Professional Documents
Culture Documents
Marketable Title
- The duty of the seller to deliver marketable title free from all encumbrances is implied in every
contract of sale of land.
o If seller cannot convey marketable title, the buyer is entitled to rescind before title is
conveyed
Seller does not have to produce marketable title until the day the contract is to be
performed (i.e., closing date).
There is time for the seller to cure.
However, the cure cannot alter the property in such a way that the
purchaser would be compelled to take something that he did not contract to
buy.
- Definition of marketable title: title free from any defect that would raise a reasonable doubt as to
its validity
- What constitutes an encumbrance?
o Defect which is substantial and injurious to the property rights that are the subject of the
contract
Defects are defects of title, not of the property itself
Ex: pg. 483, note 3 – Court held that title to land in which the seller knew
had no legal access was marketable title. Court reasoned that the lack of
access affected the market value of the land, not the marketability of the
title.
Generally includes undisclosed monetary interests such as mortgages, liens, etc.
May also include errors in description of the property and/or defects in recording
etc.
Private restrictions (Lohmeyer v. Bower)
Ex: neighborhood covenant
Mere existence of a private restriction is an encumbrance (defect per say)
o In order for a private restriction not to be considered an
encumbrance, it must be explicitly exempted in the contract, as it
was in Lohmeyer
Public restrictions (Lohmeyer v. Bower)
Ex: zoning ordinance
Mere existence of public restriction is not an encumbrance
o Must be violated to be an encumbrance
Equitable Conversion
- Risk of loss between contract of sale and closing (performance)
- Who takes the loss when the premises are destroyed and the contract has no provision allocating
the risk of loss?
o Historically the purchaser would have to bear the loss. This is called equitable conversion
– treating the purchaser as the owner and the seller as only having property interest in the
money owed
o A more modern approach: some courts refuse to follow equitable conversion and have
instead held that the loss is on the seller until legal title is conveyed
The seller is said to hold the legal title as trustee for the buyer
Seller normally holds insurance up to the time of the transfer of title, as trustee for
the buyer
o To avoid litigation, the parties should include a provision regarding risk of loss in the
contract of sale and buy insurance accordingly
What if the property is not destroyed, but rather the nature of the property
contracted for changes?
Ex: Who would bear the burden of a zoning change between the contract
and closing?
o The question to ask: Is it of a material nature that would change the
contract?
If you represent the buyer, first argue the seller is responsible
(argument against equitable conversion). If this argument
fails, argue:
Impracticability
o The change has rendered the contract
impracticable for the buyer
Frustration of purpose
o The change has frustrated the purpose of the
contract so much so that the buyer would not
get the benefit bargained for
Duty to Disclose Defects
- More recent approach to evaluate violations of covenants and other material, latent defects.
o Material – essential to the purpose of the sale
o Latent – hidden
o Patent – obvious
- Caveat Emptor –
o Old Majority rule: seller owes no duty to disclose patent/latent defects to the purchaser.
It is the purchaser’s duty to inspect, UNLESS seller has fiduciary duty to purchaser. AS
LONG AS SELLER IS SILENT, HE ESCAPES LIABILITY.
o Fraudulent Misreprestation (i.e. seller didn’t keep his mouth shut) – Elements
Representation of fact
Material to the sale
Knowingly made falsely
With intent to mislead
Purchaser reasonably relies
Reliance causes injury
- Duty to Disclose Material Latent Defects – New Majority Rule. Popular trend, often enforced
by statute.
o Material – materially affects property’s value OR significantly impairs the occupant’s
health and safety.
Jx split – what is material?
Subjective, opinion of buyer
Objective, opinion of reasonable people
o Latent – Known to the seller, but not discoverable to the purchaser/rep despite reasonable
inspection.
o Jxs split on Latent Defects
Seller’s duty ONLY to material, latent defects that affect health / safety
Duty is imposed only on professional sellers – builders / developers of NEW
homes
Duty covers all sellers, real estate brokers, and agents
- Physical v. off-site
o Usually seller is required to disclose material, latent physical defects (leaky roof,
terminates)
o Some states require seller to disclose off-site defects (hazardous dump site down the road,
noisy neighbors)
o Non-physical defects – like GHOSTS! Or a mass murder that occurred in the home. Jxs
are split.
- Patent v. latent
o Seller not required to disclose patent defects
o Seller not required to disclose latent defects he doesn’t know about.
o Duty to disclose latent defects only applies to residential property; not to commercial
property because those purchasers are more sophisticated, will have agents inspect
property more carefully.
- Stambovsky v. Ackley – GHOSTS!
o Where a condition which as been created by the seller materially impairs the value of the
contract AND is peculiarly within the knowledge of the seller OR unlikely to be
discovered by a prudent purchaser exercising due care, nondisclosure constitutes a basis
for rescission as a matter of equity.
o Test for “condition created by the seller”
Is the seller aware of the buyer’s amount of knowledge?
- Johnson v. Davis – seller affirmatively represented there were no problems with the roof, though
they knew otherwise. After payment of deposit, defendant moved, plaintiff moved in. After
heavy rain, evident that roof was VERY leaky.
o Where the seller of a home knows of facts materially affecting the value of the property,
which are not readily observable and not known to the buyer, seller is under a duty to
disclose them to the buyer – for ALL forms of property, new/old.
o Unlike Stambovsky, does not need to be a condition created by seller.
- Lempke v. Dagenais – 3rd party purchasers sue a garage builder, even though they were not in
privity of contract. Implied Warranty of Workmanlike Quality.
o Privity of contract is not necessary to sue for implied warranty of workmanlike quality
for latent defects which manifest themselves within a reasonable time after purchase
AND which cause economic harm.
o Limitation – plaintiff has burden to show defect was due to defendant’s workmanship.
o Counterarguments from defendant – 1) defects not his fault; 2) defects are the result of
age; 3) previous owner made substantial changes.
- Time for Performance –
o Buyer can’t rescind as soon as he finds something bad. Must give seller time to cure.
Unless contract states specific amount of time allowed, presumed time is
“reasonable”
Courts will be lenient UNLESS contract stipulates that “time if of the essence”
Some minor delays will usually be allowed still.
Breach
- If Buyer breaches- 3 remedies for Seller
o Rescission
o Specific performance
o Retain the property and file suit for damages
- Loss of the Bargain Rule- The difference between the purchase price and the market value of
property at the time of breach.
o Where the market value at the time of the breach is the same as the contract price, the
sellers are limited to nominal damages or forfeiture of earnest money.
- Special Damages
o Result as the natural and probable consequence of the breach
o The breaching party reasonably should have known or anticipated that the damages
would have probably incurred.
o Costs that are incurred while seller is trying to sell the property. (Also called incidental
damages). These have to be proven. Examples: cost of advertising, interest on the
mortgage payments.
o Consequential damages- lost profits on something else. Ex: Seller is going to start a
business in FL and deal fell through because of buyer’s breach. These damages must be
foreseeable by the buyer at time of breach.
- Punitive Damages- Can be imposed by a court when a party acts with “wanton, utterly reckless
and utter disregard of contractual obligations.”
o Jones v. Lee- Jones entered into a contract to sell his home to Lee for $610,000 and Lee
paid $6,000 earnest money. Several weeks later Lee informed Jones that he was unable to
purchase the home. He asked to terminate the agreement and offered to forfeit his earnest
money. Jones rejected the termination agreement and relisted the property. Jones was
eventually able to sell it for $540,000. Jones sued Lee to recover the $70,000 difference.
After trial, the court awarded Jones $70,000 in compensatory damages and $87,118.94 in
special and punitive damages. Lee appealed.
Holding: When a buyer defaults the seller has 3 options. (See above). Jones chose
to seek damages. New Mexico follows the “loss of the bargain rule”. See above.
The purchase price was $540,000 but the plaintiff failed to present evidence that
the market value of the property was $610,000 at the time of the breach. There was
no evidence that the value of the home remained $610,000. The court used an
improper method to calculate the damages. However , the court was correct in
calculating the special and punitive damages. Included in the special damages
awarded by the court are changes for an inspection of the solar system, a
consultation on the solar system, and a heating warranty incident to the sale of the
home. These charged were contemplated by the terms of the contract and were
reasonably foreseeable. The punitive damages were based on Lee’s fraudulent
conduct. Lee misrepresented facts and frightened Mrs. Jones. Such punitive
damages were warranted after such behavior.
