Property II Jessica PetersProfessor Burkhard Spring 2009

Restrictions on the use of property

The Law of Servitudes

1. A is given the right to enter upon B’s land – a restriction or impediment of B’s ownership. This will most often be labeled as an easement.

2. A is given the right to enter upon B’s land and remove something attached to land – this is referred to as a profit, but it is possible and A might have permission, a deed, etc.

3. A is given the right to enforce a restriction on the use of B’s land – might be a negative easement or a real covenant or an equitable servitude.

4. A is given the right to require B to perform some act on B’s land, and 5. A is given the right to require B to pay money for the upkeep of specified facilities. These both could be real

covenants or equitable servitude.

Landowners often want to make agreements with their neighbors respecting the use of one or both parcels. There are two categories: rights arising from a grant of a right by one landowner to another (easements and profits) and rights arising from a promise respecting the use of land by one landowner to another (real covenants or equitable servitude)

Easements: The most important question relate to their creation and termination.

Real covenant: enforceable at law: the most important issue is whether they will run to assignees. Privity of estate is required for the covenant to run. The remedy for breach of Real Covenant is damages.

Equitable servitude: enforceable in equity: the most important issues relate to creation, enforcement and termination. ES can be implied from a general plan. Privity of estate is not required, but covenant must touch and concern the land, and generally benefit must serve neighboring land. Assignee must have notice to be bound. The remedy for breach is an injunction or enforcement of a lien.

There is a new Restatement of Servitudes and the drafters have decided that they are going to reorganize this whole world of real servitudes, and establish new, easy to apply rules. The drafters have ignored the law though. They are trying to legislate a change and courts don’t know what to do with this new Restatement.

o So far in SC there have been a couple of instances where the court has bought the new Restatement and they are in limited circumstances.

Easements: a grant of an interest in land that entitles a person to use land possessed by another. Incredibly common, including power lines, sewer hookups. It is hard to find land that isn’t subject to at least one easement. Mostly from the utility world. The normal way that utilities want to have an easement on your property, normally they try to get the landowner to sign a deed of an easement. 99% of all easements have been created this way. Any state with a rural character is likely to have situations where easements have been created in an unusual way.

o The most important questions about easements relate to their creation and termination. An easement can be created by an express agreement, estoppel, implication from an existing use when land is divided, by necessity when land is divided, and by prescription (among other smaller doctrines)

o Types: Affirmative: the owner has a right to go onto the land of another and do some act on the land. Most are affirmative. Example: O grants A a right of way across his land.

Negative: the owner can prevent the owner of the servient land from doing some act on the servient land. Rare

o Easements Appurtenant: If an easement benefits its owner in the use of another tract of land, it is appurtenant to that land. The land benefited is called the dominant tenement, the land burdened is the servient tenement. Favored due to

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presumed intent; and if the benefit of the easement will be more useful to a successor owner of that tract than to the original owner of the easement after he sells the tract, this indicates the parties intent. Also, land value is increased

o Passes with dominant tenement: attached to the dominant tenement and ordinarily passes with the tenement to any subsequent owner of the tenement.

Exception: personal easement with appropriate limiting terms.

o Gross: in an easement does not benefit its owner in the use and enjoyment of his land, but merely gives him the right to use the servient land, the easement is in gross. An appurtenant easement cannot be separated from its dominant tenement unless the owners of both the D and S tenement agree. An easement in gross can usually be assigned if the parties so intend.

o Does not increase value of the land. o Exam: In gross simply means not appurtenant. It does not mean that the easement is personal to the holder

and cannot be assigned.

o Easement is an interest in land: the burden passes to subsequent owners of the servient land. The owner of an easement does not merely have K rights over the original grantor, but also against all successors of the grantor.

o Distinguish profit: a right to take something off another person’s land that is part of the land or a product of the land. When a profit is grant, easement to go on land and remove the subject matter is implied.

o Distinguish license: permission to go on land belonging to the licensor. Generally revocable at the will of the licensor; may be oral or in writing.

Creation of Easements: a. By Express Grant: an easement over the grantor’s land may be granted to another. This is known as an

easement created by grant. a. SOF: an easement, being an interesting land, must satisfy the SOF. Absent an exception, creation

requires a written instrument signed by the grantor. If the grantor does not sign a written instrument but instead orally gives the grantee permission, the grantee has a license to use the land. The exceptions to SOF include fraud, part performance, and estoppel, easements by implication and prescription, and easements lasting less that one year.

b. Duration of an easement: may last for a period of time, a person’s life or forever (called an easement in fee simple)

c. Construction if ambiguous: sometimes its difficult to tell if grantor intended to grant an easement or to grant fee simple. Generally, a grant of a limited use, for a limited purpose, or of an identified space without clearly marked boundaries, creates an easement. Also, sale of an interest in land for less than market value will indicate an easement.

i. Some courts presume fee simple: because its presumed that grantor conveyed the largest interest he can convey.

b. By Reservation: an easement may be reserved by the grantor over the land granted. If the grantor conveys the land, reserving an easement, the land conveyed is the servient tenement.

a. Reservation in favor of grantor: this is made possible by the ‘re-grant theory’, A deed from ) to A purporting to reserve an easement in O was treated as conveying to A, who but the same instrument re-granted an easement to O. Essentially, the instrument that conveys the FSA also conveys to the original O an easement.

i. Exception of an easement: at CL, a reservation differed from an exception. A reservation is the re-grant of a new easement, not previously existing. An exception is a provision in a deed that excludes from the grant some preexisting right. This distinction has all but disappeared.

b. Reservation in favor of a third party: at CL, an easement could not be reserved in favor of a third party. This is followed in a majority of states.

i. This can be easily circumvented by using two pieces of paper. Grant to the third party the whole thing, then they convey with reservation to the new O.

ii. Distinguish: covenants, unlike easements, can be created to benefit a third party. iii. Exam: watch for a grantor who reserves an easement for someone else. Under the majority

view, an easement can be reserved only for the grantor. An attempt to reserve an easement in a 3rd party will be held void.

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Minority view: an easement may be reserved in a 3rd party. If the easement is invalidated, grantee gets a windfall, more value for the price since she paid price with restriction. Restatement of Servitudes view!

Willard v. Church of Christ Scientist – minority view McG sells 19 to Petersen. At the time, lot 20 is vacant and has been used for a parking lot for the church. Subsequently, Willard decides he wants to buy 19 and 20. Petersen agrees to sell Willard 19 and 20. (In a lot of states, property is sold through escrow closings, but we don’t do that in SC.)The purpose of the easement is to benefit the land, not the person. Therefore this was an ease appurtenant. The easement is given to the church, the religious body. The easements run so long as the property for whose benefit this is included. There is at least some ambiguity here as to what the document says. (We want to make sure there is not any ambiguity). The scope of the easement is questionable. Does church mean all churches, or the church that is currently there now.

If I buy property in FSA and I assume when I buy that property that I have the bundle the sticks and I’m not missing any sticks out of the bundle. You assume you can use property for whatever you want to use it for. One of things that comes up in the world of servitudes is the concept of notice. In order for a restriction to be applicable in Willard’s position, does he have notice of the restriction at the time he acquires the property? If he doesn’t, there will be a number of circumstances where the court will say, “you’re not bound by that restriction.”When you buy real estate in GA, SC, NC, any state, that probably the most important document is not the deed, the mortgage, the promissory note, it is the contract. In a contract the parties agree to what they are buying and what they are selling.

At the time Willard signed the K, did he know about the easement? No. Because it didn’t even exist at that time. Petersen bought the land with easement afterwards. At the time Willard signed the K, forget the easement, he’s on notice that Peterson doesn’t even own the property. He is on notice of a serious problem. So technically Willard doesn’t know about the easement, but he is on notice that Peterson did not own the property. At the time Willard got his deed, the deed does not mention the easement. The question is, is he on notice? Yes because the deed was recorded. Would you be as a lawyer on obligation to check Petersen’s deed? Yes. On the day of closing you update your title search to see if anything has changed. You would clearly find the Petersen deed and would be on notice of the easement.

The real issue on the case is whether McG can reserve an easement for the benefit of a third part (the church). The historic CL rule is no, you cannot reserve an interest in a 3rd party to a deed.

Willard says he relied on the rule, but the court said there is no evidence of reliance. Furthermore, we don’t think that people generally are relying on this rule. Therefore, we feel comfortable to say that we can change it. This is a very unusual circumstance. Property principles are ancient, and it is assumed that we conform our behavior in accordance to those rules. Here is a situation in which the CA court is willing to modify this rule.

Exception v. ReservationYou cannot create an easement by exception in a third party. You can’t sell some property and say that I am excepting an easement for myself on the third party. That must be labeled as a reservation. Even if McG wanted to keep an easement for herself, that creates some analytical problems because she is conveying property but in theory Petersen is conveying something back to her but he hasn’t signed anything. The fiction of the “re-grant” has been adopted and maybe this is okay today.

Have we seen circumstances where a grantor was allowed to convey something do a third party that was not the immediate beneficiary of a conveyance? Yes. Lots, in executory interest, contingent remainder, etc. This is similar to this sort of transaction.

In SC, the case would come out differently because they have not abolished the CL rule against easements in 3rd parties. In SC, no easements in 3rd parties. There is an exception for the grantor’s spouse.

Hereby “granting” to or “conveying” to will get the lawyer off the hook.

An easement may last for different periods of time. They are intended to last forever. It is fairly common to have an easement in SC to only last for a reasonably short period of time. Highway construction easements is the most common.

Appurtenant v. Gross in SC: There are unique rules

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Holbrook v. Taylor License became irrevocable under estoppel because of improvements and reliance. Treated as an easementRule: a license may become irrevocable under the rules of estoppel. If the licensee has constructed improvements relying on license, in many states the licensor is estopped from revoking the license because it would be unfair to the licensee to permit revocation after he spends money in reliance.

The problem with this case is that the issues are conflicting because prescription (not permissive use) requires one state of mind and estoppel (requires expectation and reliance on use) another. The lawyer brought both causes of action, but they require conflicting “mens reas” mental elements to the land. The Taylors are charged with permissive use. When they rely on the use of this road they are running a big risk. So the estoppel claim is withheld. The court says that license becomes irrevocable by estoppel: a legal rule that prevents somebody from stating a position inconsistent with one previously stated, especially when the earlier representation has been relied upon by others. The party being estopped here is the Holbrook’s because their previous representations caused the Taylors to assume they have the right to irrevocably use the road-way.

The court gives the Taylor’s an irrevocable license. If you look at the behavior of the Holbrooks, its hard to find any sort of behavior that indicates in “irrevocable license”. Where is the behavior on the part of the Holbrook’s that communicates a notion that the Taylor’s can use this forever?

Note cases: to avoid confusion, what if these properties are sold to other parties, is there a continuing easement or irrevocable license? If you put it writing and take it to the courthouse, then there is no confusion.

LICENSESA license is permission given by the occupant of land allowing the licensee to do some act that otherwise would be a trespass. These are very common. The person that delivers a package has a license to go on your property, a movie ticket is a license to see that movie. Courts prefer licenses over easements in gross which clog title when the conveyance does not give exclusive possession of any definite space. This privilege resembles an easement, but a license is revocable and easements are not. Licenses are revocable except when:

1. When a license is coupled with an interest, like if I have a timber deed (profit) and I need to go across your property to reach the timber. [like an easement created by implication of necessity.]2. Estoppel: A license may become irrevocable under the rules of estoppel. If the licensee has constructed substantial improvements in reliance on the license, many jurisdictions would estopp the licensor from revoking the license. Reasonable, detrimental reliance. The theory is that it would be unfair to revoke the license after licensee spent money to improve it in reliance. [Holbrook]

Criticism: When court estopps O, its giving entitlement to A at no cost, and permitting A to damage O’s interest. It would be more fair to make A pay damages.

3. A contractual obligation that doesn’t quite make a license. A license that cannot be revoked is treated like an easement (in Restatement). How long irrevocable: depends, sometimes for whatever time is required to enable the licensee to reap the fruits of his expenditures. Some have held irrevocability is limited to the life of the structure/improvement. Some say it’s like an easement and lasts forever. Assignability: usually presumed to be personal and non-assignable, but if the parties so intend, it can be made transferable.

What if the servient property owner sells the servient property? Is the new buyer subject to that same irrevocable license. If it’s based on estoppel then the argument could be made that the new buyer shouldn’t be estopped, they didn’t do anything. They wouldn’t be bound. If it is one that is coupled with an interest, then the sale of the interest property should carry automatically with it a license. There is some notion that once you say the license is irrevocable, it really becomes an easement and transfer of property doesn’t matter.

Creation: mostly orally. Begin with the notion that they are revocable. It is a personal right, not for the benefit of property (appurtenant).

Revocation: Servient owner says stop using, by the death of the servient owner, by the sale of the servient estate, if the licensee attempts to assign it. Generally, almost always a license is deemed to be in gross, not appurtenant because it benefits the person (Holbrook case).

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c. Easement created by implicationAn easement by implication is created by operation of law, and not by a written instrument. It is an exception to the SOF, therefore it only applies in two distinct circumstances where the parties indicate intent to create an easement or that an easement is a necessity.

Easement implied from apparent existing use: if, prior to the time a tract of land is divided into two lots, a use exists on the “servient part” that is reasonably necessary for the enjoyment of the “dominant part” and which the court find the parties intended to continue after the tract is divided, an easement may be implied. (Van Sandt)

a. Implied only over land granted or reserved when tract divided: an easement can be implied only over land granted or reserved when a tract is divided into two or more parcels. If an easement is implied in favor of the grantee, the easement is created by implied grant to the grantee. If an easement is implied in favor of the grantor, the easement is created by implied reservation to the grantor.

i. You must differentiate between the grantor and the grantee. Same rights to use, but it’s called something different. [The necessity requirement is looser if the easement is by grant than if by reservation. Reservations are fundamentally inconsistent with our property value, to convey someone less than what their deed says. Grants give additional interests, but they are not inconsistent with the deed]

ii. Implied only in favor of dominant tenement: an easement in gross will not be implied. An easement by implication must benefit a dominant tenement created by dividing a tract into two or more lots.

b. Existing use at time of tract division: At the time a tract is divided into two or more lots, a use of one part of the tract must exist from which it can be inferred that an easement permitting continuation was intended. The existing use is called a quasi-easement. It not a legal easement, because O cannot have an easement in his own land. A quasi is use of land that would resemble an easement if tract were divided. To have a quasi-easement, previous use must be:

i. Apparent: the previous use must be apparent (if the grantee could, by reasonable inspection, discover the existence of the use). It does not mean “visible”, underground pipes can be apparent if the surface connections would put a rpp on notice. [Van Sandt]

ii. Continuous not sporadic, based on the idea what the activities should be such that there is a great probability that the use was known to the parties at the time of the grant, from which an intent can be inferred that the parties wanted the use to continue – includes a permanent physical change like paving a driveway.

iii. Conveyance by paper plat: If before building a street, a subdivider conveys a lot by reference to an undedicated street or plat, the requirement of a quasi-easement is waived because the purchaser buys in reliance on the street being opened.

c. Reasonable necessity i. The easement must be necessary for the enjoyment of the claimed dominant tenement. Necessity

is important because it probably affects the intention of the parties as to whether the existing use is to continue. Most jurisdictions require only reasonable necessity, which is flexible: relevant factors include cost/difficulty of creating alternative, and whether price paid reflects the use.

1. Necessity where easement reserved: traditionally, needed more necessity than an implied grant because the owner gave grantee less than deed called for. In modern times, some courts still refuse to imply an easement by reservation except in cases of strict necessity. In many states, a stronger showing of necessity is required for an implied reservation than for an implied grant. In the majority of states, reservation and grant of implied easements are treated as equals.

Easement implied by necessity: implied if the owner of a tract divides the tract into two lots and by the division deprives one lot of access to a public road or utility line. An easement of way over the lot with access to the public utility is implied. Usually, it must be strictly necessary and not just a mere convenience. [Othen] Based on public policy that requires parcels be accessible and because access is essential to use, the parties intended to create an easement but overlooked doing so.

d. Implied only when land is divided over land-locking parcel: An easement by necessity is implied only when land is divided. the necessity must exist when the tract is severed. The easement is implied only over that portion of the divided tract that blocks access to a public road from the landlocked parcel. An

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easement by necessity cannot be implied over land that was never owned by the common grantor of the dominant and servient tenements.

i. Only easements of ways up to this point in time. No other easements are implied by necessity. e. No existing use required: an easement by necessity, unlike prior use, does not require an existing use at

the time a tract is divided. f. Location of easement: the O of the servient parcel has the right to locate the easement by necessity,

provided the location is reasonably convenient, so as to do the least damage. g. Termination of necessity ends the easement implied by necessity. The easement implied by necessity

lasts only so long as it is necessary. i. Distinguish: an easement implied on the basis of quasi-easement may continue forever, even after

any element of necessity disappears.

Van Sandt v. Royster Implied easement (reservation) by prior useBailey owned all three lots. She connected her house on lot 4 with an underwater sewer line on Highland Ave., crossing 20 and 19. (but they were all hers)In 1904, Bailey sold lot 19 to Jones, who knew of the sewer line. She sold 20 to Murphy, and title passed to ∆ Royster. Then, Jones conveyed to Reynolds, and Reynolds sold the house on 19 to π Van Sandt. ∆ Gray now owns lot 4. In 1936, the πs basement flooded with sewage and found that the ∆s were running a line through his property.

Will a quasi easement ripen into an easement? While Bailey owns the whole tract, there can’t be an easement across 20 and 19 and she owns all of them, you can’t have an easement in your own property. When this land was divided up and sold, is there an easement by implication of prior existing use? When 19 was sold initially, was there an easement created simply by virtue of the sale of the lot?

The court says there are a number of factors to determine an implication of easement in the Restatement. “It must be apparent, continuous, necessary, existing at time of division and was used like this prior to division when convey the quasi dominant tenement.” This is not what happened here because the conveyance is flipped. Here it was the conveyance of the servient tenement, not the dominant tenement.

The court is struggling with, should the rules for a grant and reservation be the same or very similar or different? The necessity element is looser, and this makes a difference.

When Bailey sold 19 originally, then implicit in that transaction was the assumption that the sewer line that ran across 19 would continue to exist. No one thought to reduce that to writing because the intent was to continue to allow Ms. Bailey to use. Easement implied by prior existing use: Continued use, apparent, permanent, and some degree of necessity. It is generally assumed that you must have a higher degree of necessity in order to have a reserved easement than a granted easement. The reasoning was this notion that in the reserved easement is you are derogating from what has been granted to the third party, its inconsistent with what has been granted. Does this continue to be a viable distinction? No. The other issue is was there notice? Was the purchaser on notice of easement, and if not, then maybe the court will say they are not subject to that particular. The court says yes there was notice because there was apparent use. The court suggests that you obtain notice by inspecting the property and have title inspections. Van Sandt is subject to the easement, what does that suggest that he or his lawyer should have done? I have to make a physical inspection of the property because there was no written document to reveal an easement. That might be difficult because the parties involved in establishing the sewer line are long gone. When you are representing someone buying a house, its not sufficient to rely on what’s at the court house. There are other methods.

If there is an easement to be implied, it was intended for lot 4. There was not use for lot 20 at the time of severance (this word becomes critical). At the time of the severance was the sewer line being used to benefit lot 20? No, therefore presumably lot 20 might not be entitled to use the easement. Lot 4 can use it but not 20 because it wasn’t in existing use at the time of severance. “thou shall not expand.” You start with the assumption that you can’t expand. Apparently this issue was never raised.

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Implied by Reservation: The extent of necessity is what is different between a reservation and a grant. If I am selling off the servient, they assume they are getting a FSA without any easement on their property. Inconsistent with what we just sold you, there is an easement on the property. That is contradictory to what deed says, and this goes against our fundamental property rights. This is very inconsistent. Implied by Grant: If I sell the dominant tract, then the buyer is saying Oh, by the way you granted me not only the land but also an easement to the servient land. It’s not inconsistent, it’s in addition to. There is nothing inconsistent with the transfer with the transfer of the dominant land, it’s additional but not as inconsistent. Give them a little extra

Othen v. Rosier – no easement by necessity because no proof of actual necessity at time of severance. There is an argument that an easement was created by two different methods: necessity and prescription. The first theory is whether or not there is an easement by necessity. Othen contends that when Hill owned all of the tracts and he conveyed the 100 acres to Rosier, there was left in Hill’s land an implied reservation to use the lane on Rosier’s land. According to the court, if we are under easement by necessity then it doesn’t have to be on the same land. When a grantor conveys land to another, and is left with land and there is no way to get out, its assumed that he reserves a right to enter and exit the property. We are most concerned with the 100 acres. What is Othen arguing? That in 1896 Hill retained an implied easement by reservation because he conveyed land that landlocked him and that prevented him from getting to Belt Line road. This is when he conveyed the land, what happened at the moment he severed the property. When he sold off the 100 acres that landlocked Othen as to the 60 and 53 acres. He couldn’t get out to Belt Line. Othen loses because there was no evidence that THAT track was the only way to get off the property during severance. The court is saying that 60 years later that you, Othen, are unable to prove that in 1896 (the date of severance) that Hill could not have gotten to the road through another way. Either through going north, south or east. Two theories for easement by necessity: we don’t want to have landlocked property AND that when these transactions occur, similar to implied prior use way, there is the assumption that the parties really agreed and intended this use, but didn’t think to write it down.

Just like quasi-easements that ripen in actual easements by prior use, they can ripen into easements by necessity. And the necessity difference between reservation and grant is present. The necessity for reservation is higher. The critical time is the time of severance, and as this case points out, that may be a long time ago. Who knows what was going on back then; and is that a problem in SC? Yes.

Why didn’t the Othen’s bring up prior use? It must be continuous, and Othen admitted he left for a short period, and there is another reason. THINK ABOUT IT *notice, there was no notice to subsequent purchasers. The lawyer does argue another theory as to why there should be. – Because the use had to exist at the time of severance to be an implied easement.

o The court here presumed that the use of the road by Othen was permissive rather than adverse because it was not exclusive. In order to gain title by adverse possession, a person must show exclusive possession for the required period. Why should it apply to prescriptive easements? Most courts require exclusive use for prescription, but define it differently from the AP requirement. Exclusivity does not require a showing that only the claimant made use of the way, but that the claimant’s right to use the land does not depend upon a like right in others.

Easement by Prescription: Why was it permissive? The parties against whom we are claiming the easement is using the road too, therefore πs use was permissive. How is this permissive? The fact they put up the gate and allowed the tenant to go through the gate, how that is permissive is hard to figure out. The court suggests that the behavior of the servient owner was permissive. Normally with roads the assumption is that it is not permissive unless there is a pre-existing relationship btw one claiming easement and one subject to easement. Also, there was not enough time before the gate was built, he was only there for 7 years. Also, we don’t know the exact location of the easement because there were different paths taken. So long as the so and so’s have been cutting through property for 20 years, that’s enough. In SC, it seems as though the location has to be established.

o Public prescriptive easements: in most states a public P.E. can be obtained by a long continuous use by the public under a claim of right. The O must be put on notice, by the kind and extent of use, that an adverse right is being claimed by the general public, not by individuals.

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There is a huge difference btw an implied easement by prior use and necessity: the implied necessity easement will extinguish once the necessity is no longer needed. If the necessity ends in implied easement by prior use, the easement is not extinguished. So you’d rather have the court say you have an easement by prior use just in case the necessity disappears.

Boyd v. Bell South SC CaseBell South closes off the entrance road to the back of the Boyd’s store. Πs claim easement by necessity, prior use, and equitable estoppel. The trial court dismissed all claims. That argument was not pursued at the Supreme Court level. Ct App said prior use and estoppel is an issue and should be tried. Easement by necessity: the ct app affirms summary judgment on behalf of Bell South. ∆ said SC has never recognized easement by prior use, other than maybe as would exist with respect to drainage ditches. They also argue that even if it were recognized it was a subset of another method of creating easements and there was essentially no material fact in regards to necessity. The court seems to agree that they have never recognized an easement for prior existing use. There are four ways to imply an easement: implied by necessity, prior use, map and boundary references or from a general plan. One method that is not considered in this opinion are the last two. In SC there are a lot of cases involving situations where a plat has been filed at the courthouse, and will show a place for a roadway, but the roadway has never been conveyed to anyone, and is there an easement to use that roadway? Yes. General Plan is a common method of creating easements in SC. Also, the court citing an older SC case says in SC there are 9 number of ways to create an easement – that doesn’t make sense today. They are quoting from an old, old case, and to somehow say that there is an easement by reservation, that is different from implication (as listed in this citation) that doesn’t make sense. According to the Supreme Court in this case, that we do not have an easement created by prior use and there are a number of things one must demonstrate (head note 5). The problem lies in the sub-notes to these requirements, and the tests are not consistent. The court suggests that there is a difference in creating in SC an easement by necessity and one that is based on prior use. They point out the necessity difference that when necessity extinguishes so does easement implied by necessity. What is the other difference in necessity? The necessity must be strict necessity for this kind of easement, and for necessity easement, it need not be the only way out to the road, there can be options but if it imposes hardship, then it’s “necessary” for this type of easement.

Courts suggests there is a difference btw easement created by prior use and pure easement of necessity. It appears that the necessity requirement is different for each of these. Easement by necessity, necessity is “stricter.” But not really.

There is no conversation about the difference btw easement created by prior use- reserved, and granted. Here it is granted, because the owner sold the dominant tract. Bell South sold to city the dominant tract and they transferred that onto the Boyd’s. The test is no other reasonable mode of enjoying the dominant tenement (it need not be absolute) [this seems just as strict as the other necessity – if not more!] Easement reserved requires a higher degree of necessity. The necessity test for implied easement by prior use is “not other reasonable mode of enjoyment of dominant tenement”The necessity required for easement by necessity is “strict” - must be actual, real and reasonable but need not be absolute.

“The test is more rigorous for easement by necessity” is the general contention, however, the necessity requirement for prior use seems just as strict, if not more. It is more “absolute”

Estoppel issue: no estoppel because the title was recorded. (this contradicts the Holbrook case). Another SC case: couple bought house on Battery, asked real estate agents if there were any easements on property. K said buyers must buy and in the fine print it said you can’t rely on anything anyone told you if its not in the K. Lo and Behold, there was an easement on the property, so the buyer said we don’t have to close. Seller said yes you do because there is nothing in the K about it, and if you were so concerned you could have done with Bell South case said, to go check the title and you have to close. Supreme Court said no, you can rely on the statement the real estate agent made. In Bell south, its not the realtor making a statement it’s the seller.

Notes pg. 695: It most cases it doesn’t mater if the inaccessibility or the intent policy argument is made, but if the parties expressly provide that No way of necessity exists, the court must decide whether such a provision is valid.

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o There is conflict in the cases over the degree of necessity required for an easement by necessity. Most courts, like Othen, require strict necessity for easement implied by necessity.

o Easement by necessity endures only so long as it is necessary. If the dominant O secures another way out from the landlocked parcel, the easement by necessity ceases.

o in some states the West, landlocked owners can condemn ways of access over their neighbors land, and must pay damages, it’s a judicial proceeding, and no prior common ownership of dominant servient estates required.

Easement created by PrescriptionThe same policies that apply to AP apply to long use of easements. Courts developed the doctrine that an easement could be acquired by prescription, by an adverse use for a requisite period.

English rule: fiction of the lost grant. If a person had been using another’s land for the requisite period, the court presumed that she was doing so under a grant from some former owner. Applied even if it was later admitted that there was no grant.

American rule: the fiction of lost grant has not been adopted in most states. Instead, prescription developed as a matter of public policy by analogy to the law of adverse possession. Generally, same requirements of AP are applied

Elements: o Open and notorious: no attempt to conceal use. If underground sewer could be discovered on

reasonable inspection, then this element is satisfied.o Under a claim of right: not with permission of the owner of the land. Courts may apply

objective (acts of the user appear to the community to be under a claim of right) or subjective (the user must in good faith believe that he has a right to use the servient land) test.

Permissive use may change to adverse if he begins to do acts that reasonably should put the owner on notice that the user is claiming a right to use the land.

o Contentious use: this does not mean constant, whatever is appropriate given the nature of the type of easement claimed that gives notice to the owner.

it is possible to acquire a prescriptive easement in gross. Ex: hunters of hunting club hung on land of another every hunting season.

Seasonal use is acceptable. See above example. Tacking is allowed. Transfer of dominant tenement establishes the necessary privity

if the grantor intends to transfer with it the use which is ripening into an easement. o Uninterrupted use: if the adverse use is interrupted by the owner of land being used,

prescriptive period ends. If the adverse use beings again after interruption, clock starts over. But what is interruption?

Lost grant jurisdictions: owner can interrupt use by merely protesting the use. Ex. a letter in the mail

In American rule jurisdictions: owner must actually interrupt, and a sign or post isn’t enough.

Prescriptive easements: Prescription rests upon the idea that rights can be acquired simply by the passage of time. Fiction of the lost grant: if a use was shown to have existed for 20 years, it was presumed that a grant of an easement had been made and that the grant had been lost. The owner of the land is presumed to have consented or acquiesced. To secure an easement under the lost grant theory, the claimant must show that the use was not permissive and also that the owner acquiesced (did not object). Courts generally set the same period for prescriptive easements as for AP and same requirements: open and notorious (made without attempt to conceal use), continuous (tacking is allowed), adverse and under a claim of right.

Lost grant theory – acquiescence is enough. The owner can interrupt by merely protesting the use. For AP – you really have to stop the person from using the easement. There must be a physical stoppage, a

lawsuit, but for how long? One must interrupt and stop the adverse use.

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Prescriptive Easement in SC If we are trying to figure out what it takes to get a prescriptive easement in SC, what would be the rules? To establish an easement by prescription, the party asserting the right must show: continued use for 20 years, the identity of the thing enjoyed, and use which is either adverse or under a claim of right. In SC, there is no 10 year stuff, its 20. We have to know the identity of the path, where specifically is the pathway. The mystery life is “use and enjoyment is adverse OR under a claim of right.” What seems to have happened over the last 20 years is that the courts in SC have lost track of what those terms initially meant in the context of adverse possession. They lost track of the notion that adverse means one thing and claim of right means something else.

Adverse relates to the mental element of the “real O” and claim of right relates to the mental element of the adverse possessor, the prescriber. That has vanished. What the court now is saying, when it makes this statement about the third rule, is: if I am the person claiming the prescriptive easement, that I can get it assuming 1 and 2, if I can either show I had a good faith belief that I have a right to use this roadway, that will be sufficient to allow me to claim the roadway. Conversely, (doesn’t make sense) if I can show that I knew I didn’t have a right, but was an aggressive trespasser, that I can get the P.E. in that manner also. Now those two terms mean what we wanted them to last semester. Adverse means aggressive trespasser. Its possible in a complex case, a lawyer who understands the history will convince the court to clean it up and fit consistent with the law of AP in SC.

Another mystery of life is the role of acquiescence? Maybe acquiescence is a part of all of this. This is important because it effects what will stop the prescriptive easement from occurring. Can I write the letter in SC, will that be sufficient? There was a case before Bell South where the owner of the servient property did not write a letter, but on a routine basis would go out and put a barricade in the middle of the roadway. The other just moved it out of the way. This happened a few times and lawsuit ensued. The court, in discussing prescription, said the behavior of the servient owner “interrupted” element 1. Maybe that means that acquiescence (writing a letter is still fine) is still something to think about. Since they didn’t stop them, but it was an interruption, then maybe acquiescence would be okay and maybe the letter would be okay. There is no clear answer.

Note: Easement by Prescription doesn’t have to be exclusive – if both the holder of the easement (dominant party) uses the easement and so does the owner of the servient estate, so that both of them are using it then its not exclusive because you're sharing. If only dominant uses to the exclusion of the servient O, then you’d have adverse possession.

The book points out that there are lots of different ways to create easements besides what is mentioned in the text. In SC one of those ways to create some sort of a right to use property that may not rise to the actual creation in a fee interest, but may, is this doctrine of dedication.

Public Easements: In most jurisdictions, the public at large can acquire a public easement in private land by prescription if members of the public use the private land in a manner meeting the requirements for prescription. If the public uses land as a roadway, its presumed to be adverse just as it is for an individual claim of easement. On the other hand, if the public uses undeveloped land, the presumption is that it is permissive. It is deemed not to give notice to the owner of a claim of right. Therefore, except for a public road it is difficult to acquire a public easement by prescription.

Minority view: in some states, the general pubic cannot acquire prescriptive rights in private property. The owner’s COA runs against the specific trespassers and not against the public at large. Therefore, the SOL only bars the owner from suing the individuals who trespassed.

DedicationMack v. EdensHomeowner filed action against adjacent landowner seeking declaratory judgment that dirt road through neighbor's property had been dedicated to public. Adjacent landowner counterclaimed for injunction to prevent homeowner's use of road and seeking damages for trespass. The Circuit Court, Lexington County, George W. Jefferson, Master-in-Equity, entered judgment in favor of adjacent landowner. Appeal was taken. The Court of Appeals, Connor, J., held that: (1) evidence did not support intent by landowners' to dedicate road or public acceptance of property and, thus, failed to prove implied dedication of road; (2) evidence supported finding that homeowner trespassed on property of adjacent landowner; (3) adjacent landowner's speculation about his cost to erect beam across roadway was insufficient to support actual damages for homeowner's trespass; and (4) punitive damages could not be awarded in absence of actual damages.

Of the three property owners, Mack is the only one that lives there. The road in question was used for public purposes for a while. The court says this was an action in equity. The courts always decide if this is an action at law or equity. The

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scope of review is different. Very often I can pursue a COA and style as one in law or equity, depending on what COA I elect to pursue. That may come back to haunt you because you may have picked the wrong format. Here, equity, so Ct App can re-try the case and find facts as they so desire.

There are two modes of dedication: by behavior (implied) or expressed in a document. Here, the alleged dedication would be implied. The intent can be determined by long lengthy public use of the land, you must demonstrate it though strict, cogent and convincing evidence. The dedication may not be implied by permissive, sporadic or recreational use. The acts that you are pointing to that suggest dedication must not be consistent with any construction other than that of dedication. That factor seemingly makes no sense because it would also be prescription and prior use – also, a license. One could argue this is simply a license, and they are revocable (really revocable in SC). Offer and Acceptance: Not only does the party who is dedicating have to do the offer, but there must be acceptance. May be implied by public or expressed. Acceptance by use, repair, or non-taxation of the property. Here, the road was used to recreational and religious purposes and that’s not sufficient in order to have dedication. There is nothing that indicates acceptance either, so no dedication. *the lawyer here pursued this in a bad way, he could have brought easement by prior use or necessity. In this case recreational use wasn’t enough for dedication

Van Blarucm v. NMB Express dedication. SC CaseIn action involving dispute between city and landowners concerning ownership and use of three areas of property adjoining landowners' beachfront property, the Circuit Court, Horry County, J. Stanton Cross, Jr., Master-in-Equity, entered judgment setting forth both parties' rights to property in question. Appeal and cross-appeal were taken. The Court of Appeals, Goolsby, J., held that: (1) plat filed by original subdivision developer unequivocally manifested intent to dedicate to public the use of beach area seaward of landowners' lots down to high-water mark of Atlantic Ocean; (2) evidence showed that city accepted such dedication; and (3) city waived appellate review of restrictions that trial court placed on city's authority over disputed walkways.

City said that πs didn’t own the land. So π s got quitclaimed deeds from the original O’s devisees. Dedication needs intent to dedicate and acceptance. The recorded plat may be enough to manifest intent to dedicate. The method of dedication is different. Here there is a general rule: where O subdivides land into lots and roads and sells the lots with reference to the plat, O manifests intent to dedicate common area to be used by public and purchasers – absent evidence of contrary intent. Acceptance from prior use or maintenance. Π said that because they paid taxes on the land it wasn’t dedicated, but the Court said that’s not controlling evidence. Ultimately, there is dedication. In this case recreational use is no problem for dedication Another issue: if there is dedication, what does that mean? Dedication is like an easement, a right to use. But the Court says that the common areas are owned by the city. What is it that the city has? Does the city own this now? OR is the court simply saying well yes, the city has a right to use, an easement. That’s not stated in the opinion. There are 100s of dedication cases in SC, and in some of them you get the clear implication that the dedication means that the county now owns the road/beach, and in some cases the court seems to say that the county or someone now has an easement in this property. If the city only owns an easement I have to pay taxes.

Roadway dedications in SC: one things that seems to be reasonably consistent is that where this has occurred is in rural property and a high % involving roadways that go from a county road to the river or lake. Has there been an establishment of that roadway? If the county has come in and maintained it then its not unusual for the court to conclude that yes there has been dedication. In SC we have circuit court judges and masters in equity. Usually equity hears mortgage foreclosures. We are one of the few states that have two separate court systems at the trial level.

o Doctrine of Customary Rights: because beach access is usually permitted by the O and each individual beach access case must be litigated separately under the PE doctrine, courts have turned to other doctrines with greater potential for opening the beaches. (rare, FL, OR, and TX). They hold that long uses of the beaches (the dry sand area in private ownership) by the public is protected as a customary right. If the public has used the beach (the dry sand area in private ownership) for so long that the memory of many runneth to the contrary, the public has a customary right to use the beach.

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o New Jersey rule: In NJ, the public may use the privately owned dry sand area to the extent needed in the exercise of the public’s right under the public trust doctrine to use the wet sand area and the water. Matthews v. Bay Head

o Public Trust Doctrine: acknowledges that the ownership, dominion and sovereignty over land flowed by tidal waters, which extend to the mean high water mark, is vested in the State in trust for the people. The public’s right to use the tidal lands and water encompasses navigation, fishing and recreational uses, including bathing, swimming and other shore activities, including marshes. This a Justinian, Roman law feature. This effects a lot of property in the state.

Matthews v. Bay Head Association (and individual property owners)NJ Rule: the public may use the privately owned dry sand area to the extent needed in the exercise of the public’s right under the public rust doctrine to use the wet sand area and the water.

Under the Public Trust doctrine, members of the public must be given “reasonable access” to the foreshore and be permitted to use privately owned dry sand areas of the beach when such use is “essential or reasonably necessary” for enjoyment of the ocean under the public trust doctrine to use the wet sand area and the water.

Here, the public is not prohibited from having access to the property, just prohibited from having more convenient access. There is the membership in the Association, and only residents of Bay Head can join the club, but was expanded to teachers, firefighters. Historically, public trust property was to be used for public purposes, navigation and fishing. Then it has been expanded to recreational uses, bathing and swimming, and in most jurisdictions we have added conservation. The court is being asked to open up the areas to get to the wet sand area owned by the State.

Not only do citizens have a right to use this but you also have a right of easy access (because there was another route from the N or S).

They also want a right to use the dry sand area because you can’t enjoy the wet sand area without the use of the dry sand. The πs are arguing they have a right to use not only up to the high water mark but the dry sand area too, private property, that is adjacent to property which is controlled by the State. Two rights, to easy access and to use privately owned property. The court grants them those rights from the sand owned by Association and leaves the discussion for the private property later because the Association, in essence, was like a municipality. The court does this by saying anyone can join the club, and the right to use the Association private property, which they hold in lease. The court points out that this case is unique. Yes are giving non-property owners the right to use private property, but one of the factors that allows the court to do that is the fact that the association functions as a quasi-agency and there the court is saying that if it were the government, then everyone would have similar rights so we aren’t making too big a stretch here. The court also says, we’re concerned that maybe what will happen is private property will be taken, so they talk about a balance btw public’s right to access and private landowners right to privacy. The court is worried the private ppl are going to revoke their leases to the Association, and there is a signal that if that occurs, then maybe they will say the public has the right to access and use the dry sand area. This notion of the public trust doctrine has become in the last 20 years incredibly important. There are tons of navigable waterways in SC that aren’t even on the coast. Follow up: another NJ case said, given the facts that the O of the dry sand (private property O) was required to permit the public to use his private property pursuant to the public trust doctrine, the court suggested that there was a lot of uniqueness to the scenario. If the O provides lifeguards or other services it can charge a reasonable fee for people to use this. The land O had a building permit which was conditioned on him making access to the beach available to the public. Not use but access. The court also found there was a high demand for beach use in this part of NJ and there were few public beaches in the area. What this doctrine is saying: you're property isn’t quite as private as you thought it was. Taking away a stick from the bundle.

o Tests for reasonableness of use: location of the dry sand area in relation to the foreshore, extent and availability of public land, nature and extent of the public demand, and usage of the upland sand area by the owner.

o 5th Amendment protects government “taking” of private land without compensation. If the legislature can’t take our land, why can the courts in granting the public a right to cross our property to reach the beach?

o The public trust doctrine extends to all land covered by the ebb and flow of the tide and, in addition, all inland lakes and rivers that are navigable.

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Query case: what does the O of the dry sand own? The O said they owned the marsh and all the way down to the water. At least down to the low water mark or beyond. How can we make that argument? The law is: if you can establish a chain of title back to the King or the Lords Proprietors or whoever established the first transfer of property to the government to your predecessor in title. If you can demonstrate that intended to convey not only up to the h.w.m. but here to the entire marsh. If you can show that v intended to incorporate that property then that conveyance is good and you do own what you claim. Here, the deed wasn’t good enough. The court says: The plat lacked the requisite specificity to manifest intent to grant property including the marsh . There have been a number of successful claimants who had been able to establish the deeds to which their title comes from conveyed the marsh land.

