Property

Question 1

Is the expansion project a nonconforming use? ANSWER: No. While there are good arguments either way, the expansion to the convenience store is most likely not exempt from the zoning ordinance as a nonconforming use because it would increase the intensity of use.

Answer 1

This zoning ordinance allows uses that existed prior to the enactment of the ordinance. Prior- enactment uses are known as “nonconforming uses” and are justified on both fairness and practical monetary grounds. Here, the convenience store without any expansion is protected by the nonconforming use provision in the ordinance.
While a nonconforming use cannot be extended or intensified in ways that constitute a substantial change, insubstantial changes are permitted, and “owners are entitled to make reasonable alterations to repair their facilities and render them practicable for their purposes.” Thus, the issue here is whether the proposed changes are substantial or insubstantial. Because a change would be inconsistent with the zoning law, “any doubts are resolved against the change.”
Likely, the expansion is not a nonconforming use. The expansion of the convenience store clearly will increase the intensity of the use in the newly zoned residential neighborhood. In fact, that is precisely what the man hopes to achieve with the expansion. Increased use will result in more traffic and possibly impose other externalities on the now residential community. While the goal of the nonconforming-use doctrine is to protect prior investment, it is not to change an existing use into a different investment. Furthermore, applying the nonconforming-use doctrine here would only serve to protect a future investment, not a prior investment. When the man bought the store, he had only a mere expectation of future investment (i.e., that he would expand the store to offer products and services similar to those offered by the other convenience stores). A mere expectation is not an investment.
On the other hand, the proposed alteration should arguably be treated as a permissible nonconforming use because it is necessary for the man’s store to compete effectively with the three other stores in the area. Furthermore, other local convenience stores that sell gas have small dining areas within them, and thus the expansion could be viewed as merely a normal expansion of a prior nonconforming use. Additionally, the point of the nonconforming-use doctrine, in part, is to protect the investment-backed expectations of persons, such as the man here, who purchased and operated the store in reliance on the law in place when the property was acquired. This expectation exists here, given that when the man purchased the store there were three more expansive convenience stores in the area, and he had expected that in the future he would expand the store to offer the same products and services as his competitors.
However, notwithstanding the argument in favor of applying the nonconforming-use doctrine to the store’s expansion, given that “any doubts are resolved against the change,” it is more likely that the expansion is not a nonconforming use.

Question 2

ISSUE: Under the provisions of the loan commitment, is the bank obligated to disburse further funds? ANSWER: No. The bank’s obligation to make advances to the man is optional because future advances are conditioned on the bank’s determination that the borrower is making satisfactory progress on the construction project.

Answer 2

The type of loan/mortgage here is a so-called “future-advances” agreement, and it is very common in the construction industry. A future-advances loan is one in which the lender provides funds to the borrower over a period of time, rather than in a lump sum at the signing of the mortgage, in order to finance ongoing construction when the funds are needed. Future-advances loans are either obligatory or optional. A future-advances loan is obligatory if the lender has a duty to advance the funds; the loan is optional if the lender does not have a duty to advance funds but has discretion whether to make future advances.
In this case, the bank’s commitment to make future advances is optional. A commitment is obligatory only when the lender commits to making future advances without discretionary conditions. With a satisfactory-progress condition, the bank has no “definite obligation to advance any funds,” making the future advances optional. The satisfactory-progress condition is designed, among other things, to permit the bank to withhold funds if any difficulties associated with the project’s completion threaten the bank’s security by reducing the growth in value anticipated from the project.
Here, the bank has a right to withhold funds if it concludes in good faith that there is not “satisfactory progress” on the project. The existence of a mechanic’s lien against the project could undermine the bank’s security with respect to future amounts it might disburse if the mechanic’s lien has priority. See Point Three. Thus, the bank officer’s concerns could justify withholding funding.

Question 3

ISSUE: Does the mechanic’s lien have priority, in whole or in part, over the bank’s mortgage? ANSWER: With respect to the $50,000 payment, the bank’s mortgage has priority as it preceded the filing of the mechanic’s lien. With respect to the $40,000 payment, under the majority rule, the bank’s mortgage has priority over the mechanic’s lien because the bank did not have actual knowledge that the subcontractor had not been paid when the bank made the payment. Under the minority rule, the bank’s mortgage would not have priority because the lien was properly filed before the bank made this payment.

