Property_Mann_Fall 2008_H

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					                                                                          Property – Prof. Mann – Fall 2008

Table of Contents

I.     Syllabus .................................................................................................................................................................................................. 3
II.    Rule of Capture .................................................................................................................................................................................... 4
    A.    Wild Animals- Pierson v. Post ..................................................................................................................................................... 4
    B.    Rights to Oil & Gas- Hammonds v. Central KY ..................................................................................................................... 5
III. Adverse Possession ............................................................................................................................................................................. 5
    A.    Theory and Elements- Van Valkenburgh v. Lutz .................................................................................................................... 5
    B.    Privity and Tacking- Howard v. Kunto ...................................................................................................................................... 7
IV. Landlord-Tenant Law ......................................................................................................................................................................... 9
    A.    Leasehold Estates- Garner v. Gerrish ........................................................................................................................................ 9
    B.    Delivery of Possession- Hannan v. Dusch ................................................................................................................................ 9
    C.    Subleases and Assignments ........................................................................................................................................................ 10
       1. Ernst v. Conditt ........................................................................................................................................................................ 10
       2. Kendall v. Ernest Pestana ....................................................................................................................................................... 12
    D. Tenant in Possession Who Defaults- Berg v. Wiley .............................................................................................................. 13
    E.    Tenant Who Abandons Possession Who Defaults- Sommer v. Kridel ............................................................................. 14
    F.    Quiet Enjoyment & Constructive Eviction- Reste Realty v. Cooper ................................................................................. 15
    G. Implied Warranty of Habitability- Hilder v. St. Peter ............................................................................................................ 16
V.     Land Transactions ............................................................................................................................................................................. 17
    A.    The Contract of Sale .................................................................................................................................................................... 17
       1. Statute of Frauds- Hickey v. Green........................................................................................................................................... 17
       2. Marketable Title- Lohmeyer v. Bower ........................................................................................................................................ 18
       3. Duty to Disclose Defects ........................................................................................................................................................ 19
          a) Stambovsky v. Ackley (Non-Physical Defect)................................................................................................................ 19
          b)        Johnson v. Davis (Physical Defects) ........................................................................................................................... 20
    B.    The Deed ....................................................................................................................................................................................... 21
       1. Warranties of Title .................................................................................................................................................................... 21
          a) Brown v. Lober- Present and Future Warranties........................................................................................................... 21
          b)        Frimberger v. Anzelotti- Latent Violations of Regulations .................................................................................... 22
          c) Rockafellor v. Gray- Covenant of Seisin ......................................................................................................................... 23
       2. Delivery ...................................................................................................................................................................................... 25
          a) Sweeney v. Sweeney- Valid Delivery and Conditions ................................................................................................... 25
          b)        Rosengrant v. Rosengrant- Valid Delivery................................................................................................................. 26
    C.    Mortgages ...................................................................................................................................................................................... 26
       1. Foreclosure & Duty to Mitigate Loss- Murphy v. Fin. Dev. Corp. ................................................................................. 26
          a) Installment Land Contract- Bean v. Walker ................................................................................................................... 28
VI. Recording of Title .............................................................................................................................................................................. 29
    A.    Recording Statutes (pp. 580-583) .............................................................................................................................................. 29
    B.    Indices- Luthi v. Evans ............................................................................................................................................................... 29
    C.    Chain of Title Problems- Guillette v. Daly Dry Wall ............................................................................................................ 30
VII.      Nuisance......................................................................................................................................................................................... 31
    A.    Basic Elements- Morgan v. High Penn Oil Co. ...................................................................................................................... 31
    B.    Remedies for Nuisance ............................................................................................................................................................... 32
       1. Payment of Damages- Boomer v. Atlantic Cement Co..................................................................................................... 32
       2. Compensating the Enjoined Nuisance- Spur v. Del Webb .............................................................................................. 33
VIII.     Servitudes ....................................................................................................................................................................................... 34
    A.    Background ................................................................................................................................................................................... 34
    B.    Easements ...................................................................................................................................................................................... 34
       1. Reserving an Interest to a 3rd Party- Willard v. First Church of Christ, Scientist ......................................................... 34
       2. Easements by Estoppel- Holbrook v. Taylor ...................................................................................................................... 35
       3. Implied Easement- Van Sandt v. Royster ............................................................................................................................ 36
    C.    Covenants ...................................................................................................................................................................................... 37
       1. Basic Principles ......................................................................................................................................................................... 37
       2. Equitable Servitudes- Tulk v. Moxhay .................................................................................................................................. 37


                                                                                                         1
          3.Real Covenants- Sanborn v. McLean .................................................................................................................................... 38
          4.Validity and Enforcement- Neponsit Prop. Owners Assoc. v. Emigrant Bank ........................................................... 39
          5.Racially Restrictive Covenants- Shelley v. Kraemer ........................................................................................................... 40
          6.Termination ............................................................................................................................................................................... 40
         a) Refusal to Terminate for Economic Gain- Western Land Co. v. Truskolaski ......................................................... 40
         b)        The Single-Owner Veto- Rick v. West ....................................................................................................................... 41
      7. Common Interest Communities- Nahrstedt v. Lakeside Village ..................................................................................... 42
      8. Common Interest Communities as Quasi-Governments ................................................................................................. 43
IX. Zoning ................................................................................................................................................................................................. 43
   A.    Historical Background- Village of Euclid v. Ambler Realty ................................................................................................. 43
   B.    Variances- Commons v. Westwood Zoning Board ............................................................................................................... 44
   C.    Aesthetic Regulation- Stoyanoff v. Berkeley ........................................................................................................................... 45
   D. Exclusionary Zoning- Southern Burlington NAACP v. Mt Laurel .................................................................................... 45
X. Additional Notes ................................................................................................................................................................................ 46
   A.    Possessory Estates & Future Interests ..................................................................................................................................... 46
      1. Historical Overview ................................................................................................................................................................. 46
      2. Future Interests ......................................................................................................................................................................... 48
   B.    Leasehold Estates ......................................................................................................................................................................... 50
   C.    Residential Real Estate Transactions ........................................................................................................................................ 51
   D. Real Estate Contracts .................................................................................................................................................................. 52
   E.    Mortgages ...................................................................................................................................................................................... 52
   F.    Servitudes ....................................................................................................................................................................................... 53
   G. Common Interest Communities ................................................................................................................................................ 54
   H. Zoning ............................................................................................................................................................................................ 54
   Problems ................................................................................................................................................................................................... 55




                                                                                                        2
I.         Syllabus
     1.    Rule of Capture – Wild Animals: Pierson v. Post (09/03, pp. 17-21)
     2.    Rule of Capture – Rights to Oil and Gas: Hammonds v. Central Kentucky Natural Gas Co (09/04-09/05, handout)
     3.    Adverse Possession – Theory and Elements: Van Valkenburgh v. Lutz (09/05-09/11, pp. 115-124)
                a. Common Law Elements: Compare note 8, p. 113 with note 1, p. 124 (09/10)
                b. Mistaken Boundaries: Note 3, pp. 134-135 (9/11-9/12(1))
                c. Color of Title; Constructed Possession vs. Actual Possession: Note 1, p. 130 (09/12(2))
     4.    Adverse Possession – Privity and Tacking: Howard v. Kunto (09/12(2), pp. 136-141)
                a. Tacking: Problems 1-3, p. 142 (09/12(2))
     5.    Landlord-Tenant Law – Leasehold Estates: Garner v. Gerrish (09/18, pp. 363-368)
                a. Lease Background (09/18, pp. 373-376)
     6.    Landlord-Tenant Law – Delivery of Possession: Hannan v. Dusch (09/19, pp. 384-387)
     7.    Landlord-Tenant Law – Subleases and Assignments: Ernst v. Conditt (09/19-09/24, pp. 388-393)
     8.    Landlord-Tenant Law – Subleases and Assignments: Kendall v. Ernest Pestana (09/24-09/25), pp. 395-400)
     9.    Landlord-Tenant Law – The Tenant (in Possession) Who Defaults: Berg v. Wiley (09/25, pp. 403-410)
     10.   Landlord-Tenant Law – The Tenant (Who Has Abandoned Possession) Who Defaults: Sommer v. Kridel (09/26, pp.
           410-421)
     11.   Landlord-Tenant Law – Quiet Enjoyment/Constructive Eviction: Reste Realty v. Cooper (09/26, pp. 421-430)
     12.   Landlord-Tenant Law – Implied Warranty of Habitability: Hilder v. St. Peter (10/01-10/02, pp. 431-439)
     13.   Land Transactions – Notes on Real Estate Brokers (pp. 466-472)
     14.   Land Transactions – The Contract of Sale – The Statute of Frauds: Hickey v. Green (10/08, pp. 472-477)
     15.   Land Transactions – The Contract of Sale – Marketable Title: Lohmeyer v. Bower (10/08-10/09, pp. 479-484)
     16.   Land Transactions – The Contract of Sale – Duty to Disclose Defects: Stambovsky v. Ackley (10/09-10/10, pp. 484-
           488)
     17.   Land Transactions – The Contract of Sale – Duty to Disclose Defects: Johnson v. Davis (10/10, pp. 488-494)
     18.   Land Transactions – The Deed – Warranties of Title: Brown v. Lober (10/10, pp. 513-521)
     19.   Land Transactions – The Deed – Warranties of Title: Frimberger v. Anzellotti (10/15, pp. 521-526)
     20.   Land Transactions – The Deed – Warranties of Title: Rockafellor v. Gray (10/15-10/16, pp. 526-532)
     21.   Land Transactions – The Deed – Delivery: Sweeney v. Sweeney (10/16, pp. 532-536)
     22.   Land Transactions – The Deed – Delivery: Rosengrant v. Rosengrant (10/16, pp. 536-541)
     23.   Land Transactions – The Mortgage – Background (10/17-10/29, pp. 541-545)
     24.   Land Transactions – The Mortgage: Murphy v. Fin. Dev. Corp. (10/29-10/30, pp. 546-552)
     25.   Land Transactions – The Mortgage: Bean v. Walker (10/30, pp. 554-558)
     26.   Title Assurance – Recording System: Background and Problems (10/31-11/05)
                a. Background, pp. 559-565, 571-574 (not on exam)
                b. Types of Recording Acts & Problems 1-3, pp. 580-583
     27.   Title Assurance – Recording System – Indexes: Luthi v. Evans (11/05, pp. 565-571)
     28.   Title Assurance – Recording System – Chain of Title Problems: Guillette v. Daly Dry Wall (11/05-11/06, pp. 592-
           594)
     29.   Nuisance: Morgan v. High Penn Oil Co. (11/06-11/07, pp. 639-641)
     30.   Nuisance – Remedies: Boomer v. Atlantic Cement Co. (11/07, pp. 649-653)
     31.   Nuisance – Remedies: Spur Industries v. Del Webb Development Co. (11/07-11/12, pp. 656-661)
     32.   Easements – Creation: Willard v. First Church of Christ, Scientist (11/12, pp. 667-677)
     33.   Easements – Creation: Holbrook v. Taylor (11/13, pp. 677-680)
     34.   Easements – Creation: Van Sandt v. Royster (11/13, pp. 682-688)
     35.   Easements & Covenants – Background (11/19, pp. 736-750)
     36.   Covenants – Covenants Enforceable in Equity – Equitable Servitudes: Tulk v. Moxhay (11/19, pp. 746-750)
     37.   Covenants – Creation: Sanborn v. McLean (11/20, pp. 750-755)
     38.   Covenants – Validity and Enforcement: Neponsit Prop. Owners’ Assoc. v. Emigrant Bank (11/21, pp. 755-766)
     39.   Covenants – Racially Restrictive: Shelly v. Kraemer (11/21, pp. 783-785)
     40.   Covenants – Termination: Western Land Co. v. Truskolaski (11/21, pp. 786-790)
     41.   Covenants – Termination: Rick v. West (11/21-12/3, pp. 790-791)
     42.   Common Interest Communities – Background (12/03-12/05, pp. 798-819)
     43.   Covenants – Common Interest Communities: Nahrstedt v. Lakeside Village Condos (12/04, pp. 800-809)
     44.   Zoning – Background (12/05-12/10, pp. 821-828)


                                                              3
      45. Zoning – Historical Background: Village of Euclid v. Ambler Realty Co. (12/10, pp. 828-836)
      46. Zoning – Variances: Commons v. Westwood Zoning Board of Adjustment (12/10-12/11, pp. 849-857)
      47. Zoning – Aesthetic Regulation: State ex el. Stoyanoff v. Berkeley (12/11, pp. 872-878)
      48. Zoning – Exclusionary Zoning: Southern Burlington County NAACP v. Township of Mt. Laurel, 1975 (12/11-12/12, pp.
          918-931)
      49. Eminent Domain: Kelo v. City of New London (12/12, pp. 945-952)
      FOLLOWED BY NOTES FROM OLD OUTLINE ON
      - POSSESSORY ESTATES AND FUTURE INTERESTS, LEASEHOLD ESTATES
      - RESIDENTIAL REAL ESTATE TRANSACTIONS
      - SAMPLE CONTRACTS
      - MORTGAGES
      - SERVITUDES
      - COMMON INTEREST COMMUNITIES
      - ZONING


II.         Rule of Capture
            A.        Wild Animals- Pierson v. Post
Pierson v. Post (NY 1805, 17)
                 a.   Case overview
                             i.  Supreme Court of New York (orig. NY state court)
                            ii.  Post and his dogs were hunting a fox on an unowned stretch of beach. Pierson, aware of
                                 Post‘s pursuit, killed the fox and took it.
                          iii.   Post won, Pierson appeals. Judge reverses in favor of Pierson.
                          iv.    Post did not deprive it of natural liberty and bring within certain control.
                 b.   Rule of capture (―A person who first captures resources is entitled to the resources‖)
                             i.  Question: Does mere pursuit of a wild animal give one a right to, or property in, that animal?
                                 What acts amount to occupancy / right to wild animals?
                           ii.   Answer: Mere pursuit gives no legal right. Wild animal becomes the property of the
                                 person who is in corporeal possession of it, or who mortally wounds it and continues
                                 to pursue it, or who captures it in a net or trap (and manifesting clear intent to return).
                                 (i.e., capture = possession) (Note: Post’s case focuses on his right rather than
                                 Pierson’s wrong)
                          iii.   Reasoning: Rule promotes certainty and order (more clear-cut and thus easier to enforce than
                                 ―just pursuit‖). Wounding or trapping provision mitigates possible discouragement of
                                 hunting.
                          iv.    Dissent: Rule is ‗hostem humani generis‘ and instead should promote killing as many foxes as
                                 possible. Pursuit should be enough as long as the pursuer has a reasonable prospect of
                                 capture. So, for purposes of rule of capture, capture = possession or reasonable prospect
                                 thereof.
                 c.   Related notes:
                             i.  Issue of ownership right based on location (ratione soli): When an animal is on your land,
                                 you have a greater right to it than anyone else, because you can prevent people from taking it
                                 off of your land (otherwise trespass). Yet the only right you have in the animal itself is the
                                 opportunity to reduce it to your possession by killing or trapping it.
                            ii.  Difference between actual possession and constructive possession
                                    1. Actual possession: having something in your corporeal possession / full physical control
                                    2. Constructive possession: having the right to possess something, eg. trapping fox in net, keys
                                         to car (measure of control).
                          iii.   Why can possession confer a property right
                                    1. Possession lends control
                                    2. Possession requires an investment of industry/labor/time
                                    3. Order of possession / prior possession helps to sort out rival claims (first-in-time rule)




                                                                  4
         B.        Rights to Oil & Gas- Hammonds v. Central KY
Hammonds v. Central KY Natural Gas Co. (KY 1934, handout)
              a.   Case overview
                         i.    Court of Appeals of Kentucky
                        ii.    Gas co. leased most of the mineral rights for a field of 15,000 acres. It extracted all the gas,
                               then pumped in gas from another field to store there. Hammonds sues company for use and
                               occupation of her land (trespass) without knowledge or consent by storing gas beneath
                               her property.
                       iii.    Gas company ―wins‖ below; judgment affirmed. (But now def can drill.)
              b.   Rights to oil and gas
                         i.    Question: Is gas that was once reduced to possession and ownership and then replaced in a
                               natural reservoir restored to its original wild and natural status such that it can be acquired by
                               someone else? YES.
                        ii.    Or, for the purposes of the issue in this case: Did the gas company trespass against Hammond
                               by pumping gas into the earth that went under Hammond‘s property? NO.
                       iii.    Answer: Once the gas is turned loose in the earth, anyone who previously possessed it
                               ceases to be the exclusive owner of it; it again becomes mineral ferae naturae.
                               (Previous cases had illogically treated gas like solid mineral rights.)
                       iv.     Good news for D: They win the case, no trespass, as the gas went under Hammond’s
                               property on its own, like a wild animal.
                        v.     Bad news for D: Since they no longer own the gas, Hammond can pump it
                       vi.     Reasoning: Oil and gas are analogous to wild animals due to their ―fugacious nature‖ /
                               migratory (water and oil also but less so). 1. They belong to a property owner only as long as
                               they lie beneath the property. 2. The owner of the property is granted the exclusive right of
                               seeking to appropriate the gas beneath the surface, but it is not the property of anyone until
                               actual possession by extraction. (provides incentive to drill as landowner can extract gas
                               under neighbor‘s land.) Extending the analogy, oil and gas must revert to their previous
                               unowned status if they ―escape‖ or are returned to nature, and dominion and ownership over
                               them must end once they resume this status as common property.
              c.   Related notes:
                         i.    Rule of capture creates can create economic (produce or lose) and physical (loss of pressure
                               from numerous wells) waste, so gas co‘s must lease large tracts and everyone has an individual
                               interest in pumping as much as possible as quickly as possible
                        ii.    Importance of regulations
                                  1. In order for the Rule of Capture to function, people cannot be allowed to negligently
                                       squander or to take all (hence, some limitations on quantity party can extract).
                                  2. Possible tragedy of the commons / collective action problem
                       iii.    Trespass is a crime against the possessor! Creates a cause of action for any person
                               who has a right to possession at the time of the trespass. (So, if the title-holder does
                               not have a right to possession (e.g. a landlord), they do not have a cause of action.
                               Only a rightful possessor, e.g. lessee, has a cause of action.)
                       iv.     Note that this case was apparently overruled in 1987.

III. Adverse Possession
         A.        Theory and Elements- Van Valkenburgh v. Lutz
Van Valkenburgh v. Lutz, NY 1952 (115)
            a. Case overview
                         i.  Court of Appeals of NY (orig. state district court)
                        ii.  Lutz family use an adjacent vacant lot to travel to and from their own property, and built a
                             structure and farmed vegetables on it. VV‘s buy the property from Yonkers; Lutz sues VV
                             for interfering with his right of way across the property; judge awarded Lutz the prescriptive
                             right / right of way. VV then sues Lutz to compel him to remove his property from VV‘s
                             land. Lutz alleges title by adverse possession.
                       iii.  Original court ruled in favor of Lutz; on appeal, reversed for VV.

                                                               5
b.   Adverse possession
            i.   Theory: If, within the number of years specified in the state statute of limitations, the owner
                 of the land does not take legal action to eject a possessor who claims adversely to the owner,
                 the owner is thereafter barred from bringing an action in trespass.
           ii.   NY Statute: The essential elements of proof of actual occupation, specifically ―open and
                 notorious possession,‖ which is necessary in order to claim adverse possession and which
                 must be sustained for 15 years, are that the premises (1) are protected by a substantial
                 enclosure, or (2) are usually cultivated or improved.
          iii.   Question: Given that the premises are not protected by an enclosure, does the evidence
                 support that the premises are cultivated or improved sufficiently to satisfy the statute?
          iv.    Answer: No. The proof fails to establish cultivation utilized whole of the premises
                 claimed. Also improvements are insufficient, and the possession was not hostile, i.e.
                 under claim of right (title).
           v.    Reasoning: Garden used small area. Improvements questionable (small shed/shack, portable
                 chicken coop, littering of salvaged materials, cast-off items, etc.). Moreover, does not involve
                 claim of title because (1) Lutz thought that, at least in part, his improvements were on his own
                 land, and (2) in the previous trial over prescriptive right, he conceded that VV‘s legal title
                 conferred actual ownership upon them.
          vi.    Dissenting opinion: The improvements are sufficient to prove occupation for the required
                 time period. Lutz intended to occupy the property as his own, so whether or not he actually
                 claimed title is irrelevant. Moreover, claim of title does not have to take into account the pl‘s
                 state of mind, only his actions, and Lutz‘s acts of dominion are sufficient. Purpose of the
                 statute is notice: that adverse possessor‘s actions are conspicuous enough so that real owner
                 has opportunity to claim legal title.
         vii.     Note: The dissenting opinion applies an objective test. The majority opinion applies, or at
                 least includes, a subjective test.
c.   Common Law Adverse Possession Standards (see n. 1, p. 124)
            i. (1) Actual entry giving exclusive possession
                    1. We want the adverse possessor to behave as though they had title- this means not
                         letting anyone else use it without permission. An attempt to keep others off the
                         property (without permission) is a good sign of this.
                    2. Non-exclusive use may get you an easement, but not title. (e.g., a path where lots of
                         people walk, but that is actually owned by someone else)
                    3. Easement= title-holder cannot prevent a person(s) from passing through and cannot
                         obstruct the passage, but the property still belongs to the title-holder.
                               a. Obstruction of an easement, or some other exclusive possession, for a
                                    prolonged period without protest from the easement-holder might cause the
                                    holder of the easement to lose it in an analogous manner to adverse
                                    possession
          ii. (2) Open and notorious
                    1. Intended to be the sort of behavior that would catch the attention of the property
                         owner- i.e. provide notice.
                    2. Adverse possession must be of the sort that the adverse possessor knew about or
                         should have known about
         iii. (3) Adverse and under claim of right
                    1. Adverse means as opposed to possession that is subordinate to the true owner- i.e., not
                         with the owners implied or explicit permission
                    2. In most jurisdictions, this can be either intentional (i.e., you know the land belongs to
                         someone else) or mistaken (i.e. you think it‘s yours). The key question: Are you acting
                         as though you are the proper owner?
         iv. (4) Continuous for statutory period
d.   Related notes:
            i.   Issue of when the claim of action began. Lutz would say when he began to make his
                 improvements; judge does not think cause of action leading to adverse possession began at all
                 (because improvements not sufficient to start the statute of limitations clock from running).




