PROPERTY Goals of Property Law: 1. Predictability (Rule of Law) 2. Fairness (Justice) 3. Economic Efficiency Preferred – economic value of property can contribute to transfer of ownership. a. Wealth Creation – Support Capitalism 4. Protection of Social and Environmental Values a. Wealth Distribution b. Counterpoints to Wealth Creation Favre’s overview of all law and jurisprudence: talks about E.O. Wilson’s evolutionary theories. There is a constant tension between the survival of the group and survival of the individual. Favre worked with client Chesapeake Bay Foundation in his practice. FIRST POSSESSION: ACQUISITION OF PROPERTY BY DISCOVERY, CAPTURE, AND CREATION TITLE BY DISCOVERY Discovery à King has title à King grants charters to different companies (could be economic charter or political charters) (Commonwealth of Virginia) à Treaty with England, transferred title and control over the 13 colonies, after which Virginia became a state à Constitution was formed for a federal government, but ownership of land was a state issue à Deed/Grant issued by the state to a private party (has title and right of possession). Where are there still disputes over title? Three little islands at the bottom of a chain of islands. Japan claims title. China claims they discovered the island before Japan’s claim, and still have title despite abandonment. Possession – a knowing and intentional dominion over physical product. (1) physical custody and (2) an intention to exclude others from the item. Eminent Domain – the state’s power to take property over which you have title. Johnson v. M’Intosh, U.S. Supreme Court, 1823 ISSUE Will the court of the US allow, recognize and protect title to land which originated from an Indian tribe which was in prior peaceful possession of the land or is the Court required to recognize the states and U.S. government as the only entity capable of issuing initial title to real property in the borders of the U.S. based upon the theory of discovery and title by long use? RULE OF LAW Marshall distinguishes conquest from discovery. This was not a conquest because we/they could not be assimilated. It was a discovery, considered uninhabited. The principle was shared by European nations, that whoever “discovers” the land, owns the land. They supported this with their superiority and Christianity (as opposed to the native tribal practices). The court acknowledges the problems of the rule, the unfairness to the tribe, but decides to stick with the long-­‐held principle because it is the only good option and doesn’t undermine the entire nation. HELD Following a long-­‐held principle, the court held that the tribe did not have the power to give title because title is given to those in first possession – the discoverers (aka the Europeans/the Crown). The tribe was said to be rightful occupants only. TITLE BY CAPTURE Pierson v. Post, Supreme Court of NY 1805 ISSUE Will the active pursuit of a noxious wild animal with hounds give the pursuer a property interest in the animals such as will support a legal action for recovery of the body of the animal from a subsequent pursuer who kills the animal and takes possession of the body? RULE OF LAW A hunter must (1) either trap or mortally wound a wild animal, (2) without abandoning pursuit, (3) with the intention of appropriating the animal to one’s individual use, such that (4) the hunter has deprived the animal of its natural liberty and brought it within his control in order to acquire title to it. Corporal possession is occupancy. The mortal wounding of the animal provides possession. The dissent argued that the basis for the majority rule is irrelevant, and most modern hunters would agree that the animal is acquired as property when the hunter is within reach or has a reasonable prospect of killing it, and has the intention to do so. FACTS Post was in pursuit of the fox with his hounds. Pierson killed the fox before Post reached it. HELD The majority found that Post did not have property rights over the fox while merely hunting and pursuing it, and Pierson was the first in possession by killing it. They were in neutral land, and the fox did not belong to anyone. The facts are well established. This is a question of law. “..presents for our decision a novel and nice question.” Dissent takes the side of the hunter for sport. Property can be acquired without physical possession, but with reasonable prospect of taking. A reasonable prospect requires that he has the means of killing it. [The suit was filed not because of the value of the fox lost, but because Post was interested in his sport of hunting. Post was a wealthy man interested in the sport. Pierson was a farmer interested in the value of the fox, or perhaps interested in getting rid of the nuisance of the fox.] Compare this case, one of a sporting event, entertainment, with the next case, one of a whaler’s livelihood. Ghen v. Rich, 1881 ISSUE Does a commercial whaler who kills and marks a whale in the open ocean as per the custom of the region, but cannot take possession of the whale, have title to the whale as against a subsequent finder of the whale on the shoreline of the ocean who first takes actual possession of the whale? RULE Title to a wild animal is acquired when a hunter apprehends the beast in accordance w/ custom. FACTS Cape Cod, whaling on the shore. Custom that whalers tag their whales when they are speared, the whales sink to the bottom, then float to shore, where they are found and reported so the whaler can take the blubber and boil it into oil. Also custom that the finders receive a reward from the whaler. The ships were too small to actually hang onto it after its speared. In this case, the finder of the whale on shore takes it without reporting it, then auctioned it to a buyer. HELD It’s not practical to expect whalers to hold onto the whales after killing them. The finder is not finding a whale in the state of nature, because the whale has already been killed, so it’s not really a discovery. The judges sought a rule that would promote the activity of killing whales for oil. It is clear cut, easily applicable in the field. The values important to the judges were different from Pierson v. Post. Both resulted in good rules based on those values, and in the context. Keeble v. Hickeringill, 1707 Queen’s Bench ISSUE If an individual knowingly disrupts the commercial capture of wildlife by scaring away the wildlife, must the owner of the enterprise have a property interest in the wildlife before being able to seek damages for the commercial loss to the enterprise? RULE OF LAW An intermeddler does not have the right to take away another’s rightful commercial use of their own land, malicious interference. This is a tort. Unlawful interference with a business enterprise FACTS Plaintiff had a pond that was home to wildfowl. He had a system of attracting ducks to the pond, then into a netting trap system. He does this for commercial purposes, to sell the ducks. Defendant disturbed the land purposely, shot off his guns, and scared the ducks away. [The cause of action was “action upon the case,” a legal action for trespass.] Dominion and Control: A person must have – as a best case – full dominion and control of the animal in question. The shooting, death, and retrieval of an animal by a human gives the human dominion and control of the animal. This form of possession is of such a character that can be transformed into title to the animal. Finding, seeing or chasing a wild animal is insufficient to merit/justify a claim of new title. The rule of dominion and control presumes that the animal is not owned by another at the time of the events in question. In determining whether a finder has “knowledge” of another’s ownership, look to the reasonable person in the circumstances. A reasonable person seeing an elephant in a field in mid-­‐Michigan would know that the elephant is not native wildlife and therefore has an owner, so the rule of awarding “dominion and control” over the elephant (good luck) is not available. When a wild animal escapes possession (from a person) back into the natural environment, then the human title evaporates, and a subsequent possessor can claim a new and clean original title for that animal. Discovery – to uncover that which was hidden, concealed, or unknown from everyone. To get first sight or knowledge; to get knowledge of what has existed but has not theretofore been known to the discoverer. Possession – the detention and control, or the manual or ideal custody, of anything which may be the subject of property, for one’s use and enjoyment, either as owner or as the proprietor of a qualified right in it, and either held personally or by another who exercises it in one’s place and name. That condition of facts under which one can exercise his power over a corporeal thing at his pleasure to the exclusion of all other persons. Trespass – if a trespassing individual obtains dominion and control over a wild animal, will the strong social value against trespass demand that the legal regard for the effort in obtaining dominion and control over the wild animal be denied to the trespasser as an additional punishment for his wrongdoing? Usually, yes. The goal in all of this analysis is to award title to an item.
TITLE BY CREATION An intellectual creation is protectable within the legal system when it is original, and its creative/expressive aspects can be separated from its functional/utilitarian aspects. International News Service v. AP, U.S. Supreme Court 1918 ISSUE May a news source copy for commercial gain news that has been rapidly reported, written, printed, + distributed by a competing news source when that competitor has publicly displayed their news reports? RULE News that is copied from a public competing source may not be transmitted for commercial use. FACTS INS used telegraph to send the news copied from AP’s bulletins to the West Coast, where it would be “hot news.” Not a copyright issue at the time. HELD Unlawful interference with a business enterprise (like Keeble). The Court called the AP’s news quasi-­‐
property. Misappropriation of hot news. Today, there are still things that have value in timeliness, like the stock market, where access to quick reports of stock changes is purchased. Cheney Brothers v. Doris Silk Corp., 1929 ISSUE Are fabric designs and patterns property? RULE OF LAW Old FACTS Cheney Brothers manufactured silk designs and patterns. Doris Silk Corp. copied them onto their own silks, and sold them at lower prices. The (C) office did not recognize them at the time because they didn’t separate the designs from utility. Also impractical for the Cheney Bros. to get patents for each one when trends changed quickly. HELD Court did not assign Cheney Bros. any protection of rights to the designs because they felt it was the place of the copyright office. Smith v. Channel, 1968 RULE OF LAW Competitors should be permitted to “take a free ride” on the trademark owner’s widespread goodwill and reputation if it serves a public interest by offering comparable goods at lower prices, and the most effective way to do this is to identify the copied article by its trademark or trade name. • Patent – protection granted for processes or products that are novel, useful, and nonobvious. Rights cannot be protected for abstract ideas; they must be applications of ideas. 20 years from date of original application, non-­‐renewable. • Copyright – protection granted for the expression of ideas in books, articles, music, artistic works, etc. Can protect compilation of facts if done in an original way. Life of author + 70 years. • Trademark – protection granted for words and symbols indicating the source of a product or service against the use of similar marks by competitors, or when there would be confusion. Duration until abandonment or mark becomes generic. Property in One’s Persona White v. Samsung Electronics America, 9th Circuit 1992 Dissent (Kozinski): “It’s not the robot’s wig, clothes or jewelry; there must be ten million blond women (many of them quasi-­‐famous) who wear dresses and jewelry like White’s.” this robot would not be identifiable without the Wheel standing next to it. “Overprotection stifles the very creative forces it’s supposed to nurture.” “Samsung didn’t merely parody Vanna White. It parodied Vanna White appearing in Wheel of Fortune, a copyrighted television show, and p arodies of copyrighted words are governed by federal copyright law.” The USPTO is giving out patents for human DNA. This seems like a bad idea. SUBSEQUENT POSSESSION: ACQUISITION OF PROPERTY BY FIND, BAILMENT, ADVERSE POSSESSION, AND GIFT FINDERS RIGHTS Finder’s Rights to: •
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Misplaced/Mislaid Property -­‐ Possessor voluntarily leaves it, but forgets where. The finder has no rights. Lost Property -­‐ Possessor can no longer find it. The finder is entitled to possession against all but the true owner. Abandoned Property -­‐ Possessor voluntarily relinquishes possession. The finder has the right to keep, and becomes the new true owner. Title has been given up through some act consistent with mental abandonment of title. Treasure Trove -­‐ Property hidden and found, owner unknown. Usually treated like other found property. [Used to become property of the king]. Our ultimate goal is to protect the True Owner. Amory v. Delamirie, King’s Bench 1722 ISSUE Does a finder of lost property have better title against a person who lawfully obtains and possesses the object (bailee) who refuses to return the property? RULE OF LAW Finder gains title against all but the true owner – Finder’s Right FACTS A chimney sweeper boy found a jewel and took it to be appraised at De Lamerie’s shop, whose apprentice refused to give it back to the boy. Boy sued for trover (recovery of monetary value). HELD The finder of a jewel may maintain trover. The master is liable for the apprentice’s negligence. Measure damages to the value of the best jewel (nice!). Hannah v. Peel, King’s Bench Division 1945 RULE OF LAW Finders right applies. An owner of land carries possession of everything attached to or under the land. FACTS Peel owned a home, and never occupied it, but was compensated for its use by others. Hanna was a lance-­‐corporal, and was stationed at the house lawfully. He found a brooch hidden above the window frame, and handed it over to the police, who then gave it to Peel, who then sold it. HELD Hannah wins. Peel was never physically in possession of the premises, and it was clear that the brooch was never his. A person does not necessarily possess things that lie unattached to the surface of his land, even if the thing is not possessed by someone else. Court called the brooch lost (but what are the chances that it was “lost” on the top of a window?) However, if the finder is a trespasser, the owner of the land where lost property is found has superior rights. McAvoy v. Medina, Massachusetts 1866 ISSUE is whether the finder of lost property has a valid claim against the owner of land upon which the lost property was found RULE OF LAW A finder has no original right to misplaced property. FACTS Medina was a barber. McAvoy was a customer, and found a pocketbook, and told the barber to keep it and try to get it back to its owner. McAvoy, after some time, demanded it back. HELD McAvoy had no original right to the property because the pocketbook was misplaced [placed and neglected to be removed], as opposed to lost property. It’s difficult to really know whether property is lost or misplaced. HYPO: Three boys on a railroad. One boy, A, finds a sock (takes possession). Then another, C, takes it and $500 falls out, which he picks up (takes possession of the money). They take it to C’s house, and C’s parents take dominion and control, and plan to spend the $. The parents of A and B step forward and assert that they also own it. Issue: When a person takes possession of a lost [definitely not misplaced] object of no apparent value, without the intention of keeping it, will that person be considered the finder of valuable items subsequently discovered hidden within the object? Could possession be awarded to the railroad company? What if they are 3-­‐year-­‐olds? HYPO: Hurricane in New Orleans. Thousands of people had to leave their houses. Dogs and cats had to be abandoned. A comes in from MI Humane Society, finds a dog, takes care of it, gives it to B in MI. B sells the dog to C. The True Owner from New Orleans then wants the dog back. What happens? Courts were split when this scenario happened after Katrina. Sometimes the true owner got the dog back. I would say that they never mentally abandoned possession of the dog because they would have kept the dog had their lives not been in danger. BAILMENTS A bailment is a rightful possession of goods by one who is not the true owner when the bailee is in physical possession of goods with an intention to exercise control. The legal duty of a bailee is to exercise ordinary, reasonable care, or what is appropriate under the circumstances. The bailee also has a duty to redeliver the goods to the bailor on demand. This may be modified by a contract. The bailee is typically liable for ordinary negligence, and liable for conversion if redelivery is refused, or the chattel is returned in a damaged condition. The scope of liability for negligence may be more or less depending on which of the two parties benefits from the bailment. An erroneous estimate of value of the chattel will not release the bailee from liability. Valet Parking: bailment in valet parking when an attendant takes your keys and moves your car. Lease/rental in a parking garage where you pay. The difference is whether the owner of the car surrenders possession and the owner of the lot assumes it. What if a drunk driver crashes into your car that has been parked in valet? Maybe liability. What if the valet attendant gives your keys back to another person who “looks just like you!” Liability. Three categories of issues in a bailment question. When you receive a bailment fact pattern, determine which of the three categories the issue falls into: •
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Creation Scope of Duty Damages HYPO: Plant left at your door with a note asking you to take care of plant. Question of creation, scope of duty, and damages. Will you be held liable for the death of a plant left on your doorstep with instructions for care when the dog left his mark on the plant before you took the plant indoors, when the cat scratched it when it was indoors, when you returned the plant upon its owner’s demand, and when the plant is worth 10k without your knowledge, and not obvious? What is your duty of care? Standard or only liable for gross negligence. Are you liable for the dog’s damage? No, because the dog peed on it before you accepted the duty of a bailee. Are you liable for the cat’s damage? Depends on the standard of care. Are you liable for the full 10k, if found to be liable? Probably not. Owners must disclose the value of the object if it is not obvious. What if it was a cat? You (involuntary bailee) must use ordinary care to either take care of it, return it, or get rid of it safely. HYPO: Jim Nasium placed his clothing, money, and winning sweepstakes ticket in a basket at the gym and received a claim clip. The claim clip fell from Jim’s clothing, found by another, and presented to take Jim’s clothes by the other. Is the gym liable for the loss of Jim’s clothing when Jim was in control of the claim clip when it was lost, when the gym was a bailee, and when Jim’s clothing were taken by another who found the clip and returned it to take Jim’s clothing. When a ticket has been given for a bailed item, is it mis-­‐delivery to return the item to anyone presenting the ticket? Usually, there is a prima facie case of negligence if there is delivery to the bailee, and failure of the bailee to have it returned to the bailor on demand. Gym has the burden to prove it met the standard of care. The value of the winning ticket was not obvious enough to the gym when it accepted the duty. What if there was a sign above the claim table that said they were only liable for goods up to $50? Doesn’t apply when they could reasonably see that the clothing and items in the basket is over $50. Checking Luggage at the Airport: Bailment. You may sue for negligence if the luggage comes back damaged. What if someone steals your luggage from the conveyer belt? Are they liable? They are, but it is not apparent to customers, who feel responsible to pick up luggage immediately from the belt. Should be liable because the customers are not always released from the plane, or aren’t always capable of making it to baggage claim before the bags do. What is the difference between a finder and a bailee? Both do not have title. Both have lawful possession. The true owner may not be clear in the case of a finder. A finder has some duty of care, but not as much as a bailee, but no duty to redeliver. GIFTS Gift – A gratuitous voluntary lifetime transfer of property from a donor to donee. It is a voluntary transfer of title to another without consideration. A present and voluntary transfer of property with intent to transfer title. A Gift requires: (1) present intent to make a gift; (2) delivery by donor; and (3) acceptance by donee. The donor must transfer possession to the donee with the manifested intent to make a gift to the donee. Donor must give up dominion and control, but to the donee. The donee doesn’t have to be aware of the gift for it to take effect because there is presumed acceptance. Context is important. Affects intent and delivery. What are the two classes of gifts? Define each. •
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Gift inter vivos – Made during donor’s lifetime; irrevocable unless donor retains right to revoke. Requires (1) donative intent, (2) delivery of the gift, and (3) acceptance by the donee. A gift one living person gives to another living person (birthday present). Gift causa mortis – a gift made in contemplation of and in expectation of immediate approaching death [and is a substitute for a will.] Gift is revoked if donor lives, if there is ambiguity of donor’s intent, or death from a different peril. Decedent’s intent is usually enforced today so long as there is clear and convincing evidence of donative intent. An immediate transfer of title. When does title transfer? When the donor transfers possession to the done with manifested intention to make a gift to the donee and acceptance by the donee. This requires the physical handing over of the object if possible, or other forms of “delivery” like symbolic or constructive delivery. •
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Actual delivery of the gift. Constructive delivery – handing over of a key or object that gives access to the gift Symbolic delivery – handing over something symbolic of the property given, usually written, when actual delivery isn’t possible. Courts are getting more flexible with the requirement of delivery. Why is delivery required? According to Professor Mechem, delivery is required to (1) make the giving of a gift clear, and allow the donee to feel the “wrench of delivery,” (2) allow witnesses to see the unequivocal evidence of a gift, (3) give the donee prima facie evidence of the gift. In the case of gifts causa mortis, to prevent fraud. Objective Manifestation of donative intent (intent to transfer title) There is no such thing as a future gift. The gift must occur at the time of interaction. Donor gives gift to third party and asks them to give it to the donee in a week. The third party is the bailee, but who is the bailor? Who has title for that week? [similar to a trust, but trusts require formal written documents] Examples: • (written) “I give you my elephant. Signed Prof. Totten. 1-­‐17-­‐13” This could be a symbolic delivery. However, T was capable of handing it to her. Symbolic delivery is ok only if actual delivery isn’t plausible. • “I will give this to you if you get an A in my class.” This is not a gift. There is consideration. • “This elephant is yours, but I will keep it until I die.” Title transfers immediately, future interest given, but the donor keeps the elephant as life estate. HYPO: gift causa mortis. Mr. X gifts ring to A before his lung cancer surgery. Mr. X survives. We presume we can prove this. We presume that lung cancer surgery is impending death. A tries to give ring back to Mr. X. Mr. X says he still wanted A to have it. A proposes Mr. X takes it until he dies, then A would get it back. Mr. X accepts. Mr. X dies two years later. A tries to get ring from his estate, but is denied. What would happen if he brought suit? •
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There was an initial gift, but was it a gift causa mortis? Does the fact that you are aware of impending death make the gift inherently causa mortis? Yes, probably. [if not, it’s a gift inter vivos, and Mr. X’s death doesn’t matter] As soon as Mr. X survived, was the gift automatically revoked? Yes. After Mr. X accepts A’s proposal, it is a gift inter vivos to A? Mr. X also said “I wanted you to keep it anyways” In that statement, he has reaffirmed that the original gift WAS a gift inter vivos. Mr. X has a life estate. A has a “remainder,” a future interest. What if A sells the ring to B before Mr. X’s operation? B would gets whatever title A has. [causa mortis or inter vivos] What if Mr X sells the ring to B after the inter vivos gift? Mr. X had a piece of the title because of the life estate. He has a piece of the title until he dies. So that right transfers to B. B has title until Mr. X dies. HYPO: L tells her granddaughter S “every young lady should have a ring, please take this ring of mine.” S takes it. L dies. L’s will (written before the gift to S) gives the ring to D, the daughter. Was the gift to S a gift? Could L have an intent to gift with these words? Probably. If the gift to S was effective, the will does not apply. L no longer has title to the ring, so cannot give it again in the will. Historically, the will might have trumped the gift. Today, the gift might be recognized by the court. Had the will been signed after the gift to S, this shows L had actually intended to give it to D, and the transfer of possession to S was intended to be a bailment. Newman v. Bost, North Carolina 1898 ISSUE Can a donor make a good gift causa mortis of a life insurance policy contained in a bureau by providing the donee with keys to the bureau and pointing to the bureau while telling the donee that everything in the house was hers, but without actual delivery of the life insurance policy to her, or any mention of it? [Relationship of an older man and an unrelated younger female.] RULE OF LAW Donatio causa mortis requires (1) an intention to make the gift, and (2) a delivery of the thing given. Symbolical or constructive delivery may constitute delivery. Gruen v. Gruen, New York 1986 ISSUE Can a donor make a good inter vivos gift of a painting in which the donor has reserved a life estate and if the donee has never had possession of the painting? RULE OF LAW an inter vivos gift requires (1) donative intent, (2) delivery of the gift, and (3) acceptance by the donee. HELD No. There was no delivery of the painting, so it is not an inter vivos gift. ADVERSE POSSESSION In order to establish title by adverse possession, the possessor must show that she actually and exclusively possessed the land in an open and notorious manner that was adverse to the possessory interest of the true owner, continuously for the statutory period. 1. Actual Possession (Entry) 2. Exclusive 3. Adverse (or Hostile) Under a Claim of Right 4. Open and Notorious 5. Continuous for the Statutory Period Color of Title-­‐ a claim of title founded on a defective or invalid written instrument like a deed or will, or a judgment or decree. Allows for adverse possession of the entire property described in the deed, regardless of the possessor’s scope of use (Constructive Adverse Possession). Constructive Adverse Possession is found through color of title. HYPO: O owns 100 acres. A possesses back 40 acres of that land through color of an invalid deed from Z for 100 acres. A has occupied for statutory time period. O was still living on land. O didn’t assert, so A wins. Doctrine of Agreed Boundaries – if there is uncertainty between neighbors as to the true boundary line, an oral agreement to settle the matter is enforceable if the neighbors subsequently accept the line for a long period of time. Rule of Acquiescence – long acquiescence is evidence of an agreement between the parties fixing the boundary line, and may be a period of time shorter than the statute of limitations. Doctrine of Estoppel – if a neighbor makes representations about (or tends to indicate ) the location of a common boundary, and the other neighbor changes her position in reliance on the representation or conduct, then the first neighbor is estopped to deny the validity of his statements or acts. True Owner Has Disability – if the owner of land has a disability – child, mentally insane, in prison – the statute of limitations time runs longer. Trigger Discovery rule Actual Possession (Entry) Actual possession means that the possessor must physically occupy the property by putting it to the ordinary use to which the land is capable, and which the owner would make of it. Use of the property in the manner that an average true owner would use it under the circumstances, such that neighbors and other observers would regard the occupant as a person exercising exclusive domain. The reason for this requirement is because the statute of limitations must run against a cause of action, and entry without permission creates the cause of action of trespass. Entry also helps stake out what it is the adverse possessor might end up claiming. Exclusive Exclusive possession generally requires that the adverse claimant’s possession is not shared with the true owner. Adverse (or Hostile) Under a Claim of Right Adverse means that the use is contrary to the possessory interest of the true owner and is not permissive. The possessor asserts herself as the true owner of the property. There must be no indication that the record owner allowed the other’s possession of the property. Standards of Hostility: •
