PROPERTY OUTLINE

I. Leasehold Estates Landlord-Tenant Law

Tenant has a right to possession, but not seisen.

A. Types of Leaseholds

The Term of Years

♦ An estate that lasts for some fixed period of time.

♦ “L Leases to T for one year.”
♦ @ Common Law there was no limit on the number of years permitted, but some state statutes impose a
time limit on the duration of terms of years.

♦ Because a term of years states from the outset when it will terminate, no notice of termination is
necessary to bring the estate to an end.

♦ It can be determinable or subject to a condition subsequent.

The Periodic Tenancy

♦ Is a lease for a period of some fixed duration that continues for succeeding periods until either the
landlord or tenant gives notice of termination.

♦ “L leases to T on a year-to-year basis.”

♦ Common Law Notice Requirements
 Notice must be equal to the length of the period, but not to exceed 6 months.

 Notice must terminate the lease on the final day of the period.
o If a month-to-month tenant who began his tenancy on January 1 decided on March
20 to terminate, the earliest termination date would be April 30.

♦ Modern Majority: tenancy may terminate at any time following 30 days’ notice.
♦ Death does not affect this tenancy and this tenancy is also defeasible.

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 The Tenancy at Will

♦ Is a tenancy of no fixed period that endures so long as both landlord and tenant desire.
♦ “L leases to T until either wishes to terminate.”
♦ Ends when either landlord or tenant terminates it.
♦ Also ends when one party dies.
♦ @ Common law there was no notice requirement.
♦ Most states have enacted requirements of some notice to terminate, usually 30 days or a time equal to
the interval between rent payments.

The Tenancy at Sufferance: Holdovers

♦ A tenancy at sufferance arises when a tenant remains in possession (holds over) after termination of the
tenancy.

♦ Landlord has three options

 Treat as Trespasser and Evict.

 Renew by continuing as is, which

• Majority considers a periodic tenancy based on how rent is reserved in the underlying lease; but, which

• Minority considers a new lease just like the previous lease.

 Initially treat as a trespasser, but fail to evict, and instead accept rent, which will dictate the new lease.

♦ Policy: Courts would rather have the property be used by T and with eviction, the property may be
unused for a month or more.

Numerus Clauses

♦ Courts must fit the agreement into one of the leaseholds that best matches the grantor’s intentions.
♦ Courts confronted with an instrument purporting to create a “lease for life” have typically asked which
common-law box best matches the grantor’s intentions: a life estate or a tenancy at will.

Garner v. Gerrish

A lease granting the tenant alone, the right to terminate at will, creates a determinable life estate, which is
terminable at the lessee’s will or death.

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♦ The lease in this case expressly and unambiguously granted to the tenant the right to terminate, and
does not reserve to the landlord a similar right.

♦ @ Common Law: If the lease provides that it can be terminated by one party, it is necessarily at the
will of the other as well if a tenancy at will has been created [Either party may terminate].

♦ There is no longer any reason why a lease granting the tenant alone the right to terminate at will,
should be converted into a tenancy at will terminable by either party.

Crechale & Polles, Inc. v. Smith

Once a landlord elects to treat a tenant as a trespasser and refuses to extend the lease on a month-to-month
basis, but fails to pursue his remedy of ejecting the tenant, and accepts monthly checks for rent due, he in
effect agrees to an extension of the lease on a month-to-month basis.

♦ Tenant held over and paid the landlord for the holdover month, but the landlord treated this as a
renewal of the lease for a new term.

♦ When a tenant continues in possession after the termination of his lease, the landlord has three options:
1) Treat as Trespasser and Evict.
2) Renew by continuing as is, which a) the majority considers a periodic tenancy based on how rent
is reserved in the underlying lease; but, which b) the minority considers a new lease just like the
previous lease.
3) Initially treat as a trespasser, but fail to evict, and instead accept rent, which will dictate the new
lease.
Note: The common law measure of damages is the fair rental value of the leased premises.

B. The Lease

♦ A lease can be interpreted as a license, a lease, or a life estate.

♦ It matter primarily whether or not an arrangement amounts to a lease because leases give rise to the
landlord-tenant relationship, which carries with it certain incidents-certain rights and duties and
liabilities and remedies-that do not attach to other relationships.

♦ A lease transfers a possessory interest in the land, so it is a conveyance that creates property rights.
♦ Leases usually contain a number of promises- so the lease is a contract-too, thus creating contract
rights.

♦ Statute of Frauds: Leases for more than one year must be in writing.

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Form Leases:

♦ Contracts of adhesion.
♦ Little or no bargaining with the terms of the contract.
♦ Avoids costs.
♦ Competition can force favorable terms into a seller’s contract

C. Selection of Tenants and Federal Antidiscrimination Laws

Civil Rights Act of 1866

♦ All citizens of the United States shall have the same right, in every State and Territory, as is enjoyed
by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property.

♦ Bars all racial discrimination, private and public, in sale or rental of property.

Fair Housing Act

♦ 42 USC §3603
 (b) Exemptions: Nothing in section 3604 of this title (other than section (c)) shall apply to:
• (1) any single-family house sold or rented by an owner…

• (2) rooms or units in dwellings containing living quarters occupied or intended to be

occupied by no more than four families living independently of each other, if the
owner actually maintains and occupies one of such living quarters as his residence…

♦ 42 USC §3604
 As made applicable by section 3603 of this title and except as exempted by sections 3603(b)
and 3607 of this title, it shall be unlawful:
• (a) To refuse to sell or rent after the making of a bona fide offer, or to refuse to
negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling
to any person because of race, color, religion, sex, familial status, or natural origin.
• (c) To make, print, or publish, or cause to be made, printed, or published any notice,
statement, or advertisement, with respect to the sale or rental of a dwelling that
indicates any preference, limitation, or discrimination based on race, color, religion,
sex, handicap, familial status, or national origin, or an intention to make any such
preference, limitation or discrimination

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 D. Delivery of Possession

Hannan v. Dusch

English Rule: Implies a covenant that requires the lessor to put the lessee in actual possession of the
leasehold premises. [Actual Possession & Legal Possession].
American Rule (Majority): Recognizes the lessee’s legal right to possession, but implies no duty upon the
lessor to ensure that the lessee is able to take actual possession. [Legal Possession only]

♦ L leased to T a parcel of land of which T found being occupied by another T at the beginning of his
term.

♦ Under the American rule, the new T’s remedy is against the person wrongfully in possession, who is
occupying the premises, rather than the lessor.

♦ The courts want the parties to expressly covenant to have L place T in possession at a specified time, in
which case, the lessor would then be liable for breach of his covenant where a trespasser goes into
possession, or wrongfully holds possession, and thereby wrongfully prevents the lessee from obtaining
possession.

♦ Under the English Rule, the implied covenant to deliver does not extend past the day when the lessee’s
term begins. The lessee’s remedy would then be against the stranger.

E. Subleases and Assignments

Sublease: A transaction wherebya tenant grants an interest in the leased premises less than his own, or
reserves to himself a reversionary interest in the term.
Assignment: Lessee conveys the whole term, leaving no interest or reversionary interest in lessee.

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Earnst v. Conditt

An assignment arises when the lessee transfers his entire interest under the lease-when , that is, he transfers
the right to possession for the duration of the term. If the lessee transfers anything less than his entire
interest (if two years remain on the lease and the lessee transfers for a term of one year), a sublease results.

♦ The assignee remained in possession of the leased property until the expiration of the leasehold.
♦ PRIVITY OF ESTATE: If the transfer is a sublease, no privity of estate exists between the landlord
and the sub-tenant and the sub tenant would not be liable to the landlord on the covenant to pay rent. If
the transfer is an assignment of the lease, privity of estate does exist between the landlord and the
assignee and the assignee would be liable directly and primarily for the amount of the rent owed.
 This is a relationship based on shared interests in the same estate.
 There is a successive interest between parties.
 A relationship based on shared interests in the same estate.

♦ Minority approach: Considers the intentions of the parties when determining whether a sublease or
assignment is in place.

Note: If the landlord exercises a power to forfeit the primary lease because of some breach by the original
tenant, then the landlord is entitled to possession as against the sublessees and assignees. But, if the
original tenant merely gives up the primary lease voluntarily, “surrenders” it, then the rights of possession
of sublessees and assignees remain intact.

Novation: Releases the tenant from any duties. A contract transferred by the novation process transfers all
duties and obligations from the original obligor to the new obligor.
Assumption: Assignee assumes all duties and is in privity of contract with the landlord.
Privity of Contract: A relationship arising from contract.

PRIVITIES IN A LEASE
Lease

Landlord-------------------------------- Tenant
Privity of K & Privity of Estate

PRIVITIES IN AN ASSIGMENT
Lease Assignment

Landlord--------------------------------Tenant -------------------------------- Assignee

Privity of Contract Privity of Contract

**Landlord now has privity of estate with Assignee.**

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PRIVITIES IN A SUBLEASE
Lease Sublease

Landlord--------------------------------Tenant -------------------------------- Subtenant

Privity of Contract & Privity of Estate Privity of Contract & Privity of Estate

**Landlord does not have privity of estate with Subtenant**

APPROVAL CLAUSES

Kendall v. Ernest Pestana, Inc.