                                                 6
                        ii.    In some states, a trespasser must pay taxes on a property or have some paper title (color of
                               title), in order to claim adverse possession. If this were a requirement in NY, Lutz would
                               have had no claim.
                       iii.    Inconsistencies in the two judges‘ characterizations of the property. What does it mean to
                               ―improve‖ a property? Does it depend on consideration of context.? (What if lot was on
                               Upper East side of Manhattan?) (Also, 10 ft incursion in city is notice while 10 ft on ranch
                               might not be.)Subjective issue (i.e., improved in some way to the possessor) or objective issue
                               (increase in market value)?.
                       iv.     Note: If permission granted to use property, then possession is not adverse. To ensure
                               public use is prescriptive rather than adverse: 1. fence/obstacle, 2. make permission
                               explicit, 3. block continuity
                        v.     Permission can be explicit or implicit (acquiescence, but if so, can‘t be hostility)
                       vi.     Note: Standard for adverse possession with color of title is lower because the adverse
                               possessor has reasonable greater expectation that property is hers. See n. 11, pp. 118-119.
                               With color of title you can get the whole property, even if you only possess a little bit, but
                               without color of title you can only get what you are actually possessing.
                      vii.     Doctrines of 1. agreed boundaries, 2. acquiesence and 3. estoppel often apply to boundary
                               disputes (n. 3, pp.135).
                     viii.     Adversity today found in both intention and mistake. Rationale: eliminates perjury
                               incentive, encourages vigilance, settles titles.
              e.   Adverse Possession, Trespass, and Transfer of Title
                         i.    Note: No tolling (re-setting of SOL clock) if ownership transfers amidst hostile
                               possession. Buyer merely buys right to sue. For a separate and new cause of action,
                               new owner must take possession herself.
                        ii.    For a cause of action to ensue in trespass, the violator must be infringing on someone else‘s
                               possession. If you are not in possession of the land, you cannot be a victim of trespass.
                       iii.    If you buy land where there is some adverse possessor already there, then there is no trespass
                               against you unless you actually take possession.
                       iv.     So, all you‘re buying is a right to title conditional on possession- i.e. a right to a cause of action
                               against the adverse possessor for trespass.
                        v.     Essentially, the buyer is acquiring the previous owner‘s right of action against the adverse
                               possessor. If the buyer wants to sue the adverse possessor, he does it on the basis of the
                               previous owner‘s cause of action. The new owner does not have his own, because he has not
                               yet possessed the land in question.
              f.   Conflict between adverse possessors:
                         i. See problem 1, p. 130 and notes 09/12: If two adverse possessors are in conflict over land, the
                            one with actual possession trumps the one with constructed possession.
              g.   Quiet Title Suit
                         i. Normally, and as discussed above, adverse possession is used as an affirmative defense against a
                            trespass suit. But it can also be used affirmatively in a quiet title action.
                        ii. This is when the adverse possessor files suit against the proper owner to gain actual title

         B.        Privity and Tacking- Howard v. Kunto
Howard v. Kunto, WA 1970 (136)
              a. Overview
                       i.   Washington state court of appeals (orig. Wash. State court)
                      ii.   Several landowners held, unknowingly, the deeds to the property immediately west of their
                            own instead of to their own property. Howard acquired the deed to the Kunto property and
                            sued to quiet title. Trial court denied Kunto‘s claim of adverse possession on two counts (see
                            below). Reversed on appeal, giving Kunto quiet title action.
              b. Adverse possession
                       i.   Question: (a) Is a claim of adverse possession defeated because the physical use of the
                            premises is restricted to seasonal occupancy? (b) Tacking: May a person who receives
                            record title to tract A under the mistaken belief that he has title to tract B and who
                            subsequently occupies tract B use the periods of possession of tract B by his predecessors
                            (who also had title to tract A) for purposes of establishing title to tract B by adverse


                                                                 7
                              possession? (Ie. this is not a case of land thought to be included which is omitted.) (i.e., does
                              the SoL on adverse possession keep running despite transfers of ownership?)
                        ii.   Answer: (a) No. Occupancy during the summer months for more than the specified
                              limitations period (together with continued existence of improvements to the land)
                              constitutes ―uninterrupted‖ possession within the rule if occupied during time
                              capable of use or during which use was normal (i.e., for a summer home). (b) Yes.
                              Where several successive purchasers received record title to tract A under the
                              mistaken belief that they were acquiring tract B, and where possession of tract B is
                              transferred/occupied in continuous manner for more than the limitations period by
                              successive occupants, there is sufficient privity of estate to permit tacking and thus
                              establish adverse possession as a matter of law.
                       iii.   Reasoning: (a) The requisite possession (in the continuity of possession requirement) requires
                              such possession ―as ordinarily marks the conduct of owners in general in
                              holding/managing/caring for property of like nature and condition.‖ (b) The deed running
                              between the parties purporting to transfer land possessed traditionally furnishes the privity of
                              estate. The requirement of privity is no more than judicial recognition of the need for
                              some reasonable connection between successive occupants of real property so as to
                              raise their claim of right above the status of trespasser, and such reasonable
                              connection exists in this case. If this privity exists, then the SoL on adverse possession
                              keeps running.
              c.   Related notes:
                       iv.    Disability exceptions to SoL: if a person entitled to bring action is, at time when cause of
                              action accrues, a minor, unsound mind or imprisoned, they can bring action within ten years
                              after disability is removed. (p. 144)
                        v.    Before the statute of limitations bars the true owner, the adverse possessor has an interest—
                              ―possession‖—which he can transfer to another, as in this case. But before the expiration of
                              the statutory period, an adverse possessor has no interest in the property valid against the true
                              owner, who may retake possession at any time.
                       vi.    To tack onto a preceding possession, there must be privity of estate between the two
                              possessors. Privity of estate means that a possessor voluntarily transferred to a subsequent
                              possessor an estate in land. (no privity in an ousting situation.) Tacking by adverse possessor
                              is allowed if original adverse possessor voluntarily passes property (thus privity) because
                              adverse possession rewards ownership behavior. But series of adverse possessors do not have
                              privity.
              d.   Problems on p. 142: Adverse Posession and Life-Estates
                         i. Problem 1:
                                 1. If one adverse possessor is thrown out by force by another adverse possessor, there is
                                       no privity and the SoL resets with the new adverse possessor
                                 2. If one adverse possessor is thrown out by force by another adverse possessor, but the
                                       original adverse possessor returns with police or takes some other action and regains
                                       possession, then his SoL keeps running from his original possession, because he is
                                       acting like an owner.
                                 3. If one adverse possessor abandons, and then another adverse possessor enters, but
                                       without agreement or formal transfer, then there is no privity and the SoL resets
                        ii. Problem 2: If you become the owner of a piece of land by adverse possession from someone
                            who only had a life estate, then you only have ownership of that land until that person dies.
                            Then, the true title-holder has a cause of action for trespass against you once again, until the SoL
                            runs out.
                       iii. Problem 3: Same as 2.

*** You can only acquire by purchase or adverse possession what the prior owner had. So, if they only had a life estate, then
that‘s all you can get. Or, if they had a really long lease, then you only have the land until their lease runs out and the land
goes back to the title-holder. ***




                                                               8
IV.      Landlord-Tenant Law
         A.        Leasehold Estates- Garner v. Gerrish
Garner v. Gerrish, NY 1984 (365)
               d. Overview
                          i.  New York Court of Appeals (orig. NY state court)
                         ii.  Donovan leased a house to Gerrish. The lease says that Gerrish can end the agreement when
                              he chooses. Donovan dies and the executor of his estate (Garner) sues to evict Gerrish. The
                              lower courts found in favor of Garner, but the higher court reverses and finds in favor of
                              Gerrish (the tenant).
               e. Leasehold estates (see details below on term of years, periodic tenancy and tenancy at will)
                          i.  Question: Does a lease which grants the tenant the right to terminate the agreement at a date
                              of his choice create a determinable life tenancy on behalf of the tenant or merely establish a
                              tenancy at will?
                         ii.  Answer: A lease granting to the tenant the right to terminate, and which does not
                              reserve to the landlord a similar right, creates a determinable life tenancy.
                        iii.  Reasoning: It must be determined whether the lease grants the landlord, in addition to the
                              tenant, a right of termination. K does not expressly do so. Also, the lease is not
                              indeterminate (like a tenancy at will); it will terminate, at the latest, upon the death of the
                              lessee. Even though it was probably not the intent of the contracting parties to create a life
                              estate, the lease provides a unilateral right to terminate only for the tenant, and no end to the
                              lease is specified. (At common law, no life estate/lease without livery of seisin [otherwise, at
                              will]; this is antiquated, so court can infer life estate here.)
               f. Related notes:
                          i.  Since Gerrish has a strong interest in a particular outcome, and since Donovan is dead, the
                              court has no choice but to assume that the terms of the agreement accurately represent the
                              express intent of the parties. Yet language of the lease suggests that the parties did not know
                              what they were doing (i.e. misuse of ―quiet enjoyment‖). The parties probably did not know
                              if they were trying to create a determinable life tenancy or a tenancy at will.
                         ii.  When ambiguity, the default interpretation is usually tenancy at will, i.e. that either party can
                              terminate at will. But here, that default was contradicted by the words of the lease, so the
                              court went with the lease.
                        iii.  Note: A Lease is a conveyance that creates property rights and also a contract, creating
                              contract rights. Contract prism in favor today. Implications = 1. mutually dependent
                              obligations, 2. liability for rent, 3. mitigation of damages in case of wrongful abandonment, 4.
                              warranty of quality, and 5. courts policing the bargain. (See pp. 373-376)
                        iv.   Quiet Enjoyment= tenant will not be disturbed by anyone claiming a superior right to the
                              property (i.e., a right to exclusive use)
               g. Three Types of Leases (pp. 363-365)
                          i.  Term of Years: lasts for fixed period of time, or clearly calculable period of time (e.g., 1 year)
                         ii.  Periodic: lasts for some period of fixed duration that renews for succeeding periods until
                              either landlord or tenant no longer wants to renew (e.g., month-to-month)
                        iii.  Tenancy at Will: no fixed period, can be terminated at any time by either landlord or tenant
                        iv.   *** If a lease does not fit into either the first or second type, then treat it like the third type
                              (i.e. at will). ***


         B.        Delivery of Possession- Hannan v. Dusch
Hannan v. Dusch, VA 1930 (384)
             a. Overview
                       i.   Virginia Supreme Court of Appeals (orig. VA state court)
                      ii.   Dusch leases Hannan a piece of real estate. When Hannan attempts to move in, he finds
                            previous tenant living there. He sues Dusch for failing to deliver possession of the property.
                            Dusch prevails.



                                                                9
              b.   Delivery of possession
                         i.    Question: Without an express covenant to deliver possession, is there an implied
                               covenant by the lessor to deliver possession to the lessee?
                        ii.    Answer: No. According to the American rule, which the Court affirms, the lessee has
                               legal right to possession, but no duty is placed upon the lessor as against wrongdoers
                               (to deliver actual possession).
                       iii.    Reasoning: The English rule says there is an implied covenant requiring the lessor to put the
                               lessee in possession on the first day (only), but the American rule does it must be express. The
                               English rule suggests that the burden should be on the lessor because he has better knowledge
                               about what is going on with the property. American rule is that a tenant must protect himself
                               from trespassers; the obligation of the landlord is only to put in legal possession.
              c.   Related notes:
                         i.    Should it matter whether the lease is residential or commercial?
                        ii.     ―Charging‖ knowledge to the landlord: If a lease is signed while a tenant is currently holding
                               over, that might be knowledge that should be charged to the landlord.
                       iii.    Note presumptions re information access (and access to legal resources) in each rule about the
                               relative bargaining power of the two parties. Which rule should we favor, one that favors the
                               tenant or one that favors the landlord?


         C.        Subleases and Assignments
                   1.        Ernst v. Conditt
Ernst v. Conditt, TN 1964 (388)
               a. Overview
                          i.    Tennessee Appeals Court (orig. Tenn. circuit court)
                         ii.    Ernst leases land to Rogers for a year. Rogers takes possession of the property and constructs
                                a race track on it. Shortly thereafter, he sells his go-cart business to Conditt. In so doing, the
                                three parties meet to re-negotiate Rogers‘ lease. The new lease states that the premises are
                                ―sublet‖ to Conditt, but that the original lessee, Rogers, ―will remain personally liable‖ for
                                performing the terms and conditions of the original lease. The next year, Ernst sues Conditt
                                for not paying rent. Conditt says he is not liable because he has a sublet. The court rules,
                                however, that the lease is actually an assignment, so Conditt is liable to Ernst.
               b. Subleases and assignments
                          i.    Question: Is the transfer of the leasehold interest in the premises from Rogers to Conditt an
                                assignment of the lease or a sublease? If an assignment, then Conditt is liable to Ernst for
                                the rent. If it is a sublease, then Rogers is liable to Ernst for the rent.
                         ii.    Answer: Under either the common law or modern rule, the agreement between Rogers
                                and Conditt is an assignment of the lease. Conditt is liable to the lessors for rent
                                payment.
                        iii.    Reasoning: It matters whether the transfer is a sublet or an assignment because if it is a sublet,
                                there is no privity of estate between plaintiff and defendant (and thus defendant is not
                                liable), but if it is an assignment, there is privity of estate (and defendant is liable). There are
                                two general rules as to the distinction:
                                   1. Assignment conveys the whole term, leaving no interest nor reversionary
                                         interest in the grantor or assignor. In a sublease, tenant grants an interest in the
                                         leased premises less than his own, reserving a reversionary interest in the term.
                                   2. The determination of whether the original tenant has a reversionary interest is based on
                                         the intention of the parties: Based on the lease and the circumstances, did the original
                                         tenant intend to reserve for himself an interest or rights in the property? Here: No. So
                                         it is an assignment. Evidence:
                                               a. Whole property was transferred
                                               b. All interests in property were transferred
                                               c. Property was transferred for the duration of the original lease
                             That Rogers expressly agreed to remain liable to complainants did not create a reversionary
                             interest. He parted with his entire interest in the property. Context surrounding the execution

                                                                10
               of K also suggests that the parties intended an assignment rather than a lease. So, clear intent
               can trump words of the K.
                    3. Note, however, that even if Conditt did not have privity of estate due to the
                          assignment, he would still be liable due to his privity of K. He made promises in the K
                          to pay, because Conditt was an intended 3rd party beneficiary of the K, and so can sue
                          on it. (i.e., you only need one or the other (p/e or p/c) to be liable.)
c.   Related notes:
            i.   A lessee who assigns a lease without permission is breaching the contract by unilaterally
                 changing its terms. Lessee continues to be liable to the lessor unless the lease explicitly
                 releases him from liability. So, the terms of a lease, including the transfer of the lease,
                 cannot be changed unilaterally.
           ii.   Ernst could have sued Rogers as well as Conditt (for the above reason). This is not only
                 because Rogers promised to be liable in their agreement: even if Ernst had not put in the
                 contract that Rogers would be held liable, he would be liable anyway.
         iii.    To determine liability in a transfer or property case, we look for privity of estate
                 and/or privity of contract
         iv.     Privity of Estate= a mutual or successive relationship to the same right in property
                 (i.e. a reversionary interest).
           v.    Privity of Contract= a direct contractual relationship.
          vi.    Either privity of estate or privity of contract creates liability. Before the assignment:
                 Ernst and Rogers are in privity of contract and privity of estate. After the assignment: Ernst
                 and Rogers are in privity of contract, and Ernst and Conditt are in privity of estate. If a
                 sublease, there would be no privity of estate between Ernst and Conditt.
         vii.    See below for illustrations.
        viii.    Privity of estate: based on mutual relationship with same estate, any assignee of the tenant is
                 in privity of estate with the landlord and is liable on the covenants in the lease. Similarly, LL
                 is liable to the assignee on the LL‘s covenants. Parties in privity of estate have a LL and
                 tenant relationship.
                 Privity of contract: if there is privity of contract, obligations of K bind them regardless of
                 they are in privity of estate.
          ix.    Privity of K also creates an obligation for Conditt to pay rent. It is created by Conditt‘s
                 promise to perform the conditions of the amended lease. This promise was made to Rogers,
                 but for Ernst‘s benefit (Conditt will pay the rent to him). Ernst is an intended third party
                 beneficiary of the K between Rogers and Conditt, so there is privity of K.
           x.    Hypo: if we remove Conditt‘s ―promise to perform‖ from the lease and Conditt just accepts
                 an assignment. There would still be p/e between Ernst and Conditt. If Conditt then assigned
                 the lease to someone else, the p/e between Ernst and Conditt is destroyed, and Ernst can no
                 longer collect from Conditt anymore (no priv of K or priv of estate). BUT if the ―promise to
                 perform‖ language was still in the contract, Conditt could never escape liability by assigning
                 the lease to someone else—privity of K would still exist.
          xi.    In the instant case, Ernst can sue either Rogers or Conditt; both are primarily liable (one on
                 p/e, the other on p/c). So, you can have more than one person liable for the same piece of
                 land. (If he sues Rogers, Rogers can sue Conditt.)
         xii.    Privity of estate can only create duties that touch and concern the land: Even if Rogers
                 had promised Ernst to pay rent, pay repair costs, and perform childcare services, an
                 assignment by Rogers to Conditt with no no express promises would make Conditt liable for
                 rent, repair costs, etc., but NOT childcare costs. Ernst could sue Conditt for more rent
                 money to reflect on the value of childcare services, but Conditt could in turn sue Rogers.
                 Without express provisions, one can’t indiscriminately hang any liability on the p/c or
                 p/e hook.




                                                11
                   2.        Kendall v. Ernest Pestana
Kendall v. Ernest Pestana, Inc., CA 1985 (395)
               a. Overview
                            i.    Supreme Court of California (orig. CA state courts)
                           ii.    San Jose leased hangar space to Perlitch. Perlitch entered into a 25-year sublease with Bixler.
                                  Perlitch then assigned their interest to Pestana. After this, Bixler wanted to sell his business
                                  (and assign his sublease) to Kendall. Pestana would not accept Kendall and wanted to charge
                                  more money for rent. Kendall sued Pestana and the court found in Kendall‘s favor.
               b. Subleases and assignments
                            i.    Question: In the absence of a provision that consent will not be unreasonably withheld, may
                                  a lessor unreasonably and arbitrarily withhold consent to an assignment?
                           ii.    Answer: No. Where a commercial 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 assignee or the proposed use. Pestana had
                                  no reasonable objection.
                          iii.    Reasoning: Both 1. policy against restraints on alienability and the implied contractual 2.
                                  duty of ―good faith and fair dealing‖ militate in favor of adoption of this rule.
                                     1. The law favors free alienability of property in general. This alienability, though, can be
                                         restricted to protect the lessor‘s interests.
                                     2. There have been two rules on these restraints. The traditional, majority view has been
                                         that the lessor may arbitrarily refuse to approve a proposed assignee no matter how
                                         suitable. The minority rule is that the lessor‘s consent may be withheld only where the
                                         lessor has a commercially reasonable objection to the assignment.
                                     3. The court decides that the minority rule is best because of the lease’s dual nature as
                                         conveyance (of a leasehold interest) and as contract.
                                     4. Conveyance: In olden days, a lease was seen as a conveyance under which the rights
                                         of parties were determined by status, so that the landlord could do whatever he
                                         wanted. But, recent precedent argues that alienability is increasingly important and that
                                         unreasonable restraints on it are undesirable.
                                     5. Contract: Duty of ―good faith and fair dealing‖ inherent in every contract. A duty is
                                         imposed on a party with discretionary power to use such discretion fairly when it
                                         affects the rights of the other party. In olden days, a lease was not seen as a K, but now
                                         it is.
                                     6. The court concludes that on either interpretation (conveyance or K), Pestana had no
                                         legitimate reason to block the assignment.
                          iv.     The court rejects four justifications traditionally given for the majority (old) rule on
                                  conveyances:
                                     7. ―The lessor is under no obligation to look to anyone but the lessee for the rent‖ 
                                         undermined by many changes in common law.
                                     8. ―An approval clause is an unambiguous reservation of absolute discretion in the lessor
                                         over assignments of the lease‖  policy reasons
                                     9. ―Leases now in effect were prepared in reliance upon the majority viewpoint‖ 
                                         change is not sudden here and must be made possible
                                     10. ―The lessor has a right to realize the increased value of his property‖  lessor can
                                         profit after reversion
               c. Related notes:
                            i.    *** Note that this applies only to commercial leases, which require a standard of
                                  reasonableness for refusal to lease. Residential leases, especially in small owner-
                                  occupied buildings, have no reasonableness limitation. ***
                           ii.    Central issue: Who should benefit from increased value?
                          iii.    Commercial purposes of a long-term lease:
                                     1. Stability for LL
                                     2. T has enough time to reap benefits of investments
                          iv.     If Pestana and Kendall can‘t solve their disagreement, Bixler can‘t sell business. The policy
                                  of the court and common law is to favor alienability.



                                                                12
                        v.     Criteria for commercially reasonable standard: 1. financial responsibility of assignee, 2.
                               suitability of use, 3. legality of use, 4. need for alteration, and 5. nature of occupancy (factory,
                               clinic, etc.)
                       vi.     Hypo: shopping mall scenario with assignments of leases. The developer has a stake in
                               profitability because profits are part of the rent.
                       vii.    Note that landlord can turn down a tenant for any reason in the first place, but is held to
                               standards of commercial reasonableness when considering assignment of a lease. Why? In an
                               original lease, the landlord is harming only himself by rejecting tenant, but with assignment,
                               harms lessee. Also, in latter case, has already jumped into the whirlwind of commerce.
                      viii.    A clause allowing LL to refuse assignees for any reason whatsoever would defeat the policy
                               purpose.
                       ix.     Public policy behind commercial reasonableness: alienability, stability. Note exception for
                               small residential properties (< or = 4 units). Private sphere- no restrictions on LL‘s right to
                               refuse.


         D.        Tenant in Possession Who Defaults- Berg v. Wiley
Berg v. Wiley, MN 1978 (403)
                a. Overview
                         i.    Supreme Court of Minnesota
                        ii.    Wiley leases commercial space to Berg, who operates a restaurant there. Berg violates some
                               terms of the lease, and Wiley mandates that Berg fix them within two weeks. On the last day
                               of the two weeks, Wiley attempts to change the locks on the restaurant. Berg asserted her
                               right to continue in possession and calls the police. Later, Wiley changed the locks anyway.
                               Berg sues, seeking damages for wrongful eviction and emotional distress. Wiley answers with
                               an affirmative defense of abandonment. Affirmed that Wiley‘s lockout was wrongful and that
                               Berg did not abandon the restaurant.
                b. Defaulting tenant
                         i.    Question: Was Wiley‘s re-entry forcible and wrongful as a matter of law?
                        ii.    Answer: Yes. Wiley failed to resort to judicial remedies against Berg’s holding
                               possession adversely to Wiley’s claim of breach, so his lockout of Berg was wrongful
                               as a matter of law. Even if the old common-law rule (allowing peaceable self-help)
                               were applied, the lockout was nonpeaceable and thus Wiley still liable.
                       iii.    New rule of law: Subsequent to this decision, the only lawful means to dispossess a tenant
                               who has neither 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; self-help is
                               never available as a means to dispossess such a tenant.
                       iv.     Reasoning: Under common law, eviction was wrongful unless: (1) the landlord was legally
                               entitled to possession and (2) the landlord‘s means of re-entry were peaceable. But landlords
                               are discouraged from taking the law into their own hands. The only legal way to evict a tenant
                               is now through judicial proceedings, including summary proceedings.
                c. Related notes:
                         i. No jurisprudence justifying ban on self-help on due process grounds, but can infer movement in
                            this direction. But note that converse – self-help by tenant, eg. withholding rent – is gaining
                            ground.
                        ii. Note that the prohibition against self-help cannot be contracted around, because only the police
                            have the power to enforce the law (i.e., rights of possession), so private individuals cannot give
                            away what they do not have (i.e., police power).