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Objective Standard: [becoming the majority] state of mind is irrelevant. Determine hostility by looking at what they actually did. Did they use it in such a way that the owner would use the land? Good-­‐Faith Standard: Mistake. The innocent adverse possessor. Required state of mind is “I thought I owned it” Aggressive Trespass Standard: “I knew I did not own it, but intended to take it.” The Innocent Improver – someone who mistakenly builds upon land belonging to another. Courts today respond to this by forcing a conveyance at market value of the land from the owner to the improver. Courts may also give the landowner the option to reimburse the innocent improver for the improvements. Exceptions: • if the inconvenience caused by an innocent encroachment is so minor as to be trivial, then no relief • if the encroachment takes up a substantial part of the land, then the court might order removal if the hardship to the plaintiff outweighs the hardship to the defendant. Open and Notorious Open and Notorious means it was sufficiently visible and obvious enough to put a reasonable owner on notice that his property is being occupied by a non-­‐owner. Possession must be clear so that a reasonable inspection by the record owner would have disclosed it. The reason for this requirement is based on the sleeping principle underlying AP – to penalize the negligent and dormant owner for sleeping upon his rights. If the adverse possessor’s entry were not reasonably observable, we couldn’t rightly blame an owner for being dormant. Open and notorious use is also a reason for Adverse Possession, to protect the interests of third parties who relied upon the appearance of ownership. HYPO: A and B are neighbors, and A has entry to a cave on her lot that runs under B’s lot. A opens up the cave to the public for a fee, and B knows of this. After the statutory period has run before B realizes the cave runs under his lot, and brings suit to quiet his title to that part. A claims title to the cave by AP. Was A’s possession open and notorious? No. Continuous for the Statutory Period Whether the use is continuous depends on the nature of the property in question and whether the possession and dominion is the kind customarily pursued by owners of that type of property. Continuous in a way that is reasonable for the particular use. The requirement that the adverse possessor’s use by continuous does not mean that she must be on the property at all hours of the day, nor does it mean that she may never leave the property for extended periods of time. Abandonment: The statutory period stops, and the whole process must start over, if the adverse possessor abandons the property – leaves with no intention to return. Interruption: The statutory period stops, and the whole process must start over, if the adverse possessor’s use is interrupted by the true owner, and even if the true owner doesn’t thereafter oust the adverse possessor – this may be through a lawsuit against the adverse possessor, or by re-­‐entering the property. Seasonal Use, especially for recreational purposes, has been found by courts to satisfy the continuity requirement. If the facts do not state what the specific statutory period for adverse possession is in that jurisdiction, 15 year would be sufficient in a majority of states. Tacking: combining the period of adverse use of a possessor and her predecessors in privity with each other in the interest of the possessor. Privity: can be a relationship of contract or a relationship over property (landlord-­‐tenant, buyer-­‐seller) “a 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 wrongdoer or trespasser.” Howard v. Kunto, Washington, 1970 RULES (1) the summer use of property and improvements to the land for the statutory period is continuous as required for a claim of adverse possession. (2) there is sufficient privity of estate to permit tacking and thus establish AP when several successive purchasers have transferred possession and continuously occupied for the statutory period, but when these purchasers received record title to tract A mistakenly believing they were acquiring tract B. FACTS Howard had a survey of the land, which determined that the description on Howards’ deed and the land the Howards occupied did not match up. Howards deed described the Moyers’ land. The Moyers’ deed described the Kunto land. Howard conveys the land described in his deed to Moyer. Moyer gives Howard the land that Moyer’s deed describes, b ut Kunto lives there. Howard wants Kunto to get out. Tacking and Privity Problems: HYPO: Threatened to Leave-­‐ In 2000, A enters adversely upon Blackacre, owned by O. In 2007, B tells A to get off the land, and A leaves feeling threatened. B has possession. In 2010, who owns Blackacre? Do B and A have sufficient privity to permit tacking? No. O wins. [A’s previous possession is recognized, but not 10 years] RULE: No privity between parties when one threatens another to leave the land, then takes possession. Recovers Possession -­‐ Suppose if in 2007, A leaves under threat of force, but 6 months later, A recovers possession from B. If O does nothing, will A own Blackacre in 2010. Probably. In 2010 + 6 months? Definitely. RULE: Unless the first party recovers possession as soon as possible. Abandons Possession – A abandons Blackacre in 2007 and B comes into possession. O does nothing. Does B own it in 2010? I’m guessing no? No, there’s no privity of estate. HYPO: Death of Owner With Will -­‐ In 1994, A enters adversely upon Blackacre, owned by O, and remains. O dies in 1995, leaving a will giving Blackacre to B for life, remainder in C. In 2010, B dies without ever having entered Blackacre. Who owns Blackacre? B has failed to take possession of the land, allowing A to gain title through AP from ’95-­‐’10, so A wins. C can’t do anything. HYPO: Death of Owner With Life Estate -­‐ O owner of Blackacre dies in 1995 leaving a will devising Blackacre to B for life, remainder in C. In 1996, A enters adversely. In 2010, B dies. Who owns Blackacre? C. RULE: An adverse possessor gets the rights to whatever the possessory estate exists at the beginning of the adverse possession. When the owner of that possessory estate dies, the adverse possessor’s rights are lost too. Van Valkenburgh v. Lutz, NY, 1952 RULE OF LAW A user of land is an adverse possessor of it when he uses it as a path to his own land, builds upon it, and is assumed to be the owner of it by third parties for the statutory period. (Issue) FACTS The Lutzs used a triangular lot as a pathway to their own property. Eventually, they built a one room building on that lot for their brother who was mentally ill, and Mr. Lutz farmed on it, all in the 1920s. The triangular lot was sold in a foreclosure sale to the VV’s in 1947, and they tried to kick the Lutzs out after some disputes between the families. Lutz first won a suit claiming prescriptive easement to the path. Then this suit was brought by the VVs. HELD the Majority said Lutz was not an adverse possessor, but based on terrible reasoning. The Dissent said that Lutz should have gained title through adverse possession. Manillo v. Gorski, NJ, 1969 RULE OF LAW possession may be considered adverse or hostile when a person builds onto another’s property mistakenly believing it is his own for the statutory period, essentially asserting title against all others. However, a minor encroachment along a common boundary that is not apparent to the naked eye (“not exceeding several feet”), is not open and notorious. FACTS neighbor’s steps and concrete walkway encroached upon the plaintiff’s land by 15 inches. Sample IRAC -­‐ Actual Possession (ISSUE) The first question to be addressed is whether __(Possessor)__’s use of the land satisfies the requirement of actual possession. (RULE) Actual possession means that the possessor must physically occupy the property by putting it to the ordinary use to which the land is capable, and which the owner would make of it. (ANALYSIS): •
__(Facts)__ These are steps that a true owner (Link) would take to __(Inference)__. •
__(Facts)__ -­‐ things an ordinary landowner (Link) would use her property for (Inference). •
Yet, since this property was __(Facts)__, the record owner may argue that this lot isn’t the type of property ordinarily used for __(Inference)__, in an effort to defeat __(Possessor)__’s claim of actual possession (Link). •
However, since __(Facts)__, __(Possessor)__ will likely argue that a reasonable owner (Link) could use this particular property for __(Inference)__. Adverse Possession of Chattels O’Keeffe v. Snyder, NJ, 1980 ISSUE is whether a painting, or other relatively small personal property, should have the law of adverse possession apply, or the law of the discovery rule apply. RULE OF LAW An owner who diligently seeks her chattel should be entitled to the benefit of the discovery rule although it may have passed through many hands. Under the discovery rule, by using due diligence in pursuing their goods, owners may prevent the statute of limitations from running. This would mean that there had not been any transfer of title from Frank to Snyder. FACTS O’Keeffe displayed her paintings in one of Stieglitz’s galleries. Three of the paintings disappeared in 1946. O’Keeffe files this replevin suit and finds that the paintings she seeks have been possessed by Frank, who claimed to have gotten them from his father, then sold by Frank to Snyder. HELD Under Adverse Possession, we focus on what the adverse possessor does when determining the commencement of the statute of limitations. But the court prefers the discovery rule. However, it’s very hard to define “due diligence” in the art world. The court suggests that an efficient registry of original works of art might better serve the interests of the artists and owners. [The court reverses the appellate court’s decision in favor of O’Keefe and remands the case to trial court because it feels that the dispute is still factual, and the question of whether the paintings were stolen in the first place needs to be answered.] [British Museum has a ton of ancient pieces from Egypt. Egypt is beginning to ask for its return] California has adopted the Discovery Rule, but New York hasn’t on the ground that it provides insufficient protection for owners of stolen artworks. The NY court thought it inappropriate to put a duty of reasonable diligence on the true owner, reasoning that such approach would encourage illicit trafficking in stolen art by putting the burden on the true owner to demonstrate that it had undertaken a reasonable search. The NY court said the better rule is to protect the true owners by requiring potential purchasers to investigate the provenance of works of art. The statute of limitations for replevin does not begin to run in favor of a good-­‐
faith purchaser until the true owner makes a demand for return and the good-­‐faith purchaser refuses. However, the true owner may not delay her demand for return so much that it prejudices the good-­‐faith purchaser. POSSESSORY ESTATES FREEHOLD ESTATES •
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Fee Simple Life Estate DEFEASIBLE ESTATES •
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Fee Simple Subject to a Condition Subsequent Fee Simple Determinable Fee Simple Subject to an Executory Interest LEASEHOLD ESTATES Words of purchase and words of limitations -­‐ both are words in a grant of land. Words fall into either category in a deed. §
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Words of purchase describe to whom the estate is granted. Words of limitation describe the estate that the person will get, scope of the conveyance. P. 204 footnote: heirs began to be defined as collateral as well as lineal heirs. Went from being a word of purchase to a word of limitations. Fee Tail: an estate in land created by a conveyance to “A and the heirs of his body.” It descends to A’s lineal descendants and expires when A and all of A’s descendants are dead. After this expires, the land will revert to the grantor, the grantor’s heirs, or someone designated by the grantor, by way of reversion. [Every person gets to live in this house, but they can’t sell it]. [Very medieval] No longer used in US. In the US, language previously making for a fee tail now makes for a fee simple. In Michigan, it is a fee simple if there is no language after the fee tail language. But if there is more language giving to a third party after the fee tail language the condition will remain in effect for one generation, and then becomes fee simple. (like “to A and the heirs of her body, and if A dies without issue to B and his heirs”) FEE SIMPLE A Fee Simple is an estate in land which lasts forever by default. It may be granted or inherited. It provides a present possessory interest and future interest. A fee simple is presumed if words of limitation are unclear. “To A” or “To A and her heirs” Inheritance 1. Heirs – persons who survive the deendent and are designated as intestate successors under the state’s statute of decent. No one is an heir of the living. a. Issue – decendents. Children, grandchildren . . . b. Ancestors – parents take as heirs if there is no issue. c. Collaterals – all persons related by blood to the decendent who are neither decendants nor ancestors. This includes brothers, sisters, nephews, neices, uncles, aunts, and cousins. 2. Escheat – a person’s real property goes to the state if they died intestate without any heirs. HYPO: O à to A and her heirs. A’s only child is B, who runs up large, unpaid bills. Does B have an interest in the land that is reachable by creditors? No, because B is not an heir until A dies. There is no remainder after a fee simple. Also, A could have left the land to another through a will. What if A wants to sell the land and use the proceeds to take a trip around the world. Can B prevent A from doing this? No. B has no interest in the land at all, and cannot constrain A. HYPO: O owns Blackacre, and has two children A (daughter) and B (son). A has son A1. B has 3 children, B1, B2 (son), B3. B dies testate, leaving all property to his wife W. Then O dies intestate. Who owns Blackacre in England in 1800? Rule of primogeniture applied. Goes to B2 (son). Who owns Blackacre today? A and B1, B2, B3, split equally by generation. W doesn’t get anything but the property he owned before, which was conveyed in the will before O died LIFE ESTATE HYPO: O à A for life, then to B. B has son C alive at the time of the conveyance. A has a present possessory life estate. B has a future interest in life estate. O has a future interest in fee simple when it reverts to him after B’s death. C has nothing. What happens if B dies before A? B’s property interest is gone (nothing to C still). Can A sell his estate to D? Yes, but D only gets life estate on the terms of A’s life, life estate pur autre vie. Can A sign a 2 year lease to E? Yes, with reversion to A. What if A dies during the 2 year lease? E loses his interest. O can intervene during his period of future interest only when there is waste. White v. Brown, Tennessee, 1977 ISSUE Does a handwritten will conveying a home to another “to live in” give a life estate or a fee simple when the will emphasizes the home is “not to be sold,” restricting the free alienation of property? RULE OF LAW Typically, unless the language expressly asks for a lesser estate or interest, the court assumes a fee simple. Doubt is resolved against the limitation and in favor of the absolute estate. This is to avoid uncertainty. FACTS Mrs. Jessie Lide’s handwritten will gave Evelyn White her home. “I wish Evelyn White to have my home to live in and not to be sold” The end of her will repeated that her h ouse was not to be sold. Mrs. Lide’s nieces and nephews, her heirs at law, claim Lide’s will gave White a life estate, leaving the remainder interest to pass by inheritance to them. Mrs. White and her daughter claim the will gave her fee simple with restraint on alienation. HELD Court says it was a fee simple absolute, and the attempted restraint on alienation is void. You can’t have a fee simple and a restraint on alienation. Dissent says it was a life estate with remainder in Lide’s heirs. Restraint on alienation – attempt by a grantor to restrain the capacity of the grantee to do various things (like to sell). The law hates these. Public policy four main Objections to Restraint on Alienation: 1. The property is unmarketable and unavailable for its best use. 2. It’s impossible for the owner to sell the property and gain anything. This keeps the capital tied into one place rather than dispersing the wealth, and perpetuates the concentration of wealth. 3. The owner is not apt to improve the land when it can’t be sold. [Mortgages cannot be made on the land, so lenders cannot pay for improvements] 4. Restraints prevent the owner’s creditors from reaching the property, making it hard on them when they rely on the owner’s enjoyment of the property in extending credit. Rule against perpetuity -­‐ we don’t want a person to be able to control property for long after their death. Baker v. Weedon, Mississippi, 1872 ISSUE Can someone with present possessory life estate sell the property when there is future interest in it? Is it a necessity, and is it in the best interest of both parties? RULE OF LAW A court shall order a judicial sale to prevent waste if found in the facts, but only if it is in the best interest of both the freehold tenant and the holder of the future interest. FACTS Weedon gave in his will all of his property to his third wife Anna “during her natural life and upon her death to her children.” If she didn’t have children, he asked that the property be given to h is grandchildren [but NOT to his daughters]. Weedon had two daughters from his first marriage, who each had children of their own. Anna was desperate for money and wanted to sell the property. His grandchildren had future interest in the property because Anna has no descendants. They wanted to wait several years for the sale of the land b ecause the p roperty value was going to double. HELD Court said that the sale would benefit Anna, but bring great financial loss to the children, so the judicial sale was not in the best interest of all parties. However, they suggested sale of part of the land for Anna’s benefit. Waste – an abuse or destructive use of property by one in rightful possession. A person with future interest in the property may intervene when there is waste. Economic Waste – to allow land to depreciate in value; to not put land to its best and most valuable use. How do you put a financial value on a life estate? Valuation on Life Estate and Remainder A has life estate, remainder to B. Estate worth 100k, 3% interest/year. How do we value the interest in life estate and in remainder? A has the right to use the bond and receive the income $3000/year for life. How old is A, and how much longer do we expect A to live? This determines the interest, and the fraction of the value of the estate. An abstract calculation, prediction. If it’s a farm, A has right to the profits of the farm for life. Woodrick v. Wood, Court of Appeals of Ohio, 1994 Wood had life estate in property and partial remainder. A barn is located on two lots. Woodrick had a 25% remainder in one of the lots the barn sits on. DEFEASIBLE ESTATES Fee simple subject to condition subsequent – A defeasible fee which gives the grantor the right to re-­‐take the land from the grantee if a pre-­‐specified condition subsequent actually occurs. May revert to future interest holder if they elect to have it do so if a condition is met. “but if” Fee simple determinable – A fee simple which is divested from the owner and reverts back to the grantor upon the occurrence of a pre-­‐determined condition subsequent. Automatically reverts to the grantor when a stated event happens. “so long as” Fee simple subject to executory limitation – defeasible estate with future interest in a third party “but if ___ then to ___” Some states have statutes of limitations on these terminable estates. Conditions can be good. If you’re going to donate a building for a school, you don’t want it to become a mall! But what about in 50 years when it can’t support new technology? This condition now becomes a social burden. FEE SIMPLE SUBJECT TO A CONDITION SUBSEQUENT Reverts to future interest holder only if he retakes the land, only if he elects to have it do so if a condition is met. [If he fails to retake the land, the grantee may acquire fee simple absolute by adverse possession or abandonment.] “But if” “provided, however, that when the premises . . .” “on condition that if the premises . . .” Right to Re-­‐Enter O’s right of Re-­‐Entry OàA A’s Fee Simple Subject Termination by To A condition Subsequent Operation of a Condition O à to MSU Law, but if it is ever used for something other than a tax clinic, then O reserves the right to re-­‐
enter. Fee simple subject to a condition subsequent. O has right of entry. [better than fee simple determinable for MSU Law because it’s not automatic, so O may forget] Conditions can be good. If you’re going to donate a building for a school, you don’t want it to become a mall! But what about in 50 years when it can’t support new technology? This condition now becomes a social burden. FEE SIMPLE DETERMINABLE Automatically reverts to the grantor when a stated event happens. “So long as” Possibility of Reverter – the grantor’s future interest in a land when he conveys a fees simple determinable. OàA A’s Fee Simple Determinable Termination by O’s possibility of Operation of a Limitation reverter in Fee Simple O à to MSU Law so long as the building is used for a tax clinic. Fee simple determinable. Possibility of reverter. O à To MSU Law, and the College hereby covenants that for at least 10 years the land shall be used as a tax clinic. Law school has fee simple because the words aren’t specific enough to do anything else to the interest in land. It’s a wish of O and a promise of MSU Law. Only relief if MSU Law doesn’t use it for that 10 years as a tax clinic would be breach of a covenant. FEE SIMPLE SUBJECT TO AN EXECUTORY INTEREST “but if ___ then to ___” A Fee Simple Subject to an Executory Interest is created when a grantor transfers a defeasible fee simple, either a determinable fee or a fee subject to condition subsequent, and in the same instrument creates a future interest in a Third Party rather than in himself. The future interest in the third party is called an Executory Interest. O conveys land “to the Hartford School Board, but if it ceases to use the land as a school, to the City Library.” B’s executory interest in Fee Simple Termination by Operation of a Condition OàA A’s Fee Simple Subject to An Executory Interest O à Blackacre to A and her heirs so long as the premises are not use for sale of beer, wine, or liquor, and if those are sold on the premises O retains a right to re-­‐enter the premises.” Then A opens a restaurant on the land where it serves dishes cooked with alc., and the restaurant is successful, and 11 years after its opening B wants to buy it and add a bar. Advise B. §
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The initial conveyance was a fee simple determinable looking at “so long as,” but the “right to re-­‐enter” makes for a fee simple subject to a condition subsequent. Did A actually breach? Argument 1) Didn’t sell the alc. if it was complimentary with the meals. The alcohol was cooked off. Argument 2) It was sold as a part of the meals, so still sold. If A did breach, then A was adversely possessing the land for about 11 years if it’s a fee simple determinable. But not possible if a fee simple subject to a condition subsequent, because only terminated if O choses to do so after recognizing A is selling alc. This is very complicated and ambiguous. It might be best to find O and cut a deal. Mahrenholz v. County Board of School Trustees, Illinois 1981 **KNOW FOR EXAM** Court distinguishes b/w language which creates a FS Determinable and a FS Subject to a Condition Subsequent. RULE OF LAW Language such as “to be used for school purposes only” creates a Fee Simple Determinable. FACTS In 1941 the Huttons conveyed property to the Trustees of School District No. 1. The deed stated: “This land to be used for school p urposes only; otherwise to revert to grantors herein.” Also in 1941 the Huttons conveyed their reversionary interest in this p roperty to Jacqmain. In 1959, Jacqmain conveyed this reversionary interest to Mahrenholz. When Mr. and Mrs. Hutton died, their only legal heir was Harry Hutton. In 1977 Harry Hutton conveyed any possible reverter or right of entry that he may have h ad in the land to M ahrenholz. Later in 1977 Harry disclaimed any interest he had in the land to the School Board. The property that the Huttons conveyed to the school was used for classes until 1973. Since then, the school h as used the property for storage. M ahrenholz contends that the deed conveying the land to the school board creates a Fee Simple Determinable with a Possibility of Reverter. The School Board contends the deed created a Fee Simple Subject to a Condition Subsequent with a Right of Entry. HELD a FS Determinable was created. Look at the language. The phrase “for school purpose only” suggests that the Huttons wanted to give the land only as long as it was needed, and no longer. The second phrase “otherwise to revert to grantors” seems to trigger an automatic return of the property to the Huttons. Fee Simple Determinable: • “so long as the land is used for school purposes” • “while it was used for school purposes” • “until the land ceased to be used for school purposes” Fee Simple Subject to a Condition Subsequent: • “on the condition that the land be used for school purposes” • “provided that the land be used for school purposes” Mountain Brow Lodge No. 82, Independent Order of Odd Fellows v. Toscano, California 1967 ISSUE is whether the condition which requires the Lodge use the land created a Defeasible Fee or whether it is a void restraint on alienation. RULE OF LAW A condition which prohibits the sale of land is a restraint on who may use the land, and as such is void. However, a condition which requires someone to use the land may or may not be seen as a restraint on alienation when it effectively prohibits the sale to another person. The use of land may be restricted in a conveyance, if it is a fair and equitable result. FACTS A deed from Toscano provided that the lot shall revert back to Toscano if the Lodge either failed to use the lot or attempted to sell or transfer it. The Lodge contents that this language is a restraint on who may use the land. As such, the Lodge contents it is a restraint on alienation and is void. Toscano’s heirs contend that the language creates a Fee Simple Subject to a Condition Subsequent. HELD The language created a Fee Simple Subject to a Condition Subsequent. Court believes that the language did not intend to restrict alienation. Ink v. City of Canton Favre said the important part of this is the Majority Rule (p. 243): where a defeasible fee is condemned, the holder of the fee takes the entire condemnation award; the holder of the reversionary interest takes nothing. This is because the reversionary interest is considered too remote and contingent to be capable of valuation. FUTURE INTERESTS FUTURE INTERESTS IN THE TRANSFEROR •
Be able to distinguish a remainder from an executory interest. •
Be able to identify a "vested remainder subject to open and divestment". Terms: "Condition precedent", "condition subsequent", "divest,” “subject to open" Rules of Construction: 1. A vested estate is preferred over a contingent estate. 2. If a future interest can be construed as a remainder, rather than an executory interest, then it must be considered a remainder. Future Interest: right of future possession. Creates an interest NOW. Waste: A person with future interest in the property may intervene when there is waste. REVERSION Reversion: the interest remaining in the grantor, or in the successor in interest of a testator, who transfers a vested estate of a lesser quantum than that of the vested estate which he has. Deed does not create a reversion, but a reversion is what’s left after the term expires. Vested Estates [Fee simple absolute, fee tail, life estate, leasehold estate] à Reversion O owns a fee simple. 1. O à to A for life, then to B and her heirs. A has present possessory life estate. B has vested remainder in a fee simple absolute. No reversion to O. 2. O à to A for life, then to B and the heirs of her body. A has present possessory life estate. B has a vested remainder in fee simple (or fee tail if recognized). No reversion to O if a fee simple. Reversion in fee simple absolute to O if a fee tail. 3. O à to A for life, then to B and her heirs if B attains the age of 21 before A dies.” At the time of conveyance B is 15. A has present possessory life estate. B has contingent remainder in fee simple. O has reversion in fee simple that is not certain to become possessory. What happens if B dies at age 16? The contingent remainder in fee simple is eliminated, and O has reversion still. What happens to it if B reaches 21 during A’s life? The reversion is divested and will never become possessory. 4. O à to A for 20 years. A has a present possessory term of years, a leasehold estate. Reversion in fee simple to O after 20 years. A’s heirs inherent the leasehold if A dies before 20 years. 