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FRIDAY, MARCH 31, 2006

Edward R.

Murrow once

remarked that “[t]he

obscure we see even-

tually. The completely

apparent takes a little

longer.” Such is the

case with a Maryland

statute, codified in the

Real Property Article

of the Annotated

Code of Maryland (“RP Article”), that

received no attention by Maryland appel-

late courts in two recent cases where it

could have played a decisive role. This situ-

ation has left Maryland real property prac-

titioners at a loss to understand how best

to draft real estate documents in light of

these cases.

Obviously, a bit of explanation is in

order.

This is a curious and perplexing story

about a Maryland statute that has been

treated by the Maryland appellate courts as

though it did not exist. It has been on the

books for well over three decades, but

from all appearances it has been cited just

a single time (and then only in a footnote)

by Maryland’s appellate courts.

Unlike other statutes that have been

relegated to the dustbin of obscurity, it is a

mistake to treat this statute as obscure or

obsolete. This statute, rather, suffers from

the failure of the bar and the courts to

understand its significance and importance

in real estate transactions.

The statute in question is §1-103 of the

RP Article. This 53-word statute, which

originally was codified as §1-104 of former

Article 21, provides in full as follows:

Unless otherwise expressly provided,

any obligation imposed on or right

granted to any person automatically is

binding on or inures to the benefit of

his assigns, successors, heirs, legatees,

and personal representatives. However,

this section is not to be construed to

create or confer any rights of assign-

ment where none would exist other-

wise.

According to the annotations to §1-103,

this statute has been cited just a single

time, in 2004, by the Court of Appeals,

where it was referenced in a footnote.

Jurgensen v. New Phoenix Atlantic

Condo. Council of Unit Owners, 380 Md.

106, 117 n. 11 (2004). To understand the

context of this reference to the statute in

footnote 11 in Jurgensen, it is necessary to

review an earlier decision by the Court of

Appeals that seemingly ignored this statute

in its entirety.

Park Station

:The genesis of

the problem

In a 2003 decision, the state’s highest

court considered whether the absence of

the words “successors and assigns” had

any effect on the Rule Against Perpetuities

in a paragraph (paragraph 12) that con-

tained a right of first refusal to purchase

real property located in Anne Arundel

County. Park Station v. Bosse, 378 Md. 122

(2003).

The Park Station court noted that

some paragraphs (namely paragraphs 6

and 7) in the contract contained “succes-

sor and assign” language while others did

not. The court further observed that the

contract contained a paragraph (paragraph

10) stating that the “easements, restric-

tions, benefits, and obligations” under the

contract bind the respective “successors

and assigns” of the parties.

Based on this seeming hodgepodge of

successor and assign language, the Park

Station court reasoned that paragraph 10,

the “general” successor and assign provi-

sion, was intended to apply to those con-

tractual provisions that involved the “day-

to-day use” or the governance of the prop-

erty in question. By contrast, the two para-

graphs that contained specific successor

and assign language (paragraphs 6 and 7)

did not, in the court’s view, concern the

daily use of the properties. Rather, these

paragraphs dealt with an injunction to

restrain a violation of the contract and an

amendment to the contract.

In the face of this “daily use” distinc-

tion, the court found that the right of first

refusal paragraph (paragraph 12), which

did not contain specific successor and

assign language, fell into the non-daily use

category because it “grants an interest

which can only vest one time in the

future.” As a result, the court ruled that

paragraph 12 “was intended to be personal

and was not intended to encompass suc-

cessors and assigns.” Id. at 137.

In support of the proposition that rights

of first refusal are presumed to be personal

and are not ordinarily construed as assign-

able unless the granting clause refers to

successors and assigns or the instrument

otherwise clearly shows that the right was

intended to be assignable, the Park Station

court cited a lengthy list of cases from a

number of other jurisdictions. But

nowhere did the court refer to or cite §1-

MARYLAND’S BUSINESS & LEGAL NEWS SINCE 1888

Successors and assigns: Does it mean what it says?