                                                                13
         E.   Tenant Who Abandons Possession Who Defaults- Sommer v.
         Kridel
Sommer v. Kridel, NJ 1977 (410)
              a. Overview
                           i.  New Jersey Supreme Court
                          ii.  Two cases. In both, landlords and tenants sign leases. After paying rent (for one month in
                               the first case, for a year in the second) tenants abandon their apartments. The landlords in
                               both cases wait several months to file lawsuits for unpaid rent without having done anything
                               to find new tenants. The court rules against the landlords for failure to mitigate damages.
              b. Defaulting tenant
                           i.  Question: Is a landlord seeking damages from a defaulting tenant under a duty to mitigate
                               damages by making reasonable efforts to re-let an apartment wrongfully vacated by the
                               tenant?
                          ii.  Answer: Yes. A landlord does have an obligation to make a reasonable effort to
                               mitigate damages in such a situation / duty to mitigate / mitigation. Unjust
                               enrichment concerns also?
                         iii.  Reasoning: The current (old) majority rule is based on the equation of a lease with a transfer
                               of a property interest. Under this rule, a landlord is under no duty, as the property interest is
                               entirely the responsibility of the tenant. However, more recently a lease has been thought
                               of as a contract, and as a contract it implies duties on the landlord. Antiquated real property
                               concepts should no longer be controlling, but rather, supplemented/replaced by common
                               notions of fairness and equity. LL is in a better position than the tenant to bear the burden of
                               proof as well, to prove that he has exercised reasonable diligence in attempting to re-let the
                               premises.
              c. Related notes:
                           i.  Holding applies only to residential leases.
                          ii.  New rule prevents the LL from abusing situation and maximizes use of property by
                               preventing it from sitting idle.
                         iii.  Landlord must treat abandoned apartment as part of vacant stock—try to rent it at least
                               as hard as he‘s trying to rent the others. Requires no money for advertising beyond what he‘s
                               already spending on advertising the other vacant stock.
                        iv.    Note: Even if the landlord finds a new tenant, this merely brings LL back to position prior. Is
                               LL really made whole? Vacant Stock Rule: Court argues apts are unique, and therefore a
                               person who wants the abandoned apartment would not want a similar one, thus
                               apartments are not interchangeable goods. But the court also refers to UCC vacant
                               stock principle. Tension.
                          v.   Argument that tenant‘s duty ends when the apartment he has breached is re-let (even if it
                               doesn‘t necessarily make the LL whole) borrows (in part) from a contract principle, UCC lost
                               volume seller rule. This rule says that a seller has a duty to attempt to mitigate damages
                               caused by a breaching buyer by selling his stock BUT that breaching buyer‘s duty is not
                               released when the particular stock is sold, but rather when all of the seller‘s remaining stock is
                               sold. Here, favors the tenant, not waiting for full sale of stock, as the tenant can get out of
                               his lease duties as soon as his particular apartment has been re-rented. Justification =
                               tenants are generally disadvantaged as compare to landlords. (Otherwise, tenant would
                               still be liable until all units are rented.)
                        vi.    Benefits to tenant under this rule:
                                  1. LL‘s duty to mitigate damages.
                                  2. Modified vacant stock rule (LL only has to re-let the one apartment before T is off the
                                        hook).
                                  3. LL has burden of proof to show that he has made reasonable attempt to mitigate
                                        damage.
                        vii.   Why is the burden of proof put on LL? LL has actually done what he is proving and is thus
                               more able to prove it.
                       viii.   Test for mitigation not formulaic but eg‘s are showing to prospective tenant and
                               advertisement, i.e. treating the abandoned apartment the same as other vacant stock



                                                               14
                        ix.    Should LL be compelled to accept a new tenant (after T‘s breach) at a lower rent? Risk: If he
                               takes the lower rent, he is getting some money and original T owes balance, but T could
                               argue LL was unreasonable in accepting lower rent. If he doesn‘t take the lower rent, T might
                               argue that he hasn‘t made reasonable attempts to re-let the apartment, so he might not be able
                               to collect the back rent from T.
                         x.    What if LL accepts a new tenant (after T‘s breach) at a higher rent? Will it affect T‘s liability
                               for rent between breach and time LL found the new tenant? Or into LL‘s pocket? Depends
                               on whether focus is compensating LL and rewarding mitigation, or with punishing T. Also on
                               whether was ―full surrender‖ or re-letting on tenant‘s acct.
                        xi.    LL can accept surrender and thereby end tenant‘s liability. Can be explicit or implicit
                               acceptance of surrender.
                       xii.    Note: the tenant’s liability does continue up to the point that the landlord relets the
                               apartment.
                       xiii.   Note: rules may be different for commercial tenants, as the power imbalance may be different.
                       xiv.    Restatement (2nd), somewhat anomalously, is against mitigation, arguing abandonment is
                               invitation to vandalism.


         F.        Quiet Enjoyment & Constructive Eviction- Reste Realty v. Cooper
Reste Realty v. Cooper, NJ 1969 (422)
                a. Overview
                            i.   New Jersey Supreme Court
                          ii.    Tenant-defendant Cooper leases a basement commercial unit from plaintiff‘s building.
                                 Driveway outside is defective such that water floods into the unit during rains. Cooper
                                 complains repeatedly, but landlord does nothing. Ultimately, Cooper leaves premises. Realty
                                 company sues to recover rent claiming abandonment. Court finds constructive eviction
                                 based on a breach of the covenant of quiet enjoyment.
                b. Quiet enjoyment/constructive eviction
                            i.   Question: Was Cooper constructively evicted by her landlord?
                           ii.   Answer: Defendant had been constructively evicted from the premises and therefore
                                 was not liable for the rent claimed.
                          iii.   Applicable rule of law: Under the rule of constructive eviction, any act/omission of the
                                 landlord of permanent quality that renders the premises 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.
                          iv.    Reasoning: Landlord‘s agent promised to remedy the solution, and there was an express
                                 covenant of quiet enjoyment in the lease. Tenant was entitled to rely upon the promise of the
                                 agent to provide a remedy. Cannot be said as a matter of law that by taking the 2nd lease she
                                 accepted the premises in their defective condition. Where there is such a covenant, and it is
                                 breached by LL, constructive eviction is a remedy for the tenant upon breach of covenant
                                 of quiet enjoyment.
                           v.    Constructive Eviction= when the landlord causes (by commission or omission) a disturbance
                                 so substantial as t amount to eviction, and if the tenant thereafter abandoned the premises, it
                                 is as though the tenant was evicted (i.e., it was constructive)
                          vi.    Moreover, tenant vacated within a reasonable time; no delay sufficient to waive constructive
                                 eviction. Previous LL was patching up problem periodically.
                c. Related notes:
                            i.   Covenant of quiet enjoyment is usually implied (here explicit, due to LL‘s promise to
                                 repair).
                          ii.    The covenant of quiet enjoyment applies only once the tenant is in possession of the
                                 premises.
                          iii.   Note risk involved in claiming constructive eviction (must vacate to claim)- if the
                                 landlord sues for rent and you lose, then you will be liable. (If you don‘t vacate, that is a sign
                                 that the property is not uninhabitable, so no breach of quiet enjoyment.)



                                                                15
                        iv.    Cooper could have sued on promise to repair, negligent repair or latent defect. But only
                               violation of covenant of quiet enjoyment qualifies for constructive eviction.
                        v.     From law of contracts: promises of LL and T are mutually dependent: breach on one part
                               justifies breach on the other.


         G.        Implied Warranty of Habitability- Hilder v. St. Peter
Hilder v. St. Peter, VT 1969 (431)
                a. Overview
                            i.  Supreme Court of Vermont
                           ii.  Plaintiff rents apartment owned by defendant. Building in terrible condition; repeated
                                requests for repairs denied. Affirmed in favor of plaintiff.
                b. Implied warranty of habitability
                            i.  Question: Should a landlord who has allowed his apartments to fall into disrepair have
                                to reimburse a tenant for rent paid?
                           ii.  Answer: Yes, according to the implied warranty of habitability.
                          iii.  New rule: Implied warranty of habitability. In the rental of any residential dwelling unit,
                                an implied warranty of habitability exists in the lease, whether oral or written, that the
                                landlord will deliver over and maintain, throughout the period of the tenancy,
                                premises that are safe, clean and fit for human habitation. This rule diminishes the value
                                of constructive eviction: When the tenant seeks not to escape rent liability but to receive
                                compensatory damages in the amount of rent already paid, abandonment is unnecessary.
                          iv.   Reasoning: the old doctrine was caveat lessee: the tenant took possession of premises
                                irrespective of their state of disrepair, and LL‘s only covenant was to deliver possession.
                                Constructive eviction arose as an exception to this doctrine. The conception of the LL-T
                                relationship was evolving; the old doctrine focusing on land rather than dwelling is
                                anachronistic. T now enters lease agreement not to obtain arable land but to obtain safe and
                                sanitary housing.
                           v.   Specifications of the new rule:
                                   4. The warranty of habitability cannot be waived by T (no assumption of risk)
                                   5. How to determine if there is a breach of the warranty: 1. housing code; 2. there still can
                                        be breach if the claimed defect deleteriously impacts safety or health of the tenant
                                   6. T must show that he has notified LL of deficiency and allowed reasonable time for its
                                        correction
                                   7. Damages = difference between the value of the dwelling as warranted and the
                                        value as is in defective condition, or value of agreed rent minus value as is; some
                                        damages may also be allowed for discomfort and annoyance; punitive damages also
                                        may be available
                c. Related notes:
                            i.  Another move in the direction of dependent covenants (law of contracts)
                           ii.  IWH intended to improve housing for low-income tenants; thus no waiver. Reasoning is
                                based on information/bargaining imbalances between landlords and poor tenants.
                          iii.  Standard for warranty of habitability is not fixed. It is determined based on the facts, and can
                                depend on relative standards. I.e., you could have a breach of warranty of habitability even in
                                a luxury apartment, if its condition was sufficiently bad in some way relative to the implied or
                                explicit requirements of the lease.
                          iv.   The damage calculation is based on ―expectation damages‖
                           v.   Re damages, how to determine ―market value as warranted‖- could look at comparable units
                                in a condition not violating IWH; could look at original agreed rent as evidence (but here rent
                                seems low- not an assessment of what the value of the unit would have been in a reasonable
                                condition):
                                   Note: if originally agreed rent reflects the value of the unit in damaged condition (―pigsty
                                   rent‖), T ends up with nothing and IWH is effectively waived
                          vi.   There is something anomalous about calculating ―fair market value‖ of property in such
                                defective condition- you‘d have to do this with reference to a market of substandard housing
                                that, under this policy, you don‘t even want to exist (like recognizing markets of illegal goods).


                                                               16
                       vii.     Court awards T all rent paid- was apt worth nothing? Desire to compensate T and make clear
                                to LLs the policy of IWH.
                       viii.    Alternative: Percentage Diminution Approach: Start with full rent and then deduct
                                percentages for the various deficiencies.
                        ix.     IWH policy borrowed from contracts: implied warranty of fitness.
                         x.     Downside = less incentive for LL to supply cheap housing. He can‘t shift to a new market
                                b/c with real estate the consumers come to you. But he may walk away from the housing or
                                take it off the market. IWH doesn‘t provide good housing; it only punishes bad housing,
                                which can diminish quantity of good housing for low income people (i.e., the very ones this is
                                supposed to protect).
                        xi.     Note: some jurisdictions to not apply IWH. Many do not apply to agricultural or long-term
                                leases.
                       xii.     Basis of claim against landlord can be either breach of implied warranty of habitability
                                or violation of explicit terms of lease. So, even if apartment is habitable, landlord may
                                still breach explicit terms of lease, whatever they were, such that a remedy may be
                                available.



V.       Land Transactions
         A.       The Contract of Sale
                  1.           Statute of Frauds- Hickey v. Green
Hickey v. Green, MA 1982 (474)
               a. Overview
                         i. Appeals Court of Massachusetts
                        ii. Green and Hickey orally agree that Hickey would buy Green‘s empty lot. Hickey wrote Green
                            a deposit check with a description of the property on the back, but did not fill in the
                            payee. But Green does not fill in the payee line or endorse or deposit check. She knew Hickey
                            was going to sell his home, and he did so, but Green reneged on the deal and decided to sell the
                            lot to someone else for a higher price. Affirmed for Hickey: specific performance (he gets
                            the lot).
               b. The Statute of Frauds
                         i. Question: Is the contract made between Hickey and Green enforceable?
                        ii. Answer: Yes. The contract must be enforced because Hickey, in reasonable reliance on
                            the contract, changed his position so that injustice can only be avoided by specific
                            enforcement.
                       iii. Statute of Frauds: Requires deals to be put in writing. To satisfy SOF, a memorandum of
                            sale must, at a minimum, be signed by the party to be bound, describe the real estate,
                            and state a price. (Price can be TBD if formula provided.) Exceptions:
                                 1. Part performance: allows the specific enforcement of oral agreements when particular
                                      acts have been performed by one of the parties to the agreement.
                                 2. 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.
                       iv. Rule: 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 has so changed his
                            position that injustice can be avoided only by specific enforcement.
                        v. Reasoning: Green does not deny the oral contract. Neither party contemplated later putting the
                            deal into writing. The rapid sale of Hickey‘s home was appropriate and foreseeable. By
                            principles of part performance and equitable estoppel, the contract should be enforced.
                               (Unless agreement between Hickey and the purchaser of his home have changed.) See
                               also Restatement (Second) in fn 4 (476).



                                                              17
              c.   Related notes:
                         i. If Hickey (not Green) were the one who backed out of the deal, could Green hold him to what
                            he wrote on the check? Possibly – he did sign the check and describe the property, though no
                            price was written down.
                        ii. Contracts note: oral contract is technically unenforceable, but the court offers equitable remedy;
                            exceptions to the Statute of Frauds prevent virtual fraud.
                       iii. If Hickey had not told Green he was going to sell his house, would the court still have enforced
                            the contract? Possibly, though not likely. Different foreseeability calculation. (Here he was
                            buying an empty lot, so where was he going to live?)
                       iv. Why specific performance? There is a continuum of uniqueness of goods, ranging from
                            fungible (interchangeable) to unique (not interchangeable). When a good falls on the fungible
                            side, a court is more likely to award money damages, while on the unique side, specific
                            performance. Land considered unique.
                        v. Did Hickey‘s behavior really merit relief? The contract didn‘t meet the requirements of the
                            Statute of Frauds, but it did meet one of the exceptions: the seller had knowledge of what
                            Hickey was going to do, thus there is estoppel if he detrimentally relied on the promise. Also, we
                            don‘t like to reward people who break deals. Green clearly broke the deal in bad faith, and we
                            don‘t want to encourage that.
                       vi. Check alone probably not part performance. Re electronic communications, see p. 478.


                   2.       Marketable Title- Lohmeyer v. Bower
Lohmeyer v. Bower, KS 1951 (479)
              a. Overview
                          i.  Supreme Court of Kansas
                         ii.  Lohmeyer signs a contract with Bower to buy a house. Afterwards, he learns that the house
                              was in violation of a city zoning ordinance. The house also violates a restrictive covenant
                              regarding the house‘s number of stories. Lohmeyer sues Bower to rescind the contract and
                              get his deposit back. Lower court finds in favor of Bower and orders specific performance of
                              contract; state SC reverses for Lohmeyer.
              b. Marketable title
                          i.  Question: Is the property subject to encumbrances or other burdens that make the title
                              unmerchantable? If so, are they excepted by the provision of the contract which reads
                              ―subject however, to all restrictions and easements of record applying to this property‖?
                         ii.  Answer: Yes to 1st question and no to 2nd. Violation of the zoning ordinances and
                              violation of the private restrictions so encumber the title as to expose the party holding
                              it to the hazard of litigation and make such title unmarketable. Contract rescinded.
                        iii.  Reasoning: There are two separate rules:
                                 1. Municipal restrictions are not encumbrances in and of themselves, even if not
                                      mentioned in K, but existing violation of municipal restrictions can encumber title
                                 2. Private restrictive covenants can be an encumbrance if not excepted in the
                                      contract, as can violation of restrictive covenant.
              c. Related notes:
                          i.  Bower sold to Lohmeyer by warranty deed, which means that the property is guaranteed to
                              be free of all encumbrances, but still subject to all restrictions and easements.
                         ii.  But note that the contract was only subject to restrictions and easements of record (i.e.,
                              public). So, even if the house was not in violation of the zoning restriction or the private
                              restrictive covenant, it would still be unmerchantable under a warranty deed, due to the presence
                              of the private restrictive covenant.
                        iii.  What made the property unmerchantable is (1) the existence of the private restrictive
                              covenant not mentioned in the contract, and (2) the violation of a municipal
                              restriction.
                        iv.   A property is not unmerchantable because of a public restriction, because this is not an
                              interest of any other party (it‘s the public), and also because these are a matter of public
                              record, so the buyer could discover it himself prior to purchasing.



                                                              18
                       v.     Private restriction encumbers title because it gives a third party an interest in the property;
                              public ordinances do not give a right to any private entity.
                       vi.    What can the seller do to correct the violations to get the title free of encumbrances?
                                1. Zoning ordinance: You cannot contract around this, so any violation of zoning must
                                     be dealt with for the property to be merchantable. This would require applying to
                                     zoning board for a variance (show hardship of the ordinance—though the house had
                                     been moved there in the first place so it might be hard to make this argument); move
                                     house again; knock down house; or slice off 18 inches. (Or, include in K that buyer
                                     agrees to buy despite zoning violation.)
                                2. Private covenant: include in the deed an explicit exception for the restrictive covenant.
                                     But, in this case that wouldn‘t help the buyer too much, because not only is the
                                     restrictive covenant present, it is also violated, and so could be enforced (but, note that
                                     nothing has been changed since the case (we can see in the photo) so the covenant was
                                     never enforced or else was released).

         NOTE on equitable conversion: doctrine of liability/risk allocation in executory phase of contract. Traditionally,
         under EC, once you are in the executory period, risk falls to buyer. In MA and growing number of states, risk is
         seller‘s until transfer of title, including seller‘s insurance held in trust for buyer. (see p. 483)


                  3.         Duty to Disclose Defects

                             a)      Stambovsky v. Ackley (Non-Physical Defect)
Stambovsky v. Ackley, NY 1991 (484)
              a. Overview
                          i.  New York Supreme Court, Appellate Division
                         ii.  Plaintiff discovered that the house he had recently contracted to purchase was reputed to be
                              haunted (had been promoted as such by seller before attempt to sell). Plaintiff sued for
                              rescission. Lower court dismissed the complaint (no remedy at law), but appeals court
                              reinstates claim.
              b. Duty to disclose defects
                          i.  Question: Should plaintiff be allowed to sue for rescission of the contract based on allegedly
                              undisclosed defects (here a reputation for being haunted)?
                         ii.  Answer: Yes. Application of the remedy of rescission is appropriate because of the
                              exception to caveat emptor.
                       iii.   Reasoning: Exception to caveat emptor is—Where a condition that (1) is created by the
                              seller, (2) materially impairs the value of the contract and (3) is peculiarly within the
                              knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising
                              due care with respect to the subject transaction, nondisclosure constitutes a basis for
                              rescission.
              c. Related notes:
                          i.  Caveat emptor is the default rule in NY. Buyer must inspect. Prior, rescission of the contract
                              was only in cases of misrepresentation or fiduciary relationship. But not applied here because
                              the ―defect‖ could not be discovered upon reasonable inspection. (Or could it? Here
                              out-of-town buyer gets court‘s sympathy.)
                         ii.  Did the court apply its own standard? Did it determine that the value of the house was
                              materially impaired? Do we use an objective standard (i.e. effect on market value of house) or
                              a subjective standard (i.e. effect on value to buyer)? How can we determine how much a ghost
                              (reputation) impairs the value of the house? Difficult to compare markets for haunted/non-
                              haunted houses. Subjective test of material impairment renders it difficult to have a general
                              standard for sellers. Notoriety of the house might impair value, but only clear case where
                              disclosure is required of the seller is when there are physical defects.
                        iii.  Dissent: ―The existence of a poltergeist is no more binding upon the defendants than it is
                              upon this court.‖
                        iv.   BHM also dissents: This rule is idiotic. For one thing, it is limited to defects caused by the
                              seller. But what about latent defects not caused by seller? (See Johnson below.)

                                                              19
                       v.      Some states have ―stigma statutes‖ that absolve sellers from disclosing ―reputational‖ defects.
                       vi.     The key problem is for non-physical conditions (as physical conditions can generally be
                               measured on an objective standard).
                       vii.    In general, caveat emptor is now being steadily eroded.
                      viii.    See CERCLA on hazardous waste (492).
                       ix.     General rule re duty to disclose: ―As is‖ clause in contract upheld if defects reasonably
                               discoverable and no fraud. But misrepresentation or concealment releases buyer.
                               Similar for merger clauses (494).


                              b)      Johnson v. Davis (Physical Defects)
Johnson v. Davis, FL 1985 (488)
               a. Overview
                          i.    Florida Supreme Court
                         ii.    The Davises enter into a contract to buy the Johnsons‘ home. The Johnsons knew that the
                                roof leaks but affirmatively represent to the Davises that there are no problems with the roof.
                                After the Davises make the deposit, Johnsons vacate home. Soon thereafter, Davis discovers
                                leaky roof and sues for rescission. Courts find contract should be rescinded and the deposit
                                refunded.
               b. Duty to disclose defects
                          i.    Question: Was there a duty on the seller to disclose this latent material defect, and was such a
                                duty breached?
                         ii.    Answer: Yes. Where the seller of a home knows of facts materially affecting the value
                                of the property which are not readily observable, the seller is under a duty to disclose
                                them to the buyer. Fraudulent concealment.
                        iii.    Reasoning: Concealment was nonfeasance rather than malfeasance, but liability holds.
               c. Related notes:
                          i.    Compare to Stambovsky: Would Davis have to disclose the leaky roof under the
                                Stambovsky test? No—latent defect not caused by the seller. (Further proof that
                                Stambovsky is idiotic.)
                         ii.    Note: Generally, you can‘t sue on the K after the deed is passed, only on violation of
                                covenants. Exception: fraud or misrepresentation.
                        iii.    Impact of the defect generally limited to the resale value of the house—not enjoyment/use of
                                the property.

         NOTE on damages in breach of sale contract:
                     i. If buyer breaches, and the amount of deposit > amount of damages to seller, seller only gets
                        actual damages, and buyer gets back difference (i.e. no liquidated damages).
                    ii. Forfeitures of up to 10% are generally considered okay (but not more).
                   iii. Specific performance is typically available to both buyers and sellers as a remedy in land
                        transactions. (Makes more sense for buyers than sellers. Award it to buyers because land is
                        unique and they want that particular piece of land; damages are not adequate. This makes less
                        sense for sellers: can find another buyer, and any costs can easily be remedied with money
                        damages. When the seller puts land for sale, is already thinking of it as money, so less unique
                        for the seller than for the buyer.)