McQueen: π did not develop his land, and the canal encroached on his property to the point where there is no buildable property left. So he wants to put in a sea wall and fill, and then be able to build on his two lots. To do this he needs a permit, which was denied. The Supreme Court says there is no taking because the lots reverted to tidelands and that is public trust property, so you don’t own it. There is no taking and you have no claim.

There was a HHI case where years ago the reverse had occurred. The developer filled what had been marshland, property subject to PTD, because of that, there was a squabble amongst property O in area, and the question related to nature of this property. The fact that it was filed doesn’t mean it belonged to private owners. The filling won’t convert it into privately owned property. In Charleston, a substantial part of the city is built on fill.

To practice in SC, NC, FL, deal with environmental issues.

The government now will regulate a property owners ability to use it if it believes it has wetlands. (not necessarily navigable waters). In SC we have to important provisions of a statutory nature: SC Constitution article 14 § 4: all navigable waters shall forever remain public highways free to the citizens and US without tax, impost or toll.Statute: All navigable waters are hereby declared navigable streams and such streams shall be common highways forever free. (including ways that need to remove obstructions).

SC case: an O lived in Edisto and liked to fish, so instead of building a dock in the river which might have caused problems with permits, he constructed a huge canal. 30 X 20 X 1700. Went from Edisto to his house. After he built canal, it became prime fishing grounds. Folks would go up the canal onto “his property” to fish. O decided he didn’t want them there, so he put a gate at the front of the canal on the river, on his “property” to keep others out of canal. Neighbors sued, argued that that canal was essential pursuant to the private trust doctrine, and had absolute right to fish. By creating canal, SC said O enhanced the public property.

Another case: O owns land with lake on it, and lake was created by damming up a creek. Lake has been on property for years. O owns all surrounding property, pay taxes on it. But, apparently the lake is a great place to fish. Ppl put their boat into creek above the lake and come down into the lake to fish. O didn’t want ppl on his property, so different from above, the Os called the cops and had the sheriff come out and arrest ppl for trespassing on private property. Defense was that the lake was navigable waters, and pursuant to Constitution and statute it was available for anyone to use, and they weren’t trespassing. State argued that its not navigable because there is a dam. Court said no, case law in SC indicates that the fact that maybe there were dams doesn’t make the stream non-navigable. If you can get a little boat on the water, its going to be navigable. ∆s were not trespassing.

Recent SC case: White Mill v. Williams – SC Court App case. Involved a smaller lake, 80 acres. You have the same concerns, the lake was created by damming up some modest creeks. Clearly an 80 acre lake, you can put a little boat and navigate around on it. The Os that own the underlying dirt said we don’t want you to put your boats on our property that happens to be overflowed with water. The twist, the court was concerned – given the state of the law, what would be obvious is that any time you have a lake, you can put a boat on it and it’s navigable. Ct App added a new requirement: The need to demonstrate a connection to other navigable waters remains. Otherwise, any backyard pond would be navigable. The property in question must be connected to another navigable body, presumably a stream. The streams that were feeding into pond, were themselves no navigable, therefore the pond was not navigable. There is nothing in the Con or Statute that say that – this is Court App speaking. Problem: this was written by Kittredge, and he is on the SC now. Here, the ppl that wanted to use the lake were people that lived on the other side of the lake, abutting property owners.

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One body of law say that if I live next to the water, I have a right to use it. The other body of law says you don’t have a right to use it. The courts that said you don’t have a right to use it is based on the CL, and since SC always follows the CL, we presume that that rule that no you can’t use it is what should control. (for riparian rights to abutting land Os of non-navigable waters) If the lake inundated private property of others, riparian owners could go in lake up to the property line.

Transfer of Easements: The benefits and burdens of appurtenant easements pass automatically to assignees of the land to which they are appurtenant, if the parties so intend and the burdened party has notice of the easement. Where the benefits are in gross, however, the benefit may not be assignable.

a. Easement appurtenant: when the dominant is transferred, any easements appurtenant (benefit) are transferred with it, unless the appurtenant easement is also personal in its terms. The burden of an easement app passes with the servient land when transferred. An easement app is thought of as attached to the dominant land, and it benefits the possessor of that land, including adverse possessors. By mutual assent, they can detach the easement and either attach it to other dominant land or convert it into an easement in gross, but neither party acting alone may do this.

a. Exam: an easement app automatically passed with the benefited land – don’t be fooled into thinking it must be specifically mentioned in the deed.

b. Easements in gross: if the benefit of an easement in gross is inherited by or assigned to a large number of persons, it may be difficult to locate these persons, making it difficult to secure a release of the easement or to clear up title. Courts have restricted alienability of easements in gross.

a. Commercial easements in gross assignable: in some old cases, courts held that the benefits of easements in gross were not assignable. But the general rule today is that the benefit of a commercial easement in gross is assignable, and a noncommercial easement in gross is assignable if the parties so intent. [Miller v. Lutheran]

i. Commercial easements in gross are those that have primarily economic benefit rather than personal satisfaction. Rationale: it would be unacceptable policy for utility companies to lose easements when they merge/change ownership. Also, the problem of locating unknown owners does not arise with most commercial easements in gross, which are held by utility companies or RR. Finally, if commercial easements in gross are not assignable, utility companies will by a fee simple for their lines, rather than an easement, and this is undesirable because unlike easements, fee simple cannot be terminated by abandonment or acts of the owner.

c. Profits in gross: they are always assignable.

Appurtenant: burden on the servient tenement is limited by needs of the dominant tenement. Gross: no such limitation, therefore American courts have attempted to prevent the burden on the servient

tenement from increasing beyond what was intended by the original parties. Most recent cases permit any easement in gross to be assignable if the parties so intended (regardless of commercial character). Usually recreational easements are not assignable because those are personal.

Divisibility of Easements in gross: the general view is that an easement in gross is divisible when the creating instrument so indicates or when the easement is exclusive (the easement owner has the sole right to engage in the activity that the easement permits), unless the original grant prohibits this. A nonexclusive easement is one that is enjoyed both by the easement holder and the servient owner. To divide among others who use it independently would constitute excess competition with the servient owner for the use or sale of the rights.

Dividing an easement in gross is more burdensome because the original grantor just granted the particular person a right to use the land. By dividing this interest, the servient tenement is subject to more people than expected.

Overuse of profit in gross: Even though a profit, like an easement, can be divided among several persons, overuse of the profit by these persons – each seeking to maximize his wealth – can lead to depletion of natural resources. To regulate use of profits in gross, the courts invented the one stock rule: when two or more ppl own a profit in gross they must use the profit as one stock. Neither can operate independently of the other. One owner can veto use by the other because consent of all is required. The one-stock rule has been applied to easements in contexts where overuse of the easement may result in destroying the resource. Miller v. Lutheran

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Miller v. LutheranThe question was how to deal with the concern that division of the easement might create an excessive burden on the servient estate. Rather than declaring the easement not assignable and non-divisible, the court applied the “one stock” rule of the law of profits. This means Frank and Rufus’s executor must use the lake as one person, either one can veto the other’s use. Nature of the lake: man made lake, created by a corporation. Its leased property for 99 years. Land leases of this nature are important in the US. The Co. probably is owned by the same people that owned the dirt, or a close relationship. The land was repossessed because it was mortgaged, and Co # 2 bought it. Then apparently Katherine took over. The easement to boat and fish was created when Co 1 transferred exclusive right to fish and boat to Frank. They gave him an easement for that purpose. ISSUE: if this property has been foreclosed and sold, what happened to that easement that was created before that foreclosure – language indicates that the bank agreed with that easement. There is an issue floating around, because the problem Katherine has is that if I attempt to transfer, that might be a surcharge and that might make the easement invalid. If its invalid as to Rufus its invalid to her and Frank. We are fighting over the right to swim there. We get this right by prescription apparently. There is a fascination question with respect to this – who gets the right to swim? Frank and Rufus – they own this prescription jointly, as tenants in common. They own it together, what does that mean? The court seems to suggest that maybe they don’t own it together, not initially at least. Frank owns it and Frank attempted to transfer to Rufus his rights. The court here starts off with the assumption that this is an easement in gross. If there is an attempt to transfer the easement in gross, can you? There is language in the opinion that would suggest that. The language of the grant doesn’t matter because they acquired use by prescription, so the intention of the deed doesn’t matter because there isn’t any deed (by prescription). There are two ways you can find easement in gross assignable – you can look to intent, or easements in gross for commercial exploitation are assignable. The latter would work here because they are using this for a business license. The other problem in the case: the one stock rule – is the easement divisible? Yes. Assignability and divisibility work together. May I transfer my rights? Then, can I transfer a part of my rights to Joe? They are linked because you must answer first question first. If Frank owned exclusively the right to swim, could be transfer the bundle to Rufus? Consider anticipation and intent. If its of commercial use, the notion is that you would always assume that if you give one Co an easement, they can transfer it to another Co. The problem is excessive use, if I agree to let you use it, and you devise yours to three others – then that’s not what I expected or intended to share. We have a concern of over-use. With appurtenant, its not an issue, its limited automatically to the benefit of the property, so there is a limit.

The court says they are going to apply the one stock rule – everyone must be working together and using it as one. The notes say easements in gross may be divided unless it unreasonably increases the burden or contrary to the intent. The most fundamental problem that the court seems to ignore: the nature of the joint ownership. We are making an assumption that they own it jointly, they acquired the right together. If it’s a co tenancy, a partnership, all the respective rights together.

SC riparian law is represented here on page 711: Ordinarily, title to land bordering on a navigable stream extends to low water mark subject to the rights of the public to navigation and fishery btw high and low water, and in the case of land abutting on creeks and non-navigable rivers to the middle of the stream, but in the case of a non-navigable lake or pond where the land under the water is owned by others, no riparian rights attach to the property bordering on the water, and an attempt to exercise any such rights by invading the water is as much a trespass as if an unauthorized entry were made up the dry land of another.

Easement in gross became prescriptive easement to bathe.

Is there a possibility this is an easement appurtenant? The lawyers for ∆ could argue that. What do I have to figure out? Are there any other theories we could use to expand on notion of appurtenant. What do we have to look at on the map? Appurtenant easements can last forever, and the grantors intent was only to let the Co use it for 99 years. The easement was not supposed to attach to the land, but for the use of the Co.

The servient parcel is the area of the lake. The dominant tenement would be the surrounding land. What would it take for the Lutherans to be able to argue that they have an appurtenant easement? We want to find that the wife owns the lake, so she would own the servient estate. Do we really care who owns the servient estate?

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We are interested in the 1899 conveyance, we are trying to figure out if they created one servient estate to benefit the dominant estates? Presumably we can have an easement in a leasehold interest. We are trying to figure out if there was an actual servient estate created for the dominant estate around the lake. Who benefits from the easement? The landowners. We can argue that the creation of the lake implied that we are creating the right to swim for the benefit of someone. The problem here is that we have a specific group of landowners that are suggesting they have that right. The Miller family, presumably then we’d have to find as a matter of fact, who owned the land around the servient tenement at the time of the creation of the easement. We want to know if Lutherans succeeded in title to the land of the Millers. We don’t know who owned the Lutheran property before it was conveyed to them. Maybe the Millers have a possible claim that they had a garden variety appurtenant easement.

That creates serious problems in SC: appurtenant easements - you need a terminus, a boundary or a limit. IN SC: must have Dominant and servient tenement, inheres in the land, use specific to the land, it must be essentially necessary to enjoyment of the dominant tenement Appurtenant Easement in South Carolina: Def of app easement in SC is very different from the rest of the world: 1. Inheres in the land, 2. Concerns the premises, 3. Has one terminus on the land of the party claiming it, and 4. Is essentially necessary to enjoyment.

Is the right to swim in the lake something essentially necessary to the property? No. Is there a terminus on the dominant estate? No, therefore this is not an appurtenant easement in SC.

Can Abel transfer the whole B to someone else and have that someone else use the roadway. Can Abel subdivide and have buyers of portion use the road (pic on Riddle brief)

Gressette v. SCE&G – SC, you can apportion use of commercial easement in gross if you indicate intent SCEG has an easement in gross for utility lines because its for the benefit of SCEG. Almost always, a utility easement is going to be deemed in gross. What is the scope of the easement? The πs agree that use for fiber optics is within the use of the easement. The question is can SCEG apportion a part of his easement (the excess optics) to a 3rd party. TC says we don’t think the language of the document permits for transfer of apportionment of use BUT in spite of limitation in the document, we believe that the SC law is clear that you can do it. They cite three SC cases that support that conclusion, and as a matter of law SCEG can transfer a portion of their use of the easement. Ct App said no, those cases only deal with additional servitude and we are dealing with apportionment. Additional Servitude – is unjustified taking as a result of adding an additional use to the easement. “We held the placement of electric lines in the highway easements did not constitute an additional servitude because communication was within the traditional use of a highway” – So it seems as though SC views an easement of way was providing general access to the dominant estate. As other courts have noted, the issue of apportionment is a slightly different issue from that of additional servitude. Where an easement is granted for some category of use, for instance “ highway purposes,” the question of an additional servitude addresses whether some new use fits within that category of allowed use, a question that may turn simply on an evaluation of the new use rather than an interpretation of the easement's language. Apportionment, on the other hand, involves the interpretation of a restriction on the easement holder's conveyance of part of its own allowed use to a third party. This is clearly an issue that cannot be resolved without construing the instruments creating the easement.

If the easement is of a fee nature (to last forever, “heirs and assigns”) then that suggests alienability. But, language limiting use for SCEG only seems to restrict this Assignability. Another issue: there are possibly two kinds of Assignability. One is, lets assume SCEG is bought out by Duke Power, and SCEG has transferred all of its easements to Duke Power. That seems to be situation number 1. Number 2 is that which is involved in this case, and as the court says, we need a lot more information. We are not assigning all our rights, we are attempting to assign some of our rights to Time Warner so they can use our cable. The court seems to suggest that divisibility may be okay, but maybe what I have to look at is the actual language of the document.

Windham v. Riddle - Easement appurtenant v. gross in SCSC presumed gross unless elements 1-4 are met. The question in this case is what kind of an easement do we have? Grantor has used water system since the K for sale to Winds. In 97 he grants dominant to Riddles, in 98 he deeds servient to Winds. As a practical matter, the K for sale in 92 was the “transfer”. But App court says we can’t look at K for sale as controlling, because grantor still had legal transfer.

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The question is ultimately why is this an easement in gross and not appurtenant. We ignore the 92 transaction other than that there was a reference to the language in deed. The court concludes that as to the 98 transaction which seems to be most important, there isn’t any easement appurtenant created and the bottom line seems to be it can’t be appurtenant: because there is no terminus on the land of the party claiming it. Grantor didn’t create easement until 98 and he didn’t own the dominant estate anymore. To be appurtenant it would have to benefit grantor’s land. The language in the grantor, referencing back to 92 document, said it was for “seller”, the grantor. It wasn’t for the property, it was for grantor. Therefore since there isn’t any dominant estate it must be in gross. Contract for the sale of property, which reserved in an easement for “the Seller,” created an easement in gross, rather than an easement appurtenant, and could not be transferred to neighboring property owners; easement was reserved for “the Seller,” and “the Seller” did not own the purported dominant estate at the time of the creation of the easement.An easement in gross is a mere personal privilege to use the land of another; the privilege is incapable of transfer. In contrast, an appurtenant easement inheres in the land, concerns the premises, has one terminus on the land of the party claiming it, and is essentially necessary to the enjoyment thereof. It also passes with the dominant estate upon conveyance. Unless an easement has all the elements necessary to be an appurtenant easement, it will be characterized as a mere easement in gross. Where the language is ambiguous, that construction that least restricts the property will stand. Supreme Court analysis: Stating that in an installment land contract, the seller retains legal title until the purchase price is fully paid and that the vendee in possession of the land is the owner of an equitable interest in the property).

Furthermore, we agree with the Court of Appeals that the 1998 Riddle deed did not create an appurtenant easement. Before Covington conveyed legal title to Windham in 1998, he sold tract 1-A to the Riddles in 1997. Given that the Windham deed reserved the easement to Covington and he sold the dominant estate to the Riddles in 1997, the "terminus" requirement for an appurtenant easement was not met similar to the conveyance in Springob. (noting the absence of a terminus on property is fatal to claim of an appurtenant easement).

Terminus = finishing point, end, boundary, either end of a transportation or travel route

The court also entertains the idea that SC rules are archaic. The court jumps to another thought, mirrored in the opinion itself, and that other thought seems to be that in SC You can’t create an easement in 3rd parties. The first easement case we looked at. SC continues to follow the old rule that you can’t convey an easement in 3rd parties.

The method of creation, the requirements for creation of personal and commercial nature of easements in gross are the same. The distinction is to Assignability and probably about apportionment. The case mentioned in Riddle Case is the Ragsdale case. 1965 case and that opinion is cited in the Riddle case for the proposition that easements in gross are not transferable. What they are really saying if you have a commercial easement in gross, most likely even without language that says its assignable, there is a high probability that it will be assignable. If the language goes on to say.. hereby granted to x.y.z company, then there won’t be any question that its commercial. If its personal, we still assume that if its granted to Joe its for Joe. But, if there is something in the document that creates the in gross easement to Joe that also suggests it can be transferred, there is nothing in SC that would prevent that from occurring. Then we have this notion of apportionment – can we transfer part of the easement to someone else. Gressette seems to say that if the document would allow it then that would seem to be okay.

Question: A, owner of Blackacre, conveys an easement over Blackacre to B for the benefit of Whiteacre, which B once owned but sold to C 5 months ago. B then conveys the easement to C. who, if anyone, has an easement across Blackacre?

There can’t be an appurtenant easement because there is no dominant estate at the time of creation. Then the question is okay, its not appurtenant, can it be an in gross easement? Nope. Can’t be in gross because it was intended to be appurtenant and therefore can’t be in gross.

Scope of Easements: after an easement is created, questions may arise about what use the easement owner can make of the easement or about what interference by the servient O is permissible.

a. General rule: the scope depends on the intent of the parties. In order to ascertain, the court will look to how it was created, what changes in use might be foreseeable by parties and what changes are required to achieve the purpose of the easement. The court will also look at whether the increase in the burden is reasonable.

a. Express easement: if the easement was expressly created, the court will look at the language of the instrument, together with the surrounding circumstances, in order to determine the parties intent.

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i. Easement of way: a favorite because surface access is essential to the use and productivity of land. An easement of way is given a scope that permits it to meet the needs of the dominant tenement as it normally develops. It may be used in a manner that is reasonably foreseeable to the parties.

b. Implied easements: i. Existing use: if an easement is implied on the basis of prior use at the time of severance of a tract

into two parcels that the parties intended to continue, the scope is generally the same as an express easement. Changes that reasonably might have been expected or that are necessary to preserve the utility of the easement are permitted.

ii. Easement by necessity: the extent of necessity determines the scopec. Easements by prescription: the use that gives rise to the easement can continue, but there is no basis for

assuming the parties intended the easement to accommodate future or additional needs. After all, the owner of the servient land might not have objected to A crossing the land to pick apples on A’s land, but would have objected to a whole stream of traffic generated by a subdivision on A’s land. The added burden of switching the dominant tenement from residential to commercial will usually not be permitted on the prescriptive easement.

i. Exam: questions often ask if the easement holder can increase the scope of the easement. Remember, the courts will look to the intent of the parties based on written instruments and circumstances at time easement was created. Courts will also consider whether the increase will unreasonably burden the servient tenement. Generally an express or implied easement of way can be increased in scope to meet the needs of the dominant tenement as they normally develop. However, courts are slow to increase scope of prescriptive easement because while owner didn’t object to small use, might certainly object to heavier use.

b. Subdivision of dominant tenement: As a general rule, if the dominant estate is subdivided, each lot has a right to use easements appurtenant on the dominant estate. An easement is appurtenant to every part of the dominant tenement.

a. Limitation: the appurtenant easement is said to stay with the land that is divided, however the servient tenement is not to be more burdened by the division than necessary to accommodate the normal development of the dominant estate. This is a question of judgment as to when the increased use becomes unreasonable.

c. Use for benefit of non-dominant land: an easement granted for the benefit of lot 1 cannot be used for the benefit of lot 2, even though the same person owns lots 1 and 2. The dominant owner cannot increase the scope of the easement by using it to benefit a different, no-dominant parcel.

a. Brown v. Voss: the land owner might be given damages against A who uses the easement over landowner’s land to access a subsequently acquired adjacent lot, rather than an injunction if, all things considered, an injunction would be inequitable.

d. Change in location: if an easement was granted in a specific location, that location cannot be changed unilaterally, only by mutual assent.

e. Widening of easement: if the width is specified, or if it existed at the time of the grant so that it can be inferred that the parties intended it to remain the same, the easement cannot be widened without consent of servient O.

f. Use by servient owner: the servient O may use the servient land in ways that do not interfere with easement, and may use the easement itself, provided it is not an exclusive easement

g. Division: whether an easement may be divided or apportioned depends on its exclusivity. a. Nonexclusive: enjoyed by both the easement holder and the servient owner. Absent authority in the grant,

the easement holder cannot divide the right among others who use it independently. b. Exclusive: if the holder has the exclusive right to enjoy it. The owner can divide it and transfer it to

others who can use it independently, unless the original grant prohibits it. i. Overuse of profits in gross: even though a profit, like an easement, can be divided among

several ppl, overuse by those ppl can lead to the depleting of natural resources. To regulate use of profits in gross, courts invented the one-stock rule: when two or more ppl own a profit in gross they must use the profit as one stock. Neither can operate independently of the other. One owner can veto use by the other because consent of all is required. This rule has been applied to easements as well (Miller v. Lutheran)

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The general rule is that the location of an easement, once fixed by the parties, cannot be changed by the servient owner without permission of the dominant O.

o A prescriptive easement is not as broad in scope as an easement created by grant, implication or necessity. Although the use of easement is not confined to the actual uses made during the prescriptive period, the uses made of a prescriptive easement must be consistent with the general kind of use by which the easement was created and with what the servient owner might reasonably expect to lose by failing to interrupt the adverse use.

Brown v. Voss∆ obstructs use of the driveway, and π who owns B and C sues to have easement enforced. The easement was for the use of B and not C. Majority and Dissent agree that there is a black letter principle involved in this situation – an easement appurtenant may not be extended by O of dominant estate to other parcels owned by him – whether adjoining or distinct parcels. Question, is if the owner of B and C or owner of A, can A get an injunction to stop the use of the easement. Depending on the remedy and which court I’m in, we’re asking for equitable relief, an injunction. A court has to apply equitable principles. Dissent says it should be an injunction. This is a very unusual case. Almost always the court will say thou shall not extend the use for a non-dominant parcel. There will be some remedy applied. If we establish an injunction that you can only use it for lot B, the parties will probably be back in court in a few weeks anyways. The suggestion is that if you impose the injunction, that the prediction of the court is wrong. At least there is a school of thought that these people will be back in here in 6 months. There may be a different resolution. Dissent says you can get an easement by necessity. The owner of A all of a sudden must have a bargaining chip, but maybe that’s fair, because it’s the easement over his property that’s being used. Apparently the lawyers missed the boat, it wasn’t even necessary. Voss messed up by not appealing the damages, only appealing the injunction. He should have worried about the $1.

What do you do as a lawyer for A and B wants an easement? You stipulate the use is for B and any extension will be misuse and any misuse will revoke the easement.

The court says without the easement parcel C is landlocked. But that’s wrong according to the notes. Let’s assume it was. Why cant there be an easement by necessity? Because there wasn’t the requisite elements, no unity of title and severance. Necessity had to exist at the time of severance.

Pg. 724 notes 2 and 3 – what if I have an appurtenant easement for a particular piece of property and all of a sudden the owner of the dominant estate finds a developer who is willing to develop, can they use the easement? The holder of an easement/profit is entitled to use the servient estate in a manner that is reasonably necessary for the convenient enjoyment of the servitude. It has to be something in the nature of reasonably foreseeable development or use of the property. It must accommodate the normal development of the dominant estate. The holder may not cause unreasonable damage to servient estate or interfere unreasonably with its enjoyment.

A private easement of way does not usually permit the easement owner to install on the easement aboveground or underground utilities, such as lines and pipes. Most courts hold such uses are not reasonably foreseeable by the parties. Such courts view the purpose of the easement of way as entrance and exit of people and vehicles. If an easement of way were viewed as providing general access to the dominant estate, should utilities be permitted?

HHI case – there was an easement for water rights and a cable company wanted to tack on and use those same easements for cable, and court said no it’s not within the scope. In SC – an issue on the water is when a developer owns a number of tracts and goes in phases. When they create the easement, was it for the benefit of phase one or for all the phases?

We are trying to predict the future, and make sure that things that might come up in the future are covered in the document.

Termination of Easements

Presault v. US Πs are mad at the govt for authorizing the conversion of the former RR right-of-way into a public trail use.

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First question, was there an easement created way back in the day? In some deeds its difficult to tell whether grantor intended to great easement or fee simple. Generally, a grant of a limited use, or for a limited purpose or of an identified space without clearly marked boundaries creates an easement.

Example: O grants A an 40 ft strip “for a road”. The limited purpose indicates that an easement is created. A railroad that proceeds to acquire a right of way through eminent domain an estate in land for laying track, a limited purpose, it obtains an easement only for what is needed.

Second question, you would assume this was an easement in gross, and then you must decide what the method is that you would impose for overuse of an easement in gross. Although a public recreational trail could be described as a roadway for the transportation of people, the nature of usage is clearly different. Does this use fall into the scope of the original railroad easement? No. Third question, was the easement extinguished? Abandonment: although neither oral release nor nonuse alone is sufficient to terminate an easement, if the owner of an easement acts in such a way as to indicate an unequivocal intent to abandon the easement, the easement is abandoned, or there is a purpose inconsistent with its future existence. Nonuse itself is not abandonment. There are factors that would suggest that abandonment is not as strong an argument because they didn’t remove the bridges and they are still paying license fees.

If the interest in question is acquired through a grant (as opposed to eminent domain). Majority – Whatever estate deed says is granted (FSA or Easement depending on language of deed) Minority – Easement to use only what’s necessary, regardless of the language. The court here follows the

minority view, even though the language of the deed said “fee simple”, the circumstances and intent of the parties revealed only an easement. The survey and location was more determinant than the form of transfer.

The scope of an easement may be changed so long as the change is consistent with the terms of the original grant. An expansion of use is allowed, but the change must be foreseeable at the time of the grant.

An easement may be terminated in accord with its express terms, or in the following ways:a. By unity of title: An easement is a right in the land of another. If the title to the easement and title to the

servient tenement come into the hands of one person, the easement is extinguished. Once extinguished – cannot be revived by subsequent separation of the tenements. [what about if the properties were unmerged, would the easement reappear? NO]

b. By act of Dominant Owner: a. Release: the O of an easement may release the easement to the Servient by a written instrument.

(unless oral release induces Servient to spend money in reliance, then easement owner is estopped from pleading the SOF, and the easement is extinguished by the oral release and action in reliance).

b. Nonuse: mere nonuse of an easement does not extinguish. The easement is not extinguished no matter how long the nonuse continues.

c. Abandonment: Although neither oral release or nonuse is enough to terminate, if the owner of an easement acts in such a way as to indicate an unequivocal intent to abandon the easement, the easement is abandoned. The easement is abandoned automatically. Such acts include oral release or nonuse coupled with failure to maintain the easement, or permitting the easement to be blocked by others, or establishing a substitute easement elsewhere. Examples: if the easement owner acts in a way that indicates an unequivocal intent to abandon the easement, such as allowing the easement to be blocked or an oral release coupled with failure to maintain. Presault

d. Alteration of dominant tenement: If an easement is granted for a particular purpose, and an alteration of the dominant tenement makes it impossible to achieve the purpose any longer, the easement is extinguished.

e. Easement by necessity: an easement by necessity terminates when the necessity ends. If the dominant O acquires other access by conveyance or prescription, the easement by necessity is extinguished.

f. Expiration upon some stated event. [This is the most popular] g. Estoppel: if the servient owner reasonably relies upon a statement or representation by the easement

owner. h. Attempt to assign an impermissible easement: the Miller case suggests that’s a reason for a court to

enjoin you from the easement, or say it’s been terminated. The same is true for the apportionment issue.

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c. By act of Servient Owner:a. Destruction of servient tenement: if by an act of nature, servient is not liable. If the servient

destroys it intentionally, then they must pay damages to dominant. b. Prescription: If the servient owner interferes with an easement in an adverse manner, the servient

owner can extinguish easement by prescription. The requisite elements of adversity are the same as for the creation of an easement by prescription. However, where an easement has been created by no occasion has arisen for its use and the servient owner fences his land, the servient owner is not deemed to act adversely until the dominant owner demands the easement be opened and servient refuses.

d. By change of conditions: the doctrine of change of conditions in the neighborhood, which may prevent the enforcement of a real covenant or equitable servitude, is not applicable to easements.

a. Exam: when a question involves the overuse or misuse of an easement, remember that such use does not terminate the easement. The appropriate remedy for the servient owner is an injunction on misuse, reasonable use can continue.

e. Condemnation if the government exercises its eminent domain power to take title to a fee interest in the servient estate for a purpose that is inconsistent with continued existence of the easement.

Negative EasementsA negative easement gives the easement holder the right to prevent the servient owner from using her land in some way.

o Limited Types: Rare, and generally not permitted unless one recognized by English law for: easement for light, air, subjacent or lateral support, or for the flow of an artificial stream. These days, solar easements, conservation easements and scenic easements have arisen.

a. Why? Because the parties can just as “effectively” promise not to do something as opposed to granting a right, an interest in land. Courts have not found it necessary to expand the categories of permissible negative easements because they can classify the right to prevent a neighbor from doing something on his land as an equitable servitude.

o Cannot arise by prescription: in US, negative easements cannot arise by prescription because prescription does not apply until the rights of the “servient owner” are interfered with and a cause of action against the dominant owner arises.Where the O has no COA against a neighbor for erecting a building with windows over looking its land, the neighbor cannot apply prescription.

o Had negative easements been allowed to develop, the authors suggest that we wouldn’t have a mess with servitudes today. In England, there were historically four types allowed, noted above. In the US we’ve always had a recording system and we take away the right to a prescriptive negative easement.

o Judge 1 might say its an easement, judge 2 might say covenant, judge 3 might say its an equitable servitude. It’s important for us to know what are the requirements for each of those property interests. The same document might be interpreted very differently. We must be able to convince the judge on which it is.

o In England, you can create an easement by prescription. Bold statement, you can’t create a negative easement by prescription in the US. In order to claim a nuisance, you must have to have a property right that is being interfered with. The guy who was trying to block the solar panels was creating a nuisance. Implicit in that is that somehow the guy with the solar panels had some sort of a property interest, assuming an easement, to the sunlight, and the only way to get that was prescription. Solar panels are becoming more important than they were.

Conservation EasementsTo preserve scenic and historic areas and open space. The are perpetual in duration, are transferable and can be in gross. In SC, there is a lot of land set aside that is never to be developed. A lot of it has been set up in the form of a conservation easement. A lot on golf courses, why? The owners get a tax break.

o Façade preservation easement is a device for preventing the façade of a house registered on the National Register of Historic Places from being altered.

o Primary residence easements is a reaction to the growing popularity of vacation homes whose owners leave the property vacant for most of the year. Under a plan in use in Charleston, the owners of historic homes donate to the Historic Charleston Foundation an easement that restricts the owner, present or future, from using it as a vacation home.

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Covenants Running with the Land

A covenant is a promise to do or not to do a certain thing, relating to the use of land. Affirmative promise: promise to do something on the land. Negative promise: promise not to do something on the land. If the promisee sues the promisor, the law of contracts is applicable. However, if a person who buys the promisee’s land is suing or a person who buys the promisor’s land is being sued, the law of property is applicable. If the promise is breached there are two remedies: money (he must sue in law) or an injunction or decree requiring

specific performance of the promise (he must sue in equity). If the π asks for money damages, the traditional rules are still applicable. If the π asks for equitable relief, the rules developed by the equity courts are applicable.

If you look at the documents, you will see a restriction, thou shall or shall not do something. We’re not arguing over the language of the document. What we are arguing over is ‘can it be enforced?’ Can I go to circuit court and have it enforced at law? And if not, can I go to the master in equity and have it enforced in the equity court. Same promise, just different remedies for RC and ES

Covenants enforceable at law: REAL COVENANTS A real covenant is a covenant that runs with the land at law. It is enforceable at law by a successor owner of the promisee’s land and, is enforceable against a successor to the promisor’s land. If the π wants money damages, the π must show that the covenant qualifies as a real covenant. A real covenant can be a negative promise (a promise not to do an act) or an affirmative promise (a promise to do an

act). A covenant is not enforceable against as assignee who has no notice of it. Because courts wouldn’t recognize new negative easements, landowners turned to the law of contracts. They sought a

judicial recognition of a K right respecting land use enforceable not only against the promisor landowner, but against his successors in title as well.

a. Bargains between neighbors can operate to allocate resources efficiently by arranging land uses so as to minimize conflicts. These bargains can serve to minimize the harmful impacts (“external costs”) that arise from conflicting resource uses. Such bargains are less likely if only the original promisor is bound and only the original promisee benefit. The promisee wants assurances that he and his successors in interest will be protected. Very often, both original parties will be both benefited and burdened.

b. What is needed is some sort of property right that is enforceable by and against subsequent purchasers. A mere K right – the right to sue belongs to original parties only – will seldom be sufficient to enable the market to allocate conflicting land uses efficiently. Promises were not enforceable against person not a party to the K. Between original parties, breach of K remedies apply. Between subsequent successors, a property right is needed to enforce the covenant.

c. Where there is privity of estate, the judges held, a K is enforceable by and against assignees. American courts permitted, under varying circumstances, covenants to run in favor of and against successor owners. This developed the American real covenant: a promise respecting the use of land that runs with the land at law.

d. Creates personal liability only. It is enforceable only by an award of money damages, which is collectible out of the general assets of the ∆.

e. Distinguish : Conditions – land use may be controlled by a condition as well as by a covenant. A condition provides for forfeiture upon breach of the condition, whereas a covenant is enforceable only by an award of money damages (RC) or injunction (ES). A condition is imposed when the grantor conveys a FSD or FSSCS.

Creation of Real Covenant Writing required: at CL, a real covenant had to be in writing – a real covenant will not be implied, nor can it

arise by prescription. Grantee bound without signing: most deeds are signed only by the grantor, such a deed is known as a deed poll.

By accepting a deed poll, the grantee is bound by any covenants in the deed to be performed by the grantee.

Remedies for breach of real covenant: if the promise is breached, the promisee or his successor may want one of two things: i) money damages, and ii) an injunction or decree requiring specific performance of the promise. If the promisee wants money, he must sue in law. If we wants specific performance, he must sue in equity. Even though the courts of law and equity have merged, a π must chose her type of relief.

The remedy for breach of a real covenant is monetary damages, a legal remedy.

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There are two ends of the covenant, the benefit end originally held and the burdened end originally held. If the original parties are suing one another, contract law applies. The question whether a covenant runs arises only when a person who is not a party to the covenant is suing or being sued.

o If both originals are conveyed, the suing party must allege both the burden and the benefit run. It is important to keep in mind whether the running of the benefit or the running of the burden is involved in the case because the test for running of the burden is traditionally more onerous than the test for running of the benefit.

o Horizontal privity : privity of estate between original covenanting parties. Courts defined privity of estate between landowners to be a successive (grantor-grantee) relationship. If the original promise had been in a deed, then there would be privity of estate. This meaning allows enforcement of the covenant against successors when the covenant is created in conjunction with the transfer of some other interest in land, for example, a deed conveying a fee simple, but not otherwise. Horizontal privity means that at one time, both pieces of the land were owned by the same person. In a conveyance of some part of the original land, there contained a promise that created horizontal privity, and that promise is now enforceable

o The first Restatement declared that horizontal privity of estate is required for the burden of a covenant to run at law. This has been rejected by most courts and judges and does not support sound policy. This Restatement also said that horizontal privity is not required for the benefit to run in order to put various obstacles in the way of the burden running at law, but to permit the benefit to run freely.

o Most authority and the Restatement of Servitudes say that horizontal privity is not required for the benefit to run. This policy was to put various obstacles in the way for the burden to run but permit the benefit to run freely.

o The requirement of horizontal privity is no problem when dealing with a subdivider, however outside of this context the requirement of horizontal privity may frustrate the intention of the parties. The 3rd RE (Burkhard hates) adopted this view and requires no H privity for covenant to run at law to successors.

o Vertical privity: privity of estate between one of the covenanting parties and a successor in interest. The covenant is enforceable by and against remote parties only if those parties have succeeded to the original parties estates in the land in question.

o Traditional doctrines required vertical privity for both the burden and the benefit of a real covenant to run. Remember, the burden and benefit run with estates in land, and not the land itself.

o Different standards are required for vertical privity on the burden and benefit sides. On the burden side, the covenant is enforceable only against someone who has succeeded to the same estate as that of the original promisor. If the promisor had a fee simple, the party against whom enforcement is sought must have succeeded to that fee simple estate. The burden of real covenant does not run to an adverse possessor because an AP does not succeed to the original owner’s estate but takes a new title by operation of law. (Adverse possession does not begin to run against either real or equitable until the promise is breached). Burden – vertical privity if same quantum of estate

o A more relaxed standard is used for the running of the benefit. The promise is enforceable by a person who succeeds to the original promisee’s estate or to a lesser interest carved out of the estate. Benefit – vertical privity if any succession, same or lesser quantum

These requirements ordinarily create no problem for enforcing restrictions on lots in subdivisions, but outside of this context, the requirement of privity of estate may frustrate the intention of the parties.

Under the law of real covenants, the burden and the benefit run with the estate in land, not the land itself.

Enforcement By or Against Assignees: The major issue involving real covenants is whether the burden of the covenant will run to successor owners of the promisor’s land. It is also sometimes an issue whether the benefit will run to successor owners of the promisee’s land. The burdened track is analogous to the servient tenement and the benefited tract is like the dominant tenement.

Requirements for burden of covenant to run at law: a. The contracting parties must intend that successors to the promisor be bound by the covenant. b. There must be (at least in some states) privity of estate between the original promisor and promisee as

well as privity of estate between the promisor and assignee. c. The covenant must touch and concern the landd. A subsequent purchaser of the promisor’s land must have notice of the covenant.

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Requirements for benefit of covenant to run at law:a. The parties must so intendb. Some form of privity of estate may be required – usually vertical c. The benefit must touch and concern the land owned by the promisee.

Traditionally the requirements for running of the benefit were somewhat more lenient than for the running of the burden.

Intent of the parties: this is usually found in the language of a deed or contract. The instrument may read “these covenants shall run with the land” or “the grantee promises for herself, her heirs and assigns.” If the instrument is unclear, the court will look at the purpose of the covenant and all the circumstances to ascertain the parties probable intent.

Necessity of the word “assigns”: Minority Rule - In Spencer’s case, the court laid down three requirements for the burden of a covenant to run at law. The first pertained to the intention to bind assigns: if the covenant concerns a thing that is not in being at the time of the covenant is made but is to be built or created thereafter, the burden of the covenant will not bind assigns unless they are expressly mentioned. Majority: intention is to be determined from the whole instrument and not from the presence or absence of the word “assigns”.

Privity of Estate: horizontal privity is the relationship between the original promisor and promisee. Vertical privity is the relationship between an original party and an assignee. Horizontal Privity – the relationship between original promisor and promisee

Running of the burden: the traditional rule is that the original parties to the covenant must be in privity of estate. This was laid down in Spencer’s case. The running of the burden to assignees requires privity of estate.

o English view: the parties to a promise are in privity of estate only if they are in a LL T relationship.

o Mutual Interest: what put the parties in privity of estate was the fact that both have an interest in the property. The burden will run if one party has an interest (apart from the covenant) in the land of the other. Usually, the burden must be coupled with an easement or conveyance that leaves both with an interest in the land.

o Successive Relationship : the majority view – the covenant must be contained in a conveyance of an interest in land. A privity of estate is present where the promise is contained in a conveyance of the fee simple, i.e., where one of the original parties to the promise succeeds to an estate previously owned by the other party. O and A must be in a grantor-grantee relationship (applies in SC) with the promise was made. The covenant must be in the same instrument. A subsequent agreement or oral promise doesn’t count – as a lawyer we want to make sure it’s in the same deed. You may use a strawperson if two neighbors want to create a binding covenant yet there was no conveyance. O conveys to S, S conveys to O and A with covenant in the conveyances and horizontal privity is established.

o Restatement view: privity of estate is satisfied by either a mutual relationship or a successive relationship.

o Minority view: horizontal privity is not required for running of the burden. Horizontal privity concerns only the original parties – even if successors in interest are trying to enforce the

covenant, you must look only to the original covenanting parties to determine horizontal privity. Running of the benefit: at CL, the benefit of a covenant could run without the covenanting parties

being in privity of estate. A benefit did not adversely affect marketability. o Tip: in many states the burden of the covenant will run to successors only if there is

horizontal privity – a successive relationship between the parties such as grantor-grantee or, in some states, a mutual relationship such as lessor-lessee. Horizontal privity is not required for the benefit of the covenant to run to a successor.