- Should seller retain deposit when buyer breaches a contract that does not contain a liquidated
damages clause?
o Common Law Rule-When the buyer makes a part payment on the purchase price, but
fails to fulfill the contract without lawful excuse, he can’t recover the payment.
o The Restatement Second of Contracts authorizes restitution of buyer’s deposit and most
courts have followed this.
o Buyers are entitled to restitution of any benefit they conferred by part performance or
reliance. Otherwise to have seller keep the deposit would be like having the buyer pay a
penalty. Penalties are disfavored.
o Kutzin v. Pirnie- Pirnie contracted to purchase Kutzin’s home for $365,000. Pirnie paid
a 10% deposit but subsequently breached the contract. The trial court held that Kutzin
was entitled to keep the entire deposit but was not entitled to further damages. Pirnie
appealed.
Holding: At Common Law a buyer who breached lost her deposit. Under the
modern rule a buyer is entitled to restitution of any deposit unless: the seller has
not rescinded the contract and maintains a right of specific performance, the buyer
has not shown that the deposit exceeds the seller’s actual damages, or the contract
expressly provided that the seller may retain the deposit in event of breach.
- Retention of Deposit
o Holding in Kutzin is a minority view. The general rule is that if buyer breaches a contract
to purchase land, the seller may retain the down payment, even if the contract has no
liquidated damages clause.
o Most courts limit the amount of deposit retained to 10%.
o Efficient breach theory indicates that when the cost of breach (damages) is less than the
potential gain from breach (due to changing market conditions), breach of the contract is
the economically efficient result.
- Specific Performance
o S.P. for sale of goods is unusual but S.P. for sale of land often occurs. The reason is that
“Blackacre is unique” which makes damages inadequate.
o In the majority of cases it is the seller who is seeking specific performance.
- Seller’s breach due to title defect
o English rule- followed by about ½ jurisdictions in the US. Limits the buyer’s recovery to
his down payment plus interest and reasonable expenses incurred in investigating the
title. If the seller has acted in bad faith or has assumed the risk of failure to secure title the
buyer is then liable for ordinary contract damages.
o American rule- which is slowly gaining acceptance, allows the purchaser to recover
expectation damages, plus any other reasonably foreseeable special damages.
- Time of the essence clauses
o Unless the parties expressly declares time is of the essence a court will give the parties a
reasonable time for performance, and either party can fix the time for performance by
giving notice to the other, provided the notice leaves a reasonable time for rendering
performance.
Deed Warranties
- requirements for a deed:
o consideration: a deed does not require consideration to support it
o description of tract
o The short form deed contains: grantor, grantee, words of grant, description of the land
involved, signature of the grantor and sometimes attestation and acknowledgement.
- forgery and fraud:
o forged deed: A forged deed in void. The grantor prevails over all persons including
subsequent bona fide purchasers from the grantee who do not know the deed is forged.
o deed by fraud: most courts hold a deed procured by fraud is violable by the grantor in an
action against the grantee, but a subsequent bona fide purchaser from the grantee who is
unaware of the fraud prevail over the grantor.
- types of deeds
o A general warranty deed: warranties title against all defects in title, whether they arose
before or after the grantor took title.
o A special warranty deed: warranties only against the grantor’s own acts, but not acts of
others. It only warrants the defects that occurred during the time of the grantor’s
possession.
o A quitclaim deed: no warranties of any kind. It merely conveys whatever title the grantor
has, if any, and if the grantee of a quitclaim deed takes nothing by the deed, the grantee
cannot sue the grantor.
o Grant deed: by law 2 warranties; covenant of seisin + covenant against encumbrance. It is
signed by the seller and delivered to the buyer. Buyer does not sign on the deed.
- a general deed contains six express warranties:
o present covenants:
A covenant of seisin—the grantor warrants that he owns the estate that he purports
to convey.
A covenant of right to convey--the grantor warrants that he has the right to convey
the property.
A covenant against encumbrances—the grantor warrants that there are no
encumbrances on the property. Encumbrances include mortgages, liens, easements
and covenants.
o future covenants
a covenant of general warranty—the grantor warrants that he will defend against
lawful claims and will compensate the grantee for any loss that the grantee may
sustain by assertion of superior title.
a covenant of quiet enjoyment—the grantor warrants that the grantee will not be
disturbed in possession and enjoyment of the property by assertion of superior title
The statute of limitation for covenant of quiet enjoyment begins to run
when it is violated.
It does not guarantee that there is no one with a paramount title.
the issue is whether the alleged facts sufficient to constitute a constructive
eviction.
a covenant of further assurance—the grantor promises that he will execute any
other documents required to perfect the title conveyed.
o differences between present and future covenants
whether it exists at the time of conveyance. Present covenants are breached, if
ever, at the time of the conveyance. Future covenants may be breached anytime in
the future.
statute of limitations: For present covenants, it runs at the time of delivery
(closing); for future covenants, it runs on a future covenant at the time of eviction
or when the covenant is broken in the future.
whether it is violated at all at the time of closing.
- Brown v. Lober:
o Facts: The original owner conveyed 80 acres of land to Bosts Couple, reserving two-
thirds interests in the mineral right. Bosts later sold the tract to Brown by a general
warranty deed containing no exceptions. In 1974, Brown contacted to sell the mineral
right to a company and found out that Browns owned only one thirds of the mineral
rights. The original grantor never made any attempt to exercise his mineral rights. The ten
years statute of frauds barred the suit for the present covenants. So Brown sued Bost’s
executor for breach of the covenant of quiet enjoyment
o Issue: whether P had alleged sufficient facts to constitute a breach of quiet
enjoyment (a constructive eviction)
o Holding: No
o Rules:
Mere existence of a paramount title doe not constitute a breach of covenant. If the
land has always been vacant, the grantee can have taken peaceable possession at
any time. He is not prevented or hindered from the enjoyment of possession by
any one having a better right.
The statute of limitation for covenant of quiet enjoyment begins to run when it is
violated.
possession of surface does not carry possession of the minerals. To possess the
mineral estate, one must undertake the actual removal thereof from the ground or
do such other acct as will apprise the community that such interest is in the
exclusive use and enjoyment of the claiming party. In this case, the subsurface is
vacant. Until such time as one holding paramount title interferes with P’s right of
possession, there can be no constructive eviction and therefore, no breach of
covenant of quiet enjoyment.
- Frimberger v. Anzelloti:
o Facts: D’s predecessor constructed property on the land. The property abuts a tidal
marshland and is subject to the provisions of the statute. He builds a bulkhead and filled
the parcel adjacent to the wetland. Later, the property was transferred to D by quit claim
warranty deed. Later D conveyed the property to P by warranty deed, free and clear of
all encumbrances but subject to all building lines and zoning restrictions as well as
easement and restriction of record. Later, P waned to perform repair. DEP placed stakes
on the boundary and noted there was a tidal westland violation on the property. DEP told
P that A-2 survey is required. P conducted the survey. Later the official of DEP told P
that the filled and bulkheaded property was encroaching the wetland and created a
violation of statute. To correct it, P must apply to demonstrate the necessity of
maintaining the bulkhead and fill in within the wetlands.
o Issue: whether all alleged latent violation of a land use statute or regulation, exiting
on the land at the time title is conveyed, constitutes an encumbrance such that the
conveyance breaches the grantor’s covenant against encumbrance
o Holding: No
o Rules:
latent violation of state or municipal land use regulations that do appear on the
land record, that are unknown to the seller of the property, as to which the agency
charged with enforcement has taken no official action to compel compliance at the
time of the deed was executed, do not constitute an encumbrance for the purpose
of deed warranty.
the proper way to deal with violations of government regulations is by contract
provision or language in the deed.
because we have held that the warranty of covenant against encumbrance was not
violated, no misrepresentation was made.
- assignability of chosen action:
o majority rule: objects to assignment of choice of action. The cause of action is not
impliedly assigned
o minority rule: the cause of action can be assigned (Iowa).
- estoppel by deed
o If a grantor conveys land to a grantee that the grantor does not own, and the grantor
warrants the title to the land and if the grantor subsequently acquires title to the land, the
grantor is estoppled to deny that he had the title at the time of the deed and that the title
passed to the grantee.
o applies to warranty deed and sometimes applies to quitclaim deed
If the grantor does not own but convey land to a grantee, and the grantor warrants
the title to the land. If the grantor subsequently acquires title to the land, the
grantor is estoppeled to deny that he had title at the time of the deed and that title
passed to the grantee. Not lawsuit is needed and the title automatically passes to
the grantee.
- damages
o The measure of damages for breach of the covenant is the consideration money, upon
the ground that this is the actual loss. If the grantee has lost less, he is limited to the
amount of injury sustained.