                                                               20
         B.        The Deed
                   1.       Warranties of Title

                            a)        Brown v. Lober- Present and Future Warranties
Brown v. Lober, IL 1979 (518)
               a. Overview
                          i.   Supreme Court of Illinois
                         ii.   In 1947, owner of 80 acres conveys to Bost, reserving a two-thirds interest in mineral rights.
                               In 1957, Bost conveys tract to Brown by a general warranty deed without exceptions. In
                               1974, Brown contracts to sell mineral rights to Consolidated Coal for $6000, but upon finding
                               that Brown owned only 1/3 of the mineral rights, parties renegotiate the sale for $2000. Prior
                               grantor had never made any attempt to exercise his mineral rights. The 10-year statute of
                               limitations barred a suit on present covenants, so Brown sues Bost for $4000 for breach of
                               the covenant of quiet enjoyment. Trial court finds in favor of defendant, appellate court
                               reverses. Supreme court reverses in favor of defendant Bost/Lober.
               b. Warranties of title
                          i.   Question: Has plaintiff alleged facts sufficient to constitute constructive eviction? I.e. is
                               plaintiff entitled to bring an action for breach of the covenant of quiet enjoyment?
                         ii.   Answer: No. Mere fact that plaintiff’s original contract with Consolidated had to be
                               modified is not sufficient to constitute the constructive eviction necessary to a breach
                               of the covenant of quiet enjoyment.
                        iii.   Reasoning: Has to wait for actual interference with quiet enjoyment (i.e. trespass)
                               before there is a breach of the future warranty of quiet enjoyment. Until such time as
                               one holding paramount title interferes with plaintiff‘s right of possession (e.g. by beginning to
                               mine the coal), there can be no constructive eviction and, therefore, no breach of the
                               covenant of quiet enjoyment.
                        iv.    General warranty (all defects) > special warranty (covers grantor’s own acts but not of
                               others) > quit claim deed (no warranties).
               c. Six Express Warranties in a Warranty Deed: (pp. 517-518)
                          i. Present Warranties: these warranties are broken, if ever, at the time of sale.
                                  1. Covenant of seisin: grantor warrants that he owns the estate that he purports to convey
                                  2. Covenant of right to convey: grantor warrants that he has the right to convey the
                                       property (basically the same as seisin)
                                  3. Covenant against encumbrances: grantor warrants that there are no encumbrances on
                                       the property
                         ii. Future Warranties: these are guarantees made by the grantor against future problems. These
                             are not breached until the grantee or his successor is evicted from the property or otherwise
                             damaged.
                                  1. Covenant of general warranty: Grantor warrants that he will defend the grantee against
                                       lawful claims and will compensate the grantee for loss sustained by the grantee by
                                       assertion of superior title (basically same as quiet enjoyment, but can apply when not in
                                       possession)
                                  2. Covenant of quiet enjoyment: grantor warrants that the grantee will not be disturbed in
                                       possession and enjoyment of the property by assertion of superior title (only applied
                                       when you are actually in possession)
                                  3. Covenant of further assurances: grantor promises to execute any other documents
                                       required to perfect the title conveyed.
               d. Related notes:
                          i.   What covenant did Bost actually breach? The covenant of seisin (a present covenant).
                               Bost sold Brown something he didn‘t really have- full mineral rights. But Brown could not sue
                               for it because statute of limitations barred it. They had to sue on a future covenant—quiet
                               enjoyment, but this is only breached with actual interference.




                                                              21
                         ii.    Could Browns have claimed the full mineral rights by adverse possession, since they had
                                ―owned‖ them for so long? No. They were not yet in possession of the minerals (i.e. drilling),
                                so they were not adversely possessing them, and cannot claim title on this ground. (Drill baby,
                                drill?)
                        iii.    If Brown wanted to sell the property before the legal owner of the mineral rights tried to
                                extract (giving a cause of action), Brown could word the deed so as not to make themselves
                                liable to buyers—special warranty deed or just except the 2/3 mineral interest.
                        iv.     How much less would Brown have paid if had known about the 1/3 mineral interest? Value
                                of rights to other 2/3 interest. Have to take account of fluctuations in price of energy-related
                                minerals. Energy crisis in 1973  oil shock  back to coal. Can‘t just assume it was worth
                                $4000 in 1957 when Brown bought property.
                        v.      Brown can wait to sue in the future when they get a cause of action (someone actually
                                interferes with mineral rights), but Bost is dead and estate may eventually be
                                judgment-proof.
                        vi.     For the present, Brown is remedy-less but court does not protect in part because he failed to
                                conduct adequate title search.
                       vii.     Note re adverse possession and mineral rights: adverse possessor gets whatever is
                                owned by person against whom he is possessing, including mineral rights – unless
                                substrata are owned separately, or unless owner is mining below, so adverse possessor
                                gets only surface rights.


                               b)      Frimberger v. Anzelotti- Latent Violations of Regulations
Frimberger v. Anzellotti, CT 1991 (521)
               a. Overview
                             i. Appellate Court of Connecticut
                            ii. Anzellotti‘s brother and predecessor in title (DiLoreto) built a bulkhead and filled that portion
                                of the subject parcel adjacent to the wetlands area, then built the dwelling on the property.
                                He transferred the property to Anzellotti by quit claim deed. A year later, Anzellotti
                                transferred the property to Frimberger by warranty deed, free and clear of all encumbrances,
                                subject only to building/zoning restrictions and easements. Turns out there is a tidal wetlands
                                violation on the property. Frimberger sues Anzellotti, claiming damages for breach of the
                                warranty against encumbrances and innocent misrepresentation. Court found in favor of
                                defendant.
               b. Warranties of title
                             i. Question: Does an alleged latent violation of a land use statute or regulation, existing on
                                the land at the time title is conveyed, constitute an encumbrance such that the conveyance
                                breaches the grantor‘s covenant against encumbrances?
                            ii. Answer: No. Concept of encumbrances does not include latent conditions on property
                                that are in violation of statutes or government regulations; therefore, as covenant
                                against encumbrances was not violated, no misrepresentation.
                           iii. Reasoning: An encumbrance is ―every right to or interest in the land which may subsist
                                in third persons, to the diminution of the value of the land, but consistent with the
                                passing of the fee by the conveyance.‖ (present covenant) (Encumbrance ≠ structural
                                condition violating statute or regulation.) To render a title unmarketable, the defect must
                                present a real and substantial probability of litigation or loss; no litigation or loss was
                                imminent here.
                           iv.  Frimberger could have insisted on clause in contract re govt regulations. Also could have
                                conducted survey. And DEP has not issued an order against Frimberger yet.




                                                               22
              c.   Related notes:
                         i.   *Latent violations of regulations that do not appear on the land records, that are
                              unknown to the seller, as to which the agency charged with enforcement has taken no
                              official action to compel compliance at the time the deed was executed, and that have
                              not ripened into an interest that can be recorded on the land records do not constitute
                              an encumbrance for the purpose of the deed warranty.* Encumbrances can be 1.
                              pecuniary charge (lien), 2. estate or interest in property less than fee (life estate), or 3.
                              easetment/servitude.
                        ii.   Compare to Lohmeyer (18‖ zoning encroachment and private level violation). The violations
                              are similar, but the difference is in the timeline. In Lohmeyer, the violation of cov. of
                              merchantability was discovered during the executory period; here, it wasn‘t discovered
                              until after the closing and transfer of deed. After the executory period, the buyer owns the
                              property, and would therefore have control over how to remedy the problem. But, it is
                              inefficient to make seller pay while buyer chooses remedy. Also, mitigating factors in iv above.
                              (In Lohmeyer, the problem was discovered in the executory period, so the seller (who still owns
                              the property) is liable for the necessary corrections, and so will choose the most efficient
                              solution.)
                       iii.   Correction should be made in the most cost-effective manner. Who should do it? If
                              encumbrance is not removable, then damages are difference in value. If encumbrance is
                              removable then damages could be cost of removal. But, courts are very reluctant to award
                              damages at all after the executory period, so you may get nothing.
                       iv.    Do building code violations impair the value enough to justify rescission during the
                              executory period? (Are they an encumbrance for purposes of impairing marketability?) No,
                              in general, building code violations do not impair marketability, but a major violation
                              could be caught on inspection and could justify rescission if there is an inspection
                              contingency. Sellers prefer inspection contingencies to building code contingencies:
                              narrower liability.
                        v.    There is no implied warranty of habitability for the sale of a house (like there is in LL-T
                              situations- with LL-T, there is a difference in bargaining power, and also T has less ability to
                              inspect the premises than a buyer does).
              d.   Gilbert
                         i.   ―The covenant against encumbrances is breached if there is a private encumbrance on title,
                              such as an easement or a mortgage. It is not, however, breached by the existence of public
                              land use controls, such as zoning ordinances and building codes. Moreover, it is not breached
                              by a latent violation of a public land use control, which the public authorities may never
                              discover or enforce. The buyer assumes the burden of complying with public controls.‖
              e.   A Note on Damages:
                         i. Breach of covenant of seisin: return of all or a proportion of the purchase price, based on the
                            proportion of the property that failed to be transferred.
                        ii. Breach of covenant against encumbrances: cost of removal of encumbrance or damages in
                            amount of difference between property as warranted and property as is.


                            c)        Rockafellor v. Gray- Covenant of Seisin
Rockafellor v. Gray, IA 1922 (527)
                a. Overview
                           i.   Supreme Court of Iowa
                          ii.   Series of transactions. 1907: Doffing  Rockafellor (warranty deed, came with mortgage to
                                Gray for $500). Feb. 1911: Rockafellor  Connelly (by sheriff‘s deed; Connelly bought it in a
                                foreclosure sale). Apr. 1911: Connelly  Dixon (general warranty deed for $4000). June
                                1911: Dixon  Hansen & Gregerson (special warranty deed for $7000). In 1918 Rockafellor
                                sues to vacate and set aside the foreclosure sale; he wins because the court had no jurisdiction
                                over him in that action. H&G have a cross-petition against Connelly, saying that if
                                Rockafellor wins (which he does), Connelly will be liable to H&G upon covenants in the deed
                                made to Dixon. Court finds Connelly liable for breach of covenant of seisin.



                                                              23
b.   Warranties of title
           i.   Questions: (1) Does the covenant of seisin run with the land, so that an action thereon may be
                maintained by a remote grantee (i.e., if Connelly sells to Dixon on general warranty deed, and
                Dixon sells to H&G on a special warranty deed, if the deed turns out to be no good can H&G
                recover from Connelly)? (2) Can the covenant of seisin run with the land even if the original
                covenantee has never been in possession of the premises? (3) What damages can the remote
                grantee recover?
          ii.   Answers: (1) The cause of action does, according to the English rule. (2) Yes, the
                rights of the remote grantee are acquired by conveyance (assignment) and not by
                virtue of actual possession of the premises. (3) The remote grantee can recover from
                the remote grantor no more than the consideration recited in the original deed
                between remote grantor and immediate grantee (here $4000).
         iii.   Reasoning: (1) The English rule (used in IA) is that the covenant of seisin runs with the land.
                The covenant is broken the instant the conveyance is delivered to the original covenantee, and
                then becomes a cause of action held by the covenantee in the deed, and that a deed by said
                first covenantee operates as an assignment of such cause in action to a remote grantee, who
                can maintain an action thereon against the grantor in the original deed. (i.e., the covenant of
                seisin runs with the land, so that the current owner can sue whoever initially broke
                that covenant) ** Note that this is not the majority rule. See below. **(2) Under the theory
                that subsequent deeds operate as an assignment of the cause in action that accrued to the first
                grantee, no logical reason why the remote grantee cannot maintain the action even if no actual
                possession of the land. (3) It does not matter if the immediate grantee never actually paid the
                remote grantor the consideration recited in the deed (but would if immediate grantee tried to
                sue).
         iv.    Note: H&G could not sue on the future covenants of warranty and quiet enjoyment, which
                do run with the land because 1. must convey to the successor either title or possession. Dixon
                transferred neither title nor possession to H&G (only color); both were actually in
                Rockafellor. Second, quiet possession must be disturbed; not here, because H&G are not
                actually in possession.
c.   Related notes:
           i.   Why didn‘t H&G sue Dixon? They had no cause of action against him because title passed
                between them by special warranty deed. Connelly‘s general warranty deed put him on the
                liability ―hook.‖
          ii.   Could Connelly have protected himself by doing a proper title search? Probably not, since the
                defect was an off-record risk. It would not have appeared in official records.
         iii.   The deed made a promise to Dixon, giving him a cause of action, which passed onto H&G.
                This is not the universal rule. Why assign the cause of action? If you don‘t permit the cause
                of action to be assigned, you might discourage alienability—buyers need to be able to rely on
                promises for their own security.
         iv.    Rule has developed so that liability is the original consideration to remote grantor
                damage suffered by the remote grantee, whichever is less. Why? Remote grantor won‘t
                be held accountable for property‘s market appreciation—don‘t want to make him an insurer
                for future market value.
          v.    Connelly claims he never got the $4000 from Dixon, and so should not have to pay. If Dixon
                had sued Connelly for breach of the covenant of seisin, he probably would have won (had a
                general warranty deed), but probably would not have been able to recover if he never paid.
                Parol evidence not admissible between remote grantee/grantor, so H&G can collect
                anyway. Why? The remote grantee relies on the consideration recited in the original deed
                when purchasing the property.
         vi.    Policy is to promote reliance on the written record, including price paid to grantor by
                immediate grantee.
        vii.    Why didn’t it matter that Connelly was a BFP (as it did in Murphy)? Because BFP only
                matters when the seller actually has title. If the seller actually does not have title, then even if
                the buyer is BFP then they don‘t get to keep the property. Cf. Recording: The BFP only
                comes into play if the seller actually has the title.
       viii.    See also problems on p. 531.



                                                 24
              d.   Gilbert
                       ix.     This is not the majority rule in most states: In most states, present covenants (e.g. covenant of
                               seisin) do not run with the land and cannot be enforced by remote grantees. At the time of
                               breach, the covenant becomes a chose in action (i.e., a personal right to sue for breach) in the
                               grantee and the chose in action is not impliedly assigned.


                   2.        Delivery

                             a)       Sweeney v. Sweeney- Valid Delivery and Conditions
Sweeney v. Sweeney, CT 1940 (533)
               a. Overview
                           i.  Supreme Court of Connecticut
                          ii.  Maurice Sweeney deeds his farm to his brother John, and deed is recorded. John prepares deed
                               to deliver property back to Maurice so that Maurice would be protected if John predeceases
                               him. Both deeds are executed. John keeps both deeds and gives the second deed to his
                               attorney after this suit began. After execution of deeds, Maurice continues to occupy the
                               property. Maurice dies and his estranged widow sues John. The court found that second
                               deed from John to Maurice is good, Maurice died owning the property, and thus belongs to
                               widow.
               b. Delivery of the deed
                           i.  Question: (1) Was the second deed (from John to Maurice) delivered, (2) and if so, was a
                               condition claimed to be attached to the delivery (that it be valid only if John predeceases
                               Maurice) operative?
                          ii.  Answer:
                                  1. There was a legal delivery of the deed (as inferred from the clear intent of the
                                       parties). John’s oral evidence that he did not intend to properly deliver the deed
                                       cannot count, because oral evidence cannot be allowed in property disputes.
                                  2. Even if a conditional delivery is assumed, the condition is not operative because
                                       a condition can only be operative if the deed is placed in the hands of a 3 rd party
                                       until the happening of the event, and the grantor relinquishes all rights in the
                                       interim.
                        iii.   Reasoning: When a deed is formally executed and delivered, there is a rebuttable
                               presumption that the grantee (here, Maurice) assented. This presumption can be
                               overcome only by evidence that no delivery was in fact intended. The purpose of this deed
                               (to protect Maurice in case John died) would have been defeated had there been no
                               delivery with intent to pass title, so it may be concluded that there was a legal delivery.
                               The alleged condition on the delivery was John‘s death before Maurice‘s, but condition is
                               inoperative because the delivery was to the grantee and because it was oral; a conditional
                               delivery can only be made by placing the deed in the hands of a third person until the
                               happening of the event, upon which the deed is delivered by the third person to the grantee.
                               Conditional delivery to the grantee vests absolute title in the latter.
                        iv.    Why is oral evidence not accepted for real estate transactions? Policy reason: the safety of real
                               estate titles. People must be able to rely on the written record. Relaxing this rule would
                               open the door for fraud and the fabrication of evidence.
                          v.   Maurice outsmarts himself: For wife not to get the property, the deed cannot have been
                               delivered back to him; but to protect himself in case John died, the deed must have been
                               delivered back to him.
               c. Related notes:
                           i.  No question about the validity of the first deed. It was executed and legally delivered and
                               recorded.
                          ii.  Issue with the second deed: did John deliver it to Maurice? Yes. Why is delivery so
                               important? Physicality is carried over from livery of seisin.
                         iii.  Maurice wants to pass the property to John so it doesn‘t end up in the hands of his estranged
                               wife. Why pre-write the deed? Maurice didn‘t want the property going to John‘s heirs.


                                                              25
              d.   Gilbert
                        i.    Where the grantor hands over to the grantee a deed absolute on its face, with a
                              contemporaneous oral understanding that the deed shall not take effect until some condition
                              is performed, the general rule is that the delivery is valid and the oral condition is void.


                             b)      Rosengrant v. Rosengrant- Valid Delivery
Rosengrant v. Rosengrant, OK 1981 (536)
               a. Overview
                            i. Oklahoma court of appeals
                           ii. Harold and Mildred Rosengrant want to leave property to their nephew Jay when they die, but
                               wish to avoid probate court. Harold hands Jay deed to farm at banker‘s office. Then Jay gave
                               the deed to the banker who told him he would put it in an envelope and keep it until Jay came
                               for it. Harold dies 6 years later and Jay collects and records. Harold‘s other heirs petition to
                               cancel and set aside deed, alleging deed is void because not legally delivered. The court finds
                               deed was void.
               b. Delivery of the deed
                            i. Question: Was the deed null and void for failure of legal delivery?
                           ii. Answer: Yes. The deed was not legally delivered because it was held in revocable
                               escrow.
                          iii. Reasoning: Discounting that Harold physically gave to Jay, court points to 1. Both grantor
                               and grantee’s names were on the envelope, implying that the deed was retrievable at any
                               time by Harold before his death. 2. Implied agreement between the banker and Harold
                               that the grant was not to take effect until two conditions—the death of Harold and
                               Mildred, and the recordation of the deed (even though recordation does not affect legal
                               delivery). 3. Harold’s conduct treats the property as his own property until his death.
                               On these bases, the court determines that Harold did not mean to divest himself of the
                               property until his death, and so the delivery was not legal (did not carry all the force and
                               consequence of absolute ownership at the time of delivery – as John to Maurice did, if
                               inadvertently, above).
                          iv.  Key idea: Delivery (incl. via 3rd party) only valid if the grantor relinquishes all rights to
                               the property- i.e., cannot revoke the grant. Here, since Harold‘s name was on the
                               envelope, and since he continued living on the property (presumably without Jay‘s
                               ‗permission‘), Harold intended to retain rights to the property and therefore the delivery was
                               invalid.
               c. Related notes:
                            i. Caveat: Harold did not tell the bank to put his name on the envelope; it was just bank policy.
                               Nevertheless, Harold‘s conduct toward the property is less ambiguous.
                           ii. BHM: Could go either way with this set of facts.
                          iii. Is court penalizing grantors for not going to a lawyer? Formalistic approach taken.


         C.        Mortgages
                   1.        Foreclosure & Duty to Mitigate Loss- Murphy v. Fin. Dev. Corp.
Murphy v. Fin. Dev. Corp, NH 1985 (546)
               a. General:
                          i.  Mortgage is security interest (i.e. the house), not the loan. Money is mortgage loan.
                         ii.  Homeowner is mortgagor; bank is mortgagee.
               b. Overview
                          i.  Supreme Court of New Hampshire
                         ii.  Murphy purchases house in 1966, refinances in 1980 with defendant as mortgagee. In 1981
                              Murphy defaults. Defendant makes attempts to revise payment schedule and/or arrange
                              alternative financing, but does not succeed and gives notice of intent to foreclose. Eventually
                              house is sold at foreclosure sale. Lenders‘ representative is the only one present at the sale


                                                              26
                 and buys the house for $27,000 (roughly the amount owed on the mortgage). Next day,
                 lenders‘ rep sells the house for $38,000. Murphy sues defendant for failing to exercise good
                 faith and due diligence in obtaining a fair price for the house. Lower court finds in favor of
                 Murphy, awarding damages of $27,000 (difference between market value of house, $54,000,
                 and sale price). Lenders appeal and NH SC affirms for Murphy but remands for a new
                 decision on damages.
c.   Mortgage
            i.  Question: (1) Is a mortgagee executing a power of sale bound both by the statutory
                procedural requirements and by a duty to protect the interests of the mortgagor
                through the exercise of good faith and due diligence in sale of property? (2) Did the
                lenders breach that duty, i.e., did they fail to exercise good faith and due diligence in obtaining
                a fair price for the property?
           ii.  Answer: (1) Yes. A mortgagee must exert every reasonable effort to obtain a fair and
                reasonable price under the circumstances. (2) Yes. The lenders did not act in bad
                faith in failing to obtain a fair price, but they did fail to exercise due diligence in
                obtaining a fair price. Their disregard for the interests of the mortgagors breached
                duty.
          iii.  Reasoning: (1) In his role as a seller, mortgagee’s duty of good faith and due diligence is
                essentially fiduciary. Goal: prevent unjust enrichment. What constitutes a fair price
                depends on the circumstances of each case. (2) In order to constitute bad faith, must be
                intentional disregard of duty or a purpose to injure. Not here. But the issue of the lack of
                due diligence is whether a reasonable man in the lenders’ place would have adjourned
                the sale or taken other measures to receive a fair price. The lenders made no attempt to
                obtain fair market value for the property but were concerned only with making themselves
                ―whole.‖ *New rule: a finding that the mortgagee had, or should have had, knowledge
                of his ability to get a higher price at an adjourned sale is the most conclusive evidence
                of a violation of the duty of good faith and due diligence.*
         iv.    Issue of damages- damages should not be the difference between FMV and the price obtained
                at sale (this is the case for when there is bad faith). Here damages = difference between a
                fair price (not FMV) and the price obtained at foreclosure sale. If bad faith, FMV –
                foreclosure price.
d.   Related notes:
            i.  Refinancing is trading in your first mortgage, with a same or different lender, with an upfront
                fee, usually for a better interest rate.
           ii.  Banks usually not eager to foreclose because of costs and losses.
          iii.  Lenders now usually conduct sales—not a sheriff as in Rockafellor – with power of sale
                mortgage; sidesteps judicial foreclosure proceedings.
         iv.    Foreclosure sales are cash-only, have no executory period (no time for inspections) and no
                contingencies. Buyers face a title risk (Rockafellor) and can‘t get a general warranty deed.
           v.   Murphys could have sold the house themselves(rational thing to do), but probably hoped they
                would get more money to pay the mortgage, so that they would not lose the house.
         vi.    Banks will always bid what‘s left on the mortgage.
         vii.   In Rockafellor, the court voided the sale. Why not do that here?
                   1. In Rockafellor, the sale was invalid from the outset due to lack of PJ, so treated as if it
                        never existed.
                   2. Here, the buyer (Southern) was a bona fide purchaser for value- they had legal title
                        and did nothing wrong. So the court won‘t take the house from them, but instead will
                        require the bank to pay damages. (We don‘t want courts to take property away from
                        bona fide purchasers, because this creates uncertainty about ownership.)
        viii.   What makes one a bona fide purchaser?
                   1. Pay fair market price
                   2. Be without notice (actual or constructive) of any problem of the sale
         ix.    Bank could have set a reserve price in order to avoid the problem of an undervalued sale, but
                ultimately it is not required to get a certain price, only to take reasonable efforts. Bank’s
                fiduciary duty is to try to get a good price—not a guarantee it will do so. Court
                expects it to behave almost like more of a real estate agent, but not fully. Some states, as
                here, consider this a fiduciary obligation.