Vertical Privity – the interest transferred to assignee. This means the party suing or being sued succeeded

to the estate of the original promisee or promisor Running of the burden: the successor must be in vertical privity of estate with the original promisor.

[Restatement: must be the same quantum in the estate for the burden to run]

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o Runs with estate in land: although we talk about “running with the land”, the covenant actually runs with the estate in land. It annexes itself to that estate and goes to successive owners of that particular estate.

Running of the benefit: Restatement says the benefit will run to assigns of any interest in the estate, not just to assigns of an estate of the same duration as held by the original promisee. [Re treats burden and benefit differently]

Restatement of Servitudes: discards the requirement of vertical privity for running of both burden and benefit. It draws a distinction between affirmative and negative covenants. Negatives are treated like easements, which run to successors because they are interests in land. Affirmatives, requiring the burdened owner to perform an act, are treated differently because they are viewed as more onerous than negative covenants. The burdens and benefits run to persons who succeed to an estate of the same duration as owned by the original parties, including in most cases an adverse possessor. Affirmatives do not run to those who acquired a lesser estate.

Homeowner’s Association exception – HA may sue to enforce the benefit of a covenant even though the association succeeds to no land owned by the original promisee because it is regarded as an agent of the real parties in interest who own the land.

In many states, the burden of the covenant will run at law (covenant may be enforced against promisor’s assignee) only if there is both horizontal and vertical privity. The running of the benefit (allowing promisee’s assignee to enforce the covenant) generally requires only vertical privity.

Touch and Concern: for the burden to run with the burdened land, the covenant must touch and concern the burdened land. Likewise, for the benefit to run with the benefited land, the covenant must touch and concern the benefited land.

More of an issue with ES

Notice: a bona fide purchaser of the burdened land is not bound at law if he has no notice of the covenant. [the same requirement is applicable to equitable servitudes].

Exam: Notice requirement will only protect a BFP for value. Someone who does not give value may be bound by a covenant at law even if he has no actual or constructive notice of the covenant.

Liability of original promisor after assignment: After the promisor assigns the land, does the promisor remain personally liable on the K? If the covenant is a promise to do or not to do some act on the burdened land, the covenantor has no liability after assignment because they have no control over the land after assignment, so it would be unfair to hold him liable for performance of the covenant by the assignee or subsequent assignees. With this type of covenant, the courts imply that the parties intended that the covenantor’s liability cease with assignment.

Both the benefits and burdens of affirmative covenants run to legal life tenants.

Covenants enforceable in equity: Equitable ServitudesAn equitable servitude is a covenant – whether or not running with the land or law – that equity will enforce against assignees of the burdened land who have notice of the covenant. The usual equitable remedy granted is an injunction against violation of the covenant.

An equitable servitude is a covenant respecting the use of land enforceable against successor owners or possessors in equity regardless of its enforceability at law.

Equity requires that: 1. The parties intend the promise to run, 2. That a subsequent purchaser have actual or constructive notice of the covenant,3. And that the covenant touch and concern the land.

Horizontal privity is of no importance and vertical privity is of no concern for the burden to run. All subsequent owners and possessors are bound by the servitude, just as they are bound by an easement.

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The benefit runs to all assignees. It may also run to adverse possessors, but this question has not been litigated. In some jurisdictions a covenant made for the benefit of a 3rd party beneficiary cannot be enforced by the beneficiary unless he can show that he acquired title to his land from the original covenantee, either before or after the covenant was made. In these situations, privity of estate may be required in equity for enforcement of the benefit by the 3rd party beneficiaries.

Although an equitable servitude started out as a promise enforced in equity, it turned into an interest in land. Unlike a real covenant, which attaches to an estate in land, an equitable servitude burdens the land itself and

not the estate. In this respect it is like an easement. ES is less of a “promise” that a RC. The right to specific performance of the K was deemed to give the promisee an interest in land. When the promise was negative, the right was thought of as an equitable interest analogous to a negative easement.

o Equitable servitudes are a right in property, sometimes called a negative easement. This property theory facilitates

the holding that 1. After the original promisor has conveyed the burdened land, the promisor cannot be sued on the covenant in law or in equity. The original promisor has lost control of the land when she assigns her entire interest, and it would be unfair to penalize her for the conduct of some future owner. Also, the original promisee may not enforce restrictions after he has conveyed the benefited land. Also, 2. If the govt condemns the burdened land, the govt must pay the benefited owner damages for loss of the servitude.

o Even though it’s a property right, it arises out of a K and some K doctrines are applicable.

K law requires consideration for enforcement of a promise and property law allows an owner of land to give another an interest in the land. No consideration is required for a gift. The real difference btw real covenants and equitable servitudes is the remedy sought. The remedy for breach of a real

covenant is $$ damages in a suit at law. The remedy for breach of an equitable servitude is an injunction or enforcement of a lien in a suit in equity.

Usually a π wants an injunction because its more valuable to them than $$. The π can, if so desired, sell the injunction to the ∆ by fixing the selling price of the injunction. The π can make his own determination of the amount of damages, whereas if the π sues for damages the jury determines the amount.

Tulk v. Moxhay – originated the Equitable Servitude Tulk sold to Elms who sold to ∆, who had notice of the covenant. ∆ proposed to build on the square and π sued for an injunction. TC granted because it was not equitable to not enforce the promise when ∆ had knowledge of restriction. ∆ paid less for the land because of the restriction. To hold the covenant unenforceable would give ∆ an advantage that he did not pay for and would unjustly enrichment.

Notion that we have attached an equity to the property and that what we’re dealing with is some sort of creation of a property interest. That passes with notice. Because your telling someone they can’t do something on their land, that’s an interest in your land.

Here, the property theory wins the day. It’s not a K based notion as to the original parties. It’s a property theory. It’s easier to sue the party who now owns the property that is subject to the additional property interest.

Why didn’t the lawyer for Tulk say “I and my successors have an easement”? Or alternatively, why didn’t Tulk sue for monetary damages? If he were successful in either of those lawsuits, he’d probably get what he needs. He had to convince the court to create something new and different. Lawyers don’t like doing that.

- No to easement because it’s a negative easement and does not fall within one of the recognized categories. Important to understand!

- No to Real Covenant because the remedy isn’t what he seeks. He wants an injunction that way if he sells it, he can set the price instead of the jury in a law court. Today in most states law and equity have merged, and a court in an equitable action for an injunction can give

damages instead. Because of this, the Restatement says it doesn’t matter if you classify it as ES or RC. The Restatement drops the terms and refers to them as covenants running with the land. Also, the Restatement applies the same rules to easements and covenants, unless there is a sound reason for differentiation.

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Equitable Servitudes and Real Covenants Compared:- Remedy: If a promisee seeks damages, the action must be brought in law and attempt to enforce the promise as a

real covenant. If the promisee seeks an injunction, or enforcement of a lien securing a promise to pay $$, the promisee must go into equity and ask for enforcement of an equitable servitude.

o Usually a π wants injunction and not damages. o Exam: If money damages are sought, you must use the RC analysis. If a party seeks an injunction, you

must consider whether the requirements for enforcement as an equitable servitude have been met. A single promise can create both a real covenant and an equitable servitude.

- Creation: In many jurisdictions an equitable servitude will be implied from a common scheme of development of a residential subdivision. A real covenant must be in writing.

- Privity of Estate: Horizontal privity of estate is not required in equity. Nor is vertical privity required for the burden to run. The court, in enforcing an equitable servitude, is enforcing an interest in land analogous to an easement, which is enforceable against any person who interferes with it. On the other hand, when a person other than the original promisee is enforcing the benefit, in some states such person must show that he acquired title to his land from the promisee, either before or after the original covenant was made.

o In contrast to real covenants, which require vertical and horizontal privity for burdens to run, and vertical privity for benefit, in most states no privity of estate is required for an equitable servitude to be enforceable by and against assignees.

- Touch and Concern and Notice: both real covenants and equitable servitudes require than the covenant touch and concern land. Neither is enforceable against a subsequent BFP without notice.

- Restatement of Servitudes: abolishes the distinction btw the two.

Creation of Equitable Servitudes: In as much as a ES is an interest in land, the SOF requires a writing signed by the promisor.

A real covenant must be in writing, and may not arise by estoppel, implication, or prescription, as can an easement.

Equitable servitudes are also interests in land but they may be implied in equity under certain limited circumstances. An Equitable servitude, which arises out of a promise, cannot be obtained by prescription. As with real covenants, acceptance of a deed signed only by the grantor binds the grantee as promisor.

Negative equitable servitudes may be implied from a general plan for development of a residential subdivision. Many courts will imply a negative servitude on a lot even though there is no writing creating the servitude on the lot. This is usually done on the theory of equitable estoppel and reliance: where a purchaser, buying a lot restricted to residential use, relies on the promise of the subdivider to restrict the other lots and makes a substantial investment, the subdivider and any assignee of the other lots are estopped to plead the SOF.

o Circumstance: if the developer has a general plan of an exclusively residential subdivision, and the buyer had notice of the covenants in prior deeds, the court will imply a covenant in the subsequent deeds restricting their lots to residential purposes only.

General plan: a court will imply a reciprocal negative servitude only if the evidence shows that the developer had a reasonably uniform general plan for development of all lots of the same character. It is inferred that the purchasers bought in reliance on the general plan and in expectation of being able to enforce subsequently created ES similar to the restrictions imposed on their lots.

The General Plan must exist at the time the developer sells the first burdened lot within the general plan. If the plan arises later, it cannot impose burdens on lots previously sold without the burden.

Evidence of general plan: a recorded plat, oral representations of developer with respect to restrictions to be imposed on the remaining land, brochures, map/tract on which restrictions appear.

A general plan may be shown by the fact that the developer inserted similar covenants in a substantial number of the deeds in the subdivision prior to the deed to ∆. A restriction after the deed to ∆ cannot be enforced.

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Example: Subdivider sells of lot 1 to A. No restrictions appear on any plat or map. Subsequently, subdivider sells off the remaining lots in the subdivision, restricting them to residential use. Lot 1 is not bound by the restrictions. If a number of lots in the subdivision are sold off before the plan arises, the court may find “no general plan” because of the apparent inequity of enforcing burdens against some, but not all, owners in the neighborhood.

Exam: Usually questions involve a general plan for an exclusively residential subdivision and a purchaser who wants to intrude with a commercial use. Enforce the negative servitude (prohibit the commercial use) if there is evidence that the developer had a plan calling for development of all the lots in the same character and the plan existed no later than the time the parcel in question was sold.

Sanborn v. McLeanIf the developer had a general plan of an exclusively residential subdivision, and subsequent purchasers whose deed did not mention the restriction had notice of the covenants in the prior deeds, the court will imply a covenant in the new deeds. General plan covenants – imposed by a common grantor (usually a developer) on all lots in a subdivision that is subject to a general development plan.

- The general plan must exist at the time the developer sells the first burdened lot within the general plan. It is not retroactive. A general plan can be shown by the fact that the developer inserted similar covenants in a substantial number of the deeds in the subdivision prior to the deed in question, but not after.

What kind of servitude is implied? A servitude similar to a reciprocal negative easement is implied. The servitudes must be reciprocal, negative or restrictive and it must be in the nature of an easement, in that it is an interest in land. Rule: If the owner of two more lots, so situated as to bear the relation, sells one with restrictions of benefit to the land retrained, the servitude becomes mutual, and, during the period of restraint, the owner of the lot or lots retained can do nothing forbidden to the owner of the lot sold. The negative reciprocal easement runs with the land sold by virtue of express fastening and abides with the land retained until loosened by expiration of its period of service or by events working its destruction. It is not personal to the owners but operative upon use he land by any owner having actual or constructive notice. It must start with a common owner. They arise, if at all, out of a benefit accorded land retained, by restrictions upon neighboring land sold by a common owner. Such a scheme of restrictions must start with a common owner, it cannot arise and fasten upon one lot by reason of another lot just because they follow a general plan. If ∆s lot is restricted, it was done so while in the hands of the common owner and neighboring lots by way of sale of other lots with restrictions beneficial at that time to it. Must ask, what lots, if any, were sold with restrictions by the common owner before the sale of contested lot?

Here, some deeds for lots expressly mentioned the grant and some didn’t. The lot in question has been transferred a number of times. The interesting thing about the deed in question is that the title didn’t show any restrictions when they researched the deed all the way back to original conveyor.

Is there some sort of a restriction on lot 86? That’s question number 1. The court says yes. Because sub-divider put restrictions that mutually benefited his property and the property he gave away. When he deeded off the retained property, the restrictions that were mutually created went with the land. The restrictions were in place on lot 86 before the lots were sold. The common owner, the grantor, signed the deed and it was accepted, therefore it doesn’t need to be written to be enforced, so we don’t have a SOF problem. The courts are going to look at the scheme, and look generally at the scheme as to what are the restrictions. Even though almost half of the deeds were not expressly restricted, the restriction was evident in the general plan.

We are talking about a property interest. Easements have their own rules, and we are in equitable servitudes and they are calling this interest a reciprocal negative easement. They are applying new rules yet treating it like an easement. This language carries the risk that this court will not apply covenant/equitable servitude principles to determine if there is a restriction and who it might be binding on.

The second issue is whether ∆ had notice, because that’s one of the requirements that you have actual or constructive notice. Implicit in that statement is that if he doesn’t have notice, even though there is a restriction on the property its not binding on ∆. “∆ and predecessors were bound by constructive notice under our recordings acts” That sentence means that he was not only supposed to look at his deed for restrictions, but he was supposed to look at his neighboring properties as well. If he looked just to his deed he would not ever find the restriction. If he looked around to his neighbors deeds he would find the restriction. What you have to do is look at the other conveyances out in that same subdivision and presumably it would be conveyances that occurred before lot 86 was conveyed. All I have to look at is those conveyed prior to original

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conveyance of lot 86. It may mean we have to look at a lot of documents. One way that there is notice of this restriction is through constructive notice in that a proper title search will note it. Note: Mr. McLean was charged with inquiry notice, beyond asking his grantor if there were restrictions (his grantor told him there were not) He was so charged because of the nature of the neighborhood. “he could not avoid noticing the uniform residence character given the lots by the dwellings, and the least inquiry would have quickly developed the fact that his lot was subjected to a reciprocal negative easement. We do not say Mclean had to ask his neighbors about restrictions, but that with the notice he had from a view of the premises, clearly indicating the residences were built and lots occupied in strict accordance with general plan, he was put to inquiry and had he inquired he would have found of record the reason for such general conformation. *this case is very important – it represents the state of the law in SC

some courts do not imply the covenant, and adhere more strictly to the SOF. In which case, ES will not be implied from the existence of restrictions on other lots in a subdivision. IF a recorded subdivision map contains restrictions on the property, which are said to be covenants running with the land, such written restrictions are enforceable by and against subsequent purchasers in the subdivision.

Using general plans to show who has the benefit: even if jurisdictions that do not imply restrictions from a general plan, a plan can be used to show who the developer intended to have the benefit of written restrictions on other lots. If there is a general plan, prior and subsequent purchasers of lots within a subdivision can enforce a written restriction on a restricted lot. It is inferred from the plan that the developer intended to convey benefit to all lots. A general plan can be used to determine who can enforce restrictions in jurisdictions that imply restrictions from a general plan as well as in jurisdictions that do not imply restrictions.

Validity and Enforcement of Equitable ServitudesEquity imposes three requirements: an Intent that the benefit and or burden run to successors of the original parties, notice on the part of purchasers of original promisor, and that the covenant touch and concern the land. In addition, vertical privity may be required in some jurisdictions for the benefit but not the burden of a covenant to run in equity.

Intent: the K parties must intend that the servitude be enforceable by an against assignees. No technical words are required and ascertain intent from the purpose of the covenant and the surrounding circumstances.

Privity of Estate: this is relevant in equity only when the person trying to enforce the benefit does not own land that was once owned by the original promisee.

o The ghost of privity (Nesponsit) – The person seeking to enforce the covenant must race his title to the original promisee. All purchasers in a subdivision can enforce a restriction imposed by the developer because they trace title from him. But a 3rd party who did not buy any land from the person imposing the restriction cannot enforce the restriction. A 3rd party that owns no land cannot enforce a restriction because the party cannot trace title to the land from the developer.

o 3 rd party beneficiary theory : in majority of states, any 3rd party beneficiary can enforce a covenant in law or equity if the contracting parties so intend. Privity of estate irrelevant.

Distinguish: at CL and in majority, an easement cannot be reserved for a 3rd party. On the other hand, an Equitable Servitude analogous to a negative easement can be enforced by 3rd parties. Seems odd, but is the law in NY.

Touch and Concern: for the burden to run with the burdened land in equity as well as in law, the covenant must touch and concern the land and likewise for the benefited land. Early cases asked whether the covenant burdens or benefits a party in the physical use or enjoyment of land, but this proved too narrow. Some covenants, particularly negative covenants, merely enhance the value of the benefited land, but they have been held to touch and concern the benefited land as well as the burdened land.

o Function of this requirement is to permit courts to stop covenants from running when the social utility of the covenant is outweighed by the fettering of the burdened property.

o Specific applications Negative covenants : covenants not to do a physical act touch and concern. These covenants affect

the burdened owner in the physical use of his land. Restrictive covenants also enhance the value of the benefited land, even though they may not affect the benefited owner in the physical use of

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his land. Covenants containing building restrictions, enhancing the value of the benefited land, have always been held to touch and concern (Runyon)

Affirmative covenants : most courts permit affirmative covenants to run both in law and equity, and are usually held to touch and concern the land. nonetheless, if an affirmative covenant imposes a substantial burden on property which receives no benefit from it and fetters land in perpetuity, a court may find it does not touch and concern.

Covenants to pay money : Covenants to pay money for some improvement that benefits the promisor by enhancing the value of his property touch and concern even though the improvements are on other land. Typically these covenants provide that the land O will pay a certain sum each year to maintain common areas. If the formula or calculating the sum is reasonably clear, a covenant to pay an annual fee is enforceable against assigns. Neponsit Case

Lien: a covenant to pay money is normally enforced by an action at law for breach of K. For an additional remedy, a deed often will retain a lien on the land to enforce the promise. If the burden of the covenant does not run at law, so that no personal judgment can be obtained against the assignee of the promisor, the land can be reached by equitable process.

Restatement of Servitudes view: supersedes the touch and concern requirement with more specific tests for unenforceability, including reasonableness

o Covenant with benefit in gross: when the benefit of the covenant does not touch and concern land (i.e., is in gross), the majority rule is that the burden will not run. The burden will not run unless the benefit is tied to land.

American Rule : Equitable Servitudes – easements in gross are recognized and the burden of the easement runs with the land. Therefore, if an equitable servitude is like an easement, the burden should run even if the benefit is in gross.

Most courts follow the English rule though, paying no mind to its basic assumption that equitable servitudes were analogous to easements: the burden of an ES will not run if the benefit is in gross. For a servitude to run, there must be both servient and dominant tenement. [Nesponsit Case]

American Rule: Real Covenants: Policies underlying the rule in equity are applicable to covenants at law. In US, if a covenant will not run in equity because the benefit is in gross, neither will a covenant run at law. [Caullett v. Stanley Stilwell]

Notice: if the assignee is a subsequent purchaser for valuable consideration without notice, he does not take subject to it. If the assignee has notice, he is bound if the servitude is otherwise enforceable – can be actual, record or inquiry

o Actual: if an assignee actually knows of the covenant in a prior deed, he clearly has notice. o Record: if the covenant is in a deed to the assignee’s lot, he has record notice. If it is in a deed to other

lots in a subdivision conveyed by the developer to prior grantees, the assignee has notice if the deeds to neighboring lots are in the assignee’s chain of title. Some courts hold that prior deeds out from a common grantor to other purchasers in a subdivision are in the chain of title of a subsequent purchaser from the developer. [Guillette]

o Inquiry: at least one court has held that a purchaser buying into a residential area where houses appear to be built in accordance with a plan should look at the other deeds out from the developer to see if any basis for an implied covenant exists. The lay of the land puts him on inquiry notice to look at the deeds of the neighboring lots (Sanborn v. McClean)

Nesponsit v. Emigrant Industrial Savings BankThis case may have been a test case. 1st case to establish that no requirement of vertical privity for Homeowner’s association. Touch and concern: General (English) rule: ordinarily an affirmative covenant is a personal, and not a real, covenant. But there are recognized exceptions. Test to find exceptions to the general rule: does the covenant impose , on the one hand, a burden upon an interest in land, which on the other hand increase the value of a different interest in the same or related land? A covenant to perform or pay for the performance of an affirmative act disconnected with the use of the land cannot ordinarily touch or concern the land in an substantial degree. Thus, unless we exalt technical form over substance, the distinction btw covenants which run with the land and personal covenants must depend on the effect of the covenant

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on the legal rights which otherwise would flow from ownership of land and which are connected with the land. TEST: does the covenant in purpose and effect substantially alter these rights? Yes, in substance and intent over form, it seems clear that the covenant touches and concerns ∆s land and the burden should run with the land. Privity of estate: An assessment covenant is an affirmative covenant and courts were wary about enforcing affirmative covenants, including those to pay $. The party seeking to enforce the covenant had not succeeded to any land owned by either of the original parties and indeed did not own any land at all. Rule: enforcement of equitable covenants rest upon equitable principles (TULK) and at times, the violation of the covenant may be restrained at the suit of one for whose benefit the restriction was established, irrespective of whether there was privity either of estate or of K btw the parties, or whether an action at law was possible.

- Vertical privity on the benefit side: ∆s main argument was that because π did not own any land which it had acquired from the Realty Co., (original covenantee), π could not enforce the covenant. Traditionally, 3rd party had standing to enforce an equitable servitude only if that party had succeeded to land from the original covenantee, that is, if vertical privity existed between them. Even a 3rd party whose express benefit the covenant was made could not enforce it if this vertical privity relationship was lacking. Nonetheless, the Court found standing where in substance, if not in form, there is privity of estate between the π and ∆.

- Negative covenants are less burdenous than imposing affirmative acts and resembles feudal service or perpetual rent.

- Recognizes that burden should run even if in gross. The court assumes this is an action in equity. What we’re asking for is money but its called an injunction for foreclose on a lien on the property. But really this is about money because that’s what the covenant was for in the first place. It’s all up to the judge. What else could this have been? A covenant in gross to the realty company or an agent thereof. You could say this is not an easement, covenant, or any of that. This is enforcement of a lien. Is this a negative or an affirmative covenant? It’s affirmative because it requires you to act, pay $. Anytime you have an affirmative covenant that creates policy problems. One thing the court has to struggle with is that in England, courts will not enforce affirmative covenants and NY also has case law that says you can’t enforce affirmative covenants. *Most jurisdictions today do not require vertical privity for enforcement of covenants in law or equity. Πs have standing based on 3rd party beneficiary K law. Does this touch and concern the land? Covenants restricting the use of land have almost always been held to touch and concern the land. These negative covenants directly affect the uses to which the land can be put and substantially affect its value. On the other hand, courts have been wary of enforcing affirmative covenants against successors. The covenant doesn’t need to physically touch the land as long as it has an impact on the land, the burdened land. It might also have to touch the benefited property. Are they talking about the burdened land exclusively or the benefited land? We don’t know. The next issue is whether there is vertical privity. On the benefited side. The π is a club, and did not succeed any title. This was an action in equity to enforce a lien. What if we wanted to enforce this at law? What if we wanted money damages. You have to have horizontal privity. Whoever Neponsit conveyed the land to first, that would create the horizontal privity. Yes we have horizontal privity, in that transaction there was a restriction. We don’t have a horizontal privity problem. The bank said, but there is no vertical privity because ∆ bought land at a judicial sale. Notes: In the US – an easement in gross can be created, and the burden will run with the servient land.

Caullet v. Stanley Stillwell In the case of ambiguity of language, covenants should not be construed to impair the alienability of the subject property. To constitute a real rather than personal covenant, the promise must exercise direct influence on the occupation, use or enjoyment of the premises. To run with land, the provision must define ins some measurable and reasonably permanent fashion the proscriptions of and limitations upon the uses to which the premises may be put. This K contemplates a single personal service upon the property, and does not affect the title. Even if we construed the deed clause to directly restrict πs use of land (prohibiting erection of a structure until such time as the owner shall permit, the clause would nonetheless comprise neither a legal restriction nor an ES because whatever the effect of the burden of the covenant, its benefit is clearly personal to the grantor, securing to him a mere commercial advantage in the operation of his business and not enhancing or otherwise affecting the use or value of any retained lands.

Although the analogy to legal easements is not made with respect to real covenants, it has been held that the policies underlying the rule in equity (where burden devalues land, public policy requires an accompanying benefit to the other land for a new increase in land value, and where the benefit is in gross, finding the owner to buy them out is more difficult than when the benefit is in the owner of neighboring land) are applicable to covenants at law. Thus, if a covenant will not run in equity because the benefit is in gross, neither will a covenant run at all.

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Where the benefit attaches to the property of one of the parties, the fact that the burden is in gross does not preclude the covenant from running with the land conveyed. When however, as here, the burden is places upon the land, and the benefit is personal to one of the parties and does not extend to his or other lands, the burden is generally held not to run with the land at law. The policy is strong against hindering the alienability of one property where no corresponding enhancement accrues to surrounding lands.

Negative Covenants Runyon v. Paley – NC case comparing and contrasting RC and ES

“Personal covenant” creates personal obligation or right enforceable at law only between the original covenanting parties, whereas “real covenant” creates servitude upon land subject to covenant (servient estate) for benefit of another parcel of land (dominant estate).

“Restrictive covenant” is real covenant that runs with land of dominant and servient estates only if subject of covenant touches and concerns land, there is privity of estate between party enforcing covenant and party against whom covenant is being enforced, and original covenanting parties intended benefits and burdens of covenant to run with land.

For covenant to touch and concern land, so that it can be classified as real covenant, it is not necessary that covenant have physical effect on land; it is sufficient that covenant have some economic impact on parties' ownership rights by enhancing value of dominant estate and decreasing value of servient estate but it is essential that covenant in some way affect legal rights of covenanting parties as landowners.

Where burdens and benefits created by covenant are of such nature that they exist independently from parties' ownership interests in land, covenant does not touch and concern land and will not run with land.

For purposes of determining whether covenant is real covenant, covenant sought to be enforced touched and concerned not only servient estate owned by parties seeking to build condominiums in violation of covenant, but also properties owned by plaintiffs seeking to enforce covenant; considering close proximity of lands involved and relatively secluded nature of area, right to restrict use of defendants' property would affect plaintiffs' ownership interests in property owned by them.

In order to enforce restrictive covenant as one running with land at law, party seeking to enforce covenant must also show that he is in privity of estate with party against whom he seeks to enforce covenant.

Where covenant is sought to be enforced by someone not party to covenant or against someone not party to covenant, party seeking to enforce covenant must show that he has sufficient legal relationship with party against whom enforcement is sought to be entitled to enforce covenant.

Party seeking to enforce covenant as one running with land at law must show presence of both horizontal and vertical privity.

In order to show “horizontal privity,” it is only necessary that party seeking to enforce covenant show that there was some connection of interest between original covenanting parties, such as conveyance of estate land.

“Vertical privity,” which is ordinarily required to enforce real covenant at law, requires showing of succession in interest between original covenanting parties and current owners of dominant and servient estates.

Plaintiffs seeking to enforce restrictive covenant as one running with land at law demonstrated existence of horizontal privity; covenants were created in connection with transfer of estate in fee of property then owned by original owners and by accepting deed of covenants, defendants' predecessors in title covenanted to use property for purposes specified in deed and thereby granted to original owner servitude in their property.

Ordinarily, parties' intent in creating restrictive covenant must be ascertained from deed or other instrument creating restriction; however, when language used in instrument is ambiguous, court, in determining parties' intention, must look to language of instrument, nature of restriction, situation of parties, and circumstances surrounding their transaction.

Covenanting parties intended restrictive covenants to be real covenants, benefit of which attached to land retained by covenantee; covenants were building and use restrictions which expressly prohibited use of property for business, manufacturing, commercial or apartment house purposes with rare exception for churches or for office of professional located in residence, and further, pertinent language of deed provided that property was conveyed subject to certain use restrictions “running with said land by whomever owned, until removed.”

Party unable to enforce restrictive covenant as real covenant running with land may nevertheless be able to enforce covenant as equitable servitude.

To enforce restrictive covenant in equity, it is immaterial that covenant does not run with land or that privity of estate is absent.

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In order to enforce restrictive covenant on theory of equitable servitude, it must be shown that covenant touches and concerns land and that original covenanting parties intended covenant to bind person against whom enforcement is sought and to benefit person seeking to enforce covenant.

Whether covenant to be enforced on theory of equitable servitude is of such character that it touches and concerns land is determined according to same principles applicable to real covenants running at law; unlike with real covenants, however, it is not always necessary to show that both burden and benefit touch and concern land but rather, it is only necessary to show that covenant is of such nature as to bind parties sued and to be enforceable by party suing.

Touch and concern element for person seeking to enforce restrictive covenant as equitable servitude need only be established where covenant is sought to be enforced either by or against successors in interest to original or named parties to covenant.

Where covenant is sought to be enforced as equitable servitude by and against parties neither of whom were covenanting parties or named beneficiary, party seeking to enforce restriction must show that covenant touches and concerns land of both.

Party who seeks to enforce covenant as equitable servitude against one who is not original party to covenant must show that original covenanting parties intended that covenant bind party against whom enforcement is sought; to meet requirement, party seeking to enforce covenant must show that covenanting parties intended that burden run to successors in interest of covenantor's land.

Restrictive covenant is not enforceable, either at law or in equity, against subsequent purchaser of property burdened by covenant unless notice of covenant is contained in instrument in his chain of title; actual knowledge, no matter how full and formal, is not sufficient to bind purchaser with notice of existence of restrictive covenant.

Negative covenants: covenants not to do a physical act (not to erect commercial buildings) touch and concern. These covenants affect the burdened owner in the physical use of his land. Restrictive covenants also enhance the value of the benefited land, even though they may not affect the benefited owner in the physical use of his land. Covenants containing building restrictions, enhancing the value of the benefited land, have always been held to touch and concern. *in NY, whether vertical privity is required for the benefit of a restrictive covenant to run in equity is unclear. (Remember, vertical privity of estate is not necessary for the burden to run in equity; all we are talking about here is whether the benefit of a K is enforceable by persons not in privity of estate.) *NC case – you need vertical privity for both the burden and the benefit to run.

The lawyers brought the action in law and in equity. They want the covenant enforced at law, but if they can’t win there they hope it will be enforced as an equitable servitude. What about the ES? There are three basic requirements for the cov. to be enforced by either Runyons or Ruth. Touch and concern the land, intent, and notice. Sometimes the t n c requirement must touch both the burden side and the benefit side.The court talks about intent as though it is privity of estate. Intent must be shown by the fact that the original parties intended benefit to run to Runyons, or the Originals intended the burden to run – which can be shown by general plan, succession of interest of benefited property, or express statement. The succession of interest is a problem here because the covenant was created after Ruth sold land to Brughs.

*Why do I worry about horizontal privity as a lawyer?

If there was a lawyer involved in the 1960 transactions, then the lawyer committed malpractice – Why? Because if the covenant was to benefit a third party not involved in the conveyance in which the covenant was created, then the intent to benefit a 3rd party needs to be expressly mentioned in the covenant. To avoid this 3rd party beneficiary, the lawyer should have conveyed the land to the Brughs first to create the covenant with Brughs servient and Ruth dominant. Then when Ruth conveyed some of her land back to the Runyons, the covenant would have been attached to the land and Runyons would be able to enforce the covenant since they acquired part of the dominant tenement – in which case there would be horizontal privity and vertical privity. Even though the Runyon’s only got part of Ruths land, privity would exist since Ruth’s whole tract would be dominant at time of creation of covenant.

- Runyon argues that the three party swap is enough to show intent. But no, just reverse the order of the conveyances and the Runyon’s would have succeeded in Ruth’s land which retained the covenant.

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Also, notice is required for enforcement of covenants at land and equity. Here, the only kind of notice that works here is constructive, which means it has to be recorded at the courthouse i.e., it must be contained in an instrument in his chain of title. We recorded too late, about 16 years after the conveyance. The fact that I’m enforcing an action at law, maybe I can get the equitable relief because law and equity have since merged. So Williams might be able to enforce the covenant at law and receive the injunction based on the merger of law and equity and also because the opinion said that she too had an equitable servitude – so she could enforce that one instead of the damages at law. That’s why lawyers bring actions both law and equity.

One of the reasons Burkhard wants us to know Runyon case, it gives us a compare and contrast a la North Carolina, but its reasonably similar to what they describe in the text. Thou shall not build condos on property, neighbors want to stop them from building. To enforce covenant against purchaser of restricted property, must touch and concern, h privity and v privity and intent. And then it explains what some of those terms generally mean. T and C: both sides for a real covenant but it must have some economic impact. Must have H Privity – means grantor/grantee relationship, then later in opinion it waffles on that, and talks about some connection in interest. Then they talk about V privity – different from text they say that there has to be v privity on both sides. They also talk about intent – both intent of burden and benefit to run. Nothing in Runyon case that talks about notice – but everyone assumes that its there.

With respect to enforcing as ES – must have T and C, intent to burden particular properties and benefit. Again, they talk about notice. The court says there is clear intent to benefit at least one of the properties. But there is no intent to benefit the main π. What they’re really talking about is if the document actually said the Runyon piece of property could enforce this then fine, but since the Runyon property had been sold first, it therefore was not part of the scheme that would be entitled to enforce. Really they are talking about a form of V privity

Scope of Covenants A covenant will be construed so as to carry out the intention of the parties in light of the purpose of the covenant. Single-family Dwelling: covenants in residential subdivisions usually prohibit use of the property except for a single-

family dwelling. But what is that?1. Group homes : the most recent cases take a functional approach and ask if the particular group home functions with a traditional family housekeeping structure and atmosphere. Public policy favors including in residential settings group homes for ppl with disabilities.

FHA: prohibits discrimination against handicapped persons in the sale or rental of a dwelling. Discrimination also includes refusal to make reasonable accommodations when necessary to afford handicapped ppl equal opportunity to use a dwelling. Enforcement of a residential covenant against a group home for the disabled – even if the term “single family” is construed to exclude group homes – is a violation of FHA (Hill v. Community)

Handicap: a physical or mental impairment which substantially limits one or more of a person’s major life activities. Exception – current drug users/addicts.

2. Racial restriction : a covenant prohibiting use of the property by a person of a particular race cannot be enforced by the courts. Judicial enforcement of racial covenants is state action which deprives a person of equal protection of the laws. Racially discriminatory action by E,L or J branches of the state is forbidden by constitution. Thus, although the covenant is not void, it cannot be enforced. (Shelley v. Kramer)

In SC, most litigation as to scope has risen in one scenario – can it be used to ban the construction or deposit of double wide trailers on the lot? When its restricted to residential does that mean you can’t have mobile homes.

Hill v. CommunityΠs brought action to enjoin from group home when they found out the occupants all had aids. TC finds there is a violation of the covenants and no violation of FHA. There are two issues with respect to the covenant – one is does the restrictive covenant apply to group home in that operation a group home constitutes residential use and qualifies as single-family as required by restriction? The New Mexico Supreme Court found that group home was not a violation of “single family” covenant and the restriction was in violation of the FHA. This is not a business – guided by the SC Supreme Court – and find that this is residential in nature and not of a commercial natures. One of the problems we have as a lawyer, we don’t know when these covenants were imposed. We have to anticipate that circumstances would change in the future. If you would ask the developer, he would have said that

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group homes are of commercial nature and we don’t want those. So you as a lawyer have the job of trying to come up with language that not only restricts against what’s known today but what might be created in the future. Traffic almost always somehow fits into these arguments. The court looks to FHA just to touch on the important issue: need discriminatory intent, disparate impact and reasonable accommodation. Discriminatory intent: shown if the handicap of a protected member was in some part the basis for the policy. Impact is a balance btw the πs needs and ∆s needs. People with AIDS are considered handicapped under FHA. Reasonable accommodation: neighbors would be required to accommodate the group, and the non-enforcement of the restriction won’t burden the neighbors in any way. SC – court cited SC as pioneer for group homes. If the prime purpose and function of the family house is to operate as

a family unit, then the managerial and admin stuff is collateral.

Shelly v. KramerCovenant to restrict black people is not void, but its not judicially enforceable because that would violate the 14 th Amendment. Sometimes people make conveyances defeasible based on racial discriminations. – maybe those are valid because they automatically revert and do not take state action.

A deed containing a restrictive covenant against a particular race or religion or ethnic group violates the FHA, which prohibits the advertisement or publishing of any statement indicating a racial, religious, or ethnic preference with respect to the buyer of a dwelling.

Architectural controls: many modern subdivisions contain covenants that every building to be erected shall be approved by an architectural control committee. The standards governing approval may be vauge, but most courts uphold this, but the Board must act in good faith.

Termination of CovenantsCovenants, like easements, can be terminated in a number of ways including expiration, release, abandonment, merger, estoppel, prescription and condemnation. They also may be modified or terminated even without unanimous consent. Beyond these, courts may modify or terminate covenants on the basis of changed conditions.

a. Merger: if the title to the benefited and the title to the land burdened come into the hands of one person, real covenants and ES, like easements, merge into the fee simple and cease to exist. Sometimes that doesn’t work if the buy-backer was the developer.

a. Neighbors may grant a release of the covenant. There’s an argument in the case that the covenants may have already been breached.

b. Equitable Defenses to Enforcement: for an equitable servitudea. Estoppel: in a benefited party acts in a way to lead a rpp to believe that the covenant was abandoned,

and the burdened party acts in reliance, benefited party may be estopped to enforce the covenant. i. In SC, covenants have an expiration date.

b. Relative hardship: as a general rule a court of equity may deny an injunction when the hardship to the ∆ is great and the benefit to the π is small.

c. Change of conditions in neighborhood: the most frequently asserted defense to equitable enforcement of a servitude is that the character of the neighborhood has so changed that it is impossible any longer to secure in substantial degree the benefits of the restrictive covenants. If shown, equity will refuse enforcement.

i. However, for the defense to succeed, most courts require either that 1. The change outside the subdivision must be so pervasive as to make all lots in the subdivision unsuitable for the permitted uses, or 2. Substantial change must have occurred within the subdivision itself. Change outside that affects only the border lots is not sufficient to prevent enforcement of the covenant. Western Land

Western Land Co. v. TruskolaskiEven though nearby roads may become heavily traveled, restrictive covenants are still enforceable if the single-family residence character of the neighborhood has not been adversely affected, and the purpose of the restrictions has not been thwarted.

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Tulane street has been terminated. If you represent developer, what might you worry about with respect to the fact that Tulane St. has been abandoned? It seems in the last paragraph as though abandonment requires general consent by property owners in the subdivision – did he have this consent when he “abandoned”. I don’t think a subdividor can change the status of the neighborhood without consent of the lot owners. The subdivider doesn’t own all of the land to abandon. Who owns the street? Maybe it’s public dedication, the city dedicated to the public’s use and the public accepted it. (close – not quite). If it had been abandoned but already built as a road, then could the city re claim it? I think it was an easement. Maybe the purchasers relied on the recorded plat that showed the street in the neighborhood, which may imply an easement at the time of severance (if, before building the street, the subdivider conveys a lot by reference to the plat with pic of street, the requirement of quasi-easement waived. The purchaser receives an easement implied at least in such streets as abut the purchasers land bc they buy in reliance and pay price reflecting road) The change of conditions doctrine is a stringent one. Issue: Are the restrictions still enforceable when the area around the subdivision has changed drastically commercial?a) Rule of Law: As long as the single-family residential character of a neighborhood has not been adversely affected

and its purpose thwarted, a restrictive covenant is still enforceable. The restrictive covenant will still be enforced if it is of value to the homeowners. The court also deems the restriction to not have been abandoned. Actions that indicate abandonment must be so general as to frustrate the original purpose of the agreement.

i. The court points out that zoning regulations are one set of rules and private covenant are another set of rules. Changing one set of rules does not automatically change the other set of rules. That is a uniform sort of approach. Typically, zoning ordinances, as you go up the chain of more objectionable uses, usually the less objectionable are still permitted.

ii. The key distinction – are the changes within the scheme or outside the scheme. That is very important. If the changes are within the subdivision as opposed to across the street, it makes all the difference in the world.

Abandonment: must be so general as to frustrate the original purpose of the agreement. Even if all of the alleged occurrences and irregularities were construed as violations of restrictions, they were too distant and sporadic to constitute general consent by the property owners in the subdivision and they were not sufficient to constitute an abandonment or waiver.

He also argues that some of the lots don’t meet the restriction, yet he was the one that made that mistake in making the lots too small – so that doesn’t justify a waiver. The question – is there any property that is unsuitable for residential purposes?