- Rockafellor v. Gray:
o Facts: 80 acres of land; foreclosure sale
o Issue: does the covenant of seizin run with the land in this state, so that action may
be maintained by a remote grantee.
o Holding: Yes
o Rules:
A covenant of seizin is a covenant for the title, and that if at the time of the
conveyance, the grantor did not own the land the covenant is broken immediately
and in order to recover, it is not necessary to allege or prove an ouster or eviction.
English Rule: covenant of seizin runs with the land, and is broken the instant the
covenant is delivered, and then becomes a chose in action held by the covenantee
in the deed and that a deed by said first covenantee operates as an assignment of
such chose in action to a remote grantee, who can maintain an action thereon
against grantor in the original deed.
The right of the remote grantee are acquired by conveyance (assignment) and not
by virtue of actual possession of the premises. Connelly had neither title nor
possession of the premises at the time he executed and delivered his deed to
Dixon.
The measure of damages for breach of the covenant is the consideration money,
upon the ground that this is the actual loss. If the grantee has lost less, he is limited
to the amount of injury sustained. Thus the court allowed recovery in the amount
of the consideration recited in the deed from Connelly to Dixon with the interest
from the date of the execution of the deed from Dixon to Hansen & Gregerson.
Delivery
- rarely an issue in commercial transactions, problems usually involve donative transactions
- Generally – leads to immediate transfer of title that cannot be revoked
o Requirements
Grantor must manifest by words or action - “As a deed may be delivered to a party
without words, so may a deed be delivered by words with any act of delivery.”
and intent that the deed be
immediately effective
o Delivery presumed
physical handing over deed
deed is acknowledged by the grantor before a notary
deed is recorded
o Other things to consider
CONSTRUCTIVE DELIVERY IS SUFFICIENT: constructive delivery. An act
that amounts to a transfer of title by operation of law when actual transfer is
impractical or impossible. • For example, the delivery of a deposit-box key by
someone who is ill and immobile may amount to a constructive delivery of the
box's contents even though the box may be miles away.
Parol Evidence
Majority rule- admissible to prove grantor’s intent
Majority rule- no admissible to prove delivery was conditional
o HYPO-
No intent, but manual transfer: O executes an instrument conveying Blackacre
to A and hands the instrument to A and gives it to A for “safekeeping.” Even
though it has been given to A it is not a valid delivery
Intent, no transfer: O executes an instrument conveying Blackacre to B. O
attempts to given the instrument to B personally, but is unable to find B.
Regardless, O gives up possession and tell everyone that B owns the property and
treats B as the owner. Majority of courts would hold this as sufficient
o (Majority view) You can convey a future interest as long as you intend it to be
immediately effective: When a deed is delivered directly, any condition on it is void. To
have a valid condition, it must be delivered to an escrow Sweeney v. Sweeney (M.
deeded his land to his brother, which was recorded and then it was deeded back in a deed
that was not recorded and later burned. Since BOTH DEEDS were properly delivered,
the land went to P, the widow, who had not lived with M for many years because the
second deed sent the land legally back to M. This is because a condition can only be
made on a deed if it is given to an escrow agent, not a direct transfer, so the transfer was
immediate)
o Alternative views
(Minority) No delivery- when the deed is handed over to grantee but extrinsic
evidence shows that the deed is to take effect at the death of the grantor
(Minority) Delivery good and condition enforced-
Grantee should be able to hold deed in escrow: Since conditional
delivery is purely a question of intention, and it is immaterial whether the
instrument, pending satisfaction of the condition it should not matter who is
holding the deed in escrow Chillemi v. Chillemi (man goes over seas on a
dangerous military mission, before he left he delivered a deed to his wife
with oral instructions that if he was killed, she was record the deed. If he
returned she was to give him back the deed and destroy it. After martial
problems and his return she recorded the deed and the court upheld the oral
instructions)
- Conditional Delivery to Grantee
o CASE OF THE DEPOSIT BOX
Rules
If grantor intends to pass title or a future interest to the grantee now,
there has been a delivery EVEN IF POSTPONED UNITL GRANTOR’S
DEATH
If the grantor intends that no interest arise in grantee until grantor’s
death no life delivery has taken place and the instrument is not valid unless
in compliance with the Statute of Wills
o Inter vivos transfer of land- requiring delivery of a signed instrument
o Transfer at death- requiring instrument to comply with Statute of
Wills (requires two witnesses)
Where a grantor delivers and reserves a right of retrieval and attaches the
condition that the deed is to become operative after grantors death and then
continues to use property as if transfer had not occurred, the inter vivos
attempt is void and it violates the Statute of Wills Rosengrant v. Rosengrant
(Elderly couple tries to convey their farm to their nephew but there is no
legal delivery since Harold (old man) didn’t intend immediate transfer and
used the land after the “delivery” was made. The envelope in the bank
containing the deed would have been given upon request to old man or
nephew. Therefore the deed was null and void for failure of legal delivery)
o Critical mistake: old man’s name was on the envelope so he
retained a right to revoke
o CARBONE’S SOLUTION: If this parties wanted to be safe, they
could have made a revocable trust and the elderly couple be the
trustees making a life estate with remainder in their nephew
Avoids probate
Difference
DEED- Courts focus whether delivered and whether
grantor lost dominion and control
TRUST- grantor need only manifest an intent to create
a trust and if land is involved sign a written instrument
to satisfy the Statute of Frauds.
- Deed Given to Third Party Custodian (escrow)- if there is a valid contract of sale then the
escrow is the agent of both the grantor and grantee. Grantor cannot recall the deed after giving to
escrow with written instructions, maybe with oral instructions.
o Relation back- when agent delivers the deed to the grantee, the title of the grantee will
relate back to the date the grantor handed the deed to the agent (i.e. if the grantor dies
before escrow delivers, the delivery of the deed by agent is treated as if it occurred before
the death- BYPASSING THE REQUIREMENT FOR A WILL)
o O3rd partyA
O reserves right to revoke- No delivery
O specifies condition- valid delivery
specifies transfer at O’s death- valid if no right to revoke
this is a relationship of trust
brothers may not be (Sweeney)
husband and wife have fiduciary duty to each other (Chillemi)
Acceptance of Deed
- presumed if beneficial conveyance
Who was the
deed given to?
intent presumed
- from physical act (Sweeney)
- from oral condition with fidiuciary
(Chillemi)
- Location (Rosengrant)
The Mortgage
- definitions:
o Mortgagor: homeower/buyer
o Mortgagee: lender
o Mortgage: provides for collateral (secures) the debt
o Promissory Note: attaches personal liability of the buyer to a mortgage
o Equity (aka equity of redemption): The mortgagor's interest in the property
- Historically a mortgage was a deed in fee simple to the borrower, with a condition subsequent
that if the buyer missed a payment, the deed was void and the fee went to the lender
o Strict foreclosure: buyer was ordered to pay off the balance or lose interest all together
o Foreclosure sale: allows buyer to extract equity, and bank to recover investment
- Current jx splits: half states have statutes that allow the right to buy back title at a sale after
foreclosure: note, there are two separate rights:
o Judical right: defaulting buyer has right to redeem equity from mortgagee/lender
o Statutory right: defaulting buyer has the right to buy from the purchaser at a foreclosure
sale (after the buyer's equity is extinguished at the foreclosure sale)
- Deed of trust: a trustee is given the power to sell the land without going to court if a buyer
defaults (majority of jx recognize)
- Virtually every jx recognizes procedural safeguards in a foreclosure sale: notice & public sale:
recognized in both deed of trust or judically ordered foreclosure.