Majority Rule: Where a lease contains an approval clause (a clause stating that the lease cannot be
assigned without the prior consent of the lessor), the lessor may arbitrarily refuse to approve a
proposed assignee no matter how suitable the assignee appears to be and no matter how unreasonable
the lessor’s objection.
Minority Rule: Where a lease provides for assignment only with the prior consent of the lessor, such
consent may be withheld only where the lessor has a commercially reasonable objection to the
assignment, even in the absence of a provision in the lease stating that consent to assignment will not
be unreasonably withheld.

♦ ♦ The lessor refused to consent to a new assignment and maintained that he had an absolute right
arbitrarily to refuse such a request because of the approval clause contained in the lease.

♦ Wariness of Restraints on Alienation: A restraint on alienation without the consent of the landlord of a
tenant’s interest in leased property is valid, but the landlord’s consent to alienation by the tenanct
cannot be withheld unreasonably, unless a freely negotiated provision in the lease gives the landlord an
absolute right to withhold consent.

♦ The lessor’s interest in the character of his or her tenant is protected by the lessor’s right to object to a
proposed assignee on reasonable commercial grounds.

♦ Courts recognize the nature of the lease as a conveyance and necessity of permitting reasonable
alienation of commercial space. Courts also look at the lease as a contract and recognize that there is a
duty of good faith and fair dealing inherent in every contact.

Rule in Dumper’s Case: If L consents to one assignment; he has deemed consent to any further
assignments and loses power to forbid further assignments unless he specifically reserves the rights and
power in granting the first one.

F. The Tenant Who Defaults

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Berg v. Wiley

The only lawful means to dispossess a tenant who has not abandoned nor voluntarily surrendered but who
claims possession adversely to a landlord’s claim of breach of a written lease is by resort to judicial
process.

♦ Landlord entered leasehold premises(restaurant) and changed the locks without the tenants
knowledge.

♦ It has long been the policy of our law to discourage landlords from taking the law into their own hands,
and our decisions and statutory law have looked with disfavor upon any use of self-help to dispossess a
tenant in circumstances which are likely to result in breaches of the peace.

♦ Common Law: A landlord may rightfully use self-help to retake leased premises from a tenant in
possession without incurring liability for wrongful eviction provided two conditions are met: (1) The
landlord is legally entitled to possession, such as where a tenant holds over after the lease term or
where a tenant breached a lease containing a reentry clause; and (2) the landlord’s means of reentry are
peaceable. [Conclusions from either the common law or the Modern minority trend would likely be the
same.]

♦ The law does not permit the owner of land, be his title ever so good, to be the judge of his own rights
with respect to a possession adversely held, but puts him to his remedy under the statutes.

♦ The potential for an altercation, makes the landlord’s self help not peaceful and would be deemed
unreasonable force and for that reason he must resort to a judicial remedy.

SUMMARY PROCEEDINGS [FORCIBLE ENTRY AND DETAINER STATUTES]

♦ Summary proceedings are intended to be efficient means by which to recover possession (and in some
jurisdictions, rent), after termination of a tenancy.

♦ Requires 3 days notice to tenant prior to bringing the eviction action.

Sommer v. Kridel

A landlord has a duty to mitigate damages by making reasonable efforts to relet the premises where he
seeks to recover rents due from a defaulting tenant.

♦ Landlord sues tenant for amount due on lease after the tenant abandoned possession of the leasehold
premises prematurely and the landlord never took steps to relet the premises.

♦ This recognizes the shift from property law to contract law. Under property law (minority view), there
is no duty to mitigate damages.

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♦ Majority: The burden of proof is on the tenant to show that the landlord has not used reasonable
diligence in attempting to relet the premises.

♦ Policy: Is a more efficient use of the land and would be unfair to let the landlord sit back and let
damages accrue.

Surrender: A tenant gives notice to L that he is vacating the premises and this extinguishes the tenant’s
liability for future rent if the landlord accepts. [Must be in writing].

Abandonment: Tenant vacates the leased property without justification and without any present intention
of returning and he defaults in the payment of rent. [Implicit offer to surrender and the landlord has a duty
to mitigate damages].

Landlord’s Remedies

Tenant in possession breaches a covenant:

♦ Landlord can sue for back rent and damages.

♦ Landlord can terminate lease and sue to recover possession.

Tenant abandons:

♦ Accept tenant’s surrender

♦ Sue to recover possession as well as back rents and cost of finding a replacement.
♦ Relet the premises on the tenant’s account.
♦ Sue for damages based on anticipatory breach.
♦ Wait for the end of the lease and sue for entire amount.
 Recovery will be reduced by the duty to mitigate damages.

Security Devices for Landlord

Security Deposits: The landlord is obliged to return to the tenant, upon termination of the lease, the deposit
less any amounts necessary to compensate for defaults by the tenant.

G. Duties, Rights, and Remedies

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1. Landlord’s Duties; Tenant’s Rights and Remedies

♦ @ Common law, ,absent some clause in the lease providing otherwise, the tenant took the premises “as
is,” and landlords were under no obligation to warrant their fitness.

The Covenant of Quiet Enjoyment and Constructive Eviction

Constructive Eviction: Breach of the implied covenant of quiet enjoyment.

♦ @ Common Law: a promise by a landlord to keep the premises in repair was viewed as an independent
covenant, such that breach by the landlord gave the tenant a cause of action for damages, but not the
right to suspend rent payments or to terminate the tenancy.

♦ The obligation to pay rent was dependent upon the tenant’s having possession undisturbed by the
landlord.

♦ If one could characterize a shortcoming in the leased premises as an unlawful disturbance by the
landlord-as a breach of the covenant of quiet enjoyment implied in all leases-and if the disturbance was
so substantial as to amount to eviction, and if the tenant thereafter abandoned the premises, then it was
as though the tenant had been evicted.

♦ Once evicted, the tenant was relieved of the obligation to pay rent.

Reste Realty Copr. v. Cooper

Any act or omission of the landlord or of anyone who acts under authority or legal right from the landlord,
or of someone having superior title to that of the landlord, which renders the premises substantially
unsuitable for the purpose for which they are leased, or which seriously interferes with the beneficial
enjoyment of the premises, is a breach of the covenant of quiet enjoyment and constitutes a constructive
eviction of the tenant.

♦ Tenant leased a potion of a basement floor of a commercial building which would flood with each
rainfall.

♦ A tenant’s right to claim a constructive eviction will be lost if he does not vacate the premises within a
reasonable time after the right comes into existence.

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Tenant’s Remedies:
♦ The tenant should be, and usually is, able to stay in possession and sue for damages equal to the
difference between the value of the property with and without the breach.

♦ If the breach is substantial, the tenant, as we saw, may leave on a theory of constructive eviction, in
which event he is relieved of any liability for future rent and entitled (presumably) to recover damages-
to compensate both for losses realized while in possession and for losses resulting from a higher rent
for equivalent replacement premises.

The Illegal Lease

♦ An illegal lease is one made in violation of statutory prohibitions and therefore unenforceable.
♦ It does not apply if the code violations develop after the making of the lease.
♦ Minor technical violations do not render a lease illegal, nor do violations of which the landlord had
neither actual nor constructive notice.

♦ A tenant under an illegal lease is a tenant at sufferance, and the landlord is entitled to the reasonable
rental value of the premises, given their condition.

♦ Can be used as a defense in action brought by the landlord.

The Implied Warranty of Habitability [Does not apply to commercial property]

Hilder v. St. Peter

1. In the rental of any residential dwelling unit, an implied warranty exists in the lease, whether oral or
written, that the landlord will deliver over and maintain, throughout the period of tenancy, premises
that are safe, clean, and fit for human habitation.
2. When the landlord is notified of the defect, but fails to repair it within a reasonable amount of time,
and the tenant subsequently repairs the defect, the tenant may deduct the expense of the repair from
future rent.

♦ Tenant experienced a variety of defects and problems with the leasehold premises, which were noticed
to the landlord, who failed to remedy the problems.

♦ The warranty of habitability covers all latent and patent defects is the essential facilities of the
residential unit.

♦ There is no requirement to vacate the premises.

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♦ In determining whether there has been a breach of the implied warranty of habitability, the courts may
first look to any relevant local or municipal housing code and look to the minimum housing standards
or whether it has an impact on the safety or health of the tenant.

♦ In order to bring a cause of action for breach of the implied warranty of habitability, the tenant must
first show that he or she notified the landlord of the deficiency or defect not known to the landlord and
allowed a reasonable time for its correction.

♦ The measure of damages shall be the difference between the value of the dwelling as warranted and the
value of the dwelling as it existed in its defective condition.

♦ Another remedy available to the tenant when there has been a breach of the implied warranty of
habitability is to withhold the payment of future rent. (He does not first have to abandon the premises).

♦ The tenant must show that :

1. The landlord had notice of the previously unknown defect
and failed, within a reasonable time, to repair it
2. The defect, affecting habitability, existed during the time
for which rent was withheld.

♦ When a landlord breaches the implied warranty of habitability, the tenant may withhold future rent,
and may also seek damages in the amount of rent previously paid.

Retaliatory Eviction
♦ At common law, landlords were given virtually unlimited freedom to terminate periodic tenancies at
will upon proper notice, and to refuse to renew expired terms of years.

