Present Title Covenants (Warranty Deeds)
• The present covenants are breached, if at all, at the moment the
deed was delivered
– Covenant of Seisin (at time of transfer, grantor owns whatever estate
the grantor is purporting to convey)
– Covenant of Right to Convey (at time of transfer, grantor has the
legal right to convey the interest being conveyed)
– Covenant Against Encumbrances (at time of transfer, grantor’s
estate is not subject to easements, liens, or servitudes in favor of
third parties)
Future Title Covenants (Warranty Deeds)
• Future covenants are breached, if at all, only when the grantee’s
possession is actually interfered with due to a title defect
– Covenant of quiet enjoyment (grantor warrants against actual or
partial eviction by someone holding “paramount title”)
• E.g., Problem 3: when Davis (who held remainder interest in the home) sues
Mitchell for possession of the home after Litton’s death, the covenant of quiet
enjoyment is breached
– Covenant of warranty (coincides w/quiet enjoyment)
– Covenant of further assurances (grantor agrees to act to “clear up”
title defects, if possible)
Problem 3
• Litton purported to convey home to Mitchell in fee simple
absolute, but Litton held only a life estate
– Litton’s warranty deed would have breached the covenant of
seisin (i.e., Litton did not have warranted FSA estate)
– Litton’s warranty deed would have breached the covenant of
right to convey (Litton did not have the right to convey an
estate greater than a life estate)
Brown v. Lober
• 1957: Plaintiffs received general warranty deed from
Defendant
• 1974: Plaintiffs contracted to sell mineral rights to Coal
Company for $6,000
– Prior to closing, however, a title search revealed that a prior owner
had reserved a 2/3 interest in the coal rights
– Thus, the sale only closed after Plaintiffs reduced price to $2,000
• Plaintiffs sued Defendant for $4,000 damages for breach of
deed warranty, but lost. Why?
• Held: Plaintiffs couldn’t recover for breach of present
covenant of seisin or covenant against encumbrances
– 10 year statute of limitations began to run in 1957, upon
delivery of deed (which is when breach occurred)!
– No discovery rule!
• Held: Plaintiffs couldn’t recover for breach of future covenant
of quiet enjoyment
– Problem: owner of coal rights hadn’t yet asserted those rights (thus,
no actual or partial eviction of Plaintiff had occurred)
– Plaintiff should’ve reached settlement w/ prior owner first
Problem 2
• 1995: Your father buys a farm from Jones for $100,000, receiving
a general warranty deed (without exceptions)
• 2010: You inherit the farm from your father
• 2015: You have an agreement to sell farm to Developer for
$500,000, but deal falls apart when title search reveals a
“agricultural use only” covenant in favor of neighboring parcel
• If neighbor will not release covenant, your economic loss is
$300,000 ($500,000 - $200,000 FMV for agricultural use), but you
can recover only $100,000 from Jones (price he received). Why?
Brown — The Limited Utility of Deed Covenants
• Title defects are often “latent”
– By the time the defect is discovered/arises, much time may
have passed, and thus the statute of limitations may have run
for breach of the present deed covenants
– While eviction may still permit an action for breach of future
deed covenants, passage of time can also affect the utility of
that cause of action — grantor that made warranties may be
dead, not findable, bankrupt, or judgment-proof
Limitation of Damages?
• Rationale 1: Jones’s title was defective at the
time deed was delivered, so liability should be
based on the value of land at that time (as
reflected by price received by Jones)
• Rationale 2: Jones can’t meaningfully protect
himself against the risk of economic loss due
to future market appreciation of the land (or
appreciation b/c you made improvements to
the land)
Limitation of Damages
• How can grantee protect against losing the benefit of future
appreciation due to a latent title defect?
• Only through title insurance
– (1) Owner should purchase an owner’s policy of title
insurance; and
– (2) Owner should make sure that the policy amount of that title
insurance policy is increased if the land is later improved or
appreciates in value due to market conditions
Gifts by Deed
• Note: cap on damages means that where grantee
receives land by general warranty deed as a gift, grantee
cannot recover damages from donor/grantor!
– Smith citation (note 3, p. 219) is misleading
– In Smith, the court allowed a donee to recover damages from a
remote seller/grantor, not the immediate donor/grantor
– For this reason, title insurance should play an important role in
gift transactions, too
Legal/Practical Considerations for
Grantor/Warrantor
• First: if your title is defective at time you convey the
property by general warranty deed, you can be held liable
to a “remote” grantee
– Future covenants are covenants that “run with the land”
– Owner’s policy of title insurance will indemnify you for this
liability (even after you no longer own the land)
• Second: if your title is subject to an encumbrance of which
you are aware and cannot remove, you must “except” that
encumbrance from any title covenants you make
– E.g., “subject, however, to the following interests which Grantor
does not warrant against: [list any easements, restrictions, or
covenants that are of record or are known to Grantor]
• Suppose that in Problem 2, you get sued by neighboring
owner, who obtains an injunction against your planned
residential development (based upon the recorded “ag use
only” restrictive covenant)
• You sue Jones (from whom your father purchased the land)
for breach of covenant of quiet enjoyment, as Jones’s
general warranty deed did not “except” the ag use covenant
• Jones argues: covenant wasn’t breached b/c the land was
obviously farmland and thus your father (the grantee)
implicitly agreed to take title subject to the agricultural use
• Should Jones prevail on this argument? Why or why not?
• If grantor breaches a deed warranty, the grantee can
also recover the costs of defending the grantee’s title,
including attorney fees [Note 7, pages 220-221]
– This liability is not “capped” by the amount received by the
grantor at the time grantor made the warranty in question
• If grantee litigates title with an adverse claimant and
wins, grantor did not breach deed warranty and thus is
not liable to grantee for grantee’s costs of defense!
• Problem 4: How can grantee protect against the costs of
incurring a successful defense of its title?
• Some courts have held that a warranty deed impliedly
excepts coverage for an encumbrance that was obvious at
the time the grantee accepted title
– E.g., covenant against encumbrances did not warrant against a
visible driveway easement in favor of neighboring parcel owner
(rationale: parties would have factored the existence of that
easement into the agreed price for the land)
• Does that result make good sense?
– Warranties are typically strictly construed (grantor should’ve taken
exception for known encumbrance, even if it is obvious)
– Also, in Problem 3, a visible agricultural use would not signal the
existence of an “agricultural use only” covenant