                                                 27
              e.   Gilbert
                        i.     ―A court may hold that a private foreclosure sale must use commercially reasonable methods
                               for producing a fair price.‖

                             a)        Installment Land Contract- Bean v. Walker
Bean v. Walker, NY 1983 (554)
              a. Overview
                        i.    New York Appellate Court (orig. NY state court)
                       ii.    Bean agrees to sell to Walker a home for $15,000, with an installment land sale contract.
                              Walker to pay a fixed monthly installment and Bean retains legal title to be conveyed upon
                              payment in full. The contract provided that in the event of Walker‘s default, Bean could elect
                              to call the remaining balance immediately due or declare the contract terminated and
                              repossess. Walker goes into possession in 1973 and made improvements to the property.
                              Walker injured in 1981 and default. Bean sues to eject Walker. Lower court for Bean, but
                              appellate court reverses for def Walker.
              b. The mortgage
                        i.    Question: Does the vendee under a land sale contract acquire an interest in the property of
                              such a nature that it must be extinguished before the vendor may resume possession?
                       ii.    Answer: Yes. Such an interest exists since 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 payment of the purchase price in accordance with the terms of the
                              contract. The vendor may not enforce his rights simply by an action in ejectment but
                              must instead proceed to foreclose the vendee’s equitable title or bring an action for the
                              purchase price. (similar to prohibition on liquidated damages)
                      iii.    Reasoning: Where sale of real property is evidenced by contract only and the purchase price
                              has not been paid and is not to be paid until some future date in accordance with the terms of
                              the agreement, the parties occupy substantially the position of mortgagor and
                              mortgagee at common law. The vendee acquires a vested equitable title at the time the
                              contract is consummated, while the vendor retains legal title. Vendees should be treated the
                              same as the mortgagor at common law. No summary dispossession of equitable
                              ownership despite K terms.
                      iv.     In a mortgage, the debtor has equity of redemption, even if the lender has legal title. This
                              case should be treated the same way.
              c. Related notes:
                        i.    Equitable conversion: Will enforce some type of transfer of title on a mortgage from the time
                              of the K, even before closing, and certainly after. Why? Because during this executory period
                              and mortgage, the buyer enjoys the benefit or loss of fluctuating sale price. They have an
                              ownership stake that cannot be taken away. Here, the buyer had paid a lot, thereby
                              establishing a significant equitable interest (i.e., right to benefit from increased property value).
                              This cannot just be taken away, so equity will enforce what is just.
                       ii.    Installment land contracts are typically used for:
                                 1. Deals that are seller-financed, short (10-15 year) mortgages—usually vacation homes,
                                      etc.
                                 2. Less expensive housing (―manufactured housing‖—trailers, mobile homes)
                      iii.    Level payments over course of term; seller retains title until last payment; if buyer defaults,
                              seller keeps everything (equity treated as rent pmts).
                      iv.     In a normal mortgage situation, executory period is somewhat analogous to the situation here.
                              During executory period, buyer bears burden of loss to property because of equitable
                              conversion (has an interest in the land). Insurance mitigates risk. Seller is in a better position
                              to insure during the executory period (in control of property), yet buyer is the one who faces
                              risk. Buyer can demand seller maintains loss insurance during executory period. In
                              mortgages, lender requires borrower to maintain insurance.
                       v.     Often built into mortgage payments:
                                 1. Insurance premiums
                                 2. Property tax payments
                                 Failure to pay either can endanger the value of the lender‘s security.


                                                                28
VI.      Recording of Title
         A.        Recording Statutes (pp. 580-583)
   Race statute
        as between successive purchasers of the same land, priority is determined solely by who records first
        whether a subsequent purchaser has actual knowledge of the prior purchaser‘s claim is irrelevant
        protects a subsequent purchaser only if the subsequent purchaser records first
        Ex: O conveys to A. A does not record. O conveys same property to B. B has actual knowledge of A‘s deed. B
         records. A records. B prevails.

   Notice statute
        Last BFP wins (see shelter rule for exception, p. 581)
        a subsequent bona fide purchaser prevails against prior unrecorded instruments if he has no actual/constructive
         notice of a prior claim at the time of the conveyance.
        Prior purchaser supplies constructive notice by recording deed. Has responsibility to do this, otherwise may be
         screwed by a subsequent purchaser.
        Notice protects a subsequent purchaser against prior unrecorded instruments even though the subsequent
         purchaser fails to record
        Subsequent bona fide purchaser may also be notified if she inquires about prior title, or if someone tells her.
        Ex: O conveys to A. A does not record. O conveys to B, who gives valuable consideration and has no notice of
         deed to A (bona fide purchaser). A records. B records. B prevails. (because even though A recorded first, B was a
         bona fide purchaser at the time of purchase, which was prior to A recording)

   Race-Notice statute
        1st BFP to record wins
        The first to record without notice of a prior interest wins (i.e. first BFP to record wins)
        A subsequent purchaser is protected against prior unrecorded instruments only if the subsequent purchaser 1) is
         without actual/constructive notice of the prior instrument and 2) records before the prior instrument is recorded.
        Ex: O conveys to A. A does not record. O conveys to B, a bona fide purchaser. A records. B records. A prevails
         b/c B‘s conveyance was not first recorded.
        *** Constructive defective recording: if there‘s a gap in recording, the buyer is considered not to have recorded the
         deed if he does not record all transfers of deed going back to the statutory period. ***

   notice and race-notice statutes only protect bona fide purchasers: 1) person must be a purchaser, 2) who takes without
    notice, and 3) gives a valuable consideration
   without notice: purchaser had no actual, record, or inquiry notice of the prior claim at the time he paid consideration
    and received his interest in the land
   A BFP who loses title to another party because the seller didn’t really have title when he conveyed it can sue
    the seller for breach of covenant of seisin
   A BPF who loses title to another party because the seller subsequently sold it to someone else can sue the
    seller for breach of covenant of warranty
   See problems pp. 582-583 and solutions in notes, 10/31-11/5


         B.        Indices- Luthi v. Evans
Luthi v. Evans, KS 1978 (565)
               a. Overview
                         i. Supreme Court of Kansas
                        ii. Owens owns various oil and gas leases. In 1971, Owens assigns to International Tours all of
                            such oil and gas interests by ―Mother Hubbard‖ clause (i.e., ―you get everything I have‖), which
                            was recorded. In that assignment, seven leases were specifically described, but a lease known as
                            the Kufahl lease was not specifically described. In 1975, Owens assigns her interest in the
                            Kufahl lease to Burris, who had done a title search, which does not turn up prior assignment to
                            Tours. The controversy is between Tours and Burris over ownership of the interest in the
                            Kufahl lease. The court finds for Burris.

                                                             29
              b.   Recording system – indices
                          i. Question: Does recording of an instrument of conveyance which uses a ―Mother Hubbard‖
                             clause to describe the property constitute constructive notice to a subsequent purchaser of a
                             particular piece of property?
                         ii. Answer: No. Recording an assignment that does not describe with sufficient specificity
                             the property covered by the conveyance is not sufficient to impart constructive notice to
                             a subsequent purchasers such as Burris. And since Burris had no actual knowledge of
                             the prior assignment, he prevails.
                       iii. Reasoning: The assignment from Owens to Tours (with the Mother Hubbard clause) was a valid
                             transfer of the interest in the Kufahl lease to Tours as between the parties to that instrument. Also, a
                             subsequent purchaser who has actual knowledge of such an instrument is bound thereby. But if
                             the subsequent purchaser (Burris) does not have actual knowledge, and must rely on
                             constructive knowledge from the recording system, a Mother Hubbard clause (when
                             recorded) does not offer sufficient specificity to count as constructive notice.
              c.   Related notes from class
                          i. Mother Hubbard clauses are usually used to compensate for imprecise boundary descriptions.
                         ii. Kansas = notice jurisdiction.
                        iii. Tours should have had property described specifically when recording. Would have had to
                             search all of Owens‘ property interests to discover what she held, and put the transfer on record
                             for all of them.
                        iv. Who should do the search, Tours or Burris? Tours—original buyer using Mother Hubbard
                             should protect its own interests, and this way search would only have to happen once
                             (Tours would record after). Tours was the one with reason to believe he might have an interest
                             in other properties. So, Tours should have done a search for all property owned by Owens, and
                             then recorded each property separately. This would provide constructive notice to subsequent
                             purchasers.


         C.        Chain of Title Problems- Guillette v. Daly Dry Wall
Guillette v. Daly Dry Wall, MA 1975 (592)
                a. Overview
                           i. Supreme Court of Massachusetts
                          ii. Gilmore sells lots in a subdivision to plaintiff and defendants. Gilmore sells a lot to Guillette by
                                deed containing a provision restricting lots retained by Gilmore at that time (to maintain the
                                subdivision as including only single-family homes). Gilmore sells another lot to Daly, but the
                                deed contains no reference restrictions. Daly makes no inquiry concerning restrictions and
                                obtains building permit for apartment building. Guillette and other homeowners sue to
                                enjoin Daly from building the building, claiming that it is a violation of the earlier restriction.
                                The court finds for plaintiffs.
                b. Chain of title problem
                           i. Question: Is Daly bound by a restriction contained in deeds to its neighbors from a common
                                grantor, when it bought its property without knowledge of the restrictions and under a deed
                                which did not mention them?
                          ii. Answer: Yes. Where a grantor binds his land by writing, reciprocity of restriction
                                between grantor and grantee can be enforced. A subsequent purchaser from the
                                common grantor acquires title subject to the restrictions in the deed to the earlier
                                purchaser.
                        iii. Reasoning: Searching for the deeds to other lot owners in the subdivision is reasonable
                                expectation. If Daly had done a title search, it would have found the prior deeds from
                                Gilmore to Guillette et al., and would have seen the restriction in question. Since these deeds
                                were recorded, and since Daly had a duty to do a proper title search, Daly had constructive
                                notice of the restriction and can be bound by it.
                c. Related notes:
                           i. Daly thought it should only have to search the chain of title on its own lot (chain of title as it
                                was defined at the time), but the court expands the definition of chain of title: purchasers
                                must now search title not only of their property, but of all properties from a common


                                                                30
                              grantor in a subdivision. Daly is a bona fide purchaser without notice, yet court wants
                              purchasers to search more deeply, esp. when from common owner. Policy to protect the
                              other lot owners’ expectations- they bought in expectation of the restriction being
                              enforced, and that expectation must be protected.
                        ii. This seems unfair to Daly, but it is most efficient: Difficult to monitor every deed common
                              owner makes. Easier to require more of each individual future purchaser. And, prior
                              purchasers have no control anyway. So they can‘t be held responsible at all.
                       iii. Note that this may seem unfair, because Gilmore is the real bad guy. But Daly can now sue
                              Gilmore if it wants. (Or, if Guillette had lost, they could sue Gilmore.)
                       iv. Contrast with Luthi, which says interests outside the chain of title must be recorded. Here,
                              Guillette and other lot owners face technical problems in recording their interests in all the
                              subdivision properties. Easier to find out who else Gilmore has dealt with than find all
                              of Owens’ leases in Luthi, because a single subdivision is much smaller than an entire
                              county. Search pool is much more limited: neighborhood into which a purchaser is buying.

NOTES on TITLE INSURANCE: Title companies have been displacing independent lawyers by taking over a lot of
their functions. Thus they should adopt some of lawyers‘ duties as well (in terms of standard of care). The functions they are
performing become relevant in this regard. Marketability of title and the market value of the land itself are separate and
distinct, buyers cannot claim coverage for the property‘s physical condition under this clause of the insurance policies.



VII. Nuisance
         A.       Basic Elements- Morgan v. High Penn Oil Co.
Morgan v. High Penn Oil Co., NC 1953 (639)
          a. Overview
                     i. Supreme Court of North Carolina
                    ii. Morgan owns land since 1945. Dwellings and restaurants. High Penn purchases neighboring
                        property and begins operating oil refinery in 1950. Refinery is very close to dwellings and emits
                        many nauseating gases and odors. Continues to operate even after repeated demands to stop the
                        odors/gases. Morgan sues, and jury finds refinery to be a nuisance, damages at $2500 and injunction.
                        Affirmed on appeal.
          b. Nuisance
                     i. Question: Was High Penn creating a nuisance?
                    ii. Answer: Yes. Plaintiffs entitled to recover damages for an actionable private nuisance. High
                        Penn intentionally and unreasonably caused noxious gases and odors to escape onto the
                        plaintiffs’ land. They are enjoined from creating the nuisance.
                   iii. Reasoning: A private nuisance exists in a legal sense when there is any substantial non-
                        trespassory invasion of another’s interest in the private use and enjoyment of land by any
                        type of liability forming conduct. The invasion can be intentional or unintentional.
                   iv. An invasion of another‘s interest in the use and enjoyment of his land is intentional when the
                        conduct in question is done for the purpose of causing the harm, or with knowledge that it
                        will result, or with knowledge that it is substantially certain to result.
                    v. A person is liable for intentional invasion when his conduct is unreasonable under the circumstances
                        of the particular case. It does not matter how much care or skill he exercised to avoid such
                        injury.
                   vi. A person is subject to liability for an unintentional invasion when his conduct is negligent,
                        reckless, or ultrahazardous.
          c. Related notes:
                     i. Nuisance is a judicial attempt to regulate use of property.
                    ii. (1) How do we know if the conduct is unreasonable (that it is a nuisance rather than an annoyance)?
                        (2) What damages should be awarded? To answer the first, a threshold test is often used (vague
                        difference between serious and not-so-serious interference that depends on reasonable person
                        standard). To answer either question, a balance-of-the-equities test can be used; often, the same two
                        will be weighed to answer both questions.


                                                             31
                  iii. Balance test here: on Morgan‘s side, you could put market value of the properties, health care
                        expenses, attachment to their home (though not a dollar value); on High Penn‘s side, value is almost
                        inevitably higher, as there is a factory, jobs at stake, etc.. Can look at who was there first though
                        this is not always controlling.
                   iv. Damages Options: After we‘ve determined that High Penn is causing an intentional nuisance, what
                        next? Morgan wants an injunction to stop the offending conduct—this was the norm. Another
                        alternative is to pay damages to compensate for past and future harms.
                    v. Options for nuisance creator = (1) clean up, (2) shut down, (3) settle, and establish servitude
                        allowing the activity to continue, (4) buy the other property so that there is no conflict (but,
                        after a nuisance verdict, the victorious party will have a very strong bargaining position and
                        can demand an exorbitant price)
                  vi. Nuisance reflects a conflict between land uses. So, when one cries nuisance, and the other is forced
                        to shut down, the free use of one becomes an obstacle to another. So, how do we decide which one
                        is the nuisance? Factors to consider:
                             1. Zoning rules and normal uses for the area
                             2. Who was there first
                             3. Economic calculations- who will be more costly to shut down?
         d.   Gilbert
                     i. Serious discomfort and inconvenience in the use of land is an important factor in determining a
                        nuisance. Objectionable noise, odors, or smoke are frequently the interference complained of. The
                        standard of unreasonable interference is measured by the sensibilities of the average person.

         B.        Remedies for Nuisance
                   1.       Payment of Damages- Boomer v. Atlantic Cement Co.
Boomer v. Atlantic Cement Co., NY 1970 (649)
          a. Overview
                      i.   Court of Appeals of New York
                     ii.   Atlantic Cement Co. runs a large cement plant. Neighboring land owners sue, alleging injury from
                           dirt, smoke and vibration coming from the plant. Seek injunction and damages. Nuisance found
                           but injunction was denied. Instead, Atlantic ordered to pay the landowners permanent damages.
          b. Nuisance – remedies
                      i.   Question: What damages should be awarded to plaintiffs in this case?
                     ii.   Answer: Granting an injunction unless defendant pays permanent damages to plaintiff will
                           do justice as between the parties (and public policy).
                    iii.   Reasoning: The court should resolve litigation between parties as equitably as possible. The
                           nuisance in this case involves a general problem- air pollution from factories. Solving the pollution
                           problem is government‘s responsibility and should not be taken on by the courts as incident to
                           solving individual nuisance dispute.
                    iv.    Nuisance exists, but injunction should not be granted because total damage to plaintiffs is
                           relatively small in comparison with the value of defendant‘s operations and consequences of the
                           injunction plaintiffs seek. Ruling goes against the general rule that a nuisance will be
                           enjoined even if there is a disparity between economic consequences. But to follow the rule
                           literally in this case would be to close down the plant at once: a drastic remedy. Better to order
                           permanent damages compensating plaintiffs for the total economic loss to their property, present
                           and future. But public health agencies not foreclosed from regulating as appropriate.
                     v.    Dissent: The court should not overrule the long-standing rule. The majority is licensing a
                           continuing wrong. Once damages are paid, there will be no more incentive to stop polluting, so
                           it will continue indefinitely. A nuisance should be enjoined.
          c. Related notes:
                      i.   Court uses a balancing test to determine damages. On Boomer‘s side, before & after property
                           values, medical expenses; on cement co‘s side, employees (wages, tax revenue, $ flowing to the rest
                           of the community) and potential cost of improving the plant to get rid of the nuisance. Court
                           considers Boomer’ private costs, and cement co’s public and private costs. Does not look
                           at public environmental costs. ―Large disparity in economic consequences of the nuisance and
                           of the injunction.‖

                                                              32
                    ii.   Environmental protection agencies operate under congressional mandate to consider costs of
                          regulations they impose on businesses—not supposed to impose regulations if costs exceed
                          economic benefits of regulation.
                   iii.   If plaintiffs get an injunctionD is supposed to shut down until it can operate w/o causing a
                          nuisance (improve facilities). Or could try to buy off P to release the injunction.
                   iv.    Court might be better at determining $ value of damages than homeowners themselves (in the
                          above negotiating situation); solves problem by taking the negotiations out of parties‘ hands.
                          Permanent damages here are greater than just past damages given in Morgan. Court chooses not to
                          look at environmental costs.
         d.   Gilbert
                   i.     One of the primary objects of nuisance law is to avoid the more serious harm. If one party‘s
                          conduct has great social value (e.g., a factory employing many people), courts reluctant to enjoin as
                          a nuisance. If the harm is serious and the payment of damages will not shut down plant, court
                          may order damages for nuisance and refuse to enjoin activity.


                   2.       Compensating the Enjoined Nuisance- Spur v. Del Webb
Spur Industries v. Del Webb Development Co., AZ 1972 (656)
          a. Overview
                       i.   Supreme Court of Arizona
                      ii.   Spur operates a feedlot at the south end of town in 1956. In 1959, Del Webb begins to plan and
                            construct the development of an urban area (Sun City) farther north. Over the coming years, both
                            expand toward each other. By 1960, smell from the Spur feedlot reaches the southern end of the
                            Del Webb development. Del Webb sues to enjoin Spur.
          b. Nuisance – remedies
                       i.   Question: (1) Where the operation of a business, such as a cattle feedlot, is lawful in the first
                            instance, but becomes a nuisance by reason of a nearby residential area, may the feedlot operation
                            be enjoined in an action brought by the developer of the residential area? (2) Assuming that the
                            nuisance may be enjoined, may the developer of a completely new town or urban area in a
                            previously agricultural area be required to indemnify the operator of the feedlot who must move or
                            cease operation because of the presence of the residential area created by the developer?
                      ii.   Answer: The feedlot should be permanently enjoined, but having brought people to the
                            nuisance to the foreseeable detriment of Spur, Webb must indemnify Spur for a reasonable
                            amount of the cost of moving or shutting down.
                     iii.   Reasoning: Spur‘s operation of the feedlot is a public nuisance (dangerous to the public health) as
                            well as a private nuisance to the individual homeowners near it. It should be enjoined. In fact, if
                            the individual homeowners had brought the action, they could have had injunction as well.
                     iv.    But Spur is required to move not because of any wrongdoing on their part, but because of a
                            proper and legitimate regard of the courts for the rights and interests of the public.
                      v.    Del Webb, on the other hand, is entitled to the relief prayed for (injunction) not because Webb is
                            blameless, but because of the damage to the people he encouraged to purchase homes in Sun City.
                            Webb is not free of liability to Spur if he has caused the damages incurred by Spur.
                     vi.    If homeowner had sued individually, might get damages only. For each individual owner, damage
                            would not justify shutting down the feedlot (balancing test).
                    vii.    See also notes from 11/12 for factors to consider in nuisance damages
          c. Gilbert
                       i.   Economic analysisinitial allocation of the right (entitlement)first in time prevails
                      ii.   If one of the conflicting uses is established before the other, the first user may have an
                            irretrievable or ―sunk‖ cost of investment, which the second user may not now have. The first
                            user should prevail at least to the extent that the second user should be forced to buy out the first
                            user. This will require the second user to internalize the cost imposed on the first user and
                            to choose among competing location sites.




                                                               33
VIII. Servitudes
          A.        Background
LAW OF SERVITUDES
                                      -------negative easements
                       ------ easements
servitudes------------                ------- affirmative easements
                                          ------- real covenants
                       ------ covenants
                                           ------- equitable servitudes

1. Affirmative easement: A given the right to enter upon B‘s land
2. Profit: A is given right to enter upon B‘s land and remove something attached to land
3. Negative easement: A is given right to enforce a restriction on the use of B‘s land
4. Real covenant / equitable servitude: A given the right to require B to perform some act on B‘s land; and A
     given right to require B to pay money for upkeep of specified facilities

     Appurtenant Easement: An easement that is connected to the land: it gives the benefit of the easement to whoever
owns a particular piece of land (e.g., whoever owns lot A can pass through lot B)
     Easement in Gross: An easement that is connected to a particular person: it gives the benefit of the easement to a
particular person (e.g.: Frank can pass through lot B)


          B.        Easements
                    1.    Reserving an Interest to a 3rd Party- Willard v. First Church of
                    Christ, Scientist
Willard v. First Church of Christ, Scientist, CA 1972 (672)
           a. Overview
                      i.    Supreme Court of California
                     ii.    McGuigan owns two neighboring lots (19 and 20). 19 has house and 20 is parking lot. She allows
                            church across the street use the parking lot during services. She sells lot 19 to Petersen. Petersen
                            writes up deed for both lots (even though he only owns 19) and puts the deed in escrow for
                            Willard. Then Petersen gets McGuigan to sell him lot 20. Deed from McGuigan to Petersen
                            contains easement to the church to continue using the parking lot. However, the deed from
                            Petersen to Willard did not contain the easement because written up before Petersen finds out
                            about the easement. When Willard finds out about the easement, takes up quiet title against the
                            church. The court said that the easement was invalid because of old common law rule re third
                            party beneficiaries, but CA SC reverses, holding easement valid.
           b. Creation of easements
                      i.    Question: May a grantor, in deeding real property to one person, effectively reserve an interest in
                            the property to another?
                     ii.    Answer: Yes. Although in other cases, balancing the competing interests may warrant
                            application of the common law rule to presently existing deeds, in the instant case the
                            balance falls in favor of the grantor’s intent, and old common law rule should not defeat
                            her intent.
                    iii.    Reasoning: Old common law rule: one cannot ―reserve‖ an interest in property to a stranger to the
                            title. The court says this rule is archaic and obsolete. Important to give effect to the intent of
                            the grantor. A balancing of the equities should be done: balance the injustice which would
                            result from refusing to give effect to the grantor‘s intent against injustice from failing to give effect
                            to reliance on the old rule. No evidence of reliance upon old rule, and no problem of ancient title.