♦ Landlords could cope with expanding tenant rights by getting rid of tenants who exercised them, at the
same time giving a message to tenants who were thinking of doing so.

♦ Retaliatory Eviction Statutes

 Forbid retaliatory eviction in residential contexts.
 Creates a rebuttable presumption of retaliation if adverse action is taken within a specified
time of a good faith complaint.

2. Tenant’s Duties; Landlord’s Rights and Remedies

WASTE

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♦ The duty not to commit waste is breached if a tenant makes such a change as to affect a vital and
substantial portion of the premises; as would change its characteristic appearance; the fundamental
purpose of the erection; or the uses contemplated, or a change of such nature, as would affect the very
realty itself, extraordinary in scope and effect, or unusual in expenditure.

♦ Common Law: The tenant had an implied duty to make such repairs as would preserve the property in
substantially the same condition as at the commencement of the term, ordinary wear and excepted.

♦ Modern: The tenant’s implied duty to repair no longer applies. The implied warranty of habitability
essentially negates the tenant’s duty to repair, but the warranty does not apply across the board to all
residential eases and seldom extends to commercial leases.

♦ If house is destroyed:
 Common Law: Tenant still had to pay rent.

 Modern majority: Accidental destruction of the building excused both parties from further
performance of their obligations under the lease. [Frustration of purpose and impossibility
doctrines].

The Law of Fixtures

Modern View: defines fixtures based on whether the tenant intended to permanently affix the fixtures.
Law of Accession: If the tenant has a special relationship with the chattel, then that will be a deciding
factor.
Common Law: If permanent, then the property becomes part of the leasehold premises.

H. The Problem of Affordable Housing

Chicago Board of Realtors, Inc. v. City of Chicago

♦ Landlords will try to offset the higher cost brought with the implied warranty of habitability by raising
rents.

♦ Any benefits in safer or healthier housing from exercise of the right may likely be offset by the higher
costs to landlords, resulting in higher rents and less rental housing.

♦ By reducing profit margins of the landlord, the supply falls and usually the poorer and the newer
tenants are hurt.

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 II. The Land Transaction

Purchase and Sale Agreement

1. Purchase Price
2. Description (Survey of the Land)
3. Good Title (Guaranteed seller provides good title/title insurance)
4. Warranties (Title restrictions)
5. Date of Transfer (When possession will transfer)
6. Prorations (Includes utilities, rents from tenants, real estate taxes)
7. Risk (In the event that the real estate is destroyed prior to delivery of the deed).
8. Itemization (Appliances or chattels or other fixtures that are included with the transaction)
9. Escrow/ Executory Terms
10. Payment Terms (Is earnest money included)
11. Signature

Brokers

• An agent who acts as an intermediary or negotiator, especially between prospective buyers and
sellers.

• Brokers exist because there is a scarcity of information in the market for real property.

• MLS (Multiple Listing Services): Is one main database, which allows brokers and appraisers to
share residential listing information.

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• Traditionally, brokers have been prohibited from drafting legal documents, offering legal advice,
or carrying out property closings. (Except in New Jersey).

• Listing Broker: Brokers who represent the seller. (Owes a fiduciary duty to seller).
o By entering into a listing contract with the listing broker, the seller empowers the broker
to serve as the seller’s agent in selling the property.

• Selling Broker: A prospective buyer initiates the relationship with a selling broker, who
introduces the buyer to sellers and to listing brokers. (Owes a fiduciary duty to seller).
o Selling brokers often work with prospective buyers over long periods of time and develop
personal relationships with them.

• Buyers’ Broker: Prospective buyers hire their own agents to help conduct their search fro real
estate. (Owe fiduciary duties to the prospective purchasers).
o Typically share the commission earned by the listing agent when the property is
purchased.

• Types of Listings: A listing agreement is an employment contract between a real estate broker
and a seller.
o Open Listing:
 This is the least protective listing that a broker can secure, because the seller
retains the right to sell the property herself or use a different broker without
paying the open listing broker a commission.
 The broker earns a commission only if she is the first to procure an offer from a
ready, willing, and able buyer.
o Exclusive-Agency Listing:
 This listing permits only the one broker, the exclusive agent, to sell the property
for a specified period of time.
 The exclusive agent earns a commission for the sale of the property if she
secures a buyer, or even if a separate broker secures a buyer
o Exclusive Right to Sell Listing:
 This is the most protective listing that a broker can secure.
 The owner must pay the broker if any buyer purchases the property during the
specified duration of the listing, no matter who found the purchaser.
• When a Commission is Due
o The majority rule is that a broker earns a commission when upon bring to the seller, a
buyer who is ready, able, and willing to buy.
o The minority view (modern trend) holds that a broker is not entitled to a commission
until the property sale closes.

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  The broker is still entitled to a commission if the seller, through her own
frustrating conduct, does not act in good faith and backs out of the agreement
before closing.

Licari v. Blackwelder

As fiduciaries, real estate brokers must place their client’s interests above their own, act in good faith, and
disclose all information that is or may be material to their client’s rights and interests.

• Two real estate brokers associated with the listing agent on the π’s property purchased the
property and sold it for a profit six days later.

• Upon hearing that a more advantageous sale or exchange can be made, the facts concerning which
are unknown to the principal, the broker has the duty to communicate these facts to the principal
before making the sale.

The Statute of Frauds

• Generally, transfers of real estate for more than one year, must be in writing.
• To satisfy the statute of frauds, a memorandum of sale must, at a minimum, be signed by the party
against whom enforcement is sought, describe the real estate, and state the price.
o If no price was agreed upon, the court may imply an agreement to pay a reasonable price.
• Exceptions:
o Part performance (Must have at least two)

 Payment of the purchase price (In part or in full).

 Taking Possession.
 Making substantial improvements.
o Estoppel
 Applies when unconscionable injury would result from denying enforcement of
the oral contract after one party has been induced by the other seriously to
change his position in reliance on the contract.

Hickey v. Green

A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to
comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable
reliance on the contract, and the continuing assent on the party against whom enforcement is sought,
has so changed his position that injustice can be avoided only by specific enforcement.

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 • The π sold their house in reliance on an oral agreement with the owner Δ and Δ rescinded the
agreement.
• The majority of jurisdictions hold that there must be part performance and estoppel.

Note: E-sign provides that a signature, contract or other record may not be denied legal effect, validity, or
enforceability solely because it is in electronic form.

Marketable Title

• An implied condition of a contract of sale of land is that the seller must convey to the buyer a
marketable title.
• Marketable title is a title reasonably free from doubt as to its validity and from encumbrances.

• Title: A legal abstraction as to who the owner is.

• Deed: Actual written document with the terms of the contract.

• Factors rendering deed unmarketable:

o Defects in Title:
 Missing deeds in chain of title.
 Prior conveyances without required consent of spouse.
 Loss of some or all of property through adverse possession, foreclosure, or
eminent domain.
o Encumbrances:
 Leases, mortgages, deeds of trust, liens, easements.
o Encroachments
o Ordinance Violations

Lohmeyer v. Bower
Present Violated

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Public Restriction Marketable Unmarketable
Private Restriction Unmarketable Unmarketable
• Prior to transfer of property, a title search showed that the property in question had a public and
a private restriction, both which were in violation.
• Marketable title to real estate is title that does not expose the buyer to litigation.
• Easements known to purchasers, or open and obvious, does not make title unmarketable.

Equitable Conversion

• Majority: Once contract has been signed, the purchaser becomes the equitable owner and if the
property contract is destroyed in the executory period, the risk of loss is on the purchaser.

• Minority: The risk of loss is placed on the seller until the legal title is conveyed.

• If equitable conversion has occurred, the seller’s interest is personal property (the right to the
purchase property) and the buyer is treated as owner of land.

The Duty to Disclose Defects

• Caveat Emptor (Common Law):

o Imposes no duty on seller to disclose any information concerning the premises unless
there is a confidential or fiduciary relationship between the parties.
o Requires that a buyer act prudently to assess the fitness and value of his purchase and
operates to bar the purchaser who fails to exercise due care.
• Modern Majority:
o Seller has a duty to disclose latent defects and the buyer has a duty to inspect for patent
defects.
o Seller has a duty to disclose all known defects, equating nondisclosure with fraud or
misrepresentation.
• The defect must be “material.”
o Objective Test: whether a reasonable person would attach importance in deciding to buy.
o Subjective Test: whether the defect affects the value or desirability of the property to the
buyer.
• Misfeasance Material Misrepresentation and Fraud
o There is a false representation of fact (not puffery or opinion).
o Seller intended to induce purchase and reliance.

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 o Buyer actually purchases and relies on the representation.
o Buyer must have suffered harm.
• Nonfeasance
o Duty to disclose known defects
o Must effect the value of property or desirability of property.
• “As is” Clause
o Generally upheld if the defects are reasonably discoverable and there is no fraud.

Stambovsky v. Ackley

Where a seller has created a condition that materially alters the value of the contract for sale of real
property, and the condition is uniquely within the knowledge of the seller and unlikely to be
discovered by a careful buyer, failure to disclose that condition creates a basis for rescission as
matter of equity.

• Δ sells house that she has publicized as haunted to a π who is unaware.