5. O à to A for life, then to B for life. O subsequently dies with a will devising all of O’s property to C. Then A dies and B dies. Who owns Blackacre? A had a present possessory life estate. B had vested remainder in life estate. O has reversion and conveys this reversion to C. O à to A for life, A à B for 2 years. A has a present possessory life estate and a reversion after B’s leasehold O has a reversion B has a present possessory leasehold subject to A’s life POSSIBILITY OF REVERTER A future interest remaining in the transferor or his hers when a fee simple determinable is created. Fee simple determinable à possibility of reverter RIGHT OF ENTRY Transferor of an estate subject to condition subsequent retains the power to cut short or terminate the estate. Fee simple subject to a condition subsequent à right of entry FUTURE INTERSTS IN TRANSFEREES Vested remainder: a future interest in a transferee that is certain to become possessory upon the expiration of the prior estate created at the same time. “to A for life, then to B and her heirs.” Contingent remainder: permits the transferor to let future events determine who takes the property upon the life tenant’s death. “to A for life, then to A’s eldest son and his heirs.” Executory interest: divests or cuts short the preceding interest. A future interest in the transferee that can take effect only by divesting another interest. Remainder: a future interest in a transferee which is capable of becoming possessory at the natural termination of the preceding estate and does not divest any one estate except the transferor. To be distinguished from Executory Interest (1995): O à to A for life, then to B and his heirs if the Detroit Tigers win the 2001 pennant. A has present possessory life estate. B has a contingent remainder in fee simple. B’s remainder is subject to the condition precedent. O has a reversionary interest. If Tiger’s didn’t win, B’s remainder is lost, and reversion to O. O à to A for life, to B for life, then one day after to C and his heirs. A has a present possessory life estate. B has a vested remainder in life estate. The “one day” forces an abeyance, so no remainder to B. Reversion to O for one day, then B has a springing executory interest in fee simple. O à to A for life, then to B if B gives A a proper funeral. A has PPLE, B has a springing executory interest subject to a condition subsequent. VESTED REMAINDER Vested remainder: a future interest in a transferee that is certain to become possessory upon the expiration of the prior estate created at the same time. “to A for life, then to B and her heirs.” Given to (1) an ascertained person and (2) it is not subject to a condition precedent (other than the natural termination of the preceding estates). Vested subject to open or vested subject to partial divestment if later-­‐born children are entitled to share the gift. Class of persons, with at least one living member; interests divest in part as new class members are born; class closes when: 1. person who produces class members dies; or 2. Rule of Convenience: when any class member is entitled to demand possession of entitled shares; no outstanding present possessory estates/conditions precedent for any class member. O à to A for life, and in the event of A’s death to B and her heirs. Is B’s remainder vested or contingent? Vested. If B subsequently conveys her interest back to O, what does O have? Vested remainder in Fee simple. O à to A for life, then to B and her heirs if B survives A, and if B does not survive A to C and his heirs. B’s remainder is subject to the condition precedent of B surviving A. C’s remainder is subject to the condition precedent. The first half creates a contingent remainder, but the second half creates a vested remainder. O à to A for life, then to B and her heirs, but if B does not survive A to C and his heirs.” CONTINGENT REMAINDER Contingent remainder: permits the transferor to let future events determine who takes the property upon the life tenant’s death. “to A for life, then to A’s eldest son and his heirs.” Given to (1) an unborn/unascertained person or (2) it is made contingent upon some event occurring other than the natural termination of the preceding estates. Right to take is uncertain. Subject to Condition Precedent: words condition a person’s right to take. Oà to A for life, then to the heirs B. (B is alive at the time of conveyance). A has PPLE. B doesn’t have heirs if A dies before B, so only a reversion in fee simple to O. If B dies before A, class of B’s heirs have contingent remainder. Class. Becomes a vested remainder when B dies before A. O à to A for life, then to A’s children and their heirs. A has PPLE. A’s possible children have contingent remainder in fee simple, subject to A having children. O has a reversion in fee simple. If A then has a child Q, then Q’s remainder becomes a vested remainder in fee simple subject to open. If Q dies without any siblings, Q’s heirs inherit the remainder, which might be A. O à to A for life, but if the Lions win their division during A’s life, then to C and his heirs, otherwise to D and her heirs. A has PPLE. C has contingent remainder in fee simple subject to condition precedent. D has contingent remainder in fee simple subject to condition precedent. These are called alternative contingent remainders because it will go to one of the two. O has reversion [even though this isn’t logical in this case, the law requires reversion if there’s contingent remainder]. O à to A for life, and in the event of A’s death to B and her heirs. A has PPLE. B has vested remainder in fee simple O has no reversion Bà O O à A and B for their joint lives, then to the survivor in fee simple. A has PPLE subject to termination. B has PPLE subject to termination. A has a contingent remainder in fee simple subject to B’s death. B has a contingent remainder in fee simple subject to A’s death. O à A for life, then to B and his heirs, but if the Tigers win the World Series in 2009, then at A’s death to C and her heirs. A has PPLE B has vested remainder in Fee Simple subject to divestment (winning the World Series in 2009) C has a shifting executory interest in Fee Simple. If Tigers win, C has a vested remainder in Fee Simple. If Tigers lose, C loses its interest. B has a vested remainder in Fee Simple. EXECUTORY INTEREST Statute of Uses, got rid of prohibitions on Springing and Shifting Executory Estates. Executory Interest: A future interest in a transferee that must, in order to become possessory, be 1. a Shifting executory interest – divesting or cutting short some interest in another transferee, or 2. a Springing executory interest – divest the transferor in the future O à to A for life, then to B if B gives A a proper funeral. Does B have a remainder or an executory interest? Executory interest. GOOD HYPOS, practice by killing people O à A for life, then to A’s Children and their heirs, but if at A’s death he is not survived by any children, then to B and her heirs. A: PPLE C: [Contingent Remainder in FS] [if/when A gives birth to C: Vested Remainder in FS subject to open and subject to divestment/executory interest] D (C’s brother): Vested Remainder in FS subject to open and subject to divestment B: [Contingent Remainder in FS] / [Shifting Executory Interest in FS] What if C and D dies? A continues to have PPLE, possible future children have Contingent Remainder in FS What if C dies only? D keeps vested remainder in FS subject to open and divestment, C’s heirs get a fraction too. O à A for life, then to A’s children as survive him, but if none of A’s children survives him, to B and her heirs. A: PPLE C: Contingent Remainder in FS subject to condition precedent, surviving A. D: Contingent Remainder in FS B: Contingent Remainder in FS O à to A for life, then to B and her heirs, but if A is survived at his death by any children, then to such surviving children and their heirs. A: PPLE C: Shifting Executory Interest in FS D: B: Vested remainder in fee simple subject to divestment TRUSTS Trustee holds legal title to the trust property and manages it for the benefit of the beneficiaries, who have the right of enjoyment of the property. Beneficiaries can be alienable. Spendthrift trusts Trust divided into legal and equitable estate. Broadway National Bank v. Adams, 1882 Adams owed a debt to Broadway National Bank. Adams’ brother left Adams 75k in his will, but in a trust. Adams has a life estate interest in the trust. Adams’ wife has a subsequent life estate, if she remains single, and is divided among children if she remarries. “my [Adam’s brother] intention being that the use of said income shall not be anticipated by assignment.” …. LIMITATIONS ON FUTURE INTERESTS Public Policy supporting Limitations on Contingent Remainders •
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Destroying contingent remainders enhances the alienability of land. Make land more marketable Limits periods of dead hand control. How much money should our wealthiest be able to control after they die? Historically, three generations down doesn’t always have the ability to control trusts. Another limit on this is Estate taxes, about 40 something percent on everything after 5 million Rules Furthering Marketability by Destroying Contingent Future Interests: 1. Destructibility of Contingent Remainders: a legal (as opposed to equitable) remainder in land is destroyed if it does not vest at or before the termination of the preceding freehold estate. Meaning: if a remainder is still subject to a condition precedent [still contingent, not vested] when the preceding estate terminates, the remainder is wiped out, and the right of possession moves on to the next vested interest. Additionally, a contingent remainder can be destroyed before the life tenant’s death by forfeiture or merger. 2. Rule in Shelley’s Case: [abolished in most states] If (1) one instrument (2) creates a life estate in land in A, and (3) purports to create a remainder in persons described as A’s heirs (or the heirs of A’s body), and (4) the life estate and remainder are both legal or both equitable, the remainder becomes a remainder in fee simple (or fee tail) in A. [note that normally, A’s heirs have a contingent remainder until A dies, and contingent remainders normally cannot merge] The doctrine of merger may then come into play. The life estate of A merges into a vested remainder in fee held by A. a. However, a life estate cannot merge into a vested remainder in fee simple if there is an intervening vested life estate. 3. Doctrine of Worthier Title: [abolished in many states] where there is an inter vivos conveyance of land by a grantor to a person, with a limitation over to the grantor’s own heirs either by way of remainder or executory interest, no future interest in heirs is created; rather, a reversion is retained by the grantor. This doctrine furthers alienability. 4. Rule Against Perpetuities: [will NOT be on FINAL EXAM, but will be on the bar] 5. Doctrine of Merger: if a life estate and the next vested estate are transferred to another person, the lesser estate is merged into the larger. Contingent interests tend to make land unmarketable. Land conveyed “to A and his Heirs” cannot be sold until A’s death because his heirs cannot be ascertained until then. When a conveyance provides for reversion or multiple uncertain interests, sale has to be agreed upon by all parties. Destructibility of Contingent Remainders O à to A for life , then to B if the Lions win the Superbowl in 2026. A has PPLE. B has a contingent remainder in fee simple. O has a reversion. But what if A dies? B’s contingency is just hanging. The estate would have to revert to O, but we’re still waiting on the ’26 Superbowl. The rule will strike B’s contingent remainder as ineffective. O à to A in ten years in fee simple. A has a springing executory interest because it doesn’t come after the natural termination (death) of O’s interest. Rule does not apply. O à to A for life then to B for life, but if B obtains a JD degree then to C and her heirs after B’s death. A has a PPLE. B has a vested remainder in LE. C has a contingent remainder, contingent on B getting a JD. If/when B gets a JD, C now has a vested remainder. If B dies without a JD, C’s remainder is divested, and O has reversion. The rule does not apply here because B certainly will or won’t get a JD before her death. O à to A for life, then in fee simple to B’s children who survive B. B has no children right now. A has PPLE. The class of B’s children has a contingent remainder in fee simple, contingent to their birth and then surviving B. B has nothing. O has reversion. 1 year later, C is born to B. C has a contingent remainder, must survive B. Then A dies. C’s remainder will act like an executory interest except the rule is applied, so C’s remainder is ineffective. In common law, when this conveyance is made, C’s remainder is not recognized, and only O has future interest. O à to A for life, then to such of A’s children as attain the age of 21. A has PPLE. The class of A’s children has a contingent remainder, contingency is reaching 21. O has reversion. Say you have a child C, age 1 when A dies. We know we have to wait 20 years before C’s remainder is vested, so C’s remainder is destroyed. Reverts to O. Rule in Shelley’s Case O à to A for life, then to the heirs of B. Heirs are a class with contingent remainder contingent on B’s death. O à to A for life, then to B for life, then to the heirs of B. A has PPLE. B has vested remainder in LE. B’s heirs are a class with contingent remainder, subject to B’s death, natural termination of B’s life estate. The Rule in Shelley’s case merges them, B has a vested remainder in fee simple. O à to A for life, but if its ever used as a farm then to the heirs of A. A has PPLE. The class of A’s heirs have a contingent remainder in fee simple subject to the land being used as a farm. Unless you read it as saying that if the land is used as a farm, A’s estate is divested to A’s heirs. Then it would be a shifting executory interest. The Doctrine of Worthier Title O à to A for life, then to B if the Lions have won a Super Bowl, if not then to the heirs of O. A has PPLE. B has an alternative contingent remainder in fee simple. Heirs of O have an alternative contingent remainder in fee simple. The doctrine of worthier title gets rid of O’s Heirs’ remainder, and makes it a reversion to O. What if it’s rather to the children of O? The rule does not apply. O à to A for life, then to the Heirs of O. Shortly thereafter, O writes a will leaving all of his interest to the American Red Cross. O dies. When does the Doctrine of Worthier title apply? Applied immediately at the first deed to A, so O had a reversionary interest in fee simple after A’s life. Then his later conveyance gives American Red Cross his reversion. Rule Against Perpetuities [NOT on FINAL EXAM] [Favre will be our consultant on the Rule in the future] Rule: “no interest is good unless it must vest, if at all, not later than twenty-­‐one years after some life in being at the creation of the interest.” – John Chipman Gray. Meant to give O the ability to only control use of the $ by people he knows. He may have good reason to only give a life estate to his irresponsible son, but should not be able to limit his grandkid’s use. Life in being, + 21 years. A lot of states today have a “wait and see” doctrine. Wait and see if it violates or not. 1. Is it one of the three interests subject to the Rule against Perpetuities? 1.
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Contingent remainders Executory interests Class gifts AKA, anything NOT vested 2. Is the contingent interest certain to vest or terminate no later than 21 years after the death of some person alive at the creation of the interest? à If you cannot prove this, the contingent interest is void from the outset. You need to find a validating life to prove this. REVIEW OF ESTATES IN LAND O à to A and the heirs of this body What is the interest of A at common law? What are the interests of his wife W and son S? Of A’s heirs? Of O? A: PP fee tail [fee simple in MI today] W: nothing S: contingent interest A’s heirs: contingent remainder in fee tail subject to being born. O: reversion Exception in MI today, where if it says “to A and the heirs of his body then to X” We allow fee tail to A’s children unless it expires. O à to A for life then: To B so long as B remains unmarried. B has vested remainder in fee simple determinable. O has possibility of reverter. To B if married at the time. B has contingent remainder subject to condition precedent. O has reversion. B’s remainder is still contingent if B marries before A dies because B could get a divorce, B’s spouse could die. To B, but if B should marry then to C and her heirs. B has a vested remainder in fee simple subject to divestment or executory limitation. C has a shifting executory interest. To C and her heirs, unless B is married, then to B. This could be both a condition subsequent and condition precedent. So there could be alternative contingent remainders, or C’s vested remainder subject to executory limitation and B’s contingent remainder. One year later A is still alive and B dies without ever having gotten married. What are C’s interests in each alternative? [not covered in class] Oà to A for life, then to A’s Children who survive A and their heirs, but if A dies without being survived by children, then to C’s children and their heirs. A has child X alive, C has child Z, what are the future interests of the respective parties? A has a PPLE. Class of A’s Children includes X, but also open to future children. X has a contingent remainder in fee simple subject to surviving A. C has nothing. C’s children have contingent remainder in fee simple. When you have two future interests and one is a contingent remainder, the other is almost always a contingent remainder too. O à to A for life, then to the then Dean of MSU College of Law and his or her heirs. One year later, A transfers his interests to Dean Favre, the current dean of the Law School. What is the state of the title? A has PPLE Dean of MSU Law is an open box, they have to be Dean when A dies, so has contingent remainder in FS. O has reversion Favre gets a PPLE pur autre vie (A’s life). Merger does not work. O à to A for life, then to A’s first child and his or her heirs, but if none of A’s children survive A, then to B and her heirs. A has PPLE A’s possible first child has contingent remainder in fee simple subject to one of A’s children surviving A. B has a contingent remainder in fee simple. Only say “subject to open” with vested remainders. One year latter A has child C and then child D. A day before A’s death, C dies. What is the state of the title? A has PPLE C has vested remainder in fee simple (no longer contingent because D is alive at A’s death) The title goes to C’s heirs D might inherit title through laws of intestate succession. B has nothing. O à to A ten years after the date of the deed. A has a springing executory interest in Fee Simple. When there are no words of limitation, presume fee simple. O à to A for life, then to C if she has been admitted to the Sate Bar of Michigan. A has PPLE. C has a contingent remainder in fee simple. What if A dies a year later? O has reversion. Contingent remainder is destroyed if A has not been admitted [some states might see this as a continuing option if she is admitted a month after she dies, contingent remainder stays until then] What if A is admitted? C has a vested remainder. O à to A for life, then to C if she has turned 21 by A’s death. Both conveyances are in 1983 when C is five. What is the sate of the title? A has PPLE. C has a contingent remainder in fee simple. In 2001 A dies and C is in first year of law school. What is the state of the title in both conveyances? C turns 21 in 2004, so reverts to O For the following give the state of title assuming it is 2000 in the state of Michigan. O à to A and his heirs. A has PP Fee Simple O à to A for life and then to his heirs and their heirs. A has PPLE and heirs have contingent remainder in fee simple (because there are no heirs of A until A dies) No merger because you cannot merge a contingent remainder. If this was in the 19th C, Rule in Shelly’s Case, A has fee simple. O à to A for life and then to the heirs of O A has PPLE. Heirs of O have contingent remainder in fee simple. If O dies, heirs of O have vested remainder in fee simple. “and his heirs” are words of limitation. A conveys to M a deed with the following language: “to M and his heirs, however, if M should ever wish to sell the land the permission of O must be obtained at least one year in advance.” What is the state of the title? Restraint on Alienation. The language is not valid, so only “to M and his heirs” remains. M has fee simple. What if instead it said “if M should ever wish to sell the land, O has a 30 day option to purchase at Fair Market Value.” O has an option. This is an acceptable limitation because it’s not too long. O à to A for life then to B for a term of 99 years. At the time of the deed, O has two brothers D & E, B has wife W and A has husband M and one grandchild C. What interests do all these parties have in the land? A has PPLE M and C have nothing B has a vested remainder in a 99 year leasehold W has nothing (it is possible she could inherit the interest in the land, but it’s not specified, so it goes to B’s heirs or will, whatever) O has reversion in fee simple D and E might get reversion by will or intestate succession. O à to Bank B for the benefit of O for life, then for the benefit of O’s wife W for life, and then the trust to terminate and all the assets to O’s grandchildren in equal shares. O conveys legal and equitable parts of the estate. Legal is to Bank B, then to grandchildren. Equitable (revocable) – trust -­‐ is to O for life, W for life, then to grandchildren. O has an equitable life estate (trust made in his own benefit for life). W has equitable life estate. Grandchildren get it equally. O à to A for ten years or until B passes the bar examination, then to B and his heirs so long as she remains a member in good standing of the Michigan Bar. A has a term of years CO-­‐OWNERSHIP CONCURRENT INTERESTS 1. Tenants in common a. Separate but undivided interests b. No survivorship rights c. Interest is descendible, conveyed by deed or will. d. Presumed it is a tenancy in common 2. Joint tenants a. Each owns the undivided whole b. Right of survivorship c. Judicial partition – legal action to either physically partition tract of land or order the land sold and divide the proceeds among the tenants. d. Requires existence of all four unities of interest. e. If there is a transfer, becomes Tenancy in Common. f. Avoidance of Probate -­‐ A joint tenancy avoids probate because no interest passes on the joint tenant’s death. 3. Tenancy by the entirety ***MI BAR EXAM will have a lot exceptions*** a. Created by husband and wife b. Least flexible Unities of interest 1) Time – joint tenants acquire title at the same time 2) Title – same deed 3) Interest – equal undivided shares and identical interests 4) Possession – each must have a right to possession of the whole O à to A, B, and C as joint tenants. Subsequently A conveys his interest to D. Then B dies intestate, leaving H as heir. Joint tenancy becomes a tenancy in common. Does A’s unilateral action destroy the survivorship between B and C? No. When B dies, C gets B’s interest. D has 1/3. C has 2/3. If B had a will devising his interest to H, it becomes a tenancy in common between D, C, and H. O à to H, W, and X as joint tenants with right of survivorship. H and W are married, X is unrelated. H dies, then W dies. H and W have 2/3 interest in a joint tenancy (but a tenancy in the entirety themselves), but as one tenant. X has 1/3 interest. When H dies, W keeps the 2/3 interest (if state doesn’t recognize tenancy in the entirety, then W and X would split H’s share in half.) When W dies too, X gets W’s interest. O à to A and B as joint tenants for their joint lives, remainder to the survivor. Each has PPLE and contingent remainder in fee simple. This allows A to convey to X his PPLE and contingent remainder, without conveying B’s A and B plan to get married. 2 weeks before wedding they buy a house and take title “in A and B as tenants by the entirety.” Several years after marriage, A moves out of the house and conveys his interest in the house to his brother C. C brings action to partition the property. No tenancy by entirety because A and B weren’t married at the time they received the land, so it’s a tenancy in common. So C can get a partition from B. Michigan exception – to A and B by .. survivorship. Treats like a tenancy by entirety. Riddle v. Harmon, 1980 ISSUE Did Riddle unilaterally terminate her joint tenancy by conveying her interest from herself as a joint tenant to herself as a tenant in common without notifying her husband, thereby destroying the unity in time? RULE OF LAW One joint tenant may unilaterally sever the joint tenancy without the use of an intermediary device. Court used an intent test, more efficient, a joint tenant should be able to accomplish directly what he or she could otherwise achieve indirectly by use of elaborate legal fictions. Before this case, accepted in California to convey to a “strawman,” X, who then conveys it back to you. Common Disaster. A and B, joint tenants, die in the same disaster. Most recent rule, if one dies more that 120 hours after the other, they have survived them. otherwise, use a half-­‐and-­‐half rule. But if A kills B, the murder severs the joint tenancy and converts it into a tenancy in common. Harms v. Sprague, 1984 ISSUE Is joint tenancy severed when less than all of the joint tenants mortgage their interest in the property? Does such a mortgage survive the death of the mortgagor as a lien on the property? Title vs. lien. RULE OF LAW FACTS Brothers have joint interest. One brother helps a friend purchase property by signing a promissory note. Simmons conveys a deed to Sprague in exchange for a mortgage. William didn’t know about the mortgage. John dies, and conveys property to Sprague in his will. HELD John’s death didn’t sever the lien, but it no longer exists, so William has fee simple. Simmons had nothing. This case was an issue of policy, deciding what the rule would be in Illinois. A and B hold property as joint tenants, and A conveys a life estate in the property to X, or leases the property to X. Is there a severance? If not, and A dies, does B take free and clear or, or subject to, the interests created by A? The best approach is to probably think in terms of intent and risk bearing, but that approach is not always taken. Logically, for any kind of less-­‐than-­‐fee-­‐simple conveyance (e.g. mortgage, life estate, lease), there are four possible outcomes, and you could probably find each represented in one judicial decision or another. 1. the conveyance of the interest severs the joint tenancy; X and B are tenants in common until the interest ends, and then A and B or their estates are tenants in common. 2. the conveyance does not sever the joint tenancy; if B survives A, B takes free and clear of the interest; if A survives B, A is subject to the interest. 3. the conveyance does not sever the joint tenancy and if B survives A, B takes subject to the interest (becoming a tenant in common with X for the period of the interest); if B predeceases A, A is subject to the interest 4. the conveyance results in a partial or temporary severance: if A dies before B, proceed as in the first alternative above; if A survives B, proceed as in the second or third alternative; if X dies first, there is no severance and A and B remain joint tenants. Multiple Party Bank Accounts The idea of setting up a joint account with children and grandchildren. Banks don’t have capacity and interest to figure out what the intent was when the account was opened with a few names on it. Issue, if one of them puts in a lot of money, and the other puts nothing in, is it an immediate gift? No, unless you can prove that there’s intent to make a gift. Accounts can be made for the elderly where a child or someone else has access in order to write checks for them, but do not have survivability. Relations Among Concurrent Owners Each tenant is entitled to possession of the entire land, sometimes leading to conflict. The law doesn’t have very much control over the relationships of concurrent owners. Conflicts are often settled between the owners on their own. Wills and marriage are the primary creators of joint tenancy. PARTITION Partition is a division of property shared by concurrent owners. It is an equitable action available to any Joint Tenant or Tenant In Common, but NOT to Tenants by the Entirety. Delfino v. Vealencis, 1980 ISSUE is whether a partition in kind or a partition in sale is more preferable when a tenant in common has operated a business and resided on a portion of the land, and when the other tenant in common wants to develop residential neighborhoods on the land. RULE OF LAW This court said that partition in kind is usually preferred to partition by sale. Partition by sale should only be ordered when: 1. partition in kind would be impracticable or inequitable because of the physical attributes of the land. 2. the interests of the owners would be better served by partition by sale. FACTS The Delfinos and Vealencis were tenants in common of a 20.5 parcel of land. Delfino – 99/144 interest. Vealencis – 45/144. None of the parties possessed a remainder. Vealencis operates a garbage removal business on part of the land and lives there as well. Delfino wants to develop the property into a residential neighborhood. Delfino brought an action in court to partition the land by sale. Vealencis moved for judgment of partition in kind. Trial court ruled in Delfino’s favor and ordered that the property be sold and proceeds divided b etween p arties. Vealencis claimed that the facts do not support the trial court’s finding that the parties’ best interests would be served by partition by sale. HELD Court found that (1) partition in kind would be practicable, and (2) the interests of the owners would be better served if partition in kind is ordered. The court appeared to have given Vealencis’ emotional attachment to the land consideration. Non-­‐conforming use, zoning has made the use of the land improper. Partition by sale is not unusual. Often the case when parents leave their land and home to children, and partition in kind would be difficult and undesirable to the children. How much weight do you give to emotional attachment? (Ark Land Co v. Harper, Johnson v. Hendrickson) Partition is an action in equity, so fairness is a factor. Best interest of the various tenants. In Ark Land Co, the court considered emotional attachment to the land. In Johnson, the court did not, and ordered partition by sale. HYPO: A and B are heirs of their father, who owned a rocking chair that both A and B wanted. They cannot agree who is to have the chair. What relief should the court award? Partition by sale is the only possible solution, unless you use the alternative: splitting time of use between the two. Six months at A’s house, six months at B’s. Spiller v. Mackereth, 1976 ISSUE Does a cotenant’s demand that another occupying cotenant of the property vacate half or pay rent qualify as the demand/assertion of rights required to satisfy Ouster, or does the occupying cotenant’s use of locks on the property qualify as denial to the other of the right to enter required to satisfy ouster, and therefore make the occupying tenant liable? RULE OF LAW Ouster occurs when one tenant in common prevents the other from gaining or keeping possession of the shared property. The court said that requesting the occupying cotenant to vacate isn’t sufficient: occupying cotenant has right to the whole property, and right to use the whole property unless the other cotenant asserts his rights. The court also said that the locks on the building were not sufficient to prove ouster because they were only meant to protect the merchandise, not exclude other cotenants. Mackereth had never requested keys to the locks and was never prevented from entering. FACTS Spiller and Mackereth were tenants in common of a building. It was vacated, and Spiller began using it as a warehouse, and applied locks to the doors. Mackereth wrote a letter to Spiller requesting he only use half of the building or pay rent. HELD Spiller is not liable to pay rent. This case involves Spiller’s liability for rent, and under the rule requires that the occupying cotenant refuses a demand of the other cotenant for use and enjoyment of the land. [Standard of proof seems a little ambiguous in the court’s holding. How was the letter insufficient to show Mackereth’s assertion of right. Even though she didn’t understand she couldn’t demand he only use half, she still intended to assert her rights. However, Mackereth never attempted to walk onto the land and enter. He never attempted to actually use it. Mackereth could have tried to rent it to someone. He could have asked for keys, asked for access to the building. (although Spiller would likely just hand over the keys, and Mackereth doesn’t get what she’s really looking for: rent, money)] Ouster, which makes a cotenant in possession liable to his cotenants for rent, is found in two situations: (1) beginning of use for adverse possession, and (2) liability of the occupying tenant to other cotenants for rent. Ouster occurs when one tenant in common prevents the other from gaining or keeping possession of the shared property. The element of Adverse Possession -­‐ acting like you own the land -­‐ is ouster. Rent: Any third party payment of rent should be split between tenants in common. FIDUCIARY DUTIES While generally cotenants have no legal duty to look out for the other tenants, there are special cases where you do have a duty. Common situation 1: you have not been paying taxes, and the city sells the land at a tax sale, and one of the cotenants then buys from the sale, that tenant holds superior title, but for the benefit of all the cotenants so long as cotenants reimburse the buyer. Common situation 2: adverse possession claim – only where claim of sole ownership is so unequivocal and notorious as to put the cotenant on actual notice of a hostile claim. Schwartzbaugh v. Sampson, California 1936 RULE OF LAW An estate in joint tenancy can be severed by destroying one of the unities. FACTS Husband and wife own 60 acres of land with a walnut grove as joint tenants. Sampson wants to lease the land for a boxing p avilion. Mr. is ok with this, but Mrs. isn’t, so Sampson negotiates and leases from M r. Schwartzbaugh. M rs.’s signature doesn’t appear on any of the documents. Sampson cleared the walnut trees and constructed the pavilion. HELD Mr. Schwartz has not severed the joint tenancy because a lease to all of the joint property by one joint tenant is not a nullity, but is valid and supportable so long as the interest of the lessor in the joint property is concerned. . Mrs. Schwartzbaugh should get a portion of the rent. She still technically has the right to possess the property. She could partition the land, but the boxing pavilion would likely remain. Mrs. Schwartz also claims she might lose her interest through his adverse possession. Court found this is not possible. LEASEHOLDS: THE LAW OF LANDLORD AND TENANT A Lease is a conveyance and a contract. Conveyance that creates property rights, but also makes promises between the tenant and landlord. Landlord-­‐tenant law is greatly affected by social policy. Landlord has a reversion in fee simple. However, it is an active future interest because the landlord has obligations. Tenant has a term of years Three Leaseholds: 1. Term of Years 2. Periodic Tenancy 3. Tenancy at Will Selection of Tenants (Herein Unlawful Discrimination) Fair Housing Act of 1968:Goal is to prevent discrimination against tenants based on race, sex, handicap, familial status. Doesn’t apply to single family dwellings. Only applies to landlords of four units or more. Meant to apply to larger landlords, not private quarters. Unlawful to: •
