Court Opinion

ID: 9650118
Source: CourtListenerOpinion
Date Created: 2023-08-23 15:25:22.368305+00
Date Added: 2024-06-11T18:12:18.515183
License: Public Domain

WENNER, Judge,
dissenting.
I respectfully dissent, because I disagree with the majority’s approach to this case.
Although the Agreement contains the rights that would allow Equitable’s mortgage to survive the City’s reentry, those rights are granted only to holders of “authorized mortgages.” Unfortunately, the Agreement does not define this term. Consequently, in my view, the question to be resolved is “what comprises an authorized mortgage?” In other words, is a mortgage an authorized mortgage only when it satisfies all of the Agreement’s provisions regarding financing on the property, including the loan purpose and loan limit restrictions, notice, and inclusion in the loan documents of certain rights to accrue to the City if the Developer defaults on the mortgage? Are the requirements of an authorized mortgage the loan amount and loan purpose restrictions and notice specified in Section 6.01 of the Agreement? Or is a mortgage an authorized mortgage simply by complying with the loan amount and loan purpose restrictions?
To some extent, the arguments presented in this case have become tangled in semantics. Equitable objected to our December opinion’s characterization of the requirements of Section 6.01 as “conditions” of authorization, and argues that these requirements are promises, not conditions. According to Equitable, the Developer’s failure to comply with these requirements should not deprive Equitable of rights under the Agreement.
I agree with the majority that, between the Developer and the City, Section 6.01’s notice requirement is a promise. In fact, between the Developer and the City, every requirement in Section 6.01 is a promise. The Developer promised not to place financing secured by a mortgage on the property ex*258ceeding certain loan amounts, and to give the City advance notice of any financing secured by a mortgage that it placed on the property. Where I disagree with the majority, however, is in its view that, because the notice requirement is not a condition to one party’s performance under the Agreement, it cannot be a condition to a third party obtaining rights under the Agreement.6
The Court of Appeals discussed subordination clauses in Rockhill v. United States, 288 Md. 237, 418 A.2d 197 (1980):
The term “subordination” is used in at least two general senses in the cases of the type presented here. One aspect refers to the executory promise to subordinate to financing of a described type (herein sometimes called a “subordination clause”). The term is also applied to the declaration or agreement which expressly manifests assent to the priority of a specific lien (hereinafter sometimes called a “subordina*259tion agreement”). Some subordination clauses contemplate the execution by the subordinator of a subordination agreement. Others are drafted with the object of effecting subordination without further documentation when a given loan falls within the description of the subordination clause (“automatic subordination”).
Id. 288 Md. at 241, 418 A.2d 197. In short, the Agreement in the case sub judice contains an “automatic subordination” clause. The execution of a separate agreement of subordination was not contemplated; subordination would occur and the statutory order of priority would be altered when a loan secured by an authorized mortgage was made. In other words, the City’s agreement is not “to subordinate” in the future, but that its right of reentry “is subordinate” to an authorized mortgage. The task of the court, then, is to determine whether an authorized mortgage exists. If the mortgage is authorized, the holder of the mortgage is a third party beneficiary under the Agreement and may assert the rights, including the right of priority, granted to holders of an authorized mortgage. On the other hand, if the mortgage is not authorized, the holder of the mortgage is not a third party beneficiary, and has no rights under the Agreement. I agree that if notice is not a requirement of authorization, then the Developer’s failure to give notice to the City is not a defense available to the City to defeat an authorized mortgage holder’s rights under the Agreement. If, however, notice is a requirement of authorization, then the Developer’s failure to give notice precludes Equitable from asserting any rights under the Agreement.
It is undisputed that the loan purpose and loan amount restrictions are conditions of authorization. The notice requirement is in the same section of the Agreement as, and immediately follows, the loan purpose and loan amount restrictions, and the same terminology is used to establish each of these requirements. The first right granted to a holder of an authorized mortgage, to receive notice of a default by the Developer, presumes that the City has been notified of the existence of the mortgage and has been provided an address *260for the mortgagee. Although the majority says that “it is clear that the failure to notify the City of the Equitable financing does not constitute a failure to satisfy the requirements of the subordination agreement,” nowhere does the majority explain how it reached its determination that the requirements of authorization are limited to Section 6.01’s loan purpose and loan amount requirements.
The majority seems to base its determination that notice is not a condition of authorization on its view that “the only purpose of the notice clause is to provide the City with advance knowledge of the financing” because the notice clause does not give the City the right to veto or approve the financing, and that the Developer’s failure to provide notice was harmless and did not prejudice the City. I do not believe that the absence of actual harm to the City from the lack of notice prevents notice from being a condition of authorization.
In the first place, the Developer’s failure to give the City advance notice of Equitable’s loan prevented the City from protecting its right under the agreement to have clauses included in the mortgage granting it rights in the event of the Developer’s default on the loan, and to place on record a request that Equitable give it notice of any foreclosure proceedings it might institute.7 These omissions could have been significant had the Developer defaulted in its obligations to Equitable before defaulting under the Agreement. The Agreement must be evaluated from the perspective of the parties at the time it was entered into; the court cannot second guess the meaning of a contractual term based on whether a potential harm actually developed. See Jenkins v. Karlton, 329 Md. 510, 525, 620 A.2d 894 (1993) (under the objective law of contracts, Maryland courts seek to determine, from the language of the contract, what a reasonable person in the position of the parties would have meant).
*261In the second place, even if it were obvious at the time the contract was entered into that advance notice of financing secured by the property would be of little or no benefit to the City, that would not nullify a provision of the Agreement making notice a requirement of authorization. Raiford v. Department of Transportation, 206 Ga.App. 114, 424 S.E.2d 789, 791-92 (1992), is illustrative. The subordination of a lessee’s leasehold interest to future mortgages encumbering the property was expressly conditioned on the mortgages containing a covenant of quiet possession in the favor of the lessee. Mortgages not containing the required provision were later placed against the property. After Georgia’s Department of Transportation condemned the property, the trial court was asked to determine who was entitled to the proceeds. The parties agreed that, when the subordination provision was drafted, the lessor and lessee were contemplating priorities in the event of foreclosure. According to the lenders, the failure to include the covenant of quiet possession was immaterial, because it would have duplicated the lessee’s legal right to remain in possession in the event of foreclosure. Thus, the failure to include the covenant of quiet possession could not have resulted in harm to the lessee. The Georgia court summarily dismissed this argument as “confusing] contractual rights with statutory rights.” The failure of the mortgage to contain a covenant of quiet possession meant that the lenders did “not have a contractual right to priority under the lease’s subordination clause.” Id. at 792.
I am still not convinced that notice is not a condition of authorization. Consequently, for the reasons set forth in our December opinion, I would reverse the judgment of the circuit court.