A zoning ordinance cannot override privately-placed restrictions and a court cannot be compelled to invalidate restrictive covenants merely because of a zoning change. The outcome in this case mirrors SC cases. What if a court would come in and say yes we are going to waive the restriction, or we may not order a waiver but we’re going to suggest that you’re only remedy is in the nature of monetary relief. There are number of things a court might do. Maybe say, okay developer you can have your shopping center, but you have to award each of the homeowners % in the increase in the value of the land. Option to deny the shopping center, but only if the homeowners pay damages to developer. Thirdly, you can allow shopping center, and you can award to each lot the decrease in property value. But again, generally speaking, the result in this case is what you would expect. When this case ends and the court says no, no shopping center. What happened? The owners let them build that shopping center. You get the impression that they negotiated a low-traffic shopping center. The problem is you have to get every single owner to sign on. You have one neighbor who isn’t interested, then you have problems. You see this more in zoning squabbles than you do in covenant squabbles.

c. Abandonment: an easement burdening other land may be abandoned by the holder of the easement. But an affirmative covenant cannot be abandoned. One cannot walk away from an obligation and terminate liability. This means that affirmative covenants may be onerous, because all of the landowner’s assets may be reached to pay the obligation. Not usually a strong argument, more so in easements. [Pocono Springs] RE allows when the affirmative covenants become perpetuities or excessive, but doesn’t count for community association or reciprocal obligations imposed on common plan.

d. Eminent Domain: when the govt takes title to the burdened land and condemns the covenant as well, the majority rule is that the govt must pay damages to the owner of the benefited land. The measure of damages

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usually is the difference in value of the benefited lot with and without the benefit of the covenant. The underlying theory is that a real covenant or ES is a property interest like an easement, and it must be paid for when removed by the govt.

e. Laches: no one complaints about a breach, if you didn’t sue when it was first put up maybe the court won’t enforce.

Rick v. West – private covenants will not be un-enforced due to public land use changes (zoning). Rick owned 62 acres which he subdivided in 46. A declaration of covenants, restricting the land to single-family dwellings, was filed in the courthouse. In 56 – Rick sold to Catherine West 1/2 acre lot, upon which she built a house. In 57 – the land was zoned for residential use, then π contracted to sell 45 acres to an industrialist, the sale being conditioned upon rezoning of the tract to industrial use. The town board rezoned, but West would not release the covenant in her favor and the sale fell through. In 59 Rick sold remainder to the πs. In 61 πs sold 15 acres to a hospital, and again West would not release her covenant. The πs sued, claiming the covenant was no longer enforceable because of change of conditions. TC for ∆, stating no evidence of changed conditions in the general neighborhood none at all within πs tract. NY Supreme Ct: Rick owned the land free of restrictions, and he chose to place the residential restriction on the land. ∆ relied upon them and built a home. It is not a question of balancing equities or taking into account the advantages a hospital would have on the area. It’s up to the ∆ to refuse to release the covenant and she has chosen to do so, and the law will allow her that refusal.

•Restatement (Third) of Property, Servitudes, § 7.10: If changed circumstances make purpose of covenant impossible, court may modify or terminate the covenant.Notes and Questions: In some states (NOT SC) statutes adopted to limit remedies on old covenants. Legislature cannot get rid of covenants b/c that would be taking, but can limit remedies

Pocono Springs v. MacKenzieAffirmative covenant, such as to pay money, cannot be abandoned. One cannot walk away from liability and terminate the covenant. Abandoned property – property to which an owner has voluntarily relinquished all right, title, claim and possession with the intention of terminating his ownership, but without vesting it in any other person and with the intention of not reclaiming further possession or resuming ownership, possession, or enjoyment• Possession presumed to be with record titleholder.• Perfect title cannot be abandoned.

Property owners want to abandon their land because they think it is now worthless. They do not want to pay the association fees. Court says that you cannot just abandon it as long as you still have title. The property owners seem stuck with this property.

How do you advise your client? You can transfer title to an entity that has no assets. The author says, what you do is get a deed, don’t put anyone’s name in it, you find a homeless person and say I’d like to give you a piece a property.

Termination by CondemnationIf govt condemns an existing easement or the servient land so as to destroy an existing easement, the govt must pay compensation to the easement owner. If the govt uses land in violation of a restrictive covenant, the large majority of cases hold that the government must pay damages to the landowners having the benefit. Similarily, if the govt condemns land on which is an affirmative covenant to pay money, the govt must pay the beneficiary the loss of the benefit.

Common Interest CommunitiesAlmost every state has adopted a statutory scheme for organizing common interest communities which require a declaration of rules which must be disclosed. In most CIC, a homeowner’s association enforces the servitude set forth in the declaration establishing a CIC.

The distinctive feature is the obligation that binds the owners of individual lots or units to contribute to the support of common property, or other facilities, whether or not the owner uses those activities or agrees to join the association.

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Condominiums: Each unit in a condo is owned separately in fee simple by an individual owner. The exterior walls, the land beneath, the hallways, and other common areas are owned by the unit owners as tenants in common (no right of survivorship, no 4 unities). Because each unit is sold separately, each owner obtains mortgage financing on its own unit. Real estate taxes are assessed or allocated to each unit separately. The failure of one unit owner to pay mortgage or tax does not jeopardize other units.

The declaration of condo filed before the first sale is made, will provide for an association of unit owners to make and enforce rules, to manage common areas and set maintenance charges. Each purchaser, by accepting a deed, becomes an association member and must abide by its laws.

Each O is liable for a monthly charge and the documents fix the fraction of each unit owner’s pro rata burden of common expenses.

In these communities, any requirement of vertical or horizontal privity is met because the original purchasers are in privity with the developer and subsequent purchaser are in privity with the original purchasers. Any requirement that a covenant touch and concern the land is usually satisfied.

Negative covenants restricting use are almost always held to touch and concern, as are affirmatives to pay dues to a homeowners association.

But because sometimes this power can adversely affect the interests of individual members, courts have been called upon to determine whether individual members shall be protected from imposition by those in control. The emerging issue is by what standards the CIC rules and regulations should be judged.

Essential features: o Unit ownershipo Common areas with no right to partition and the common areas so long as the structure remains intact. A

nonexclusive easement for entrance and exit and for support, through the common areas, is appurtenant to each unit.

o Financing: though a separate mortgage.

Creation of Condominium: Declaration of condo or master deed: A condo is ordinarily created by a declaration r master deed stating that the

owner is creating a condo to be governed by the provisions of the state condominium act. Most states require that the declaration be recorded in the county recorder’s office. The declaration may contain many details of the organization of the condo, or, these may be set forth in separate bylaws signed by each unit owner at the time of purchase of the individual unit. The declaration and bylaws attempt to solve in advance problems that may arise from condo ownership.

o Owner’s association: all owners of unit are members of the owners association. An elected board of directors runs the association.

o Management: board can manage or hire someone. o Owner’s fractions

Rules of conduct: The originating document (declaration, master deed) may provide for certain rules of conduct. Or the promulgation of rules may be left to subsequent action by the membership association or board. Generally, the test of validity is “reasonableness”, but courts are moving toward applying different standards of judicial review.

o Restrictions in originating documents: restrictions appearing in the originating documents have a very strong presumption of validity. The trend is to strike down these restrictions only if they are arbitrary or violative of public policy or a constitutional right. Why? Because buyers voluntarily agree to be governed by these terms when they buy in and are entitled to rely on the enforceability of restrictions in an originating document. [Nahrstedt] – reasonableness must be determined by reference to common interest development as a whole and not by an individualized analysis of one home owner’s situation.

o Restrictions subsequently adopted must be reasonable. Here, courts may balance the importance of the new rule’s objective with the importance of the individual interest infringed upon.

Nahrstedt v. Lakeside Village Condo Association, Inc.The ban on pets created an ES, and therefore was governed by the reasonableness requirement of statute. Π sued to prevent ∆ from enforcing restriction against having pets in condo because it was ‘unreasonable’.

- She also argues is that she had no notice, but she automatically consented Holding: the reasonableness of a condo use restriction is to determined not by reference to facts of particular case, but by reference to the common interest development as a whole.

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When a restriction is contained in declaration and is recorded, it is presumed to be valid and will be enforced uniformly against all residents of the CIC unless the restriction is arbitrary, imposes burdens on the use of lands if affects that substantially outweigh the restriction’s benefits to the developments residents, or violates a public policy. The Legislature passed a statute that said the restrictions are enforceable in a recorded declaration unless unreasonable. Unreasonable is 1. arbitrary, 2. against public policy and 3. imposes an excessive burden. What that says is that homeowner, you have a tough fight to show that this should not be enforced. It puts a burden on the homeowners when complaining about this stuff.. It promotes stability, reduces the legal fees of the organization. So many of these issues may be fact-intensive, and it takes that off the table.

When focusing on the reasonableness, you have to focus on the effect on the project as a whole, not on the individual homeowner. It makes it more difficult to win.

o Is this something that’s in the declaration? In the constitution of the project? Or is this a rule that the board has adopted.

- When enforcing ES, courts are generally disinclined to question the wisdom of agreed-to restrictions… this rule does apply when the restriction does not comport with public policy. Equity will not enforce any restrictive covenant that violates public policy. Society is founded on expectation of writings, therefore written rules give buyers reliance. Courts should

rarely intrude in the internal rules of these private associations, and then only when subsequent regulations adopted by the association board are unreasonable.

Dissent: found the restriction arbitrary and unreasonable. The substantial benefits derived from having a pet and the undue burden on the use of property imposed outweighs whatever benefit the restriction may serve. It certainly does not promote health like the majority said. Majority takes refuge behind the presumption of validity. Inquiry should start with the evaluation of the interest that will suffer upon enforcement. Validity is all that majority considered.

- Unlike most activity restricted by Condo’s this one is strictly confined to the owner’s interior space and does not invade other units or common areas.

3 Approaches to determining enforceability:If in constitution: reasonableness in terms of its effect on the whole projectReasonableness Rule: (If an enactment of the board) Reasonableness test with burden being on board to determine

whether reasonable. The court must evaluate the merits or wisdom of the board’s decision. There is a third approach to determining enforceability: The business judgment rule prohibits judicial inquiry into actions of corporate directors taken in good faith and in the exercise of an honest judgment in the lawful furtherance of corporate purposes. The board must exercise its discretion, upon reasonable investigation, in good faith and with regard for the best interests of the CIC and its members. There is a suggestion that this rule might not be as frequently applied with respect to covenants. Maybe what its applied to are decisions that relate to covenants. This only applies to decisions of board, and not on new restrictions created by the board.

SC Case – back when case was decided the question came up whether or not the board determined that they needed some serious renovations. If we do the renovations, everyone must pay and there’s going to be an assessment per unit. The voted, the bi-laws provided that 60% of unit owners must approve an assessment unless it was an emergency. If emergency, only 51% had to vote yes. The vote was 57%. The court applied the business judgment rule. Pg 810-11

NY’s Cooperative ApartmentsTitle to land and building is held by a corporation; the residents own all the shares of stock in the corporation and control it through an elected board of directors. Each resident has a long term renewable lease of an apt unit. So residents are both owners of the cooperative corporation and tenants of the corporation.

Entire project is normally subject to a blanket mortgage. Each is liable for mortgage payment Repairs within each apt. is the responsibility of each tenant, and those to building are responsibility of the

corporation.

Some CIC provide municipal services. Should they be treated as a state agency?SC Condo Statute: Horizontal Property ActYou get two things, you get the individual ownership of the particular apt in a building AND the common right to a share, with other co-owners, in the general and limited common elements of the property.

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The notion is, is that you own the interior space. The exterior construction are part of the common area. A lot of condos has another layer on top of them. Not only is a particular unit being owned as a condo unit, but it may be broken down into ownership into a timeshare context.

The Land Transaction

Intro to Buying and Selling Real EstateBuying real estate is a two-step process. First, a K for the sale is signed by the buyer and seller. Then, after a couple of months, the closing takes place. At the closing, the seller delivers a deed to the buyer, and the buyer hands the seller a check for the purchase price. This two-step process is necessary because the buyer - after signed the K but before paying the purchase price - needs time to check out the seller’s title, to arrange financing, and to take steps to move onto the premises.

Real estate Ks are almost always executory, meaning that title is not transferred immediately upon signing the agrmt, because both buyers and seller must do certain things during the time btw the K and closing. This is when problems typically arise. During this time, either party may wish to rescind the contract, order specific performance or sue for damages for a breach. Also, the doctrine of equitable conversion may determine who bears the loss if the property has been destroyed.

The contract will set forth the legal description of the property, its price, provision for money deposit and the date for the closing or settlement (the transfer of title).

The buyer will need to obtain a title search to satisfy herself and her lender the seller can covey good title to the property, which is conducted by a title company or attys.

Title company will record the deed and will also issue a policy of title insurance, which assures the lender and the buyers that they have good title to the property, and which promises to defend against any adverse claims.

One thing you have to understand as a lawyer, is the quality of the estate the purchaser is buying. In SC you always have termite inspection. In a real estate transaction, there is one event that is more important that any other, and that is the contract. The contract sets the deal. Whatever you agree to in the K, you are stuck with it and everything else flows from the contract.

o At the closing, another party may be represented – the mortgagee. To pay for the property, the buyer may have secured a purchase money mortgage, or the seller may be previously mortgaged the property. In any case, remember that a mortgagee has a major interest in the land.

o In most instances, a title insurance co will record the deed and mortgage at the clerk’s office. The company will issue a policy of title insurance which assures the lender and the buyers that they have good title to the property, and which promises to defend against any adverse claims.

o After closing, questions may arise as to the seller’s liabilities if title proves defective or if the building proves defective. There are certain seller’s warranties contained in the deed.

15: The Deed – the easement you’ve ‘accepted’ by signing the deed may not interfere with use but it’s there, and you waive you’re right to complain about it. Only recorded covenants are subject. It’s not bad, but we could make 15 better. It doesn’t even say we get a fees simple absolute title. 16: SC will always have a ‘binder’ – a title insurance policy. The way you read the read underline part – when I get a title commitment, that has a schedule B, that says we the title insurance company will not insure the following problems: blah blah. If the title discloses un-permitted exceptions, and figure out what the title insurance company will or won’t insure in paragraph 15. If there are problems disclosed, and they are ones that would allow buyer to back out, then seller shall remove said exceptions or encroachment or buyer can deduct from price. – maybe the title insurance company is willing to insure something that I don’t want to take. I may want property in a certain estate.

o When you sign the K, you have sealed the deal and you can’t change your mind later when you realize there is a problem covenant, this all needs to be taken care of in the K. One concern, is that if you buy a house in a well established subdivision, its not an issue. If you buy property in a development area, the question is can my realtor really advise me as to the nature of covenants and easements.

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BrokersReal estate brokers are often hired by sellers of property to attract prospective buyers and facilitate real estate transactions by marketing a seller’s property, listing residential properties on MLS, negotiating purchasing agrmt, etc. In a listing agrmt, the seller authorizes the broker to locate a buyer on the seller’s behalf, and if the property sells, to collect a commission out of the purchase price. Traditionally, only sellers hired brokers, but recent decades have seen an interesting development: the increased use of buyers brokers. To major issues involving brokers are:

o When commission earned: traditional rule – broker entitled to a commission if she produces a customer ready, able and willing to buy on the terms and for the price set by the seller in the brokerage contract. Most courts have abandoned this traditional rule and hold that the broker earns a commission only when the buyer completes the transaction by paying the purchase price. If sale falls through due to buyers default, the seller is not liable to the broker. On the other hand, if its sellers fault, then he is liable to the broker.

o Practicing Law: because brokers draft contracts of sale, which change the legal relationships of the parties, the broker’s work borders on the practice of law. Courts say that brokers can prepare simple real estate contracts but must refrain from inserting provisions in a K that require the exercise of legal expertise (the legal effect of detailed financing provisions usually requires the advice of a lawyer) a broker who practices law without a license may be liable in damages, enjoined, or prosecuted.

Licardi v. BlackwelderLicardi’s are the sellers. What is the relationship between Licardi and Blackwelder. Schwarz is the listing agent, and he enlists ∆ to help him sell the property, so ∆ is technically the sub agent. The sub agent has the same duty as the broker. Agents owe fiduciary duties to their principals, and so do subagents. The sub agent bought the property itself for a very low price, and they could have sold it to someone else, even to themselves, for a lot more. There is a huge problem when the broker is the buyer and the sellers don’t know that. That in and of itself is a problem. ∆s bought property for less than the asking price, and then immediately soled it for a huge profit to a client they already knew was interested in the land, and could have sold to for the πs.

o A real estate broker is a fiduciary, and is required to exercise fidelity and good faith, and cannot put himself in a position antagonistic to his principles interest. A subagent of the broker is under the same duty. This good faith requirement places him under a legal obligation to make full, fair and prompt disclosure to his employer of all facts within his knowledge which are, or may be material to sale, those which might affect his client’s rights and interests, or his action in relation to the subject matter of the employment. Broker has a duty to tell seller of a more advantageous deal, and a failure to do so renders the broker liable for whatever loss the latter may suffer as a consequence thereof.

Listing brokers contract with the seller to sell the property, represent seller. Selling brokers introduce buyers to seller’s property. In the traditional regime, brokers represent sellers; this is the case as to listing brokers, who contract w the seller to sell the property, and selling brokers, who introduce the buyer to the seller’s property. By entering into a listing contract with the listing broker, the seller empowers the broker to act as her agent in selling the property.

- Selling brokers have a more indirect relationship with the seller, and receive their compensation by splitting the listing broker’s commission. Commonly a prospective buyer initiates a relationship with a selling broker, who then introduces them to sellers and listing brokers. They often work with prospective buyers over long periods of time and develop personal relationships with them.

- A listing brokers sole duties owe to the seller, and the selling broker is a subagent of the listing broker (and though buyers often think the selling broker is representing them, their legal relationship is to the seller). Brokers owe their principle, the seller, a duty of good faith and must work entirely on behalf of their principle.

- If you decide to buy a house, you go to a company and you find someone to work with you to help you buy a house, you as the buyer and that person you have found is your realtor to help you buy that house, there is an interesting relationship created under the historic laws of agency. The buyer is not represented in this transaction, the realtor is really representing the seller. This is the historic rule, and its been like that forever. Buyers don’t know about this.

o This is not always the case. In SC the realtors decided they needed a new statute that would govern their operations. They convinced legislatures to adopt statutes – when you work with a real estate agent, they have to give you options as to what relationship you will have. If you’re the seller, you want a seller’s agent and there is a disclosure document that explains what that all means. You can also have a dual agent. On the other side, more importantly, the statute authorizes a buyer’s agent. The real estate

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company has to tell you that here are the options, you retain us to help you, you can enter into a buyer-agency relationship, and if you do that the agent owes you fiduciary duties not the seller. There are some limitations, but it confirms what most people have always assumed that the broker is working for me. The duel agent works for both the seller and the buyer. ( tell clients never to do that ). The problem with the statute, is they added something for themselves. It provides a number of things, and purports to set forth that the realtor no matter who they represent owes their client fiduciary duties. Then it says *as defined in the statute. What the realtors were able to do is convince the legislature there were lots of things they weren’t responsible for. There are a lot of provisions that says realtors aren’t responsible for certain things. For example, the statute imposes no duties to inspect.

Brokers owe their principals certain fiduciary duties and are expected to adhere to high ethical standards. While they deal with both sellers and buyers, they must work entirely on behalf of their principles. Specifically, brokers owe their principals the fiduciary duties of loyalty and good faith, and their actions cannot diverge from their client’s interests and expectations.

- Including an obligation to maximize the sale price, and selling brokers have the duty to report to the seller any information that the buyer shares with the selling broker. Brokers who breach their duty of loyalty and good faith risk losing their license and risk financial liability as well.

The central problem in the traditional brokerage arrangement derives from sub-agency. Since the listing and selling broker are both the seller’s agents, the buyer lacks representation in the deal. The sub-agency relationship can be misleading because, as mentioned above, buyers often mistakenly believe that the selling broker is working on the buyer’s behalf.

Alternatives to traditional brokerage arrangementsThe majority adhere to traditional arrangements.

Buyers brokers: recent but common – prospective buyers hire their own agents to help conduct their search for real estate. They owe fiduciary duties to prospective purchasers. They do searches, review past sales, shows buyers property, help arrange for inspections, prepares offers and counteroffers, facilities consultations with other experts, and assists buyer in escrow process.

o Prospective buyers seldom compensate buyer’s brokers directly. Instead, they typically share commission earned by the listing agent when the property is purchased. However, since buyers brokers are not in privity with the listing broker or the seller, listing agents are not compelled to share their commissions.

o Buyers Brokers might be more economically efficient in getting the buyers the best deal instead of the sellers.

Dual agents: when both the buyer and the seller hire the same person. Owes both the buyer and the seller the same duty of loyalty and good faith. This can be risky because the broker cannot be exclusively loyal to one party. Must many states permit this. Disclosure requirements: the law in some states requires brokers to disclose to buyers, in writing, that they are the seller’s agent and not the buyer’s. the purpose is to make sure that buyers understand whether their broker represents them or the seller. In many states, brokers must disclose to the buyer any material defects known by the broker and unknown to the buyer.

MLS is the chief method through which the listing agent markets property – only available to brokers and agents and is all on one database.

- Raises anti-trust concerns because only licensed agents can use it and hinders others from conducting business. May be seem as an illegal restraint on trade.

Economics of real estate brokerage:Brokers exists because there is a scarcity of info in the market for real property. Sellers and buyers are sporadic actors in the business, getting in and out quickly. Each piece of property is difference and takes a lot of time to collect info regarding the market. The value of each transaction is so high, it makes sense to have experts handle most of the behind the scenes work.

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Types of listings:A listing is an employment K btw a real estate broker and a seller. The contracts are usually in writing. If the broker satisfies requirements, the seller pays the broker a commission - % of price of property sold for.

Open listing: least protective listing that a broker can secure, because the seller retains the right to sell the property herself or use a different broker without paying the open listing broker a commission.

Exclusive agency listing: permits only one broker to sell the property for a specified period of time. Brokers prefer this so they do not have to compete during exclusivity. Agent gets commission if she or another agent secures the buyer. This may appeal to owners because an owner can avoid paying the exclusive agent a commission if the owner directly sells the property herself.

Exclusive right to sell listing: most protective listing that a broker can secure. The owner must pay that broker if any buyer purchases the property during the specified duration, no matter who found the purchaser. Majority.

Unauthorized practice of law: Traditionally, brokers have been prohibited from drafting legal documents, offering legal advise, or carrying out property closings. In many jurisdictions, brokers are allowed to fill in the blanks for form contracts on the ground that such acts are incidental to broker’s usual tasks. Advocates of less atty involvement say that it reduces transaction costs, but only the atty’s are properly trained.

In SC – the Bar has standard forms (not contracts) and we may see some standardization. It’s a mess right now. It is very controversial because usually its best to hire an atty to negotiate a purchase and sale agrmt, but in some states brokers are permitted to provide the services.

In SC, title search is done exclusively by lawyers. Commission: almost always, even in SC with buyers and sellers agents, they still split a commission, and that commission is almost always paid by the seller. Once the K is signed, the basic rule is that assuming its enforceable, the broker is entitled to be paid them, dispute default. They never ask for the money until the closing, but where this comes up is when something goes wrong btw signing K and closing.

- It is to the realtors advantage to have this clause in there, but as lawyers we want to get rid of this clause. Who is writing the K? the realtor. Who are they working for here? Clearly themselves. Sellers can make commission conditional on actual sale if you contract around this. HIGHLY recommended.

- A potential problem arises as the end of the agrmt draws near. Agent might be quick to make a sale to get her commission, or may hold out in hopes of renewing her contract and getting the best price.

State v. Buyers Service – Lawyers Role in South CarolinaThe Supreme Court held that: (1) company's conduct in providing reports, opinions or certificate as to status of titles to real estate and mortgage liens constituted unauthorized practice of law; (2) action of preparing documents affecting title to real property constituted unauthorized practice of law; (3) handling of real estate closings and mortgage loan closings constituted unauthorized practice of law; and (4) physical transportation or mailing of documents, when occurring as part of real estate transfer, constituted the unauthorized practice of lawWhat only lawyers can do: prep deeds, mortgages, notes and other legal instruments related to mortgage loans and transfers of real property. If I were concerned about my role as a lawyer, which would I be most interested in? Deeds, because they can be ambiguous and lawyers need to interpret them. We are also mainly concerned with the K of sale, and maybe that fits into other legal docs. The last phrase is they key, because the K of sale is the most important document. Having a lawyer review the documents is a conflict of interest because they work for and are hired by Buyers Service, and don’t have any interest in the buyer. If that’s true, is it permissible for a lawyer to handle a closing where they are in essence representing the bank, the buyer, and maybe even the seller? The language in Buyers would suggest that you can’t do that, but the subsequent cases build on that. The fact that a commercial title company which assisted homeowners in purchasing residential real estate had retained attorneys to review the closing documents, did not save its activities of preparing deeds, mortgages, notes and other legal instruments related to mortgage loans and transfers of real property, from constituting the unauthorized practice of law. Code 1976, § 40-5-320.

Title Abstracts: The owner relies on the title abstract. The owner doesn’t get the title package, it goes to the mortgage company. The borrower says if the bank is happy, then I am happy. What’s the problem with that reliance to begin with? What the bank is willing to accept is entirely different then what we might want to accept. Yes the bank is willing to loan the money, but the borrower is the one on the hook and must pay the bank.

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The preparation of title abstracts for persons other than attorneys constituted the unauthorized practice of law notwithstanding fact that the title abstract was furnished to the mortgagee rather than the purchaser, as the purchaser relied upon the title abstract to determine he was receiving good, marketable title.

What about recording? Only an atty can make sure these have been recorded in proper order at the courthouse. The sequence is so important. Although the physical transportation or mailing of documents to the courthouse did not in itself constitute the practice of law, when it took place as part of a real estate transfer it fell within the definition of activity constituting the practice of law as an aspect of conveyancing which affected legal rights.Instructions to the clerk of court or register of mesne conveyances as to the manner of recording title to real property, if given by a layperson for the benefit of another, must be given under the supervision of an attorney.

Buyers is very important – this notion of all real estate closings must be conducted by the lawyer. If we were living in CA or AZ, you wouldn’t even see a lawyer. Real estate and mortgage loan closing should be conducted only under the supervision of attorneys, who have the ability to furnish their clients legal advice should the need arise and who fall under the regulatory rules of the Supreme Court, rather than laypersons. Code 1976, §§ 27-7-10, 30-5-30.

Doe v. McMasterLawyer petitioned Supreme Court in its original jurisdiction to determine whether his association with a lender bank and a title insurance company constituted the unauthorized practice of law. The Supreme Court, Burnett, J., held that lawyer's activities did not violate proscription against the unauthorized practice of law.Why is the lawyer asking the court to review? He wants the court to say whether he would be equally liable to help someone not authorized to practice law, to practice law. The fed govt got involved with the practice of law in NC, and caused a lot of problems for lawyers practicing in that

state. They have alleged that if lawyers control real estate closings, then costs will go up and people will not receive any individual protections. There was a compromise reached in the state of NC and the fed govt.

Here, the title search is not going to show something the buyer doesn’t already know about because this a refinance not a purchase. A title company's title search and preparation of title documents for a lender, without direct attorney supervision, constitutes the unauthorized practice of law. Appellate Court Rule 407, Rules of Prof.Conduct, Rule 5.5(b).

Loan Docs: the company wants to represent themselves pro se, so they want to prepare the loan documents themselves. Those other docs are the note and mortgage, they want to draft their own. The bank may not do it unless a SC lawyer blesses the documents. This has caused a huge amount of consternation. There are arguments that it makes it much more difficult for a borrower in SC because lenders from out of state don’t want to deal here bc they don’t want the extra cost or aggravation of a SC atty sticking their nose in the transaction. SC says you may not prepare your own loan docs without atty review. The right of a corporation to practice law (pro se) by completing real estate loan documents, for purposes of the unauthorized practice rules, is not co-extensive with an individual's right.

Closings: if the closing lawyer is not on a full time basis by the closing organization (that is not the law firm) that’s one thing, but if you hire an independent lawyer then that changes things even though they have responsibilities to other parties. Doe’s activities DO still pose ethical dilemmas because a lawyer may not represent a client who has adverse interests to another client. But wait a minute, earlier they just said the lawyer has a relationship with the bank, and to say they don’t in footnote 6 isn’t right. What is full disclosure and what is informed consent? How do you do that? Not well. As the Bar meeting identified, there are serious claims being made against lawyers because of this dual representation. It is causing problems and it will continue to cause problems. Independent attorney associated with lender who was not an employee of lender could participate in the closing of borrowers' refinancing of real estate mortgages after giving full disclosure of his role to both parties and obtaining consent from both parties to continue. Appellate Court Rule 407, Rules of Prof.Conduct, Rule 1.7.

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Activities of attorney, associated with but not an employee of bank and title company, in recording new mortgages and related documents in refinancing real estate mortgages, did not constitute the unauthorized practice of law, where attorney was supervising the process. Appellate Court Rule 407, Rules of Prof.Conduct, Rule 5.5(b).

RichardsonThere are both a federal statute and now an international statute that is coming into play. The fed statute is the Patriot Act and one of the things in the Act is that we want to identify all the bad guys in the US. We want to make sure they aren’t sending money to terrorists. So we are monitoring this behavior. Who monitors? Banks must check through lists. It may be that there are going to be increased responsibilities of lawyers in SC because we act like a bank in these closings. So far, no one has complained about this. We have to make sure the borrower isn’t on the do not lend to list. Now there is now an international statute that is just now being finalized that may have some similar effects. Holding: The Supreme Court held that disbursement of loan proceeds for a residential refinancing or credit line transaction, which is an integral step in the closing of such a transaction, constitutes the practice of law, and thus, disbursement must be conducted under the supervision of an attorney.

Lester: bottom line, the lawyer needs to be present at the closing.

There are some practical problems – the yanks buying property in HHI. Do they want to go to HHI to close a $20,000 purchase?One problem in SC is even if the SC doesn’t say this is the rule, there are lots of people that think it is the rule and it bears some degree of reality. How long is it going to take you to do all these things on this list in the Guidelines for closing.

Attorney’s Role: After the seller has accepted the buyer’s offer, an atty often is employed to draft a K of sale, to examine title, to draw up a deed, and to close the transaction. In examining title and preparing deeds, atty’s often formerly adhered to a minimum fee schedule. The Supreme Court held that a minimum fee schedule enforced by the state bar association violates Anti-Trust Act. In addition, if an atty represents both the buyer and the seller, who have conflicting interests, the atty may be acting unethically.

The Contract of Sale

The SOF: no interest in land can be created without a writing signed by the party to be bound and no action may brought upon a K for sale or interest of lands unless the agrmt upon which such action shall be brought shall be in writing signed by the party to be charged. In the US, SOF is treated as a principle rather than statute and is mostly judge made law. This basically means that both the buyer and seller must sign the contract of sale.

Kind of writing: the requisite writing can be a formal K signed by the seller and buyer, or it can be an informal memo signed by them, or several documents taken together to be a K. The fundamental question is whether the writings show a meeting of the minds sufficient to constitute a contract. o Negotiations: if the parties are negotiating with an understanding that the terms of the K are not fully agreed

upon and a written formal agrmt is contemplated, a binding K does not come into existence until formal agrmt is executed.

Essential terms: the writing must contain all essential terms: the parties, description of the property, and terms and conditions (such as price, manner of payment, if agreed upon.) Parol evidence is admissible to clear up ambiguities Price: if agreed upon, must be set forth. Court may imply an agrmt to pay reasonable price. Conditions: Financing and Building permits, buyer must use reasonable efforts to meet the condition, and if

not they are in default. Financing: many contracts to purchase contain a clause providing that the offer to purchase is contingent on the purchaser obtaining the necessary amount of financing. Also, a contract may be conditioned upon a buyer obtaining a building permit.

Exceptions to SOF: Oral Contract: part performance and estoppel. Part performance: an equitable doctrine that allows a court of equity to specifically enforce an oral K for sale of

land. If a buyer or seller sues at law for damages, the doctrine of part performance is not applicable – usually only applicable in a suit in equity for specific performance.

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o Acts of unequivocal reference to a K: acts done by the parties only has having been done pursuant to a K. thus, if the buyer i) pays all or part of the pp, and ii) enters into possession and iii) makes improvements, the K is enforceable because the court assumes the buyer would not have done those without a K. allows specific performance of oral agrmt when particular acts have been performed by one of the parties to the agrmt. The acts of the parties substantially satisfy the evidentiary requirements of SOF. If the acts make sense only as having been performed pursuant to the oral K, they constitute part performance.

Variations on part performance: In some states, K enforceable if buyer merely takes possession – English Rule. Others must show payments or improvements.

Injurious reliance theory: Another theory is that it is a doctrine used to prevent injurious reliance on the contract, if the π shows that he would suffer irreparable injury if the K was not enforced, then the buyer’s taking of possession alone is sufficient to set the court in motion. Hickey v. Green

- Part performance – specific performance – equitable remedy – not damages at law.

Exam: if the parties enter an oral K, there has been part performance, and one is trying to back out of the deal, first point out that generally oral Ks are unenforceable under SOF. Then note the exception for part performance that unequivocally references a K. the buyer’s making payments, improvements is powerful evidence a K exists.

Estoppel: Estoppel applies when unconscionable injury would result from denying enforcement of the oral K after one party has been induced by the other seriously to change his position in reliance on the K. May also apply when unjust enrichment may occur when one party who has received benefits of the other’s performance were allowed to rely upon the Statute. - Estoppel – though originated in equity – defense in law.

Revocation: a written K for sale of land can be revoked by oral agrmt of both parties in a majority of states. Rationale: SOF applies to making not terminating. However, in others revocation must be in writing bc the K creates equitable title in the buyer.

Hickory v GreenPart performance exception: Evidentiary – the buyers behavior can only be explainable as being based on the fact that there is this K with the seller. That’s the gist of the evidentiary aspect. Were the buyers actions only explainable as being based on the fact that there is a K with the seller? The behavior was that the buyers sold their home. Is that behavior only explainable on the basis that they signed their K with Green? No, not really. That being true, what else about this evidentiary requirement? Green admits a contract, so we can take the evidentiary function off the table. Was there detrimental reliance such as we will enforce the K? The behavior we are concerned with is the sale by the πs of their house. We gotta remand this to see if the situation still justifies reliance. *This is a very unusual case. Almost all part performance cases deal with behavior with respect to the purchased lot. That’s weird that the behavior focused on here is on the buyers property. Even in this state, frequently for specific performance there has been an actual change of possession and improvement of the transferred property, as well as full payment of the full purchase price. Usually one or more of these elements. SC – part performance as an exception to the SOF may be proved by evidence of improvements to real estate, possession of real estate, payment of the PP, then… actual possession and improvements to property are the strongest evidence of part performance. Payment of PP is the weakest evidence of part performance and will not suffice on its own to remove a K from SOF. In order overcome SOF, enforcer must establish the parol contract by satisfactory proof.

Time of Performance: Even though the K sets out a specific date for performance, the closing date, the contract is enforceable in equity after that date if performance is offered within a reasonable period thereafter. The time for performance is treated as a formal rather than an essential term of the contract.

Time-is-of-the-essence provision: because the rule in equity can leave the liabilities of the parties uncertain for a substantial period of time, well-drafted contracts always provide that time is of the essence. If this clause is in the K, and one part does not tender performance by specified date, the other party is thereby excused from performance.

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Marketable Title: an implied condition of a K of sale of land is that the seller must convey to the buyer a good and “marketable

title” at the closing. The implication will be made even though the K calls for a conveyance by quitclaim deed which makes no warranties of title. If the seller cannot, the buyer is entitled to rescind the K because the K calls for a conveyance of land, and the seller cannot convey unless has title to it.

o Exam: watch out when seller agrees only to a quitclaim deed. Most deeds include a warranty that valid title was passed at the time of closing; a quitclaim deed makes no such warranty. Still, the seller is not relieved from the duty to provide marketable title at closing. If the buyer discovers a defect in title before closing, she can seek to rescind the K. However, if she discovers a defect after closing, she will not be able to rescind or get damages from the seller because the implied duty to provide marketable title ends at closing; after that seller is liable only for warranties made in the deed, and a quitclaim deed does not warrant title.

o Contract provisions: if K requires the seller to provide the buyer with an insurable title, only a title insured by a title insurance co and not a marketable title is required. If the K calls for a good record title, the seller must offer a marketable title based on recorded documents alone, not upon Adverse Possession.

Marketable title defined: is a title not subject to such reasonable doubt as would create a just apprehension of its validity in the mind of a rpp, one who with legal advice would be willing to pay value. A title reasonably free from doubt, one which a prudent purchaser would accept. Although a perfect title is not required, the title must be such that there is no reasonable probability that the buyer will be subjected to a lawsuit. Good record title: a seller can show marketable title by producing good record title or title by adverse

possession. Good record title means there was a conveyance by a sovereign state then holding ownership, and thereafter, there are, on record, transfers of title from the original grantee to the seller. Also, good record title means there are no recorded encumbrances such as easements or mortgages on the property. A person with good record title has an unencumbered fee simple, provable from the public records.

o Record search: because of the burden of searching title back to its original source, local practice may limit backward search to some definite period. Title searchers assume the SOL will bar any earlier defect. The risk of only searching back so many years may be covered by the seller’s warranties of title.

Adverse possession: unless good record title is called for, many jurisdictions allow marketable title to be based on adverse possession if it can be clearly proven with written evidence or other proof.

Defects in title Defects in record chain: title may be unmarketable because of a defect in some prior instrument constituting part

of the chain of title. For example, a deed might not be acknowledged properly. Private encumbrances: as a general rule, marketable title means an unencumbered fee simple. Mortgages, liens,

covenants, and easements make title unmarketable unless the buyer waives them. However, a mortgage is not an encumbrance if the seller pays it off before closing or at closing with the proceeds from the sale.

o Easements: an easement that lessons the value of the property makes title unmarketable. An easement that benefits the property does not necessarily make the property unmarketable. Although a majority holds that such an easement is an encumbrance, a minority holds that an open and visible easement for benefit known to buyer before contracting is not an encumbrance. A lot depends on the expectations of the buyer

o Covenants: restriction on the use of property, imposed by private covenant makes title unmarketable. It is assumed buyer wants to use land for any permitted use under zoning laws, however if the K expressly states purchase for a particular use and the covenant allows that, title may be held marketable.

o Express waiver: the K of sale may enumerate the encumbrances and the buyer may waive them. Or, the K may provide that the seller shall furnish the buyer with a list of encumbrances prior to closing and failure of buyer to disapprove within a few days after receipt will be deemed a waiver. However, a waiver of an encumbrance in the K is not a waiver of a violation of the encumbrance when the buyer does not know of the violation. Thus, if in the K the buyer waives building restrictions, and it is then found that the building on the property violates the restrictions, the buyer can rescind. Lohmeyer v. Bower

Exam: remember that a seller has the right to satisfy a mortgage or lien at closing with the proceeds of the sale. Thus, the buyer cannot claim title is unmarketable because it is subject to a mortgage prior to closing, if the closing will result in marketable title.

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o Zoning restrictions: zoning laws and subdivision regulations generally do not make title unmarketable. They are not considered encumbrances. However, even though zoning restrictions do not generally affect marketability of title, if zoning restrictions are imposed after the buyer signed the K, and they would materially interfere with contemplated use of property, many courts will refuse to enforce K against the buyer.

Violations of zoning regulations: if the property is in violation of a zoning ordinance or subdivision restriction, and correction of the violation can be demanded by the govt, the title is usually held unmarketable. Why? To force the purchaser to take the property may force a lawsuit on the purchaser. The govt may sue the purchaser to correct the violation. Lohmeyer v. Bower

Lohmeyer v. BowerThe K says he took the land free and clear of all encumbrances, so he can’t complain about them. But the contract also said seller would convey good merchantable title OR owner’s title insurance guaranteeing property free and clear of all encumbrances, with sufficient time for seller to remedy the imperfections in title. There were two restrictions: a private covenant to have a 2 story house (the house on the lot was one story), and the other was a zoning ordinance about house distance from the street, which the lot also violated. Buyer brought to seller’s attention the zoning violation, and seller’s offered to buy the neighbors land to remedy the violation but the buyers refused – he wanted to rescind the contract. Sellers countered for specific performance. TC for sellers. Court: since the contact says seller intend to convey good merchantable title free of all encumbrances, the issue is whether the property is subject to encumbrances or other burdens making the title unmarketable, and if so are they excepted by the provision that says “subject, however, to all restrictions and easements of record”.Municipal restrictions are often not found where you would normally search title. They are in city and county govt records. Here, municipal restrictions existing a time of K are not the type of encumbrances on title as may allow buyer to avoid his agrmt to purchase. The court here clearly says the violation of the private, neighborhood restriction is a marketable title defect, but in the K we have waived that covenant as being a defect. The court concludes that the violation of the city ordinance and the dedication declaration (private restriction) so encumber the title to expose the party holding it to the hazard of litigation and make title unmarketable. The sellers cannot convey title free and clear of all encumbrances and contract should be rescinded. It is the violation not the existence of the restrictions that render title unmarketable, even though the buyers excepted recorded easements and covenants. Seller says what about the provision that I may remedy any problems. Court says maybe for the city ordinance yes but you can’t remedy the two story house problem, then buyer would take something he didn’t K for.

