonably strict construction has no place in this analysis of this question. Declaring that we subscribe to and apply in this case the rule in Hotle does not end our inquiry, however. Under that rule, two parties to a tripartite agreement cannot change it to the prejudice of the third party.  Hotle, 334 P.2d at 852 (emphasis added). Thus, our inquiry shifts to whether the Parcel Three owners are prejudiced by the 1992 Declaration, for, if they are, the 1992 Declaration may be nothing more than an unsuccessful attempt to modify and replace the 1981 Declaration. The Circuit Court, in this suit where the owners of Parcel Three are not parties and did not participate in any capacity, found baldly that [t]he rights of the Parcel [Three] owner were not affected by the 1992 Declaration. The Court of Special Appeals opined: In this case, as we have observed, the owners of Parcel [Three] in 1992 had no apparent interest in the modifications made with respect to the development rights regarding Parcel [Two]. If they had such an interest, they could have objected to the 1992 Declaration, which was recorded, and sought to upset it, at least to the extent that it affected them. It is not for [Petitioner], however, who was not even a party either to the 1981 Declaration or the 1992 Declaration, retroactively (15 years later) to raise an objection on their behalf. To this point, Petitioner argues to us: The finding of no prejudice was not based on any evidence in the record. No Parcel Three owner testified one way or the other. If anything, there is real evidence of prejudice to Parcel Three because the 1992 [Declaration] purports to limit the only development of Parcel Two to the back corner of Parcel Two, immediately adjacent to Parcel Three on two sides. Thus, the 1992 [Declaration]'s restrictions have a direct and substantial impact on Parcel Three because of the location of the Restricted Development Area defined in the 1992 [Declaration]. Neither lower courtin making the finding of no prejudiceconsidered this undisputed fact. In response, urging that the 1992 Declaration in no way prejudices the relevant owners of Parcel Three, BCF avers: Under the 1981 Covenants, the Parcel [Three] Owners had no right to restrict future development on Parcel [Two] in any way. Thus, the restrictions on development contained in the 1992 [Declaration] are entirely consistent with, and do not affect, or conflict with, any right that the Parcel [Three] Owners had under the 1981 [Declaration]. Accordingly, the [Petitioner]'s suggestion that the 1992 [Declaration is] invalid because the Parcel [Three] Owners did not join in them is contrary to settled contract law. Absent extrinsic evidence to the contrary (none of which we could find in this record), nothing in the 1992 Declaration seems to affect, negatively and patently, the rights of the relevant owners of Parcel Three to develop Parcel Three, then-existing under the 1981 Declaration. That is not to say, however, that the only form of prejudice capable of defeating a bilateral modification of a tripartite agreement is hindrance of development rights. We think it would be unfair, without giving the relevant owners of Parcel Three an opportunity to be heard, to declare affirmatively at this point that, because the current record is devoid of any demonstrable evidence of prejudice to the owners of Parcel Three, they will suffer no prejudice from the 1992 Declaration. There is not an abundance of reported cases discussing the extent to which two parties may modify a tripartite agreement; certainly not enough to make the rule adopted and applied today a well-settled rule of law such that the owners of Parcel Three could be charged reasonably to have been on notice to make known any potential prejudice they would suffer as a result of the 1992 Declaration. Therefore, on remand, the owners of Parcel Three should be permitted to weigh-in, as parties or otherwise, if they wish, and the Circuit Court to offer and, if necessary, conduct an evidentiary hearingallowing the owners of Parcel Three to participate [19] with the goal of determining whether the owners of Parcel Three are prejudiced [20] by the 1992 Declaration. [21] If the Circuit Court determines they are not so prejudiced or if, after notice the owners of Parcel Three fail to assert any prejudice, the Circuit Court's declaration that the 1992 Declaration is valid and enforceable should stand. If, however, the Circuit Court determines, upon an adequate and persuasive showing, that the owners of Parcel Three are prejudiced by the 1992 Declaration (and assuming the owners of Parcel Three do not consent to the 1992 Declaration and did not waive their right to assert prejudice), it may reconsider its earlier declaration that the 1992 Declaration is valid.