                                                                  34
         c.   Related notes:
                    i.   McGuigan could have gotten around the old common law rule if it was still applicable by giving
                         the lot to the church and having church convey it back to her (reserving an easement in itself).
                         Then sell to Petersen subject to the easement in the church. This shenanigan suggests why no
                         sense in enforcing old rule.
                   ii.   Why wasn’t Willard a bona fide purchaser w/r/t the easement? Willard had constructive
                         notice of the easement. The deed from McGuigan to Petersen was in his chain of title b/c
                         it was recorded before the deed to Willard came out of escrow. Willard should have put into
                         the K that he was allowed to do a title search before agreeing to the release of the deed from
                         escrow.
                  iii.   Easement was appurtenant (not in gross). Was attached to the piece of land that benefits
                         from the easement – not to any person, i.e. it was attached to the land that the church was
                         on, not to the church as an organization. McGuigan‘s intent probably to make it in gross, but
                         bad lawyering.
                  iv.    In this case, lot 20 is the servient estate. It is the one burdened by the easement. The church
                         property is the dominant estate, benefiting from the easement. (Easements in gross have no
                         dominant estate.)
         d.   Gilbert
                    i.   Under the majority view, an easement can be reserved only for a grantor. An attempt to reserve an
                         easement for anyone else will likely be held void. Some modern cases hold that an easement may
                         be reserved in favor of a third person. There is no reason to prohibit this in modern law.
                         Moreover, if the easement is invalidated, the grantee is unjustly enriched by getting more than he
                         bargained for.


                  2.       Easements by Estoppel- Holbrook v. Taylor
Holbrook v. Taylor, KY 1976 (677)
         a. Overview
                       i. Supreme Court of Kentucky
                      ii. Holbrook owns a property but gives permission for a haul road to be cut so that a coal company
                          can move coal from a mine to the main road. Mine closes. Later, the Taylors buy property
                          adjacent to Holbrook and build house there. Holbrook allows Taylor to use the haul road, by
                          permission. Dispute in 1970, when Holbrook wants document clearing him from liability for
                          incidents on road; Taylor says this document was because Holbrook wanted him to buy the road
                          for $500. Holbrook puts fence across the road. Taylor sues to remove the obstruction affirm
                          right to use the road. Affirmed that Taylor‘s right to use the road is established by estoppel.
         b. Creation of easements
                       i. Question: Do the Taylors have a right to use the haul road?
                      ii. Answer: Yes. A right to the use of the roadway by prescription had not been established
                          because the use was not adverse, but it had been established by estoppel.
                    iii.  Rule: Where license includes right to erect structures and acquire an interest in land in the
                          nature of an easement by the construction of improvements, licensor may not revoke the
                          license and restore premises to their former condition after licensee has exercised the
                          privilege given by the license made improvements at considerable expense.
                    iv.   License = oral or written permission given by the occupant of land allowing the licensee to
                          do some act that otherwise would be a trespass. Licenses are by definition revocable except
                          (1) where it is coupled with an interest or (2) where it becomes irrevocable under the rules
                          of estoppel.
                      v.  Reasoning: Use of the roadway by the Taylors to get to their home from the public highway, use of
                          the roadway to take in heavy equipment and material and supplies for construction of the
                          residence, general improvement of the premises, the maintenance of the roadway, and
                          construction of a $25,000 residence, all with the actual consent of the Holbrooks or at least with
                          their tacit approval, demonstrate that the license to use the subject roadway may not be revoked.
         c. Related notes:
                       i. Taylor didn‘t want to pay $500 but undertook significant risk by going to court.
                      ii. A license made irrevocable by estoppel is not an interest that can be created from the outset.


                                                            35
                  iii.   Normal ways to get an easement: (1) express grant, (2) implied grant, (3) prescription (adverse
                         possession), (4) necessity. Taylor does not meet any of these, so need to find another solution.
                  iv.    Taylor couldn‘t claim an easement by prescription (i.e. adverse possession) because his use was
                         permissive and had only been using the road only 5 years. Instead, he claims an irrevocable license
                         by estoppel because of investments (i.e. detrimental reliance).
                   v.    Also, a normal license is no good, because this can be revoked at any time. So court grants an
                         irrevocable license, which is very similar to an easement.
                  vi.    After case, court gives license made irrevocable, which looks like an easement. But not permanent
                         like an easement; would no longer be valid if his property no longer existed (e.g. if his house
                         burned down). Remedy of license by estoppel only lasts so long as the investment exists. Might
                         run with land if house remains (differs by jurisdiction).
                 vii.    Note that an irrevocable license is a remedy: it does not exist until granted by the court
                 viii.   $100 improvement to the road is incidental. Focus on $25,000 house built— scope of the
                         investment means that justice requires granting the irrevocable license.
                  ix.    But, should reliance begin with purchase of the land, or with building of the house? If he bought
                         the land in reliance on a promise to be able to use the road, then that was the initial detrimental
                         reliance, in which case he should keep the license even if his house burns down. But, if he bought
                         the land without that promise, the if the house burns down the he should lose the license.
                   x.    Given the chances of losing this case (and hence access to his house), it probably would have been
                         better for Taylor to just pay the $500 for access (and may have been more fair to Holbrook for
                         court to force Taylor to pay this).
         d.   Gilbert
                   i.    License may become irrevocable under rules of estoppel. If licensee has constructed substantial
                         improvements on either licensor‘s land or licensee‘s land, relying on the license, in many states the
                         licensor is estopped from revoking the license. The theory is that it would be unfair to the licensee
                         to permit revocation after he spends money in reliance.


                  3.        Implied Easement- Van Sandt v. Royster
Van Sandt v. Royster, KS 1938 (682)
        a. Overview
                     i.   Supreme Court of Kansas
                    ii.   Bailey owns a large plot. Built house on eastern part. Constructed a private lateral sewer drain
                          from the house running west through and across rest of the property to the street. Later conveys
                          western part of her land (lots 19 and 20) to other people. Both built houses there and connect to
                          the lateral sewer. Also sold her own lot (lot 4) later. Van Sandt owns lot 19 (the westernmost lot),
                          Royster owns lot 20 (in the middle), and Gray owns lot 4 (easternmost). Van Sandt discovers his
                          basement flooded with sewage. Discovers the lateral sewer drain running across his property (into
                          which his own sewage also emptied). He sues for an injunction against Royster and Gray to stop
                          them from using the drain. Courts refuse.
        b. Creation of easements (implied easements)
                     i.   Question: Do Royster and Gray have an implied easement in the sewer drain running across Van
                          Sandt‘s property?
                    ii.   Answer: Yes. An easement was created by implication, and Van Sandt cannot be granted
                          the injunction.
                   iii.   Reasoning: To win, Royster must show that (1) There is an easement and (2) Van Sandt is not a
                          bona fide purchaser.
                   iv.    (1) If the owner of land, one part of which is subject to a quasi easement in favor of
                          another part, conveys the quasi dominant tenement, an easement corresponding to such
                          quasi easement is ordinarily regarded as thereby vested in the grantee of the land,
                          provided the quasi easement is of an apparent, continuous, and necessary character.
                    v.    (2) Van Sandt had constructive notice of the sewer—could have been discovered through
                          inspection, and therefore was not a bona fide purchaser. Also, without the easement for the sewer
                          pipe, Royster‘s and Gray‘s land cannot be used without disproportionate effort and expense.




                                                              36
         c.   Related notes from class
                    i.   ―Quasi easement‖ is a judicial construct, like an irrevocable license in Taylor. Not
                         something one can create. Doesn‘t exist until a remedy is called for. The easement here is not
                         strictly necessary, but re-routing the sewer pipes would take much effort and expense. Different
                         from an ―easement by necessity‖ where without the easement there would be NO possible
                         access/sewer drainage/etc.
                   ii.   The court charges Van Sandt with constructive knowledge of the lateral sewer and uses this
                         constructive/implied knowledge to refuse him bona fide purchaser status (because if he was a
                         bona fide purchaser, then the quasi-easement might not be enforceable).
                  iii.   Remaining unsettled = whether Royster and Gray have to contribute to the cost of fixing the
                         sewer. Probably, so Van Sandt has a cause of action against them (a right to contribution).
                  iv.    Bailey could have prevented this dispute by explicitly reserving an easement in herself in the deeds
                         to lots 19 and 20 when she sold them.


         C.       Covenants
                  1.        Basic Principles
    Traditionally, 3 requirements for servitudes to run with the land:
             1. Horizontal privity of estate (i.e., relationship between original grantor and grantee)
             2. Promise touches and concerns the land
             3. Original parties intended that it run with the land
     In England, horizontal privity meant LL-T relationship, which is why Tulk, below, is in equity. In U.S., buyer-seller
        met requirement.
     The Restatement (First) required horizontal privity for easements that burden the land.
     The Restatement (Third) does away with horizontal privity requirement, instead focusing on notice.
     U.S. states, unlike England, have had recording systems since 1640. This makes requiring privity unnecessary. In
        general, in determining whether a servitude runs with the land, most jurisdictions focus on the intent of
        the original parties and whether the remote parties had notice of the servitude. However, differences among
        states persist.


                  2.        Equitable Servitudes- Tulk v. Moxhay
Tulk v. Moxhay, UK 1848 (746)
         a. Overview
                  i.  Court of Chancery, England
                 ii.  Tulk owns vacant piece of land in Leicester Square, as well as several of the houses forming around
                      it. In 1808 he sells vacant land (garden) to Elms. Deed of conveyance contains a covenant by Elms
                      to maintain the garden and to allow other inhabitants of the Square to use it. The garden eventually
                      falls into ownership of Moxhay, whose deed does not contain a similar covenant, but he admits that
                      he purchased with notice of covenant in 1808 deed. Moxhay intended to build upon the garden.
                      Tulk sues for an injunction, which is granted.
         b. Equitable servitudes
                  i.  Question: Should a subsequent purchaser with notice be held to a covenant made between parties in
                      a previous deed of conveyance?
                 ii.  Answer: Yes. A buyer purchasing with notice of an equity attached to the property by the
                      owner must be held to the same situation as the party from whom he purchased.
                iii.  This promise must be considered an equitable servitude because it is not enforceable as a real
                      covenant, which traditionally required horizontal privity. Price would be affected by the
                      covenant, and would be inequitable than that the original purchaser should be 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 himself had undertaken.




                                                             37
         c.   Related notes:
                  i.   Negative covenant at hand not enforceable at law (even though there was intent and it touches upon
                       the land) because no privity of estate as considered by the English courts (not a LL-T relationship).
                       (In America, would say IS p/e because covenant was made as part of land transaction.)
                 ii.   Court does not want to limit binding restrictions to LL-T relationships, so enforceable in equity.
                       Requirement is not p/e, but notice. The court focuses on the difference in price as part of their
                       equity analysis: unjust result if the subsequent purchaser could escape the obligation of the covenant.
                iii.   Issue of remedies—would Tulk rather have the promise treated as a real covenant or an equitable
                       servitude? For RC the remedy is damages, for ES an injunction. He wanted an injunction so he
                       would want it to be treated as an ES. Believed the value of the surrounding land would be enhanced
                       if the garden was kept open. Injunction worth more than damages, which would be calculated from
                       period when the covenant was made.


                  3.        Real Covenants- Sanborn v. McLean
Sanborn v. McLean, MI 1925 (751)
          a. Overview
                   i.  Supreme Court of Michigan
                  ii.  McLean owns lot 86 of a subdivision. Wants to build a gas station on it. The subdivision has general
                       restrictions barring such land uses which appear in many deeds, but this does not appear in McLean‘s
                       deed. Owners of the adjoining land sue to enjoin. Injunction is granted.
          b. Creation of covenants
                   i.  Question: Can the owners of a lot in a subdivision be held to restrictions that did not appear in their
                       own deed but appeared in the deeds of other lots in the subdivision when they were granted from
                       the same common grantor?
                  ii.  Answer: Yes. The lot owners must be held to the restrictions because they are subject to a
                       reciprocal negative servitude.
                iii.   Reasoning and rule: If the owner of two or more lots, so situated as to bear the relation, sells
                       one with restrictions of benefit to the land retained, the servitude becomes mutual, and,
                       during the period of restraint, the owner of the lot or lots retained can do nothing forbidden
                       to the owner of the lot sold.
                iv.    I.e., once the owner sells one lot with a restriction that benefits the land retained (e.g., by
                       making it attractive for residential buyers who know that no gas stations will be built), then
                       the owner of the other lots is bound by those restrictions in a negative reciprocal servitude.
                  v.   The idea is that since the McLeans benefit from the restrictions on the other lots, they also need to
                       share the burden and be subject to the restrictions themselves.
                vi.    Why infer a restriction on the McLeans?: Restrictions were initially imposed for the benefit of the
                       grantors to carry out the scheme of a residential neighborhood. This purpose would be frustrated by
                       allowing the McLeans to violate the restriction. (Tragedy of the Commons)
               vii.    Such servitude remains attached to the lot and may be enforced as long as subsequent transferees
                       purchase with knowledge (actual or constructive) thereof.
              viii.    How do we avoid the fact that McLean was a bona fide purchaser, who did not know about the
                       restriction? McLean was considered to have inquiry notice because of the obvious character of use
                       made of all the lots: 1. plan/scheme of the neighborhood, 2. individual restrictions on some
                       lots, and 3. 30 yrs of observance.
          c. Related notes from class
                   i.  Court here really means ―servitude,‖ but calls easement.
                  ii.  Should the McLeans have checked for these restrictions? They should have done a title search back
                       to the common grantor (McLaughlin) and back down. Should also have looked at all the deeds to
                       lots sold in the subdivision prior to the sale of lot 86. (cf. Luthi)
                 iii.  Contrast with Guillette? Here, no restriction expressly applies to lot 86, whereas in Guillette the
                       restriction was expressly applied to the particular property.
                 iv.   McLeans lose because had inquiry notice. Recorded subdivision plan was on record, and although
                       the restrictions didn‘t show up on it, could have figured out which deeds to look at for possible
                       restrictions.



                                                              38
                 v. The court thereby expands the chain of title for a land purchased from a common grantor: the
                    purchaser is required to search title back to the common grantor, and then also check the titles of all
                    properties sold by the common grantor prior to the current property, to look for restrictive
                    covenants.
              vi.   Restriction on the other lots benefited the value of their lot, so reciprocal. Any party that
                    retains land that benefits from a covenant has a cause of action against any party that bears
                    the burden of the covenant. If a party retains no land that benefits from the covenant, or if
                    the other party is not responsible for the burden, then there is no cause of action.
              vii.  Court thinks after the first sale of a lot in the subdivision developer is legally bound because of the
                    buyers’ expectations. (But court only had to say that it had arisen sometime before the sale of lot
                    86). I.e., once the common grantor sells one property with the promise that other properties will be
                    sold subject to the restriction, then he is bound to apply that restrictions to all lots subsequently sold,
                    and purchasers of those lots are bound by those restrictions. They bought in expectation of a certain
                    type of neighborhood, and the court must honor that expectation.
             viii.  Other lots sold after lot 86 are part of scheme that should put McLean on inquiry notice even though
                    not in McLean‘s chain of title: a pattern of restrictions that was uniform before they bought lot 86,
                    perhaps ended with their purchase, and was intermittent afterwards.
         d. Real Covenant vs. Equitable Servitude
                i.  A real covenant is enforceable at law. It can only be created by a writing (SoF), and cannot
                    be created by estoppel, implication, or prescription. Remedy for breach of a real covenant is
                    damages in the form of compensation. (Sanborn)
               ii.  An equitable servitude is a remedy that is available in equity when there is not a real
                    covenant. Remedy is injunction. (Tulk)


                  4.   Validity and Enforcement- Neponsit Prop. Owners Assoc. v.
                  Emigrant Bank
Neponsit Prop. Owners’ Assoc. v. Emigrant Bank, NY 1938 (755)
          a. Overview
                   i.   Court of Appeals of New York
                  ii.   Emigrant buys land. Their deed, and every deed in their chain of title since the original conveyance
                        of the land by the developer of the subdivision, conveys the property subject to a covenant appearing
                        in the original deed. This deed requires the payment of an annual charge to be paid to the Neponsit
                        POA. POA sues Emigrant to foreclose a lien upon Emigrant‘s land, which arose when Emigrant
                        failed to pay the fee. The court decides that the covenant is enforceable – for the POA.
          b. Validity and enforcement of covenants
                iii.    Rule of law: Three legal requirements for a covenant to run with the land and be enforceable
                        against subsequent purchasers: (1) the original grantor/grantee must have intended for the
                        covenant to run, (2) the covenant must ―touch‖ or ―concern‖ the land, and (3) there must be
                        privity of estate between the party claiming the benefit of the covenant and the right to
                        enforce it, and the party who rests under the burden of the covenant.
                 iv.    Question 1: It is clear that the intent of the original grantor/grantee was that the covenant run with
                        the land.
                  v.    Question 2: Does the covenant ―touch‖ or ―concern‖ the land?
                 vi.    Answer 2: The problem is that the covenant is for the maintenance of common land, and is therefore
                        by definition not concerning the particular land of the particular owner (Emigrant). So, how can the
                        covenant be ―touching the land‖? Covenant may be said to touch and concern the land because
                        it imposes a burden upon the owner’s interest in it and, on the other hand, increases the
                        value of a different interest in the same land. In the original conveyance, grantee obtained a right
                        of common enjoyment in the public spaces in the development. Money must be paid for that space
                        to be maintained. Thus the grantor exacted from the grantee a covenant that the burden of paying
                        the cost should be inseparably attached to the land which enjoys the benefit.
                vii.    Question 3: Is there privity of estate between the Neponsit POA and Emigrant Bank?
               viii.    Answer 3: Yes, although POA has not succeeded to the ownership of any property of the
                        grantor, it is created to act as the agent of the individual property owners, who do have the
                        power to enforce the covenant.


                                                              39
         c.   Related notes:
                ix.    Longstanding rule is that a POA can‘t enforce covenants without an interest in the property in
                       question. So often owns some property. This holding changes that, by giving POAs the right to
                       enforce restrictive covenants even when they are only administrative bodies- i.e. even when
                       they do not themselves own land.
                 x.    Why prefer to allow POA to enforce, rather than only individual owners? (1) Efficiency: One suit is
                       better than many from separate individuals, (2) Effectiveness: Individuals are reluctant to sue due to
                       high cost, so enforcement is more likely when there is an organization tasked with enforcement that
                       shares the cost and accepts the time burden.
                xi.    The POA receives $, spends $, maintains common areas, can impose new restrictions with a
                       supermajority of property owners. Private equivalent of a town government. Developers don‘t like
                       to give up control of the POA until the development is far enough along that their investment is
                       assured.


                   5.       Racially Restrictive Covenants- Shelley v. Kraemer
Shelley v. Kraemer, US 1948 (783)
           a. Overview
                     i.  SCOTUS
                    ii.  In 1945, a black family by the name of Shelley purchased a house in St. Louis, MO. At
                          the time of purchase, they were unaware that a restrictive covenant had been in place on the
                          property since 1911. The restrictive covenant barred ―people of the Negro or Mongolian Race‖
                          from owning the property. Neighbors sued to restrain the Shelleys from taking possession of the
                          property they had purchased. The Supreme Court of Missouri held that the covenant was
                          enforceable against the purchasers because the covenant was a purely private agreement between
                          the original parties thereto, which ―ran with the land‖ and was enforceable against subsequent
                          owners. SCOTUS reverses.
           b. Racially Restrictive Covenants
                     i.  Question: 1. Are racially-based restrictive covenants legal under the Fourteenth
                        Amendment of the United States Constitution? 2. Can they be enforced by a court of
                        Law?
                    ii.  Answer: 1. Yes. 2. No.
                   iii.  Rule: racially-based restrictive covenants are, on their face, not invalid under the 14th Am. Private
                         parties may voluntarily abide by the terms of a restrictive covenant, but they may not seek judicial
                         enforcement of such a covenant, because enforcement by the courts would constitute state action.
                         The 14th Am bars discriminatory state action. Since such state action would necessarily be
                         discriminatory, the enforcement of a racially-based restrictive covenant in a state court would violate
                         the Equal Protection Clause of the Fourteenth Amendment.


                   6.       Termination

                            a)     Refusal to Terminate for Economic Gain- Western Land
                            Co. v. Truskolaski
Western Land Co. v. Truskolaski, 1972 (786)
         a. Overview
                  i.    Supreme Court of Nevada
                 ii.    Western subdivided a 40-acre development, and at that time it subjected the lots to certain restrictive
                        covenants which specifically restricted the entire subdivision to single-family dwellings. Western
                        then wants to build a shopping center on a 3.5-acre parcel located within the subdivision. The
                        homeowners sue to enjoin. Affirmed that restrictive covenant is enforceable.
         b. Termination of covenants
                  i.    Question: Are the restrictive covenants still enforceable?



                                                               40
                 ii.   Answer: Yes. The restrictive covenants remain of substantial value to the homeowners in the
                       subdivision, and the changes that have occurred since 1941 are not so great as to make it
                       inequitable or oppressive to restrict the property to single-family residential use.
               iii.    Reasoning: Mere changes cited (increase in traffic, commercialization, change in zoning, etc.)
                       are insufficient to render the purpose of the covenant frustrated and therefore unenforceable.
                            1. Increase in traffic: restrictive covenants are still enforceable if the single-family residential
                                 character of the neighborhood has not been substantially impaired.
                            2. Commercialization of the vicinity: such activity has not rendered the restrictive covenants
                                 unenforceable because they are still of real and substantial value to homeowners within
                                 subdivision.
                            3. A zoning ordinance does not automatically override privately restrictions.
                            4. Economic waste: Even if the property is more valuable for commercial than residential
                                 purposes, this fact does not relieve Western of the restrictions it created, since substantial
                                 benefit inures to the restricted area by their enforcement.
                            5. Even if some alleged occurrences and irregularities could be construed to be violations of
                                 the restrictive covenants, they are too distant and sporadic to constitute consent,
                                 abandonment or waiver. Hence restriction is still in force.
         c.   Related notes from class
                  i.   Despite the expansion of Reno and the arguable more profitable use to which this land could be put,
                       the restriction acts as ―moat‖ around the subdivision, keeping residential quality intact. The court
                       draws a line of defense. It sacrifices economic value of this one lot to protect remainder.
                 ii.   In order for the court to not enforce the covenant, it would have to find that the restriction was no
                       longer of substantial value to the property owners of the development, looking at the development as
                       a whole, not just the lot in question or a couple of others. Here, it is clear that if the restriction is not
                       enforced, the neighborhood will soon be destroyed.
                iii.   Can think of ways to frustrate purpose of restrictive covenants.