Johnson v. Davis

Where the seller knows of facts materially affecting the value or desirability of the property which are
known or accessibly only to him and also knows that such facts are not known to within the reach of
the diligent attention of the buyer, the seller is under a duty to disclose them to the buyer.

• π bought a house from Δ that Δ told him did not leak, but which did leak.

• If the seller represents to the buyer that the roof did not leak and he knew that it did, this would
constitute fraud.
• Or, if the seller believes that the roof does not leak, and it is found that the roof does leak, this
would be a mutual mistake of fact.

Merger

• When a buyer accepts a deed, the buyer is deemed to be satisfied that all the contractual
obligations have been met. (Occurs at the end of executory period).
• The contract then merges into the deed, and the deed is deemed the final act of the parties
expressing the terms of their agreement.
• The buyer can no longer sue the seller on the promises in the contract of sale not contained in the
deed, but must due the seller on the warranties, if any, contained in the deed.

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 The Implied Warranty of Quality
• Warranty of Suitability
• Warranty of Quality
o Runs with the land to subsequent purchasers.
• Warranties implied by law may be excluded or modified by agreement of the parties, or by
including such expressions as “as is,” except no general disclaimer is effective with respect to a
buyer of a home in which the buyer intends to live.

Lempke v. Dagenais

Privity of Contract is not necessary to maintain a cause of action for the implied warranty of workmanship
and good quality against a builder for latent defects and economic loss may be recovered. .

• π purchased house with a garage that he later finds defective.

• The duty inherited in an implied warranty of workmanlike like quality is to perform in a
workmanlike manner and in accordance with accepted standards.

• This implied warranty of workmanlike quality is limited to a reasonable period of time.

• The builder may also assert defenses that the defects were not attributable to him and are a result
of ordinary wear and tear.

Remedies for Breach of the Sales Contract

If a purchaser defaults on a contract to purchase realty, as a general rule, the seller has three alternative
remedies:
1. Seek relief in equity for rescission.
2. Offer to perform and bring an action for specific performance.
a. Each piece of real estate is unique, making damages an inadequate remedy.
b. Must prove that money damages would be an inadequate remedy.
3. Elect to retain the realty and file suit seeking an award of damages.
• Efficient Breach Theory:
o When the cost of the breach is less than the potential gain from the breach. breach of the
contract is the economically efficient result.

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• Liquidated Damages:
o When contracting parties stipulate the amount of damages that shall be paid in the event of
breach of contract, such stipulation is generally enforceable, so long as the stipulated amount
is not disproportionate to the damage actually sustained.
• Seller’s Breach Due to Title Defect
o Allows the purchaser to recover expectation damages.
• Time of-the-Essence Clauses
o Unless the parties expressly provide that 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
including in the contract and failure of adherence, will constitute a breach of contract.

Jones v. Lee

When a purchaser breaches an executory real estate contract, the vendor’s measure of damages is the
difference between the purchase price and the market value of the property at the time of the
breach.

• Δ purchaser reneged on a purchase agreement and π seller sued him.

Kutzin v. Pirnie
Minority: Buyers are entitled to restitution of the deposit money in excess of damages incurred.

• Both buyer and seller claimed to be entitled to a deposit of earnest money.

• Majority: When a buyer breaches a contract to purchase land, the seller may elect to retain the
down payment.
o If the seller does elect take retain the deposit, most courts hold that she is limited to
deposit money totaling 10% of the contract price or less.

The Deed

• Written instrument that provides evidence of ownership.

• Short form deed contains all essential elements; grantor, grantee, words of grant, description of the
land involved. signature of the grantor.

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 • Forgery:
o A forged deed is void. The grantor whose signature is forged to a deed prevails over all
persons, including subsequent bona fide purchasers from the grantee who do not know
the deed is forged.
• Fraud:
o A deed procured by fraud is voidable by the grantor in an action against the grantee, but a
subsequent bona fide purchaser from the grantee who is unaware of the fraud prevails
over the grantor.

Types
• Quitclaim Deed
o Contains 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.

• General Warranty Deed

o Warrants title against all defects in title, whether they arose before or after the grantor
took title.
o Present Covenants: (Is broken if ever, at the time the deed is delivered)
1. A covenant of seisin: The grantor warrants that he owns the estate that he
purports to convey.
2. A covenant of right to convey: The grantor warrants that he has the right to
convey the property.
3. A covenant against encumbrances: The grantor warrants that there are no
encumbrances on the property. (Mortgages, liens, easements, covenants).

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 o Future Covenants
4. A covenant of general warranty: The grantor warrants that he will defend
against lawful claims (must be a superior lawful claim) and will compensate the
grantee for any loss that the grantee may sustain by assertion of a superior title.
5. 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.
6. A covenant of further assurances: The grantor promises that he will execute any
other documents required to perfect title conveyed.
o The statute of limitations begins to run on a breach of a present covenant at the
date of delivery of the deed.
o The statute of limitations begins to run on a future covenant at the time of
eviction or when the covenant is broken in the future.
• Special Warranty Deed
o Contains warranties against the grantor’s own acts, but not the acts of others.

Brown v. Lober

Until such time as one holding paramount title interferes with π’s right of possession, there can be no
constructive eviction and, therefore, no breach of the covenant of quiet enjoyment.
• • The π’s were sold land for only 1/3 of mineral interests, but the other holder of the 2/3 interest
never exercised his rights.
• The mere existence of a paramount title does not constitute breach of the covenant.

• The covenant of seisen was clearly breached, but the statute of limitations had run.

Frimberger v. Anzellotti

A latent violation of a restrictive land use statute does not constitute a violation of the warranty against
encumbrances.

• After purchasing property, the π discovered that the home violated state environment protection
statutes.

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• All encumbrances may be classified as either
o A pecuniary charge against the premises, such as mortgages, judgment liens, or assessments.
o Estates in interests in the property less than the fee (leases, life estates, or dower rights)
o Easements or servitudes on the land.
• Measure of damages is either the cost of removal if easily removable, or if it is not easily removable,
then it is the difference in value between the land with the encumbrance and without.

Rockafellor v. Gray

Majority Rule: The covenant of seisin does not run with the land.
English Rule Minority: The covenant of seisin does run with the land, and it is broken the moment the
conveyance is delivered, becoming a chose in action held by the covenantee.

• Whether the covenant of seisin runs with the land, so that an action may be maintained by a
remote grantee who has not been conveyed title or possession.
• The maximum recovery on a warranty is the consideration received by the coventor, plus
incidental damages such as out of pocket expenses incurred in examining title or defending the
title against a successful direct attack.

Delivery

• To be effective, a deed must be delivered with the intent that it be presently operative.
• Must be voluntary and must occur with the mutual intention of the parties to pass title.
• To deliver a deed of land, it is not necessary that the deed be handed over to the grantee. Delivery
means no more than an intent to be immediately bound by the transfer.

Sweeney v. Sweeney

Where a deed is handed to grantee, but evidence shows it is to take effect only upon the death of the
grantor, the deed is considered properly delivered.

• Husband deeds property to brother, who simultaneously deeds the property back to husband.
• If the grantor intends to pass title or a future interest to the grantee NOW, there has been a
delivery even though possession may be postponed until the grantor’s death.

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 • On the other hand, if the grantor intends that no interest should arise until death, no delivery
during life has taken place; the deed cannot take legal effect at death because the grantor intended
it to be a will, not a deed, and the instrument is not executed with two witnesses in accordance
with the Statute of Wills.

Rosengrant v. Rosengrant

Where a grantor delivers a deed under which he reserves a right of retrieval and attaches to that delivery the
condition that the deed is to become operative only after the death of grantors and further continues to use
the property as if no transfer had occurred, grantor’s actions are nothing more than an attempt to employ
the deed as if it were will.

• A couple attempted to deliver a deed upon their death, but continued to use the property and also
had a right to retrieve the deed.
• Delivery requires a present intent to pass title, even though possession may be postponed.
• A valid conveyance requires actual or constructive delivery of the deed to the grantee or a third
party and an intention by the grantor to divest himself of the conveyed interest.

Revocable Trusts
• Grantor signs a declaration of trust providing they hold their land in trust and retain all rights in
the land.
• The legal title is held with the grantor as trustee.
• Life estate in grantor and the grantee is a remainderman.

The Mortgage

• Ordinarily, the buyer will make a down payment of a small fraction of the purchase price and borrow
the rest of the money needed.
• A mortgage is an interest in property used to secure a debt.

• Mortgagor: is the purchaser of the property.

• Mortgagee: is the lender.

o If the buyers fail to pay their note or do not otherwise perform their obligations, the lender,
either at private sale or under judicial supervision, depending on the jurisdiction, can have the
property sold (foreclose the mortgage) and apply the proceeds of sale to the amount due on
the note.
o Judicially Created Right of Redemption

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  After the mortgagor defaults, the courts required a lawsuit to be brought to cut off
the borrower’s equity of redemption
o Statutory Right of Redemption
 Provides the mortgagor with a statutory right to buy back the title from the purchaser
at a judicial foreclosure sale within a specified period after the foreclosure sale (3-24
months).
o Deficiency Judgment: Where the mortgagee is entitled to a deficiency judgment for the
difference in the foreclosure proceeds and the loan. This is best recognized when the
mortgagee obtains a judicial foreclosure rather than by private sale.