- Deficiency judgment: if the foreclosure sale does not cover the price of the note, can the lender
sue the defaulting buyer? Yes, and judgment can be collected out of the buyer's general assets.
o anti-deficiency statutues: many states protect the buyer from deficiency judgments
- Murphy v. Fin. Dev. Corp.
o Facts: Mortgagee bought a house it had just foreclosed upon for significantly less than the
market value. No other interested parties attended the foreclosure sale
o Issue: Is a mortgage company bound by both statutory requirements and a duty of good
faith and fair dealing?
o Holding: Yes
o Rule: Mortgage companies must act as though they are fiduciaries in reselling a home
which is lost to foreclosure.
o Notes
Foreclosures are required by law so defaulting buyer can extract equity; otherwise,
it would be a windfall for the bank if they get the property free and clear, and the
benefit of the mortgage payments already made
Foreclosures typically are sold unwarranted
Because foreclosures are fast-tracked, there may not be time for a good title
inspection
Title is more secure if bought through a merchant: Bona Fide Purchasor for
value
BFP 1) must purchase for a fair price (not necessarily market value) and 2)
believe s/he is purchasing free from title defects
No solid definition of fair price in foreclosure sale; bank may set floor
Anti-deficiency Act: Bank may only foreclose on real property; cannot seize other
assets
Two standards for invalidating a foreclosure sale based on price: 1) so gross as to
shock the conscience of the court and 2) price is "grossly inadequate"
Defaulting buyer may tender the deed in lieu of foreclosure
Defaulting buyer may transfer the land to a third party subject to the mortgage
Mortgage contract may contain an acceleration clause, requiring payment in full
upon transfer or suffer foreclosure (basically requires a refinancing
- Bean v. Walker
o Facts: π sold to ∆. The mortgage was an installment land sale. ∆ defaulted, granting π the
contractual right to retain payments made by ∆ as liquidated damages
o Issue: Does property law trump contract law in an action for breach of an installment land
sale?
o Holding: Yes
o Rule: In a land sale contract, the vendee has a property interest that must be extinguished
before the venfor can take possession because the vendee aquires equitable title and the
vendor merely holds legal title in trust
o Notes
o Land Sale Contract: seller retains title, buyer pays 'mortgage' directly to seller
In case of default, seller gets property and all previous payments
o jx split: not all states will treat installment sales contracts as financing devices
o Majority require seller give notice of a possible forfeiture
o Accepting a late payment may waive seller's right to forclose
o Defaulting buyers may have the right to specific performance by paying the balance of the
contract
o The seller may be barred from suing if they declare buyer's forfeiture
o Buyer can claim restitution damages, especially in the case of forclosure
Recording System
- overview
o More than one person might claim to “own” property.
o A true owner might (accidentally or otherwise) attempt to convey the same property to
more than one person (or party)
o We have always needed a way to determine which competing party is the “true” owner.
Restated more practically, the state will use its power to back your claim of ownership if
you have the better claim, but how does the state (i.e., the court) determine which
contestant has the better claim?
o History
The oldest rule was “First in Time.” If O conveyed Blackacre to A on Monday
and to B on Tuesday, A has the better claim because the conveyance to A was
“first in time.” This rule inevitably involves problems of proof. Ideally, one
would have witnesses to the conveyance who could testify under oath about when
it happened.
Livery of seisin was the first answer to this problem. At one time, physical
delivery of the clod of dirt or tree branch, made in public before witnesses with
recitation of the required words of conveyance, was absolutely required in order to
convey land.
Eventually the deed replaced livery of seisin, and now, a deed is required to
convey property (Statute of Frands requires it). But deeds are essentially private
documents, and executing them is essentially a private act, so how do we solve the
age-old problem of proof of who is first in time?
The Recording System was invented to address this problem. It is a body of law
the allows a subsequent purchaser for value may take free and clear the title if it is
not properly recorded
- how the system works
o A deed is valid as between the grantor and the grantee at the moment it is delivered. The
recording system does NOT alter that fundamental truth. If O and A get into a fight over
Blackacre, the deed .
o If A gets into a battle with another purported conveyee, however, then the “first in time”
rule should apply. As noted, this raises problems of proof.
o In a way, “first in time” does still control, but with a twist – the crucial act for purposes
of defending your title is no longer the conveyance itself, but your recordation of the
deed.
o State law provides a system by which all title records (including deeds, mortgages, liens,
and perhaps other documents) for real property may be recorded (i.e., filed in a public
place) by the city or county in which the property is located.
o Recording provides others with notice of who owns the property and stores vital
documents in a secure place so that they won’t be lost.
o Example
O conveys Blackacre to A by deed. A immediately records the deed (i.e., takes the
deed to the county recorder, who copies it and files the copy. The recorder also
notes certain minimal information about the transaction in two or more
indices/indexes). O now tries to sell Blackacre to B. B goes down to the
recorder’s office, does some research, and realizes that the property was already
deeded to A. B could take the deed from O and even record it, but would not be
“first in time.” B can avoid the financial loss of buying property O no longer
owns.
Another example: O conveys Blackacre to A, who records, and then also conveys
Blackacre to B, who also records. Now A and B are in court disputing who really
owns Blackacre. The court will look to the recording dates rather than the
conveyance dates to determine the answer (see more detail under Recording Acts
and Marketable Title Acts, below). “First in time” still sort of rules, but we have
changed the determining event.
Recording Acts
- Recording Acts do two things:
1. Set forth requirements for an instrument to be accepted by the recorder, and
2. Set forth a means of settling title disputes
- To be accepted by the recorder, an instrument must include a specific description of the property
it relates to (or must provide a specific reference to other recorded instruments which do include
a description), the names of the parties to the deed, and the consideration (which must be more
than nominal).
o The description must be pretty specific to that particular property. “Mother Hubbard”
clauses which convey separate properties by specific and general descriptions within the
same document are only valid between the parties of the conveyance and not against a
bonafide subsequent purchaser.
o The deed must name both the conveyor and the conveyee.
o As a general rule, all material terms must be spelled properly.
- Recording acts only protects subsequent purchasers if they are bona fide purchasers for value in
good faith
- Types of Recording Acts - Methods for settling disputes vary from jurisdiction to jurisdiction.
Each jurisdiction has only one way.
o Race Statute
The first conveyee to actually record their deed will prevail over other conveyees,
even if the other conveyee actually received their deed first. Restated, a
subsequent purchaser can prevail if she records first.
This kind of statute encourages prompt recording of all deeds and favors those
who record over others regardless of how long ago they took the property.
Knowledge of the prior purchaser’s claim is irrelevant by subsequent purchasers.
exist today only in Louisiana and North Carolina
o Notice Statute
Under this system, a subsequent purchaser prevails only if he had no notice of the
prior transaction.
There are different ways one can have notice:
Actual notice (O tells B he already conveyed Blackacre to A)
Constructive notice – 2 types
o Record notice (A recorded and B can see it in the public record – B
is on notice even if B doesn’t look it up; B’s own damn fault)
o Inquiry notice (A didn’t record but is building a house; B saw the
construction and should have inquired further)
In a notice system, recording first is still a very smart idea, because it provides
record notice to all subsequent purchasers. Also, a subsequent purchaser without
notice will prevail – we punish A for not recording, rather like we did under the
Race statute, but we are willing to defend A even if A didn’t record as long as
there’s some other kind of notice.
Commercial leases: Shopping Center. A memorandum of lease gives notice of the
contents of the lease. It is not in the chain of title. Jx are split as to whether it
constitutes notice. Jx also split as to whether notice exists from one part of the
property to another.
recording first is still a very smart idea, because it provides record notice to all
subsequent purchasers. Also, a subsequent purchaser without notice will prevail -
we punish A for not recording, rather like we did under the Race statute, but we
are willing to defend A even if A didn't record as long as there's some other kind
of notice.
About half the states have Notice Statutes.
o Race-Notice Statute
To prevail against an earlier conveyee, a subsequent purchaser must
Have no notice of the prior unrecorded conveyance, AND
Record first.
Thus, e.g., O conveys to A on Monday and A fails to record. On Tuesday, O
conveys to B, who has no actual notice, no record notice, and (we’ll presume) no
inquiry notice. On Wednesday, A records. On Thursday, B records. If B sues A
later, B will lose because although B took without notice, B did NOT record first.
B must do both.
About half the states have Race-Notice Statutes.
o finer points about timing:
Any purchaser without notice who makes a down payment and unequivocally
obligates himself to pay the balance of the purchase price is justified in his belief
that if he pays the balance of the payment he is the true owner of the property
Typically the person with the prior interest is awarded the title to the land and the
buyer is awarded restitution from the holder of the prior interest for the prior
payments made (use this rule if there was actual notice).
The Court may also award the buyer a fractional interest in the land proportional
to the prior amount paid.
The Court may also allow the buyer to complete the purchase but to pay the
remaining payment due to the holder of the prior interest (use this rule if there was
constructive notice).
o Shelter Rule
a person who takes from a bona fide purchaser protected by the recording act has
the same rights as his grantor. The third party stands in the shoes of the purchaser
and prevails over subsequent purchasers.
O to A, O to B, A records, B to C
- Disputes under Recording Acts – Chain of Title and Marketable Title Act
o Chain of title
Generally refers to the recorded sequence of transactions by which title has passed
from a sovereign to the present claimant.
Specifically it is the period of time for which records must be searched and the
documents that must be examined within that time period.
o As stated above, the instrument must meet the requirements of the Recording Act (names,
description, consideration) to come under its protection.
o In addition, the instrument in question must itself be based on prior instruments that also
satisfy those requirements.