                            b)        The Single-Owner Veto- Rick v. West
Rick v. West, NY 1962 (790)
         a. Overview
                   i.  New York Supreme Court
                  ii.  Rick owned 62 acres of vacant land, which he subdivides. A declaration of covenants restricted the
                       land to single-family dwellings. In 1956 he sells West a half-acre lot. In 1957 the land is zoned for
                       residential use. Subsequently Rick contracts for the sale of 45 acres to an industrialist, the sale being
                       conditional upon rezoning of the tract for industrial use. The property is rezoned, but West does not
                       release the covenant, so sale falls through. The same thing happens later with a proposed hospital.
                       Rick sues, claiming the covenant was no longer enforceable because of a change of conditions. The
                       court holds for West (covenant remains enforceable).
         b. Termination of covenants
                   i.  Question: Is the restrictive covenant still enforceable?
                  ii.  Answer: Yes, there was no evidence of any substantial change in the general neighborhood
                       and no change at all within this tract.
                iii.   Reasoning: West relies upon the residential restrictions and has a right to continue to rely
                       upon them. Here not a question of balancing equities. The court must safeguard
                       individuals’ rights.
         c. Related notes from class
                   i.  Cumulative zoning: West’s lot becomes zoned industrial, but she doesn’t have to stop using
                       it as residential.
                  ii.  Judgment in this case is the functional equivalent of giving West an injunction against Rick. It
                       basically means that a single owner who refuses to consent to rescission of a covenant can block any
                       development contrary to the covenant.
                 iii.  Contrast with Boomer, in which the court denied injunctive relief in favor of compensation. That‘s
                       because in that case, an injunction couldn‘t have served the purpose of forcing negotiation. There
                       were too many people involved. If there was a holdout problem, there would have been high
                       transaction costs with so many different homeowners. Here, there is only one homeowner. So


                                                                41
                           lower transaction costs—but still have the holdout problem. Thus injunction here more but only
                           somewhat more efficient.
                iv.        Balancing test. On West‘s side: expectations when she bought and rule of law: obligations must be
                           upheld. On Rick‘s side: potentially high cost of the ―injunction‖ (can‘t do anything with property
                           because single-family homes not reasonable) and rezoning done (marking community opinion).
                 v.        Rick basically wants to sell to a hospital because the development failed as a residential project- many
                           of the lots were sitting vacant. But ultimately, the court decides that it cannot correct Rick for his
                           economic failure at the expense of rightful owners of property.
                vi.        The court therefore seems entirely unconcerned with the most efficient use of the land, or the effect
                           on surrounding properties (i.e., property values may go down due to presence of so many vacant
                           lots)
                vii.       Some jurisdictions time-limit restrictive covenants.
               viii.       Under what circumstances might the covenant not be enforced? (see also Truskolaski)
                                 a. Strong public interest (this argument is rejected by the court as never outweighing private
                                     property rights)
                                 b. Fundamentally changed circumstances (Truskolaski)
                                 c. Enforcement would be unconscionable or oppressive
                ix.        Contrast this case with Boomer (nuisance):
                                 a. In Boomer, the court balanced the pros and cons of various options to the parties and the
                                     public, eventually coming down on the side of the cement factory. Why no do that here?
                                     Why not consider the public interest in a similar fashion?
                                 b. Possible explanation: In Boomer, the cement factory already existed, so shutting it down
                                     would cause much harm to people who work there, etc. But in Rick, the hospital is not yet
                                     built, so rather than actually causing harm, you are merely preventing a gain, which is less
                                     bad.
                                 c. Other explanation: No real difference between the two. Simply different results on similar
                                     facts.


                      7.       Common Interest Communities- Nahrstedt v. Lakeside Village
Nahrstedt v. Lakeside Village Condo Assoc., CA 1994 (800)
          a. Overview
                   i.    Supreme Court of California
                  ii.    Lakeside Village Condos is subject to certain covenants, conditions and restrictions (CC&R‘s)
                         included in the developer‘s declaration at the inception of the development project. One of them is a
                         pet restriction. Nahrstedt purchases a condo there and moved in with 3 cats. The condo association
                         demands that the cats be removed, and assess fines against her for each month she remained in
                         violation of the restriction. Nahrstedt sues association, asking the court to declare the restriction
                         ―unreasonable‖ as pertains to indoor cats. She also alleges she didn‘t know about the restriction
                         when she purchased. Trial court dismisses her complaint; court of appeal reverses. State Supreme
                         Court reverses again in favor of the restriction.
          b. Common interest community covenants
                   i.    Question: Is the pet restriction contained in the recorded declaration of a condominium complex
                         enforceable against the challenge of a homeowner?
                  ii.    Answer: Yes. The restriction is reasonable because it (1) is not arbitrary, (2) does not impose
                         a disproportionate burden on the property, (3) does not conflict with any fundamental public
                         policy, and (4) the other homeowners still desire it.
                 iii.    Reasoning: Court distinguishes between use restrictions that are set forth in master deed of
                         the condo project (incl. pet rules), and rules created by the condo owners association later on.
                         The former are considered presumptively reasonable, but the latter can be evaluated more
                         readily. Even so, is reasonable. Other condo owners rely on it. Promotes stability and predictability.
                 iv.     Unreasonableness is evaluated based on the project as a whole, not the particular property
                         owner. Thus here, while allowing the cats might not be a big deal, the willingness of the courts to
                         accept case-by-case evaluation of restrictions would make those restrictions essentially useless, as
                         there would be no certainty as to what is allowed, and the condo would have to either spend lots or
                         money on lawsuits or abandon enforcement. (Against dissent.)


                                                                 42
                 v.    Dissent: Court must do cost/benefit analysis. Presumption of reasonableness is too strong. On
                       cost/benefit analysis, it is clear that benefit to some owners of having cats far outweighs the cost to
                       other owners.
         c.   Related notes:
                  i.   The fact that the restriction is in the deed gives purchasers notice, so her claim of not knowing is no
                       good (she had constructive notice).
                 ii.   Other common restrictions include minimum age, no children, no flags (constitutional issues but
                       usually upheld, as homeowners are considered to have waived those rights when they buy a home in
                       the community).
                iii.   This is normally justified on the basis of the argument that living in such a community is a matter of
                       choice- if you didn‘t want to be subject to such restrictions, you could live somewhere else. But in
                       many parts of the country, such communities are just about all there is. So perhaps the choice is not
                       so free.
                iv.    Homeowners association can choose not to enforce restrictions in some circumstances, but if they
                       want to enforce the restrictions, usually upheld. Individual owners cannot enforce restrictions on
                       their own.
                 v.    A mall is the commercial equivalent of a common interest community. Unlike shops on the street,
                       the owner of the mall can impose all sorts of restrictions on activities and appearance.
                vi.    Is this the ―Secession of the Successful‖? Consider gated communities?
               vii.    Maybe, but courts can‘t refuse to enforce based on what they believe is bad policy. Property
                       ownership still gives the right to control.


                   8.       Common Interest Communities as Quasi-Governments
Mulligan v. Panther Valley Property Owners Assn., NJ 2001 (815)
          a. Overview:
                    i.   NJ Appellate Division
                   ii.   Panther Valley is a gated residential community. They vote to amend the association covenant and
                         by-laws to bar registered sex offenders under Megan‘s Law. Mulligan, a member of the association,
                         sues to challenge the law on grounds that it violates public policy. Court held that record on the issue
                         is insufficient for plaintiff to meet burden of proof, so holds for Panther Valley.
          b. Reasoning:
                    i.   In this case, the record is unclear whether, as plaintiff argues, the restriction harms a significant
                         portion of the population by making a large segment of the housing market unavailable to them.
                   ii.   The record is also unclear whether the association provides the sort of quasi-municipal functions that
                         would make it analogous to governmental actions in some regards.
                 iii.    While the court holds for the Panther Valley, it makes clear that if a private residents association
                         provides quasi-municipal functions, then its restrictions may be subject to more stringent
                         tests of discrimination than for regular private organizations, in order to prevent
                         discrimination.



IX.      Zoning
         A.        Historical Background- Village of Euclid v. Ambler Realty
Village of Euclid v. Ambler Realty Co., US 1926 (828)
           a. Overview
                     i.  U.S. Supreme Court
                    ii.  Euclid a suburb of Cleveland. Ambler owns a tract of land in Euclid. Residential plats on either side
                         of it. The village council adopted a zoning ordinance restricting Ambler‘s land to U-2 (residential),
                         U-3 (residential/public), and U-6 (industrial) uses. Ambler sues, saying that the ordinance violated
                         his constitutional right to due process. Wants an injunction against the enforcement. The trial court
                         held the ordinance to be unconstitutional. Supreme Court reverses, upholding constitutionality of
                         ordinance.
           b. Zoning, origins and constitutionality

                                                               43
                 i.    Question: Is the ordinance invalid in that it violates the constitutional protection ―to the right of
                       property in appellee by attempted regulations under the guise of the police power, which are
                       unreasonable and confiscatory‖?
                  ii.  Answer: No. The ordinance in its general scope and dominant features is a valid exercise of
                       authority, leaving other provisions to be dealt with as cases directly involving them arise.
                 iii.  Reasoning: Ambler complains that the ordinance decreases the value of his property because he was
                       planning on using all of it for industrial use. The court says that the location of the property matters.
                       May be some necessary evils (industries of an ―innocent character‖ being excluded) but restriction is
                       reasonable. Ambler has perhaps suffered harm, but not a harm that allows Ambler to challenge
                       constitutionality. May be exceptions where some ordinances will go against the public interest, but
                       not here. Zoning has many benefits and is increasingly acknowledged by the courts as valid.
         c.   Related notes from class:
                iv.    Zoning ordinances usually imposed in response to a particular set of fears or realities.
                  v.   3 dimensions of Euclidean zoning: 1. min. lot size, 2. height restrictions, 3. use restrictions.
                vi.    Here an attempt to stave off the encroaching development of the city of Cleveland.
                vii.   Ambler‘s argument: most land decreased in value because of the restriction, and too much land held
                       in anticipation of industrial development.
               viii.   Justice Sutherland uses a nuisance argument to justify the constitutionality of zoning.
                ix.    Court protects others‘ property rights. Clear implied hierarchy of uses: single family residential
                       on downward.
                  x.   Sutherland characterizes apartments as ―parasites‖—feed off of positive aspects of single family
                       neighborhoods and ruin them (―unstated nuisance‖).


         B.       Variances- Commons v. Westwood Zoning Board
Commons v. Westwood Zoning Board, NJ 1980 (850)
        a. Overview
                 i.   Supreme Court of New Jersey
                ii.   Commons owned a vacant piece of land. They wanted to build a one-family residence on it. A
                      variance was necessary because of the zoning ordinance that required a minimum lot size and a
                      minimum setback. The house would conform to the setback requirements but the lot was too small.
                      Commons said that the home would not impair market values of other nearby homes and that it
                      would not impair the borough‘s zoning plan. Also, he tries to buy more land from neighbors so he
                      could comply. Neighbors claim that the house would be aesthetically displeasing. The zoning board
                      denies the variance, finding that Commons failed to demonstrate evidence of hardship and that the
                      variance would impair the zoning plan. The trial court affirms. NJ SC reversed and remanded.
        b. Variances
                 i.   Question: Did Commons demonstrate enough undue hardship and satisfaction of the negative
                      criteria to get a variance?
                ii.   Answer: Yes. Evidence of hardship and some satisfaction of the negative criteria, so the case
                      should be remanded to the zoning board so that further findings can be made.
               iii.   Reasoning: ―Undue hardship‖ involves the underlying notion that no effective use can be
                      made of the property in the event the variance is denied. 1. Hardship may not be self-
                      imposed. Also, it is 2. significant whether the property owner has made efforts to comply. In
                      this case, Commons showed hardship which was not self-imposed. When undue hardship is found
                      to exist, the zoning board must be satisfied that the negative criteria are satisfied. 3. Grant of the
                      variance must not infringe upon the public good and the intent and purpose of the zone plan.
                      Here, zoning board made only the conclusory statement that the variance would impair the intent of
                      the zone plan. Did not sufficiently explain why. The board needs to make more findings, eg., calling
                      in building inspector, on this matter.
        c. Related notes:
                 i.   Variances are like nonconforming uses in that they exist because zoning ordinances are
                      imposed on built landscapes.
                ii.   The second requirement (that variance not be detrimental to the area) is more vague but more
                      important.



                                                              44
                iii.    The case is sent back to the zoning board because there is a possibility that the house will not be
                        detrimental to the area. But unlikely to succeed.
                iv.     Variance represents the tension between individual property owners’ rights and the welfare
                        of the community.


         C.           Aesthetic Regulation- Stoyanoff v. Berkeley
Stoyanoff v. Berkeley, MO 1970 (872)
           a. Overview
                     i.      Supreme Court of Missouri
                    ii.      Stoyanoff applies to building commissioner for building permit to allow them to construct a
                             ultramodern single family residence in Ladue. Houses nearby all of conventional design. Lot owners
                             refused a building permit for the house because not approved by the city‘s architectural board. Lot
                             owners sue, saying that ordinance is illegal (not authorized by zoning enabling statute) and
                             unconstitutional (because too vague and provide no standard for uniform rule by which to guide the
                             architectural board). The court upholds ordinance.
           b. Aesthetic regulation
                     i.      Question: Is the ordinance illegal? Is it unconstitutional?
                    ii.      Answer: No to both. The ordinance may be enforced.
                   iii.      Reasoning: The enabling statute allows the board to make regulations with consideration to
                             the character of the district and with a view to conserving values of buildings (―general welfare
                             provision‖ of enabling statute). These considerations are related to the general welfare of the
                             community. The ordinance is ok because it considers general welfare. Proposed house may have an
                             effect on property values of neighboring houses. Ordinance not an unconstitutional/ unreasonable
                             exercise of police power. Ordinance is sufficient in its general standards calling for a factual
                             determination of the suitability of any proposed structure with reference to the character of the
                             surrounding neighborhood and to the determination of any adverse effect on the general welfare and
                             preservation of property values.
           c. Related notes:
                       i. Unclear whether zoning board could deny purely on basis of aesthetic qualities,
                             if found not to diminish neighboring property values. Varies by jurisdiction.
                       ii. Zoning restrictions granted presumptive validity.
                       iii. Stoyanoff had right to fair hearing on impact on property values. Evidence considered
                            inadequate in part because Stoyanoff did not provide full plan for house.


         D.           Exclusionary Zoning- Southern Burlington NAACP v. Mt Laurel
Southern Burlington County NAACP v. Township of Mt. Laurel, NJ 1975 (918)
          a. Overview
                    i.   Supreme Court of New Jersey
                   ii.   Mt. Laurel zoned 1/3 of its property for industrial use, but only a small portion of that property is
                         used for industrial purposes. The other areas, zoned for residential subdivisions, have minimum lot
                         sizes and realistically only allow homes within the financial reach of middle-class (or higher) persons.
                         No multifamily units are allowed. This policy of land use regulation is for a fiscal end because of
                         NJ‘s tax structure. The NAACP sued to challenge the zoning codes as exclusionary. The court
                         found against the city and obligated them to provide for lower-income residents.
          b. Exclusionary zoning
                    i.   Question: May a developing municipality validly, by a system of land use regulation, make it
                         physically and economically impossible to provide low and moderate income housing in the
                         municipality and thereby exclude the people who need such housing from living within the town
                         because of the limited extent of their resources?
                   ii.   Answer: No. Every municipality must, by its land use regulations, presumptively make
                         realistically possible an appropriate variety and choice of housing. It cannot foreclose the
                         opportunity of the classes of people mentioned for low and moderate income housing and in
                         its regulations must affirmatively afford that opportunity, at least to the extent of the
                         municipality’s fair share of the present and prospective regional need.

                                                               45
                iii.   Reasoning: Zoning power is a police power of the state, and the local authority is acting only as a
                       delegate of that power. So when regulation does have a substantial external impact, welfare of the
                       state‘s citizens beyond the borders of the particular municipality cannot be disregarded. Mt. Laurel‘s
                       zoning ordinance is contrary to the general welfare and outside the intended scope of the zoning
                       power. No municipality may exclude or limit categories of housing for a local financial end (they
                       cannot do it for the benefit of the local tax rate).
         c.   Related notes from class
                  i.   Zoning is exclusionary by definition. Question is who is excluded.
                 ii.   Fiscal considerations: here, Mt. Laurel wants low property taxes. Yet property carries most of the
                       burden of paying for municipal services. So how do you keep a healthy tax base and keep down the
                       cost of services? Fewer schools and higher property tax revenue. Restrictions that allow
                       expensive/large houses, attracting wealthier and smaller families.
                iii.   Large minimum lot size ordinances often easy to justify on sanitation/public health grounds
                iv.    Zoning land for commercial and industrial uses decreases pressure on municipal services and creates
                       tax base.
                 v.    In practice, the restrictions also had a racial discrimination effect.



X.       Additional Notes
         A.        Possessory Estates & Future Interests
                   1.       Historical Overview
Historical overview of how people in England have dealt with what to do with property when the tenant or owner dies. At
first there was nothing like ―property rights‖ as we know them; they evolved over time in response to politico-socio-
economic factors.

Important dates: 1066 Norman Conquest
                         1176 Assize of mort d‘ancestor
                         1290 Statute Quia Emptores

     A. Up from Feudalism
            a. Tenure
                      i. In the late medieval/early modern periods, the social system was a hierarchy based on land
                         tenure. Land was the source of wealth and the basis of status in society. Property rights were
                         not just over land, but also the people who were on the land.
                     ii. The king had a personal relationship with tenants-in-chief. He gave them spoils (conquered
                         land) and the promise to protect the land, in return for the tenants‘ loyalty, given through
                         homage and fealty, in the form of fighting in the military.
                    iii. The tenants-in-chief had large holdings but also large obligations to get people to fight for the
                         king. Thus he would repeat the same process lower down (homage and fealty in return for
                         land). Thus was built a feudal pyramid, with services flowing to the king at the top and
                         protection extending downward to the actual occupants of the land at the bottom. This was
                         also known as the tenurial chain.
                    iv. Land was not owned by the possessor but was held by the possessor as tenant of someone else.
                         Each holding ended at the death of the tenant. Upon the tenant‘s death, the property returned
                         to the lord, who could bestow it upon someone else.
            b. Feudal tenures and services
                      i. Tenants could provide various services to their lords. Even nominal services were useful
                         because they provided evidence of the tenurial relationship and were important for establishing
                         the lord‘s right to incidents.
            c. Feudal incidents
                      i. Homage and fealty was one of them. A tenant gave a lord his allegiance and in return received
                         protection.



                                                             46
                ii. Important were the liabilities at the death of the tenant. Wardship: when a tenant died leaving
                    an heir under 21, the lord was the heir‘s guardian, entitled to possession of the tenant‘s land with
                    rents and profits. Marriage: the lord had the right to sell the heir in marriage. Both of these
                    were important profit-making opportunities for the lord, and they ended when the tenant came
                    of age. One more liability upon death was relief: when a tenant died, the heir had to pay the lord
                    a sum to come into his inheritance.
       d. Avoidance of feudal incidents
                 i. A tenant could, without the lord‘s consent, add a new rung to the bottom of the feudal ladder
                    (by enfeoffment), become a lord himself and have a tenant who rendered him services. (This
                    was subinfeudation.) It could be used to avoid the feudal incidents. A tenant could enfeoff
                    someone else with everything the tenant himself had, in exchange for some nominal service.
                    Nominally, the tenant was still in the tenurial chain. The lord above the tenant was thereby
                    cheated out of his incidents because upon the death of the tenant, the subtenant legally retained
                    the use of the land, and all the lord was entitled to was what the tenant‘s heirs were entitled to:
                    the nominal service of the subtenant. Subinfeudation was the only way to acquire or sell
                    property under the existing rules prior to 1290.
B. The Fee Simple & the Decline of Feudalism
       a. How the fee simple developed
                 i. Rise of heritability
                         1. When a tenant died, leaving a son, it became common practice for the lord to admit
                              the son to the father‘s holding with the same duties and upon payment of a relief (in
                              the post-1066 period). That practice turned into an expectation on the part of the
                              tenant‘s heirs. In time the lord recognized an obligation to admit the dead tenant‘s
                              son, and so would consent to the descent in advance by conveying holding ―to A and
                              his heirs.‖
                         2. The inheritance of a fee hardened into a legally enforceable right in 1176 with the
                              Assize of Mort D‘ancestor. Heirs then had a legal right to property assigned ―to A and
                              his heirs.‖
                         3. Still, this was not ―ownership‖ as we consider it. If there were no heirs, the property
                              still escheated back to the lord.
                ii. Rise of alienability
                         1. Post-1066, property could not be sold. Tenants were holding the property for life;
                              their heirs could inherit their holdings. Subinfeudation was the only way that tenants
                              could acquire or sell interests in property; they were still part of the tenurial chain.
                         2. In 1290, the king tried to stop the process of subinfeudation (because it cheated lords
                              out of their feudal incidents) by enacting the Statute Quia Emptores. It prohibited
                              subinfeudation altogether, but at the same time, it mandated that the lords had to
                              concede to all tenants the right to substitute a new tenant for all or part of their land
                              without the lord‘s consent. This allowed a tenant to remove himself altogether from
                              the tenurial chain.
                         3. Major historic consequence: it established a principle of free alienation of land (the first
                              recognition that fee interests in land were freely alienable, or able to be transferred to
                              someone else).
               iii. Rise of the fee simple estate
                         1. The fee simple absolute was created after 1290 when holdings in land (for life) became
                              freely heritable and freely alienable. The fee simple, like all estates in land, was thought
                              of as an actual ―thing‖ having a real existence apart from the land. The fee simple is as
                              close to absolute ownership as our law recognizes. It is the longest estate because it
                              may potentially endure forever.
       b. Creation of a fee simple
                 i. After 1176 and before 1290, a conveyance‘s words ―to A and his heirs‖ were words of purchase,
                    meaning that A‘s heirs actually got something—they were grantees.
                ii. After 1290, a fee simple was created by the grantor conveying land ―to A and his heirs.‖ This
                    meant that A‘s land was inheritable by his heirs, but these words did not give A‘s prospective
                    heirs any interest in the land; A‘s sons had no interest during A‘s lifetime. They were not
                    guaranteed to get anything. This was because judges construed the words ―and his heirs‖ as



                                                         47
                           words of limitation, just serving to define A‘s estate as a fee simple. The words ―to A‖ were still
                           words of purchase.
                      iii. For the next 600 years, a grant ―to A‖ meant that A got a life estate. ―And his heirs‖ were
                           words necessary to create a fee simple in A.
           c. Inheritance of a fee simple
                        i. If a person died without a will, property descended to his heirs, as designated under the state‘s
                           statute of descent. A living person has no heirs (yet) because no one is heir of the living. Hence
                           if there is a conveyance to A‘s heirs, we don‘t know who will take until A dies; the grantees are
                           not ascertained (important in future interests).
                       ii. Heirs: Issue  Ancestors  Collaterals  Escheat
    C. The Fee Tail & Abolition of the Fee Tail
           a. The fee tail limited inheritance to the grantor‘s bloodline by conveying property ―to A and the heirs of his
                 body.‖ If A‘s heirs of his body died, A got full interest in the property (known as fee simple conditional /
                 fee simple determinable). Some states have this option today. Also fee simple on a condition subsequent
                 (action by owner to re-take), such as right of entry.
           b. The Statute de Donis replaced the fee simple conditional with the fee tail. The fee tail is an estate in land
                 created by a conveyance ―to A and the heirs of his body.‖ It descends to A‘s lineal descendants
                 generation after generation and expires when the original tenant in fee tail, A, and all of A‘s descendants
                 are dead. When the fee tail expires, the land will revert to the grantor or the grantor‘s heir by way of
                 reversion. Every fee tail has a reversion or a remainder after it.
           c. Under the Statute, the tenant in fee tail could alienate his possessory interest, but could not affect the
                 rights of his issue to succeed to the land upon his death.
           d. Today the fee tail has been replaced by the life estate as a device for controlling inheritance.
    D. The Life Estate
           a. The grantor of a life estate can control who takes the property at the life tenant‘s death. It ultimately
                 supplanted the fee tail as a device to control inheritance.
    E. Entail – to keep title in family (Jane Austen)


                   2.        Future Interests
Future interests arose from these various attempts to reach into the future to control the disposition of property.