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Refuse to sell/rent/negotiate or make unavailable based on race, color, religion, sex, familial status, or national origin. Discriminate in the provision of services or facilities Advertise in a way that indicates any preference Refuse to sell/rent/negotiate/make unavailable based on a handicap. [AIDS was a big one at time, mental illness is included] Must make reasonable modifications, accommodations, for a tenant’s handicap. [must allow service dogs] TERM OF YEARS Term of Years – an estate that lasts for a fixed period of time, can be terminable under conditions, and requires no notice of termination. Generally most preferable to the tenant, can be most secure in their living situation. On Oct. 1, L eases Whiteacre to T for one year, beginning Oct. 1. T moves out on Sept. 30 without notice. L has no rights because it’s a term of years, requires no notice of termination. PERIODIC TENANCY Periodic Tenancy – a lease for a period of some fixed time that automatically renews until notice is given by the landlord or tenant of termination. “To A for month to month.” “To A for year to year.” Under common law, 6 months notice for a year long period, if less than a year long period, notice must be made the length of the period. If the lease had been to T from year to year, beginning Oct. 1, it is a periodic tenancy, there would be automatic renewal, so would require notice by T of termination. If there had been no fixed term “at an annual rental of $24k payable $2k per month on the first of each month.” This one depends on what the term is. Is it 1 month or 1 year? Courts would tend to make it monthly rather than yearly. If it was yearly, you would have to give 6 months notice (common law) before the next period started. If it was monthly, you would have to give 1 month notice. T month to month tenant, notified L on Nov 16 2010 she would vacate Nov 30. T vacated, paid no rent afterwards. L relet the premises on April 1. L sues T for unpaid rent. T’s notification would be effective to terminate after December period, so T is still liable for December’s rent. But because T didn’t get the month right, should T be responsible to give proper notice of termination? TENANCY AT WILL Tenancy at Will – a tenancy of no fixed period, right to occupy at will so long as both landlord and tenant desire. Can be terminated by either landlord or tenant without notice. Death is a reason to terminate. Michigan Rule: MCLA 554.134 (we are responsible) if you are at will or sufferance, you still have to give 30 days notice. If you have a periodic leasehold, and you need to give a certain amount of time, it does not have to relate to the end of the period. Could be a 30 day notice required before intended termination. For a year long period, must give a 1 year notice (rather than 6 months), but 1 year before termination, not before end of period. Garner v. Gerrish, New York 1984 ISSUE RULE OF LAW Common Law rebuttable presumption that when language is ambiguous, create a tenancy at will. (not found here) FACTS Donovan had lease with Gerrish. Gerrish had right to terminate on date of his choice. Garner became Donovan’s executor. Garner tried to evict Gerrish. “for and during the term of quiet enjoyment from the first day of May, 1977 which term will end – Lou Gerrish h as the privilege of termination this agreement at a d ate of his own choice.” HELD The court finds that it was clear that only Gerrish had the “privilege of termination.” Court said that it was not a tenancy at will, but rather a life tenancy terminable at the will of the tenant, because clearly the tenant is the only one with the right to terminate. HYPO: L leases Orangeacre to T for as many years as L desires. What estate does T have? This is a reverse of Garner v. Gerrish. T has a term of years determinable. Common law however, would make it an at will tenancy. HYPO: For rent payments of $500 a month, L leases Greenacre to T for the duration of the war. What estate does T have? This is different because the end point is indefinite. Is allowing this sound public policy? Depends on how the agreement relates to the war. L may be fighting in the war, or committed during that period. It cannot be a periodic tenancy because it can’t be “war to war.” It’s not a term of years because it isn’t fixed. Holdover doctrine. Tenancy at Sufferance: Holdovers – tenant remains in possession (holds over) after termination of the tenancy. Under common law, (1) the tenant may be evicted or (2) both landlord and tenant must consent to create a new tenancy. ASSIGNMENTS AND SUBLEASES Assignment – transfer of entire interest under the lease. Assignee has privity of estate with the Landlord. Sublease – transfer for anything less than the entire interest of the lease. Landlord has no cause of action against the sublettor, still has privity of estate with the tenant. Duty to Deliver Possession English Rule – lessee has legal right to possession, and there is an implied covenant requiring the lessor to put the lessee in possession. American Rule – lessee has legal right to possession, but there is no duty on the lessor against wrongdoers preventing the new lessee from taking possession. Remedy is against the wrongdoer, not the landlord. Hannan v. Dusch, Virginia 1930 ISSUE When there’s no express covenant as to the delivery of possession, does a landlord have a duty to put the tenant in possession when a prior tenant wrongfully holds over and refuses to surrender possession to a new tenant? FACTS A prior tenant refused to leave premises leased to him by Landlord after expiration of his lease term. Plaintiff entered into a lease agreement with Landlord, but Landlord did nothing to remove the Tenant wrongfully holding over. Plaintiff sued Tenant for the damages from being prevented from taking p ossession. HELD Court held that the wrongdoer, the prior tenant wrongfully holding over, is responsible. At Common Law, landlord had duty to provide legal title and the tenant had duty to pay rent. HYPO: T leases from L a large piece of open land to be used for hunting and trapping. After paying a year’s rent in advance, T finds out that there is no public access to the land. Neighboring landowners refuse to give T ingress and egress. The jurisdiction follows the English rule. Has L satisfied the duty imposed by that rule? This relates to title. If you lease to somebody a piece of land, is the transfer of title a transfer of capacity to access? Lack of sufficiency of title. HYPO: L and T execute a lease for a specified term. T takes possession and pays rent for several months. T then learns that L had earlier leased the premises to another tenant for the same term. T remains in possession but stops paying rent. L sues T for unpaid rent; T counterclaims for rent already paid. What result? T was able to take possession, but does not have good title. If prior tenant brings an action, T will lose. Has L breached his duty to provide legal title? Yes, but no harm has been done to T, so T’s counterclaim is no good. Earnst v. Conditt, Tennessee 1964 ISSUE is whether the language of the lease, which clearly says “sublet” but not “assignment,” makes a sublet or assignment. RULE OF LAW Common law Modern rule FACTS Earnst leased a tract of land to Rogers for 1 year and 7 days. Rogers made improvements to the land. Roger sold his business to Conditt. Conditt received a sublease or assignment of the lease. Lower court found for Earnst. HELD Conditt is liable, but is trying to stall the inevitable. Even if Earnst sued Rogers, Rogers would implead Conditt. There is still privity of contract between Earnst and Rogers. Court found that it was an assignment of the lease. Found privity of estate between Earnst and Conditt. But there is also privity of contract. Looked to the intention of the parties. Looked at what the parties did – gave all possessory rights to Conditt. (a) L Leases to T for a term of 3 years at a monthly rent of 1k. One year later T “subleases, transfers, and assigns to T1 for a period of one year from date”. Thereafter neither T nor T1 pays rent to L. What rights has L against T? L can recover all unpaid rent from T. Against T1? T can then sue T1, implead T1. Suppose in the instrument of transfer (between T and T1) there was a covenant (promise) whereby T1 “agreed to pay the rents” reserved in the head lease. What effect might this have on L’s rights? (b) L leases to T for a term of three years at a montly rent of 1k. the lease provides that “T hereby covenants to pay said rent in …” and also provides that T can’t sublet or assign without the permission of L. Later, T, with permission of L, transfers to T1 for the balnce of the term. T1 pays rent directly to L, then defaults. L sues T. Assignment because T transferred the entire interest to T1. T can be sued by L for the full amount. (c) [see yellow sheet] Kendall v. Ernest Pestana, California 1985 [well-­‐written opinion according to Favre] City (fee simple) leased to Perlitch, who then … to Pestana. Perlitch then created a sublease to Bixler (5 year term plus four 5 year options to renew). Bixler made assignment of his sublease to Kendall (sold business to him) Pestana is refusing to consent to the assignment to Kendall. California is the state most liberal in moving law of leases into contracts. RULE OF LAW Unless Pastana can show Commercially Reasonable Reason for refusing to consent, the assignment can be given. HYPO: 10 year lease in 2000, airport. In 2008, value of the lease has dropped dramatically, cannot make enough money anymore to pay rent. But tenant has taken the risk that the marketplace will change. Tenant makes the economic judgment. This risk could be mixed by agreeing to a base rent plus a percent of gross receipts. An Express Covenant is clearly written into the agreement. An Implied Covenant is assumed, and might be applied by the court. What is the remedy for breech of a covenant? Must reasonably attempt to mitigate damages. THE TENANT WHO DEFAULTS IN POSSESSION A tenant in possession may default by failing to pay rent or failing to observe some other obligation of the lease. Self-­‐help Berg v. Wiley, Minnesota 1978 ISSUE The issue is whether a tenant in default who has temporarily closed the premises and intends to retain possession has been wrongfully evicted by the Landlord under the modern view of self-­‐help when the landlord reenters nonpeaceably by locking out the tenant. RULE OF LAW Common Law rule – a landlord may rightfully use self-­‐help to retake leased premises from a defaulting tenant in possession, so long as: 1. the tenant is holding over or the lease breached contained a reentry clause 2. or the landlord’s reentry is peaceable Modern Doctrine – a landlord must always resort to the judicial process, and may not use self-­‐help. Policy: breaches the peace, encourages oppression, potential for violence. [This is now the majority rule.] FACTS Defendant, Wiley Enterprises, evicted the plaintiff, Berg and her restaurant. Berg was not keeping the premises in adequate conditions, had health code violations, and did not make renovations within 2 week deadline. There were “strained relations” between the two. Wiley even spied on Berg while she was in the restaurant. Wiley’s attorney suggested he use self-­‐help by locking out Berg when she wasn’t there. He brought a policeman along, perhaps anticipating violence. Provisions of the lease: • Item #5 – no changes without p ermission from landlord. In this case, Wiley’s lawyer sent a letter asking for specific remodeling made within 2 weeks. • Item #6 – must operate the restaurant in a lawful and prudent manner. Arguably, she wasn’t doing this by violating health codes. Berg might argue that she was, and closed it down to pause operations, just a little later than Wiley wanted. • Item #6 – Landlord can retake possession if tenant meet conditions of the lease. This will not release the tenant from liability for rent. This rent requirement is not actually enforceable once the landlord takes possession. Wiley did retake possession, but was it proper? HELD The court found that Berg had not abandoned and surrendered the premises, and that Wiley’s lockout of Berg was wrongful. The court said that the judicial process is a more viable option for landlords, as opposed to self-­‐help. [Court’s reasoning applies to all leases, both residential and commercial.] How have landlords forced tenants out in the past? Take off door, turn off water, show up with a gun. Some law says that tenants who are forced out like this may be able to recover 3x the amount of actual damages. Use of force, boarding, changing of locks, removal of doors, locks, windows, introduction of odor. What is a quicker, and lawful eviction process: summary judgment process. In Michigan, triggered with 7-­‐day notice. If after 7 days the tenant has not left, then you go to court and can have a hearing set up quickly. Conceivable that within 30-­‐60 days the landlord can have a sheriff help evict the tenant under court order. THE TENANT WHO HAS ABANDONED POSSESSION A tenant who has abandoned the premises may owe some back rent. RULE OF LAW Modern Rule: A landlord has a duty to mitigate damages when he seeks to recover rent due from a defaulting tenant. Common Law: the landlord has no duty to mitigate ISSUE is whether a landlord has a duty to mitigate damages before seeking to recover unpaid rent from a defaulting tenant, and whether the landlord has made reasonable efforts after refusing an offer to fill the vacancy, and only filling one year later. Sommer v. Kridel, New Jersey 1977 FACTS Kidrel had entered into a lease with Sommer for an apartment. Kidrel paid the first month’s rent and a security deposit b efore moving in. He then wrote a letter to Sommer indicating he would not take possession of the apartment because his engagement was broken, and could no longer afford the rent. Sommer did not respond, had an offer to fill the apartment but d elayed for over a year before filling it with another tenant. Sommer sued Kridel for rent. Riverview Realty Co v. Perosio FACTS also had a two year lease and decided to abandon property. Mitigation Rule Social policy: prevent waste. Units should be used optimally Examples of way to mitigate: (p.475) advertising in a newspaper (for more than one day), employ a realtor, place ad sign in window. Landlord may ask for a higher rental. No need to accept less than fair market value. You should explicitly say in the lease whether or not there is a duty to mitigate. You might say that the duty to mitigate is capped at $10k. Modern trend of analyzing landlord-­‐tenant issues under contract law, rather than property law. Tenant bears the risk of the marketplace. Worth $100, so lease for $100/mo. In 2 years worth $200. You leave. Landlord finds another tenant to replace and gets $200/mo. Landlord MUST terminate prior lease, otherwise the prior tenant could sue for $100/mo. Landlord’s Remedies and Security Devices Rent and damages – landlord can sue for back rent and damages, can terminate lease and recover possession of tenant is in possession. Security deposits – puts financial incentive on Tenant to maintain the property. Protects the landlord in the event the tenant defaults on rent. The deposit is not the landlord’s money. Cannot be spent unless he takes out a bond, if he goes into bankruptcy (maybe). For the Tenants: Michigan has specific provisions for rent strikes. The right to repair and deduct – if tenant makes a repair that should be made by landlord, tenant may deduct fee from repair from the rent. A tenant can put their rent in an escrow account if they don’t want to pay the landlord when the landlord isn’t taking care of shit. LEAVING THE LEASEHOLD RELATIONSHIP Doctrine of Constructive Eviction – any act or omission of the landlord which renders the premises substantially unsuitable for the purpose for which they are leased, or which seriously interferes with the beneficial enjoyment of the premises, is a breach of the covenant of quiet enjoyment and constitutes constructive eviction of the tenant. Covenant of Quiet Enjoyment – regular use without interference of the leased premises. Implied. Breach of the covenant of quiet enjoyment resulting in Constructive Eviction: 1. Substantial interference by Landlord (could be landlord’s act or omission). Measured against what was the expected use. 1. Substantial interference can be supported by Tenant’s vacation. 2. Tenant must notify landlord of the interference and give reasonable time to remedy. 3. Tenant vacated the premises within a reasonable time. Mutually dependent covenants – when covenants serve as consideration for the other. Failure of consideration might justify vacation by the tenant without liability for future rent. Reste Realty Corp. v. Cooper, New Jersey 1969 ISSUE When the lessee has previously complained of issues with the premises to a prior lessor and when those issues were attempted to be fixed by the prior lessor, can the lessee raise the defense of constructive eviction against the new lessor after the lessee has renewed the lease with the issues unsolved and when the new lessor has not solved the issues either, leaving the premises unsuitable for lessee’s business? Yes. FACTS Cooper leased from plaintiff’s predecessor and then plaintiff the office space for their jewelry business. When it rained, the rain ran across the common parking lot area into the basement where Cooper had her leased space. Cooper didn’t have exclusive access to the parking lot. She would not have been aware of this “latent defect” when the first lease was signed. However, at the signing of the second lease, the lessor promised to fix the problem, but Cooper also signed the second lease when it said that she had “examined the demised premises, and accepted them in their condition.” Covenant of q uiet enjoyment is n ot implied in NJ, but it was expressed in the contract. Partial constructive eviction has been upheld by courts. Pro-­‐rated. Problems (p. 491) 1. Tenancy at will can be terminated at the discretion of either landlord or tenant. Constructive eviction is used as a cause of action here. Special and consequential damages might recover for the higher rent paid. 2. a. Noise: Did T ask L to control the noise? If yes, then Constructive Eviction. Other loud tenants are not agents of the Landlord, so you might have to just sue the other tenants for nuisance. Some leases say that the Landlord has a right to evict tenants if they are too noisy, but the Landlord doesn’t have a duty to do so. Landlord may not be liable. Cigarette smoke: is a physical substance, makes it a little more intrusive than sound waves. b. L has some responsibility, but has made a good faith attempt to prevent the crime. He has responded reasonably. T should move to a new neighborhood. c. Anti-­‐abortion protesters: Landlord could get them out of his lobby, even though they’re exercising 1st amendment rights, because it’s trespass. Landlord can’t do anything if they’re only on the street. The Implied Warranty of Habitability Hilder v. St. Peter, Vermont 1984 ISSUE Should the lessee be reimbursed for rent paid to lessor when lessee remained in use of and paid rent for the demised premises while the premises were in disrepair and when the lessor has failed to respond to lessee’s requests? Yes. RULE OF LAW Previously, landlord had no duty to do anything not written into the lease. Now there is the Implied Warranty of Habitability. FACTS Plaintiff lived with her family in an apartment that had serious issues, which she reported to the landlord, but were never addressed. She lived there for the entire period of her lease and paid the rent in full. She h ad to make the fixes on her own, but wasn’t able to keep up with the maintenance on her own. Landlord continued to demand rent actively. HELD Court said that today’s residential tenant is looking for habitable conditions. The tenant does not have the skill/expertise to make repairs to the premises, where the landlord does. Sharply contrasts the farmer of the past who has complete knowledge of how to maintain the conditions of the land. Implied warranty of habitability. The landlord will deliver and maintain, throughout the period of the tenancy, premises that are safe, clean, and fit for human habitation. Court’s Rule: “In the rental of any residential dwelling unit an implied warranty exists in the lease, whether oral or written, that the landlord will deliver over and maintain, throughout the period of the tenancy, premises that are safe, clean, and fit for human habitation.” •
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Breach may be determined by local or municipal housing codes, by inquiring whether the claimed defect has an impact on the safety or health of the tenant. Tenant must show that he notified the landlord of the defect and allowed a reasonable time for its correction. The lease is a contractual relationship, so breach allows for general damages. Difference between value of premises as warranted and value of premises in defective condition. Punitive damages might be available too, allowed for a tenant’s discomfort and annoyance. If tenant makes repairs themselves after notifying Landlord and not getting a response, tenant may be reimbursed by Landlord. Problems (502) 4a. Strike and garbage piling up: Employees are intentionally not doing their job. The court said that it was the landlord’s responsibility. Violates warranty of habitability. 4b. Does not extend to these amenities. Not a breach of the warranty of habitability Michigan Law MCLA 554.39: last change made in 68. Lessor must make premises fit for use for tenants. Must perform upkeep reasonably. This implied warranty goes away after one year. Inspection does not eliminate the implied warranty. Constructive Eviction Lab -­‐ March 13 Hypothetical Problem 1: Dwight Shrute and Pam Halbert What is the legal issue in Pam’s situation? •
Constructive Eviction: – the issue is whether Pam has a good claim for constructive eviction when the Landlord has installed motion sensors, …. How would you advise Pam? •
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The covenant of quiet enjoyment may be implied or expressed in the lease agreement between Dwight and Dunder-­‐Mifflin. Pam would have to show that Dwight’s acts -­‐ the motion sensors, watered-­‐down soap, single ply toilet paper, and the enormous roach extermination ads – interfere with Dunder-­‐Mifflin’s employees’ quiet enjoyment of the office. Look to the terms of the lease – express or implied covenants. Determine the expected use of the leased office. Determine if Dwight’s acts have cost D-­‐M anything. I would advise pam to argue the motion sensors and roach ads primarily. These have prevented employees from functioning normally in the office when they cannot see easily. The ad has prevented some employees from even showing up. The soap and toilet paper probably aren’t enough. Pam can prove that she has attempted to notify Dwight of the interference and has given him reasonable time to remedy, but Dwight has not even responded. She might have to have a lawyer contact Dwight, and a letter would be good for evidentiary purposes. Finally, to be recognized as Constructive Eviction, Dunder Mifflin would have to vacate the office. I would advise Pam to consider whether vacating the premises is worthwhile. If it isn’t, she probably can’t argue the first two elements very well. Hypothetical Problem 2: John’s moldy apartment What is the legal issue? •
The Implied Warranty of Habitability. Whether a breach of the implied warranty of habitability can still be brought as an action when the Tenant signed a lease he did not read that contained a waiver clause to the warranty of habitability, but when the excessive mold in his apartment is impacting the building’s structure and his asthma, and when Tenant has notified his landlord. What are the potential legal remedies for John? •
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Rule: “In the rental of any residential dwelling unit an implied warranty exists in the lease, whether oral or written, that the landlord will deliver over and maintain, throughout the period of the tenancy, premises that are safe, clean, and fit for human habitation.” This implied warranty of habitability (and any duties of the Landlord to repair related defects) cannot be waived. Safety is an issue with the building’s structure (may lead to rotting floors, stairs) and with John’s health. Courts have reimbursed Tenants who make repairs of their own to defects that would be sufficient to breach the warranty of habitability. Because his Landlord has not made repairs, John might hire in his own repairs for now, then bring an action.
THE LAND TRANSACTION PURCHASE OF REAL ESTATE Why do we buy a house? For non-­‐financial reasons (usually). To have full control. To live the American dream. Ted Turner owns the most land in the US. He’s keeping buffalo on the land and trying to bring back the Wild West. The Land Purchase Dance. You’re at the bar, you’re not sure if you wanna go home with this person, so you do a little dance. The buyer wants to guarantee she gets title more than anything. Seller wants money the most. So the buyer has to prove financial capacity, and the seller has to prove she has title. Closing – point in time and place where the deed is made. The purchase of Real Estate almost always starts with the seller. Broker’s listing, deal cut for the listing with the seller, broker promises to do work. Listing agreement, broker opens it up for the world to see. Buyers show up. They are usually prevented from contacting the seller by the broker. Broker is the professional in the middle who negotiates the process. Fiduciary relationship between the broker and seller. There is a duty, agency. The problem is, the buyer will call up the broker to see the house, the broker shows them other houses, an emotional bond forms between the broker and seller, but it’s false. The buyer might sign a broker agreement of their own, which ensures the advice they’re getting is in their best interest. Sales contract is justification for borrowing money, mortgage application. You might be able to get pre-­‐
approval too to get a sense of how much the bank will lend. Appraisal by a mortgage company, decides whether sale price is appropriate price before lending the money. Appraisers are keeping this value low right now. At this time, the seller has to deal with title, works with the title company to get proof of title. We are able to guarantee good title with insurance. Need insurance and a statement of title. If there’s a problem with title, the seller probably has time to solve it. Normally title is fee simple. Inspection of the premises. Seller disclosure requires seller to make statements about the condition of the property, electrical, plumbing, roof, etc.. Company who did title search is also responsible for closing. Closing agent has the obligation to both parties to get the money from the buyers/bank, record everything, finish it all up. The Federal government has prepared a general closing statement that the buyer will sign. There is a cost to closing, usually paid for by the buyer. The buyer officially owns the land when closing and payment occurs. Possession is a separate issue from title. Signing the contract does affect title. It gives you equitable interest in the land, makes specific performance available. Michigan allows for Dual Agency. Both parties must agree. Favre feels you can’t properly represent both sides. People want to be a dual broker to maximize commissions, not necessarily to do a fair job. Abstract of title: list of encumbrances (such as existing mortgages, liens, rights of way) as well as a listing of the preceding owners of the property, provided by the title company or lawyer. Title company might conduct a title search to satisfy the buyer and the lender that the seller can convey good title to the property. Mortgage contingency provides that if the purchaser cannot obtain a mortgage loan within a given time, she can rescind the contract and get back her deposit. “Good and merchantable title” Brokers: Listing Brokers and Selling Brokers. They may split commission. The Selling Broker brings buyers in. Brokers owe a fiduciary duty to their principals. •
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market a sellers property list residential properties on a multiple listing service (MLS) negotiate purchase agreements serve as an intermediary between buyers and sellers participate in physical inspections of the property Licari v. Blackwelder [case hardly discussed in class] ISSUE is whether a broker is liable for damages to its clients when she withholds information of other negotiations with potential buyers for the purchase of the client’s property at a higher price, and when the broker intentionally misrepresents the identity of a serious prospective buyer in order to mislead the client into selling the property to the broker at a lower price. RULE OF LAW A real estate broker has a fiduciary duty to exercise fidelity and good faith. The conduct of real estate brokers is given a standard by a code of conduct. Violations of the code include: 1.