Example: O conveys to A but the deed is deficient. A records (the recorder should
reject it, but sometimes they don’t). A conveys to B and the deed is perfect. B
records. Then O conveys to C, the deed is perfect, and C records. In a dispute
between B and C, C will win because A’s deed was deficient.
o Purchasers must thoroughly research all recorded transactions involving the property,
because the purchaser will be deeded “on notice” of any instrument properly recorded in
the “chain of title,” even if it’s not automatically apparent.
- Cases
o Board of Education of Minneapolis v. Hughes pg 590
Facts: Hoerger’s sold lot to Hughes for $25 in 1906. Hoerger’s sold a quitclaim
deed to real estate dealers in 1909. Real estate dealers sold lot to Board of
Education of Minneapolis in 1909. Board of Education deed recorded January 27,
1910. Hoerger’s deed was recorded on December 16, 1910. Real estate deed
recorded December 21, 1910.
Holding - people outside of chain of title do not give constructive notice to
subsequent purchasers.
a deed that does not name a grantee is null until the name of the grantee is
legally interested
o Guillette v. Daly Dry Wall, Inc
Facts – developer divides and sells lots
Issue – is defendant bound by a restriction continued in deeds to its neighbors
from a common grantor, when it had no knowledge?
Holding – yes, it is not too much work to search the whole sub-division
JX Split – some yes and some no
o Harper v. Paradise:
Facts: Lost deed in old trunk. Deceased had conveyed a life estate to her daughter-
in-law (remained in fee simple to her named children) in 1922. It was not recorded
and was lost. In 1928, the deceased’s heirs signed a quitclaim deed in favor of the
daughter-in-law. The daughter-in-law then executed a security deed as collateral,
and the property was foreclosed upon and sold at a sheriff’s sale. In 1974, the
daughter-in-law’s son brought this action against the defendant, who claims to be
a bona fide purchaser without notice. Plaintiff claims there was notice because the
1928 deed referred to the existence of the earlier 1922 deed.
Issue: If an earlier deed is referred to in a later deed, are subsequent purchasers put
on notice?
Holding: Yes
Rule: subsequent purchasers must “ascertain though diligent inquiry the contents
of the earlier deed and the interests conveyed therein.”
o Waldorf Insurance v. Eglin National Bank:
Facts: Gulf Terrace Condos. Waldorf had a purchase agreement with Choctaw for
Unit 111. Choctaw then executed a quitclaim deed in favor of Waldorf . Choctaw
later executed a mortgage in favor of Eglin including Unit 111 as security. The
mortgage was recorded, and the bank then brought a foreclosure action against
Choctaw and Waldorf.
Issue: Is actual possession of real estate sufficient notice to a person about to take
a mortgage on the property?
Holding: Yes
Rule: “Subsequent successors to the legal title take such title burdened with the
equitable interests of which they have either actual or constructive notice.”
“Waldorf was in open, visible and exclusive possession of Unit 111 at the time of
the making of the . . . mortgages.”
- Roadmap:
o If you have an ownership dispute between A and B (assume B, as subsequent purchaser,
is suing A), here are the three steps for analyzing it:
RECORDING ACT: Did B have notice and/or does B title prevail under the
applicable recording statute?
Race – who recorded first? Whoever did – whether A or B – will prevail.
Notice – did B have ANY kind of notice of A’s prior deed? If no, then B’s
title is protected by the recording act even if not recorded first and B will
prevail. If yes, then we have to fall back to the “first in time” rule that
preceded recording acts, and in that case, A would prevail.
Race-notice – did B have notice AND record first? If yes, then B would
prevail But if B did have notice of any kind OR if B fails to record before
A, then B will lose.
MARKETABLE TITLE ACT: Did B take title pursuant to a conveyance within
the past XX years (statute must tell you how many)?
If B’s title is within the chain as far as both the Recording Act and the Marketable
Title Act, then B will prevail over A.
Title Insurance
- Title insurance is bought by one premium paid when policy is issued. Premium is based on the
amount of insurance bought; if homeowner (purchase price of property); if lender (amount of
loan).
- There is no fixed term, continues as long as the insured maintains an interest in the property.
- Covers title search. If they search and don’t find something that is there, the policy covers it. A
title search is a record search to protect the title insurance company.
- Exclusions – things not in the record.
o Boilerplate (the same in every policy) (gov’t regulations affecting use, occupancy or
enjoyment of land like zoning laws, subdivision regulations, and building codes) unless a
notice of enforcement or violation is recorded in the public records. Excludes claims of
people in possession not shown in the public records, unrecorded easements, implied
easements, and easements arising by prescription. Excludes defects revealed by a survey
or inspection.
- Exceptions – things in the record, specific to the house (lien, easement)
- Abstract of title – a title search that guarantees results.
- Walker Rogge v. Chelsea Title Co. (Pl bought title insurance for land with greater acreage than
he actually had and title company had a copy of a previous survey done on land with the correct
acreage in its records and company had one of its agents act as escrow agent over the sale of
property that was $16K per acreage)
o Issue: Does the title company have a duty to search for and disclose to the insured any
reasonably discoverable information that would affect the insured’s decision to close the
contract to purchase?
o Rule: Title company doesn’t insure quantity of land in the absence of a recital of
acreage. A title company’s liability is limited to the policy and the company is not liable
in tort for negligence in searching records. Duty depends on agreement between parties
in contract.
o Rules:
Insured should have a survey done.
Jurisdictions are split as to duty. Courts are reluctant to impose a duty in tort.
Some courts view a title company should be liable for tort and contract if it
negligently fails to discover and disclose information of interest to insured.
Insured has the reasonable expectation that the title company will search the title.
The title company would be subject to a negligence claim if the act was the direct
result of duties voluntarily assumed by the insurer in addition to the mere contract
to insure title.
The advantage in suing under tort law is you are not limited by the exclusions in
the policy.
o Question on remand is did the title company assume a duty above and beyond the
insurance policy when it acted as an escrow agent at the closing when it had documents
in its possession with an accurate survey revealing the correct amount of acreage and at
the closing when the price was based on acreage?
o The title company can argue that their role at closing was ministerial and there were
contractual limitations.
- Lick Mill Creek v. Chicago Title
o Facts: P bought land with hazard waste on it and had to pay to clean it up and asked his
title insurance company to pay for it; they denied coverage).
o Rule: The owner’s inability to make economic use of the land due to violation of law
doesn’t make the title defective or unmarketable under the terms of the title insurance
policy. Title insurance doesn’t cover quality of land.
o Encumbrance (taxes, assessments, liens); but not hazardous substances.
o In this case a violation of a public restriction and even an order to clean-up is not an
encumbrance on title (defect in title).
Nuisance
- In General
o Using land in a way that interferes with the use and enjoyment of neighboring
lands.
o Different from a trespass in that …
The interference doesn’t have to be physical (i.e. noxious gasses could constitute a
nuisance, but a trespass requires the unauthorized entry onto the land of a physical
object)
note: one could make the argument that gasses still constitute a trespass b/c
atoms are invading P’s land but this is not the dominant view
Liability is not limited to the individual who creates the interference as it is in
trespass
- Types of Nuisances
o Private: Any non-tresspatory invasion of another’s interest in the private use and
enjoyment of land by any type of liability forming conduct
In order for the invasion to give rise to liability it must be either…
intentional: Person acts for purpose of causing nuisance, knows it will
result from conduct, or is substantially certain it will
o subject to liability when conduct is unreasonable under the
circumstances
o liable for resulting injury regardless of the degree of care or skill
exercises to avoid such injury
unintentional: Person is subject to liability when his conduct is negligent, reckless
or ultrahazardous
o Public: An unreasonable interference with a right common to the general public, such
as a condition dangerous to health, offensive to community moral standards, or
unlawfully obstructing the public in the free use of public property.
May lead to a civil injunction or criminal prosecution.
- Elements of Intentional Nuisance
o unreasonable
What is unreasonable? Two views
The level of interference is what is important—must cross some threshold
that marks the point of liability
Court must consider whether the gravity of the harm outweighs the utility
of the actors conduct (Restatement 2nd). AKA Balance of the hardships (see
below)
not clear which view dominates, depends on jurisdiction
Spite is always unreasonable!
o Factors to consider when judging whether conduct is unreasonable
Alternatives
in golf course hypo, could P put their window in a place that doesn’t face
the gulf course?
always ask, is there a quick fix?