 Antideficiency Statutes: Some states either prohibit or limit deficiency judgments if

the mortgagor has used the proceeds of the loan to purchase a residence.

• Deed of Trust: The borrower conveys title to the land to a person (who is a third person, but may be
the lender) to hold in trust to secure payment of the debt to the lender. The trustee is given the power
to sell the land without going to court if the borrower defaults.

• Deeds in Lieu of Foreclosure: In instances where a borrower cannot repay its debt, it can frequently
avoid foreclosure by tending its deed to the lender in lieu of foreclosure. In most instances, the lender
will agree to give up any claim for a deficiency judgment.

• Transfer by the Mortgagor: When the mortgagor sells his land, the land remains subject to the
mortgage in the hands of the transferee.
o If the purchaser takes subject to the mortgage, the purchaser does not assume any personal
liability for the mortgage debt, for which the mortgagor remains liable. But the purchaser
agrees, as between himself and the mortgagor, that the debt is to be satisfied out of the land; if
the debt is not paid, the land will be sold and the debt paid from the proceeds.
o If the purchaser assumes the mortgage, the purchaser promises to pay off the mortgage debt.
o Acceleration Clause: This enables the mortgagee, upon transfer of the mortgagor’s equity, to
declare the whole amount of the mortgage debt due and, upon failure to pay, to foreclose.

Murphyv. Fin Dev Corp.

A mortgagee executing a power of sale has a duty to protect the interests of the mortgagor and exercise
good faith and due diligence in obtaining a fair price for a mortgagor’s property.

• Δ foreclosed on π’s mortgage and concluded the foreclosure sale after one low bid.

• Bad faith: there must be an intentional disregard of duty or a purpose to injure. (Damages = FMV-
Sale Price)

• Due Diligence: Whether a reasonable man in the lenders place would have adjourned the sale.
(Damages = Fair Price-sale price).

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Installment Land Sale Contract

• An arrangement whereby the purchaser takes possession and the seller contracts to convey title to
the purchaser when the purchaser has paid the purchase price in regular installments over a fixed
period of time.
• If the purchaser pays the contract price in full, the seller agrees to deliver a deed conveying legal
title to the purchaser.
• The reason why sellers use the installment land contract is that it includes a clause providing that
the buyer forfeits the land and the payments if the buyer goes into default.

• Majority: The seller must give notice of a possible forfeiture, either in a manner prescribed by
statute or in a reasonable manner satisfactory to a court.

• Waiver: Accepting late payments may waive the seller’s right to forfeiture in the future, as it may
mislead the purchaser into believing that promptness is not required.

• The seller’s declaration of forfeiture may bar the seller from suing for the remainder of the
purchase price, and the purchaser may be entitled to restitution of some payments.

Bean v. Walker

The buyer under an installment land sale contract acquires equitable title, which must be extinguished
before the seller can retake possession, and so the buyer’s payments cannot be forfeited where there
would be an inequitable disposition of property and exorbitant money loss by the buyer.

• Buyer defaulted on an installment land sale contract after paying the seller nearly half of the
purchase price, and the seller sued to take repossession.
• Upon the execution of a contract for sale of land, the vendee acquires equitable title.

• The vendee acquires equitable title and the vendor merely holds the legal title in trust for the
vendee, subject to the vendor's equitable lien for the payment of the purchase price in accordance
with the terms of the contract. The vendor may not enforce his rights by the simple expedient of an
action in ejectment but must instead proceed to foreclose the vendee's equitable title or bring an
action at law for the purchase price. Thus, the contract vendors may not summarily dispossess the
vendees of their equitable ownership without first bringing an action to foreclose.

III. Title Assurance: The Recording System

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• Public recording of deeds, mortgages, leases, lis pendens *(notice of pending action) and other
instruments affect land title.
• Verifies what you own, or what you think you own
• A deed will be valid and good against the grantor notwithstanding the recording act.
• Recording acts have the function of protecting purchasers for value and lien creditors against prior
unrecorded interests.
• Bona Fide Purchaser (BFP)
o Under the recording acts, a subsequent bona fide purchaser is protected against prior
unrecorded interests.
o A BFP takes without knowledge of a prior conveyed deed by the same grantor of the
same interest and also pays more than a nominal value such as a “substantial” amount or
an amount “not grossly inadequate.”
o At common law, the subsequent bona fide purchaser is not protected and the doctrine of
“prior in time, prior in effect” controls.
• Indexes:
o Tract Index
 Indexing documents by a parcel identification number assigned to the particular
tract.
 Look up by parcel identification number and you can see all things pertaining to
the land.
o Grantor/Grantee Index

 In the grantor index, all instruments are indexed alphabetically and

chronologically under the grantor’s surname.
 In the grantee index, all instruments are indexed under the grantee’s surname.
 Sets out descriptions of the grantor, the grantee, description of the land, kind of
instrument, date of recording, and volume and page numbers where the
instrument can be found set forth in full.

 By running each grantee’s name back through the grantee index, you can
discover the preceding source of title (the grantor) of each person who purports
to own Blackacre. (Must go back at least 60 years).
• Notice
o Actual
o Constructive
 Record Notice
 Inquiry Notice

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Luthi v. Evans

A mother hubbard clause is upheld as between the parties to the instrument that contains it, but is
insufficient to give constructive notice to subsequent purchasers without actual notice of it.
• • Owens conveyed assignments in all of her property in the entire county and then Owens
conveyed another assignment in the county to Burris.

• Mother Hubbard Clause: a deed or other instrument in writing which is intended to convey an
interest in real estate and which describes the property to be conveyed as, “all of the grantor’s
property in a certain county.”
• A subsequent purchaser, who has ACTUAL notice of such an instrument, is bound thereby,
however, the clause does not provide constructive notice to subsequent purchasers.
• A specific description of the property conveyed is required to impart constructive notice to a
subsequent purchaser.

Doctrine of Idem Sonans

• MAJORITY: Though a person’s name has been inaccurately written, the identity of such person
will be presumed from the similarity of sounds between the correct pronunciation and the
pronunciation as written.

• MINORITY Orr v. Byers: A misspelled name does not give constructive notice to title searches.
o Requiring a title searcher to examine title records for other spellings of the grantor’s
name would be an undue burden on the transfer of property.

Types of Recording Acts

Race Statute
• The first person to record prevails.
• It is irrelevant whether a subsequent purchaser has actual knowledge of the prior purchaser’s
claim.
• The virtue of a race statute for the title searcher is that it limits inquiry into matters off the record.
• There may be great difficulty in proving that a subsequent purchaser did in fact have actual notice
of a prior instrument.
• Example

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 o O to A who does not record.
o O to B who knows of the deed to A but records before A.
o B prevails.

Notice Statute
• A subsequent BFP (no notice) prevails, regardless of whether she records.
o If the instrument is recorded, then that serves as constructive notice to a subsequent
purchaser.
• If a subsequent purchaser had notice of a prior unrecorded instrument, the purchaser could not
prevail over the prior grantee, for such would work a fraud on the prior grantee.
• A notice statute protects a subsequent purchaser against prior unrecorded instruments even though
the subsequent purchaser fails to record.
• The virtue of a notice statute is its fairness as between two conflicting claimants, but inasmuch as
the question of whether the subsequent purchaser has notice depends on facts not on the record,
and therefore, notice statutes are less effective than race statutes.
• Example
o O to A who does not record.
o O to B for valuable consideration and without knowledge of A’s deed.
o B prevails over A even though B does not record the deed from O to B.
• No conveyance, transfer or mortgage of real property, or of any interest therein, nor any lease for
a term of one year or longer, shall be good and effectual in law or equity against creditors or
subsequent purchasers for a valuable consideration and without notice, unless the same be
recorded according to law.
• THE SHELTER RULE
o One who takes from a bona fide purchaser protected by a recording act has the same
rights as the bona fide purchaser.
o Example

 O to A.

 O to B, who does not know of the earlier conveyance to A.

 A records.

 B to C, who has record notice of A’s deed.

 C purchased from a BFP, so he is protected by the shelter rule even though he is

not a BFP.
 Note: This shelter does not extend to O.

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Race-Notice Statute
• A subsequent purchaser prevails only if the subsequent purchaser :
o is a BFP and
o records before the prior instrument is recorded.
• A race-notice statute tends to eliminate lawsuits turning on extrinsic evidence about which deed
was delivered first and it also provides motivation to record, by punishing the non recording, thus
making the public records complete.
• Example
o O to A who does not record.
o O to B, who does not know of A’s deed.
o A records.
o B records.
o A prevails over B, because even though B had no notice of A’s deed, B did not record
before A.
• Every conveyance of real property or an estate for years therein, other than a lease for a term not
exceeding one year, is void as against any subsequent purchaser or mortgagee of the same
property, or any part thereof, in good faith and for a valuable consideration, whose conveyance is
first duly recorded, and as against any judgment affecting the title, unless the conveyance shall
have been duly recorded prior to the record of notice of action.
• THE ZIMMER RULE
o A race-notice statute protects the subsequent purchaser who first records his own
conveyance ONLY IF all prior conveyances in his chain of title are also recorded.
o Example
 O to A who does not record.
 O to B who has no notice of A’s deed and gives valuable consideration.
 B’s deed is entered into the records, but has a defective acknowledgement.
 B to C, who has no notice of A’s deed, gives valuable consideration and records
his deed.