Overview:
   I.         Interests retained by the transferor/grantor
              a. Reversion
              b. Possibility of reverter
              c. Right of entry (power of termination)
    II.       Interests created in a transferee
              a. Vested remainder
              b. Contingent remainder
              c. Executory interest

Detailed outline (from class – see Gilbert for definitions, etc.)

The fee simple is potentially infinite.
-You can slice it up into one present possessory interest plus many future interests as long as all of the pieces you divide it
into add up to an entire continuous fee simple.
         -Landlord/tenant example

    I.        Reversion
              a. A future interest left in the owner of a fee simple after a lesser estate that he has given (e.g. a life estate)
                  expires.
              b. A reversion is almost never explicitly stated. It just exists.
              c. Historical background: Before 1290, seisin was the highest degree of right to a property—not ownership
                  in the modern sense, but more than possession. Someone always had to be seised of the property because



                                                                48
            it was believed that if no one was, the title to the property would ―disappear.‖ Hence the need for the
            reversion.
       d.   Present possessory life estate + reversion = fee simple (a constant quantum)

II.    Possibility of Reverter
       a. A future interest left in the grantor after conveying a fee simple determinable.
       b. Fee simple determinable: a fee simple given ―so long as‖ what the grantor wants happens. Example: ―so
           long as beer is not served on the premises‖
       c. If the ―so long as‖ condition does occur, the fee simple determinable automatically ends and possessory
           interest reverts back to the grantor without the grantor having to do anything.

III.   Right of Entry
       a. A future interest left in a grantor after conveying a fee simple subject to condition subsequent.
       b. Fee simple subject to condition subsequent: A fee simple given to a transferee, ―but if‖ what the grantor
           does NOT want happens, the fee does not automatically end, but the grantor can exercise the right of
           entry (by suing to enforce the right). However, if the grantor does not exercise the right, the transferee is
           on the property as an adverse possessor and can become the owner of the entire fee simple after the
           statute of limitations runs out.

IV.    Vested Remainder
       a. A future interest in a transferee. It happens when the owner of a fee simple gives the fee away forever
           (―to A for life, remainder to B and his heirs‖). The fee simple has been divided in two parts: present
           possessory interest (A‘s life estate) and future interest (B‘s vested remainder). It is the same quantum as a
           reversion, but goes to B instead of back to the original owner.
       b. All that has to happen for a vested remainder to become possessory is the natural termination of the prior
           estate. There are no conditions. There is no gap in seisin.
       c. A vested remainder has real value because it‘s a ―sure thing‖—it can be bought and sold. If it is sold to
           someone else, that someone else will take actual possession of the property only after A‘s life estate
           expires naturally. Likewise, if A sells his life estate, the buyer will only have it until A himself dies; then B
           takes possession.

V.     Contingent Remainder
       a. A future interest in a transferee that is subject to a condition precedent to the vesting of the future interest.
           Example: ―to A for life, remainder to B and his heirs if B is 21 when A dies‖
       b. Courts used to be hostile to contingent remainders because they created gaps in seisin if the condition
           precedent was not met when the life estate expired. So if the condition was not met, the contingent
           remainder would be destroyed and possessory interest would go back to the grantor by reversion. Now,
           contingent remainders are no longer destructible; if the condition precedent is not met, possessory
           interest only goes back to the grantor until the condition is met (e.g. an age requirement) and then the fee
           simple goes to the person who had the contingent remainder.
       c. Remainders never divest a prior estate.

VI.    Executory Interest
       a. Unlike remainders, executory interests (also interests in transferees) divest a prior estate. Example: ―to A
           for life, but if A marries, to B‖ (shifting executory interest)

VII.   Uses and Trusts
       a. A use: Grantor  X  Y (widow etc.) (―to X for the use of Y‖)
       b. Ownership is divided into a legal interest (in X) and an equitable interest (in Y).
       c. The use that Y has is not an interest in real property; it‘s treated as personal property. Thus you can make
           future provisions with this kind of future interest that you cannot do with contingent remainders because
           there is no gap in seisin (Y continues to have legal right even when X changes).
       d. If you do something like… Grantor  X  grantor … X owns the legal property and you own the use
           (equitable interest). The advantage to this was that creditors cannot take the property if you get into debt
           because X technically/legally owned it.
       e. This system worked well for landowners but not the king. The tenurial chain was contracting toward the
           king (once there was no more subinfeudation), and taxes were also flowing up toward the king. When


                                                        49
                holding the use to your own estate as in (d), your death was not taxable, so the king felt cheated out of
                taxes.
                       i.  1530‘s Statute of Uses: executed all the uses, meaning that legal title bounced off the feoffee
                          and fell on the person with the equitable title.
                      ii. The use system had shielded property from taxes and creditors and now could not do so
                          anymore; in addition, property owners were back to the situation they were in before—they
                          could only get rid of property by (1) willing or selling it while alive, or (2) it would descend to
                          their heirs according to the law upon their death.
                     iii. The uproar about this change led to the Statute of Wills, 1540 (don‘t need to know)
           f.   With uses, interests could spring and shift in a way that could not be done with remainders (because
                remainders had the possibility of a gap in seisin). Trusts and executory interests arose when uses were
                done away with so that property owners could still spring and shift interests while getting around the
                problem of contingent remainders.
                       i.    A trust was like a use except that the person with the legal title had minimal duties before the
                             beneficiary.
                      ii.    G  XYZ  A
                                  a. XYZ = used to be ―feoffees in use,‖ now ―trustees‖
                                  b. A = used to be ―cestui que use,‖ now ―beneficiary‖
                     iii.    In time, the shifting and springing interests that were done in trusts became known as legal
                             future interests – executory interests.
           g.   These days, people don‘t convey property the way it‘s shown in all of the book examples.
                       i. The complications make it harder to dispose of an entire fee simple – have to deal with too
                          many parties
                      ii. If you have a life estate, you can‘t get a mortgage – banks do not want to risk that you will die
                          soon and they will lose money
                     iii. Future interests destroy marketability.
                     iv. Instead of doing life estates and remainders, we now put properties in trust.
                               1. The trustee has the power to do things with the property
                               2. Many of the complexities still exist

      The Rule Against Perpetuities
         h. Tried to put a limit on how far into the future you could control property
         i. All you need to know: Never draft a real estate option contract for more than 21 years.



      B.        Leasehold Estates
I.         Term of years
           a. An estate that lasts for some fixed period of time (or for a period computable by a formula that results in
               fixing calendar dates for beginning and ending, once the term is created or becomes possessory).
           b. Although it must be for a fixed period, it can be terminable earlier upon the happening of some event or
               condition.
           c. Because it states from the outset when it will terminate, no notice of termination is necessary to bring the
               estate to an end.
           d. There can be a unilateral power to terminate.
           e. Death of landlord or tenant does not affect duration.

II.        Periodic tenancy
           a. A lease for a period of some fixed duration that continues for succeeding periods until either the landlord
                or tenant gives notice of termination. (Various rules exist for when the notice must be given, relative to
                the ending of the period.)
           b. If notice is not given, the period is automatically extended for another period.
           c. Example: ―to A from month to month‖ (an express period tenancy—although they are often created by
                implication).
           d. There can be a unilateral power to terminate.
           e. Death of landlord or tenant does not affect duration.



                                                            50
    III.        Tenancy at will
                a. A tenancy of no fixed period that endures so long as both landlord and tenant desire.
                b. 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 is actually what has been created).
                c. It ends when one of the parties terminates it (among other ways). It also terminates at the death of one
                    of the parties, unlike the other two kinds of tenancies.


           C.       Residential Real Estate Transactions
Multiple (5+) parties involved: Seller, seller‘s agent & his broker, seller‘s lawyer, buyer, buyer‘s agent & his broker, buyer‘s
lawyer, lender…
    1. Seller‘s Agent
              a. Supposed to represent seller, fiduciary, subordinate his interests to seller‘s
              b. But it doesn‘t play out like this in practice
              c. The agent is interested in maximizing profits by keeping costs (time/money spent on selling any one
                   house) to a minimum – wants to sell house as fast as possible and not hold out for higher offers
              d. Sellers are afraid of:
                          i. Selling house for too little (think of it as investment)
                         ii. Not selling house at all (don‘t want to carry 2 mortgage payments once they move into their new
                             home)
              e. Real estate agents have the best info on the state of the market and how to best present houses to buyers
              f. Some numbers: use a $300,000 house as example to show how the system works
                          i. Standard commission: 6%, or $18,000
                         ii. Split between the seller‘s agent and the buyer‘s agent: $9,000 each
                        iii. Split between the seller‘s agent and the brokerage: $4,500 each
                        iv. If a seller wants to hold out for a higher price, say $10,000 more, that represents a lot to the
                             seller ($9,400) but not much for the seller‘s agent ($150 after all the splits are made) especially in
                             light of the extra cost and effort of holding out for better offers
              g. Typical deal: if agent keeps the sale in-house, brokerage will take smaller cut of commission
              h. Seller‘s agents usually have information about the market that is critical when setting an asking price,
                   which is actually very important
    2. Buyer‘s Agent
              a. Actually a subagent of the seller‘s agent – has a legal responsibility to seller
              b. Buyer can sign a form transferring the agent‘s legal responsibility to the buyer in return for promising to
                   only use that one agent
                          i. In residential deals this doesn‘t do much for you
                         ii. It doesn‘t change the structure of incentives
              c. In a dual agency situation, one person acts as agent for seller and buyer
                          i. Both seller and buyer have to be informed of what‘s going on
                         ii. It‘s really impossible for agent to represent both sides totally fairly
    3. Lawyers
              a. Their legal obligation is zealous representation
              b. The ultimate goal of each transaction is a deed
              c. But unlike real estate agents, a lawyer gets paid regardless of whether the deal goes through or not – some
                   dishonest lawyers take advantage of this
                          i. Agents get paid when deal closes
              d. If a buyer‘s lawyer tries to amend or mark up a form contract substantially, a seller may get scared off
                   because he won‘t want to deal with it
    4. Lender
              a. Another self-interested party
              b. Takes a security interest in the house (mortgage) in exchange for a loan
              c. Will almost never loan a buyer 100% of the purchase price of the house – wants to make sure the lender
                   is secured by the value of the house even if the value of the house goes down
              d. Lenders insist on appraisal of the house and only loan if appraisal doesn‘t diverge too much from the
                   contract price
                          i. Lender‘s appraisals usually come in on the low side


                                                                 51
         D.        Real Estate Contracts
Contracts contemplate performance in the future. The period of time during which future performances happen is the
executory period, between the signing of the contract and the closing (transfer of title). This period is typically 45-60 days.
This sample contract indicates some of the things that must happen then – contingencies. If key contingencies are triggered
(required events do not happen or additional information is revealed), the contract is not good.

I. Money – Mortgage contingency (par. 5)
              a. The buyer needs a loan to buy the house; the bank takes a security interest in the house in exchange for
                  the loan. Providing this as a contingency gives the buyer an out if he can‘t get financing.
              b. ―Initial earnest money‖ is not enough to stop buyer from walking away from the deal  greater deposit
                  will be required during the executory period in an escrow account
              c. If you can‘t get mortgage financing, you probably won‘t get your deposit back.
              d. You can always get mortgage financing, the only question is how much you will pay for it. You can set
                  acceptable limits in the contract – make the deal contingent on getting financing at or below a certain
                  interest rate.
                        i. This contract also mentions ―points‖ – a buyer can pay ―points‖ to lender to get a lower interest
                            rate
              e. The executory period is a period of uncertainty for the seller, so might agree with buyer to forego
                  mortgage contingency to make sure deal goes through (if sure that buyer will come up with money).
II. Property‘s condition – professional inspections (par. 11)
              a. There are no warranties for most homes like there are for cars. Inspection usually has to happen within a
                  few days of signing the contract. If there are problems, the buyer can back out and get his deposit back.
              b. The seller doesn‘t want any defect to allow buyer to back out, only serious defects that would take a lot of
                  money to fix. So you can put a money amount on the limit between serious and non-serious defects to
                  distinguish these.

Two issues regarding the deed
1. Common interest developments (real estate developments with restrictions on use)
        -If you later discover that a property you bought had one of these restrictions after signing the contract but before
        closing, there‘s nothing you can do if the contract says you take title subject to those restrictions (which this sample
        does)
2. Good and merchantable title
        -The issue of whether title is based on adverse possession (is it still merchantable). Can the buyer walking away
        after finding this out during the executory period? No—the closing is the point in time when the seller is obligated
        to convey merchantable title. Before then, the buyer cannot back out of the deal. During the executory period, the
        seller may take a quiet title action to gain legal merchantable title to be passed onto the buyer at closing. If the date
        of closing is not set in stone, the seller could have until the conclusion of any litigation to show that he can convey
        marketable title.


         E.        Mortgages
-Buyer needs to borrow $ from a lender.
-Lender lends $ in return for a security interest in the house to secure the loan.
-The resulting debt is the ―mortgage loan.‖
-Evidence of the loan: the note identifying the lender and borrower, stipulating terms
-To secure the loan, borrower gives bank a ―mortgage‖ – a security interest
-The borrower is the mortgagor; the lender is the mortgagee

                 Note
Borrower --------------- Lender



                                                               52
             Mortgage
Mortgagor -------------- Mortgagee

-The property that the lender is taking a security interest in has to be adequate to cover the claim
-A lender will never lend 100% because they want to make sure they have a cushion to protect themselves
-This is why secured loans have better rates than unsecured loans

Before the 1930s, lenders would only lend 50% of the purchase price.
-Loans were only for 10 years (approx)
-Weren‘t meant to be paid off within the term of the loan: at end of term, balloon payment remained; practice was for the
bank to roll that over into another mortgage loan
But after 1929 (stock market crash/bank failures)  banks began calling in loans as the time for the balloon payment came
-Foreclosure rates skyrocketed in the 1930s
-These were foreclosures on owners who had been (and could continue to) make monthly payments
-Government response: 1934 Federal Housing Admin. (FHA) to revive building trade
-Had to make it easier for people to borrow $
-Made loans have constant payments for a longer duration—would be paid off at end of term (20+ years) (self-amortizing)
-Monthly payments had to be affordable
-At beginning, payments went mostly to interest, but by the end were paying off principal (see graph)
-Buyers also had to put less down at the beginning
-Can now get loans for 80-90% of purchase price (higher loan-to-value ratio)
-Lenders had to assume greater risk (smaller cushion)  FHA insured them against loss
-Would not insure in neighborhoods where property values might decline
-Homeownership did increase
-Tax policy favors owners over renters
-Lending policy favors suburbs over cities
-All of this history gave us today‘s self-amortizing mortgages (not just FHA-insured ones)
-There have been changes in this over the last few years (see below: ARMs)
-If you can come up with 20% and take only 80% from lender you can get a break on interest. How? You borrow the other
20%- second, third, etc. mortgages
-80% loan: first mortgage lender—senior in priority to all other lenders, will insist on title holding
-Each lender after this is assuming greater and greater risk  charge more interest

Secondary market—buying up notes from first mortgages
-First lenders sell them to get money to finance more mortgage loans
-Fannie Mae buys FHA-insured loans from original lenders to inject more capital into the mortgage market

Loans = ―mortgage products‖—credit is marketed as a consumer good
Adjustable rate mortgages (ARMs): 1980s- high inflation era
-Interest rates on first mortgages were high
-Monthly payments were going up on amortized loans
-Harder to borrow $: banks choosier
ARMs: long-term self-amortizing loans BUT no promise of fixed monthly payments
-Start at below-market rate
-One-two years in, then annually, interest rate changes according to standard benchmark (loan goes up at same rate as
benchmark rate)

Continuum of lenders: gray area between first lenders and ―mobsters‖
-Payday lenders? (annualized interest: 400%)
-Subprime (predatory) lending?


         F.       Servitudes
(these are just class notes—see book notes separately)
Historically, this area of the law is a mess.



                                                            53
Imagine two adjacent landowners, A and B. Each decides he wants to restrict the development of both properties to single-
family residential use. Historically there were no ways to do this. The traditional law of easements did not permit it.
Easements were limited to rights to use parts of others‘ property. The idea of easements as negative restrictions on use did
not develop (with few exceptions, such as the doctrine of ancient lights). With affirmative easements, physical evidence of
the easement existed (e.g. an access road) but this was not the case with negative easements. The court was thus wary
because of the lack of a paper recording system- physical evidence was relied upon.
However, this concept moved into the realm of contracts. Nothing should prevent A and B from making a promise to each
other not to build anything other than single-family residences. Yet this promise itself is not really satisfactory because it is
not enforceable against subsequent transferees, which the parties want. This is where the problem arose. You have to turn
the promise into a property-based obligation to make it ―sink its hooks into‖ the property itself so that everyone who
succeeds to the property is bound by it.
The courts set a higher standard for the running of the burden of such a promise than for the running of the benefit.
Necessary: intent that the promise run with the land. The promise must ―touch on‖ the land. Sometimes you need privity
of estate. The burden on a covenant only runs if there was privity of estate between A and B.
If A and B make a covenant, B passes his property to C, and A tries to build an apartment building, C can sue. If C is the
one who tries to build the apartment building, A can only sue if there was privity of estate between A and B.
What constitutes p/e? In England, there was only p/e if A and B were in a landlord-tenant relationship. American courts
consider it to exist when the promise was made in the context of a land transaction. P/e is easy to create after the fact by
transferring the property to a third-party in a ‗straw conveyance‖ and having that person convey the deeds back to them
with the covenant included. The current Restatement doesn‘t require p/e because it‘s an empty formality—it can be created
through a straw. More emphasis is now laid on the intent of the original parties to make the promise binding on subsequent
transferees. Also, subsequent transferees have to succeed to the same estate (fee simple, etc.) as the original party had.
However, the Restatement itself is not law. And there are many variations across jurisdictions.


         G.        Common Interest Communities
Three justifications for the restrictions
1. Property value: Aesthetic restrictions preserve value of neighbors‘ property
2. Avoid conflict: Anything divisive is forbidden
3. Comfort of residents: People like to be among people who are like them
Courts give significant deference to these restrictions.
However, they have externalities: People living in CIC‘s don‘t want to pay taxes for upkeep of public streets, schools, etc.
outside of their community.


         H.        Zoning
-Many of the same issues as with CIC‘s – both are trying to accomplish similar ends, controlling physical environment
-Public regulations rather than private (covenants, servitudes) or judicial (nuisance)
-Two major areas of government intervention in private property:
          1. Regulatory (environmental regulations, housing codes, ZONING)
          2. Eminent domain
-Distinction between physical taking for public use and regulatory ―taking‖ that has effect on prop value
-Some regulations are ok without compensation if considered valid exercise of police power
-Others impair the value such that they are considered ―takings‖ and must be accompanied by due process and
compensation
-Zoning grew out of the anti-urban movement of the late 19th century, a reaction against crowding of the Industrial
Revolution
-Separation of where people lived from where they worked
-Principles of the Garden City movement became the principles of zoning
-Use most to be protected was residential use, especially single family – everything else subsidiary
          *Main idea of zoning: segregation of uses
-Assumption that competing uses harm one another- commercial incompatible with industrial, etc.
-Zoning is almost always imposed on a built landscape
          -Ambler‘s property was undeveloped, but the surrounding area was not

                                                               54
-Why have cumulative zoning?
        -Had to start out this way when starting with an already-developed landscape
        -Idea was that zones would eventually become pure

Problems
Adverse Possession

Problem 1, p. 130- Adverse Possession
Question: O owns and has been in possession of a 100-acre farm since 1975. In 1990 A entered the back 40 acres under
color of an invalid deed for the entire 100 acres. Since her entry, A has occupied and improved the back 40 in the usual
manner for the period required by the statute of limitations. A brings suit to evict O from the farm, claiming title by
constructive adverse possession. What result?

Answer: A get to keep the back 40, and O gets to keep the front 60. A has gained adverse possession of the back 40, by
living on and improving the land for the required time period. A‘s actual possession of the back 40 trumps O‘s constructive
possession of it. Thus O has lost his ability to sue and eject A. On the other hand, O has been in actual possession of the
front 60 with valid title, which trumps A‘s constructive possession of the front 60. Thus neither can sue and eject the other.

Problem 1, p. 142
a. Question: In 1996 A enters adversely upon Blackacre, owned by O. In 2003 B tells A to leave. A, feeling threatened,
leaves, and B enters into possession. In 2006 who owns Blackacre? Can O or A eject B?

a. Answer: Both O and A can sue to eject B. O can sue to eject B because O is the true owner of the property. A can sue
to eject B because B is interfering with A‘s actual possession of the property. However, if A does nothing, O still owns
Blackacre in 2006.

b. Question: Suppose that in 2003 A leaves under threat of force, but six months later A recovers possession from B. If O
does nothing, will A own Blackacre 10 years from the date of his entry in 1996, or 10 years and 6 months from the date of
his entry in 1996, or in 2013?

b. Answer: Assume A recovers possession by suing B. This constitutes an action that would be expected of the true owner;
he was protecting his possession. Thus, A will own Blackacre either in 2006 or 2007 (if the court makes him make up the
time of his gap in possession). Either could be justified, because both answers acknowledge the same principle that the
clock should not be restarted because A was acting like the true owner.

Problem 2, p. 142
Question: In 1990 A enters adversely upon Blackacre, owned by O. In 1991 O dies, leaving a will that devises Blackacre to
B for life, remainder to C. In 2006 B dies without ever having entered upon Blackacre. Who owns Blackacre?

Answer: You have to think about what an adverse possessor is acquiring once beginning the cause of action—all you can
acquire through adverse possession is what the person you entered against had. Here, A begins to acquire O‘s fee simple in Blackacre.
Even though B inherits a life estate in Blackacre, B would have to sue A in order to exercise his right to use the land for life
(the right conferred on him by the life estate). B does not sue A, so in 2000 A acquires the property by adverse possession
and B no longer has the option of suing A. A has acquired O‘s fee simple, and so when B dies, A owns the property.

Question 3, p. 142:
Question: Suppose that A had not entered adversely upon Blackacre until 1992, after O had died and left Blackacre in his
will to B for life, remainder to C. Who owns Blackacre in 2006 when B dies?

Answer: When A enters on the property, he begins acquiring what B had: B‘s life estate in the property. In 2002, A has
acquired B‘s life estate in the property, meaning the right to use the land until B dies. When B dies, the clock starts over and
A must begin acquiring something new: C‘s fee simple. In 2006, C owns Blackacre.




                                                                 55
Transfers of Property and Reversion (adapted from pp. 175-190)

O owns a fee simple and makes the following transfers. In which cases is there a reversion?
   1. O conveys ―to A for life, then to B and her heirs.‖
             a. A has a life estate; B has a vested remainder in fee simple; there is no reversion
   2. O conveys ―to A for life, then to B and the heirs of her body.‖
             a. A has a life estate; B has a vested remainder in fee tail; O has a reversion
   3. O conveys ―to A for life, then to B and her heirs if B attains the age of 21 before A dies.‖ At the time of the
        conveyance B is 15.
             a. A has a life estate; B has a contingent remainder subject to condition precedent; O has a reversion. If B
                 turns 21 before A dies, O‘s reversion is divested and B‘s remainder becomes vested. This is the only time
                 when a future interest changes its label – when a condition precedent is satisfied before the expiration of
                 a prior estate, changing a contingent remainder to a vested one. Normally the labels attached when the
                 interests are created stick with them.




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language:English
pages:56