Answer 3

The general rule is that, if a future advance is obligatory, the mortgage securing that advance takes priority over creditors who file liens after the mortgage is recorded, even if all advances on the loan have not actually been made. Because the bank must make the future payments, regardless of circumstances, those payments are deemed to have been made when the mortgage was created. It is as though the loan had been paid in one lump sum at that time.
[NOTE: If an examinee concludes that future advances are obligatory, that examinee should also conclude that the mechanic’s lien is junior to all disbursements made by the bank.]
If the future advances are optional, and if the mortgagee has notice when it makes the advance that a subsequent lienor has acquired an interest in the land, then the advance loses its priority to that creditor. Here, the bank has priority only to the original $50,000 advance but not to the $40,000 advanced after the mechanic’s lien was filed, assuming that the bank had notice of it. And, of course, if the bank were to continue to make advances up to the $200,000 commitment, those additional payments would not have priority. However, this rule applies only if the bank made the advances with “notice” of the lien.
Most states hold that the mortgagee has notice only when it has actual notice of the lien at the time of the future advance. This rule is based on the view that the mortgagee should not have the burden of a title search each time it makes an advance when it is easier for the subcontractor to inform the mortgagee that its bill has not been paid.
Here, application of this approach would lead to the conclusion that the bank had no notice of the mechanic’s lien until it learned that the subcontractor had not been paid when the third advance was sought. Thus, the bank would have priority over the subcontractor with respect to the first two payments ($50,000 and $40,000). Of course, should the bank make additional future advances, as to those it would not have priority.
Under the minority view, the bank will be charged with constructive notice of the mechanic’s lien if the lien, as here, has been properly recorded. Under this view, the assessment of the relative burdens of the mortgagee and the subcontractor are reversed. If the minority view applies, the bank has priority with respect to the original advance of $50,000 but not to any later advances because it had constructive notice of the mechanic’s lien as of the time it was filed.
 

Question 4

ISSUE: Can the landlord argue that he lawfully withheld his consent to the assignment of the lease? ANSWER: Yes. The landlord will argue that the lease provision prohibiting assignment without his written consent was valid and that he could withhold consent for any reason or for no reason at all. The landlord will also argue that, even if this jurisdiction’s law requires that his refusal to accept the assignment be reasonable, his decision to withhold consent here was reasonable, given his past experiences with lawyers as tenants.

Answer 4

Here, the tenant attempted to assign her lease – that is, to transfer the balance of the lease term – to a lawyer. A restriction on assignment is a valid restraint on alienation. Because a restraint on transfer by assignment is valid, the lease provision here prohibiting an assignment without the landlord’s consent was valid.
The landlord will argue that he was free to withhold his consent for any reason or for no reason at all. The clause in the tenant’s lease is commonly described as a “silent” consent clause because it does not include an express standard or condition for the giving or withholding of consent. Under the traditional rule – still the majority rule today – a silent consent clause gives the landlord the right to withhold consent for any reason or for no reason – even if the withholding of consent is arbitrary and unreasonable. (That rule, however, is subject to statutory housing discrimination laws that are not at issue here.)
Alternatively, the landlord will argue that, even if this jurisdiction is one of the minority group in which refusal to consent to an assignment must be reasonable, his refusal was reasonable in light of his personal experiences renting to lawyers; his refusal represented a legitimate business judgment.
[NOTE: Some examinees may conclude that the lease did not prohibit a sublet. But the tenant informed the landlord that the lawyer “was willing to take over the balance of the tenant’s lease term.” This statement evidences that the tenant was purporting to assign the lease and not sublet. This transfer should be construed as an assignment, the making of which was restricted under the lease. Therefore, the tenant would not have the right to transfer the lease to the lawyer without the landlord’s consent.]

Question 5

ISSUE: Can the landlord argue that he did not accept the tenant’s surrender of the apartment? ANSWER: Yes. The landlord will argue that the tenant’s actions (removing her possessions and leaving the keys in the landlord’s mail slot with a note) constituted an abandonment of the apartment without cause. Further, the landlord will argue that he did not accept a surrender of the apartment.