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making any material misrepresentation making any false promise of a character likely to influence, persuade, or induce acting for more than one party in a transaction without the knowledge of all parties for whom he acts any act or conduct which constitutes dishonest, fraudulent or improper dealings FACTS Six siblings enlisted a real estate broker to help them sell a home they had inherited, and the broker in turn enlisted another broker for further assistance. They entered into a co-­‐broke arrangement under which they would split the commissions if they sold the p roperty. The second broker himself bought the home for less than market value and sold it six days later for $45,000 more than his purchase price. CONTRACTS A purchaser who has signed an enforceable contract obtains “equitable title” in the land described in the contract. The seller is said to hold the legal title as trustee for the buyer. The Contract of Sale The Statute of Frauds No interest in land can be created or transferred except by an instrument in writing signed by the party to be bound. Exceptions where Specific Performance might be allowed: Part Performance – particular acts held to constitute part performance vary. Works when the act satisfies the evidentiary requirements of the statute of frauds. • Estoppel – Unconscionable injury would result from denying performance when one party has been induced by the other’s promise enough to change his position in reliance on the contract. Michigan has its own statute of frauds, in addition to the common law doctrine of the Statute of Frauds. 566.106 There is a misconception that a check can be a good contract because it has a signature. But the recipient of the check may never sign it. •
Hickey v. Green, Mass. 1982 ISSUE is whether the court allow the estoppel/part performance exception to the Statute of Frauds and allow for remedy to the buyer of land when an oral contract was made between the buyer and seller, when the buyer has left a check for $500 deposit with the payee space left blank and when the seller never signed the check, and when the buyers then sold their old home and made a contract to sell lot S to a second buyer. RULE OF LAW When there is a clear oral promise, partial payment, plus an act made in reliance, a land transfer is sufficient to overcome the Statute of Frauds requirement that contracts for the sale of land must be in writing. FACTS Green agreed to sell lot S to the Hickeys. Hickeys gave a deposit check of $500 to Green with a note on the back about the land, but leaving the payee line blank b ecause of uncertainty of whether it was for Green or her brother. The Hickeys relied on this, sold their home and then sold lot S to another. Green knew the Hickeys were interested in selling the lot. HELD This court remanded to lower court suggesting specific performance, but asking lower court to look at the state of the Hickey’s contract with new buyers. The court notes that she was aware of the Hickeys’ intention to quickly make improvements or sell the land. Equitable relief. [This case doesn’t really make sense, two years, goes to supreme court of Mass. ] Problems p. 546 2. A. The deed was effective in transferring the land from O to A, but not in transferring it back because the deed’s language gave it to A. So A still has title. The deed is not title. Title is an abstract concept of law, so handing back of the deed or tearing it up doesn’t change title. 2. B. This is legally ineffective. Doesn’t satisfy the statute of frauds. Marketable Title A marketable title to real estate is one which is free from reasonable doubt, and a title is doubtful and marketable if it exposes the party holding it to the hazards of litigation. These next cases are about how to deal with title certainty and how to deal with physical conditions and title. Merger. At common law, the contract and any of the rights in it are put to death with delivery of the deed. Anything you want to survive from the contract must be written in the deed. Marketable title deals with actual fee simples, and conditions and burdens. Marketable title says that as a clause in a contract, it is providing a standard by which the buyer can judge the status of the seller. Marketable title is a benefit to the buyer. You can also put an “as is” clause into the contract, but this isn’t fully recognized anymore. After a contract is signed and before deed is conveyed, you have the right to visit the premises and inspect it to be sure it’s up to standards. Buyer has an equitable interest. There is also risk – market may change, and risk is now on the buyer. This is why we have specific performance: marketplace changes and people decide they don’t want to be bound to the k anymore, but …. After the deed is conveyed, you might have an insurance policy about title or about condition of premises to protect you from unexpected problems. Can buyer walk away free when the seller breaches the contract? Lohmeyer v. Bower, Kansas 1951 ISSUE Is the title unmarketable when the home violates the covenant and zoning ordinance? FACTS Loh contracted to buy a home from Bower. The abstract of title imposed a restrictive covenant requiring any home on the lot be two stories, but the home wasn’t. Additionally, the city had a zoning ordinance providing that no building could be build within three feet of a side or line of the lot, but the home was 18 inches from a line of the lot. RULE The law presumes that you (buyer) know about the municipal law, but does not presume that you know about private covenants. The seller is found to be liable for the municipal law because there was already a violation of the law. This makes the property unmerchantable because it imposes a hazard of litigation on the buyer. A covenant would be a violation of the seller’s duty, but typically a buyer will agree to it. A covenant is a promise to do or not do something. A violation of this covenant affect the marketability of the property. HELD The title is unmerchantable. By statute in Michigan, marketable title is found if you can show that there has been good chain of title for 40 years, regardless of whether there was some violation 60 years back. O à to A for life, then to B if alive. This deed is recorded at the courthouse. The next deed shows: O à C, then C à client. C does not yet have marketable title. Can C remedy this? Normal contract would allow C to remedy this within a reasonable amount of time. O might be able to show that A and B are dead and clear things up. Sewage easement. Utilities are a unique case where it is technically an encumbrance because it doesn’t allow for full fee simple, but is more beneficial to the land, so judges will not take this as making the title unmerchantable. Equitable Conversion – doctrine says if there is a specifically enforceable contract for the sale of land, equity regards as done that which ought to be done. Duty to Disclose Defects What if you know that there’s a bomb in the wall of your house and it’s going to blow up in four weeks. You can’t sell it without mentioning the bomb because it’s a latent defect. Even though there would be nothing in the contract about bombs in the wall. Common law exceptions to Caveat Emptor (“as is”): latent defects, … Stambovsky v. Ackley, NY 1991 Plaintiff contracts to buy a house, then later discovers that it is known for being haunted (Reader’s Digest, local press). He wanted to back out of the contract. Whether a seller with the knowledge that the house is haunted has a duty to reveal a defect of the property to a potential buyer under the doctrine of Caveat Emptor when the house is locally well known to be haunted. Caveat Emptor – buyer beware. The court found that the house is haunted as a matter of law. Buyer could not have discovered this because they weren’t from the area. The real estate broker did not have a duty to disclose. The court finds that the haunted characteristic of the house is a defect. But is it really? Depends on what you’re looking for in the house. Changed the law from a strict Caveat Emptor to an exception here, affirmative duty of seller to disclose where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction, nondisclosure constitutes a basis for rescission as a matter of equity. The court imposes a duty to speak, and when you speak, you can’t misrepresent. Why would we want to impose a duty to speak when it’s so hard to enforce? Fairness. We want the market price to represent the actual value of the land, and this happens when all parties have the pertinent information on the condition of the premises. “There is no duty to Google your house.” In Michigan, there is a duty to disclose. Seller’s Disclosure. Property conditions, improvements and additional information. Things like insulation, roof, wells, septic tanks, heating, plumbing … This information is to be revealed during the negotiation process. What does a seller have to disclose? Lying is a breach of marketability, and you can get out of the contract. Builder promises run with the land to subsequent purchases in some jurisdictions. What damages do you get for that? The next two cases look at this, but we are not liable for knowing it on the exam. Contracts for the Sale of Land – before you get the deed, before you get the money. Land Contract – a seller-­‐financed transfer of title. The seller becomes the bank. You sign the land contract where you would normally sign a deed, and only get the deed when you pay fully. Title – bundle of rights that the law acknowledges, what the owner can do with the land. Our concept of land title is under the common law system used in England, Canada, … A Roman sense of ownership of land. In our system, it is very normal for an individual to have title to land. [This isn’t as common in other cultures, China is not quite as comfortable with this.] Good title. Means you do have title. Full title. When one person holds all of the rights. Present and future interests is one way to divide. We determine who has title through Title Assurance. Title Search – a process we will learn about later. Title is a matter of public record (modified by actual possession). This is best done before you contract for the sale of land. The government has no say over who has title. It is entirely in the hands of lawyers and the recorders of deeds. This is an area where to be a lawyer gives you special rights to tell others who has title to land. Marketable title At the time of deed conveyance, whatever title the owner has is transferred. Good or bad title is transferred. What if you get bad title? Two primary tools available: the seller’s promises in the deed itself – Deed Warranties – and Title Insurance. Title Insurance gives you money from the insurance company when something goes wrong. Deed warranties have a statute of limitations, and can be tailored to you and the other party’s needs. Deeds The Deed has been the functional transfer of land since the 17th Century. Originally there were different deeds for different interests in land, but these have been consolidated into the three types of deed we use today. The only differences between the deeds is the warranties given by the seller. A deed can be very simple like the one on p. 586, which contains all of the common-­‐law warranties. “Conveys and warrants” means that the seller is giving all of the common-­‐law warranties in Michigan. General Warranty Deed • Warrants title against all defects in title, whether they arose before or after the grantor took title. • Contains the 6 Covenants of Title • Most desirable to the grantee Special Warranty Deed • Contains Warranties only against the grantor’s own acts, but not the acts of others. Only for the period of time that the grantor owned the property. Thus, if the defect is a mortgage on the land executed by the grantor’s predecessors in ownership, the grantor is not liable. • Contains the 6 Covenants of Title Quitclaim Deed • Conveys whatever title the grantor has, if any. If the grantee of a quitclaim deed takes nothing by the deed, the grantee cannot sue the grantor. • No warranties • Not desirable to the grantee Elements required to create a lawful deed: 1. Names of the Grantor and Grantee 2. Words of Grant [“Nancy Roe and her heirs and assigns forever” giving a fee simple] 3. Legal description of the tract 4. Warranties 5. Consideration might be noted. Legal impact is that it makes you a bona-­‐fide purchaser. 6. Signature of the Grantor 7. [seal is not legally required anymore] A forged deed is void. The grantor whose signature was forged prevails over all persons, even subsequent bona fide purchasers who don’t know the deed was forged. A deed procured by fraud is voidable by the grantor in action against the grantee. However, a subsequent bona fide purchaser from the grantee prevails over the grantor. Majority follows that all deeds give the same type of search requirements. WARRANTIES F U T U R E P R E S E N T There are six common-­‐law warranties 1. Covenant of Seisin – [Own it] Grantor warrants that he owns the estate deeded. 2. Covenant of Right to Convey – [Right to convey it] Same purpose as the covenant of seisin, but it is possible for a person who has seisin not to have the right to convey (e.g. the property is held in a trust) 3. Covenant against Encumbrances – [Not limit its use] Grantor warrants that there are no encumbrances on the property. [mortgages, liens, easements, covenants, existing zoning violations, leases] Usually there is a clause in the deed that states this only applies to unrecorded encumbrances. An encumbrance is every right 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. There are those which affect the title, in which case the encumbrances are included in the covenant regardless of the grantee’s knowledge of them. There are those which affect the physical condition of the land, in which case the encumbrances are excluded from the covenant because they are within the contemplation of the parties when contracting. 4. Covenant of General Warranty – [Defend it] Grantor warrants that he will defend the title against lawful claims and will compensate grantee for any loss sustained by assertion of superior title. 5. Covenant of Quiet Enjoyment – [Won’t interfere] Grantee will not be disturbed in possession and enjoyment of the property by assertion of superior title. 6. Covenant of Further Assurances – [Will perfect title] Any other documents required to perfect the title will be conveyed. The Present Covenants can only be broken at the time deed is delivered, which is when the Statute of Limitations begins to run. Present covenants do not run with the land. However, a cause of action on a present covenant may run with the land in some jurisdictions. The Future Covenants can be broken when the grantee or successor is evicted from property or is otherwise injured by another person asserting superior right. The Statute of Limitations begins to run at the time when the covenant is broken. Future covenants run with the land. Estoppel by Deed – in jurisdictions recognizing this, when a grantor conveys a property that they do not have title to, but anticipate getting the title later, the legal title to the property passes to the grantee as soon as the grantor gets her title. Only applies where the grantor warranted she had title, and doesn’t apply in quitclaim deeds. A à B (A doesn’t have title). One year later, O à A. B technically doesn’t have title, but Estoppel by Deed applies, and makes the title given to A by O retroactively given to B. Brown v. Lober, Illinois 1979 ISSUE is whether a covenantee has suffered constructive eviction when he fails in an effort to sell an interest in mineral rights because he discovers he does not own the mineral rights his warranty deed purported to convey. RULE OF LAW The covenant of quiet enjoyment is breached when there is a paramount title, but only when the grantee is unable to peaceably enter upon and enjoy the premises. When the grantee is in possession of the surface, she does not carry possession of the minerals. FACTS 80 acres of land was conveyed to the Bosts with 2/3 interest in the mineral rights reserved for the conveyor. 10 years later the Bosts conveyed the land to the Browns with a general warranty deed. Over 10 years later the Browns contracted to sell the mineral rights to the land to a coal company. They found that they only owned 1/3 of the mineral rights and were forced to renegotiate the contract for $2,000 rather than $6,000. The Browns sued the executor of the Bosts for the breach of the covenant of quiet enjoyment from constructive eviction. HELD No constructive eviction, so no breach of covenant of quiet enjoyment. The court found that no one had undertaken to remove the coal or show intent to possess the mineral estate while the Browns were in possession of the land. They have not been hindered from enjoyment or possession. The Covenant of Seisin was unquestionably breached when the Bosts delivered the deed to the Browns, but the statute of limitations has expired. The Browns should have secured a title opinion at the time they purchased the property. The Browns might attempt to get the rights through Adverse Possession, which is their only option at this point. Mineral rights – not the right to possess the land, but rights to the minerals under the surface, and the right to access. This is an issue mom and dad probably dealt with in oil and gas. To what degree can a seller who conveys land through a general warranty deed, but continues to use the land, gain title through adverse possession? There is a split of authority among courts. Think about the policy behind possible opinions. Professor Favre said this is a GOOD EXAM QUESTION*** Rockafellor v. Gray, Iowa 1922 ISSUE is whether a right of action for a breach of the covenant of seisin runs with the land so it can be maintained by a remote grantee when the original covenantee was never in possession of the land. RULE OF LAW The common law rule (majority) is that the covenant of seisin does not run with the land. The minority rule is that the covenant of seisin does run with the land regardless of whether a remote grantor was in possession or not. This court follows the minority rule. FACTS Doffing (no title) à Rockafellor (promised to pay the mortgage, but apparently never did) Gray (no title, but mortgage owed to him by Doffing) à (Sheriff sale) à Connelly (never in possession) à (4,000 General Warranty) à Dixon (never in possession)à (7,000 Special Warranty) à H&G Suit brought by Gray didn’t get Personal Jurisdiction over Rockafellor. H&G, remote grantees, cross claimed against Connelly for breach of covenant of seizin in case Rockafellor won. Connelly had tried to convey title he didn’t actually have. The conveyance from the sheriff sale is no good. HELD H&G, remote grantee, could sue, but only the $4,000 consideration paid by Dixon, immediate grantee. [Damages are capped by how much the grantor receives] [Buyer bears the risk of the marketplace. The Buyer should have done a title search] Main point: we had six covenants, three future, three present. Future covenants only run. Present covenants do not run. This is a minority position, in that the breach of covenant of seisin would run. [Why didn’t they bring suit for breach of covenant of quiet enjoyment, which would have run with the land as a future covenant?] Frimberger v. Anzellotti, Conn. 1991 ISSUE is whether a violation on the property that was not known by the recipient of a deed at the time of conveyance (allegedly latent violation) is a breach of the covenant against encumbrances. RULE OF LAW 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. In this court’s jurisdiction, there must be marketable title to be free of all encumbrances. FACTS Defendant’s brother conveyed property to Defendant by a quitclaim deed. Defendant conveyed property to plaintiff by a warranty deed, free and clear of all encumbrances but subject to all b uilding, building line and zoning restrictions, easements, and restrictions of record. The plaintiff later wanted to make repairs on the property to the bulkhead (a sort of sea wall), and the engineering firm he hired discovered from the DEP’s survey of the tidal wetlands on the property that there was a tidal wetlands violation. HELD The covenant against encumbrances was not violated, and no misrepresentation was made. The court considers whether the wetlands violation affects the marketability of title. Found that it does not, that the DEP has not brought any action against the plaintiff, and the plaintiff has not made an application to correct the violation. Not an encumbrance because it was a statutory regulation on the land. This was an illegal structure. It was a bad idea to sue before taking any administrative action with the DEP. This is more related to the contract warranties, not to the deed. Courts don’t see building code violations as encumbrances. They are easier to remedy, so are less of a reason for violations to ruin a deal. Additionally, building codes are more for the individual good of buyers, unlike zoning and environmental regulations, which are for the good of the public or the environment – social good. Marketable title can be sold at a fair price to a reasonable purchaser or mortgaged to a person of reasonable prudence as a security for the loan of money. Unmarketable title is found when a defect presents a real and substantial probability of litigation or loss at the time of conveyance. Problems p. 604 1. A à B for 20,000 GW Deed, B à C for 15,000. O the true owner ousts C. The jurisdiction holds that present covenants are breached, if at all, when made, and the chose inaction is not assigned to subsequent grantees. a. Quitclaim deed, B still has a cause of action against A, but does he have damages? No. B paid 20k but only got 15k. But was A guaranteeing the value of the land? No. The seller never guarantees the value of the land, only guarantees title. b. General warranty deed, C can recover against B. B can sue A. c. General warranty Deed. B can recover 15k from A because B lost 15k to C. The loss in value of the property is B’s problem. d. View of Rockafellor v. Gray? C could have a cause of action against B or A, but only for the 15k he paid. 2. A à B GW 15k, B à C QC 12k, C à D GW 20k. O, the true owner, ousts D at the time that the land is worth 24k. Advise D and C as to how much they can recover on the warranties. D’s can recover for breach of covenant of seisin (present) and quiet enjoyment (future) from C. D can recover for breach of covenant of quiet enjoyment from A. B can recover from A as well for the covenant of quiet enjoyment and breach of covenant of seisin, but B has no damages because no one can sue B, so B wouldn’t sue A. C doesn’t have a cause of action against B because it was a QC deed, which doesn’t warrant anything. C doesn’t have a cause of action against A either. All warranties are with either B or D. 3. Damages limited. You’re barred at the death … DELIVERY OF DEEDS If transfer of title is effective with the “delivery” of the deed, when is delivery completed? It is completed at closing, upon receipt of payment, assuming the deed has been signed. All of the requirements of escrow are met. Valid transfer: deed must be in writing and physically delivered to either the grantee or their agent. The delivery of a deed and gifts of personal property are very similar. Delivery of a deed seeks to find the intent of the grantor. Intent of the donor is similar to the intent of the grantor to make a deed immediately operative or operative on a condition. Recording the deed has no effect on the deed’s validity or delivery. HYPO: What if a father says “because of your success in property class, I want to give you this land, henceforth … this land is yours.” This is no good because it doesn’t satisfy the Statute of Frauds. It is not in writing. What if the father had written on a nearby rock that the land was for his daughter, signs and dates it? It’s in writing, but the description of land is not adequate. With a good description of the land written on the rock as well, it might be sufficient, but the daughter would be smart to take a picture. HYPO: “To my son Mike, I hereby agree to transfer all of my interest in Blackacre 10 years from this date.” Doesn’t sound like an intent to convey some sort of future interest right NOW. Rather, the father should say that his son has some sort of future interest in fee simple. “I hereby give my son a fee simple in the land, but reserve for myself a term of years of ten years.” HYPO: A owns a house in Lansing worth 80k. His friend B owns a house in Williston worth 200k. Each conveys their land to the other through a deed while they were drunk. A tries to move in to B’s old place, but B rejects. [like Lucy v. Zehmer] The objective manifestations showed B intended to convey his land. What is B’s best argument? It was a joke. He was under duress. … B would have the burden of proof. There is prima facie presumption that the transfer was good. Difference in value might also play into this. What if the next week, A takes B’s old lot and conveys it to C? If B had already filed suit, that would serve as a marker to make the title not good when it’s transferred to C. But if B hasn’t, the land would be properly conveyed to C. HYPO: What if O contracts from A for a sale of property? At closing, A is short on money. They draw up a deed, but promise not to do anything until A can pay. A has this deed. A records the deed anyways without paying. What can O do? There was a condition on the deed, that A pays. But O didn’t put the deed (with a condition) in the hands of a third party. The condition doesn’t have to be written into the deed. The sales price may be stated objectively in the contract, but not in the deed. O should have given it to a third party escrow. He also could have written the condition into the deed. This would require “but if” language for a condition subsequent. HYPO: What if O gives to the law school a deed that says “to Law school, fee simple, but I get possessory rights during my lifetime and reserve the right to sell.” This basically gives O a life estate plus the power to sell. This might be a step too far taken by O. This is similar to a revocable trust, a powerful tool for those with large estates. Death deliveries: if you draft up a deed for personal property and keep it under your pillow, it is not good. You should have drafted a will. But if you draft the deed before your death, and give it to your lawyer with the condition that it’s transferred upon your death, it’s good. Some courts might interpret deeds to be a will. Depends a lot on the court. What if the notary section of a deed is not filled out? The deed is effective so long as it’s signed by the grantor. The notary and signature stuff is for recording purposes. Sweeney v. Sweeney, Conn. 1940 ISSUE is whether there was proper delivery of a deed when it was intended to operate only upon the new owner’s death, and whether the condition attached to the deed is operative. RULE OF LAW A conditional delivery can only be made by placing the deed in the hands of a third person until the condition is met. This case represents the majority rule. A few jurisdictions say that there is no delivery when the deed is to “take effect” upon the death of the grantor. FACTS Maurice deeded his farm to his brother John. In order to “protect” Maurice if John predeceased him, John and M aurice drafted a deed to convey the farm back to Maurice. Only the first deed was recorded, and the second was held by John. Maurice’s widow brought this action to quiet title alleged by John. HELD There was a legal delivery of the deed, but the condition is not valid because a conditional delivery can only be made by placing the deed in the hands of a third person until the condition is met. Chillemi v. Chillemi, Md. 1951 RULE OF LAW Court said it doesn’t matter who holds the deed: the grantor, the grantee, or a third person. What matters is intent for the conditional delivery. FACTS H went overseas on a dangerous military mission. Delivered a deed to W with oral instructions that if H was killed, W was to record the d eed. If H returned from the mission, the deed was to be returned to H and destroyed. H returned from the mission, and after some marital squabbling, W recorded the deed. HELD The court upheld the oral conditions and annulled the deed. Rosengrant v. Rosengrant, Oklahoma 1981 RULE OF LAW A valid conveyance requires (1) actual or constructive delivery of the deed to the grantee or to a third party; and (2) an intention by the grantor to divest himself of the conveyed interest. MORTGAGES •
If a mortgagor sells the land to a third party, what happens to the mortgage? •
If there are two mortgages on one piece of land and the land has to be sold for non-­‐payment, how are the proceeds of the sale to be distributed? •
What is the difference between a land purchased with mortgage money and land purchased through an installment land contract? Terms: mortgage, right of redemption, deficiency (Missed Class, Notes from Rachel) Credit •
Risk: (1) risk of not being able to pay it back; (2) inflation – value of money changes, and the initial investment becomes suspect to one side or the other depending upon what has been done. Mortgage Advantages to mortgages: •
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Can deduct the mortgage interest payment on your income tax. You have 40k. What is a good investment? o Car? No. It will never increase in value. o Land? Have mortgages as fixed numbers. If inflation occurs, value of land goes up, but your rates stay the same. Can substantially increase your investment. This is what happened in the 90s. People were buying with 0-­‐1? down, assuming the market was going to increase. They were buying houses like stock. In a normal course of events, the value of land tends to increase, and tracks inflation. Typically, buying a home is a good investment. So what went wrong? 1960s •
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Small closed geographic loop. Came from the community, went back to the community. Had higher interest rates on deposits and higher rates of return. There was an incentive on the bank’s part to have the lendees pay them back. There was a self-­‐checking process on who got the money. Next, the federal government created Fannie Mae and Freddie Mac o National bank that could be a source of funds to get more mortgages out o Bank no longer depended upon depositors. Fannie and Freddie give the mortgages and then give the cash to the bank. Now puts a third party into the lending process. Question now is what standards are Freddie and Fannie willing to accept? o Lowered the standards because the purpose is to get more people to buy houses. More people buying pumps up the economy, more houses being built, etc. Tradeoff is you’re letting more people in who are less likely to be able to pay back. People with lower credit rating, etc. Predictable that they will default. o Fannie and Freddie got the money for these loans from private investors. Investors motivation was the extraordinary interest return available. Fannie and Freddie would take 1000 mortgages worth $200 million and then sell pieces of that to private investors. [The Big Short – good book on this that is easy to read] Investors know nothing about the mortgagors who are receiving the loans. Only real level of honesty and disclosure was the distinction between prime and subprime markets o Prime Market: provides loans to people with high credit scores, fairly typical loan-­‐to-­‐value ratios of 80-­‐90 percent, and characteristics that meet standard underwriting criteria. •