Cost of moving
Balance of the Hardships (harm to plaintiff is weighed against the
utility of defendant’s actions + public interest)
In Boomer, the cement plant was found to have utility due to need of
product and economic impact on jobs
the court won’t bother balancing if the nuisance is the result of spite,
violates zoning laws, or if the activity is abnormally dangerous (i.e.
blowing things up next to a school)
to assess P’s harm, you look at property value and how it goes down due to
lack of enjoyment
Argument: in gulf course hypo, P’s would argue that view is distorted,
children can’t go out into yard etc…)
Counter Argument: Gulf course would say that gulf course enhances
property values so a residential area is not an unreasonable location
Who was there first?
important because each property is unique
o substantial
There must be a substantial interference to P’s enjoyment of land
For example: In Estancias v. Dallas, the D’s had a large air conditioning unit that
sounded like a jet airplane and interfered with P’s ability to be outdoors, sleep, and
carry on a normal conversation even when inside the house
A good rule of thumb is that it offends a person of normal sensibilities
o continuous
The activity leading to a nuisance must be continuous. This is another way that
nuisance differs from trespass, because a trespass is not continuous unless we are
talking about an encroachment
- Damages
o injunction
Old rule of nuisance said that if there is an abatable private nuisance, P is
automatically entitled to injunctive relief
No longer good law
o permanent damages
Means that D must compensate P for the present and future loss of the
property but can’t be called upon to pay more later
Figured out by assessing the decrease in fair market value
Two assumptions of compensation:
If P’s want to move, they will be able to buy a comparable house
somewhere else
can sell house at fair market value even though there is a nuisance
o monetary damages
awarded based on fair market value of property
- Cases
o Morgan v. High Penn Oil
Facts: An oil company, located 1,000 feet from plaintiff’s dwelling emitted large
quantities of noxious gases and odors; P sued for an injunction; the jury awarded P
$2,500; the trial judge ordered D to pay this amount and further enjoined them
Issue: Was the D’s intentional invasion unreasonable so as to merit an injunction
of future activity?
Holding: Yes
Rule: A person is subject to liability for an intentional invasion where that person
acts for the purpose of causing the offensive result or knows or is substantially
certain that such a result will follow from his conduct
Reasoning: D intentionally and unreasonably caused noxious gasses to escape
onto P’s land
this evidence is sufficient to establish a private nuisance
it also infers that such behaviors will continue in the future and effect the
use and enjoyment of P’s home and property entitling P to mandatory or
prohibitory injunctive relief
o Boomer v. Atlantic Cement Co.
Facts: Landowners seek injunction from neighboring cement plant which they
allege causes injury to their property by emanating dirt, smoke and vibration; a
nuisance was found at trial and damages were awarded, but P’s request for an
injunction was denied; P appeals
Issue: Whether the court should resolve the litigation between the parties now
before it as equitably as possible; or whether; seeking promotion of the general
public welfare it should channel private litigation into broad public objective
Holding: The court should resolve the dispute now. It is not the courts
responsibility to implement an effective policy for eliminating air pollution
Rule: Where a nuisance is of such a permanent and unabatable character that a
single recovery can be had, including the whole damage past and future therefrom,
there can be but one recovery (i.e. permanent damages)
Reasoning: It is not the court’s job to direct public objectives through their
decisions. Their job is to decide the rights of the party before it.
effective control of air pollution is a problem far from solution which will
cost a great deal of money and research
the court cannot be expected to solve such a problem through the resolution
of a private dispute
although the P’s property has been damaged, their damage is relatively
small in comparison with the value of D’s operation and with consequences
of enjoining D
if a permanent injunction is not imposed, the court is left with two options
o Impose injunction later if D doesn’t reform
o Grant injunction only if D does not fully compensate P for the
present and further economic loss to their property
o Dissent: Disagrees with majority decision that P’s should have no redress in the future
says old rule (injury = injunction) should apply
o Estancias Dallas Corp v. Schulz
Facts: P’s brought an action to permanently enjoin D from operating an air-
conditioning unit on the property next door to P’s residence; jury found that D’s
unit constituted a private nuisance and that it was permanent; the jury awarded
damages and the judge granted P’s injunction; D appeals on the grounds that the
trial court erred in granting the injunction b/c it failed to balance the equities in
D’s favor
Issue: Did the trial court err?
Holding: No, there is an implied finding that the trial court balanced the equities
in P’s favor by granting the injunction
Rule: If the court finds that he injury to the complainant is slight in comparison to
the injury caused the defendant and the public by enjoining the nuisance, relief
will ordinarily be refused
Reasoning: A nuisance may be permitted where there is a public necessity
an injunction however, may be issued where the injury to the D and public
is slight or disproportionate to the injury suffered by P
the unit serves the entire complex (155 rentable apartments in 8 buildings),
but b/c there is no housing shortage in Houston, an injunction against D
would not affect the public interest
this nuisance can’t be permitted to exist based on necessity
P is entitled to an injunction in a court of equity
- Other Stuff that Nobody Cares About Except Carbone
o Distinguishing Boomer from Estancias
The Defendant’s property in Boomer was worth more
Harm in Boomer affected the community as a whole (i.e. loss of jobs)
In Boomer there are several complaints while in Estancias, there is only one
There is an assumption in Estancias that the plant will buy the P out the D
should be willing to pay P what they want in order to avoid 150K improvement
the idea of an effective bargain may not work out in real life however since both
parties will hate each other by the close of the lawsuit and be unwilling to
negotiate
o One last note on Golf Course Hypo
Different ways to characterize a nuisance
Putting gulf course right next to the house is the broadest construction of a
nuisance
Aiming the fairway at the house would be the narrowest construction of a
nuisance
Why does the characterization matter?
Affects the remedy that the homeowner is seeking
because gulf courses generally increase the market value of the home, the
owners would probably want the freeway redesigned & request that a
narrow construction be applied
If the broader construction would apply, then the remedy sought would be a
permanent injunction and removal of gulf course
o Don’t forget to mention the possibility of nuisance when talking about…
Easements
Covenants
Equitable Servitudes
Easements
- An easement is a servitude, typically which gives one party or estate (dominant estate) some
affirmative right to use the land of another (servient estate)
- Easements may be either:
o Appurtenant = an easement the benefit of which is attached to land; or
o In Gross = an easement the benefit of which is held by a person.
- Willard v. First Church of Christ, Scientist:
o Case with church granted easement for use of parking lot.
o Issue: can an easement to a third party be reserved in a grant from one party to another?
o Held: Yes. California rules here that a reservation can be to a third party.
o To avoid this problem the grantor could have:
First given the easement to the church then sold the remaining interest;
Or granted the entire interest to the church who could then transfer to buyer and
reserved the interest
o Most jurisdictions have never had to decide this, but the old rule was not to allow a
reservation to a third party.
- Holbrook v. Taylor (KY 1967):
o Owner of one of two adjacent plots of land gives license to coal co. Later a neighbor
uses the licensed easement (road). Owner no longer wants to allow neighbor to use the
road.
o Issue: Can the neighbor continue to use the easement granted to the previous owner by
license?
Prescriptive Easement? – Proscriptive Easement requires adverse and hostile but
use here was permissive, so NO
Estoppel? – a.) Reliance – Y, b.) Detriment – Y. So, YES.
o The arguments of estoppel and proscription work together, for the landowner who argues
against one is often making a stronger case for the other. Here to argue against
proscription he argues that he allowed use. If he allowed the use it follows that he would
be estopped from stopping the use.
o The detriment case is stronger b/c dominant estate had maintained the road
o JX (Jurisdictional Split) – as to whether an easement by estoppel is transferable.
- Implied Easements
o Easement Implied by Prior Use:
lasts forever
Implied from contract (should have been included but wasn’t)
Elements:
Prior Use
Unity of Ownership (common grantor)
Use had to be apparent (notice)
Easement is reasonably necessary for enjoyment of dominant estate
JX – modern majority rule = grantor or grantee may use, grantor may have to meet
a tougher standard.
Minority rule = grantor could not use, not available by reservation b/c the buyer
must get what they contracted for. (English Rule)
o Easement Implied by Necessity
lasts only as long as the need. The burden on the servient estate is not based on
contract, so the use is only allowed when strictly needed.
Public Policy provides the rationale
JX – some jurisdictions allow that Eminent domain can condemn a right of way,
then the dominant estate would have to pay to use. Cal. allows, but in Texas was
challenged under takings clause and was struck down.
Elements:
Strictly Necessary
Necessity was created, if at all, at the time the property was split.
Notice.