Answer 5

Abandonment occurs when a tenant vacates the leased premises before the end of the term, has no intent to return, and defaults in the payment of rent. Under traditional common law principles, a landlord has three options when a tenant abandons the premises: (1) accept a surrender of the premises, thereby extinguishing the tenant’s duty to pay rent due after the acceptance of surrender; (2) re-let or attempt to re-let the premises on the tenant’s behalf, and recover from the tenant damages based on the difference between what the tenant owed for rent and what the landlord collected from re-letting; or (3) leave the premises vacant and sue the tenant for unpaid rent as it accrues.
Here, on July 25, 2015, the tenant vacated the apartment and left the keys in an envelope in the landlord’s mail slot with a note stating that she was moving abroad, would not return before the end of the lease, and would not pay any rent from August 1 onward. The landlord emailed the tenant the next day and acknowledged that he had found the keys and the note. “Although this is a problem you created,” he wrote, “I want to be a nice guy and help you out. I feel pretty confident that I can find a suitable tenant who is not a lawyer to rent your apartment.”
The landlord will argue that he did not voluntarily accept the keys; they were merely placed in his mail slot and the statement in his email was merely an offer to attempt to re-let the premises on the tenant’s behalf. His email emphasized, “this is a problem you created,” which implied that it was the tenant’s problem to resolve. This interpretation is bolstered by the landlord’s statement of his willingness to “help the tenant out.” Nowhere in the email did the landlord state that he was releasing the tenant from her obligations under the lease.
Furthermore, the facts state that local residential rents had declined precipitously since early July, and it is unlikely that the landlord would voluntarily suffer any financial loss resulting from a re-let at a reduced rent.

Question 6

ISSUE: Can the landlord argue that he had no duty to mitigate, but even if he did have a duty to mitigate, he had fulfilled that duty? ANSWER: Yes. The landlord will argue alternatively that he had no duty to mitigate or, if he did, that he discharged it. Either way, he will claim that he can recover the 17 months of unpaid rent.

Answer 6

In a jurisdiction following the common-law no-mitigation rule, the landlord will argue that he had no duty to mitigate and that, because he did not accept the tenant’s surrender, he is entitled to the 17 months of unpaid rent. In a jurisdiction that has enacted a statute requiring the landlord to mitigate, he will argue that that duty was satisfied. He advertised available apartments with a sign in front of the building, in a newspaper, and on a website, and that should be sufficient mitigation. The landlord also showed the tenant’s apartment along with the other vacant apartments to prospective tenants, thereby providing a fair chance that the tenant’s apartment would be rented before other apartments in the landlord’s rental pool. On these facts, a court most likely would find that the landlord made reasonable efforts to mitigate.
Of those states requiring mitigation, none requires that mitigation be successful; in fact, if a court determined that the landlord made reasonable efforts to mitigate but was unsuccessful, the court would find that the landlord would be entitled to damages equal to the difference between the tenant’s promised rent ($2,000/month) and the apartment’s fair rental value. Given that the landlord took reasonable steps to mitigate and was unable to rent the tenant’s unit “at any price,” it appears that the fair rental value of the tenant’s unit is $0. Thus, the landlord’s position would be that he is entitled to $34,000 in damages ($2,000/month for 17 months). In other words, if the landlord did not accept the surrender, then regardless of whether the landlord had a duty to mitigate, the landlord is entitled to the 17 months of unpaid rent.

Question 7

ISSUE: Can the tenant argue that the landlord unreasonably refused to consent to the assignment of the lease? ANSWER: Yes. The tenant will argue that although the landlord’s consent to an assignment was required, withholding consent must be reasonable, and here the landlord did not act reasonably.

Answer 7

The tenant should concede that the lease required the landlord’s consent to an assignment. However, she will argue that the law requires the landlord to act reasonably in rejecting the proposed assignment and here the landlord was unreasonable. There is an emerging modern trend that a landlord’s consent not be unreasonably withheld, which is based upon the principle that leases are subject to the good faith requirements of contracts in general. Thus, a minority of courts require that a landlord have a reasonable basis for withholding consent to a proposed transfer.
Factors that may be considered under a reasonableness test include the proposed assignee’s financial ability to pay, the suitability of the premises for the proposed assignee’s use, and the need for alterations to accommodate the proposed assignee’s use. It is not commercially reasonable to deny consent solely on the basis of personal taste, convenience, or sensibility. Here, the facts suggest that the lawyer had the financial ability to pay the rent, and there is no indication that the lawyer intended to use the apartment for anything other than a residence. The tenant will also argue that the landlord’s stated objection – “I’ve learned from personal experiences with lawyers as tenants that they argue about everything, make unreasonable demands, and make my life miserable” – is merely a matter of personal taste or convenience, and thus the landlord’s refusal to consent was unreasonable.

Question 8

ISSUE: Can the tenant argue that the landlord accepted her surrender of the apartment and therefore is not entitled to unpaid rent? ANSWER: Yes. The tenant will argue that the landlord accepted the surrender of the apartment, thus ending her obligation to pay rent.