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o Subprime/Alt-­‐A Markets: made loans available to people with low credit scores and sometimes unverifiable income. Loan instruments often combined lower teaser rates for two years with much higher rates for the remainder of the term. Often, borrowers were allowed to borrow 100 percent or more of the value of the property being purchased. Rating Agencies would rate the quality of bonds being given to mortgagers and would rate the bonds high because they were backed by the banks. Subprime mortgages were getting very high ratings. We had a system set up that lied to the investor about what the risk actually was. Ended up with mortgage brokers not under the control of the bank. They’d charge $3k in fees to get the loan (Origination Fee). Mortgage broker would sell to one of the big investment firms who sold to private investors. On fees and resale, person who originated the mortgage was out at this point and had no risk. o Mortgage brokers When subprime blew up, the entire market collapsed. 80% of people were able to pay their mortgages. The problem was when people lost faith in the market increasing. Those in the subprime who were getting bad deals subsequently defaulted, causing the market to collapse. These people are gone now. Banks are back to the old way. No more 100% loans – typically give 80% loans. Mortgage companies are having a hard time collecting on mortgages in default because they can’t prove they own the mortgage. The mortgage has been sold and broken down on so many levels that it is difficult to prove who owns it. Service companies were in the middle of investment firms and private investors. They neither originated nor got the profits. ***FINAL WON’T HAVE ANYTHING ABOUT CALCULATING MORTGAGES*** The Normal Process To borrow money from the lender, the borrower must give the lender a note and a mortgage (formerly called a deed of trust). A Note is simply a promise to pay. Ways to package a note: (2) 30 year fixed rate (most common standard). Get a loan for 30k, have 30 years to pay it back at 6% interest. Give a 30 year loan because in 90% of cases, it will be paid off long before that. Length of loan is what allows you to make the monthly payment. The difference between the note and the mortgage increases at the length of the note increases. (3) 15 year note at a variable rate at 5% interest. The risk of future inflation is lower, so the interest rate can be lower. The 6% in the type above won’t mean as much in the future. Banks will give you a lower rate on a shorter note because the risk of inflation is reduced to them. (4) Balloon payment. You have to refinance in 3 years, get a new mortgage with new fees, and reset according to the terms of the times. No risk to the bank. Risk to the seller that the interest rates will be much higher at the end of the term, but gives a very low interest rate for the term of the balloon payment. Mortgage: The power of the bank. Promises of the borrower protecting the interest of the bank. Mortgage is all about the power of the bank. A good bank will have a payback without a penalty. If you need to pay it off, you are able to do so without penalty. An advantage of a mortgage is you make a commitment to a fixed rate, and inflation happens and the payment remains the same. A lender can immediately go for the land if buyer defaults, whereas a credit card company would have to go through various legal actions to put a lien on someone’s property. Mortgager gives note and mortgage to mortgagee, and mortgagee gives money. If mortgager gets a second mortgage, mortgagor sells the house to a new purchaser. 3 things that could happen to the mortgage: 1) pay it off (most typical) 2) purchaser takes subject to – seller promises to continue to pay off the old mortgage, but you don’t take the mortgage off the land. Purchaser is buying the land subject to the mortgage. Not a smart thing to do. 3) Assumption of the mortgage: purchaser promises to pay off the mortgage. Makes sense if there has been a change in interest rates and the old mortgage has a lower interest rate. Most mortgages have a non-­‐
assignment clause now, but can be advantageous if you can get it. More common than subject to. Most mortgages say if you miss a payment, you are in default. However, it takes time and money to carry out a foreclosure process, and banks would rather work with you and let you catch up if you can. Ex. case we read the bank allowed 7 months. 2 Ways to Foreclose: 1) Foreclose by court order: more expensive and time-­‐consuming. a) Defaultà file lawsuit seeking foreclosure à court will set a date for a sale à have sheriff’s deed delivered à have a sale à property is sold à right of redemption. i) Right of redemption: last chance for a person being foreclosed upon to get back the house by paying the purchase price for the house. Ex: house is sold at foreclosure sale for $50k. Mortgagor has 6 months to buy the house back for the purchase price. Sheriff’s deed gives you a fee simple subject to the right of redemption by the mortgagor. This is one reason why you never get full price at a sheriff’s sale. b) Payment à default à file for action à foreclosure à sale à right of redemption 2) Foreclosure by advertisement a) Offer the public the foreclosed land. Legal notice in the back of newspaper. Have to post 3 times. Hold a sale and sell the property. Court is never involved. Most mortgage companies don’t like this because you get less money. What if a buyer defaults and has 2 mortgages? The second mortgage is subject to the prior rights of the first mortgagee; if the sum brought upon foreclosure sale is insufficient to pay off both the first and second mortgages, the first mortgage is paid first. Because of this increased risk, a second mortgage usually carries a higher interest rate than a first mortgage. • If you have 2 mortgages, 2 checks have to be written every month. What if you quit paying the second mortgage but continue paying the first? The 2nd mortgage holder forecloses. If the second mortgage holder seeks to foreclose, they can’t force liquidation of the first mortgage. 2nd mortgage can’t liquidate a prior interest. Murphy v. Fin. Dev. Corp., NH 1985 Plaintiffs brought action to stop the foreclosure of their home. Plaintiffs got behind in mortgage payments on the house they purchased. They managed to make some of the payments, but not all. Foreclosure sale took place. Wasn’t for fair market value. The bank has a fiduciary duty of good faith and due diligence. The lenders have a duty to exercise good faith and due diligence in obtaining a fair price for the property at a foreclosure sale. Good faith and due diligence -­‐ “The reasonable bank” In almost all jurisdictions, contracts for the sale of land are treated as if they were mortgages. •
TITLE ASSURANCE RECORDING ACTS Recording systems protect title. Records are held at the county clerk’s office. Courts determine how extensive the searches by lawyers need to be, which documents they need to look at. Index system to aid in the title search. Directs to the relevant documents. 1. Tract index (do not exist in most states) 2. Grantor-­‐Grantee index (used primarily) There’s a distinction between the date of the transfer of the deed, and the date of the recording of the deed. Title Search: Start with the name of the grantor. Search that name in the grantee index to find when the deed was conveyed to the grantor. Repeat this search all the way back 40 years. The Golden Search Rule – Chain of Title (on TWEN) Search the Grantor Index for each person in the chain of title, under his/her name, from the date of delivery of the deed to that person [date in] until the date of recording of the first conveyance from that person, of all of his/her interests, [date out]. Recording statutes – typically require land title records to be maintained by the county recorder. Protects those who qualify under the statute. If you don’t qualify, the Act protects purchasers for value and lien creditors against prior unrecorded interests à broadened the doctrine of Bona Fide Purchaser, which normally places duty on purchaser. If you buy a piece of land without notice of any conflicting interests in the land, you get the land without those conflicting interests. But you still have a duty to do a title search. A good faith purchaser should win over prior purchasers who didn’t protect themselves. “Prior In Time, Prior in Effect” rule: common law rule which gives priority of title determined by priority in time of conveyance. First in time wins in common law. Luthi v. Evans, Kansas 1978 ISSUE is whether the recording of an instrument of conveyance that uses the phrase “all interest of whatsoever nature …” to describe the property to be conveyed, a Mother Hubbard clause, satisfies constructive notice to a subsequent purchaser. Does the subsequent purchaser have a duty to search to the extent that he would search every document associated with the grantor? RULE OF LAW Mother Hubbard clauses may be used to effectively transfer property interest. But to make it effective under Kansas recording statute to subsequent purchasers and mortgagees, the grantee must take steps to protect her title by taking possession to prevent subsequent purchasers, or by filing an affidavit or other document with the register of deeds that describes the property. Typically, a description of property is sufficient when it identifies the property or affords the means of identification within the instrument itself or by reference to another instrument recorded in the office of the register of deeds. HELD A recording of an assignment using only a Mother Hubbard Clause without other efforts does not sufficiently specify the property being conveyed to give constructive notice to a subsequent purchaser. DEED DESCRIPTIONS How should land be described? The description must have an identifiable start point. “Metes and bounds” descriptions are ok, but are not preferred or used anymore. Grid systems were implemented early on in the US. The US Government Survey System. •
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Base line. Line running east and west, usually in the center. In Michigan it’s 8 mile. Prime Meridian: Line running north and south, usually in the center. Meridian, Michigan is the principle or prime meridian. 6x6 mile squares -­‐ townships 1x1 mile squares – sections o Roads tend to follow the section lines. Orr v. Byers, California 1988 ISSUE is whether an abstract of judgment (document) containing a misspelled name gives constructive notice of its contents. RULE OF LAW The burden should be on the judgment creditor/lawyer/person drafting the document to take appropriate action to ensure the judgment lien will be satisfied, by spelling the names of their judgment debtors properly. Court rejects the Doctrine of idem sonans (when incorrect spelling, identity presumed from similarity of sounds between the correct spelling and the incorrect spelling.) FACTS Orr obtained a judgment lien against Elliott. The written judgment made by Orr’s attorney incorrectly spells Elliott’s name (“Elliot” and “Eliot”). When Elliott later sold the property to Byers, a title search failed to find Orr’s judgment lien against Elliott. Orr filed action against Byers, Elliott, and the bank to request judicial foreclosure of his judgment lien. HELD request for judicial foreclosure d enied. Judgment Lien: A court ruling that gives a creditor the right to take possession of a debtor’s real property (business, personal property, and other assets) if the debtor fails to fulfill his or her contractual obligations. Hypo: Elizabeth Taylor owns Whiteacre, and the record title is in her name “Taylor.” She has a mortgage under “Elizabeth Taylor Fisher” indexed under “Fisher.” Then another deed under “Taylor” to Sandler. Sandler has no actual notice of the mortgage under “Fisher.” In a jurisdiction where indexing is a part of the record, does the Sandler prevail over the mortgagee? Yes, you don’t have to know all of her 7 names. Even if the mortgage had been indexed under “Taylor-­‐Fisher,” this would not be enough to give constructive notice. The mortgage is a wild deed. REMEMBER: you can always be protected if you record on the day of conveyance. TYPES OF RECORDING ACTS ***Last year at least one essay was on recording acts*** NOTICE STATUTE – Last conveyance without notice. A subsequent purchaser is protected against a prior unrecorded instrument even if they don’t record themselves. An unrecorded instrument is invalid against any subsequent purchaser without notice, regardless of whether the subsequent purchaser records prior to the first purchaser. The Notice Analysis is made at delivery of deed. Example: O, owner of Blackacre, conveys Blackacre to A, who does not record the deed. O subsequently conveys Blackacre to B for a valuable consideration. B has no knowledge of A’s deed. Under a notice statute, B prevails over A even though B does not record the deed from O to B. • virtue: fairness between two conflicting claimants • problem: question of whether the subsequent purchaser has notice relies on facts not on the record. • not as efficient as a Race Statute Shelter rule – A person who takes from a BFP will prevail over any interest over which the BFP would have prevailed. (Only applies in notice jurisdiction). RACE-­‐NOTICE STATUTE – First deed recorded without notice. A subsequent purchaser is protected against prior unrecorded instruments only if the subsequent purchaser (1) is without notice of the prior instrument and (2) records before the prior instrument is recorded. So the subsequent purchaser must receive deed w/out notice AND must record deed. Example: O conveys Blackacre to A, who does not record the deed. O subsequently conveys Blackacre to B, who does not know of A’s deed. Then A records. Then B records. A prevails over B because, even though B had no notice of A’s deed, B did not record before A did. [Michigan is a Race-­‐Notice Jurisdiction] Race Statute – First to record with or without notice. Subsequent purchaser must record before the earlier purchaser, but he is protected regardless of whether he has notice of the earlier conveyance. Only found in Louisiana and NC. Example: O conveys to A. O conveys to B. B records. Who prevails? B, because B recorded first. “First In Time” rule: Common Law rule which gives priority of title determined by priority in time of conveyance. First deed delivered wins. O conveys to A. O conveys to B. Neither records. Who prevails? A, first deed delivered. Bona Fide Purchaser – a person who takes the property for value without notice of prior interest. Wild Deed – unconnected to an owner in the chain of title. (see #5 in Deeds TA Lab) Notice must be sufficient, cannot be a wild deed. On an exam question, begin by answering to the common law “first in time” rule, then move on to recording acts. “A will win under the common law “first in time” rule, unless another purchaser can be proven to own under recording acts.” “Reasonable title searcher.” Messersmith v. Smith, ND 1956 BAD LAW ISSUE is whether a subsequent purchaser has superior title to a prior unrecorded conveyance of title when the subsequent purchaser’s deed was from an owner who purchased the land and recorded the deed, but when the statutory procedure for acknowledgment was supposedly not followed in that recording. RULE OF LAW Bad law, says proof that acknowledgment didn’t meet statutory requirements affords no constructive notice, so a subsequent purchaser cannot purchase in good faith, and does not have title. FACTS CàF. Not recorded. CàSmith. Recorded without proper acknowledgment by C. SmithàSeale. Recorded. F files suit to quiet title to the land. Race Notice Jurisdiction. HELD Seale does not have title. The rule should have been interpreted: if the certificate of acknowledgment looks good on its face, it is presumed to be good. Chain of Title – the recorded sequence of transactions by which title has passed from a sovereign to the present claimant. It is the period of time for which records must be searched and the documents must be examined. Includes the series of recorded documents that, in the particular jurisdiction, give constructive notice to a subsequent purchaser. Standard title search required against each owner – The Golden Search Rule Search the Grantor Index for each person in the chain of title, under his/her name, from the date of delivery of the deed to that person [date in] until the date of recording of the first conveyance from that person, of all of his/her interests, [date out]. In other words, search from the date of execution of the deed granting title to the owner to the date of recordation of the first deed by such owner conveying title to someone else. Board of Education of Minneapolis v. Hughes, MN 1912 RULE OF LAW (1) This court says that a deed which is a nullity when delivered because the name of the grantee is omitted can become operative without the grantor’s new execution or acknowledgement so long as the grantee later inserts his name with either express or implied authority from the grantor. (2) In a Race Notice Jurisdiction, a subsequent purchaser is in good faith and has the first duly recorded deed when the prior recorded deed was not traceable to the common grantor (Wild Deed). The prior purchaser should have recorded the unrecorded deed prior to his own to give Constructive Notice. FACTS Hoerger owned the lot in question, which was vacant and subject to unpaid delinquent taxes. Hughes paid $25 for the lot in May 1906, and sent the deed to Hoerger’s husband to be executed and returned. The name of the grantee in the d eed was not inserted, and was left b lank. Hoerger signed it, sent it back to Hughes in May 1906, who inserted his name just before it was recorded Dec 16, 1910. Real estate dealers D&W paid Hoerger $25 for a quitclaim deed to the same lot in April 1909, and it was not recorded until 1910. Before it was recorded, D&W sold the lot to Board of Education of Minneapolis, and the deed was recorded in Jan 1910 (before Hughes’s deed was recorded). HELD Hughes’ deed was operative and Hughes had title. Board of Education of Minneapolis v. Hughes – Chain of Title Fact Pattern: May 1906 April 1909 Nov 1909 Jan 1910 Dec 1910 Hoerger Hughes (R) Hoerger D&W (R) Board of Ed. (R) A similar situation: Hypo: O conveys to A, who does not record. A conveys to B, who records the A-­‐to-­‐B deed. O conveys to C, a purchaser for value who has no actual knowledge of the deeds from O to A and A to B. Who prevails, B or C? The issue is: Is the A-­‐to-­‐B deed properly “recorded” so as to give constructive notice to the world? Covenants – promises on the use of land made by the private parties in the purchase of land. Can provide value to subdivisions when they help define the subdivision, maintain an image. Who gets the benefit and who gets the burden of the covenant? Who else is going to be bound by the covenants as subsequent landowners? The first deed of a subdivision has a limitation, and the first buyer A accepts. A has the burden and the seller has the benefit. If A then sells to someone else, the new buyer has the burden as well. What if the second lot in the subdivision is sold to B, but without the limitation written into the deed, does B have to comply with the limitation? Does B’s attorney have to look at the deed for the first lot to the first buyer? Is that deed in the chain of title? (see next case) Guillette v. Daly Dry Wall, Massachusetts 1975 ISSUE is whether a purchaser of a lot from a subdivision is bound by restrictions in the deeds of other lots in the subdivision from the same grantor when the restrictions were not explicit in his own deed. Does the purchaser have a duty to do title search on all conveyances from the common grantor? RULE OF LAW Typically, a purchaser is protected from restrictions not express, and has the duty only to search former deeds in its chain of title. However, when there are other deeds from a common grantor and common plan (like in a subdivision), the purchaser must search outside of its chain of title. Each index lists only the grantor, grantee, and description. The description is not reliable, so the purchaser has to look at every deed from the common grantor to see if there is anything in those deeds that affect her lot. [Jurisdictions are split on this issue because it places a great burden on the purchaser, and the restriction covenants might have been put in the descriptions to show up in the index.] HELD restrictions are enforced because the purchaser should have searched the deeds of adjacent lots. Chain of Title Issue (9): does a title searcher have a duty to examine records under the name of each owner prior to the date of the deed transferring title to the owner? No. Hypo: A conveys Blackacre to B by a general warranty deed. B records. A subsequently acquires title to Blackacre from O. A records the deed from O to A. A then conveys Blackacre to C, a purchaser for value who has no actual knowledge of B’s deed. C records. Who prevails, B or C? Does the A-­‐to-­‐B deed give C constructive notice? Minority: Yes. In two older cases, the court held that B prevails. When A received title from O, it passed automatically to B under the doctrine of Estoppel by Deed. B’s deed could be discovered by a subsequent purchaser by searching the records under A’s name prior to the date title came to him from O. Majority: No. C prevails. Searching title under the name of every owner for an undefined number of years before the date that owner received title is very costly. (outside of Golden Search Rule). B’s deed is outside the chain of title and does not give constructive notice to subsequent purchasers. Chain of Title Issue (10): Does a prior deed from an owner recorded after a second deed from the same owner give constructive notice of the prior deed to subsequent purchasers from the grantee of the second deed? Courts are split on this one. Even if the grantee of the second deed was with notice? Even if the grantee of the second deed was a donee and didn’t give consideration? Hypo: O conveys to A, who does not record. O subsequently conveys to B, (but without consideration?), who knows of the conveyance to A. B records. Then A records. Later B conveys to C, a purchaser for value who has no actual knowledge of the deed from O to A. C records. Who prevails, A or C? C prevails: a purchaser is not bound to examine the record after the date of a recorded conveyance to discover whether the grantor made a prior conveyance recorded later. This is a good rule because it limits title search. – Majority Rule A prevails: a prior deed recorded late – after another deed from the same owner – gave constructive notice to subsequent purchasers. This increases the cost of title searching. If B was with notice or was a donee, he cannot prevail over A regardless, and this has no effect on C. Chain of Title Problems (p. 685) #1 In a race notice jurisdiction, separate the recordation chain and the notice chain. In the example above in a RN jurisdiction, C could win if we argue that C’s chain won when B recorded, even though B had notice and the notice chain was bad for B. But the recordation chain still continues to C. #2 (a): Take the most subsequent party, E. Does E win? Notice jurisdiction – E wins because they only recorded deeds are B to C and A to D. There was nothing else recorded from O. Had C or D recorded B and A’s deeds from O too, that would have put E on notice, so they could have won. Race Notice jurisdiction – #2(b) B no longer has any claim to title. Notice – D wins. (Land was conveyed to D last) Race Notice – A wins (A recorded first) If after D records, A conveys to E, who promptly records, who prevails in a Notice? E wins because E would only have to search from A, finds O to A, only needs to look at the period from when O gets title to when O conveys to A. The other deeds were all conveyed after A’s deed. Race notice? E wins because O to A was the first recording. #3 C is definitely bound by the mortgage from A to O, but is he bound by the mortgage from A to B? Yes, he has record notice. He would look at what A does from the time A gets it until C gets it. Example: (Notice) O conveys to A. O conveys to B. Then A records. B conveys to C. Who prevails, A or C? C’s title prevails. B is sheltered. Example: (Race Notice) O conveys to A. O conveys to B. A’s title prevails under first in time common law rule. What if B recorded a month later? B wins. What if A recorded a day after the conveyance to B, and then B records? A wins. Example: (Race Notice) O to A. O to B. A records. B records. B conveys to C. Who prevails? A, because B should have searched O’s name, then found O to A. Problems p. 669 PERSONS PROTECTED UNDER THE RECORDING SYSTEM •
What constitutes "notice" in determining whether an individual is a BFP? •
When is there a duty to "inquire"? What point in time do we assess the knowledge of a potential BFP? Valuable consideration is considered by most courts to be more than a nominal value, a “substantial” amount, or an amount “not grossly inadequate.” “for $1 and other good and valuable consideration” raises the presumption that the grantee is purchasing for valuable consideration. Daniels v. Anderson, Illinois 1994 ISSUE is whether one is a subsequent bona fide purchaser when he was without actual notice of an option in the land at the time he entered into the contract, and without actual notice during partial payment for the land, but had actual notice by the time he took title? RULE OF LAW Minority rule: partial payment of consideration is insufficient to render a buyer a BFP. Majority: pro tanto rule: a buyer is protected to the extent of payments made prior to notice, but no further. Payments made prior to notice are made in good faith. FACTS Daniels purchased two lots from Jacula, and also obtained a right of first refusal to an adjacent parcel of land for the same price as any prospective b uyer’s offer if Jacula ever decided to sell it. The contract of sale was not recorded. The deed for the two lots did not mention the right of first refusal, and was recorded. Eight years later, Zografos contracted to buy that lot in which Daniels obtained the right of first refusal. Daniels was not notified of the offer, as his interest promised. Zografos began to pay Jacula for the land in installments. Then Daniels’ wife told Zografos that Daniels had the right of first refusal, but Zografos continued to pay, received the deed, and recorded it. HELD order Z to convey the land to Daniels, and for Daniels to pay Z the full purchase price (ALL of what Z paid, not just the payments before notice, this is in all equity and fairness – doing what’s most fair to all of the parties, Z is already losing the lot, that’s enough) and property taxes Z had already paid on the land. Is Jacula liable? He should have taken the contract of sale with Daniels to the courthouse when he recorded the deed. But Daniels didn’t sue Jacula because Daniels wanted the lot, and could only get it from Z. The Pro Tanto Rule has three methods of application: 1. [Most common] award the land to the holder of the outstanding interest and award the buyer the payments that he or she made. (holder of interest gets land) 2. award the buyer a fractional interest in the land proportional to the amount paid prior to notice. (both get land) 3. allow the buyer to complete the purchase, but to pay the remaining installments to the holder of the outstanding interest. (buyer gets land) Lewis v. Superior Court, California 1994 ISSUE is whether one is a bona fide purchaser when they purchased, made a partial payment, closed, and recorded a deed before a lis pendens was indexed, but after it was recorded. When were they on record notice? RULE OF LAW once we consider someone a subsequent bona fide purchaser, we consider the title transferred. FACTS Early Feb: The Lewises contracted to buy land from Shipley 24 Feb: Fontana Films recorded a lis pendens (notice of lawsuit affecting title to the land) against Shipley. Feb 25: The Lewises made their first payment to Shipley. Feb 28: Closing and the Lewis’s deed was recorded. Feb 29: Fontana’s lis pendens was indexed. The Lewises finished payment in March, and spent another million in renovating the property. They learned about the lis pendens when they were served in Fontana’s lawsuit in Sept. Lewises brought this suit to remove the lis pendens and clear title. HELD A purchaser without notice who makes a down payment has the right to the property because he obligates himself to pay the balance, so he has every reason to believe that if he makes payments when due, he has secure rights to the property. That purchaser may also drastically alter his position relying on this right. for example, he may move into the new residence and sell his prior home. Ancient principle that real property is unique and its loss cannot be compensated even if money is returned. Constructive notice in this case wasn’t detrimental to the Lewises Who takes the risk of indexing? Other jurisdictions might say that subsequent purchasers are on notice when the deed is taken to the courthouse, before it was indexed. Alexander v. Andrews, 1951 (not discussed in class) FACTS T and M, husband and wife, are tenants in common of their home. April: Mary d ied giving half interest to son C 8 May: T conveyed his half interest to daughter S for love and affection 14 May: T conveyed his half interest to C, who was without notice, for $1k and C’s promise to care of T for his life and b ury him. Deed recorded. 8 July: S recorded her d eed. C took care of T until he died. S claimed half interest in the house. C claimed to be a subsequent purchaser without notice. HELD Court held that C is protected subsequent purchaser only for the $1000 paid before S’s deed was recorded, which then gave constructive notice to C. The remainder of his consideration, lifetime care and burial costs, was paid after S recorded her deed. Creditors may be a subsequent bona fide purchaser, and may be protected under recording statutes if the creditor has no notice of the unrecorded claim at the time of sale, and if the creditor has established a lien (has prosecuted a lawsuit to judgment and forecloses a lien or holds an execution sale.) NOTICE Three kinds of notice: 1. Actual notice – one is personally aware of a conflicting interest in real property, often due to another’s possession of the property. 2. Record notice – a type of constructive notice (notice under law, regardless of whether it’s actual), notice one has based on properly recorded instruments. 3. Inquiry notice – based on facts that would cause a reasonable person to make inquiry into the possible existence of an interest in real property. (red flags.) Inquiry notice can arise from many things: from something overheard, from something questionable in the title, from actual possession of the property. The court has to consider fairness. Does the nature of the deed itself constitute a red flag? Harper v. Paradise, Georgia 1974 ISSUE is whether a subsequent purchaser has constructive (inquiry) notice when the deed in a chain of title refers to another, prior, unrecorded deed that prevents them from claiming title. RULE OF LAW “A deed in the chain of title, discovered, by the investigator, is constructive notice of all another deeds which were referred to in the deed discovered, including an unrecorded plat included in the deed discovered.” FACTS In 1922, Susan harper conveyed her farm to her daughter Maude Harper for life with vested remainder in fee simple to Maude’s n amed children. Maude paid $5 plus love and affection. The deed was not recorded before it was lost. When Susan d ied, her heirs knew that the deed was lost, and in 1928 wrote up a new document giving Maude a fee simple. The first 1922 deed was lost for 35 years before it was found and recorded in July, 1957. Maude conveyed the fee simple to Thornton in 1933 for a $50 loan. (Middle of the Great Depression) Maude defaulted and Thornton foreclosed. Thornton received and recorded a sheriff’s deed in 1936. Through an unbroken chain of title, Lincoln and William Paradise purchased the land through a warranty deed recorded in 1955. Lincoln and Will also claim adverse possession. L and W trace their title through the 1928 deed to Maude, not the 1922 deed which gave remainder in fee simple to Maude’s children. They reference the Code, which says that the deeds are a derivative of the same source, Susan, and that the subsequent recorded deed from the same vendor, “taken without notice of the existence of the first,” has priority. HELD Court says that Maude and subsequent purchasers had notice of the 1922 deed, so the Code does not apply. The 1928 deed does not apply, and the recitals within it put any subsequent purchaser on notice of the existence of the earlier misplaced or lost 1922 deed. This provided constructive notice. The court presumes that proper inquiry would have disclosed the interest conveyed in the 1928 title. (Even though it wasn’t found or recorded until 1957, two years after L and W got the land in 1955. They should have looked for it. Is this fair? No. This goes against the rule! If you have a trigger that says you must inquire, you are only bound to anything that reasonably could have been found. Or Yes, because there’s no proof that L and W made any inquiry at all, nor did they say that inquiry would have been “futile,” which is what the court says) Adverse Possession doesn’t apply because the 1922 deed didn’t give Maude’s children the remainder until her death in 1972, and time doesn’t begin to run until the end of Maude’s life estate, her death. They did adversely possess the life estate, but they would have to start over when the remaindermen (children) get their present interest. If a deed says “subject to an easement recorded in plat book page 6,” that’s inquiry notice. If it says “subject to Joe’s agreement to let Mary use the road,” this is an indefinite record. This probably wouldn’t give someone a duty to inquire. In the majority of jurisdictions, a purchaser of quitclaim deed is treated the same way in regard to notice. A few jurisdictions are the exception by never allowing the purchaser of a quitclaim deed to claim the position of a bona fide purchaser because the refusal of a grantor to warrant title should create a strong suspicion in the purchaser that the title is defective, and a quitclaim deed in the chain of title puts all subsequent purchasers on inquiry notice. Waldorff Insurance and Bonding v. Eglin National Bank, Florida 1984 ISSUE is whether a subsequent successor to legal title had constructive (inquiry) notice of interest in the title when there was open, visible, and exclusive possession of one of the units, and when mortgages on the whole condominium building were in terms of individual units. RULE OF LAW FACTS Choctaw executed a promissory note and mortgage on these properties and recorded it in 1972, a few years later it was assigned to Eglin National Bank. Waldorff made a purchase agreement with Choctaw for a condo unit on April 4, 1973, with a small down p ayment. Waldorff began to live in the unit, paid for furniture, paid for fees and repairs. Choctaw got 2 more mortgages from the Bank in ‘73 and ‘74, which included Waldorff’s unit. Choctaw owed Waldorff for insurance p remiums, but they struck a deal that Waldorff’s unit would be fully p aid for if Choctaw’s debt to him was dropped. Deed to Waldorff was recorded in March 1975. (Choctaw no longer owns the unit). Bank brought a foreclosure action in ‘76 against Choctaw + Waldorff, but the final judgment put off the foreclosure of Waldorff’s interest in his condo unit. Trial court held the conveyance of the deed to Waldorff was void. HELD This court reversed, held that Waldorff’s interest in the condo unit was superior to the liens of two mortgages held by the Bank. Also found that Waldorff’s bad debt tax deduction constituted valuable consideration (sub rule: property law doesn’t care about what you do with the IRS). The agreement to purchase between W and C vested equitable title in W, so the interests acquired by the Bank would be inferior to W’s equitable interest if the Bank had notice. Because W was in actual possession of the unit, it was constructive notice. This is also because the mortgages were in terms of individual units, not the whole building. The Bank should have sent a letter to that condo unit requiring the resident to sign and return with any claims of legal interest to the unit. Marketable Title Acts Michigan is a marketable title jurisdiction with a 40 year search period. Marketable title acts limit title searches to a reasonable period. Touched on p. 704 (not in readings). p. 714, title insurance, we don’t have time to get into that. What happens when something goes wrong? Can you recover with your title insurance policy? THE LAW OF SERVITUDES: PRIVATE LAND USE CONTROLS Now the question is: what do you get with a fee simple? The right to use the land. 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How much space below the surface of land do we own? As much as is useful. All of the gas, minerals, diamonds. How far up do we own? Up to the point where you would cause collision with an airplane. When do drones trespass? Can you separate a certain portion of your land ownership and sell it to a third party? Yes, mineral rights, right to the air above your land. Right of lateral support – your neighbor cannot dig a hole that would cause your land to fall in. What does ownership of land give you in lake rights? In Michigan, if you border water, you have some rights to it. Common Law Nuisance – cannot use land in a way that causes nuisance to another. Use limitations: •