Unity of Ownership.
o Note: the textbook case of strict necessity is a landlocked parcel.
- Easements by Prescription
o Similar to adverse possession of land, prescriptive easements are a way to allow a long-
continued use.
o The same period is required to obtain an easement by prescription as is required to obtain
adverse possession, the statute of limitations for that jurisdiction.
o Generally the same type of use is required as well:
adverse and hostile
open and notorious
continuous
under claim of right
Exclusive: JX, most states require exclusivity, but use by the owner or those he
permits does not violate that exclusivity in most jurisdictions that have the
requirement. Rather the use must not depend on some right also held by others.
o JX: Under ancient legal theory some jurisdictions act require that the rule of prescription
operate on a fiction of a lost grant, of the supposed grant of the use by the servient estate
to the dominant estate at some point in the past.
The problem with this is that if the use was granted it cannot be adverse
Under this theory a claimant must prove acquiescence but not permission
This is a minority position
o In the majority position, to prevent the prescriptive easement from being acquired, the
owner of the servient estate will have to interrupt or stop the adverse use.
Gates are the best way to achieve this.
o Prescriptive Easements in Brief:
once established are the same as an easement by grant
may be limited in use or scope (an unpaved footpath easement can probably not be
paved and used as a road for cars)
to eliminate the easement by prescription one method would actually be adverse
possession. At the point where the use interferes with the use by the owner, then
the easement may be deemed by a court to be extinguished.
- Easements by Estoppel
o The argument for easement by estoppel is based on:
reliance upon the easement
detriment of the would-be dominant estate
especially monetary detriment, i.e. repairs or other expenses incurred
undue hardship caused by not granting the easement
o It is not really known if an easement by estoppel is transferable or how long it lasts, law
in this area is uncertain, but probably once the conditions estopping the servient estate
from withdrawing the use are gone, the easement itself will be gone as well. This might
be arguable though.
o NOTE: Historically easements existed in a set place, such as a pipe or an access road, and
could not be moved against the wishes of the servient estate. Now courts will sometimes
allow the easement to be moved if necessary, even over the objections of the servient
estate.
- Easements in Gross, Ability to Transfer or Divide
o Historically, in England, easements in gross were either not allowed or difficult to
maintain. In America, with recording acts, such restrictions are unnecessary.
o Easement in Gross Transferability Problem:
some courts had held E in Gross were not assignable, Restatement 1 said
assignable if of a commercial character, Restatement 3 says all are, regardless of
character, so long as the parties intended it to be so.
only recreation easements such as fishing rights are now commonly held to not be
assignable for fear of overburdening the servient estate
The question then arises of whether they are divisible
the answer to that question is typically yes unless this is contrary to the intention
of the grant
o “one stock” rule held that an easement in gross that was split was treated as one stock,
meaning that the parties must use the “use” ( or right) as one person and that either would
have a veto of the other’s use.this rule is largely abandoned today
Modern Rule – allows use to be divided unless contrary to intent of the parties
creating the easement OR;
unreasonably increasing the burden on the servient estate.
- Scope of Easements
o The use of an easement appurtenant can NEVER be expanded so as to allow access to
more than originally agreed upon. This means that if there is an easement through parcel
A, for access to parcel B, and the owner of parcel B buys parcel C, he cannot use that
same easement to access both parcels, even though the burden on lot A does not actually
increase. Legally if owner is in B he must leave through A and find another way into C.
In reality, courts will likely do a Balance of the Hardships.
If the court finds that the hardship of not granting the easement outweighs the
increased burden upon the servient estate, then they will allow passage, BUT they
will require the dominant estate to pay the fair value of the increased burden to the
owner of the servient estate.
so in reality the court has mandated the sale of a new easement
if there is no real increase court may award only a nominal fee.
o Note: that some jurisdictions, though very few, will not balance the hardships to grant the
new easement. They say that to do so would be an expansion of the original easement,
which the law never allows.
o Note 2: that while this is sometimes called an easement by BOH, we should view this as a
refusal to enjoin, not as an easement by balance of the hardships.
Covenants
- general creation
o Individuals may contract with one another to create covenants upon the land.
Must be in writing (within the Statute of Frauds).
o Covenants cannot arise out of estoppel, prescription, or implication
EXCEPTION – see implied reciprocal servitude, section IV.
A deed signed by only the grantor is sufficient to bind the grantee as promisor.
o The real issue: Are subsequent purchasers of these lands bound by these previous
covenants. That is, do the covenants run with the land…
- covenants running with the land – are subsequent purchasers bound by previous contracts?
A B
D
C
If the benefit is in gross – that is, not benefitting a dominant estate (personal)
– the burden will not run.
Restatement 3rd gets rid of this. All negative and affirmative covs are initialy
unobjectionable and intentions of parties should be given effect. It must be proved
why the covenant is objectionable at inception – change it to whether servitude
violates public policy. Monetary obligations may become objectionable over
time.
o IF ONE CANNOT SUE FOR DAMAGES ON THE REAL COVENANT DUE TO
PRIVITY CONCERNS, REMEMBER THAT YOU CAN STILL HAVE AN
INJUCTION IF YOU CAN SHOW EITHER AN EQUITABLE SERVITUDE OR AND
IMPLIED RECIPROCAL SERVITIDE.
- an alternative to enforcement of covenants – equitable servitudes
o The remedy here is for an injunction.
o REQUIREMENTS:
No requirements of privity
There is some suggestion that some vertical privity is required for the
benefit to run as we do not want to reward adverse possessors. However,
the Restatement 3d gets rid of this, requiring no privity for the benefit to
run.
Intent to bind subsequent purchasers
Notice to the subsequent purchasers
- an additional alternative to enforcement of covenants – the creation of an implied servitude
o In order to sue and enforce, you must have privity. If you own no land, then you cannot
attach the covenant to the land. One way around this is the addition of an express
reciprocal servitude in a prior deed that has the effect of binding all subsequent lots.
“and all land retained by the grantor will be similiarly bound”
o However, must still look to see who is in privity the land the grantor owns at the time
of sale is what the purchaser is in privity with. Prior sold lots may not be able to enforce.
One way around this is “3rd Party/Intended Beneficiary Doctrine”:
Massachusetts Rule
If a party is an intended beneficiary of the restriction as shown through their
participation in a common plan, they may still be able to sue through this
doctrine.
Concentrate on the time of sale – who is the restriction intended to benefit.
Deciding who can enforce restrictions: when lot 1 is sold. When bound, lot
2 is sold.
Note: This does not create an implied restriction. It just alters who can
enforce.
1) Common Grantor
2) Common Plan
3) Intent that Lot 1 be intended beneficiary of restrictions that come later.
Note: Jx’s are split on using this doctrine.
o Another way to show a restriction is through an:
o IMPLIED RECIPROCAL SERVITUDE (Sanborn) (MAJORITY)
This arises, if at all, at the time the lots are divided. Therefore, the focus point of
the requirement factors must be met at the time the lots are divided – the
critical time period is time the lot in question was sold.
Termination of Covenants
- Expiration
- Consent of All Interested Parties
o May be modified or terminated w consent of all the interested parties
o May be modified or terminated even without unanimous consent
o Courts may modify or terminate on basis of changed conditions (see below)
- By Terms of Covenant:
o May automatically terminate according to terms of covenant
- Merger:
o If one landowner acquires benefited and burdened property, the covenant/servitude
terminates through merger.
o Covenant will not be revived even if the owner sells part of the property.
- Release:
o Owner of benefited property can grant a written release to the owner of the burdened
estate.
The grant should be recorded.
o If more than one lot is benefited, all benefited landowners must join the release.
- Rescission:
o Landowners can execute a document rescinding the covenant.
o Only effective if all persons with standing to enforce join in rescinding.
- Unclean Hands:
o Courts will not allow a landowner to violate a covenant and at the same time enjoin
another landowner from violating the same covenant.
o A Plaintiff’s relatively minor infraction, however, will not foreclose an action against a
neighbor’s more egregious violation of the same covenant.
- Acquiescence/Estoppel
o When Plaintiff property owner passively allows multiple violations of the covenant by
many different lots, she may be estopped from enforcing the covenant against just one
violator – it would serve no purpose.
o An owner of land who bought in reliance on a restrictive covenant has the right to
continue to rely on that covenant
- Rick v. West
Facts: P owned 62 acres of vacant land which he subdivided in 1946 and included
a restrictive covenant which restricted the land to single-family dwellings. P sold
½ acre lot to D in 1956. Land was zoned for residential use in 1957. Then P
contracted for sale of 45 acres to industrialist, conditioned on rezoning of land for
industrial use. Town Board rezoned but D would not release the covenant in her
favor and the sale fell through. Rick, unable to sell any more of the land,
conveyed the remaining acreage to P in 1959. P’s contracted to sell 15 acres to a
hospital. Again, D refused to consent to release of the covenant.