Answer 8

The tenant will argue that the landlord accepted her surrender of the premises when he accepted the keys and emailed her, stating, “Although this is a problem you created, I want to be a nice guy and help you out. I feel pretty confident that I can find a suitable tenant who is not a lawyer to rent your apartment.” Those words could be construed as a willingness to help the tenant by releasing her from her obligations under the lease. If the lease was terminated by the landlord’s acceptance of the surrender, the landlord had no right to any rent after he accepted the keys and sent that email on July 26, 2015.

Question 9

ISSUE: Can the tenant argue that even if the surrender was not accepted, the landlord had a duty to mitigate and failed to do so? ANSWER: Yes. The tenant will argue that even if the landlord did not accept the surrender, he still had a duty to mitigate and failed to do so.

Answer 9

Alternatively, the tenant will argue that even if the landlord did not accept the surrender, he still had a duty to mitigate damages and that he failed to fulfill that duty. While most jurisdictions today reject the common-law rule that a landlord has no duty to mitigate, there is little guidance as to what efforts are sufficient to satisfy the mitigation requirement. Some statutes have defined reasonable efforts as “steps which the landlord would have taken to rent the premises if they had been vacated in due course, provided that those steps are in accordance with local rental practice for similar properties.” The tenant might argue that the landlord should have shown the tenant’s apartment to the exclusion of other vacant apartments in the landlord’s rental pool. She might also argue that there was some other deficiency in the landlord’s efforts. Her arguments on this point are weak.
Lastly, the tenant will claim that because the landlord’s efforts to mitigate were insufficient, his claim that he could not rent the tenant’s apartment at any price is irrelevant. The tenant will further argue that the landlord is not entitled to 17 months of unpaid rent ($34,000) under the lease but would only be entitled to the difference between the rent owed under the lease and the fair rental value (i.e., the amount of rent the landlord could have recovered if he had made reasonable attempts to secure a substitute tenant). The fair rental value is presumably $1,000 a month in light of the fact that he was able to rent two of the other apartments for that amount. That would reduce the landlord’s damages to $17,000 (unpaid rent of $34,000 for the 17 months less $17,000, the fair rental value of the apartment over the 17-month period).
In some jurisdictions, a landlord’s failure to mitigate would relieve the tenant of any liability for rent or damages after the date of abandonment because by failing to mitigate, the landlord is deemed to have accepted the surrender. In those jurisdictions, the landlord would be entitled to no damages.
[NOTE: At common law if a tenant abandoned his or her apartment and the landlord did not accept the surrender, the landlord had no duty to mitigate damages. However, the landlord could sue the tenant only for past-due rents and, because rent was not due until the payment date, the landlord could not sue for future rents. There is an emerging doctrine applying contract principles to a lease that states that even if the landlord accepts surrender, the landlord is entitled to damages as a result of a tenant’s anticipatory repudiation of the lease. Under this theory, a tenant would be liable for the difference, if any, between the rent due under the lease and the fair rental value of the premises plus the landlord’s consequential damages of advertising the unit for rent and the costs associated with showing it to prospective tenants. However, that possibility is written out of this question. Of course, if the duty to mitigate applies, contract damages rules apply.]
 

Question 10

ISSUE: Were the acts of possession by the man, his sister, and the buyer sufficient to acquire a title by adverse possession? ANSWER: Yes. The acts of possession of the man, his sister, and the buyer were sufficient to acquire title by adverse possession to the one-half acre actually possessed by them.

Answer 10

To acquire title by adverse possession, the possession must be (1) actual, (2) open and notorious, (3) exclusive, (4) continuous, and (5) hostile and under claim of right. Here, all of these requirements were satisfied as to the one-half acre on which the cabin was built and the garden planted. The facts state that the possession of the man, his sister, and the buyer was exclusive and continuous, satisfying these two requirements of the test.
To be actual, acts of possession must be consistent with how a reasonable owner of land would have used it if in possession. Here, the acts of possession included building and occupying a cabin as well as planting, harvesting, and maintaining a garden. These acts are consistent with how a reasonable owner would have used the one-half acre.
To be open and notorious, the acts of possession must be such that they would have put an owner on notice of the adverse possession had the owner inspected the land. Here, the cabin and garden occupied a half acre and were visible. When the owner acquired the land, it was vacant. Had the owner inspected, he would have determined that someone else was in possession.
Most courts and scholars agree that hostility and claim of right are present when a possessor is on the land without the owner’s permission. Some courts do hold that to acquire title by adverse possession, the possessor must have a good-faith belief that she has a good title to the land; others hold that the possessor must believe that she does not have a good title to the land. But most courts and scholars reject these contradictory “subjective hostility” tests. Thus, in the vast majority of jurisdictions, the fact that the man, his sister, and the buyer were on the tract of land without the permission of the owner would suffice to satisfy the hostility and claim of right requirement.
Thus, the man, his sister, and the buyer satisfied the requirements for acquiring title by adverse possession as to the one-half-acre portion of the three-acre tract that they actually possessed.