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Police power actions, i.e. zoning. You can’t build in contradiction to zoning laws. Environmental laws Private covenants (what we’ll discuss here) Easements, covenants, assorted other terms. Be able to distinguish between these five things (p. 763) [what is the point of these?] 1. A is given the right to enter upon B’s land. Easement. 2. A is given the right to enter upon B’s land and remove something attached to the land. Profit. [is this a lease?] [An easement with a right of removal] 3. A is given the right to enforce a restriction on the use of B’s land. Easement; Real Covenant; Equitable Servitude (like a covenant, might be found in a common grantor for a subdivision, only difference from a covenant is that its enforceable in equity). 4. A is given the right to require B to perform some act on B’s land. Real Covenant; Equitable Servitude. 5. A is given the right to require B to pay money for the upkeep of specified facilities. Covenant or Servitude with a duty to pay. “Scenic Easement” – (Passive) stop any construction on a lot that would obstruct a scenic view. (Active) cannot cut trees below 15 feet. “Easement of Access” EASEMENTS Easement – a non-­‐possessory interest entitling the holder to some type of use or enjoyment of another’s land. A right of one person to enter land in possession of another for a defined purpose. Creation of Easements: • Expressed Provision or Grant • Easement by Implication – By prior use o Common owner (unity of ownership – referring to the original grantor. Easement applied at the severance) o Reasonably necessary o Prior existing Continuous use – the prior use must be continuous, not sporadic o Use is apparent or visible at the time of severance • Easement by Implication – By Necessity o unity of ownership of the alleged dominant and servient estates; created at the moment a parcel is landlocked and thus the easement burdens the last parcel split off by the common owner o the roadway is a necessity (ingress and egress), not a mere convenience (reasonably necessary). o that the necessity existed at the time of severance of the two estates (common owner severed the property; NOT prior use) • Easement by Prescription – like AP, but deals with use instead of sole possession. o adverse use (not possession) under a claim of right )not under the permission of the owner) o open and notorious o continuous for the prescriptive period • Easement by Estoppel – if a licensor grants a license on which the licensee reasonably relies to make substantial improvements to (licensee’s) property, equity requires that the licensor be estopped from revoking the license [License + Estoppel] Difference between easements, licenses, and covenants. COVENANTS Covenants are attached to an estate, and encumbrance on the land. Easements give an interest in land, can be conveyed. Equitable Servitude is like a Covenant, but not expressly created. Requirements for a Covenant Running with the Land: 1. Expressly created in writing (to satisfy the Statute of Frauds) 2. Intention to run with subsequence concerns, “heirs and assigns” 3. Touch and Concern, the restriction must touch and concern the land. It’s not personal. Covenants to pay a sum of money are usually personal affirmative covenants that don’t touch and concern the land, unless it’s a homeowner’s association that goes to maintaining the property 4. Privity – (“the real bear”) privity means that there’s a connection between two people relating to a parcel of land. Common law rule is that there needed to be two kinds of privity for the covenants to run with the land: 1. Horizontal privity – was there privity when the document came into being? Was there a transfer of interest? (not if there was only a contract for sale of land.) You must show this to benefit from the burden, to assert the benefit. 2. Vertical privity – has there been a transfer of an interest in land to subsequent purchasers? Not needed to assert the benefit. Privity of estate between the original promisor and the successor to the burdened estate. 1. Transfers of full estates v. transfers of lesser estates. Transfer of a lesser estate (like a lease) does not transfer a burden. To convey the burden, you need conveyance of all the grantor’s interest that existed at the time of the creation of the burden (must convey the exact same estate in land). 2. To convey the benefit, can run on any transfer of possessory estate (can be less than the grantor’s full interest). Also requires notice. Covenants can be within the deed, or just be referenced in the deed. That reference is enough to bring in the other source. Negative Covenants – like building permits. Positive Covenants were disliked by courts, didn’t like to tell someone they had to do something. Neponsit Property Owner’s Assn. v. Emigrant Industrial Savings Bank, New York 1938 ISSUE Does the use of the money touch and concern the land? Is there privity? RULE OF LAW FACTS Neponsit Property Owners’ assignor, Neponsit Realty Co., conveyed the land now owned by Emigrant Bank to Deyer and his wife by deed. That original deed contained a covenant p roviding: 1. that the conveyed land should be subject to an annual charge for improvements upon the entire residential tract then being d eveloped. 2. that such charge should be a lien 3. such charge should be payable by all subsequent purchasers to the company or its assigns, including a property owners’ association which might thereafter be organized 4. such covenants run with the land. Neponsit brought action based upon the above covenant to foreclose a lien upon the land which Emigrant Bank now owns, having purchased it at a judicial sale. Emigrant Bank appealed from an order denying their motion for judgment on the pleadings. [Favre considers their covenant well-­‐drafted, very explicit] HELD Court found that the covenant touched and concerned the land because it impacted the value of the land (could be positive or negative), not just physically touching the land. They did not find vertical privity because there’s no title for the successor (Neponsit Property Owners’ Assn.). There was just a contractual agreement, but no transfer of interest in land. The court still enforced the covenant because of the social good. HYPO: What if Deyer had agreed to pay $100 a month for water? There’s a private water system. The covenant would be enforceable. What about $100 a month to pay for a workout gym outside of the development? The covenant wouldn’t be enforceable because it has nothing to do with the land, and is more of a personal lifestyle thing. However, if the gym was a part of the development, then it would be an enforceable covenant. DISCRIMINATORY COVENANTS Shelley v. Kraemer, U.S. Supreme Court 1948 ISSUE Is state court enforcement of private, discriminatory restrictive covenants unconstitutional under the 14th Amendment? RULE OF LAW 14th Amendment requires equality in the enjoyment of property rights. FACTS In February of 1911, 30 of 39 owners of property in a neighborhood of St. Louis executed an agreement prohibiting the sale of any of the homes to any person “not of the Caucasian race.” In 1945, S helley, an African-­‐
American, sought to buy one of the homes covered by the agreement. The other homeowners, led by Kraemer, brought suit to uphold the restrictive covenant and prevent the sale. The Missouri Supreme court upheld the validity of the restrictive covenant. Shelley appealed to the U.S. Supreme Court. HELD Unconstitutional. Although the covenant is between personal parties, the lower court enforced it, violating the 14th Amendment against state action that is discriminatory. [This decision was not widely appreciated at the time. The legislature didn’t act right after this, but some time later they enacted laws that made certain covenants prohibited. Michigan law: “a person selling land may not refuse to enter a real estate transaction with a person based on religion, race, color, national origin, sex, …” TERMINATION OF COVENANTS Ways to terminate a covenant: 1. merger 2. release 3. acquiescence 4. abandonment 5. unclean hands 6. laches 7. estoppel 8. say that there are changed conditions Western Land Co. v. Truskolaski, 1972 RULE OF LAW A restrictive covenant is enforceable so long as its provisions remain of substantial value. FACTS Western Land Co. wanted to build a shopping center near property owned by Truskolaski, who argued that such construction would violate a restrictive covenant. Western argued that the value of the land would be greater with a commercial purpose. It’s a corner lot on main roads, hasn’t been sold for residential purposes yet. The main roads have gotten bigger, busier. HELD The covenant stands. The court had to look at what the people who made the covenants wanted. They also found there wasn’t sufficient change in the community. [after this, Western Land Co. would have had to go negotiate with the homeowners association, try to pay to get out of the covenant, or build stores the homeowners liked.] Rick v. West, New York 1962 RULE OF LAW Unless there is a general change of conditions in the general neighborhood, courts will not engage in a balancing of equities, but will enforce restrictive covenants. FACTS When Rick’s predecessor in title, the owner of 62 acres of vacant land, first subdivided the land, he filed a declaration of covenants, restricting the land to single-­‐family dwellings. West purchased a half-­‐acre lot and built her house on it. Rick’s predecessor attempted to sell 45 acres for industrial use, but West refused to release the covenant in her favor. After purchasing the remaining acreage, Rick attempted to sell a 15-­‐acre tract for construction of a hospital. Again West refused to release the covenant. Rick sued to have the covenant declared unenforceable, claiming changed conditions. HELD The court held that the covenant stands because they could not find any changed conditions on the individual lots, even though the entire subdivision had failed. The Changed Conditions doctrine: When a change has taken place since the creation of a servitude that makes it impossible as a practical matter to accomplish the purpose for which the servitude was created, a court may modify the servitude, or terminate it if modification is not practicable. However, in most cases when conditions change, the court continues to enforce the covenant by injunctive relief or by awarding damages for breach. Pocono Springs Civic Association v. MacKenzie, Pennsylvania 1995 RULE OF LAW A landowner cannot abandon property to which he holds perfect title. FACTS The MacKenzies contended that their nonuse of their property (because it was unable to support sewage), refusal to p ay taxes, and offers to sell created abandonment. They tried to deed their p roperty to Pocono Ass’n, which refused to accept it. They tried other ways to get rid of it, b ut the Ass’n filed an action seeking to collect delinquent association dues. HELD The MacKenzies are still liable for association dues. Makes the point that you cannot abandon property. Favre thinks it’s unfair that they’re stuck paying money even when none of it can go to their lot. [We didn’t discuss this case much in class] Condominium development: we have to skip this in class. If you go into real estate and deal with these, there are a lot of bizarre issues. Major enterprise of ownership and covenants. LEGISLATIVE LAND USE CONTROLS Limits on Power of State If the state seeks to take control of land use, they can do it through eminent domain. They can condemn various interests in the land, but it must be for public welfare/use, and they must provide fair market value compensation. State seeks to take control of land use à Zoning, Nuisance Control Is it within the Police Power? Does it support the health, safety, and welfare of the public? Is it rationally related to what was specifically adopted? Extractions. Nexus Test. Does it violate a constitutional right of the landowner? 1st Amendment, 5th Amendment. Takings. Extractions. 14th Amendment If NO to any of these questions, then set aside. If YES to all of them, then the State wins. When the State seeks title to land, it might first attempt to do so through Eminent Domain, then by seeking a Fee Simple, or then an Easement. Zoning ordinances are routinely upheld in the face of takings allegations, especially if they are controlling nuisance-­‐like condition, or so long as they leave the property owner with some reasonable use. ZONING Zoning is an exercise of the police power to protect health, safety, welfare, and morals. There were no zoning laws through the Industrial Revolution. Zoning spread rapidly after 1916, when NYC enacted the first comprehensive zoning program. The Standard State Zoning Enabling Act of 1922 provided a model zoning statute. By the mid-­‐1920s, most state courts had upheld zoning acts under the Constitution. The idea of zoning was to preclude nuisance. By preventing nuisance, many disputes and lawsuits can be avoided. Village of Euclid v. Ambler Realty Co., U.S. Supreme Court 1926 ISSUE is whether a zoning ordinance is unreasonable and confiscatory, making it unconstitutional and void, when it greatly reduces marketability and value of land, deterring buyers and sending them to less favorable locations, but when apartments in certain residential areas may be a nuisance. RULE OF LAW For a zoning ordinance to be justified, its police power must only be asserted for the public welfare. It may not be “clearly arbitrary and unreasonable,” but must have a substantial relation to the public health, safety, morals, or general welfare.” FACTS Village Council adopted a zoning ordinance -­‐ 3 classes of overlapping districts: use districts, height districts, and area districts; plus sub-­‐classes. General purpose, as with most zoning ordinances, was to secure public health, safety, & general welfare. Ambler Realty claims that the ordinance violates the 14th Amendment: deprives them of liberty & property w/out due process, denies them the equal protection of the law, and violates certain p rovisions of Ohio’s Constitution. Ordinance greatly reduces their property values. Prevents them from building stores along Euclid Ave, and from building some industrial buildings in other areas. They ask for an injunction restraining the enforcement of the ordinance. They challenged the zoning ordinance in its entirety, not any specific provisions of it. HELD Court upheld the zoning ordinance because there was no invalid exercise of authority. The exclusion of industrial establishments that are not offensive or dangerous may be upheld because they don’t show that the entire ordinance is invalid. The same goes for restrictions on residential and commercial districts. They used the law of nuisances to assist them in determining where powers exist to prohibit the erection of certain kinds of buildings, in light of the circumstances and location. Apartment houses in certain residential areas may be a nuisance, causing noise, blocking the sun from single family dwellings. [Opinion criticized for protecting single family dwellings, allowing for economic and racial segregation.] Euclidean Zoning: districts are graded from “highest” to “lowest.” The uses permitted in eachdistrict are cumulative; higher uses are permitted in areas zoned for lower uses but not vice versa. Thus, one can put a single-­‐family house in an apartment district, or put an apartment in a commercial district. Some cities have turned to noncumulative zoning, prohibiting houses and commerce in industrial zones to preserve large tracts for future industrial use. “Higher” and “lower” do not refer to economic value. In 1928, the Supreme Court decided in Nectow v. City of Cambridge that a zoning ordinance as applied to the plaintiff’s land (as opposed to a zoning ordinance as a whole in Euclid) was arbitrary and unreasonable. Enabling Legislation – Standard State Zoning Enabling Act (or something similar) has been adopted by every state, and gives the police power normally held to reside in the state to local governments/municipalities. Michigan’s is very short and gives a lot of discretion to the local municipalities. California’s is very long. [Favre said a good thing to do when you have time is to get involved in the planning of a city.] THE NON-­‐CONFORMING USE PA Northwestern Distributors v. Zoning Hearing Board, Pennsylvania 1991 ISSUE Does an amortization provision in a zoning ordinance result in a taking without just compensation, making it unconstitutional, when it restricts a nonconforming, previously conforming, legal use of the land for an “adult” store, which does not create a nuisance? RULE OF LAW (Minority) Municipalities do not have the power to require a change in nature of an existing lawful use of property. Depriving a property owner of lawful use is taking, and requires just compensation. Amortization and discontinuance of a lawful pre-­‐existing nonconforming use is confiscatory. (Majority) Amortization ordinances may be allowed, so long as the time period allows the landowner to obtain a reasonable return investment. Any other loss suffered by the non-­‐conforming landowner is offset by the temporary monopoly position he occupies for as long as the business remains in place during the planning and conforming. FACTS PA Northwestern had an “adult” bookstore, which was lawful at the time. The local Board of Supervisors quickly amended the zoning ordinance so it restricted p ermissible locations for “adult commercial enterprises” and allowed 90 days for non-­‐conforming uses to comply with the ordinance, or shut down. PA Northwestern filed an appeal with the Zoning Hearing Board to challenge the provision, b ut the Board validated the provision. The Court of Common Pleas dismissed PA’s appeal. The Commonwealth Court affirmed, saying that the provision would have beneficial effects on the community with the discontinued use of the book store. HELD The court said that you have the right to pre-­‐existing use because that use existed lawfully. Plenary police power of the state if they can justify the ordinance. Concurrence (Nix): the amortization provision is too restrictive because it doesn’t give enough time for compliance. An amortization provision providing reasonable notice would be properly delegated police power. The time period should allow the landowner to obtain a reasonable return on his investment, to obtain an alternative means of income. What if the plaintiffs in this case had been a pig farmer? What would the city have been required to do if they were to change the zoning ordinance to exclude the pig farm? Provide enough time that the owner does not lose money from the transition. Although, a zoning ordinance should have a set number of days. Wetlands protection: in the 1970s, we realized wetlands had great ecological importance. Governments passed ordinances saying that you cannot develop wetlands. Immediately, everyone filed lawsuits saying it was a taking. Courts realized that they had such an ecological value that saving them outweighed the loss to the landowners. What do you have to do to become a pre-­‐existing use? It’s not enough to just have plans. Obtain building permits, have site plans, break ground and pour concrete in it. Majority of cases hold that once you put in a foundation and have building plans, it is enough. Pre-­‐existing use does survive change of ownership. Destruction of a nonconforming use (by act of God or otherwise) usually terminates it. Abandonment with intent to abandon the nonconforming use also terminates it. ACHIEVING FLEXIBILITY IN ZONING Variances Exceptions Amendments to Zoning Ordinance •
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VARIANCES Variances – allows an exception to the ordinance in the use of land. An administratively-­‐authorized departure from the terms of the zoning ordinance, granted in cases of unique and individual hardship, in which a strict application of the terms of the ordinance would be unconstitutional. The grant of a variance is meant to avoid an unfavorable holding on unconstitutionality. Commons v. Westwood Zoning and Board of Adjustment, New Jersey 1980 RULE OF LAW Boards of adjustment are delegated power to grant variance under two conditions: 1. Variance must be necessary to avoid imposing undue hardship on the owner of the land in question a. Undue Hardship – involves underlying notion that no effective use can be made of the property in the event the variance is denied. Owner must show she made reasonable efforts to comply with the zoning ordinance. b. Hardship must not have been self-­‐inflicted (like by selling part of the land with the result that it fell short of area requirements). 2. The Grant of the variance must not substantially impinge upon the public good and the intent and purpose of the zoning plan and ordinance. If you can make NO commercial use of your land under the ordinance, that is prima facie taking. FACTS Weingarten wanted to build a house on a lot that didn’t meet zoning ordinance’s required size, it was a narrow strip. Asked for a variance, proposing he would build a smaller home, and turn it the other way against the other homes nearby. Asked for variance of dimensions, not variance of use. Neighbors disagreed, said they didn’t want a house there. HELD Court found that the variance was reasonable because there was sufficient hardship – Weingarten tried pretty hard to make other uses of the land. Court said that without the variance, the land would be zoned into inutility. EXCEPTIONS Special Exceptions – an allowed use under the ordinance, which requires special permission. This is a good way to provide flexibility in zoning. Things like churches, gas stations, might be allowed as an exception in certain residential areas. Use permitted by the ordinance in a district in which it is not necessarily incompatible, but where it might cause harm if not watched. Exceptions are authorized under conditions which will insure their compatibility with surrounding uses. Typically, a use which is the subject of a special exception demands a large amount of land, may be pubic or semipublic in character, and might often be noxious or offensive. Hospitals in residential areas are one example, because of the extensive area they occupy, and because the potential traffic and other problems which may affect a residential neighborhood. A filling station in a light commercial district is another example because of its potentially noxious effects. Cope v. Inhabitants of the Town of Brunswick, Maryland 1983 This case shows inappropriate delegation from the legislative body to the agency. Police power cannot be transferred to an agency. Guidelines were inappropriate in that they were not specific enough. The court invalidated certain requirements of the ordinance, which were said to prevent the specific exception, and allowed a permit for the exception to be issued. What is the difference between variances and exceptions, and how do you implement it? **know for exam** Administrative Decision-­‐Making: •
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requires research, gathering of facts, public hearings environmental evaluations must work with laws restricting agency rule-­‐making, guiding agency to what it should accomplish. make a decision, statement of relevant facts and law lawyers make sure that all of the pertinent information is available if there is judicial review. appeals Judicial Review. Very seldom do these agency courts have legal background. 1. Did the board have the authority to make the decision they made? Was it within the police power? 2. Did they make findings of fact? 3. Did it comply with the procedural rules? 4. Did it follow the Administrative Procedures Act? 5. Did it meet Constitutional restraints? Did it violate the constitution? 6. Is it rationally related to the purpose of the zoning ordinance Spotted owl: Dept. of Interior researched, found from the only 8 scientists who studied them said that the spotted owl was endangered. Dept. of Interior said that it wasn’t endangered because there weren’t many opinions. Court said, no, the facts you gathered suggest that it is endangered. If you were drafting a request for a special exception for a gas station in a residential area, what would you want to include in the document? Traffic study to show public safety. Show that it would have no adverse effects on health, welfare, and safety. Have a plan for a “buffer” – like tall bushes separating it. Show conformity to aesthetic character of the area. ZONING AMENDMENTS AND THE SPOT ZONING PROBLEM Spot Zoning – change the zoning through legislation, amendment, for a small spot of land. **We don’t have to know this** COMMUNITY CONTROL AND EXPANDING THE AIMS OF ZONING Police Power – Health, Safety, and Welfare. •
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Stopping the Negatives à Nuisance control – approved by the Supreme Court. No change. Conformity. Government Directed Development (when has the gov’t gone too far?) Creating the Positives à risk of the new. Different. Free Market. Rationally related to the concern of the government? Talked about some hypos: could the city prohibit dogs in certain areas? Can we say that an area is specifically reserved for coffee shops? No, you cannot say a specific activity. Placement of Wal-­‐Marts is always very controversial. Tends to kill small businesses in the area, takes up a lot of space. State may zone to protect and enhance value. They do this through separation of uses. AESTHETIC REGULATION State ex rel. Stoyanoff v. Berkeley, Missouri 1970 ISSUES 1. Whether the creation of an architectural board for the purpose of promoting and maintaining “general conformity with the style and design of surrounding structures” is unauthorized by an Enabling Statute.” 2. Whether it is an unreasonable and arbitrary exercise of police power to be based entirely on aesthetic values. 