 B’s deed is not “recorded” and therefore C is not a “subsequent purchaser in

good faith whose conveyance was first recorded.
o Majority Rule: When the defect does not appear on the face of the acknowledgement,
the deed imparts constructive notice, but if the defect is patent, the deed does not give
constructive notice.

Messersmith v. Smith

The recording of an instrument affecting the title to real estate which does not meet the statutory
requirements of the recording laws affords no31 | P a g e knowledge.
constructive
 • After a first deed was found to be incorrect, Messersmith took a second deed to a notary public,
who got Messersmith’s acknowledgement over the telephone.
• Almost without exception, statutes require that, in order for an instrument to enter the records, it
must be acknowledged before a notary public or other official.

Chain of Title Problems

The phrase, chain of title, refers generally to the recorded sequence of transactions by which title has
passed from a sovereign to the present claimant. It includes the series of recorded documents that, in the
particular jurisdiction, give constructive notice to a subsequent purchaser.

• Wild Deed
o O to A DNR
o A to B Recorded
o O to C BFP
 C would not have notice, because A DNR and therefore C prevails
o Board of Education of Minneapolis v. Hughes

• Common Grantor
o O owner of Whiteacre and Blackacre conveys Blackacre to A and also an easement over
Whiteacre.
o A records the deed.
o O conveys Whiteacre to B, a purchaser for value who has no actual knowledge of the
easement over Whiteacre conveyed to A.
o B records.

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 o A subsequent purchaser from a common grantor in a subdivision has constructive notice
of the restriction on the rest of the subdivision, and thus acquires title subject to those
restrictions.
o Guillette v. Daly Dry Wall, Inc.
 Daly Dry Wall tried to build an apartment building on a lot in a subdivision
which was restricted to a single-family house.
 The purchaser from the common grantor of a subdivision, should have gone to
the grantor index and looked at all the deeds conveyed in the subdivision.

• Estoppel by Deed
o The grantor conveys land to a grantee that the grantor does not own, and the grantor
warrants the title to the land.
o A to B Recorded
o O to A Recorded
o A to C BFP
o MAJORITY: (C wins) These cases emphasize the cost of searching title under the name
of every owner for years prior to the date the owner received title, looking for a possible
prior deed given to the owner. The majority, promoting efficiency in land transactions,
regards B’s deed as outside the chain of title and it does not give constructive notice to
subsequent purchasers.
o MINORITY: (B wins) If the grantor subsequently acquires title to the land, the grantor is
estopped to deny that he had title at the time of the deed and that title passed to the
grantee.

• Later Deed With Notice

o O to A DNR
o O to B not a BFP because of actual knowledge
o B Records

o A Records

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o B to C BFP
o The courts are split:
 In favor of C: A purchaser is not bound to examine the record after the date of a
recorded conveyance to discover whether the grantor made a prior conveyance
recorded later. (This reasonably limits the title search).
 In favor of A: A deed recorded late, after another deed from the same owner,
gave constructive notice to subsequent purchasers.

Persons Protected by the Recording System

Daniels v. Anderson
A buyer who, prior to the payment of any consideration receives notice of an outstanding interest, pays the
consideration at his or her peril with respect to the holder of the outstanding interest and is not a bona fide
purchaser. However, where the buyer receives notice of an outstanding interest subsequent to paying some,
but prior to paying the full purchase price, a pro tanto rule is applied, which protects the buyer to the extent
of the payments made prior to notice, but no further.
1. Court may award the land to holder of prior interest, who must reimburse the BFP.
2. Court may award the BFP a fractional interest in the land proportional to the amount paid prior to
notice.
3. Court may award land to the BFP, but have BFP pay the remaining installments to holder of prior
interest.
• A person who possessed the right of first refusal on a piece of property sues a subsequent buyer who
purchased the property and took possession without allowing the prior buyer to exercise his
preemptive option when the subsequent buyer had knowledge of the outstanding interest after having
made substantial payments.
• Note that had it been brought up at the trial level, the purchaser with partial payment could have
argued equitable conversion.

Lewis v. Superior Court

A seller need not be paid in full before the buyer can be considered a bona fide purchaser.

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 • A couple purchased a residence for 2.3M by giving a note to the seller one day before the lis
pendens of Fontana Films was indexed.
• Any purchaser without notice who makes a down payment and unequivocally obligates himself to
pay the balance has every reason to believe that, if he makes the payments when due, his right to
the property will be secure.
• Indexing:
o Majority: Does not matter if improperly indexed and proper indexing is not required to
constitute record notice.
o Minority: Indexing is required for constructive notice.

Notice
• Actual
o Arises where one is personally aware of a conflicting interest in real property, often due to
another’s possession of the property.
• Constructive (Notice that the law deems you to have regardless of your actual knowledge).
o Record
 Notice one has based on properly recorded instruments.
o Inquiry
 Is based on facts that would cause a reasonable person to make inquiry into the
possible existence of an adverse interest in real property.

Harper v. Paradise

Subsequent grantees are held to inquiry notice of the contents of prior recorded deeds in the chain of title
for purposes of a race-notice recording act.
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• Δ, subsequent grantees claim property back to a1928 deed, which stated that it was made in place of a
lost deed in which the π was named as a remainderman.

• A simple analysis of the language in the 1928 deed would have revealed the prior 1922 deed, and the
Δ’s do not meet the “notice” requirement of the race-notice statute.
• A deed in the chain of title, discovered by the investigator, is constructive notice of all other deeds
which were referred to in the deed discovered.

Waldorff Insurance and Bonding v. Eglin National Bank

Actual possession gives constructive notice to the world of any right which the person in possession is able
to establish. Such possession, when open, visible, and exclusive, will put upon inquiry those acquiring any
title to or lien upon the land so occupied to ascertain the nature of the rights the occupants really have in
the premises.

• A bank attempts to foreclose on mortgages secured by condominiums, executed when one of the condo
units subject to the mortgage was openly possesses and owned by another party.
• A contract to convey legal title to real property on payment of the purchase price creates an equitable
interest in the purchaser.
• Beneficial ownership passes to the purchaser while the seller retains mere naked legal title.

• Subsequent successors to the legal title take such title burdened with the equitable interests of which
have either actual or constructive notice.
• In this case, the bank has constructive notice in Waldorf’s possession.

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37 | P a g e
 IV. Private Land Use Controls: The Law of Servitudes

• Servitudes: Non possessory interests in land belonging to someone else.

• Agreement between private parties to restrict use of the land.

Easements
o Affirmative Easements:
 Gives a person the right to enter or perform an act on the servient land.
o Negative Easements:
 Easements forbidding one landowner from doing something on his land that
might harm a neighbor.
o Easements Appurtenant:
 Gives a right to land use to whoever owns a parcel of land that the easement
benefits.

 Requires both a dominant tenement and a servient tenement.

• The dominant tenement benefits from the servient tenement.

 Are usually transferable.
o Easements In Gross

 Gives right to land use without regard to ownership of land.

 This easement does not benefit any land and are said to be “personal” because
they do not attach to any parcel of land.
 May be alienable or inalienable.

Profits:
• Rights to take off the land things that were part of the land.
o Timber
o Minerals
o Wild Game
o Fish
• If you have a profit, then you also have an easement.

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Creation of Easements
1. Express
o An easement, being an interest in land, is within the Statute of Frauds and therefore
generally requires a written instrument signed by the party to be bound.
o May be made by reservation or by exception.

2. Implied Easements
o By Implication

 Estoppel

• Reasonable reliance on the expectation of an easement

 Prior Use
• Multiple lots were part of a single tract

• Apparent and continuous use

• Reasonably necessary

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 • Presumption because had been a Quasi Easement
o By Necessity
 Must be strict necessity
 Landlocked parcel to which the court allows ingress and egress
 Lasts only as long as necessity allows it
o By Prescription (Rights can be acquired simply by the passage of time)
 Open and Notorious
• Usually some acquiescence by servient owner acknowledging your
using the property.
 Continuous for the Statutory Period
• To prevent a prescriptive easement from being acquired, the owner
must effectively interrupt or stop the adverse use.
 Adverse
• Does not have to be exclusive to the true owner.
 Claim of Right

Willard v. First Church of Christ (Minority View)

Majority: A grantor may NOT reserve an easement in property for a third party.
Minority: A grantor can reserve an easement in property for a third party/

• McGuigan, a church member sold a lot to Peterson with an easement reserved for the church
across the street for parking.

• Reservation: allows a grantor’s whole interest in the property to pass to the grantee, but revests a
newly created interest in the grantor.

• Exception: Prevents some part of the grantor’s interest from passing to the grantee. (Grantor
conveys in fee simple except for the easement)
• The minority rule that this case adopts, gives effect to the intent of the parties at the time of
conveyance.

Licenses
• A license is oral or written permission given by the occupant of land allowing the licensee to do
some act that otherwise would be a trespass.
• The license is revocable whereas an easement is not.
o Exceptions to the rule that a license is revocable:

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  A license coupled with an interest that is incidental to ownership of chattel on
the licensor’s land. (Ex. Profit)

 A license becomes irrevocable under the rules of estoppel where there is

substantial investment in reasonable reliance of the license.