By Kevin L.

Shepherd

Mr. Shepherd is the Co-Chair of the

Real Estate Practice Group and Chair

of the Finance Committee at Venable

LLP in Baltimore. He is the Chair of

the ABA Section of Real Property,

Probate and Trust Law, is a member

of the board of governors of the

American College of Real Estate

Lawyers, is a member of the Anglo-

American Real Property Institute,

and is a fellow of the American Bar

2 THE DAILY RECORD

FRIDAY, MARCH 31, 2006

103, a specific Maryland statute dealing

with successors and assigns in real estate

matters. Why?

Jurgensen, decided less than four

months after Park Station, provides a

partial explanation and interesting

insight.

In the course of discussing whether a

party’s successors and assigns should have

exclusive rights to a parking space in a con-

dominium project in Ocean City, the

Jurgensen court referred to Park Station

and its analysis of the successor and assign

issue in the Rules Against Perpetuities con-

text. The Jurgensen court explained in a

lengthy footnote that §1-103 was neither

briefed nor argued before the Park Station

court.

Interestingly, the Jurgensen court noted

that “nothing in Park Station was intended

to, or did, affect the applicability of that

statute.” Jurgensen, 380 Md. at 117 n. 11.

The Jurgensen court sought to draw the

distinction that Park Station simply

involved a case where the successor and

assign language is present in some para-

graphs but absent in others. The Jurgensen

went on to emphasize that “Section 1-103

remains applicable in all respects wherev-

er, and whenever, it was applicable prior to

our discussion in Park Station.” Id.

The boilerplate conundrum

A recent unreported decision by

Maryland’s intermediate appellate court

embraced Park Station’s successor and

assign analysis in a case involving the Rule

Against Perpetuities in the context of a

right of first refusal contained in a real

estate buy-sell agreement. Harrison v.

Harrison, Md. Ct. Spec. App. No. 1550,

Sept. Term 2004 (decided Jan. 11, 2006).

The agreement contained a general succes-

sor and assign provision, but the Harrison

court found that the “boilerplate” succes-

sor and assign paragraph did not apply to

the right of first refusal:

The reference to “successors and

assigns” in paragraph 16 of the

Agreement is typical, standard “boiler-

plate” language found in nearly every

written contract. In our full reading of

the [A]greement we find nothing to lead

us to the conclusion that that language

somehow relates to the right of first

refusal. The “successors and assigns”

terminology is insufficient to overcome

the presumption that the right of first

refusal is personal; therefore, the par-

ties did not intend to make the right

transferable to successors and assigns.

Id. at pp. 11-12.

Again, as in Park Station, the Harrison

court nowhere mentioned §1-103 in its

analysis even though the Jurgensen court

indicated that it remained alive and well

after (and before) Park Station.

Park Station and now Harrison (albeit

an unreported decision having no prece-

dential value to non-parties) raise a serious

concern among the Maryland real estate

bar about whether a general, omnibus “suc-

cessor and assign” provision in a real estate

contract does not operate to make contrac-

tual rights and obligations bind the con-

tracting parties’ successors and assigns.

Park Station indicated that practition-

ers need to analyze whether a particular

contractual provision would affect the

“day-to-day use of the property.” If so, a

general successor and assign provision

may suffice. But if the provision in question

does not relate to the day-to-day use of the

property, the practitioner must include spe-

cific successor and assign language in the

contract provision in question for that pro-

vision to bind successors and assigns of the

contracting parties.

Left unanswered by Park Station is the

issue of whether the parties can draft a

“super” successor and assign provision that

would overcome any presumption that it

was not intended to apply to some, but not

all, contractual provisions.

How specific and overarching would

such a provision have to be? Would it have

to be contained in a separate section in a

contract rather than in the miscellaneous

section? Would it have to be in capitalized

letters in bold font typeface? Would parties

have to initial this specific provision?