3. Whether it is an invalid and unlawful delegation of legislative powers to the Architecture Board. RULE OF LAW A valid purpose of zoning ordinances is to protect property values. Lower property values negatively affects the tax base of the community, reducing public funds. Modern trend for jurisdictions to accept as legitimate zoning based exclusively on aesthetic considerations. FACTS (Favre went to high school here! Just before this lawsuit. Says it’s very much a Bedroom Community) A Relator wanted to build an unusually-­‐shaped house in a suburb. Pyramid with a flat top, triangular-­‐shaped windows and doors. It still met all of the existing b uilding and zoning regulations and ordinances of the City of Ladue. All of the houses around Stoyanoff’s property were pretty conventional – two story, traditional architecture. City ordinance created an architectural board to make sure that new homes “conform to certain minimum architectural standards of appearance and conformity with surrounding structures, and that unsightly, grotesque, and unsuitable structures detrimental to the . . . welfare of surrounding property . . . be avoided.” The architectural board, unsurprisingly, denied Stoyanoff’s building permit application. A trial court issued a peremptory writ of mandamus making the city issue him a building permit. HELD The court said that the architectural board had power to deny the building permit. “It is then pleaded (by Defendants) that relator’s description of their proposed residence as ‘unusual in design is the understatement of the year. It is in fact a monstrosity of grotesque design, which would seriously impair the value of property in the neighborhood.’” Historic Districts: is preservation of history a value sufficient to justify the use of police power? Yes. This is a rational reason to control aesthetics. Berman v. Parker, U.S. Supreme Court 1954 [Pivotal Case. Only mentioned in Notes in the book] City decided to turn a slum into a community-­‐friendly housing development. Court held that the city could do that. Some of the most quoted language: value it represents “are spiritual as well as physical, aesthetic as well as monetary. It is within the power of the legislature to determine that the community should be beautiful as well as healthy…” Anderson v. City of Issaquah, Washington 1993 RULE OF LAW A statute which either forbids or requires the doing of an act in vague terms violates Due Process. This occurs when men and women of common intelligence must necessarily guess at its meaning and differ as to its application FACTS Anderson tried to get his building plans approved. M odern style, white stucco, blue roof, industrial/commercial-­‐looking. Conformed in u se and safety, but not in aesthetic values. Development Commission sent him home to modify h is plans. He came back changing the roofing from metal to tile, changing the stucco to Cape Cod gray with Tahoe blue trim, and adding brick to the front façade. Still rejected. Anderson came back once again with new plans. Development Commission denied his p lans, giving four reasons. Strictly subjective criteria for building design in a city’s building code. “harmonious” “appropriate” Anderson argued that this criteria was unconstitutionally vague. HELD Court found that the vagueness of the ordinance violated due process, and said that the City should have issued the building permit. However, court did not consider whether aesthetics would justify police power of the city. What if the Arch. Review Board is part of the private homeowner’s association, not the city? All of your constitutional guarantees go away. Their exercise of authority only must be “reasonable,” and “in good faith.” City of Ladue v. Gilleo, U.S. Supreme Court 1994 ISSUE The issue is whether an ordinance prohibiting the display of a war protest sign on private property is in violation of the First Amendment. RULE OF LAW A municipality cannot have a blanket prohibition against signs on residential properties. FACTS The City of Ladue enacted an ordinance that prohibited all signs on residential property other than “for sale” signs, and a few others. The ordinance says n othing about what signs say, but is very broad and justifies the ban on signs with aesthetic reasons, property values, ambiance of the community, safety and traffic hazards. Gilleo placed a sign on her property protesting the Gulf War. The sign was knocked down a few times, so she reported it to the police. She was cited for a violation of the ordinance. S he files for a variance (allowed under the ordinance in certain circumstances), then puts the sign in her window. The District Court and Court of Appeals said that the ordinance was unconstitutional. HELD The Court said that the ordinance was unconstitutional. The only way this could be regulated is under government police power, and if a sign causes legitimate health and safety concerns. Signs are an important, historic mode of expression and communication. The City of Ladue’s ordinance violates the First Amendment’s freedom of expression rights. ENVIRONMENTAL PROTECTION What can the government do to protect the environment? The zoning board has the power to turn down certain uses of land. Judges accept that environmental protection is a legitimate power of the state. Fisher v. Giuliani, New York 2001 RULE OF LAW A court will not overturn an agency determination regarding the requirement of an environmental impact statement unless the decision was affected by an error of law or was arbitrary, capricious, or constituted an abuse of discretion. FACTS In 1998, NYC amended its zoning laws for the Theater District to allow transfer of development rights to any possible site within the district, not just nearby parcels. This allows for some reimbursement to the theater owners for the space of their lots they’re not using. [The city is giving up their zoning control by allowing this, it’s a burden on the city] The Department of City Planning did research and analysis and found that the amendments didn’t affect overall market conditions and would not induce development beyond what was already likely to occur. Found that there would not be a significant impact on traffic and transit. Found that the amendments would not induce socioeconomic development different in kind or magnitude from what was already expected. Residents of an adjoining district brought suit, alleging NYC was obligated to prepare an environmental impact statement b efore modifying the rules. HELD The Court found that it was not arbitrary and capricious or an abuse of discretion. The standard of review for overturning administrative rulings is a finding that the actions were “arbitrary and capricious.” This means that even if there was substantial objection in the community regarding the plan (as there was in this case), or some disagreement as to its likely environmental impact, the court will not overturn a negative declaration unless the board acted irrationally or abused its discretion. Environmental Impact Statement is required for any administrative actions. NEPA is one of the most questioned acts. National Environmental Policy Act. This law does not require that the actions with the best environmental outcome be used, but is still often challenged because it limits. Global warming, climate change, and environmental review: to what degree can a state act be justified on the basis of being made in connection to global warming? As various state agencies began prescribing methodologies for projecting greenhouse gas emissions and targets for reduction, trial courts have shifted toward requiring analysis of global warming in environmental assessments, even in advance of the legislatively mandated deadline. Smart Growth – refers to measures to reduce sprawl and associated negative environmental impacts, now common in many states. CONTROLS ON HOUSEHOLD COMPENSATION Village of Belle Terre v. Boraas, U.S. Supreme Court 1974 ISSUE is whether a city ordinance can prohibit unrelated residents from living in one home, and whether this is a constitutional ordinance, and a constitutional use of police power. FACTS Six unrelated college students rented a home in Belle Terre in December of 1971. Very wealthy area, almost purely residential. Belle Terre has an ordinance that restricts land use to one family dwellings. The owners of the rental home were served with an Order to Remedy Violations. Those owners and three of the college students sought an injunction under the Civil Rights Act, and claimed the ordinance was unconstitutional. The Court of Appeals found that it was unconstitutional. The challenge of the ordinance is based on several grounds: social homogeneity is not a legitimate interest of government. If two unmarried people can constitute a “family” there is no reason why three or four may not. HELD The Court said that the ordinance is constitutional. Not arbitrary. The ordinance is in accord with permissible state objectives. Family values, quiet and peaceful atmosphere, and clean air are valid reasons to impose restrictions. “..make the area a sanctuary for people.” Dissent (Marshall): ordinance is unconstitutional because it violates the First Amendment freedom of association and right to privacy. Fourteenth Amendment right to “establish a home.” Says the ordinance discriminates based on personal lifestyle choices as to household companions. He gives a three part test for strict scrutiny. This is a very superficial opinion, doesn’t really address the constitutionality, why does Douglas do this? He might see that this area is such a small place, and can be defined as a place for wealthy, homogeneous people. Justice Douglas is an important justice in his written opinions on environmental justice. He typically preferred to give individuals power against the state, but did the opposite in this state Moore v. City of East Cleveland, U.S. Supreme Court 1977 Favre sees this as an offensive law. Court upheld an ordinance that limits households to one set of grandchildren. Moore was put in jail because she lived with two grandsons who were not brothers. This appears to be targeted at minorities and immigrants who don’t have much money and must live with extended family under a single roof. Very prejudiced. Michigan has a law that disallows city ordinances from excluding trailer parks. Different levels of housing are required to be permitted in each zoning law. City of Edmonds v. Oxford House, Inc., U.S. Supreme Court 1995 ISSUE Is a family composition zoning rule exempt from the Fair Housing Act? RULE OF LAW A zoning rule must comply with the purpose (reduce overcrowding) of the Fair Housing Act’s exemption clause in order to be exempted. FACTS Edmonds limits certain residential areas to single-­‐family homes, meaning only those related by blood, marriage, or adoption, or any group of five or fewer unrelated residents. Oxford House had a halfway house in one of these areas covered by the ordinance. District Court said the ordinance included a restriction on the number of occupants, so it was exempt from the Fair Housing Act (§3607(b)(1)), which says that laws or ordinances limiting the number of residents in a household are exempt from the Act. The 9th Cir. Court of Appeals reversed and said that the ordinance did violate the Fair Housing Act, which protects certain classes of citizens. HELD The court said that the ordinance is not exempt from the FHA. The FHA’s exemption clause was only meant to allow cities to enact ordinances meant to reduce overcrowding. The “five or fewer individuals” part of the ordinance was only when the residents were unrelated. Residents related by blood, marriage, adoption are unlimited. This does not serve the purpose meant to be protected by the exemption clause. Favre says this is a federal limitation on a local government. You can’t discriminate against people who are protected under the statute. Entirely statutorily driven, not a constitution question. EMINENT DOMAIN AND THE PROBLEM OF REGULATORY TAKINGS Eminent Domain – the inherent power of a governmental entity to take privately owned property, especially land, and convert it to public use, subject to reasonable compensation for the taking. The 5th Amendment confirms the taking power, but does not actually grant it. “nor shall property be taken for public use without just compensation” It’s been an accepted practice at least since Henry VIII, was a big part of the American colonies. When the US was formed, the powers were attempted to be rebalanced to give more power to the individual owner, protect us from the over-­‐exercise of the government’s power. Three categories: •
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When the gov’t seeks to obtain title to individual property for public use, against your will When the gov’t occasionally use your land, but does not take title, or tells third parties they can do this. Should they pay for this? Takings – government isn’t trying to seek title or use it directly, but seeks to control it. Why might the government need the power of eminent domain? •
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Economically-­‐efficient. Anti-­‐monopolistic. (allows railroad tracks to be built without having to pay way over fair market value to individual landowners holding out because they know the gov’t will eventually give in) Land may be more valuable for the government’s use than to its present owners. assembly through voluntary transactions is usually an unattractive alternative for the government because it often seeks to acquire larger, more site-­‐dependent parcels than do private developers, and because it would have greater difficulty maintaining the secrecy necessary for effective use of assembly techniques and controlling the opportunities for corruption that would arise. The duty to compensate: •
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Without it, government would have an incentive to substitute land for cheaper inputs that were, however, more expensive to the government Private landowners/investors will be inhibited by the thought that the gov’t will snatch away the fruits of their venture. This will result in less capital being invested in productive enterprises. Counter-­‐argument that compensation for takings is inefficient because it encourages landowners to overinvest in capital on their land without regard to its value for efficient government projects. It’s just fair. [Looked at map of Detroit in class. Early 80s. Poletown (Hamtramck) was condemned for a GM assembly plant. A lot of drama around this, protest. Went to MI Supreme Court. Said this was for the public benefit, would create jobs. GM could not have gotten a large a plot of land without doing this. Law school got $4million for the land, when this new building in E. Lansing cost $26million to build. Elwood bar (still there) was right by the school, popular place for law students] Public Use Public Use ß à Public Benefit/Purpose (broader) 5th Amendment: “nor shall property be taken for public use without just compensation” The reach of Eminent Domain power hinges directly on the breadth or narrowness of meaning attached to “public use.” Kelo v. City of New London, U.S. Supreme Court 2005 ISSUE is whether the government may give the power of eminent domain to a private institution, and whether removing the property from the unwilling hands of owners qualifies under the 5th Amendment’s “public use” requirement when the overall development plan is for economic revitalization of a community, but the specific land in question will be given to private users. RULE OF LAW A city’s proposed taking of private property for general economic development qualifies as a public use consistent with the Takings Clause of the 5th Amendment. FACTS In 2000, the City of New London, Connecticut approved a development plan that was meant to economically revitalize the city in certain areas. The plan encompasses 7 parcels, each with its own categories of development. Some properties sold, but a group was holding out. The p roperties of the petitioners were in parcels 3 and 4. Research and development office space, parking and retail services. New London Development Corp. was given the power of Eminent Domain. HELD The taking of private property for general economic development is ok. Dissenting opinion (O’Connor): three categories of taking that have been held to satisfy the public use requirement, and this situation falls under none of them. 1. take for public ownership (like for a road) 2. public use, but not public ownership. Transfer to private parties like common carriers, railroads, who make the property available for public use. Private corporations exercising their authority for public benefit (usually called “utilities”) This is primarily for economic efficiency. 3. land transferred to private parties as a part of a program to serve a public purpose. Most litigation occurs from this category. Court felt this has gone way beyond two other cases where public harms intended to be cured were oligopoly and blight. Under the majority’s argument, any lawful use of real property could be said to produce some incidental benefit to the public. – “The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms. As for the victims, the government now has license to transfer property from those with fewer resources to those with more.” [Favre does NOT like the majority opinion in this case. Said many people saw this as the loss of private ownership. Too much deference to the legislature.] What if a city wants to install an IMAX theater on its own by taking private land, without a development plan? Won’t be constitutional. DTW – decision of city to transfer land under eminent domain to build up new businesses around the airport. County of Wayne v. Hathcock, Michigan, 2004. A landowner, owner of a repair shop, hired a great eminent domain lawyer, took it to the MI Supreme Court and won. MI Constitution was changed, Art. 10. When you take somebody’s private home, you have to pay 125% of fair market value to pay for the personal value. Taking like in Kelo cannot occur under the MI Constitution – for economic revitalization or tax purposes. About 40 other states have done something to protect private landowners beyond what happened in this case. Just Compensation Determined before the project is taken into account. Some land might become more valuable after the project, but it’s what the fair market value of the land was before the announcement of the project. [DCL – there was very little value to the land] PHYSICAL OCCUPATIONS AND REGULATORY TAKING Two Tests from the next two cases: 1. Permanent physical occupations are always takings 2. Nuisance-­‐control measures are never takings Loretto v. Teleprompter Manhattan CATV Corp ISSUE is whether a permanent physical installation of cable wires to the outside structure of an apartment building that has been authorized by the government constitutes a taking of property (specifically a “physical invasion”) and requires just compensation. RULE OF LAW A permanent physical occupation/invasion authorized by the government is always a taking (without regard to the public interest that it may serve.) FACTS The plaintiff was the landlord of an apartment building on which Teleprompter had installed cable wires for its tenants. NY had a statute allowing cable companies to install wires on b uildings for minimal compensation, $1, to the property owners. The old law gave %5 of profits from cable company to the property owners. The new law was justified in that it added value to the properties by p roviding cable. HELD Teleprompter’s cable installation on π’s building constitutes a taking under the “traditional test.” Dissent: a permanent physical intrusion doesn’t mean that the state is outside of its police power. You should also consider the extent of the intrusion. The state was giving the cable company an easement across the properties, not like they were taking a fee simple. Distinction between a permanent physical occupation and a physical invasion short of an occupation, and a regulation that merely restricts the use of property. A permanent physical occupation is a taking to the extent of the occupation, without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner. Can the state interfere so long as they’re being reasonable? Who bears the cost of the gov’t activity. The state will say that if the gov’t has an interest in doing it, but it interferes, the state should be able to pay private citizens to do it. Recent Supreme Court Decision: Could temporary physical invasions qualify for just compensation? Sometimes. Dams and flooding of farms around the Mississippi in order to save New Orleans. Hadencheck v. Sebastian, U.S. Supreme Court 1915 ISSUE is whether property may be taken due to nuisance violating an ordinance when the property was in use long before the city expanded and the ordinance was enforced. RULE OF LAW Property may be taken due to nuisance violating an ordinance to prevent harm to the public, even if the property was in use long before the ordnance was enforced. FACTS The plaintiff owns land he purchased far outside of the city of LA to use as a brickyard. However, since his purchase, the city has expanded around his brickyard. Residential areas around the brickyard now. Additionally, an ordinance was passed prohibiting brickyards within LA. Pre-­‐existing use would be the escape valve from a zoning law, and zoning law didn’t even exist then. The ordinance declared the use to be a nuisance. Habeas corpus action – action brought b y prisoners claiming they are b eing inappropriately held by the government. The plaintiff had been cited for a misdemeanor. HELD Yes, the property may be taken. Prohibiting Nuisance is an important part of the police power. [a lot of heat produced from the ovens where the bricks are made.] [the neighbors could have brought a nuisance suit, but what’s the problem with nuisance suits? They would have to prove injury for damages. They might not have known enough about lung health and pollution at the time to prove damages. Instead, the citizens had LA pass an ordinance prohibiting the brickyards in city limits.] Was it rational to outlaw the use altogether rather than just impose some regulations? But there was no EPA at the time, hard to impose regulations. It made more sense at the time to just shut it down. Has this reduced the value of the land to zero? No. They would come up with something else. This seems unfair! But it was a different time, the courts were not yet as nuanced in analysis. Favre doesn’t think this decision would happen today. nuisance control – the government seeking to stop a bad thing. Kelo was the government trying to do a good thing. Courts are more willing to let the government stop bad things than do good things. Wetlands – Clean Water Act. Previous cases asked whether this was an appropriate restriction. Is this protection of a public good or prohibiting/preventing nuisance to the wetlands? Those two ideas can often be applied to the same fact pattern. People’s expectations of development got ripped. Property value adjusts afterwards, but somebody took the first hit from the law. Airplanes – nuisance. If you live close to an airport, you probably receive a one-­‐time compensation for the airplane easement. So if you sell the house, the buyer buys subject to this easement, but you might have to reduce the cost a bit. Favre: one of the most important Supreme Court cases you will ever read, one of the shortest you will ever read too. Established what is one of the most disputed issues in the law. Favre said you might want to re-­‐read this one, just to understand it better, but there’s been many other cases after this giving more. Favre thinks it’s misleading to say that there’s no public interest, though. “This fact pattern has some barnacles on it.” Says Holmes was waiting for a case to make a decision like this. Pennsylvania Coal v. Mahon, U.S. Supreme Court 1922 ISSUE The issue is whether the regulatory taking of property under a state law may be done without just compensation when the law prohibits a use permitted in property rights (deeded easement), which has no effect on the public. RULE OF LAW The rule from this case establishes the extremes. If there’s 100% loss, the gov’t has gone too far. if there’s 5% loss, they haven’t gone too far. FACTS In 1878, the Coal Company reserved the rights to mine the coal under land it was conveying. In the deed the grantee waived any claims for damages that might arise from the mining, and accepted all risk.* In 1921, a Pennsylvania law, the Kohler Act, prohibited the mining that would be done by the Coal Company. HELD Court said this was a taking without just compensation. The government may regulate the use of land and use its police power, but there must be a limit on this. “The general rule at least is, that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.” Said it was not a public nuisance, there is little public interest. But “the extent of the taking is great.” Additionally, because this was a private agreement, the landowner was warned of the coal company’s use. It was a single private house. He’s trying to show that the benefit of the law is minimal in this case, and the loss to the coal company is substantial. He suggests that it’s a full loss of the mineral rights. Dissent (Justice Brandeis): use of land is never an absolute to any owner. The government should favor the public welfare, and whoever owns the deed should be enforced to favor the public welfare. He acknowledges that the coal under the house won’t be removed, but this is only a small portion of the land from which coal can be taken. *Why would you ever take such a deed? It was the only deed available. Most of the land in PA was owned by the coal company, so you had to buy it from them and under the terms they provided. Coal Companies put supports into the tunnels they dig when mining, but those don’t always work and might allow for sinking. Favre’s Rule: Significant diminution in market value to violate the takings clause in the constitution. Socialist v. Libertarian debate. Florida has passed a law – local gov’t regulations that take 60% of your property value are illegal. For the most part, this is still a public debate. Society values are always changing, so this is ok. Tests for Regulatory Takings: •
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Permanent physical occupations are always takings (Loretto) Nuisance-­‐control measures are never takings (Hadencheck) Balancing Test/Diminution in Value Test (Penn. Coal): when governmental regulation of a use that is not a nuisance works too great a burden on property owners, it cannot go forth without compensation. Who pays for public goods? Most governments/states are run with a tax base of property taxes. Do most voters pay property taxes? No, there are plenty of renters, moochers, … Palazzolo v. Rhode Island, U.S. Supreme Court 2001 ISSUE is whether the Council’s regulations constitute taking under the rule of Penn Central. RULE OF LAW FACTS Palazzo formed Shore Gardens, Inc. (SGI) to invest in waterfront land in Rhode Island in 1959. SGI was able to split the land into 74 plots, and then tried to develop the land, but the proposals were denied by the RI Division of Harbors and Rivers, and by the Rhode Island DNR, citing adverse environmental impacts. In 1971 RI created the Council, an agency which d esignated marshes like Palazzo’s “costal wetlands,” which were h ighly protected. In 1978, SGI’s corporate charter was revoked for not paying corporate taxes, title was passed to Palazzo as the corporation’s sole shareholder. After this, Palazzo tried again with the development proposals. Palazzo claims that the Council’s denials were a “taking” requiring just compensation. State Supreme court rejected his takings claim for damages. HELD This court concludes that acquisition of title after the effective date of the regulations does not bar the takings claims. However, Palazzo was not deprived of all economic use of his property because the value of upland portions was substantial. Remanded. I s this a proper exercise of police power? Why is it in the public interest to protect wetlands? It’s a very important ecosystem. Is it a public good for which they have to provide just compensation? Or a public good that they can take through their regulations. [It’s been long accepted in New England that the State has more control] THE PROBLEM OF EXACTIONS Exactions are local government measures that require developers to provide goods and services or pay fees as a condition to getting project approval. Say you have to create a paved road 15 feet wide if you want to have a subdivision. This is done because subdivisions are expected to have them. It used to be considered that subdivisions would increase revenue from taxes. But it’s been found that the increase does not cover all of the new services required by those subdivisions. So now they require subdivisions to pay for sewer, roads, sidewalks, … up front. But what about the main road leading to the subdivision, or the sewage plant serving it? Is there a connection between requiring the subdivision to pay for those and the purpose …? These next two cases gave individuals a little more strength against the government. The government has to be clear about what their purpose is, and how it’s related to how they’re regulating. Nollan v. California Costal Commission, U.S. Supreme Court 1987 ISSUE is whether there is a taking when a state Commission requires a purchaser to allow a public easement to pass across the property. RULE OF LAW Nexus Test: there must exist a nexus between a condition and the interest advanced by the original prohibition. FACTS The Nollans leased property along the beach with an option to buy. When the building fell into disrepair, they decided to exercise their option to b uy. They were required under Cali. law to get a development permit from the Cali. Costal Commission, who gave the Nollans the condition that, in order to buy the land, they must allow public access to a beach/park with an easement across their property. [Usually, public can walk b etween the high tide and low tide points on the beach, but this gov’t wanted to create an easement above this.] Commission claims that the new house would interfere with the p ublic’s visual access to the beach, and create a psychological barrier to access. wtf. . The easement would allow the public to see the beach and people walking on it. HELD The Court said that the Commission’s condition does constitute a taking. Court first compared to Loretto and found that this would be a permanent physical invasion. Then found that it was an appropriate exercise of police power. The condition must substantially advance the same governmental purpose that refusing the permit would serve, otherwise it would be a taking and require just compensation. The easement does not sound like it would satisfy the Commission’s purpose. Dissent (Brennan): the Commission’s condition directly addressed the concerns over the burden on access that the Nollans’ new house would have caused. Favre, and the Court, thinks that the state’s original argument that the house block’s view of beach, hurting public interest, was really bad In Nollan v. California Costal Commission, the Supreme Court holds that where a development permit would not be issued unless property owner agreed to build an easement to a public beach, the condition constituted a taking because there was no nexus between the condition and the purpose behind withholding the permit. (You have to show that you’re not totally stupid, that there would be an impact with what you suggest). Dolan v. City of Tigard, U.S. Supreme Court 1994 RULE OF LAW exactions are constitutional provided the benefits achieved are reasonably related and roughly proportional, both in nature and extent, to the impact of the proposed development. FACTS Florence Dolan owned a plumbing and electric supply store, and wanted to expand. She was granted a permit to do so by the City Planning Commission, b ut under the condition that she dedicate 10% of her property for a storm drainage system and an easement for a public walkway and bikeway. (This was required by the Community Development Code) Her property h appened to be next to a 100-­‐year floodplain. She would be able to use this part of the property for the 15% open space requirement. She requested a variance, which was denied. Dolan claimed that this would cause an undue or unnecessary hardship. S he challenged the overall nexus of the benefit to the p roperty, not the condition specifically. HELD (1) Is there a nexus? Yes. (2) How strong does that nexus have to be? Is it strong enough? What is the burden, how do we define that burden of proof? Rough Proportionality. If they’d had an ordinance saying there would be an easement there, it would be a taking. But it’s not a taking if it substantially advances legitimate uses. This was city adjudication, not legislative. Benefit sought must have some relation to the property. There was a legitimate public purpose. City hadn’t met burden to show that there was a reasonable relation. In Dolan, the Supreme Court adopts a Roughly Proportional test for determining the constitutionality of rules requiring developers to donate land as a condition for obtaining a building permit. Property Review 4-­‐22-­‐13 ***Exam*** 3 Hours. Multiple Choice, 4min/question, one fact pattern might serve three or four questions. Essay, long-­‐ish side, outline, think before you write, only answer what he asks, think about what will impress Favre (Issues!), Favre doesn’t care about cases much, he will be happy to read case names, but it’s not the most important thing. The number of points is correlated to the number of minutes allocated for each question. Favre’s Essays • Give a set-­‐up paragraph. “This question is about a gift. Gifts come in two forms, and usually three elements are required …” Next paragraph: “in this case, we have a question of delivery. Delivery is …” • Use the language. Give the key definitions. • 4 minutes/MC question. • If courts are split on an issue, give public policy to support one of them. • Always stick with the majority rule (unless he asks for minority rule) • He wants an answer, don’t sit on the fence, pick one decision after analysis. You can still raise counter arguments, just dismiss them. • IRAC is not important to Favre, just organize it in the best way possible. 5A. O to A for two years, then to B unless the Chinese have landed a human on the moon, if so then to C and the heirs of her body. A has a present possessory term of 2 years, B has an alternative contingent remainder, C has an alternative contingent remainder (not a fee tail, not used anymore), O has reversion. 5B. A has a present possessory term of 2 years, B has a vested remainder in fee simple subject to divestment. C has a shifting executory interest in fee simple. O does not have a contingent remainder because there’s not a contingent remainder. 2009 Final Review Questions 1. If B steals A’s property, can A claim B’s income from use of property as his damages? Does A have title to fish caught in his net stolen by B. Like Keeble: An intermeddler does not have the right to take away another’s rightful commercial use of their own land, malicious interference. This is a tort. Unlawful interference with a business enterprise A has the right to get his net back from B. But A did not capture the fish under the Pierson v. Post rule. And in Keeble, there was no capture, just interference. 2. Gifts. Causa mortis or inter vivos? Causa mortis, you have to believe you are seriously in risk of imminent death, subjective test. Bert subjectively believed he would soon face death in a transportation accident. But then he survives. Gift is revoked if donor lives. What is the state of title of the watch and lawnmower? Look at kinds of delivery. The pocket watch has actual delivery, and was a gift causa mortis. The lawnmower doesn’t have proper delivery, either actual or constructive, so it was never gifted. Even though Bart paid value for the watch, he would have to give the watch back to Bert when he survived. B would have gotten whatever title NotsoSmart had. 3. Question of creation and transferability of covenants/easements. If it is simply a contract with covenants, they will probably not be enforceable against subsequent owners. But if they’re tied to some interest in land, they can be enforced against subsequent owners, can run with the land. Affirmative covenants, negative covenants. Might be a negative easement in #4, protection of solar rights. If so, the negative easement would run with the land. • We don’t have horizontal privity. No transfer of interest. • Expressly Created. • This is agreements between two parties, but no transfer of an interest in land. There’s no indication that they intended the agreements to apply to subsequent owners of their properties. • Touch and Concerns the land. (trimming the hedge, negative (limited to 3 feet) and affirmative (trimmed annually) covenants). Recorded. Agreement for the negative easement is still valid. So the oak tree is in violation of the negative easement, but it’s not clear that you would win. 4. Tom took without notice, but didn’t record and failed by not taking for value (it was a gift). Tom is not a BFP. Jane is not in the chain of title, it is a wild mortgage. So the consequence of Jane not having recorded her chain is that Eaton Bank is not on notice, so EB has the 1st Mortgage, they had a right to rely upon a clean record. Lorie has title because of the default, common law rule that she was the first to be conveyed title. She has a fee simple subject to the two mortgages. ISSUE RULE OF LAW FACTS HELD