There is a way to cure this problem, and the trial court missed the boat but the appellate court got it right. Answer: we waived the covenant as a title defect, but we didn’t waive violation of the covenant.

Mystery of life – when you are going these title evaluations, the questions is what all do I have to search? Am I required, or should I search govt records that might relate to the property? Is that something I’m required to do. In some jurisdictions there are title standards and there are guidelines that say lawyer, here’s what you should do.

Notes: in an Illinois case: buyers of a landlocked parcel alleged that title was not marketable because the tract had no legal access, which the buyers knew. The court held the title was marketable; the lack of access affects mkt value, not marketability of title. A title is marketable said the court, if seller has a fee simple free from any encumbrances, and buyer is entitled to possession. The fact that buyer may not be able to reach the property does not make title legally unmarketable.

It’s also been held tat presence of hazardous waste also doesn’t make title unmarketable.

Equitable ConversionIf there is a specifically enforceable contract for the sale of land, equity regards as done that which ought to be done. The buyer is viewed in equity as the owner from the date of the K (thus having equitable title); the seller has a claim for money secured by a vendor’s lien on the land. The seller is also said to hold the legal title as trustee for the buyer.

Many courts say they apply EC only to carry out the presumed intent of the parties and to do equity. Hence, they might apply it one case and no another.

Risk of Loss: EC has been used by some courts to determine whether the seller or the purchaser takes the loss when the premises are destroyed btw K and closing, and the K has no provision allocating the risk of loss. From the time of the K, the burden of loss is on the purchaser.

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Majority: buyer has the risk of loss – English Rule. The buyer owns the land and seller has only a security interest. However, if the property is damages or destroyed, the seller must credit and insurance proceeds he receives against the purchase price the buyer is required to pay.

Minority: seller has risk of loss – Massachusetts Rule. They imply a condition in the K that if the loss is substantial, and the terms of the agrmt show that the building constituted an important part of the subject matter of the K, the K is not binding. They buyer can rescind and recover any earnest money if the building is destroyed.

Remember: even though majority rule is that buyer has risk of loss, if the property is damaged or destroyed, seller must credit any insurance proceeds he receives against the purchase price the buyer is required to pay.

Inheritance: EC has been applied in situations when one of the parties to a K for sale of land dies and the issue arises whether the decedent’s interest is real property or personal property. If EC has occurred, the seller’s interest is personal property (right to the PP) and the buyer is treated as owner of the land.

In SC – traditional Equitable Conversion rule should apply. Risk of loss is on the purchaser. If the client gets into serious trouble, there are older SC cases which may suggest that a court will try and do something of an equitable nature because normally the buyer has no control of the property before the closing.

Duty to Disclose Defects: the old rule was that the seller did not have to disclose any defects in the condition of the premises unless a defect was fraudulently concealed. The buyer had the opportunity to inspect and caveat emptor applied.

Caveat Emptor Exceptions: Stambovsky – where the seller created the situation and a physical inspection by the buyer was highly unlikely to reveal. [Ghost case]

Duty to disclose: most states now hold that a seller must disclose all known material defects to the buyer. [Johnson v. Davis – FLA, SC follows FLA law] In this case, the court held the distinction btw concealment and affirmative representations is tenuous. Both proceed from the same motives, attended with same consequences, violative of fair dealing and good faith principles. Rule: where seller of home knows of a material defect affecting value of property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer. Equally applicable to new and used property.

When seller breaches a duty, the buyer can rescind the contract or sue for damages after closing. In most states statutes have been enacted requiring the seller to deliver to prospective buyers a written

statement disclosing facts about the property.

What is material?: one of two tests of materiality is applied. Either an objective test of whether a rpp would attach important to it in deciding to buy, or a subjective test of whether the defect affects the value or desirability of the property to the buyer.

Off-site conditions: sometimes courts have required sellers to reveal the existence of off site conditions that might affect mkt value, like hazardous waste nearby, crime, etc. [California]

Stigma statutes: several states have enacted statues shielding sellers from a failure to disclose psychological or prejudicial factors that might affect mkt value such as murder in the house. “Megans Law” certain sex offenders must register.

“as-is clause”: generally an as is clause will be upheld if the defects are reasonably discoverable and there is no fraud. But if there is fraudulent misrepresentation or concealment, then buyer not bound to clause.

Real Estate Brokers: if the seller has a duty to disclose, a real estate broker also has a duty to disclose to a buyer material defects known to the broker but unknown and undiscoverable by buyer.

Disclosure of hazardous waste: CERCLA imposes strict liability for cleanup csts of hazardous waste upon any current owner, any prior owner of the site at the time it was contaminated. This Act was amended to provide the BFP defense – provided the release of hazardous materials was before purchaser took title. Purchasers held liable may sue sellers for contribution.

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SC Residential Property Disclosure Act§27-50-80 – R.E. licensee as selling or listing agent has no duty to inspect onsite or off site conditions.§27-50-90 – Certain conditions do not have to be disclosed

o Fact or suspicion that a property maybe psychologically affected. SC Stigma Statute AIDs, death on premises, public info from a sex offender registry

o Nothing in statute that prohibits the property from being sold as is. “As-is” clause§27-50-250 – Sale of property down at coast with preexisting rental agreement.

o Before ratification of sale, Grantor shall disclose all future periods of rentingo Failure to disclose existence of rental agreement doesn’t void the sales agreement or create an

encumbrance on the title. (Automatically not a defect)

Disclosure Form that each seller must complete2) a) if there is a mistake in disclosure of report, not liable unless engineer is grossly negligent in description of report. This is a problem because there is nothing in the statute that reflects this. This came from a form that was copied from

a different state that had this in their statute.c) Difficult to know what you should and should not disclose. It opens the door for encourage the seller to contact an atty but not necessarily a buyer.d) Reflects the statute. Problem, there is no time limit. When does that end?

3) Language is similar to language in the statute. Puts a mandatory duty on the realtor. (p 2) Check the box form

o 7) Water Supply – Problem on determining what pipes are made ofo 14) Environmental Hazards – how to find this?o 15) Nuisances – should also consider the neighborso 18) Restrictions to Property Use – How does a lay person understand restrictions and covenantso 19) Utility Easements –

2 Recent cases have addressed the statute and form.

o Last year, court of appeals 665 SE 2d 667. Seller arguably gave a form that didn’t comply. A number of the questions were left blank without any explanations given. Buyer’s realtor suggested buyer obtain some inspections which he did. Inspection indicated there was some water and humidity damage. Subsequent to closing, the buyer found structural problems that may have related to water damage. Can you bring an action against seller and realtor? Held: No, on notice from your own disclosure form that there were problems even though they were not the same as the actual problems. Realtor was not liable either.

o January 2009 – Chastain v. Hiltabidle 2008 Westlaw 5545317 Court of App. Whether the realtor was liable where the seller had made misrepresentations and the court concluded the realtor didn’t know the seller had made misrep. Therefore the realtor was not liable.

Even assuming flooding disclosure it was inaccurate and even if realtor knew there was flooding in the past, doesn’t follow that realtor knew. If owner provides disclosure form that is inaccurate, realtor is not liable unless he knows they are false.

Problem, realtor had sold property before and knew about the serious flooding and water damage. Assume you have a COA against realtor unrelated to disclosure form. If it’s your realtor, that is an independent breach of fiduciary duty owed to you.

If you elect not to disclose, does that get you off the hook? No it does not. o Where seller knows of facts materially affecting the value of the property, the seller has a duty to

disclose. (This principal probably applies in SC.)

The Implied Warranty of Quality: suits on this warranty can arise only after the closing has taken place and the π has accepted the deed. Caveat emptor was the rule, but not anymore. In almost all jurisdictions, courts imply a warranty of quality in the sale of new homes. Remember: new construction, although subsequent purchasers may be able to recover. Lempke

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Builders Liability: The builder impliedly warrants that the building is free from defective materials and is constructed in a sound and workmanlike manner. Rationale: the builder’s greater ability to prevent defects, the buyer’s reliance on his skill, and unequal bargaining power. Lempke v. Dagenais

Subsequent purchasers: may have difficulty in recovering from builders due to lack of privity of K. On a tort theory, they may have difficulty because both negligence and SL are limited to physical injury and not mere economic loss. However, the builder is placing a defective product in the stream of commerce, and owes a duty of care to those who subsequently buy it, about half the courts have held that builder is liable to subsequent purchasers regardless of any lack of privity. Richards v. Powercraft

Disclaimer: A few cases have allowed this warranty to be disclaimed or waived by the buyer if the language of the K is clear and unambiguous.

Limitations: Does NOT apply in sale of commercial buildings or used homes, some allow disclaimer and ½ allow liability for subsequent purchasers.

Sellers Liability: the seller of a used home who is not a builder has no liability based on an implied warranty of quality. But the seller is liable for misrepresentation and fraud. If seller knowingly makes any false statement to the buyer as to some fact that materially affects the value of the premises to the buyer, and the buyer relies on the statement in purchasing, the buyer is entitled to relief. If she covered it up, liable, or if she lied about defect and buyer relied, she’s liable. Johnson v. Davis

Exam: the implied warranty of quality comes up when you see a new home that has substantial defects. But remember the warranty’s limitations: it does not apply in the sale of commercial buildings or used homes, some allow disclaimer, and ½ say it doesn’t apply to subsequent purchasers.

Tort or Contract: the implied warranty of quality is a hybrid, resting on both tort and K theory with confusing and inconsistent results.

If tort theory applied: the warranty is a duty imposed by public policy; it runs to all persons who buy the product; liability cannot be waived or disclaimed by a provision in the sales K or conveyance, and SOL runs from time of discovery of defect.

If K theory applied: the implied warranty arises from the bargain; it can be disclaimed by a provision in the conveyance; and the SOL begins to run from date of conveyance.

Lempke v. Dagenais Privity of K not necessary for a subsequent purchaser to sue a builder or contractor under an implied warranty theory for latent defects which manifest themselves within a reasonable time after purchase and which cause economic harm. Under economic loss theory if the only injury is monetary, you cannot recover under tort. This concerns the property at issue, but not separate property that is damaged.

o If chimney falls over because negligently constructed no COA. o But if it falls on your child COA

The court says no COA in tort because of economic loss principle. Traditionally we care about this because the scope of recovery. Contract v. Tort concerns the nature of recovery. In residential, it may not matter whether sue in warranty or in tort because will get the same remedy.

The court says there is an implied warranty of workmanlike quality. This is based in tort, contract or warranty. Warranty is based on public policy. This case suggests Warranty is a separate thing and is irrelevant whether it is tort or contract based.

Which state most influences this opinion?o SC – leader in the world of warranty law as it applies to the sale of homes and now commercial property.

We have as much jurisprudence as any state in the union. Builder’s defense – no privity of contract btw me and the new buyer. The court says that this is not necessary to bring

a COA for implied warrant of quality. It would defeat the purpose of the implied warranty. 5 Social Public Policies: protect innocent buyers from latent defects, society is rapidly changing, Subsequent purchaser has little opportunity to inspect and little experience and knowledge about construction, Builder/contractor will not be unduly taken unaware by the extension of the warranty to a subsequent purchaser, Arbitrarily interposing a 1st purchaser as a bar to recovery “might encourage sham first sales to insulate builders from liability1 Economic Policy: Builder/contractor in better position to evaluate construction quality

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Economic loss is allowed in contract but not tort. The court allows recovery for economic loss in implied warranty for subsequent purchasers. (No merit in distinguishing btw personal injury and economic loss.)

o Applies to latent defects only and there must be a reasonable time period that warranty exists. π must prove defendant breached the warranty.

Old Rule: No recovery to subsequent purchaser for economic loss in tort or under an implied warranty theory. (Lack Privity of K and limits liability)

New Rule: Privity of contract is not necessary for a subsequent purchaser to sue a builder or contractor under an implied warranty theory for latent defects which manifest themselves within a reasonable time after purchase and which cause economic harm.

Elliot - Implied warranties are not created by an agreement between the parties but are said to be imposed by law on the basis of public policy. They arise by operation of law because of the relationship between the parties, the nature of the transaction, and the surrounding circumstances.

Purpose of Implied Warranty: protect purchasers of homes upon the discovery of latent defects.a. Economic Loss: Usually measured by cost of repairing or replacing the defective product.b. Limitations: Extension of liability only applies to:

o Latent defectso Reasonable period of timeo Burden of proof on P to prove defect was caused by D.

Builder Defense:o Demonstrate defects were not attributable to him, the result of age, ordinary wear and tear, or

prior owners fault. Workmanlike quality – duty to perform in a workmanlike manner and in accordance with accepted

standards.

Caveat emptor in the sale of RE by a vender-builder is dead. Almost all of the recent cases imply a warranty of quality or skillful construction in connection with sale of homes.

Uniform Land Transactions Act (persuasive but not adopted by any state) §2-309(b) – imposes 2 implied warranties for people in the business of selling real estate: (1) warranty of suitability (2) warranty of quality.Warranty of suitability – applies to used and new buildingsWarranty of quality – applies only to new construction. Broader than the former bc defects do not have to make property unsuitable for its intended purpose. ULTA §2-311 – warranties implied by law may be excluded or modified by party’s agreement. Except no general

disclaimer (“as is clause”) is effective, if the buyer intends to live in the house. ULTA §2-312 (b) – Notwithstanding any contrary agreement, the warranty of quality runs with the land to

subsequent buyers. (A waiver by the 1st buyer does not bar a subsequent buyer from suing. ULTA §2-521 – 6-year statute of limitations that begins to run when the buyer to whom the warranty is first made

enters into possession. Warranty of quality is not normally implied where the seller is not a “merchant of housing” (ie a builder, subdivider

or commercial vendor)

Implied Warranty of Habitability: Kennedy v. Columbia Lumber and Manufacturing Co. – Implied Facts: Columbia Lumber had sold building supplies to Crumpton, the builder of the house in question. Columbia Lumber did not participate in the building or construction at all. After Crumpton had completed most of the house, he had financial difficulties and could not pay his creditors, including Cola Lumber. The property was then deeded to his mother, and Cola Lumber then filed a mechanic's lien against the property for its outstanding debt. Instead of foreclosing on its lien, it took title by deed, and paid off the lot and construction mortgages. It sold the house to Kennedy in 1977. Six years

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later, Kennedy noticed a crack in the brick veneer in the back of the house, he was told it was caused by a defective foundation. Kennedy brought suit againt Columbia lumber on implied warranty of habitability and negligence theories.

Issue: Is a lender who takes title to and sells property rather than foreclose on it liable for latent defects of property? Held: No, lender not liable on implied warranty of habitability. No liability by being a seller in this situation. Analysis: The court uses two cases for precedent, Lane and Roundtree Villas, and finds that this case falls somewhere in between.Lane: The developer sold an undeveloped lot the builder, builder had financial problems, deeded it backto developer to satisfy mortgage. Developer sold it to Lane after paying off the mortgage. There were septic tank problems, repairs failed, and Lane brought suit on implied warranty of habitability. Because the lender was also the developer, he was held liable. The status of lender was secondary to the transaction.(Here, Cola Lumber is only a materials supplier and sold in its capacity only as a lender attempting to recoup its losses)Roundtree Villas: A construction lender monitored a construction project to protect its loan investment to a builder. Builder sold several units, but then faced financial problems. Builder then deeded remaining units to a selling corporation created by lender. Lender tried to repair defects, purchasers brought suit against the lender for implied warranty of habitability. Court held the lender could not be held liable for he construction defects by the builder's work. There was a duty to use due care, but it was not enough to impose a legal duty on it to prevent construction defects. Lender was not party to any sales of the units sufficient to incur liability under an implied warranty of habitability.

We now hold that a mere lender, even if a party to the sale, is ordinarily not liable under an implied warranty of habitability theory. Many public policy reasons behind this: Would discourage lending and economic growth, unduly punitive to impose potential warranty liability on a lender that is searching for some way to recover losses due to default of debtor.

A lender can incur liability under implied warranty liability, if they complete portions of the house, express representations, conceals defects its aware, becomes highly involved in construction in manner not normal for a lender.

There was nothing argued against the builder in the Kennedy case. (Really Odd) Court: to be liable for a breach of the warranty of habitability, the ∆ normally has to be a seller. (This applies only to

new construction).

THEN, the court decides they are going to address Builder and Seller liability, which is outside the scope of this case. They analyze the Carolina Winds case. Workman-like service - building of the homeImplied habitability - sale of the home An implied warranty of service attaches to a builder's construction of new residential housing, despite a lack of contractual privity.

Second, a builder will be liable in tort despite only pure economic loss where the builder has violated a legal duty. In the past, one could only recover for contract damages if it was pure economic loss, but this only favors a builder who is fortunate enough that his defect is discovered before someone is hurt by it other than economically.

o Can you recover in SC for a tort claim for pure economic loss? Yes.Rules

A mere lender is not liable for breaching the implied warranty of habitability by simply taking a deed in lieu of foreclosure and selling a house to recoup losses.

An implied warranty of service attaches to a builder’s construction of new residential housing. A home buyer purchasing from a party not the builder may ordinarily sue the builder on this warranty despite the lack of contractual privity.

A builder may be liable to a home buyer in tort despite the fact that the buyer suffered only “economic losses” where: (extended to foreseeable parties)

o (1) the builder has violated an applicable building codeo (2) the builder has deviated from industry standards or

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o (3) the builder has constructed housing that he knows or should know will pose serious risks of physical harm.

Extension - Lender who sells property is not liable under implied warranty of habitability theory.o Public policy: unduly burden judicial system, discourage lending and economic growth,

excessive punishment when lender is trying to recover its loss.Class: Normally they would foreclose on the lien. If that happened, what would happen to the property, the court as master in equity would auction off the house. If that had occurred, would Columbia lumber have any liability based on the state of the law at the time? No, because they didn’t actually sell out, and the only way to have liability prior to this case was have sold the house. Therefore the essential issue in the first part of the case, since Cola Lumber saved the govt tax dollars and expenses, should they be liable to go through the foreclosure process and wasting everyone's time, or should we look at this from an economic point of view and say yes technically they were a seller, but they would have been off the hook if they had not sold, so they are helping out society.

The court then just takes up another case and decide to rule on it, very weird. So in South Carolina, we now have two distinct warranties that are our there: warranty of habitability, warranty of workmanlike service

Three benchmarks for suing for breaching a legal duty:Building codeDeviated from industry standardsConstucted housing that will pose a serious risk of physical harm What do you do about the economic loss rule that prohibits one from bringing an action in tort where the home itself is defective, and what I want to recover for has not caved in and injured a child, but I still want it fixed. Why bring an action in tort instead of contract?Punitive damagesSOLContract may preclude bringing suitThe MEASURE of damages - if im a plaintiff and I win, the measure of damages in tort may be very different from the measure of damages in contract, and the bottomline dollars maybe substantially more

Implied Warranty Liability Except with regard to a mere lender (above), the warranty of habitability arises from the sale of the home. BUT

Builder is still liable under warranty even if he didn’t sell the building. Implied warranty of (quality) workmanlike service: A builder who contracts to construct a dwelling impliedly

warrants that the work undertaken will be performed in a careful, diligent, workmanlike manner. o Created by construction contract but lack of POC is no defense.

Rule: A purchaser may sue a builder on is implied warranty of service, despite the purchaser’s lack of contractual privity.

Liability in Tort Old Rule – Economic Loss Rule bars recovery if only injury is monetary. (Court disagrees because same wrong action

just different result) Rule: Where a building code or industry standard does not apply, public policy further demands the imposition of a

legal duty on a builder to refrain from constructing housing that he knows or should know will pose serious risks of physical harm. (Duty is extended to foreseeable parties)

Rule: A COA in negligence will be available where a builder has violated a legal duty, no matter the type of resulting damage.

o The “economic loss” rule still applies where duties are created solely by contract. (Then, no COA in negligence)

Doctrine of Caveat Venditor: the seller of a new house impliedly warrants the habitability of the house. If the lender is substantially involved in completing the house, then it impliedly warranted the habitability of

the house, unless it effectively disclaimed the warranty.

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The implied warranty of habitability can be expressly disclaimed. [Subject to strict requirements] The disclaimer must be:

o Conspicuouso Known to the buyero Specifically bargained for

What is habitability? It is defined as "the condition of a building which inhabitants can live free of serious defects that might harm health and safety"

Commercial buildings: the cases usually imply a warranty of quality only in the sale of housing, but the warranty of habitability has been extended to commercial buildings. Kirkman v. Bank Facts: First Union, representing the collection of banks here, was a principal lien holder on the property being built. They financed Miller Housing's construction of the house. Miller experienced financial difficulties, First Union had to reluctantly foreclose and took title. First Union hired a contractor to finish the project, and there is evidence that the contractor finished the heating and air systems, hardwood flooring, subcontracted plumbing work, light fixtures and appliances, sheet rock work and some painting. Also, the deed provided from First Union to plaintiffs Kirkman that First Union disclaimed the implied warranty of habitability and the property was sold as is.Issue:1) Was First Union a mere lender, or was it also substantially involved in constructing the house2) Did First Union effectively disclaim the implied warranty of habitability? Analysis: On the first issue, the court does affirm the principle that if a lender is not involved in constructing the house substantially then he cannot be held liable on implied warranty of habitability. But here, summary judgment was inappropriate because there was enough evidence to say that they were substantially involved, so that issue is remanded for a trial jury to here it.

On the second issue, it is a novel issue in SC. The court follows Alabama which held one is free to disclaim such a warranty, but there must be strict conditions.

The disclaimer must be: Conspicuous, Known to the buyer, Specifically bargained forWhat exactly am I defending against in these habitability cases? The fact that they did not put the stucco on the house does not matter apparently. Disclaimer: In the deed - almost unheard of that there would be such a disclaimer. Normally the disclaimer would be in the contract Disclaimers: Buyer agrees to accept property subject to easements as long as it doesn’t materially affect the use of the property. The buyer asked the realtor are there any easements? He says no, that’s a misrepresentation. The argument was that the contract had a clause saying the only thing you could rely on was in the contract, and the court said no, that clause doesn’t work, the buyer could rely on the representation.So a number of cases suggest these as is clauses don’t work, on the OTHER hand there are non-real estate cases that suggest a buyer is under a duty to determine facts, and if its reasonably able to be determined (the truth) they cant rely on representations made by other parties. ***IWH from sale... IW Workmanlike quality springs from the buildings, from the actual building of the structure

Tort and contract claim? Tort may be able to bring punitive damages, Statute of Limitations considerations, Burden of proof – different claims and defenses, and even Measure of Damages

In typical defective house case – the measure of damages may not be all that important. However, there was a case where the beams of the roof in a school were fire retardant but were defective structurally. The school brings a claim against the manufacturer in tort. The immediate defense was economic loss.

o What would damages be – new trusses, close school?, redo other things because the roof was defective. Would the Kennedy case be extended to a commercial nonresidential area? Court held yes you can have a claim of tort in a commercial situation.

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o There is a question whether this case may have cut back on Kennedy. The claim considered is whether or not the trusses created a serious risk of harm.

Kennedy – What is a warranty of habitability? as the condition of a building in which inhabitants can live without a risk of serious harm not whether people actually live there.

o Headnotes 3-6: Know!!! Burkhard read verbatim. Is it important whether First Union put stucco on the house?

o If 1ST Union was substantially involved in construction of house and the seller, it is liable for the whole house under the implied warranty of habitability.

This case says the implied warranty of habitability applies to sellers. The disclaimer was contained in the deed. (Very rare. Normally a disclaimer would be in the contract). Doctrine of caveat venditor – the seller of a new house impliedly warrants the habitability of the house.

o Liability stems from the sale (seller receives fair price, need to protect buyer from latent defects.)

Mere Lender D was not a developer, in a joint venture with Miller Housing, or amalgamated with Miller Housing. BUT, D

foreclosed on the property before construction was complete, took title to the property, and sold the house to P. Rule: If D was substantially involved in completing the house, then it impliedly warranted the habitability of the

house, unless it effectively disclaimed the warranty.

Disclaimer: Policy: Freedom of contract and To protect purchasers The disclaiming language in the deed does not, standing alone, conclusively meet the criteria. Remanded to trial court

for determination.

SC Case – Property K stated it would accept an easement as long as it did not materially affect the use of the property. The realtor said there were no easements. That was a misrepresentation, there was an easement for a sewer. The argument said that all you can rely on was what’s in the contract not representations by brokers. The court rejected this and said the buyer could rely on the representation by the broker.

SC Case – Irmo the restriction the Buyer was unhappy with was recorded at courthouse. At the closing the realtor said there were no restrictions. The court said that even if this was on record, the party could rely on the realtor’s representation.

Indicates these clauses don’t work. However, there are other cases that says the buyer is under a duty to determine facts and cannot rely on representations made by other parties.

Remedies for Breach of the Sales Contract: unless a contrary intention is manifested, payment of purchase price and delivery of deed are dependent promises. Neither can place the other in default unless she himself tenders his own performance and demands that the other party perform. Thus, to place the seller in default, buyer must on closing day tender payment and demand title from seller. Unless there is a “time is of essence clause”, seller may remedy the problem in a reasonable time. If one party

breaches, there are three remedies available to the non-defaulting party (Buyer or Seller). 1) Damages, 2) retention of the deposit (sellers) or restitution of the deposit (buyers), or 3) specific performance of the contract

Generally the winner may choose which remedy he prefers.

Remedies of the Buyer1) Rescission: on breach by the seller, buyer may rescind the K and recover her down payment. However, if, seller

has agreed only to furnish title at date of closing, the buyer cannot rescind prior to closing on the ground that the seller does not have title. The seller may be able to acquire title before closing and hence be able to perform. The seller is entitled to attempt to make his title good before closing.

2) Specific Performance: this is an equitable remedy, and there are equitable defenses available to the ∆. If the ∆ would suffer undue hardship, or circumstances changed to make performance inequitable, specific performance will be denied.

a. Abatement in price: a court will not ordinarily require a seller to cure a defect in title, so buyer’s only remedy is to ask for an abatement in price if they want the property.

3) Damages: the buyer can sue at law for money damages.

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a. Benefit of bargain: in most states, the buyer seeking damages is entitled to the difference btw the K price and the mkt value of the land on the date performance is due. It gives the buyer the benefit of the bargain.

b. Exception, good faith of seller: if the seller acts in good faith, the buyer is limited to recovery of any money paid to the seller, plus interest and expenses in examining the title. Where seller is not acting in bad faith, buyer is entitled only to be restored to her original position.

Remedies of the Sellera. Rescission: on breach by the buyer, seller can rescind the K.b. Specific Performance: If there is a defect in title that is insubstantial and not material, the seller can enforce the

K specifically with an abatement in price to compensate the buyer for the deficiency. [May be a trend to deny when seller can easily recall and damages at law are adequate]

c. Damages: if seller prefers to keep the land, she may do so and sue buyer for $$ - the difference btw the K price and the mkt price when performance is due.

a. K may provide that seller can keep the down payment. This is enforceable as long as it does not exceed the injury that will be suffered.

Jones v. Lee Burden of proof is on seller to prove what damages were sustained. Purchase Price Issue: Fundamental Rule of damages: Loss of the bargain rule: When a purchaser breaches an executory real estate contract, the vendor’s measure of damages is the difference between the purchase price and the market value of the property at the time of the breach.

o K price minus market value at time of breach = damageso Subsequent sale of property may be evidence in determining the MV of property at time of breach.

This court says possibly the price of what the house sells for later is the value of what it sold for back then. Atty for seller may have made a huge mistake: They stipulate that the market value is the sales price (thus damages

are zero)Applicability and Measure of Damages: S elected to sue for damages, but there was no finding at trial as to the date of breach or the market value of breach. The court remands the case to trial to determine these facts and apply the Loss Bargain Rule. (Subsequent sale of land may be evidence of MV at time of breach)Special DamagesGeneral Rule: Appropriate if the damages are shown to have resulted as the natural and probable consequences of the breach and, at the time of the formation of K, the breaching party reasonably knew or should have anticipated from the facts and circumstances that the damages would probably be incurred.

o SC adopted benefit-of-bargain approach (following the book) Where a party elects to sue for damages resulting from a breach of land sale contract, the burden is on that party to

present competent evidence to support such claim for damages. (Rationale – to compensate the non-defaulting party with just compensation commensurate with his or her loss.

o Where Buyers default forces Seller to replace property on the market, the lapse of time btw the original closing date and the subsequent sale may give rise to the incurring of special damages by the seller.

Award of Special Damages: 1) Solar System and Heating Warranty

The inspection, consultation of the solar system and heating warranty were major components of residence and the K indicated S may be responsible for paying for a heating warranty. These expenses are reasonably foreseeable. -Affirmed – Reasonable for B to pay for them.

2) InterestThe mortgage interest for the period btn breach and resale is a foreseeable expense and reasonable to charge B with that expense. - Affirmed

Punitive Damages: wanton, utterly reckless and in utter disregard of their contractual obligations (cavalier attitude) is sufficient to merit punitive damages.Award of Punitive Damages: Buyer showed up to Seller’s house and made misrepresentations of fact in an attempt to get out of K when they had a lot of $ in bank. This is wanton, utterly reckless and disregard for contractual obligation is sufficient to warrant imposition of punitive damages

Kutzin v. Pirnie

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CL rule: where vendee makes a part payment on the PP but fails to fulfill the K without lawful excuse, he cannot recover the payment. This court overrules and held: whenever the breaching buyer proves that the deposit exceeds the seller’ actual damages suffered as a result of breach, the buyer may recover the difference. S wants D to default and forfeit down payment. The court agrees to give them the difference of what the house sells for, utilities, real estate taxes, and mortgage (not

decreased for rent), improve carpet. Total Damages $17,000. The court does not give the lost interest the sellers would have earned if they had the $ and could have invested it. Also, the increased-capital gains tax. This is weird because the subsequent Buyer is for a lower price. Therefore, the tax should have been less.

Issue: Is the seller keeping the deposit a normal remedy. The trend has been to say no. If the buyer who has breached can show the seller did not suffer the $36,000 in damages then the amt they will have to pay is reduced. The burden is own the buyer to show what the damages are.

o Implications: Taxes etc. will most likely be recoverable by the seller. The court will allow seller to keep down payment if K contains a legitimate “liquidated damages” clause: the K may

provide that the seller can keep the down payment.

Seller’s breach due to title defect: Seller breached if she is unable to convey marketable title as stipulated in agreement. English Rule: Limit the buyer’s recovery to his down payment plus interest and reasonable expenses incurred in

investigating the title. If the seller has acted in bad faith or assumed the risk of a failure to secure title, then he may be liable for ordinary contract damages.

o Followed by ½ of jurisdictions in U.S. Also known as the Flureau Rule. American Rule: Allows the purchaser to recover expectation (benefit-of-the bargain) damages, plus any other

reasonably foreseeable special damages.o Gradually becoming the dominant position.

Purchasers may sue for specific performance of K despite title defects. In this case, he is also entitled to an abatement in price to reflect the decreased value of the property with title defects. Burkhard: this may make a difference on what you are suing (contract or deed may provide different remedies)

English rule that limits damages is the notion that title defects are mysterious. (The average person does not understand titles (true for buyer/seller and realtors)) Maybe shouldn’t penalize people for representations when they really don’t know what they’re doing. BUT if you are making the representation, then we should protect buyers in this situation.

Restatement §374 (1): If a party justifiably refuses to perform on the ground that his remaining duties of performance have been discharged by the other party’s breach, the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach. Adopted by this court

Restated: Whenever the breaching buyer proves that the deposit exceeds the seller’s actual damages suffered as a result of the breach, the buyer may recover the difference. (When K does not have a forfeiture or liquidation clause)

Restatement §374 (2): To the extent that, under the manifested assent of the parties, a party’s performance is to be retained in the case of the breach, that party is not entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the anticipated loss caused by the breach and the difficulties of proof of loss. (When K has a forfeiture or liquidation clause)

Damages and timing: General Rule for a party seeking damages for breach of a K to convey real estate is the difference between the contract price and fair market value at the time of the breach. (Can also argue for damages to be calculated at the time of the resale of property due to a declining property market)

Retention of Deposit: Holding in Kutzin, that buyers are entitled to restitution of the deposit money in excess of damages incurred – is a minority view.

General rule: When a buyer breaches a K to purchase land, the seller may elect to retain the down payment because of the difficulty of estimating actual damages and the general acceptance of the traditional 10% down payment as a reasonable amount even if the sales K has no liquidated damages provision.

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Efficient Breach Theory: when the cost of breach (damages) is less than the potential gain from breach (due to changing market conditions), breach of the contract is the economically efficient result.

Liquidation clauses are usually enforced as long as the stipulated amount is not disproportionate to the damage actually sustained. While sellers electing to retain the deposit money as a remedy are normally limited to 10% of the K price, sellers electing to retain the deposit money in the presence of a liquidated damages clauses have more leeway.

Buyers parallel remedy for breach by the seller: restitution of their deposit money. (Rarely elected bc falls short of the value of the property to the buyer – the buyer’s expectation damages)

Specific Performance: a judicial order that a breached contract be fulfilled as originally agreed. Very common in sale of real estate. An aggrieved seller or buyer of land is broadly entitled to elect that remedy. Behind this rule is the idea that each piece of property is unique, making damages inadequate.

The vast majority of cases the seller is the party seeking specific performance.

Time-of-essence Clause: Unless parties specify that time is of the essence, a court will give the parties a reasonable time for performance, and either party can fix the time for performance by giving notice to the other, provided the notice leaves a reasonable time for rendering performance.

THE DEEDWords of deed: any words indicating an intent to make a transfer will suffice. “Grant” is sufficient, also “give, bargain and sell, convey, quitclaim, assign”

Warranties of Title Short form deed: contains all the essential elements required in order for an instrument to be a conveyance: grantor,

grantee, words of grant, description of land involved, signature of grantor, and sometimes attestation or acknowledgement.

Three types of deeds:General warranty deed: warrants title against all defects in title, whether they arose before or after the grantor took title. Special warranty deed: warranties only against the grantor’s own acts but not the acts of others. The grantor guarantees only that he has done nothing to make the title defective.

In SC, this the norm. Pay attention to the kind of deed you get. The type of deed conveyed is controlled by the K.

Quitclaim deed: no warranties of any kind, and merely conveys whatever title the grantor has, if any, and if the grantee of a quitclaim deed takes nothing by the deed, the grantee cannot sue the grantor.

Consideration: it is customary in a deed to state that some consideration was paid by the grantee, however consideration is not necessary to transfer land because a person may give it away. It is customary to recite to rebut any implication of a resulting use or trust in favor of the grantor and raises a presumption that grantee is the purchaser, not a donee, and is entitled to protection under the recording acts. Description of Tract: a deed must contain a description of the parcel of land conveyed that locates the parcel by describing its boundaries. Customary methods of description include reference to monuments, metes and bounds; reference to a govt survey, recorded plat or other record; reference to the street and number or name of the property.

Hierarchy for rules for conflicting descriptions: Natural monuments Artificial monuments Ref. to adjacent boundaries Directions Distances Area Place names

o Water Boundaries:

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Accretion: When natural forces gradually shift a river and cause the adjacent land to recede or advance by the build-up of new soil. The owner of the adjacent land gains or loses land as the water boundary gradually shifts.Avulsion: If there is a sudden change in the course of a river (as after a flood) The boundaries do not change.

Granting Clause: the initial clause in a deed, setting forth the parties, the consideration, words of grant, description of land and its appurtenances.Habendum Clause: “to have and to hold”. Modern times, it will say the grantee holds for his own use, thus negating a trust.

If the H clause is inconsistent with G clause, they will be reconciled if possible. Modern courts will look within the 4 corners of the instrument. Although in theory, H clause cannot cut G clause short.

Seals: are mere formalities in U.S. today

Forgery and Fraud: a forged deed is void. However, most courts hold that a deed procured by fraud is voidable by the grantor in an action against the grantee, but a subsequent BFP from the grantee who is unaware of the fraud prevails over the grantor.

A deed procured by fraud, unlike a forged deed, is effectual to pass title to a BFP. In the case of a deed delivered by fraud, the grantor has put the instrument into the chain of commerce, by which a BFP can be harmed. The deed is not good (can be voided) against a fraudulent grantee, but it is good against a subsequent BFP. The grantor must take the risk if she delivers the deed and she must suffer against a BFP. In the case of a forged deed, a subsequent BFP takes the risk of forgery.

Exam: watch for a situation in which a joint owner attempts to convey property by forging signatures of other owners. Such a conveyance would be valid as to the interest of the owner whose signature is genuine but void as to the other owners.

a deed that is caused to be executed through fraud as btw the two parties (grantor and the person who has caused the fraud) it is not effective….but most courts hold that it is voidable…but a subsequent bona fide purchaser who is unaware of the fraud prevails over the grantor

Acknowledgment: by the grantor in front of a notary is usually not necessary but is desirable for recordation and authentication. In almost all states, a deed signed by the grantor, and delivered, is valid without an acknowledgment before a notary public. However, in order for the deed to be recorded in the courthouse, giving notice to the world of the grantee’s interest, the deed must be acknowledged by the grantor (in some states witnessing is accepted instead). Therefore, as a matter of practice, all deeds prepared by professionals are acknowledged.

Indenture: A deed written twice on a single sheet, signed by grantor and grantee and cut in half in a zig-zag irregular shape to verify it’s authenticity.

Deed poll: signed only by grantor. The top was not indented by polled or shaved even.

Covenants within a deedA warranty deed will contain all or most of the following covenants:

1) covenant of seisin – the grantor warrants that he owns the estate that he purports to convey2) a covenant of right to convey – the grantor warrants that he has the right to convey the property. In most

instances this covenant serves the same purpose as the covenant of seisin, but it is possible for a person who has seisin not to have the right to convey.

3) A covenant against encumbrances – the grantor warrants that there are no encumbrances on the property. Encumbrances include, among other items, mortgages, liens, easements and covenants.

4) A covenant of general warranty – the grantor warrants that he will defend against lawful claims and will compensate the grantee for any loss that the grantee may sustain by assertion of superior title.

5) A covenant of quiet enjoyment – the grantor warrants that the grantee will not be disturbed in possession and enjoyment of the property by assertion of superior title. (for all purposes this is identical to general warranty)

6) A covenant of further assurances – the grantor promises that he will execute any other documents required to perfect the title conveyed.

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The first three are present covenants and the last three are future covenants. A present covenant is broken, if ever, at the time the deed is delivered. Either the grantor owns the property at that time, or he does not. The SOL begins to run on date of delivery.

What constitutes a breach: the covenant of seisin is breached if the grantor does not own the interest he purports to convey. The covenant against encumbrances is breached if there is an encumbrance on the property at the time the covenant is made. No eviction or disturbance of the grantor’s possession is required to established a breach.

Grantee’s knowledge of defect: the general rule is that covenants of seisin and encumbrances are breached even though the grantee knew of the defect in title or of the encumbrance.

The last three are future covenant promises that the grantor will do some future act, such as defending against claims of 3rd parties or compensating the grantee for loss by failure of title, and is not breached until the grantee or his successor is evicted from the property, buys up the paramount claim, or is damaged.

Defending lawsuits: covenantor has duty of defending against lawful superior claims but not against a wrongful claim by a 3rd party. The burden to defend claims is on the grantee, who can then recover from the grantor if she loses.

Runs with the land if ther is privity of estate btw the original grantor and remote grantee. Privity means title or possession.

The SOL begins to run on a breach of a present covenant at the date of delivery of the deed. It begins to run on a future covenant at the time of eviction or when the covenant is broken in the future.

Merger of contract into deed: when seller and buyer sign a K for the sale of land, the K may call for a marketable title or the seller may make various promises with respect to title. Once the buyer accepts the deed, the usual rule is that the buyer can sue only on the covenants in the deed. Acceptance of the deed discharges the seller from his obligations under the contract. The contract merges into deed.

Rationale: when buyer accepts the deed, it is assumed he accepts the deed as containing terms in compliance with the sales K. Designed to carry out presumed intent of parties

New trend: not applied where a buyer reasonably expects a seller to carry out his K obligations after the buyer accepts a deed. The usual way of avoiding the merger doctrine is to say that the particular obligation of the seller is an independent obligation not merged by the deed.

Future covenants not breached until grantee actually/constructively evicted A covenant of quiet enjoyment or warranty is breached only when the covenantee is evicted or disturbed in possession. The mere existence of a superior title does not constitute a breach of the covenant, and grantee has no COA if she is not disturbed in some way.

Brown v. Lober In contrast to covenant of seisin, covenant of warranty or quiet enjoyment is prospective in nature and is breached only when there is an actual or constructive eviction of covenantee by paramount titleholder. S.H.A. ch. 30, § 8(1-3).Mere existence of paramount title in one other than covenantee is not sufficient to constitute a breach of covenant of warranty or quiet enjoyment. S.H.A. ch. 30, § 8(1-3).Mere fact that contract by which plaintiffs granted an option for coal rights in property had to be modified due to discovery by plaintiff that paramount title to two thirds of subsurface minerals belonged to another was not sufficient to constitute constructive eviction necessary to a breach of covenant of quiet enjoyment. S.H.A. ch. 30, § 8(1-3).They didn’t sue on seisin because they couldn’t, SOL. The covenant was breached upon the conveyance in 1957. In order for the future covenants to be actionable, there has to be some sort of actual interference. They haven’t been ousted from the property. In the edited out opinion, apparently they brought an adverse possession claim for the mineral rights. Court said nope. But you don’t get subsurface mineral rights by being on the surface, you have to attempt to remove the minerals. Constructive eviction is fine, don’t need actual.