Holbrook v. Taylor

A license may not be revoked after the licensee has erected improvements on the land at considerable
expense while relying on the license.

• The Δ (original) licensor, tried to block off a road that he had allowed the π to use for ingress and
egress to a house they constructed.

• A grant of easement through estoppel, protects the reliance interest of the party, but that party
must have reasonably relied on the permission to his detriment.
• If the permission is given orally, it is generally a license and generally revocable, but even an oral
license can become irrevocable
• This is a method of Avoiding the Statute of Frauds.
• Normally the change in position that triggers application of the rule is an investment in
improvements either to the servient estate or to other land of the investor.

Easements Implied Through Prior Use

Van Sandt v. Royster

An easement may be implied through prior use if:

1. Multiple lots were part of a single tract.
2. There was an apparent and continuous use of a portion of the tract when the tract is divided
(quasi servient estate).
3. This use is reasonably necessary for the enjoyment of the conveyed tract (quasi dominant
estate)
4. Parties can be presumed to have intended the use to continue after the division.

• Original owner of a tract subdivided into three lots and ran a sewage pipe across all three tracts.
These tracts were later sold and one of the tract owners closest to the main line connection sued
to enjoin the other two lot owners from using.

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 • The implication of an easement will depend on the circumstances under which the conveyance of
land was made, including the extent to which the manner of prior use was or might have been
known by the parties.

• Each party will be assumed to know about reasonably necessary uses which are apparent upon
reasonably prudent investigation.
o Appearance and visibility are not synonymous, and the fact that the pipe, sewer, or drain
may be hidden underground does not negate its character as an apparent condition, at
least where the appliances connected with and leading to it are obvious.
• An easement may be implied for a grantor or a grantee on the basis of necessity alone.
• The easement is implied to protect the probable expectations of the grantor and grantee that the
existing use will continue after the transfer.
• Implying easements in favor of grantors vs. grantees
o Traditional Rule: Strict necessity is required for implied easements in favor of the
grantor.
o Modern Trend: Look to the intent of the parties

Implied Easement by Necessity

• The easement is implied when the court finds the claimed easement is necessary to the enjoyment
of the claimant’s land and that the necessity must exist at the time of division.
• Where a vendor retains a tract of land which is surrounded partly by the tract conveyed and partly
by the lands of a stranger, there is an implied reservation of a right of way by necessity over the
land conveyed where grantor has no other way out.
• Degree of necessity:
o Majority: requires strict necessity
o Minority: some courts have granted an easement by necessity where access to the land
exists but it is claimed to be inadequate, difficult or costly.

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 • An easement by necessity endures only so long as it is necessary.

Othen v. Rosier

An easement can be implied from necessity if:

1. There was a unity of ownership of the alleged dominant and servient estates.
2. That the roadway is a necessity, not a mere convenience, and
3. That the necessity existed at the time of severance of the two estates.
An easement cannot arise through prescription if there was a license given to the person claiming
prescription, because it wouldn’t be adverse.

Public Trust Doctrine

• The public must be given access to- and beneficial use of- property assets held in trust by the state
for the benefit of the citizens (i.e.: navigable waters, the seacoast, national parks, air, )
• In most states, the state holds, in public trust, the beach from the water to the mean high tide line
(the foreshore or wet sand area). The dry sand portion of the beach between the mean high-tide
line and the vegetation line is subject to private ownership.
• Public Prescriptive Easements: In most states a public prescriptive easement can be obtained by
long continuous use by the public under a claim of right and the landowner must be put on notice,
by the kind and extent of use, that an adverse right is being claimed by the general public, bot by
individuals.

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Matthews v. Bay Head Improvement Association

The public’s right to use the tidal lands and waters under the public trust doctrine also includes the right to
gain access through and to use privately owned dry sand areas as reasonably necessary.

• A public advocate brought suit against Bay Head Association because it denied the public its
rights of access to and use of public beaches.

• Reasonable enjoyment of the foreshore and the sea cannot be realized unless some enjoyment of
the dry sand area is also allowed.

Assignability of Easements
• Easements Appurtenant
o The benefits and burdens of appurtenant easements pass automatically to assigners of the
land to which they are appurtenant if the parties so intended and the burdened party has
notice of the easement.
 Dominant Estate: Benefit automatically transfers
 Servient estate: burden automatically transfers UNLESS the burdened party is a
bona fide purchaser without notice.
o Where an easement is appurtenant, the burden on the servient tenement is limited by the
needs of the dominant tenement. An easement in gross has no such limitations and
therefore, courts have attempted to prevent the burden on the servient tenement from
increasing beyond what was intended by the original parties.
• Easements in Gross
o Common Law: Easements in gross are not assignable.
o Modern Majority Rule: Looks to the parties’ intent and whether it is for commercial vs.
private use, where easements in gross for commercial purposes are usually transferable.
 About the only easements in gross that are not assignable are recreational
easements.
 Do not want to burden the servient land beyond the original contemplation of
the parties.
o Devisable:
 Common Law: Easements in gross are not devisable

 Modern Majority: Devisable unless contrary to parties’ intent.

• If it would overly burden the servient estate then it’s not divisible.

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Miller v. Lutheran Conference and Camp Association

MINORITY: When two or more persons own an easement in gross, the easement must be used as “one
stock,” meaning that any actions involving the easement must be made with the common consent of all
the owners.

• Rufus Miller’s executors licensed the Association to use the lake without referring to Frank
Miller, who owned ¾’s of the interests in such rights.
• Modern Majority: Easements in gross may be divided unless contrary to the intent of the parties
creating the easement or unless the division unreasonably increases the burden on the servient
estate.
o On this view, the benefit of an easement in gross may be divided and utilized
independently by its holders, assuming that this is not contrary to the intent of the original
parties and that division would not place and unreasonable burden on the servient estate.

Scope of Easements
• Reasonable Development / Reasonable Use
o The holder of an easement or profit is entitled to use the servient estate in a manner that is
reasonably necessary for the enjoyment of the servitude. The manner, frequency, and
intensity of the use may change over time to take advantage of developments in
technology and to accommodate normal development of the dominant estate or enterprise
benefited by the servitude. Unless authorized by the terms of the servitude, the holder is
not entitled to cause unreasonable damage to the servient estate or interfere with its
enjoyment.

 Must determine whether the expansion of the use was reasonably foreseeable at
the time the easement was created.
• Location of an Easement
o Common Law: Once the location of an easement is fixed by the parties, it cannot be
changed by the servient owner without permission of the dominant owner.
o Modern Majority: The servient owner has the right to change the location of an
easement, at his expense, if the change does not significantly lessen the utility of the
easement, increase the burdens on the owner of the easement in its use and enjoyment, or
frustrate the purpose for which the easement was created.
• Duties of Servient Holder and Beneficiary of Easement

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 o Servient owner may use land however he wants as long as it does not interfere with the
easement.
o The dominant owner has the duty to repair or maintain the easement/
Brown v. Voss

An easement appurtenant to one parcel of land may not be extended by the owner of the dominant estate to
other parcels owned by him, which are not appurtenant to the easement.

• Δ of the servient property blocked off the π’s easement, when he extended the easements use to a
property that was not part of the original grant.
• If an easement is appurtenant to a particular parcel of land, any extension thereof to other parcels
is a misuse of the easement.
• Parties may seek money damages or injunctive relief.
o Injunctive relief is appropriate if there is actual and substantial injury sustained by the
person seeking the injunction.

Termination of Easements
• Release
o In writing (normally required) or oral release (estoppel)
• Expiration
• Defeasible Easements (Willard church case)
• End of Necessity
• Merger ( A single owner ends up owning both the dominant and servient properties)
• Estoppel (Servient owner relies on statement)
• Abandonment (Non use is not enough)
• Condemnation (Government by way of imminent domain)
• Prescription (Servient owner can retake if he wrongfully and physically prevents the easement
from being used for the prescriptive period)

Preseault v. United States

An easement is terminated by abandonment when nonuse is coupled with an act manifesting either a
present intent to relinquish the easement or a purpose inconsistent with its future existence.

• π sued government for taking over RR easement and converting into a trail path (RAILS TO
TRAILS)
• The scope of an easement may be adjusted in the face of changing times to serve the original
purpose, so long as the change is consistent with the terms of the original grant.

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 • This does not permit a change in use that’s not reasonably foreseeable at the time of establishment
of the easement.

Negative Easements
• A negative easement is the right of the dominant owner to stop the servient owner from doing
something on the servient land.
• Common Law Only Recognized 4:
o Blocking your windows
o Interfering with airflow to your land
o Removing the support of your building (usually by removing a support wall)
o Interfering with the flow of water in an artificial stream
• American Additions to the Common Law
o Easements of Unobstructed View
o Solar Easements
o Easements to Preserve Skiing in Historical Areas
o Conservation Easements

Covenants That Run With the Land

Real Covenants

A real covenant is a promise respecting the use of land that runs with the land at law.
• Affirmative: Requires you to do something.
• Restrictive: Requires you not to do something.
• CREATION
o Writing is always required signed by the covenantor.
• RUNNING OF THE BURDEN
o Intent
o Notice (Recording Statutes)
o Touch and Concern the Land

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 o Horizontal Privity
 Privity of estates between the original covenanting parties.