Procedural History: Ps sued, claiming the covenant no longer enforceable b/c of
change in conditions. Court held for D, stating no evidence of any substantial
change in the general area and no change at all w/in P’s tract.
Rule: The fact that a D landowner is only one of the few purchasers from P’s
predecessor in title who has refused to release the covenants does not make D’s
insistence upon the enforcement of the covenant’s less deserving of the court’s
protection
Restatement 3rd of Property, Servitudes
When a change has occurred which makes it impossible to accomplish the
purpose for which a servitude was created, the court may modify the
servitude so that the purpose may be accomplished
If the servient estate is no longer suitable for uses permitted by the
servitude, court may modify the servitude to permit other uses
Court’s Reasoning: (Opposite of Massachusetts Rule)
Parcel is a desirable location for a hospital. Why should the D, owning a
respectable, but modest, home be permitted to prevent the sale? Why
should the covenants not be deemed unenforceable and D relegated to
pecuniary (money) damages?
Because:
o P’s predecessor owned tract free and clear of all restrictions. He
elected to promote it as a residential development and imposed the
restrictions
o D relied on those restrictions and has a right to continue to do so
o Balance of the equities cannot come into play nor does the fact that
D is the only one of a few purchasers who has refused to release
covenant
o Cardozo Precedent Relied On: Restrictive covenants will be
enforced by preventative remedies UNLESS the attitude of a
complaining owner standing on his covenant is unconscionable or
oppressive. He has nothing more than insist upon adherence to a
valid covenant. He believes the comfort of his land will be
jeopardized by the proposed change. This choice is for him alone
and he will be protected by the law
Holding: Property law has no basis for awarding money damages when the
restriction is still practicable and affords the real benefit to the person seeking its
enforcement
- Abandonment (very difficult standard to meet as the core is intent to relinquish)
o Elements
Voluntarily and intentionally relinquish rights, title, claim and possession
Intent very difficult to prove
One who takes possession of abandoned property is subject to the covenants and
restrictions in place
o An easement burdening other land may be abandoned by the holder of the easement,
BUT
o Affirmative covenant, (i.e. covenant to pay money) cannot be abandoned
Cannot walk away from an obligation and terminate liability.
o Restatement of Servitudes § 7.11
Provides for modification or termination when the obligation has no definite end,
or is a stream of payments that continues forever.
Does NOT apply to obligations to a community association or reciprocal
obligations imposed by a common plan
o Pocono Springs Civic Assoc. v. MacKenzie
Facts: D purchased vacant lot in P’s development in1969. In 1987, D decided to
sell the still vacant lot. A subsequent offer was conditioned on the property being
suitable for an on-lot sewage system. Upon inspection, determined unsuitable and
the sale was lost. D tried to abandon the lot, believing it to be worthless. D claims
b/c they abandoned the lot, they are relieved from their duty to pay the association
fees.
Procedural History: P seeks payment of the association fees. Trial court granted
the payment.
D’s Argument: Abandoned lot back to sovereign:
Attempted to turn lot over to P
Tried to persuade P to accept as a gift
In 1986, ceased paying property taxes and in 1988 Tax Bureau offered
property for sale and there were no buyers
In 1990, lot again offered for sale, no buyers
Signed notarized statement, mailed to all interested parties, showing intent
to abandon property
Do not accept mail regarding the property
Have not visited the property nor used development’s services since 1986
Rule: Abandoned property is that which owner has voluntarily given up any right
to with the intention of terminating his ownership, but w/out vesting it in any other
person and w/ intention of not reclaiming any further possession
Restatement 3rd of Property, Servitudes § 7.12
o Covenant to pay money or provide services terminates after a
reasonable time if the instrument that created the covenant does not
specify the total sum due or a definite termination point
o Covenant to pay money or provide services in exchange for services
or facilities to the burdened estate may be modified or terminated IF
the obligation becomes excessive in relation to the cost of providing
the services or facilities or to the value received by the burdened
estate
Court’s Reasoning: D has not relinquished rights to lot. Remain owners of real
property with a recorded deed and perfect title. No authority exists in PA that
allows for the abandonment of real property when owned w/ perfect title.
Supreme Court of PA held once it is determined good title exists, abandonment
theory cannot succeed. D’s intent is irrelevant, real property cannot be abandoned.
- Laches:
o Inequitable delay in seeking legal remedy.
Delay must be unreasonably long.
It doesn’t automatically terminate a covenant; it just prohibits the enforcement
against the specific Defendant.
Plaintiff can enforce subsequent breaches.
- Changed Conditions (Most Frequently Asserted Defense)
o 2 Things Courts Generally Require:
Change outside a subdivision must be so pervasive so as to make ALL lots in the
subdivision unsuitable for permitted uses, OR
Substantial change must have occurred within the subdivision itself
Change outside the subdivision that affects only border lots is NOT
sufficient to prevent enforcement of covenant against border lots
o When covenant is terminated b/c conditions of the neighborhood are so changed that the
covenant no longer serves its intended purpose.
Majority of courts only consider internal changes – not external, or changes
occurring outside the neighborhood.
o “Fundamental” character of neighborhood has been lost.
o It is not sufficient to show that the land could be more usefully used without the
covenants, or that the covenants impose a financial hardship.
o Western Land Co. v. Truskolaski
Cause of Action: D homeowners brought action to stop P from developing a
shopping center located on a parcel of land w/in their subdivision.
Facts: P subdivided the development in 1941 and subjected all the lots to a
restrictive covenant that restricted the entire subdivision to single-family
dwellings. In 1941, subdivision lay on the outskirts of the city of Reno.
Surrounding property was used for residential and agricultural purposes.
P’s Argument:
Subdivision had so radically changed so as to nullify the purpose of the
restrictive covenants.
Population
o 1941: 20,000
o 1969: 95,100
Increase in traffic surrounding the area
Increase in commercial development
Reno City Council adopted a Resolution to reclassify the parcel in question
from residential to commercial
Council never officially changed the classification.
Covenants no longer enforceable b/c they have been abandoned or waived
due to violations by homeowners in the area
Paragraph 3 of restrictive agreement:
o “no residential structure shall be placed on a lot less than 6,000
square feet
Lots 24 and 25 have houses, and both are less than 6,000 square feet
Showed one house used as a painting contractor’s office and another was
used as a nursery
Appellant’s Arguments Fail in the Following Respects:
Traffic w/in the subdivision is low and it is still a safe environment for the
children
Has not shown the subdivision is unsuitable for residential purposes
W/ respect to the restriction contained in Paragraph 3 above, it was the
appellant who subdivided the land in the first place and caused these lots to
be smaller than 6,000 feet.
Rules:
Restrictive covenants are still enforceable if the single-family residential
character of the neighborhood has not been thwarted
Even if commercialization has increased in the vicinity, has not rendered
the restrictive covenants unenforceable b/c they are still of real and
substantial value to the homeowners living w/in the subdivision
As long as the original purpose of the covenants can still be accomplished
and substantial benefit will remain by means of their enforcement,
covenants stand even though the property has a greater value if used for
other purposes
Zoning ordinance CANNOT override privately-placed restrictions
UNLESS restrictions make compliance w/ the servitude illegal
In order for community violations to constitute an abandonment, they must
be so general as to frustrate the original purpose of the agreement
Holding: Restrictive covenants remain of substantial value to the homeowners
and the changes that have occurred since 1941 were not so great so as to make it
inequitable or oppressive to restrict the property to single-family residential use.
Grant P’s request to enjoin D from constructing shopping center
- Balance of the Hardships
o If the harm to the burdened property is disproportionately great compared to the benefit
to the neighboring properties, a court in equity might chose not to enforce the covenant.
o Adverse possession of a small amount of land comes in here:
o Major hardship to a person who has encroached 2” on someone else’s land and having to
tear down part of their house.
- Recording Acts
o A subsequent bona fide purchaser in value who takes without actual, constructive or
inquiry notice is not bound by the covenant.
- Eminent Domain
o When government buys burdened property through eminent domain, the covenant
burdening the land is extinguished.
- Termination by Condemnation
o If the gov’t condemns or destroys an existing easement, they must pay compensation to
the easement owner.
o If the gov’t uses land in violation of a restrictive covenant, majority holds they must pay
damages to landowners having the benefit.