Breach of Covenant against encumbrances: Public land use controls: the covenant against encumbrances is breached if there is a private encumbrance on title, such as an easement or mortgage. It is not, however, breached by the existence of a public land use controls, like zoning ordinance. It is not breached by a latent violation of a public land use control,

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which the public authorities may never discover or enforce. Buyer assumes burden of compliance with public controls. Frimberger Very often, where you will see quitclaim deeds are in family transactions. (what I got I’m giving to you)The government wants them to send in the application to be excused from violation. But they don’t, its only a speculative injury. Hunt v. SC forestryWhatever estate you create in the granting clause, you cant cut that down. But if its ambiguous or a lesser estate, you can EXPAND or EXPLAIN later in the habendum clause. You can expand but not decrease the estate.-if you convey a fee simple in the granting clause you cant later cut down that estate-if you have a lesser estate in the granting clause or if it is ambiguous, then it can be clarified or be expanded (the estate) in the habendum clause….you can increase the quantum of the estate but cant decrease it-have to look at four corners but cant contradict a rule of law

Patterson v. Palmetto Bank -Patterson owned 1.15 acres…he conveyed some of the property to the SC dept of transportation- SCDOT improperly recorded the deed in the wrong county. -Patterson then conveyed the property to Carroll by general warranty deed w out mentioning the prior conveyance Carroll filed a claim for monetary damages for breach of the deeds general warranty. -Carroll sued Patterson, not SCDOT -at trial the estate argued Patterson did not breach his general warranty to Carroll because Carroll could claim paramount title against SCDOT as a subsequent purchaser for valued w out notice-trial court held that Patterson breached his covenant of quiet enjoyment -Estate of Patterson appealed- the court says this is wrong because they needed an interruption of possession -cant bring action on future covenant -Carroll does not lose- its not a breach of quiet enjoyment but a breach of seisen (present covenant) -what should be the remedy?-who has better title to the property? Because the mis-recording of the deed, under SC law, probably gave Carroll better title

What do you do with the inconsistency of this case where the violation was not an encumbrance in a suit alleging breach of covenant against encumbrances, and in Lohmeyer where violation of restriction on structure was an encumbrance in a suit on a contract of sale alleging violation. Maybe because its different states. Or maybe:When I sign the K, and I put in the K what it is that I expect to get, as a practical mater I have to rely on the K. SC cases may support this fundamental notion. It makes sense that I don’t have time to do the kind of evaluation of the property before signing the K typically that I might have when it comes to accepting the deed. The practical problem is if I haven’t signed the right K, then I get the deed the K says I get. The notion is that I probably don’t rely that much on the deed warranties. In SC, what we really are relying on is the title insurance policy. Another argument is that when I sign a purchase K, that the exposure on the K is limited because presumably the K will only be effective for a limited period of time. Why? Because within 30 days we will have a closing, and the promises in the K will “merge” into the deed and once I accept the deed I am essentially accepting a new document that merges out any of the preceding promises that are inconsistent with the deed. The K exposure is limited. SC – there have been at least 2 cases where the buyer signed an agrmt to buy certain property in SC. That relates to the physical condition of the property and not to the title, therefore not a marketable title defect. In neither of the cases was there any sort of enforcement of govt action. In at least once case, court sounds like Frimberger and says put it in the K. Measure of damages for breach of covenant of seisn? You get your money back.Measure of damages for breach of covenant against encumbrances ? You fix it.

Future covenants run with the land to all successors in interest of the grantee. A present covenant, if not breached when the deed is delivered, can never be broken, and it is useless to say it either runs or does not run with the land. It can never be sued upon. If a present covenant is breached when the deed is delivered, the grantee no longer has a covenant but, instead, has a cause of action for breach of the covenant. Under old CL, the COA against the grantor was not impliedly assigned, and this view is still adhered to in a majority of states. In a number of states, however, the COA can be, and is impliedly assigned to subsequent purchasers.

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The majority rule is that present covenants do not run with the land and cannot be enforced by remote grantees. At the time breach, the covenant becomes a chose in action (personal right to sue for breach) in the grantee and the chose in action is not impliedly assigned.

Minority: chose in action is impliedly assigned by the original grantee to a subsequent grantee.

Rockafeller v. GrayCovenant of seisin is breached if the grantor does not own the interest he purports to convey. Issue is whether the covenant runs: if a covenant for title can be enforced against the covenantor by a transferee of the convantee, it is said to run with the land. The majority rule is that present covenants do not run with the land and cannot be enforced by remote grantees. At the time of breach, the covenant becomes a chose in action (a personal right to sue for breach) in the grantee and these are (normally not assigned) but, these are assigned here. Minority, this court adheres: The chose in action is impliedly assigned by the original grantee. ∆ argued that his absence of possession prevents the covenant from running, but the court doesn’t let this old technicality prevent recovery. ∆ also argued that There was no consideration btw Connolley and Dixon, the $4,000 was nominal. Why didn’t H & G sue Dixon who they bought from? Because he conveyed by a special warranty deed to them, which was very smart. In certain part of SC, that’s the norm. Do the present covenants run in SC? I don’t know.

Estoppel by Deed: If grantor did not have title when he conveyed, then subsequently gets title, then by operation of the law the title is passed on to the grantee and the grantee cannot sue grantor because he is estopped to deny that he had title to the land.

Delivery To be effective, a deed must be delivered with the intent that it be presently operative. Delivery requires words or conduct of the grantor that shows an intent to make the deed operative and to pass an interest immediately to the grantee. The conduct must show intent t make the deed legally effective now. Method: Usually the grantor either hands the grantee the deed upon payment of the purchase price, in which case the grantor intends to make an immediate transfer of title to the grantee. But handing over a deed without the concurrent intent is not an effective delivery. On the other hand, if the grantor intends to make delivery, manual transfer is not necessary. The crucial issue is intent – not what physically happens to the deed.

Or the deed can be held by an escrow agent until certain conditions are met and if there is an enforceable K of sale, the escrow agent works for both the grantor and grantee. When title is delivered to the grantee, it relates back to when the grantor gave the deed to the agent, in case the grantor dies in the process the grantee still gets the title. Problems most frequently arise in donative transactions. Exam: keep in mind that title passes upon delivery. It cannot be canceled to taken back once delivered. If the

grantee returns a deed to the grantor, this has no effect; it is not a cancellation or a re-conveyance. To return title to the grantor, the grantee must draw up a new deed and deliver it to the grantor.

Sweeney v. SweenyThe transfer of a deed from the grantor to the grantee constitutes delivery as long as there is an intent to pass title. There is a rebuttable presumption that Maurice assented since the deed was beneficial to him, and this can only be overcome by evidence that delivery was not intended. The only purpose in making the deed was expressed by Maurice, and this purpose would have been defeated if there had been no delivery with the intent to pass title, then there was legal delivery. A conditional delivery can only be made through a third party. Conditional delivery to a grantee vests absolute title in the grantee, despite the purported conditions. The delivery was fine, the condition was void.

The policy reasons the court gives for yes delivery do not apply.

Conditional Delivery to Grantee:a. written condition: where a deed contains a provision that it is to take effect only upon happening of some event,

that can be taken two ways. Either (i) there is no delivery and the deed is not effective at all until the condition happens, or (ii) the provision may mean that the grantor intends the deed to be legally effective now, but passing only an interest that is subject to a condition precedent. Here, the grantee receives a spring executory interest.

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a. Grantor retains power to revoke: if the grantor retains the power to revoke the deed, the courts are split over whether the delivery is effective. Some courts hold the deed is void either on the theory that the grantor must surrender control or that deed is testamentary and is void as a deed.

b. Oral condition: where the grantor hands over to the grantee a deed absolute on its face, with contemporaneous oral understanding that the deed shall not take effect until some condition happens, the general rule is that the delivery is valid and oral condition is void.

The Sweeny case represents the prevailing view: that conditional delivery vests title in grantor if delivered to him. There are two other solutions:No delivery: when the deed is handed over to the grantee but the extrinsic evidence shows that the deed is to “take effect” at the death of the grantor, a few courts have held that there is no delivery bc transfer is testamentary and void. Delivery good and condition enforced: the ancient rule that the mere transfer of a deed from the grantor to the grantee overrides the grantor’s explicit declaration of intention that the deed shall not become operative immediately is primitive and there is no logical reason why a deed should not be held in escrow by the grantee as well as by a 3rd party. Conditional delivery is purely a question of intention, and it is immaterial whether the instrument, pending satisfaction of the condition, is in the hands of the grantor, the grantee, or a 3rd person.

Deeds effective at death: If the grantor intended the deed to be legally effective before death, it is a validly delivered deed. If the grantor did not intent the deed to be effective until death, the deed is not delivered during life and is not good as a deed.

Cancellation of delivery ineffective: SOF requires a new writing, so handing the deed back won’t do it. You need a new deed to move title back to the grantor. Title passes upon delivery.

Delivery without “handing over”: Delivery means no more than an act that evinces an intent to be immediately bound by the transfer. The act can be handing over the document or it can also be the grantor’s declaration, express or implied, that he is bound by his deed. This could happen when the grantor puts the deed in a safe deposit box with the thought that the grantee will take at the grantor’s death. If the grantor intends to pass future interest now, then there has been a delivery of that interest even though possession is postponed. If the grantor intends that no interest should arise until death, no delivery during life has taken place; the deed cannot take legal effect at death because the grantor intended it to be a will, not a deed, and it was not executed with two witnesses. Laypersons do not typically understand the difference btw an inter vivos transfer requiring the delivery of a signed instrument, and a transfer at death, requiring an instrument in compliance with Statute of Wills. Presumptions: courts have laid down presumptions with respect to whether delivery has occurred. Delivery is presumed if 1) the deed is handed to the grantee, 2) the deed is acknowledged by the grantor before a notary, or 3) the deed is recorded. These may be rebutted by any extrinsic evidence including conduct or statements made after alleged delivery.

Grantor retains power to revoke: the courts are split over whether there is delivery.

Rosengrant v. Rosengrant – grantor retained power to revoke, no delivery. The donative intent on the part of the grantors is undeniable, but where a grantor delivers a deed under which he reserves a right of retrieval and attaches to that delivery the condition that the deed is to become operative only after the death of the grantors and further continues to use the property as if no transfer has occurred, grantor’s actions are nothing more than an attempt to employ the deed as if it were a will. The delivery was simply ritualistic, and the true intent of the parties is manifest in the envelope and the conduct of the parties, in which H retained control of the land as if no transfer happened. *banker become solely grantor’s agent, therefore delivery to him was not a delivery to grantee because the deed is not beyond the grantor’s control. *Grantor MUST surrender control to effect a delivery, this is an ancient rule.

Concurrence: a valid present conveyance requires 1. Actual or constructive delivery of the deed to the grantee or to a 3rd party, and 2. An intention by the grantor to divest himself of the conveyed interest.

Class: this may be viewed as an informal escrow, and the general rule is that if the escrow is revocable, meaning that the party can call it back, then there is no delivery. If it is a contractual escrow situation and the grantor gave up is control to

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the agent, then upon filling certain conditions by the grantee, that escrow is irrevocable is binding and the delivery would be good.

Two Other Possible Outcomes: No delivery and that the transfer is testamentary and void, Delivery good and condition enforced

Notes: Deeds with express revocation clauses are valid in some jurisdictions. Revocable trusts: H and M should have established a revocable trust of their farm to avoid probate instead of trying to get around the will by this deed conveyance. A revocable deed of land may be invalid but a revocable trust is valid in all states. H and M could say they hold their farm in trust and retain possession, as joint tenants with right to survivor, and on their deaths title to the trust should pass to Jay. They also retain the right to revoke and reclaim legal title for themselves. Once H and M sign, they hold legal title as trustees and equitable title as life tenants with survivorship, with remainder to Jay. Jay may avoid going to probate court. To create:

o Grantor(s) sign a declaration of trust providing that they hold their property in trust, retaining the right to possession and to all rents and profits of the farm for their joint lives and the life of the survivor, and on their deaths the title to the farm is to pass to the grantee.

o Grantor(s) also retain the right to revoke the trust and reclaim legal title for themselves.o Trust does not have to be delivered to the grantee to be effective, but should keep it in a secure place.

They do not have to record the trust instrument in the county recorder’s office, but recordation is convincing evidence that they intend the trust intrument to be effective.

Once the grantors sign the trust instrument with the intent of creating a trust, the legal title to the farm is held by the grantors as trustees.

Equitable or beneficial interests are:o Life estate in grantors for the life of the survivor. Since they retained the power of revocation, they may

revoke it at any time during their lives. The instrument may also provide that the survivor can revoke the trust.

o Remainder in grantee upon the grantors’ deaths Probate is avoided because the grantee does not need to go to probate court to get legal title changed. Probate is only necessary when the beneficiary is not entitled to property under some valid inter vivos instrument and

must get legal title changed to the beneficiary at the owner’s death.

Why is a revocable trust valid and not a deed? At law, courts focus on whether the deed has been delivered and whether the grantor has lost dominion and control. In equity, to create a valid trust, the grantor need only manifest an intent to create a trust and, if land is involved, sign a written instrument to satisfy SOF. Delivery of a declaration of trust is not required of the grantor is the trustee. A revocable trust functions very much like a will but avoids probate.

Deeds given to 3rd party custodian [Escrow Agent] Although generally a deed delivered directly to a grantee cannot have oral conditions attached, a deed can be delivered in escrow with oral conditions attached. Grantor intends to pass title when all conditions fulfilled. Donative Escrow: where the grantor is giving the land to the grantee, but desires to postpone the grantee’s right to possession until a later date, usually death of grantor. Grantee’s rights: at the time of the delivery in escrow, the grantee receives a future interest in the property Writing not required: instructions to custodian may be oral or written. Effect of grantor’s reserving the power to revoke: if the grantor retrains the power to recall the deed, the escrow is

invalid. No delivery occurs because the grantor must give up control to have an effective delivery in escrow. If the grantor can recall the deed, the escrow agent is solely the grantor’s agent and no delivery takes place when the deed is put in escrow because it is not beyond the grantor’s control. [just like bailments].

Relation Back doctrine: in escrow cases, when a valid delivery in escrow has occurred, it is clear that neither grantor nor the grantee has full title until the second delivery. Legal rights depend on who has title, which is now in limbo. Courts invented this doctrine to do justice: although title not does pass to the grantee until delivery to him, upon that date title will relate back to the first delivery so the law assumes that is passed at the first delivery.

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If there is an enforceable contract of sale, the escrow agent is the agent of both the grantor and grantee. The grantor cannot recall the deed from the agent.

Relate Back: When the agent delivers the deed to the grantee, if necessary to carry out the parties’ intent and do equity, the title of the grantee will relate back to the date the grantor handed the deed to the agent.

o Ex. Grantor dies before the escrow agent delivers the deed, the delivery of deed by the agent is treated as if it occurred before the grantor’s death. – This avoids the rule that a will is needed to pass title at death.

o Title is regarded as having been transferred to the grantee during the grantor’s life. Problems with delivery arise concerning charities. Relation Back doctrine not applicable to subsequent BFP: if the subsequent purchaser has no knowledge of the deed

in escrow, he prevails.

Inter vivos transfers of land vs. Transfer at Death If grantor intends to pass title or a future interest to the grantee now, there has been a delivery even though possession

may be postponed until the grantor’s death. If the grantor intends that no interest should arise until death, no delivery during life has taken place; the deed cannot

take legal effect until death, no delivery during life has taken place; the deed cannot take legal effect at death bc the grantor intended it to be a will, not a deed, and the instrument is not executed with the 2 witnesses in accordance with the Statute of Wills.

A valid inter vivos transfer requires: 1) actual or constructive delivery of the deed to the grantee or a 3rd party2) an intention by the grantor to divest himself of the conveyed interest

The fact that the grantors continued to occupy the land, paid taxes on it, offered to sell it once and otherwise treated it as their own justifies an inference that no actual delivery of the deed to the named grantee took place.

Even if they intended to reserve a de facto life estate or power of revocation, the conveyance was not effective.

The MortgageOrdinarily the buyer will make a down payment of a small fraction of the PP and borrow the rest of the money needed. Once a loan is approved, the lender will issue its commitment to provide financing on specified terms within a specified period. It will require security in the form of a mortgage on the property purchased. Buyer usually must sign a standard form.

To borrow from a lender, buyers will execute a promissory note and a mortgage. The note, the document that evidences the debt, creates personal liability. To secure the note (to make sure the bank gets the property over other creditors), the lender will require buyers to execute a mortgage on the property they are buying. The mortgage gives the lender security. The buyers are the mortgagors, and the lenders are the mortgagees. If the buyer fails to pay their note or do not perform their obligations, the lender can have the property foreclosed and apply the proceeds of the sale to the amount due on the note. The mortgage ordinarily will be recorded in the courthouse at the time it is given, giving lender priority over

subsequent purchasers of the land, and subsequent purchaser or creditor takes subject to mortgage.

Federal National Mortgage Association changed the mortgaging process from local to national. Freddie May and Fannie Mac were govt sponsored enterprises were created to establish a secondary market in which mortgages could be bought and sold much like stocks, thereby evening out credit flows across the nation. They created Mortgage Backed Securities. Hundreds of mortgage loans where purchased and pooled together, securities representing the pool were issued to investors, who received payments of principal and interest as they were made by homeowners. The securities were guaranteed by Fannie and Freddie and so induced many investments, lowering interest rates.

Types of mortgage loans: Fully amortizing fixed interest rate mortgage: borrowers make a set payment (interest and principal) for life of the

loan. As P is gradually paid off, the part of pmt that is interest declines and P increases. Adjustable rate mortgage: Feature an initial below-market interest rate that gradually increases according to an

index based on debt issued by the Fed Reserve Bank. (Can go up or down a ltd amt each year and has a lifetime cap)

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Balloon Loan: the borrower pays a large sum at the end or refinances. The loan will not be fully paid off at maturity. Negative Amortization Loan: Below market int rate pmt with the difference btn market rate and lower rate addded

to the principal.

Applying for the Loan: Lender checks credit ranking, earnings, job security to determine if acceptable credit risk. If approved, Lender issues a commitment to provide the required financing on specified terms within a specified

period. Req. security in form of mortgage on property purchased. (B signs a standard form – strict terms) Promissory Note “note” that creates personal liability. To be secured, buyer required to execute a mortgage on

property. Mortgage: Gives the lender superior title over all other creditors and borrowers on a specified property.

o Mortgagor: Buyero Mortgagee: Lendero If Buyer fails to pay note or otherwise not perform obligations, L, either at a private sale or under judicial

supervision, depending on the jurisdiction, can have the property sold (foreclose the mortgage) and apply the proceeds of sale to the amount due on the note.

The mortgagor’s interest on the property is known as the equity. A foreclosure sale cuts off the borrowers equity of redemption (they could redeem their position from default from the lender).

The mortgage brokers make money by selling the mortgage not on the interest (they don’t care if the person can pay it back.)Any time you borrow – the borrower signs a note promising to pay back and then the borrower signs the mortgage securing the house as collateral for the loan.Foreclosure: What is being foreclosed in a mortgage foreclosure lawsuit the right of redemption.The mortgagor can redeem his property anytime he defaults. (England) Foreclosing the equitable right of redemption which came to be an equitable aspect of the foreclosure mortgage. It's a right the equity courts established. We are terminating that right through the foreclosure.

2 Ways the equitable right of redemption is foreclosed-Strict foreclosure-Sale foreclosure

We use the sale foreclosure (also recognized in SC) To terminate the equitable right of redemption-Whether there is a default-Whether lender has a right to foreclose

Then order a foreclosure sale through the master in equity to anyone who wants it.

Protective provisions: Even after foreclosure sale has occurred, certain persons have a right within a certain period of time to buy that property even though it’s already been sold. (Similar in SC)

May be a subsequent statutory repurchase. There is still another document that must be worried about. (The note) The note says you still owe the money.

The sale price goes to reduce your debt but the houses aren’t selling for very much. This is known as a deficiency judgment. The deed of trust makes it easier for the lender to cut off the rights of the borrower and transfer the rights of the property to someone else. (Not widely used in SC)

Foreclosure Sale: Foreclosure decree directed an officer of the court to sell the land at a public sale, conveying title to the property to the purchaser and, from the proceeds of the sale, paying the debt to the lender and paying any amount exceeding to the borrower.

Antideficiency statutes: Legislation designed to protect some borrowers from deficiency judgments.

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Deed of trust: Lawyers for lenders cast about a way to avoid judicial foreclosure which was costly and slow. They created the deed of trust, under which a borrower conveys title to the land to a person to hold in trust to secure payment of the debt to the lender. The essential difference: In a deed of trust, the trustee is given the power to sell the land without going to court if the borrower defaults. (mortgages may also have the power of sale incorporated into it). This method of foreclosure is quicker and cheaper than traditional foreclosure. Except for the method of sale, the deed of trust is treated like a mortgage.

The mortgage is taking the form of a deed in trust. Instead of the borrower giving the lender a mortgage, the borrower gives the lender a deed of trust. The borrower transfers title to a 3rd person as trustee for the lender to secure the debt. If the debt is not paid the trustee sells the land, pays of debt, and pays over to borrower anything left.

Financing of real property is not subject to uniform law. A 1st mortgage to the bank is paid of first. The 2nd mortgage to the seller (the rest of the down payment money, not included in the mortgage loan) is subject to payment of the 1st, therefore its higher risk, and has a higher interest rate.

Redemption from purchaser– statutory right to buy back the title from the purchaser at a judicial foreclosure sale within a specified period after the foreclosure sale.

Requires the mortgagee to bring a lawsuit ordering foreclosure sale of the property, cutting off the borrower’s equity of redemption.

Equity of redemption – judicially created right to redeem from the mortgagee. Does not apply until the borrower’s equity is extinguished at foreclosure sale

Deficiency judgment: Action the lender brings against he buyer to satisfy the remaining debt from the buyer’s general assets. If foreclosure is through a judicial proceeding, the sale price is ordinarily not challengeable (unless it shocks the conscience of the court) and the amount realized is applied to the debt, and the mortgagee is entitled to a deficiency judgment for the difference. Judicial proceeding is the more prudent route: When the foreclosure is by private sale, courts may be weary of the fairness of the transaction. Whether L can bring this action depends on whether the sale price of the property is fair and the appropriate amt to

credit against the debt.

Class Speaker: Note is the document that creates the debt of the mortgage. The note is a security instrument that says I owe you the money, here are the terms under which I am going to pay that. You multiple the interest rate by the outstanding balance and divide that by 365 days and that will come up with what you need to cure or how far behind you are on the debt.

If you don’t make your payment, you are in default and owe a certain amount. The lender puts you on notice. Anyone can sign on the note as a co-signer.

Mortgage is the real security instrument that attaches the debt to your property. It is the first lien on the property. When there is a lien that the first mortgagee didn’t know about, then it will trigger a title insurance claim. It also defines what the law is and alone with applicable fed law.

Personal Mortgage Insurance, banks usually require if you couldn’t put 20% down on your house. PMI job was to insure these bad loans, to make sure the banks had enough money to insure their bad debt.

A legal description has to be attached to put a title abstractor on notice that this person has a lien on this particular piece of property.

The lender will get property insurance for you if you don’t get it yourself. You have to have insurance. If you sell your house, the mortgage gets paid first. If a mortgage is detached from a property, you’re still liable

for the note. If you transfer the property, it does not release the mortgage from a property. Release: once you pay off entire note they will release you from the mortgage. Future Advances clause: gives the lender a security interest in the property for however much they might extend

over the face value of the note. It’s a priority issue with the second and third mortgage.

Foreclosure Process: in some respects is easy and some it is nerve-racking. It’s easy to go back and fix something in a foreclosure action.

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The note and the mortgage provide that if you default they can send you a notice that you have 30 days to cure, and if you don’t they can accelerate that debt in a notice to cure. It’s not really a debt collection or a consumer loan, however, there are situations in which it can be like a refinance. It’s very important that you bring your action in 20 days and if not then run another title search.

You have to have DMV on a mobile home foreclosure. SC is a judicial foreclosure state. Here the lenders want to get this done in 180 days. People are entitled to due

process. Prayer for relief: asks that the mortgage be foreclosed, that a judgment be rendered against borrowers and that it

be taken to sale. If deficiency judgment you’re asking for a judgment against the borrowers as well. Ask that judge retain jurisdiction on future issues that will arise.

o Deficiency judgments are weird: in the event property doesn’t sell enough to satisfy the debt, it causes some problems. If property is wroth or = to amount owed, then you need to consider that. It’s more expensive to seek a deficiency judgment. What are the chances that someone will pay the judgment in the next 10 years.

Hearing: before you go to hearing you prepare a package and some require a live testimony. At a foreclosure sale you have to put 5% down. Post foreclosure issues: once all this is done, usually it’s going back to the lender. If the appraisal is more than deficiency judgment, then the judgment will be subtracted by that amount.

MERS, Inc. is your nominee for lender. A nominee is a judicial fiction. The point of MERS was to make moving those debts around easier on the secondary market. The problem is because the courts are finding them to be a nominee. MERS doesn’t hold the note, their just the mortgage holder but someone else owns the debt. But the mortgage and debt are linked.

Class notes on speaker: there are two code provisions that were adopted by the legislature to try to provide some protection to ppl about the lose their homes. One section is §15 39 20 that provides that when the original bid is made, that bid stays open for 30 days. If they bid low, someone else can come in under this section 30 days later and make a higher bid. The notion is that if the property is wroth more, someone else can come in and bid at that fairer value, and that relieves in part the obligation of the homeowner. That 30 day provision 2nd bid will not apply unless the lender has asked for a deficiency judgment, which says that you still owe us the amount of the money that we don’t recover in the foreclosure proceedings, whatever the difference is in the note and the actual sale price. He also mentioned an appraisal process. If the bank has asked for a deficiency (to go after you personally for the amount of money still owed on note) then the borrower can ask for an appraisal. If an appraisal is made and the appraisers come back and say the house really was worth 200 gs and sold for 100gs, then that difference is money that the borrower no longer owes to the bank. It reduces the amount that you personally owe. There is a process for obtaining an appraisal. Usually, this is a waste of time because the house sold for what its worth. And reduce the amount that the homeowner has to personally pay back to the bank. § 29-36-80. 29-36-80 says that a borrower can waive the right to ask for an appraisal, and in the mortgage note there was a waiver provision in the note on TWEN. He suggested that if that waiver has been signed, the borrower doesn’t have the right to ask for an appraisal, however, the statute: a homeowner residing in their own residence cannot waive that appraisal right, it seems to apply only to commercial statutes.

Installment land contract or a contract for deed: an arrangement whereby the purchaser takes possession and the seller contracts to convey title when the purchaser has paid the full purchase price in regular installments over a fixed period of time. Payments may be allocated to interest or principle. If the purchaser pays the price in full, the seller agrees to deliver a deed conveying legal title to the purchaser. Keeping title is the seller’s security.

There is little difference btw this and a purchase money mortgage. Both are devises to secure payment of unpaid purchase money. But the installment land sale K, which provides financing by the seller, not by an institutional lender, is widely used in transfers of real estate in low cost housing and vacation lots because buyer may not have a down payment to qualify for a loan with a lender.

Installment land contracts are favored by sellers in those states where judicial foreclosure is the only method of foreclosing a mortgage, because it includes a clause proving that the buyer forfeits the land and the payments if the buyer goes into default so sellers hope to avoid expenditures on judicial foreclosure. The seller can keep all payments made under the K as damages on the buyer’s default.

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Murphy Model: the court is not involved in the foreclosure.

Bean v. WalkerΠ sold to ∆ for 15gs some property in an installment land contract. Buyers were to pay over 15 yr period then at the end then the sellers were to provide a deed to the buyers. Buyers were responsible for taxes and insurance on the property, yet seller still held legal title. Buyer made improvements and paid almost half.

The court suggests that if we are to apply contract law, then the TC outcome was okay with the suit in ejectment. But we need to apply property law. The court applies a property principle, and begins with the doctrine of equitable conversion. When the K is signed, the buyer is treated as the equitable owner of the property and the seller would have some lien for payment of the PP.

Problem: If you were to a title search on this mortgage situation, you wouldn’t find it and wouldn’t be on notice, yet the court says this is the result, that mortgages transfer equitable title to the vendee. The deed, is not a deed, it’s a mortgage, and there is no way that when I’m searching title I can figure that out.

The court says that since the buyer has equitable title, the only way the seller can reclaim that property is through mortgage foreclosure process because the vendor holds the legal title in trust for the vendee and has an equitable lien for payment of the PP. The court says this won’t always be the case. If the buyer has abandoned the premises or has only made one month’s payment, maybe the court will treat it differently and must be foreclosed as if it were a mortgage even though it isn’t a mortgage.

This happens a lot in SC, because people don’t have a lot of money for down payments and such, so this arrangement is very common. The problems mentioned in the bean case are typical. How would this case be treated in SC? (bond for title – it is referring to this sort of transaction). Lewis case in SC – buyer made payments for 12 years on one of these Ks, then they stopped making payments. For about four years they were in limbo and the seller’s didn’t do anything. So the buyers sent a letter that said we’d like to make our payments. Buyers made 141 of 182 payments, but in response to letter sellers said you owe us 8,000 and we want you off the property. The extra money comes from interest in late fees. The seller says, we want you off the property. Court says we aren’t in the business of enforcing penalties. If justice requires something to be done to avoid that, we don’t enforce bad contracts. The court suggests the buyer may have a remedy, but its not the same Bean analysis. It doesn’t say we have a right to foreclosure. Lots of fairness and justice floating around in the footnote.

In SC, there is some protection for homebuyers in this situation, but its not an automatic right to go through foreclosure proceeding like Bean suggests.

Title InsuranceWe deal here with the system our country has developed to assure purchasers of land that they have good title to the land purchased. At the heart is the public records office, where all instruments affecting land titles are recorded. Before purchasing, a buyer should hire a professional to search the public records office to discover the evidence of title recorded. The professional can see who has fee simple title, and if its encumbered by a mortgage or a servitude.

Some states offer title registration: the state registers title and issues a title certificate to the owner, which is reissued to each new owner of the property

Four methods of title assurance in the US: Grantors express warranties of title contained in deed – this is the oldest method, inhered from the English. System of recording land titles – this involves an actual search of public records in the county recorder’s office.

Each state has some kind of recording system. Title registration – this is available in one a few states and registers title to land, rather than evidence of title (as

with recording statutes) Title insurance – this method is increasing in use and insures good title, i.e., insures the accuracy of the records by

agreeing to defend the record title if litigated.

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To determine the rights of parties, consider: The language of the recording act (race, race-notice, notice) or registration statute. Whether any party has a BFP status (a purchaser or mortgagee who has no actual, record, or inquiry notice at the

time he gave consideration). The effect of any unrecorded or unregistered instruments, any errors in recording or registration, and who bears

the costs of those errors (grantor, grantee, title insurer)

Public records are not always perfect, and purchasers might want further security. So private insurance companies sell title insurance to purchasers for a premium. With title insurance companies backing up the recording system, security of title in the US is high.

The Recording System

CL Rule: Prior in time. A grantee who was prior in time prevailed over one subsequent in time.

Today: Public recording of deeds, mortgages, leases, and other instruments affecting land title began in this country in the Plymouth and Mass Bay colonies, this was not an English custom. In every American state, statutes provide for land title records to be maintained by the county recorder in each county. The land title records include copies of documents filed with the recorder and indexes to these copied documents.

The recording acts generally do not affect the validity of a deed or other instrument. A deed is valid and good against the grantor upon delivery without recordation. The recording system serves other functions.

o First, it establishes a system of public recordation of land titles. Anyone can ascertain who owns land in the county by searching the records.

o The recording system preserves in a secure place important documents that, in private hands, may be easily lost or misplaced.

Recording statutes specify what can be recorded but generally any kind of deed, mortgage, lease, option or other instrument can be recorded. Prior to judgment in a lawsuit, any party may record a lis pendens (notice of pending action) which will put others on notice.

o Protect purchasers for value and lien creditors against prior unrecorded interests. At CL, as btw successive grantees, priority of title was determined by priority in time of conveyance. The theory was that once the grantor conveyed his interest to a grantee, the grantor no longer had an interest to convey to any subsequent grantee.

That principle remains a foundation of our conveyancing process. Don’t forget it. If you transfer the property, how can you transfer that again. Unless there is a statute that might change that, as below. But always start with this principle.

o Exam: recordation is only an issue when there is more than one grantee contesting title. Recordation is not essential to the validity of a deed as btw the grantor and grantee. However, if a grantee does not record the instrument, he may lose out against other purchasers from his grantor.

The recording acts in general have adopted and broadened the equitable doctrine of BFP*Under recording acts, a subsequent BFP is protected against prior unrecorded interests. Thus a purchaser of property will want to search the records to make sure that there are no adverse prior recorded claims, and a purchaser records his deed in order to prevent a subsequent purchaser from a previous owner from prevailing over him. BUT remember: the CL rule of “prior in time, prior in effect” continues to control unless a person can qualify for protection under the applicable recording act. In equity, there’s some reason to protect buyer number 2. If something is recorded, then buyer 2 can’t complain about it.

Mechanics of Recording:

Filing copy: the grantee or his agent presents the deed to the county recorder, who stamps the date and time of filing thereon and makes a copy. The recorder files this copy in an official deed book which contains copies of prior recorded deeds. After the official copy is made, the original deed is returned to grantee.

Indexes: the recorder indexed the deed by entering a notation in the index book showing in which deed book the deed can be found reproduced in full. The index is used to find the deed in subsequent title searches. The usual

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Tract Index: indexing documents by a parcel ID number assigned to the particular tract, is not common. Why? Because early deeds were described in metes and bounds. All instruments are indexed on a page that deals only with the lot to which the instruments relate. This greatly simplifies title search because all deeds recorded for a particular parcel are right there.

Grantor-grantee system: separate indexes are kept for grantor and grantees, enabling a searcher to locate an instrument by searching under either the grantor’s name or the grantee’s name.

In the grantor index, All instruments are indexed alphabetically and chronologically under the grantor’s surname. The entry will include first the grantor’s name, then the grantee’s name and a description of the property and the type of instrument and a reference to the volume and page of deed book where the recorder’s copy of the instrument can be found.

The grantee index, all instruments are indexed under the grantee’s surname. There may be many different types of indexes for each instrument.

You use the grantee index to search backward and the grantor index to search forward, you must use both. In SC, we have a grantor-grantee system. In searching title I want to find all the documents relevant that I am interested in. you look at indexes, and that may tell you who has a better right on the property.

How to search title: you have to start on one side or the other. You start with the grantee because you know who that person is. Search under grantee starting at the present date to determine when he acquired the property. When you find your grantor’s grantor, then you switch to his name and search backwards. How far back do I go? There is no rule that tells you how far back to go. The farther the better. In SC, coastal property may date back to King’s grants in 1600s. In Irmo, may only go back 60 years.

Now you have to come forward from the grantor side to make sure he didn’t convey to someone else that we didn’t pick up in the grantee chain. If there is a gap in conveyance and recordation, we assume signed means delivered and so the grantee had ownership and could have conveyed, or if he didn’t until it was recorded property, and the grantor could have conveyed again too. In that circumstances is possible that the subsequent purchaser (of the non recorded deed) would have superior title. At the end, as you get closer to your starting point, you start to worry about mortgages being attached to the property, tax liens, easements and the like,

Judgment liens and tax liens become liens on all debtor’s land located in the county where the lien is filed under the name of the grantor, that’s why tract indexes are not used.

SC Filing Requirements § 30-9-30. Filing of written instruments concerning real or personal property; false or fraudulent documents. (A) Except as otherwise provided by statute, each clerk of court and register of deeds in this State shall keep a record, in the office in which he files all conveyances, mortgages, judgments, liens, contracts, and papers relating to real and personal property required by statute to be kept by him, by entering in the record the names of the grantor and grantee, mortgagor and mortgagee, obligor and obligee, or other parties to the written instruments, date of filing, and nature of the instrument immediately upon its lodgment for record. The filing is notice to all persons, sufficient to put them upon inquiry of the purport of the filed instrument and the property affected by the instrument. A return address must be provided on each conveyance, mortgage, judgment, lien, contract, or other document submitted for filing with the clerk of court or register of deeds. A document may be refused for filing if it lacks a complete return address. (B)(1) If a person presents a conveyance, mortgage, judgment, lien, contract, or other document to the clerk of court or the register of deeds for filing or recording, the clerk of court or the register of deeds may refuse to accept the document for filing if he reasonably believes that the document is materially false or fraudulent or is a sham legal process. Within thirty days of a written notice of such refusal, the person presenting the document may commence a suit in a state court of competent jurisdiction requiring the clerk of court or the register of deeds to accept the document for filing. (2) If the clerk of court or the register of deeds reasonably believes that a conveyance, mortgage, judgment, lien, contract, or other document is materially false or fraudulent, or is a sham legal process, the clerk of court or the register of deeds

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may remove the document from the public records after giving thirty days' written notice to the person on whose behalf the document was filed at the return address provided in the document. Within thirty days written notice of the proposed removal, the person providing the notice may commence a suit in a state court of competent jurisdiction preventing the clerk of court or the register of deeds from removing the document. (3) If a clerk of court or a register of deeds improperly refuses to accept for filing or recording or improperly removes from the public records a conveyance, mortgage, judgment, lien, contract, or other document pursuant to this section, the clerk of court or register of deeds is not liable for damages, personally or in his official capacity, for the improper refusal or removal. (4) For purposes of this subsection: (a) "Sham legal process" means a document that is not issued lawfully and that purports to be a judgment, lien, or order of a court or appropriate government entity, or otherwise purports to assert jurisdiction over or determine the legal or equitable status, rights, duties, powers, or privileges of a person or property. (b) "Lawfully issued" means adopted, issued, or rendered in accordance with applicable statutes, rules, regulations, and ordinances of the United States, a state, or an agency or a political subdivision of a state.

Types of Recording Acts

Race statute: as btw successive purchasers, the person who wins the race to record prevails. Subsequent purchasers or actual knowledge of prior purchasers is irrelevant. Whoever winds the race to record prevails over a person who has not recorded or who subsequently records. Notice is irrelevant.

Pro: limits inquiry into matters off the record. The question of who knew what doesn’t matter. Typical language: “no conveyance or mortgage of an interest in land is valid against any subsequent purchaser

whose conveyance is first recorded.”

Notice statute: A subsequent BFP prevails over a prior grantee who fails to record. The subsequent purchaser wins under a notice statute if he has no actual or constructive notice of a prior claim at the time of the conveyance. If a subsequent purchaser had notice of a prior unrecorded instrument, the purchaser could not prevail over the prior grantee, for such would work a Fraud on the prior grantee.

The virtue is fairness btw two conflicting claimants, but inasmuch as the question of whether the subsequent purchaser has notice depends on facts not on record, notice statues are less efficient than race statutes.

½ the states What does B have to do to win? I have to purchase without notice. Does B have to record? No. depending on

what statute you’re dealing with, the outcome is entirely different. When you research recording problems, the first thing you have to do is figure out what kind of statute you’re dealing with.

Typical language: “A conveyance of an estate in land shall not be valid against any subsequent purchase for value, without notice thereof, unless the conveyance is recorded.”

Exam: remember, the subsequent BFP is protected regardless of whether she records at all. Thus, if O conveys a parcel to A and A does not record, and O subsequently conveys the same to B and B does not record, B will prevail over A even though their conduct is similar.

A race statute protects a subsequent purchaser only if the subsequent purchaser records first. A notice statute protects a subsequent purchaser against prior unrecorded instruments even though the subsequent purchaser fails to record.

Race-Notice Statute: 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. In order for a subsequent purchaser to win, he must both be without notice and win the race to record.

Tends to eliminate lawsuits turning on extrinsic evidence about with deed was delivered first. Punishes non recording, it provides motivated to record, making the public records complete. ½ the states It’s the second party that will be arguing for the application of the recording statute. We’re not concerned with the

first party, it’s the second party. Typical language: “a conveyance of an estate in land shall not be valid against any subsequent purchaser for

value, without notice thereof, whose conveyance is first recorded.”

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No conveyance of real property shall be good against subsequent purchasers for value and without notice, unless the same be recorded according to the law. What type of statute is this? This is a notice statute. You look at it and your first notion is it’s a race-notice. What’s not recorded? The first conveyance. Unless the same refers to a conveyance to a prior purchaser, and if its recorded then its constructive notice. I must go to the courthouse and check.

Shelter rule: a person who takes from a BFP protected by the recording act has the same rights as his grantor.

The lawyer is liable for negligence for failure to record a deed promptly if the grantee suffers.

The actual copying by the recorder of a document into the records does not necessarily mean that the document is “recorded” so as to give constructive notice. Usually, statutes require that, in order for an instrument to enter the records, it must be acknowledged before a notary or other official. If the record does not show that the tax has been paid, a deed actually of record may be deemed illegally recorded.