 Common Law: only landlord tenant relationship could satisfy.

 Modern: May be satisfied with grantor/grantee or mortgagor/mortgagee

o Strict Vertical Privity
 Privity of estate between one of the covenanting parties and a successor in
interest.
 Successor must have estate of same duration for burden to run. (Must have
succeeded to the original parties’ estates in the land in question…AP would not
succeed to because he takes a new title).
• RUNNING OF THE BENEFIT
o Intent
o Touch and Concern the land
o Relaxed Vertical Privity
 The promise is enforceable by a person who succeeds to the original promisee’s
estate or to a lesser interest carved out of that estate.
• REMEDY
o Only Damages

Equitable Servitudes
An equitable servitude is a covenant regarding the use of land that is enforceable in equity against
subsequent possessors, even if the covenant itself is not enforceable at law. Unlike a real covenant, which
attaches to an estate in land, an equitable servitude sinks its tentacles into the soil, burdening the land itself
and not the estate.
• CREATION
o Writing usually required
o May rise through implication (Residential Subdivision)
• RUNNING OF THE BURDEN
o Intent
 The parties intend the promise to run.
o Notice (Recording Statutes)

 Subsequent purchaser has actual or constructive notice. (Do not have to give
consideration)
o Touch and Concern the Land

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 • RUNNING OF THE BENEFIT
o Intent
o Touch and Concern the Land
• REMEDY
o Only Injunctive Relief
 Note: you can always sell your injunction.

THE BIRTH OF THE EQUITABLE SERVITUDE

Tulk v. Mochay

A covenant will be enforceable in equity against a successor in interest who purchases land with notice of
the covenant.

• Tulk had a covenant which required maintenance of a garden square and Moxhay, through
several conveyances, purchased with notice and wanted to alter the character of the square
garden.
• Nothing could be more inequitable than the original purchaser being able to sell the property the
next day for a greater price, in consideration of the assignee being allowed to escape from the
liability which he had himself undertaken.

Creation of Covenants

BY IMPLICATION
Sanborn v. McLean

MAJORITY: An equitable servitude can be implied on a lot, even when the servitude is not created by a
written instrument, if there is a scheme for development of a residential subdivision and the purchaser of
the lot has notice of it.

• Δ tried to build a gas station on their lot in a residential district, but were enjoined from doing so
by their neighbors even when they had no restriction in their deed.

• Considering the character of use made of all the lots open to a view of Δ when he purchased, he
was put on inquiry notice.
• Record Notice if there is a common grantor and you must look at all the deeds deeded out by the
common grantor.

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 • MINORITY: Negative Equitable Servitudes must be created by written instrument that expressly
mentions the restricted lot.

Validity and Enforcement of Covenants

Neponsit Property Owners Association v. Emigrant Industrial Savings Bank

An affirmative covenant to pay money for improvements or maintenance done in connection with, but not
upon the land which is to be subject to the burden of the covenant does touch and concern the land, and a
homeowners’ association, as the agent of the actual owners of the property, can rightfully enforce the
covenant.

• Emigrant Bank took title to land in a HOA, previously deed by Neponist Association, who was
attempting to foreclose on a lien for failure to pay dues.
• TOUCH AND CONCERN
o Traditional View: affects physical use and enjoyment of land.
o Modern View: Substantially affects the value of the legal interests in the property.
 Does the covenant impose, on the one had, a burden upon an interest in land,
which on the other hand increases the value of a different interest in the same or
related land.
o Covenants restricting the use of land have almost always been held to touch and concern
land. These negative covenants directly affect the uses to which land can be put and
substantially affect its value.
o Courts have been wary of enforcing affirmative covenants because
 They are reluctant to issue orders to perform a series of acts requiring continuing
judicial supervision.
 Enforcing an affirmative covenant, which requires the covenantor to maintain
property or pay money, may impose a large liability in a successor.
 It resembles perpetual rent.
• Vertical Privity on the Benefit Side for HOA’s.

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 o Neoponsit Realty Company had established the Property Owner’s Association as the
agent to represent the property owners whose property was reciprocally benefitted and
burdened by the covenant.
o Most jurisdictions do not require vertical privity and π’s have standing to enforce on the
basis of third party beneficiary doctrine of contracts.

Caullett v. Stanley Stilwell & Sons

When the burden is placed upon the land, and the benefit is personal to one of the parties and does not
extend to his other lands, the burden is generally held not to run with the land.

• A developer deeded a lot to Caullett and the deed contained a covenant giving the developer the
right to build the first structure.
• A restrictive covenant does not run with the land at law or inequity when the benefit it creates
would not touch and concern the land.

Note: A defeasible fee differs from a servitude in that the remedy for its breach is forfeiture, whereas the
remedy for breach of a servitude is damages, injunction, or enforcement of a lien.

A servitude is valid unless it is illegal or unconstitutional or violates public policy.

• A servitude that is arbitrary, spiteful, or capricious.
• A servitude that unreasonably burdens a fundamental constitutional right
• A servitude that imposes an unreasonable restraint on alienation
• A servitude that imposes an unreasonable restraint on trade or competition
• A servitude that is unconscionable.

Scope of Covenants

Hill v. Community of Damien of Molokai

Ambiguous restrictive covenants should be construed in favor of the free use and enjoyment of property
and against restrictions; restrictive covenants with a discriminatory effect violate the Fair Housing Act.

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 • Residents of a planned community sued to enjoin an AIDS group home from occupying one of the
houses, based on a “Single family Residence” clause in the restrictive covenant.
• Rules of Construction:
o If ambiguous, resolve the restrictive covenant in favor of free enjoyment of the property
and against restrictions.
o Do not read restrictions on the use and enjoyment of the land into the covenant by
implication (must be written).
o Interpret the covenant reasonably, but strictly, so as to not create an illogical, unnatural,
or strained construction.
o Give words in the restrictive covenant their ordinary and intended meaning.
• Violations of FHA
o Discriminatory Intent
o Disparate Impact
o Failure to Provide Reasonable Accommodation

Shelley v. Kramer

Judicial enforcement of a restrictive covenant based on race constitutes discriminatory state action, and is
thus forbidden by the equal protection clause of the 14th Amendment of the Constitution.

• Black people were buying a house, unaware of a racially based restrictive covenant on the street
and the whites tried to enforce the covenant in court.
• “Signaling”: A covenant may have an inferred meaning without overtly stating it.

Termination of Covenants
• Changed Conditions
• Relative Hardship
• Expiration
• Defeasibility
• Release
o May be modified or terminated with the consent of all interested parties and in some
cases without unanimous consent.

• Abandonment (Cannot abandon land with perfect title)

• Merger
• Estoppel
• Prescription

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 • Condemnation
• Note: Foreclosure will not remove a covenant.

Western Land Co. v. Truskolaski

A restrictive covenant establishing a residential subdivision cannot be terminated as long as the residential
character of the subdivision has not been adversely affected by the surrounding are, and it is of real and
substantial value to the landowners within the subdivision.

• Homeowners with restrictive covenant want to prevent a shopping center from being built in their
subdivision, even though the surrounding area has become more crowded and more commercial.
• As long as the original purpose of the covenants can still be accomplished and substantial benefit
will inure to the restricted are by their enforcement, the covenants stand even though the subject
property has a greater value if used for other purposes.
• Zoning regulations do not modify or terminate a covenant unless they make compliance with the
servitude illegal.
• In order for community violations to constitute abandonment, they must be so general as to
frustrate the original purpose of the agreement.

Rick v. West

A landowner in a subdivision under a restrictive covenant has the right to insist upon adherence to the
covenant even when the other owners consent to its release.

• West(holdout) bought land under a restrictive covenant, and refused to release the covenant when
Rick attempted to sell similar land to a hospital.
• The court can enforce by damages or injunctive relief.

Pocono Springs Civic Association v. MacKenzie

A covenant running with the land cannot be terminated by abandonment when the owner still holds title in
fee simple.

• The owners of a vacant lot in a housing development attempted to abandon the lot in order to
avoid having to pay association fees.
• A landowner cannot abandon property to which he holds perfect title.
• A covenant to pay money or provide services in exchange for services or facilities provided 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.

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Common Interest Communities
• Each unit in a condominium is owned separately in fee simple by an individual owner. The
exterior walls, the land beneath, the hallways, and other common areas are owned by the unit
owners as tenants in common.

Nahrstedt v. Lakeside Village Condominium

In determining whether a restriction is unreasonable, the focus is on the restriction’s effect on the project as
a whole, not on the individual homeowner.

• π wanted to have her cats live with her in her condo, but a restrictive covenant says no.

• When a restriction is contained in the declaration of the common interest development and is
recorded with the county recorder, the restriction is presumed to be reasonable and will be
enforced uniformly against all residents of the common interest development unless the restriction
is arbitrary, violates a fundamental public policy, or imposes a burden on the use of affected land
that far outweighs any benefit.

Direct restraint on alienability: Is closely scrutinized by the courts and is valid if reasonable
Indirect restraint on alienability: Is invalid only if it lacks rational justification, a less demanding
requirement than reasonableness.

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