. Although it is not necessary in many cases involving subordination agreements to delve into a third party beneficiary analysis, that does not mean that one who gains priority under such an Agreement is not a third party beneficiary. To be sure, Equitable is not a party to the Agreement between the Developer and the City, yet the rights Equitable asserts are derived from the Agreement. Except for the Agreement, Equitable would have no claim to priority, as the City’s deed to the Developer, containing the City's right to reenter, was placed of record prior to Equitable’s mortgage. The provision for a nonparty’s assertion of rights under a contract is the classic third party beneficiary situation. See Flaherty v. Weinberg, 303 Md. 116, 125, 492 A.2d 618 (1985) ([A] third party beneficiary contract arises when two parties enter into an agreement with the intent of conferring a direct benefit oh a third party, permitting the third party to sue on the contract despite the lack of privily.).
The third party to be benefited need not be known at the inception of the contract; nevertheless, the beneficiary must be ascertainable and identified before gaining any enforceable rights under the contract. Shillman v. Hobstetter, 249 Md. 678, 687-88, 241 A.2d 570 (1968) (quoting Marlboro Shirt Co. v. American District Telegraph Co., 196 Md. 565, 569, 77 A.2d 776 (1951)); Parlette v. Parlette, 88 Md.App. 628, 637, 596 A.2d 665 (1991); see also 17A Am.Jur.2d, Contracts § 454 (1991); 17A C.J.S., Contracts § 519(4)(d) (1963). Although, between the City and the Developer, the requirements of Section 6.01 are covenants, those same requirements establish the basis for ascertaining which mortgage holders gain rights under the Agreement. They are thus prerequisites or conditions to third party beneficiary status.

. See Maryland Code (1974, 1988 Repl.Vol., 1993 Cum.Supp.), § 7-105(c) of the Real Property Article.