SC Recording Statute – Race Notice Jurisdiction 30-7-10. Conveyances, liens and other transactions valid as to subsequent purchasers and creditors without notice when recorded.All deeds of conveyance of lands, tenements, or hereditaments, either in fee simple or for life, all deeds of trust or instruments in writing conveying estate, creating a trust in regard to the property, or charging or encumbering it, all mortgages or instruments in writing in the nature of a mortgage of any real property, all marriage settlements, or instruments in the nature of a settlement of a marriage, all leases or contracts in writing made between landlord and tenant for a longer period than twelve months, all statutory liens on buildings and lands for materials or labor furnished on them, all statutory liens on ships and vessels, all certificates of renunciation of dower, all contracts for the purchase and sale of real property, all assignments, satisfactions, releases, and contracts in the nature of subordinations, waivers, and extensions of landlords' liens, laborers' liens, sharecroppers' liens, or other liens on real property created by law or by agreement of the parties and generally all instruments in writing conveying an interest in real estate required by law to be recorded in the office of the register of deeds or clerk of court in those counties where the office of the register of deeds has been abolished or in the office of the Secretary of State delivered or executed after July 31, 1934, except as otherwise provided by statute, are valid so as to affect the rights of subsequent creditors (whether lien creditors or simple contract creditors), or purchasers for valuable consideration without notice, only from the day and hour when they are recorded in the office of the register of deeds or clerk of court of the county in which the real property affected is situated. In the case of a subsequent purchaser of real estate, or in the case of a subsequent lien creditor on real estate for valuable consideration without notice, the instrument evidencing the subsequent conveyance or subsequent lien must be filed for record in order for its holder to claim under this section as a subsequent creditor or purchaser for value without notice, and the priority is determined by the time of filing for record.

SC 30-9-40: 30-9-30: it only requires the names/dates and nature of the index. SC is a Race-notice state so it seems because the subsequent purchaser need to be without notice, and file first.

30-70-90: Possession is not notice, actual notice only.

SC Indexing Statute30-9-40. Requirement and effect of indexing of instruments filed for recording.The register of deeds or clerk of court in those counties where the office of the register of deeds has been abolished shall immediately upon the filing for record of any deed, mortgage, or other written instrument of the character mentioned in Section 30-7-10 or Chapter 9 of Title 36 enter it upon the proper indexes in his office, which constitute an integral, necessary, and inseparable part of the recordation of the deed, mortgage, or other written instrument for any and all purposes whatsoever, and this shall likewise apply to any copy of the indexes made subsequently by the register of deeds or clerk of court, or the deputy of either, or by his authority for the purpose of replacing the original indexes. The entries in the indexes required to be made are notice to all persons sufficient to put them upon inquiry as to the purport and effect of the deed, mortgage, or other written instrument so filed for record, but the recordation of a deed, mortgage, or other written instrument is not notice as to the purport and effect of the deed, mortgage, or other written instrument unless the filing of the instrument for record is entered as required in the indexes.

Luthi v. EvansMother Hubbard Clauses: provision in a deed that attempts to sweep within it other parcels no specifically described. Generally, MHC not valid against subsequent purchasers of the un-described land, and a BFP would not take subject. The reason is because it is an undue burden to require a title searcher to read all conveyances of other lots by an owner of the subject lot to see whether conveyances affect the subject lot. Owner of a number of leasehold interests conveys them initially to International Tours, and she conveys one of the properties a second time.

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Kansas has both types of indexes. The court says what you have to do is look at the combination of both the grantor-grantee system and the tract system and under the tract system. This one couldn’t be recorded under the tract index because the recorder wouldn’t have a way to know what the property is because there is no description. There is no notice, so ∆ is home free. He would have lost if he had actual knowledge of the other conveyance. If he actually knew that’s another matter all together.

Holding: Yes. Based on statute, the recording of the assignment from Owens to Tours did not describe with sufficient specificity the property conveyed, and was not sufficient to impart constructive notice to Burris. Burris prevails over Tours. Next time, a grantee like Tours, in order to prevent subsequent purchasers from getting the interest may want to do one of 2 things: 1) take possession of the property or 2) as soon as a specific description can be obtained identify the specific property covered by the conveyance by filing an affidavit or other appropriate document with the register of deeds. As between parties to the instrument, The Assignment did include the Kufahl lease. also concurred with appellate court several interests with specific descriptions or general descriptions capable of being made specific, could be conveyed by one instrument. Also, that a subsequent purchaser with actual notice of the document takes subject to the rights of assignee or grantor. Burris was not a party to the instrument. And he was a BFP.

Looked to the Kansas statutes as to what was required. All seemed to require some description of the interest. Hence to constitute constructive notice, the property conveyed must be with sufficient specificity so that the land could be identified.

That was not the case with paragraph 2 of the assignment. Legislature intended for recorded instruments of conveyance to give constructive notice to subsequent purchasers.

A Mother Hubbard transfer is not effective as to subsequent purchasers or mortgagors unless they had actual knowledge of the transfer.

Orr v. BuyersA lot of states through their Bar have established Title Standards. Directions to lawyers to say what is and is not okay. We don’t have that in SC. We aren’t sure. The instrument does not give constructive notice unless it identifies the party by her correct name.

Note 1 page 582 is SC. O to A who does not record. O then conveys to B who buys in good faith for valuable consideration, but does not record. A then records and conveys to C. C purchases in good faith and for a valuable consideration. B records. C records. In SC B prevails. In notice state, C prevails. In all of these conveyances, what we see is that somebody has sold something they don’t own. Simply to move that out of a normal transaction into one involving an estate doesn’t make it any different. SC Supreme Court said the conveyance was good even though the decedent had earlier conveyed the same property.

Requirements of Recordation: The fact that an instrument has been copied and entered into the recorder’s office does not necessarily mean that the instrument has been recorded. The instrument must be entered in the recorder’s books in a manner complying with applicable statute or judicial decisions.

Failure to index: courts are split over grantee is protected if a clerk fails to index the instrument properly. o Indexing under misspelled name: if an instrument is indexed under a misspelled name, does it give

constructive notice? Traditional rule: applied the doctrine of idom sonans (pronunciation) and held that recorded names pronounced substantially the same as the correct ones have constructive notice to subsequent purchasers. Exam: modern courts reject the traditional view and hold that the misindexing is not effective.

Recording unacknowledged instrument:o No acknowledgement: because an unacknowledged deed does not qualify for recordation, it does not give

constructive notice to subsequent purchasers. Unless the subsequent purchaser has actual or inquiry notice of the earlier deed, the subsequent purchaser prevails.

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o Defective acknowledgement : when the recorded instrument has been acknowledged but it is defective for some reason not apparent on the face of the instrument, the better view is that the recordation imparts constructive notice. However, it has been held under a race notice statute, if an instrument in the chain of title bears a defective acknowledgement, no later instrument in the chain can be deemed properly recorded so as to defeat a prior unrecorded claim. Messersmith.

Mesersmith v. SmithAnt and niece were co owners of the farm. Aunt conveys her half and the nephew makes the mistake of not recording the deed from his ant. This property becomes potentially valuable for oil and gas exploration. Grantor signed a deed for the interest in the minerals. She signs the first deed to Smith and Smith and notices an error that said his heirs instead of her heirs. Smith goes back to Ant and says I need to correct this, must sign the same deed as you did before. She signs it and according to the info in the opinion., Smith calls the notary and the notary is willing to re-acknowledge the deed and it’s the same one she signed before. Smith conveys this interest to Seal. Both of those conveyances are recorded. Subsequently, the nephew wakes up and has his deed recorded. Issue: whether or not the conveyance by the aunt to Smith, from Smith to Seale is valid. First – this is a race notice statute. 30-7-10 in SC: is also race-notice. You must pay attention to what is it that is required to be recorded in order to provide protection under the recording statute. Here, you see quickly, all deeds, either in fee simple or life, trust. Generally, donees do not get benefit of the recording act, must have valuable consideration. Priority is determined by time of recordation.

Smith doesn’t get the benefit of the recording act, neither does Seale. The question is, does this result make sense? There is an issue of whether you need to physically appear before a notary. The acknowledgement on the deed on its face looks valid, so that should have provided constructive notice. Lawyer does title search, how in the world are you going to figure out that this isn’t proper? You can’t do that.

Pg 588: in example 6, B at least knows there is a conveyance from O to A. Its not defective on its face, he knows its there because it would show up on a title search. What the court here is doing, there is a suggestion that the answer should be yes. Likely, the answer should be no and that the cases got it messed up from a policy point of view.

It has been held that a race-notice statute protects the subsequent purchaser who fist records his own conveyance only if all prior conveyances in his chain of title are also recorded. This has been challenged by the Real Property Journal.

Seale would have one because he didn’t have notice if this was a notice statute state.

Chain of Title ProblemsEven though an instrument has been recorded and indexed, it might not be recorded in such a way as to give notice to subsequent purchasers. The deed may not be in the “chain of title”. To give notice to subsequent purchaser, a deed must be in the chain of title.

Chain of title refers to the recorded sequence of transactions by which title has passed from a sovereign to the present claimant. Also, it means: the period of time for which records must be searched and the documents that must be examined within that time period. The meaning varies from jurisdiction to jurisdiction, and includes the series of recorded documents that, in the particular jurisdiction, give constructive notice to a subsequent purchaser.

o In all grantor-grantee systems, a purchaser is charged with notice of those conveyances of the property by her grantor recorded after the grantor acquired the conveying title from that grantor to another. Likewise, the purchaser is charged with notice of conveyances made by the various predecessors in title during similar periods of ownership. This is a standard title search, and documents found in a standard title search are in the chain of title.

o Wild deeds: a recorded deed to the property which is not recorded within the chain of title.

Allendale in SC case: there was a bank lender that financed the development and operation of the landfill. The bank had on 3 separate occasions loaned the bank money and took back a mortgage on all 3. The bank and owner of property decided to consolidate the mortgages into one, a 4th mortgage. As part of that process, the bank agreed to cancel the first 3

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mortgages. Subsequently, there was work done on the property and by mistake, instead of canceling the first 3 mortgages, they cancelled all 4. The bank assumed they still had a good mortgage, but down at the court house isn’t any mortgage. You have contractors working on the landfill and filed mechanic’s liens on the landfill when they weren’t paid. Then the question arose, owner of landfill can’t pay, whose claim against property is better? The mechanics lien holder or the bank? Lien holder’s said we do, because the mortgage was cancelled and we had no notice they were claiming and they were the first to notice. The court asked the lien holder, would you have done the work on this landfill even if you had known that the developer owed the bank money on the 4th mortgage? Lien holder said yes, we would have – we in fact never did check title, we just went ahead and did the work without worrying about other mortgages. Because of the mistake, and because of the fact that the court found that lien holder didn’t really rely, the court said the bank can re file its mortgage and they are first. That’s a VERY unusual outcome. Good lawyers can figure out a way to avoid the impact the statute seemed to specifically require.

Grantor not connected to chain of title: If a grantee conveys to a subsequent purchaser without recording his own deed from the grantor first, is that recorded new deed constructive notice? If a deed entered on the records has a grantor unconnected to the chain of title, such a deed is not recorded within the chain and does not give constructive notice.

Board of Education v. HughesThis court uses a race notice statute. The first question that has to be answered in any recording act problem. Always assume for exam we are grantor-grantee index system. You have to figure out whose first and who is second. What is Hughes here, is he first or is he second? According to the court he is second. The diagram doesn’t make any sense because he was the first one to receive the deed, but its not operative until the name of the grantee is included in the deed. The deed wasn’t effective until the name was filled in, therefore he is second. Can this deed even be effective? Yes. That type of law is agency law. You have to look to agency law to see if Hughes is authorized to fill in his name on the deed by the grantor Hoerger. He did have some sort of authority to do that. When he did, that meant the deed was effective. If you do a title search, you look at the date of the deed. In searching the title you would have no reason to presume that the name was filled in at a later time than the name on the deed. If Hughes is second, did he purchase without notice, and did he record first? We have no reason to suspect D & W is a subsequent owner. The court concludes that Hughes is the winner because he never would have found the transfer from D & W to π. He would be a stranger to the title.

If Hughes was first buyer and we are in a notice jurisdiction, then Hughes would not be protected. The School Board would win.

What if Hughes is the first buyer and we are in a race-notice jurisdiction? Assuming the conveyance to Hughes, this is where there is an open question. There is an argument that the board is not the first to record since its chain is not first recorded. That would be reflective of the Zimmer case. Then, what are the rights of the Board against D&W and against Hoerger? Deeds from common grantor of adjacent lots: The next chain of title problem involves interests in an adjacent or nearby lot owner created by a person who once owned the adjacent lot as well as the tract at hand. Must a purchaser look at deeds to other lots from a grantor who owned the subject lot? The courts are split.

Guillette v. Daly Dry WallWhether a purchaser is bound by a restriction contained in deeds to its neighbors from a common grantor, when it took without knowledge of the restrictions and under a deed which did not mention them? ∆: I only had a duty to ascertain restrictions in former deeds in its chain of title.

Would there be an equitable servitude? Without the Guilette deed, the developer said and all the rest of the property would be similarly restricted, and without that Guilette deed or one identical to it, then this court says there isn’t a restriction. There would not be a restriction on the Daly lot. This is inconsistent, because this is all from a general plan. It’s the Sanborn case. In that case, you had exactly the opposite result. The court said yes there is a restriction on the other land not because it specifically said all lots are restricted, but because we implied that. This court says we won’t imply that, it must be in writing, and if not then forget it. Without the Guilette deed which had it in writing, the court can go to the next question of whether or not its binding. What’s the rule in Mass, in Mich, in NC, in Fla.. they aren’t the same. SC is the same as Sanborn.

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The question is not whether there is or is not a restriction. There is, because of the writing. The question is is ∆ bound by restriction in neighbor’s deeds not contained in his own from common grantor? Yes. You’re not just searching your own deed, you’re searching your neighbors.

Does a title searcher have a duty to examine the records under the name of each owner prior to the date of the deed transferring title to the owner?

Majority: emphasizes the cost of a title under the name of every owner for many years prior to the date the owner received title, looking for a possible prior deed given by the owner. The first grantee who recorded, but her grantor did not yet have title, could have waited to record until her grantor did have title. This deed is outside the chain of title and does not give constructive notice to subsequent purchasers.

o This is not a problem in tract number index systems.

Deeds recorded late: Must a purchaser search the index under the name of a grantor after the recordation of a deed by that grantor transferring title? Or, does a deed recorded after the grantor is showing by the record to have parted with title give constructive notice? Finally is the matter of a prior deed recorded after a later purchaser with notice has recorded a subsequent deed. The question is whether a prior deed from an owner recorded after a later deed from the same owner gives constructive notice of the prior deed to subsequent purchasers from the grantee of the second deed.

The courts are split. Limited search required: Morse v. Curtis: 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. If a prior deed recorded after the 1st recorded deed gives constructive notice, the title searcher must search under the name of every owner to the present time to see if the owner gave a prior deed recorded after the 1st recorded deed.

Extended search required: Woods v. Garnett: opposite view. A deed recorded later – after another deed from the same owner – gave constructive notice to subsequent purchasers. The costs of title searching are increased.

o This problem does not arise in tract indexes because the late recorded deed will be seen by the title searcher.

Persons Protected by the Recording SystemThe recording statute in each state must be read carefully to see who comes within the protection of the statute. By judicial construction, the recording statutes have been held, almost everywhere, not to protect donees and devisees, even in race jurisdictions.

In general – only a BFP is entitled to protection under notice and race-notice statutes. To be a BFP, a person must: a) be a purchaser b) who takes without notice of the prior instrument, and c) gives a valuable consideration.

o Exam: in determining who is a BFP for purposes of protection of the recording statutes, remember that the purchaser must be without notice at the time of conveyance. It does not mater if she learns of an adverse claim after the conveyance but before recording.

Sometimes a court must decide whether someone is a protected purchaser or a donee and not protected. The court may have to determine what is a valuable consideration for purposes of obtaining the protection of the recording act. Purchasers: all recording acts protect purchasers of any interest in the property. Some recording acts expressly apply to mortgagees as well as to purchasers.

Even if the statute does not apply to mortgagees expressly, mortgagees are treated as purchasers under judicial decisions because they take a security interest in the property in exchange for value.

o Shelter rule: a person who takes from a BFP will prevail over any interest over which the BFP would have prevailed. This is true even where such person had actual knowledge of the prior unrecorded instrument.

Donees: generally, donees do not come within the protection of the recording system because they do not give value. It is considered unfair to take property away from A and give it to B if B does not give consideration.

Exam: unless the recording statute says otherwise, recording acts generally do not protect donees. Thus, if there are two subsequent donees, apply the CL rule of prior in time and not the recording statute.

There is some disagreement as to how much a grantee must pay to be deemed a purchaser. Most courts require more than a nominal value, such as a “substantial amount”, or an amount “not grossly inadequate”.

If a deed recites that it is for $1 and other good and valuable consideration, this raises a presumption that the grantee is a purchaser for valuable consideration, and places the burden of going forward to establish the falsity of the recital of consideration on the party attacking the deed.

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Exam: a purchaser is protected by a recording statute only from the time consideration is paid. Even if the deed was delivered and recorded before the consideration was paid, a purchaser will not prevail over deeds recorded subsequently but before the consideration was paid.

Creditors: the recording acts vary considerably about creditors, so acts and judicial interpretation must be considered carefully.

Partial payment of consideration: where the purchaser has paid only part of the purchase price and has given a note to the grantor for the balance, most courts protect the purchaser only to the extent of payment made. Depending on the equities, the court will either give the subsequent purchaser a lien to the extent of the amount paid or give the prior grantee a lien to the extent of the balance still owed the grantor by the subsequent purchaser. Under the first alternative, the subsequent purchaser loses the land, but he receives his money back.

Daniels v. Anderson: contrary to what Jack promised the Daniels, he sold to Z without giving Daniels the option to buy. After Z paid some of PP, Daniel told Z that they had the right to buy the property. Z ignored that, and then paid the balance in full and recorded the deed. There is a first semester issue floating around in this case – the rule against perpetuities. When is the option exercised? A lot of RAP problems are involved around options. You can’t get away from this stuff.

o Pro tanto rule: protects the buyer to extent of payments made prior to notice, no further. Methods to apply pro tanto protection: most common – award land to interst holder and award

buyer the payment he made. Or, award buyer fractional interest in land proportional to amount paid prior to notice. Third, allow buyer to complete purchase buy pay remaining installments to interest holder. The court here picks the first option and makes the Zs give up land but they get there money back.

In a minority of states, a purchaser who gives cash and notes in payment of the purchase price is fully protected as a subsequent BFP. Lewis v. Superior Court: lis pendis filed before closing, but it wasn’t indexed until after the closing. Whose first btw

Fontina who has the lien and the Lewis’s who are the purchasers. The court here is assuming that the filing of the lis pendis is the first event that would create a claim on that property. Understand the equitable conversion argument, but the court doesn’t treat it this way here and say that Fontina is first. If they weren’t first, then this case would be treated entirely different.

o Davis case: Subsequent BFP not protected until they pay entire PP. The court says no, this isn’t applicable because in Davis no one was hurt. Here, the Lewis’s are hurt, they relied on the agreement, improved the property. Also, Davis was a case of actual notice and not constructive notice.

o If the lis pendis had been properly recorded on Feb. 24th, this case comes out entirely different. The Fontina’s would have one because the Lewis’s would take subject to notice on Fontina’s claim. CA at the time is a race-notice jurisdiction. Lewis’s being second would have notice of the preceding lien filed on property. That tells us that if I’m a lawyer for a buyer, I must have a title search RIGHT before you close, to prevent a situation like this one.

o What if this was a race jurisdiction? The Fontina’s would win. o Yes, the Fontina’s were first. They filed, that’s when it was effective, however the issue here was notice.

Lewis’s did not have notice. The lis pendis wasn’t notice until it was indexed. Yes, Fontina filed first but it didn’t suffice as notice because he acquired equitable title before constructive notice.

o SC would come out like Lewis, probably.

Parties: Lewis challenges the Superior Court's inclusion of them in a suit as a third party who took notice when they purchased property of a suit against the seller of their property.Cause of action/remedy sought: The following is a legal action for SJ.Facts: PL's purchase of property from Shipley in February 1992. A few days before PL's acquired title, Shipley was given notice (lis pendens) of a suit against it. Closing took place February 28, the deed was recorded on that day, and indexed the day after. Issue(s): Under CA property law, does a purchaser of property take constructive notice of a lis pendens action when

the deed was indexed the day after title was acquired? Holding: No. The court held that where little of the purchase price remained unpaid, or where substantial

improvements had been made prior to notice, equity demanded that petitioners retain the property and that the

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defrauded party be limited to money damages. The court further held that the claims against the seller all involved alleged fraud and conversion, not disputes over title, and that therefore the lis pendens was invalid.

Court's Rationale/Reasoning: The court balanced the equities based on previous case law, and found that it would be inequitable to force a purchaser to check the record after he has already acquired title and title insurance. PL's paid cash for such property, requiring no equitable interest to be held for them; they owned the land upon the conveyance of the deed.

Why does the suit with Fontana have anything to do with buyers? Because Fontana had pending litigation (lis pendens). This puts everyone on notice that there is an existing suit. The doctrine of lis pendens is an application of the statute of Quia Emptores- it is a common law doctrine that existed long before recording statutes. The problem was applying the doctrine with the recording statutes. In order for a subsequent owner or purchaser to be bound by the doctrine, there had to be notice in the public records.

If it has been recorded the whole world has constructive notice, however in this case, although the notice was recorded, it was not indexed until after the buyers . This shifts the burden from the buyer to the one doing the recording to not just record but record it early enough to make sure it is properly indexed. This is a minor burden than for the buyer to see if there was an un-indexed document in the courthouse. Since they paid off the note in cash after the indexing, the issue was whether they were still a bfp. One does not need to pay cash to be a bfp

Rule: If a purchaser receives title, title insurance entitled under the purchase agreement, then constructive notice before payment would make the situation inequitable for a purchaser, as they would have to undertake a title search before each and every payment.

Creditors: a number of statutes protect creditors against unrecorded deeds and mortgages. Courts have interpreted these to protect only creditors who have established a lien and not all creditors. Merely lending money does not give priority over unrecorded instruments.

Quitclaim deeds: in a few jurisdictions, a purchaser by quitclaim deed cannot claim the position of a BFP without notice because the refusal of the grantor to warrant title should create a strong suspicion that the title is defective.

In a large majority: a quitclaim deed is treated the same as a warranty deed for purpose of giving notice. There are many reasons why a grantor may use a quitclaim deed other than a questionable title.

Notice: To be protected by notice or race-notice statutes, a subsequent purchaser must be without notice. Meaning, purchaser had no notice of the prior claim at the time he paid consideration and received his interest in the land. The three types of notice a person may have with respect to a prior claim: actual, record, and inquiry.

Actual notice arises where one is personally aware of a conflicting interest in real property, often due to another’s possession of the property. If a subsequent grantee actually knows of the prior instrument, he has actual notice and is not a BFP.

The latter two are forms of constructive notice – notice that the law deems you to have regardless of your actual knowledge.

Record notice consists of notice one has based on properly recorded instruments. If an instrument is properly recorded, any subsequent purchaser has record notice and its therefore not a BFP.

Inquiry notice is based on facts that would cause a reasonable person to make inquiry into the possible existence of an interest in real property. Under certain circumstances, a purchaser is required by law to make reasonable inquiries. He is charged with notice of whatever the inquiry would reveal, even though he made no inquiry.

Inquiry from possession: The majority view is that a subsequent purchaser (or creditor, mortgagee) is charged with knowledge of whatever an inspection of the property would have disclosed.

Waldorff v. Elgin BankThe court ignores the 72 mortgage, because its been paid off by the foreclosure funds by 76 foreclosure sale, so the court is really focusing on 73 and 74 mortgages compared with Waldorff’s interest. Waldorff’s interest was recorded second. The purchase agrmt was in 72. Should that be the first document or should the deed to him be the first document? The court says the purchase agrmt is wait creates an ownership interest in Waldorff. We have seen two cases where that argument has been made and failed. Here, the court suggests its the K that is what is the first claim to the property regarding the 2nd and 3rd mortgage. Issue: was πs occupancy of 111 enough notice so as to make πs interest in unit superior to that of the bank? If yes, in notice jurisdiction, Waldorff wins. In a race-notice, the bank must record first without notice, so Waldorf wins again.

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We’re talking about inquiry notice, constructive, it’s not notice from something on record, its notice from the physical behavior with respect to the premises. Should I know that someone other than the developer has an ownership interest of some type because of physical activity with respect to the property. Bank: π was one of many occupants, who did not own their unit. The court says sorry, the nature of the property is that each unit is individually marketed and separately owned, unlike an apt complex. Waldorff at the time he signed the K, has he paid the pp? no. Did he pay the full pp subsequent to the mortgages being placed on premises? No. Why don’t we apply the doctrine that is applied in the Daniels case? The pro-tanto approach. Because it only applies to the second purchaser and not the first. Waldorff is not second, he’s first. Rule: a K to convey legal title to real property on payment of pp creates an equitable interest in purchaser, beneficial ownership passes equitable title to purchaser while seller retains naked title. Subsequent successors to legal title take burdened with equitable interest of which they have actual or constructive notice. In Florida: actual possession = constructive notice to anyone with knowledge of possession of whatever rights occupants have in land – puts inquiry duty on those acquiring title to find out what rights the occupants have. In SC: this case would come out opposite. Possession is not notice to subsequent purchasers because recordation is essential to validity of an instrument. §30-70-90 below.

SC Notice Statute RECORDATION ESSENTIAL TO VALIDITY30-7-90. What constitutes notice of unrecorded instrument.No possession of real property described in any instrument of writing required by law to be recorded shall operate as notice of such instrument. Actual notice shall be deemed and held sufficient to supply the place of registration only when such notice is of the instrument itself or of its nature and purport.[It has to be something that is required to be recorded] Is the Waldorff K something required to be recorded? Yes, all K for purchase and sale of real property. To be recordable, the document must be in certain form. Certain things must be put in the document that make it recordable, typically witnesses, etc. People never had Ks in recordable form. You can make it recordable, but its rare. But we still have thos provision. Certain times inquiry notice works, and sometimes it doesn’t. The interrelation of the two statutes is interesting.

Inquiry from Neighborhood: Deeds out from a common grantor (sub-divider) to buyers of other lots in a residential subdivision may contain express written restrictions on land retained by the common grantor and later sold to a subsequent purchaser without any restrictions. Or, under the doctrine of implied reciprocal easements, a negative restriction on use may be imposed by implication on a lot in a subdivision, where there is a uniform scheme for development of the subdivision, even though the deed contained no restrictions. If the restriction is not contained in a deed in the direct chain of title of the subject lot, the only way a purchaser can find such a restriction is to read al the deeds to other lots from the common grantor.

Sanborn held that if, from the looks of the neighborhood, a purchaser should reasonably conclude that a restriction on the use of the lot might exist, the purchaser is put on inquiry notice of the contents of other deeds out from the common grantor. These deeds may show a scheme from which a restriction will be implied on the purchasers lot.

Inquiry into unrecorded instruments: if a recorded instrument refers expressly to an unrecorded instrument, in most states the purchaser has an obligation to make inquiry into the contents of the instrument. The purchase has constructive notice of its contents.

Harper v. Paradise: The fight is btw the Paradise’s and Maude’s heir who was supposed to get the remainder of her life estate from the original (lost) deed. The applicable statute does not protect the Paradise’s because the 28 deed mentioned the 22 deed, and thereby put the Paradise’s on notice that there’s another deed out there, and they are charged with inquiry notice as to the contents of the earlier deed and the interests conveyed therein. It was Paradise’s duty to ascertain through diligent inquiry what was in the other deed.

A deed in a chain of title is constructive notice of all other deeds referred to in deed discovered. Appellees did not show futileness of inquiry, so it is presumed that the due inquiry would have revealed the information.

o SC has a race-notice too. But, still.. we wouldn’t be able to find the other deed because its in the trunk in the attic. The Paradise’s wouldn’t have been able to see that other deed anyways, but they at least had to ask, and should not have taken the property if they couldn’t ascertain what was in the original deed.

o Equity: why should Paradise’s lose if they couldn’t find the original deed anyways? Also, $50 is an unjust amount to lose the whole farm which is what the land sold for at foreclosure.

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SC: not sure if there are cases which have raised this issue, but essentially most states say if you take from an heir of distributee, you are generally protected as if you bought from deceased person. We probably have a similar statute.

Harper problem in SC: there is property on Sumter Highway, when it was widened owners didn’t want to sell. They resolved the lawsuit. There was a deed given to Highway Dept. and a provision in the deed said “the Highway Dept has right to construct a frontage or access road as shown as supplemental plans showing frontage road with reference to docket number. Subsequent purchaser said they didn’t have notice of this provision. Court said no, because if you looked at the discussions of project you would see there were some plans and all you had to do is look at those plans and lawyers said where are the plans? They’re in the basement of the Highway Dept. building, and if you looked you would have seen there was a sewer line so you are on notice. No lawyer would think they had to do that. Reference to the plans was enough to put you on notice that you had to go see what’s in those plans that might affect the property.

If there is anything in record title that alerts you there may be something else out there, you need to go look wherever that may be.

Problem 3 page 597: Apply Harper to this problem. C is bound by A to B mortgage because A to O mentioned that its subordinate to the previous mortgage.

Marketable Title ActsAttempt to limit record searches to a specified number of years, usually 30 or 40. When one person has a record title to land for a designated period of time, inconsistent claims or interests are extinguished. Except for the interests excepted from the statute, title searches may be safely limited to the number of years specified in the statute. For example: under a 40-year statute, if a good record chain of title is found based on a root of title more than 40

years old, any claims arising prior to the root of title (with some exceptions) are nullified. If there were not exceptions, a title searcher in 2006 would have to search back only to a root of title more than 40 years old (A deed executed before 1966). If A conveyed to B in 1963, that deed would be the root of title. All interests created prior to 63 by whatever manner – deed, inheritance, or AP – are deemed void. If A’s claim rested on an earlier forged deed, say from F to A in 1959, that fact is irrelevant.

Under the Act, all claimants of interests in land, to be safe, must file a notice of claim every 30 to 40 years after the recording of their instruments of acquisition.

Intended to act in conjunction with recording acts. They seek to extinguish old title defects automatically with the passage of time. If a person has an unbroken chain of title from the present back to his “root of title”, then he has the sort of title in favor of which their extinguishment feature will operate.

o Root of title: The root of title may change as the years go by. The most recent transaction in his chain of title that has been of record at least 40/30 years. The root is a conveyance more than the time (30/40) at the date of the search.

A pre root interest is valid if it is referred to in the root of title or in a post-root instrument. Using the example above, if the 1963 deed said subject to an easement created in 1934, that would be valid.

Pre-root interests can be preserved by being recorded within the 30/40 year period. Thus, it is wise to re-record all claims every 30 years.

MTA usually contain a number of exceptions for pre-root interests. These ay include public easements, observable easements, utility easements, restrictive covenants, and mineral interests. These exceptions impair the usefulness of the Acts because the title searcher must go farther to ascertain them.

o Avoiding constitutional problems: acts seek to avoid the constitutional problem of extinguishing property rights by providing, in one of the specified exceptions, that the holder of old interests and claims may preserve them by recording a notice of claim.

o The person seeking benefit needn’t be a BFP. o Possession: under most acts, rights of a possessor are not barred. Thus a purchaser should make a physical

inspection of the land.

SC Marketable Title Act§ 15-3-380. Effect of forty-year lapse. Does not apply to remaindermen. Even with notice, you still get property.

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No action shall be commenced in any case for the recovery of real property or for any interest therein against a person in possession under claim of title by virtue of a written instrument unless the person claiming, his ancestor or grantor, was actually in the possession of the same or a part thereof within forty years from the commencement of such action. And the possession of a defendant, sole or connected, pursuant to the provisions of this section shall be deemed valid against the world after the lapse of such a period.

- If you have exceptions, you have problems. In SC there are certain exceptions for remaindermen and executory interests. They could become possessory 50 years later, most lawyers assume the statute is helpful but its not reliable given the case law exceptions.

Problem: in 1917 Connley acquires lot A and D. In 1945 Timberlake acquired D from Connley. In 86, Developer acquires A and “D” from Timberlake, but Timberlake’s don’t have title to lot A. There is a dispute as to btw 1945-2001 as to who was using lot A. The Timberlake’s say they were using, and then the Connley family claimed they were using the property. Who’s got good title at the courthouse? The Connley’s. Timberlake became a very exclusive development with a fancy golf club. Assuming there is a simple interpretation of the statute, the question is if you look at the statute, it says “no action….” Must the ∆s base their claim on a document, or does the statute say that if they’re there for 40 years it gives the Timberlake’s title. They hired experts, Each linguist wrote 40 page briefs as to how you read this statute, and they had a different interpretation. One said you needed document, one didn’t. They didn’t decide. The judge died.

Title RegistrationA system of title assurance entirely separate from the recording system. The basic principles is to register title to land, instead of recording evidence of title as under the recording system. Title registration is built around three ideas: i) getting title adjudicated by a court, then keeping it up to date by ii) installing a tract index, and iii) making the public records conclusive. Today, only Ohio, Hawaii, Illinois, Mass and Minnesota use this system. MUCH simpler because a searcher need only look in the tract index for the name of the owner.

Initial registration: first, a judicial proceeding is started by the owner to clear away all past claims and adjudicate present title. A title searcher is appointed by the court to investigate the records and report to eh court. Notice is given, and court issues a certificate of title binding on all the world. The official copy stays with recorders office. A certificate of title states who owns title and also lists as memorials all encumbrances to which title is subject.

Tract index: once a certificate of title is issued, it is indexed in a tract index. Anyone searching looks to the lot number, and see who has title and any mention of encumbrances, then you go to book and find the actual encumbrances.

Subsequent transfer: O gives certificate and deed to A, who records, canceling Os certificate on the books, and registers a new official certificate in favor of A.

Indemnity fund: if any person’s rights are cut off without notice in the initial registration proceeding, she is paid from an indemnity fund established from title registration fees.

Records conclusive: with a few exceptions, the records are conclusive. The certificate of title is title. Exceptions may include tax and mechanic’s liens, which do not have to be entered on the certificate.

o Adverse Possession: title to registered land cannot be claimed by AP where the possession begins after the title is registered. The certificate is conclusive.

Defects in Conclusiveness: although by making certificate conclusive, title registration in theory offers great protection to the buyer, in practice this protection is less conclusive. In equity, courts have resisted to determine a certificate conclusive: Defects in initial registration:

o No notice given: Constitution requires that a person be given notice and hearing before being deprived of property. Reasonable efforts must be made

o Fraud: If the initial registration was procured by fraud or forgery, the decree can probably be set side. BFP: courts have introduced into title registration the idea that the title certificate protects only subsequent BFP’s who

rely on it. This is a basic principle of the recording system. Courts have held that a person with actual notice of an unregistered interest does not prevail over it.

o Majority holds that possession does not give constructive notice to a person who purchases relying on a title certificate.

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Title InsuranceBasically, title insurance guarantees that the insurance company has searched the public records and insures against ay defects in the public records, unless such defects are specifically excepted from coverage in the policy.

Developed because of the inadequacies of the public records in protecting private titles. Title insurance is bought by one premium paid at the time the policy was issued. The premium is based on the amount of insurance purchased, which usually, in a homeowner’s policy, is the amount of the PP of the property and, in a lender’s policy, the amount of the loan.

Almost all institutional lenders require title insurance at the borrower’s expense. Title insurance is the opinion of the insurer concerning the validity of title, backed by an agreement to make that opinion good if it should prove to be mistaken and loss results as a consequence. Most title insurance companies today use inform policy forms based upon forms developed by the American Land Title Association. Two basic forms, the mortgagee’s policy and an owner’s policy.

The mortgagee’s policy insures the mortgage lender and not the home-owner The homeowner must takeout a separate policy.

The Standard policy excludes losses arising from got regulations affective the use, occupancy, or enjoyment of land, unless a notice of enforcement or violation is recorded. Also, standard policy excludes claims of person in possession not shown by the public records, as well as unrecorded easements, implied easements, and prescriptive easements. Also they exclude defects that would be revealed by a survey or inspection.

In SC – the lender will mandate you have a title insurance policy that covers them from title problems. Technically as a home buyer I don’t have to get my own. But the cost of having an extra policy issued to me is nominal. They don’t read the same, there are different coverage for bank than home owner. The plain language commitment. Policy issued as to the state of closing, can’t commit until closing. Commitment will provide you have to pay off the existing mortgage that the seller has. The amount of coverage of home owner’s policy will be purchase price. They insure a FSA interest, and will insure property described as follows. In order for there to be a policy, a number of things have to occur. Pay the agreed amount in mortgage, must may premiums for policy. There is a blank on the commitment that will be filled in to specific things, and the lawyer fills this out. You insert what other things are not being insured against with respect to policy. What do we put in the blank space? Learn what problems exist with respect to the property predominantly from title search. If you search and find an easement on the property, you list there is an easement. If I am a buyer, and about to close, the most important thing to me is what is on Schedule B. As a practical matter, it tells me the state of my title, identifying all the kinds of recorded defects that may effect the property. Most buyers are handed this commitment and that’s the end of it. Practically, I should study it carefully because it may contain things I did not agree to in the K. The commitment is one of the most important documents at the closing, because it should show liens, etc.

After the closing, the lawyer will mail me my title insurance policy. In some states, they all look the same by ALTA. What the form suggests is every so often they revise it. A lot of the changes are included to better favor the insurance company but some of the changes really have been added to benefit the policy owner. Two policies issued: one to the home purchaser and the second is the policy issued to the bank. So the bank will have its own policy and the purchaser will have his own policy. There is no law that says you as a buyer has to have title insurance for themselves. Title insurance is very different. It insures something that’s already happened. We’re telling you there’s not something that happened prior to the date you bought home that will have a negative impact on your ownership of that property. They expect the lawyer to make sure that there aren’t any problems that might affect title to the house, so you pay a one-time premium. Its critical you do those things. If you find a problem, put them on schedule B. Lawyers typically write insurance policies for a particular company. You will rarely see an insurance co. that market to the public. What you need to think about when selling insurance to your client: You do get paid, and your pay is 60% of premium charge. Obvi the amount that the insurance co. is being paid to assume the risk isn’t a lot of money. You do have conflicting interests with your client. Who are you representing? Does your client want a lot on B? No. does insurance co. want everything on B? Yes. There is at least one insurance regulation that says, here’s the conflict.

Extent of Coverage:

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a. Record title insured: the title insurance company usually conducts a search of recorded title only, and therefore only insures a good record title as of the policy’s date. The policy insures only the accuracy of the records, and agrees to defend the record title if litigated.

a. Record title: coextensive with instruments properly recorded within the insured’s chain of title. An instrument not in his chain of title is not insured against it.

b. Duty to disclose: most courts have held that, where a title insurance co. undertakes to conduct a search of title, the company has a duty to disclose to the purchaser specific impediments to title. The title insurance company’s obligations go farther that of an insurer because the purchaser’s expectations include both search and disclosure. Where the company has a duty of searching and disclosing, it is liable for negligence in not making a careful search. [Walker Rogge]

i. Who can sue: when co has duty to disclose, they are liable to negligence not only to policy holder but also to 3rd parties who show foreseeable reliance on the disclosure.

c. Giving legal advice: if the co advises the purchaser as to the legal marketability of title, the co is giving legal advice and assumes responsibility therefore.

Walker Rogge v. Chelsea TitleA title insurance policy is a K of indemnification under which insurer agrees to indemnify the insured in an amount against loss through defects of title to, or liens or encumbrances upon realty in which the insured has an interest.

Title policies are liberally construed against the insurer in favor of the insured. Notwithstanding that principle of construction, courts should not write for the insured a better policy of insurance than the one purchased.

Anyone who buys real estate without the aid of a surveyor runs the risk that he may not receive all the land for which he paid. Title insurance is no substitute for a survey. In the absence of a recital of acreage, the title co does not insure the quantity of land. They are in the business of guaranteeing title, to acreage. One reason to obtain a survey is to get rid of the standard policy exception for state of facts an accurate survey would disclose.

Issue: whether the issuance of title commitment and policy places a duty on a title insurance company to search for and disclose to the insured any reasonably discoverable info that would affect the insured’s decision to close the K to purchase? Rule: a title company’s liability is limited to the policy and that the co is not liable in tort for negligence in searching records. Premise: duty of the title co, unlike the duty of a title searcher, does not depend on negligence, but on the agrmt btw the parties. If, however, the co. agrees to conduct a search and provide the insured with an abstract of title in addition to the policy, it may expose itself to liability for negligence as a title searcher in addition to its liability under the policy. Notwithstanding the K relationship btw insured and insurer, the co could be subject to a negligence action if the act complained of was the direct result of duties voluntarily assumed by the insurer in addition to the mere K to insure title. – Remand to determine if ∆ assumed an additional duty on top of the contractual title policy.

Basically, in K, ∆ contracted around the duty and excepted his liability for facts ascertainable by survey. However, remand because in a tort action for negligence, ∆ may have assumed a duty to reasonably conduct a title search, and if so, ∆ had plenty of evidence that the acreage was off.