Would the parties have to place the provi-

sion immediately before the signature

blocks for the parties so as to highlight its

importance? Would parties have to formu-

late specific language to make crystal clear

that the successor and assign provision

applies to every contractual provision and

disclaim that it applies to some, but not all,

of them (even if some provisions may con-

tain separate successor and assign lan-

guage)?

Also left unanswered by Park Station

and its progeny is exactly why a general

successor and assign provision is insuffi-

cient to apply to the entire agreement, even

when some provisions include specific suc-

cessor and assign language and others do

not? A general successor and assign provi-

sion, although dismissively styled by the

Harrison court as “boilerplate,” is not mere

ornamental language in a contract. It is to

be given meaning and effect as other con-

tractual provisions. No conflict is created

within a document that contains a general

successor and assign provision as well as

certain provisions that contain separate

successor and assign language. Inattentive

drafting may be the culprit in these cases

rather than some grand design to have the

general successor and assign provision

apply to “daily use” while not apply to

other non-daily use provisions.

The “daily use” analysis is impracticable

and will eventually lead to conflicting

results. For example, one can imagine a sit-

uation where a monthly, quarterly, or annu-

al reporting obligation under a real estate

agreement would not be viewed as falling

within the “daily use” category. In that situ-

ation, Park Station would seem to dictate

that a general successor and assign provi-

sion may be insufficient to apply to that

provision. And what if a “daily use” is cou-

pled with a non-daily use in the same con-

tractual provision? What rule governs then?

The artificiality of the distinction is

unworkable in practice and will undoubt-

edly lead to odd and unpredictable

results. For those reasons, the Park

Station analysis is difficult to embrace

and understand, both practically and the-

oretically.

Does §1-103 Apply?

The omission of any reference to §1-

103 in Park Station

and Harrison sug-

gests that those courts found that statute

inapplicable. Perhaps they were unaware

of §1-103, but believed it applies only to

statutes in the RP Article, and not to pri-

vate contracts. But is that the case?

Section 1-103 is part of Title 1 of the RP

Article and is styled as “General

Provisions.” By its terms, §1-103 states

that “[u]nless otherwise expressly provid-

ed,” obligations and rights automatically

bind on and inure to the benefit of a per-

son’s successors and assigns, among oth-

ers. Unlike other provisions in Title 1, §1-

103 does not refer to “in this article”

when discussing their applicability. For

example, §1-102 states that “whenever

this article states that a fact is presumed,

the presumption is rebuttable” unless

otherwise expressly provided. (Emphasis

added.)

To like effect is §1-101, which states

in pertinent part that “[i]n this article

the following words have the meanings

indicated unless otherwise apparent

from context.” (Emphasis added.) For

that reason, §1-103 was arguably intend-

ed to apply to both the RP Article and

private contractual agreements. Unlike

§§1-101 and 1-102, there is certainly no

textual support of the view that §1-103 is

limited to statutory provisions contained

in the RP Article.

If §1-103 is to be read into every real

estate contract in Maryland, one may

question whether it is even necessary to

include an omnibus successor and

assign provision in such a contract.

Because the General Assembly may

modify the statute and to reinforce the

intent that the entire contract is to bind

the parties’ successors and assigns, the

better practice is to include an omnibus

successor and assign provision in every

contract. From a drafting standpoint, if a

provision is intended to be personal

rather than binding on a party’s succes-

sors and assigns, the contract should

specifically state so.

Conclusion

The “daily use” test minted by the

Park Station court is unworkable and

impractical. The later Jurgensen decision

tried to explain away the Park Station

court’s oversight of §1-103, but the “daily

use” test for successor and assign provi-

sions still appears to be controlling

Maryland law despite its glaring short-

comings.

Jurgensen pronounced §1-103 alive

and well and that simple statute should

be accorded the respect its due. Unless

and until the General Assembly limits the

scope of §1-103, Maryland courts should

be mindful of this statute in the future in

any case involving successor and assign

provisions in real estate contracts.

THE DAILY RECORD 3

FRIDAY, MARCH 31, 2006

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