Class; what is unclear from the edited opinion is what’s wrong with the survey that constitutes the description? It appears that the Price-Walker survey, the problem is that it actually does show if you work the math that there are 18 acres, if you compare the distances, it will generate an 18+ acre tract. If that’s true

Notes: In ½ jurisdictions, courts imply a duty to conduct standard title search and hold that title insurance companies are liable for not disclosing discoverable defects to the insurance applicant. SC – as a lawyer you certify title and would probably be liable.

One advantage title insurance has over general warranty deed is that the title insurance co agrees to defend at its expense all litigation against the insured based upon a defect insured against in the policy. Moreover, eviction is not a prerequisite to a suit on an insurance policy, as it is to a suit for rbeach of a covenant of general warranty.

The typical title insurance policy will except from coverage those items that an accurate survey would reveal. A lender or purchaser can obtain protection from the risk created by this exception by having a new survey done and purchasing an “endorsement” from the title co.

b. Exclusions: The standard title insurance policy does not insure against loss arising from the following defects:a. Liens imposed by law but not shown on the public recordsb. Claims of parties in possession not shown by public records

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c. Boundary disputes: the co does not survey, and does not insure against encroachments disclosed by a correct survey or inspection.

d. Easements or servitudes not shown on the public records: implied easements, easements or covenants by necessity or prescription.

e. Zoning or building ordinances: f. Hazardous waste: the policy does not insure against hazardous wastes being found on the property [Lick

Mill Creek]

Lick Mill Creek Apartments v. Chicago Title Insurance Co. – title insurance insures against defects in title, and not land. In CA, marketable title does not encompass the property’s market value. There is a difference btw marketability of title and land. One can hold perfect title to land that is valueless, one can have marketable title to land while the land itself is unmarketable. Here, π is complaining about marketability of her land and not title. She is complaining about the condition of her land in respect to improvements rather than the condition of her title to the land.

The purpose of title insurance is not to protect the insured against loss arising from physical damage to property, rather it is to protect the insured against defects in the title.

Notes: in addition to actions based in K, property owners often seek to recover in tort for negligence. Its up to the jurisdiction, but a firm can be held liable for negligent misrepresentation only when it is in the business of providing information. - Iowa outlawed title insurance and issues certificates of title, based on atty opinions.

Amount of Liability: The maximum liability of the co is the amount set forth in the policy. Ordinarily, this is the pp of the property. Unless there is an inflation clause in the policy, the policy does not insure the present value of the property where such a value exceeds the amt set forth in the policy.

General rule of liability: the co is liable for the difference in value of the property with and without the defect, up to the max set out by policy. Values at the date of issuance are usually held to control.

Public Land Use ControlsThe use of land is often controlled by local governments. The primary tool used by government is the zoning ordinance.

- Remember that the authority for zoning come from the state, and so a zoning ordinance must conform to the state’s enabling act or it is ultra vires (void because it is beyond the authority of the local body).

- Also consider the constitutional limitations on these land use controls: Zoning power may be limited by various constitutional provisions. Current “hot” topics, raising difficult and unsettled constitutional issues, include regulatory taking and aesthetic regulations, and also due process. Be sure to look for Constitutional problems when you see exclusionary zoning – zoning that excludes a particular group.

ZoningHistory: the Industrialization of America brought about many new public nuisances to land. Nuisance law, however, did not prevent nuisances from arising, but merely gave damages or an injunction after the fact, and there is no predictability when it is applied. Courts, also, were reluctant to do anything unless nuisance was highly objectionable, in order to continue the industrialization of the nation. Restrictive covenants did not work either because they were useful only in new subdivisions under a single owner who imposed the restriction.

Theory: To prevent harmful effects being visited upon neighbors. By dividing up a city into use zones from which harmful uses are excluded, zoning purports to prevent one landowner from harming his neighbor by bringing in an incompatible use.

- Zoning is nuisance law made predictable by declaring in advance what uses are harmful and prohibited in the various zones.

- Modern zoning often regulates uses to achieve public benefits or to maximize property values in the city. Foundation for modern city planning: separation of uses, protection of the single-family home, low-rise developments, and medium-density of population.

Separation of uses: the most fundamental means by which zoning accomplishes its purposes is the separation of conflicting uses, which are classified on a scale from highest to lowest use. The hugest use is deemed the least harmful to

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others, the lowest the most harmful. (use does not refer to economic value, because commercially zoned property usually sells for higher rate than residential). Separation of uses into different districts is sometimes called Euclidian zoning.

Highest use – housing: zoning laws embody the assumption that wholesome housing must be protected from harmful neighbors. Thus, commerce and industry are excluded from residential zones because they are deemed harmful to housing. Even within housing, there are levels. A single-family house is the highest use, protected from the harmful effects of less desirable housing by being in an exclusive single-family house zone. Excluded are two family houses and apartments. Similarly, in a two family house district, lower residential uses such as apartments are excluded. Commercial and Industrial districts: commercial use is lower than residential. Zoning codes typically divide commercial districts into several different zones. Industrial uses, lower than commercial, are similarly divided. The purpose of these divisions is to separate light from heavy industry and commerce. Principle of cumulative use: higher but not lower uses are permitted in any district. Accordingly, in an apartment district, single-fam and two-fam houses can be erected, but not commercial or industrial uses.

In certain situations, however, the ordinance may not be cumulative and may exclude higher uses. For example, one may restrict commercial and residential use from industrial to prevent discord btw houses and industry and keep land available for industry in an industrial park, increasing land value.

Euclidian zoning can be seen as “overt licensing of segregation by class”: zoning could protect the value of land owned by the propertied class by excluding people regarded as undesirable neighbors.

Density controls: rules that indirectly control the number of people using an area of land. they may include height limitations, setback requirements, and minimum lot and housing sizes.

Source of Zoning power: usually enacted by a city or a county to apply to land within its local jurisdiction. But under our govt scheme, a state legislature is the sovereign power, and a city has no power to zone unless given such power by the state legislature. The act giving power to zone is called the enabling act. All zoning ordinances must be authorized by and must conform to the state’s enabling act. Any zoning ordinance that does not conform to the enabling act is ultra vires, beyond local authority, and void.

Delegation by the legislature to local administrators with standards is improper. Courts fear discretionary power for the potential for abuse. In zoning cases, where standard to be applied is vague, the delegation of authority can be attacked as an improper delegation of power.

Standard State Zoning Enabling Act: adopted by all 50 states, empowers municipalities to regulate and restrict the heigh, number of stories, and size of buildings and other structures, and the location and use of buildings for residential, commercial or industry purposes. It permits the division of an area into zones, and regulations must be made in accordance with a comprehensive plan.

o A city must create a zoning or planning commission, composed of citizens appointed by the mayor. Zoning ordinances enacted by city council.

o The board of adjustment was originally conceived as a device to ensure that broad zoning regulations do not operate inequitable on particular parcels of land. it may grant a variance when the zoning restrictions cause the owner practical difficulty or unnecessary hardship. It also may grant a special exception when specific requirements set forth in the zoning ordinance are met.

o SC: have to make sure that whatever locality passes, complies with the state statute. If I don’t like what has happened, maybe I can challenge that It does not comply with delegation of duties.

The comprehensive plan: statement of the local govt objectives and standards for development. Only 1/2 the states require the plan. It’s made up of maps, charts, and descriptive texts.

o A better approach is to focus on the short-term and mid-term and to be flexible since times change, judge’s recognize this.

o SC 6-25-10: it defines the comprehensive plan in SC, this is an important document on how the legislature views the land.

Constitutional Limitations: when a state enacts an enabling act, it does so under the authority of its police power, the legislative power a state has to regulate human affairs to promise health, safety, welfare and morals. The power of states to authorize regulations of property use by zoning laws and the power of local govt to enact such laws have been specifically upheld as a valid use of police power [Village Euclid v. Amber]

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Although zoning laws enjoy a presumption of validity, like any other legislation, they must not violate federal constitutional provisions. The constitutional provisions must be met with respect to each individual lot. Thus, an ordinance might be valid in general, but be invalid as applied to a particular lot.

Village of Euclid v. Amber Realty Co. This was a test case, and Amber thought there was no way they could lose it. The Supreme Court approved a zoning ordinance that allegedly reduced the value of a vacant lot by ¾ . The ordinance is valid in general, if π wants to challenge the ordinance on Constitutional principles, it must do so based on a particular application.

Notes: The court concerned itself with whether the police power could be exercised to zone property without depriving the π of substantive due process of law. Another argument could have been about taking because of the severe reduction in the value of πs land.

If the govt had taken title to πs land, they would have to pay for it. Why not if it takes away the value of land? nonetheless, zoning ordinances are routinely upheld, especially if they are controlling nuisance0like behavior or so long as they the property owner with some reasonable use. Class: There is also a discussion about nuisance. Clearly there are certain regulations that we can determine their validity based on traditional CL nuisance doctrine, its not Con law, it’s common law. What’s odd about this opinion? You can have single family residence’s an any one of the zones. U1 isn’t even in consideration here, its not a U1 issue, yet that seems to be the conversation. Zoning can protect those people with money. Maybe

Nonconforming Uses: a use in existence when the zoning ordinance is passed that is not permitted in the district under the new zoning ordinance. Nonconforming uses are allowed to remain because requiring immediate termination would be either a violation of substantive due process or an unconstitutional taking of property rights. Nonetheless, nonconforming uses may be limited or terminated under certain conditions.

Limits on changing use: a zoning ordinance may prohibit expanding a nonconforming use beyond the precise space it occupied when the ordinance was enacted. Or an ordinance may stipulate that a nonconforming building, if destroyed by fire, cannot be rebuilt without complying with the ordinance. Or an ordinance may prohibit change to another nonconforming use.

Amortization: a zoning ordinance may provide that the nonconforming use must terminate after a specified period of time. The ordinance may provide for different amortization periods, depending on the amount of investment in the use and building. These ordinances have been challenged as being unconstitutional, sometimes successfully.

o Majority view – amortization valid. Constitutional as an exercise of the police power. But, the ordinance must be reasonable as applied to each nonconforming use terminated. If not reasonable as applied to each particular landowner, it is unconstitutional as to that landowner.

Courts in 24 jurisdictions approving amortization claim to require a reasonable time to end non conforming use, but periods from 1-30 years have all been upheld and invalidated – this sloppiness makes amortization vulnerable to challenges.

Reasonableness factors: nature of the use in question, amount invested in it, number of improvements, public detriment caused by the use, character of neighborhood, and the amount of time needed to amortize the investment.

o Minority view – amortization unconstitutional as a taking of property without compensation. [PA Northwestern v. Zoning Board]

PA Northwestern v. Zoning BoardOld case law: Sullivan – amortization of non-conforming use are Constitutional exercise of police power so long as they are reasonable. Reasonableness determined on facts, the impact it would have on property, and weigh the benefits of community with loss of landowner. This court rejects Sullivan. In PA, land is held subordinate to govt regulation in exercise of police power. A strong public desire to improve the community is not enough to shortcut Constitutional rights. Amortization and discontinuance of lawful pre-existing non-conforming use is per say confiscatory and unconstitutional (state constitution).

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Lawful non-conforming use establishes a vested property right which cannot be destroyed absent abandonment, nuisance, or eminent domain. Policy: if municipalities were free to amortize non-conforming use, future economic development would be compromised – any use could be amortized out of existence without compensation. Presumption of validity attaches to a zoning ordinance, which imposes a BOP invalidity on challenger – but this presumption must be balanced with the Court’s appreciation of Constitutionally guaranteed right to use property unfettered by govt restrictions absent illegal/nuisance use. [Those principles are inherently inconsistent with one another]. Class: The only thing we were challenging is the amortization period, but we could have challenged the delegation of power because this board was not elected, they were appointed. Why is this amortization provision unconstitutional? Lawful non-conforming use establishes a vested property right which cannot be destroyed unless abandonment/nuisance/eminent domain. Municipalities lack power to compel change in nature of existing lawful use of property, and municipalities may not prevent non-conforming owner from making necessary additions to existing structure for natural expansion – so long as its not detrimental to public welfare. If the govt wants to interfere with lawful use absent nuisance/abandonment, it must compensate. A gradual phasing out of non conforming use by restriction on future use is okay, that’s different than amortization on provision which restricts future use and extinguishes lawful non conforming use on a timetable not of πs choosing. Theory: if we really believe amortization is okay, govt could tell everyone in the city to move out of their houses. Any use could be amortized out of existence without compensation.

Vested Rights: if a person has acquired a “vested right”, the zoning cannot be changed so as to deny the person a right to proceed. A vested right generally arises when the person spends a substantial sum in reliance on a building permit. A minority view creates vested rights any time a building permit is legally granted. This protects pre-existing operations, however a proposed use may be protected if sufficient commitments have been made – plans, permits, construction – in reliance on existing zoning regulations that are subsequently changes to invalidate proposed use. Class: circumstances where a landowner has done some of these things, but the project hasn’t been completed by the time the city changes the zoning ordinance to say that thing you’re planning on doing, you can’t do it. The vested rights doctrine says yes you can. Implicit in this has been the notion, probably related to the title, if I have a vested right, I have it forever, i.e. it is not necessarily subject to amortization. Again, that is logically inconsistent with what we have seen so far. Why should I, a person who has relied on zoning but hasn’t begun to operate, get more protection than one who is open and operating on his land? – that person is subject to amortization in SC. See Vested Rights statute below.

Changes to a nonconforming use: the right to maintain a non-conforming use runs with the land, so it survives a change of ownership. As to change of use, some jurisdictions provide that non-conforming use may expand, especially to meet natural expansion such as increased demand. Some allow one non-conforming use to be changed to another non-conforming use , but usually only if the change reduces (or at least does not increase) the impact of the use on the zone in question.

Destruction of a nonconforming use: destruction of a nonconforming use usually terminates it, and so too for abandonment, which requires intent to abandon the nonconforming use. Some ordinances go further and to eliminate litigation over intent, prohibit the continuation of a nonconforming use if it is discontinued for a period of time. If operations cease for the given period, the nonconforming use may be held discontinued, even though the owner intends to resume the nonconforming use (some go so far as to hold that complete discontinuance is not necessary for loss of the privilege so long as it was “substantially” discontinued).

The right to continue a nonconforming use runs with the land; with amortization, however, the right ends at the termination of the applicable period, whether or not the property has been sold.

Estoppel: sometimes applied when developers rely reasonably and to their detriment on the issuance of a permit and proceed to make substantial expenditures.

South Carolina "Vested Rights Act". We are an amortization state. An amortization provision is valid if reasonable – determined by balancing public gain against private loss. BOP on petitioner to prove the unreasonableness of the amortization period. The period is presumed valid unless land owner demonstrates loss outweighs the gain. In the case of non conforming use a pre-existing operation is protected – a proposed use might be protected if sufficient commitments have been made. 16-29-10. sought to codify vested rights in some form. Statutes tell people who own real estate, if you do certain things as defined here, you will have this magic vested right to continue on with your project even if the city down zones the property so you couldn’t do what was planned before you're up and operating.

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6-29-1540. Conditions and limitations.A vested right established by this article and in accordance with the standards and procedures in the land development ordinances or regulations adopted pursuant to this chapter is subject to the following conditions and limitations:be required for approval with respect to each phase in accordance with regulations in effect at the time of vesting; (11) May be a problem. How is this language going to be interpreted? It’s a brand new statute – might be a problem as to what limits the county can put on these vested rights that developer may have gained pursuant to the statute.

How is SC case law going to be incorporated into Vested Rights Act? Is existing case law going to continue to be of some relevance? Very often someone claims they have a vested right, and there will be a neighbor that says you didn’t do enough to qualify for vested rights.

Problem on page 846. Euclidian zoning allows zoning ordinances that greatly decrease property value. What about if the π has invest in the land, making improvements and has a business on the land. During 5 year period of amortization, at a minimum B would have earned $25,000 during that time. That business has good will, and presumably he could sell that goodwill i.e. operate the same business at another location. B, who is required to be protected, comes out ahead of the game.

Flexibility in ZoningEuclidian zoning can work inequitable hardships and promote inefficient patterns of land use by binding limited classes of uses into tightly drawn districts; it can also inhibit socially and aesthetically desirable diversity. Therefore, there must be means for providing flexibility in zoning. Non-conforming use may be a way to do so, and below are many others. Keep in mind that the power to regulate flexibility can be the power to favor, or disfavor for illegitimate reasons.

Variances: The Enabling Act authorizes appointment of a board of adjustment. The board may make special exceptions to the terms of the ordinance in harmony with its general purpose and intent and may offer variance from terms as will not contradict public interest where literal enforcement of the provisions will result in practical difficulty and unnecessary hardship.

o Standards for variances: the standard for variance are practical difficulty or unnecessary hardship, for which the evidence should be strong because the variance is a departure from the uniform plan. The hardship must be due to unique circumstances, peculiar to the particular lot. If the hardship conditions generally exist in the neighborhood, an amendment to the zoning ordinance, not a variance, is proper. The hardship must not be self created. The variance must not result in substantial detriment to the public health, safety or welfare and it must not be a substantial departure from the comprehensive plan.

o Runs with the land: a variance, when granted, runs with the land to successive owners. If cannot be granted to expire when the owner transfers the property or dies. Zoning thus regulates to the property without regard to the person who owns it.

o Conditions attached: a variance may be granted on the applicant’s meeting certain specified conditions. The conditions must be reasonable and must relate to the proposed use of the property and be aimed at minimizing adverse impact on the surrounding area.

Commons v. Westwood Zoning Board The zoning ordinance requires a 20-ft building set back from the street. Because of the shallowness of the lot, which was created before the zoning ordinance was enacted, it is not practicable to set back a new building 20 ft. This is a proper case of variance. If the shallow lot were created after the enactment of the zoning ordinance, the difficulty would be self-created, and a variance would be improper. Undue hardship: involves the underlying notion that no effective use can be made of the property in the event the variance is denied. {even though the court purports to say here’s the test – there was an offer to buy the land, which is another use. Maybe they mean no effective use the way you want to use it. Another thing, if you impose this on yourself, don’t come crying to us.}Rule: variance may be granted only if the spirit of the ordinance and the general welfare be observed. The applicant carries the burden of establishing the negative criteria by a fair preponderance of the evidence, but that the less of an impact, the more likely the restriction is not that vital to valid public interest. Economic burden: there is always the possibility that denial of a variance will zone the property into inutility so that an exercise of eminent domain will be called for and compensation must be paid. Economic burden to tax payers v. burden to adjoining landowners. Maybe if adjoining landowners receive the direct benefit of denying variance, then they should

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bear the cost. Maybe if neighbors won’t purchase the land, variance should be granted. The Board must settle these disputes with “discretionary weighing”.

Class: the bottom line is, you have to disprove all negative impacts. We identified some potential negative impacts, but we can come up with 20 more. How does an applicant disprove all of those things? According to the court that’s what applicant has to do, and demonstrate as a fair preponderance of the evidence. When you focus on the requisite disproof of negative impacts on the community – what seems to be the most important to the community? We’re really concerned with the neighbor, the occupants on lot will call a spill-over of noise and traffic. Also, the court said that the Board had to give reasons for denial of the application for variance, however the BOP is supposed to be on the applicant. Courts criticize these Boards for not making a record. We’re looking at undue hardship and compliance with plan individually. The court says, maybe what we have to do is balance. What’s difficult is, what happens in the real world? Presumably, what happens is that the Board will in fact balance even though they’re not supposed to.

Distinguish: use v. bulk variance: Commons illustrates a bulk (area, dimensional) variance. A use variance permitting a use prohibited in the district, is must more destructive of the master plan and in effect is an amendment.

A good number of jurisdictions require unnecessary hardship for use variances, but only practical difficulties for area variances.

Exam: remember the basics: If because of a unique circumstance (atypically small size of a landowner’s lot) compliance with a zoning ordinance (a setback requirement) would cause practical difficulty or unnecessary hardship, a variance may be granted.

SC: For Variance: must show extraordinary conditions with respect to property, that if the statute is enforced it would create an unnecessary hardship on owner of the property and that such conditions are peculiar to this particular property and that the relief, if granted, would not cause substantial detriment to the public. Exceptional power, should be sparingly exercised, used only in special circumstances. Decision to grant a variance will be overturned if arbitrary, or board abused its discretion. Unnecessary hardship – does not lend itself to precise definition. Different from the case in the book, first a claim for unnecessary hardship cannot be brought by one who created the hardship, nor can a purchaser after the ordinance has been enacted. Follows commons except you can challenge or ask for variance if you buy the property after change.

Special Exceptions: a special exception to a zoning ordinance is one allowable where certain conditions specified in the ordinance are met. It has frequently been confused with a variance, but a theory other than individual hardship underlies the special exception. The theory is that certain uses can peacefully coexist with their neighbors when specified conditions are occur. The board of adjustment is empowered to determine whether the conditions specified in the ordinance are met. Sometimes the special exception is called “special use” or “conditional use”.

o Standards for special exception: Legislative power cannot be delegated to an admin agency unless the standards are sufficiently clear to prevent gross arbitrariness. Delegation of power without standards is improper. Sometimes the standards set forth in the ordinance for granting a special exceptions are especially vague. For example, a nursery school might be permitted in a residential district “when compatible with the neighborhood” or “with permission of the board of adjustment”. Despite the lack of procedural safeguards and standards, the majority of courts have usually upheld provision for special exceptions without clear standards. They have held that the general purposes in view (health, safety and the general welfare of the community) are a sufficient safeguard to control the board’s discretion, provided the board gives reason for its action. [Cope represents the opposite view – need detailed criteria regarding such things as design, location, hours of operation, standards of performance and the like.]

o Exam: schools, hospitals and funeral homes often must be located in residential areas. This is permissible if the zoning ordinance so provides and any conditions specified in the ordinance (off-street parking provision) are met. The rationale is that these uses can peacefully co-exist with neighbors if the conditions are met.

Cope v. Inhabitants of Town of BrunswickA special exception use differs from a variance in that a variance is authority extended to a landowner to use his property in a manner prohibited by the ordinance while a special exception allows him to put his property to a use which the ordinance expressly permits.

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An exception is a conditional use under a zoning ordinance and results from a legislative determination that such use will not ordinarily be detrimental or injurious to the neighborhood within the zone. Whether the use will generally comply with health, safety and welfare of the public and the essential character of the area is a legislative question.

The delegation is improper if the Board is permitted to decide that same legislative question anew, without specific guidelines which permit the Board to determine what unique or distinctive characteristics of a particular apt will render it detrimental or injurious to the neighborhood.

o There should be no discretion with the board as to whether or not to grant the permit if the conditions stated in the ordinance exist. That determination is made by the legislatures. The ordinance did not provide the Board with any basis for determining that a particular location was unsuitable.

Class: there is no where in Brunswick zoned for apartments – multi-family. Issue: is there too much discretion granted to this administrative body. If there is, then their operation is not permissible.

SC Exception Case: Banum is a NPO, running halfway houses for people recently released from federal prison. They found a building on Forest Drive. The specifications that the Board must follow are not that detailed. When Banum applied for special exception, no one challenged precision of those ordinances. What they challenged was the halfway house in the backyard. Zoning appeals board denied right of Banum folks to occupy building. When it got to court, they said you didn’t look at the factors that the ordinance said you should look at. You focused on safety problems. As to the traffic flow, these people won’t have cars, so Court said Board got it backwards and reversed decision not to allow.

Variance is an administratively-authorized departure from the terms of the zoning ordinance, granted in cases of unique individual hardship, in which strict application of the terms of the ordinance would be unconstitutional. The grant of the variance is meant to avoid an unfavorable holding on constitutionality. An exception is a 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.

Zoning Amendments and the Spot Zoning Problem The enabling act provides that the zoning ordinance can be amended by the local legislative body rezoning a particular parcel of land. The local legislative body is advised by the planning commission on amendments, but it does not have to follow the commission’s advice.

Spot zoning: An amendment not in accordance with the comprehensive plan is “spot zoning”. Spot zoning is unlawful. Although spot zoning usually involves rezoning one lot in violation of the plan, the zoning of one lot differently from its neighbors could, in a particular context, be in accordance with a comprehensive plan. It determining what is spot zoning, size or number of lots rezoned – while important – is not controlling; deviation from the plan is controlling. Spot zoning is invalid where some or all of these factors are present: a small parcel of land is singled out for a special and privileged treatment, the singling out is not in the public interest but only for the benefit of the land owner, the action is not in accord with a comprehensive plan.

o Usually arises from legislative zoning amendments: Problem: there is a potential for political corruptness. The legislative body’s judgment stands absent a showing that it simply had no rational basis: if reasonable minds can differ, the courts defer. On this standard, virtually no zoning amendment could ever be successfully challenged.

Amendments generally presumed valid: the traditional view is that zoning amendments, like zoning ordinances, are presumptively valid, and the burden is on the persons objecting to the amendment to prove that it is not in accordance with a comprehensive plan. However, abuses in the zoning amendment process have caused some courts in recent years to tighten up the standards applicable to zoning amendments. These standards are generally designed to make it harder for a proponent to procure a zoning amendment by categorizing the act as “quasi judicial” and therefore subject to more scrutiny. They are not widely followed. Fasano is quasi-judicial

o Change or mistake rule: it has been held by some courts that there is no presumption of validity of piecemeal amendments. The original zoning is presumptively valid and correct. To change, the proponent must show strong evidence of mistake in the original ordinance or of a substantial change in conditions.

o Must show public need: another way to narrow the applicable standards for amendments is to hold that the proponent of amendment must show there is a public need for a change of the kind proposed, and that such need will be best served by changing the zoning of the proponent’s parcel as compared with other available parcels.

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State v. City of RochesterWhen a municipality adopts or amends a zoning ordinance, it acts in a legislative capacity under its delegated police powers. Rule: as a legislative act, a zoning or rezoning classification must be upheld unless opponents prove that the classification is unsupported by any rational basis related to promoting the public health, safety or general welfare, or that the classification amounts to taking without compensation. Policy: a legislative body can best determine which zoning classification best serves the public welfare. Note: the neighbors didn’t show any projected devaluation in property value.

FasanoThe key issue is whether the decision made by the city should be reviewed as a legislative enactment or whether it should be reviewed as a judicial or administrative decision. This court thinks not all decisions of county council are to be granted the presumption of validity that would attach to a truly legislative decision. There are times when we need to evaluate the Board’s decision under different standards. There is no presumption of validity and the scope of review is going to be more evaluation of what city council did. The test to determine whether legislative or judicial: determination whether action produces general rule/policy applicable to general class of people (Legislature), or whether it entails application of general rule to specific individual/interests/situations. (Judicial). The concerns are politicking, that council will not be acting in a truly impartial way. The court also recognizes a downside to this, that it will be more difficult to get changes. Legislative – redoing entire comprehensive plan. Judicial – spot zoning, application to one specific parcel. *Lawyers Prefer.

SC Fasano or Rochester? Seems to follow the Rochester Approach, meaning zoning and amendments are legislative matters. The decision is presumed valid and owner bears the burden of proving otherwise.

Plebiscites: a direct vote by citizens on some public question, commonly taking one of two forms. In the case of referendum, the local governing body approves an ordinance and then refers is to the electorate for final decision. An initiative goes right from a qualifying petition, initiated by citizens, to the ballot. Some courts allow this for rezoning.

Discretionary or non-Euclidean zoningUnder the zoning ordinance upheld in Euclid case, the only means of flexibility provided were variances and special exceptions. These proved to be insufficient. More flexibility was required than the early planners thought. As a result, cities have experimented with various types of discretionary zoning, which have generally been upheld after some initial objection. The gist of the judicial objection is that these techniques give planners great discretion, and open the door to favoritism, unfairness and unpredictability. However, the trend is to uphold these discretionary devises as necessary to effective public land planning.

Conditional rezoning: typically used to describe a situation where the property owner agrees unilaterally to use the land in the specified manner. It is a method whereby, on application by the owner, the city can tailor planning considerations to the particular tract, permitting the owner to develop the land in ways that do not harm the neighborhood. Planners consider it useful in bringing flexibility to zoning.

Contract zoning: refers to a bilateral agreement btw the owner and the zoning authority, perhaps with the owner covenanting to restrict the use of the property in exchange for the authority’s promise to rezone. For both, conditions imposed on the property owner must pass muster as reasonable, or having a rational basis, and be free of the taint of undue influence. If the conditions involve so-called exactions – requiring the property owner to provide public improvements like streets, recreational facilities – then special tests developed to be discussed later.

Floating zones: a zone provided in the ordinance to which no land is assigned on the zoning map until a landowner makes such a request and is granted that zoning classification. Such re-classification is made by amendment to the zoning map. Such a zone is said to float over the city, no one knows where it will land. the planners argue that this allows them to postpone making a specific site selection until a specific proposal is made; it prevents over-zoning for uses before they are needed.

o Two steps: First, the local govt creates (but does not pin down) a use district by an ordinance that specifies standards and criteria to govern the uses permitted in the zone. Second, and later in time, the zone is brought to earth, attached to a particular area through a zoning amendment.

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Cluster zoning: provides developers with an option to use spaces in various ways, provided a specified overall density of population is maintained. A central idea is to provide some of the amenities of a rural environment in an otherwise urban setting. Area variations.

Planned Unit Development: PUD: the developer with a large tract of and can mix uses – some single family houses, some apartments, some shopping, even an unobjectionable industry. The developer can ignore specific lot and density requirements if the overall density of the development does not exceed that of standard lot-by-lot development. The requirements for a PUD classification may be set forth in the ordinance and ordinarily require a large amount of land. The test, as with an amendment, is whether the rezoning is in accordance with a comprehensive plan. Area and use variations.

Expanding the Aims of ZoningOver the years after Euclid, the aims of zoning expanded from control of nuisances and protecting public health safety and welfare within the police power. Zoning authorities began taking initiatives that the Euclid court could not have imagined.

Aesthetic Objectives: Old doctrine : in the late 19th century, courts laid down the rule that the police power cannot be used to accomplish

objectives that are primarily aesthetic. The courts are cognizant of the subjectivity of what is beautiful. Zoning under police power is for nuisance control.

New doctrine : many state courts in recent years have held that cities may enact regulations primarily for aesthetic objectives. Some of these courts, attempting to put some limitation on what can be legislated in the name of beauty and to read some standard into the delegation of power, have said that the standard to be applied to aesthetic ordinances is whether the prohibited use offends the sensibilities of the average person and tends to depress property values. Inasmuch as the sensibilities of the average person will be reflected in property values, this standard boils down to whether the prohibited uses deemed ugly will lessen property values. This tends, it is alleged, to make aesthetic judgments more objective.

o Architectural review boards: most courts now uphold the power of city architectural review boards to deny building permits for proposed buildings that the board disapproves. Because the standards these boards apply are often vague and difficult to apply, they raise problems of improper delegation of power and equal protection of the laws. A favorite standard is that the building must conform to the existing characteristics of the neighborhood and not cause a substantial depreciation in neighboring property values. Such a standard has been upheld, even when the “existing character” of the neighborhood is not uniform. [Stoyanoff v. Berkeley]

Aesthetic considerations are an important factor in historic zoning and historical preservation legislation, and in these contexts the courts have felt less inhibition in admitting the legitimacy of aesthetic objectives.

State Stoyanoff v. BerkeleyThe power to create an Architectural Board is properly delegated to city in order to protect general welfare (property values). The court here did not rest its decision on the legitimacy of aesthetics as a zoning objective, relying instead largely on protection of property values. The court expanded the meaning of general welfare to include protection property values.

The creation of the Architectural Board conforms with the Enabling Act by reference to preserving property values. The “scope” of general welfare” is changing to include protection of property values because when impaired, tax base affected and the public suffers economically.

This isn’t invalid police power because ordinance creating Architectural Board considers not only aesthetification but also the effect on property values. It is within the general welfare for Arch Board to protect certain areas during urbanization – we have experts, here, the Architects. The Board are professionals who understand planning and design and how that impacts value. [A lot of jurisdictions that that isn’t enough, and you must have clear standards by which to rule.] A denial is not arbitrary because the basis purpose served is the general welfare.

Would this pyramid shaped house decrease property value? Random note: in SC, the lawyer represents everyone in a sale of land K.

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Anderson v. City of Issaquah – substantially similar statute to State was unconstitutionally vague. Aesthetic ordinance was void for vagueness, there was no standard by which either party could rely. Aesthetic standards are an appropriate component of land governance only if they are drafted to give clear guidance to all parties concerned. Applicants must have an understandable statement of what is expected. It is unreasonable to expect applicants to pay for repetitive revisions of plans in an effort to comply with unarticulated, unpublished standards. It is equally unreasonable, and a deprivation of due process, to expect or allow a design review board to create standards on an ad hoc basis, during review process. The Architectural profession itself says its entirely possible to codify aesthetic standards. Proceedings based on taste leave Architects confused.

Compare private restrictive covenants: if the Anderson case had involved a dispute btw property owner and an architectural control committee established by private covenants, owner would have lost. Private architectural restrictions are governed by different standards than public restrictions. Cases have held specific standards not necessary and board must only act with reasonable effort and good faith.

o Advertising signs: commercial advertisements may be prohibited in residential areas, on the theory that they are harmful to the quiet and tranquility sought in residential areas. If the commercial use itself can be excluded, the advertisement of it can also be excluded. But problems arise when political advertisements are banned or when commercial billboards are banned from commercial areas. Here the zoning ordinance may conflict with 1st amendment free speech.

Political advertisement: political speech occupies a preferred position and is given greater protection that most other kinds of speech. Political speech includes comment on any matter of public interest. Ordinances prohibiting political signs entirely in front yards of residential areas have been held void, because adequate alternative means of communication are not available to the owners. City of Ladue v. Gilleo

Commercial advertisements: US Supreme Court held that commercial speech enjoys a substantial amount of 1st Amendment protection, but the court has yet to carve out exactly what that amount is.

City of Ladue v. Gilleo Governmental control of content is subject to judicial scrutiny. Ordinances prohibiting residential signs violate 1st Amendment because there is no other effective means for homeowners to get our certain protected political messages. Because the town had exceptions, rather than a sweeping ban to all signs, there is an indication that the city thinks some messages are more worthy than others, which is Unconstitutional. The city adds a justification clause that’s built into the second ordinance because an injunction was imposed on the second. There are two reasons why an ordinance might be invalid: it prohibits too much, and it restricts too little, and it was discriminatory. The first: exemption from otherwise permissible regulation of speech may be govt attempt to give one side of debatable public advantage in expression. We can’t do this. The second isn’t inconsistent, they’re just different. The city points out that the regulation is content-neutral, and points out the legitimate difference in the side effects of some signs. The permitted signs are unlikely to contribute to dangers of proliferation bc the need to display is sporadic. The court says that exemptions to otherwise regulate-able medium of speech may diminish credibility of govt’s rationale in restriction – exemptions here show the city concluded interests in allowing certain messages over aesthetic interest. Court said the city almost completely foreclosed on a means of communicating messages, residential signs are an important means of communication. The city said no, we’re only regulating time/place/manner because π can convey message in other ways. But the court said, no, this method of residential signs are cheap, effective and unique. The home is a special location.

Zoning against adult entertainment: cities have adopted various measures to deal with adult places of entertainment. A zoning ordinance that permits adult entertainments, but disperses or limits them to certain zones, is constitutional. The chief difficulty is equal protection (movie theatres okay, these are not). While it impermissibly regulates content of speech, it has been upheld as serving a substantial government interest while allowing reasonable alternative places for adult entertainment. Zoning and religious establishments: in an effort to expand protection of religious institutions, Congress enacted the Religious Freedom Restoration Act of 1993, subsequently declared unconstitutional as exceeding congressional

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enforcement powers under the 14th amendment. Congress responded with Religious Land Use and Institutionalized Persons Act of 2000 designed for avoid previous objections. This legislation prohibits land use regulations that impose substantial burdens on religious exercise unless the govt demonstrates that the regulation is in furtherance of a compelling govt interest, and is the least restrictive means of furthering that interest.

Controls of Household Composition [Exclusionary Zoning]Zoning can be used to purposefully exclude various groups from the community or from certain districts. Excluded persons may be unmarried or unrelated persons who live together as a family, low-income ppl, or racial minorities. Even were there is no intention to exclude these ppl, the zoning ordinance may in fact result in exclusion. Bear in mind the difference btw intentional and de facto exclusion, which may be an important distinction in some cases.

Nontraditional families: At the heart of the zoning system is the protection of the single-family home. But what is a single family? Legislatures have defined it in various ways, usually in terms of persons being related by blood, marriage, or adoption. If the definition bears a rational relationship to the objective of preserving “family values” and quiet seclusion, the definition passes muster under the Constitution. Village of Belle Terre v. Boraas. Several state courts, however, have held that occupancy restrictions based on biological or legal relationships violate the state constitution because the definitions do not bear a rational relationship to the city’s goal of controlling density.

Impact fee: what developer pays for increasing population to need a new school. State approach: some states don’t follow Belle Terre and held that occupancy restrictions based on biological or

legal relations have no tie to city ordinance objectives to limit density.

Village of Belle Terre v. BoraasSupreme Court: the concept of the public welfare is broad and inclusive. The values 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, spacious as well as clean, well-balanced and carefully patrolled. Here, we deal with economic and social legislation where legislatures have historically drawn lines which we respect against charge of violation of 14 th if the law be “reasonable and not arbitrary” and bears a “rational relationship to a permissible state objective”. The police power is not confined to elimination of unhealthy places, it is ample to lay out zones where family values, youth values and the blessings of quiet seclusion and clean air make the area a sanctuary for people. The definition of public welfare is broad and inclusive. Dissent: Even though Supreme Court won’t afford a remedy, maybe the state level will.

Excluding group homes: if the ordinance excludes group homes for ppl with handicaps, it may come into conflict with the FHA, which prohibits discrimination in housing against ppl with handicaps. Discrimination includes the refusal to make reasonable accommodations in rules necessary to afford handicapped ppl equal opportunity to housing.

Occupant Caps: the FHA exempts any “reasonable” zoning regulation restricting the maximum number of persons permitted to occupy a dwelling. The Sup Ct has held that family composition rules that cap the total number of occupants are exempt, but rules designed to preserve the family character of the neighborhood by focusing on the composition of households are not exempt. A family composition rule (max of 5 unrelated occupants or an unlimited number of related occupants) is not a maximum occupancy restriction. Thus, under a family composition rule, the city must take reasonable steps to accommodate group homes of the handicapped. City of Edmonds v. Oxford House, Inc.

City of Edmonds v. Oxford HouseThere was a three judge dissent to this opinion. The ordinance said unlimited family members, but only 5 un related people living together. Oxford house says we fall under FHA protection, and the city says no, this is an occupant gap restriction. The court winds up saying the city needs to take reasonable steps to accommodate group homes of the handicapped. Those occupancy based ordinances apply uniformly to all people who would live in a home, and are established to prevent overcrowding. Here, there is no cap on the number if there was a family related by blood and that would be okay, and so on this basis the court finds the ordinance does not fit within exemption of the FHA. We still have questions as to whether reasonable accommodations have been made.

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Reasonable Accommodation: in accommodating group homes, a city may not require a permit for group homes that is not also required for other multiple-residence dwellings. A special permit requirement reflects prejudice against handicapped persons and does not bear a rational relationship to a legitimate state objective.

Exam: Not In My Back Yard: no one wants a landfill or group home in the neighborhood. If you see an exam question where a zoning board caters to the fears of NIMBYs and adopts an ordinance prohibiting a group home, remember the following: the Constitution will generally not prohibit a ban on unrelated ppl living together (frat house) but the FHA might if the ban discriminates against ppl with handicaps. The FHA has an exception for ordinances that cap the total number of ppl who live within a home, but not ordinances that attempt to limit occupants by composition (like no more than 5 un-related ppl). An attempt to limit the number of traditional family members (including extended family) probably will be found unconstitutional.

Low-income: various types of land use controls may be enacted that have the purpose or effect of limiting housing to the affluent in a particular district, or excluding low-income ppl entirely from the community.

Validity of density controls: older cases tended to uphold density controls under the rational relationship test. Inasmuch as such controls tended to prevent over-crowding and bore a rational relationship to density, they were valid, even though they operated to exclude low-income groups from entry into the community or portions thereof. Courts in NJ and PA have begun to scrutinize the rationality of density controls more carefully when they have an exclusionary effect.

Enabling act violation: another theory for invalidating exclusionary devices is that the enabling act, authorizing the division of the city into zoning districts, requires the city to provide space somewhere for each type of housing.

Fair share test: Mount Laurel has been famous for laying down a requirement that each community must provide its fair share of housing needs in the region.

Southern Burlington County NCAAP v. Mount LaurelA city’s zoning regulations, which did not provide opportunity for a fair share of the region’s need for low-income and moderate-income housing, were in violation of the state constitutional requirements of substantive due process and equal protection because the regulations were not concerned with the general welfare of all persons. The intent of the town legislature is not controlling; the effect of excluding low-income ppl is. The Mount Laurel doctrine is a controversial judicial interpretation of the New Jersey State Constitution. The doctrine requires that municipalities use their zoning powers in an affirmative manner to provide a realistic opportunity for the production of housing affordable to low and moderate income households.Court would like to see inter-govt planning – btw cities, and that is something that has been missing and may be needed.

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