Question 11

ISSUE: Can the periods of possession during which the man, his sister, and the buyer occupied the cabin and garden be aggregated for the purpose of satisfying the statutory possession requirement? ANSWER: Yes. Although neither the man, nor his sister, nor the buyer individually possessed the property for the statutory 10-year period, their periods of possession can be aggregated because they were all in privity with one another. Thus, the 10-year statute has run, and the buyer has acquired title to the one-half acre.

Answer 11

The period during which possession must endure to create title by adverse possession is determined by statute. Here, the local statute provides that “any action to recover the possession of real property must be brought within 10 years after the cause of action accrues.”
A cause of action to recover possession of real property “accrues” when a wrongful act of possession occurs. Here, the initial cause of action thus accrued when the man wrongfully entered a portion of the three-acre tract 15 years ago.
Here, the man possessed the property for seven years, the man’s sister possessed it for one year, and the buyer possessed it for seven years. Although none of these individual periods of possession equals the 10-year statutory period, when multiple adverse possessors are in “privity” with one another, the period of their respective possessions can be aggregated for the purpose of determining whether the statutory period (here, 10 years) has run against the holder of the cause of action. In this context, privity denotes a relationship between possessors arising because of a voluntary transfer between them, descent under the laws of intestacy, or testamentary succession as the result of a bequest. Here, the man and his sister were in privity as a result of testamentary succession, namely the bequest in the man’s will of all real property “in which I have or may have an interest” to his sister. The sister and the buyer were also in privity because of the voluntary transfer between them.
Thus, because the 10-year statutory period has elapsed, the buyer has acquired title by adverse possession to the one-half-acre portion of the three-acre tract that he, the sister, and the man actually possessed.

Question 12

ISSUE: If the acts of possession were sufficient to acquire a title by adverse possession, did the adverse possession claim extend to the entire three-acre tract or only to the portion of land on which the cabin and garden were located? ANSWER: The buyer did not acquire title to the unpossessed two and one-half acres because he did not possess or use that portion of the tract.

Answer 12

The buyer acquired title by adverse possession only to the portion of the tract for which he met all requirements of the five-prong test. Because the man, his sister, and the buyer never possessed (or even used) any of the two and one-half acres beyond the garden, the buyer cannot claim title by adverse possession to those acres.
The doctrine of constructive adverse possession does not alter this result. Under this doctrine, if a possessor enters under color of title (i.e., an instrument creating the possibility of a title in the grantee who enters under the instrument) and the possessor takes possession of only a portion of the land described in the instrument, the possessor’s possession is deemed to constructively extend to the portion of the described land. Here, neither the man nor his sister entered under color of title. Although the buyer did enter with a deed and, arguably, color of title, his constructive possession endured only seven years, short of the statutory period in which the legal title holder may regain possession.

Question 13

ISSUE: Can the buyer recover damages from the man’s sister, who gave a warranty deed for the three-acre tract? ANSWER: Yes. The buyer is entitled to damages from the sister because the sister did not convey title to the three-acre tract by a general warranty deed.

Answer 13

A warranty deed includes numerous covenants. Two of them – the covenant of seisin and the right to convey – are essentially the same, and they guarantee that the seller owns the conveyed land. Here, the sister did not own the three-acre tract when she purported to convey it to the buyer by a general warranty deed. Thus, she was in breach of the covenant of seisin and the right to convey, and the buyer is entitled to damages for that breach.
[NOTE: Some examinees may confuse the warranty issue with the concept of marketable title. It is true that the man’s sister did not have a marketable title when she conveyed to the buyer because her adverse possession claim was clearly subject to the risk of litigation. Nonetheless the buyer agreed to go forward with the transfer, and the sister gave the buyer a warranty deed. Had she given the buyer a quitclaim deed, no warranties would have been breached.
While the deed also includes a covenant of quiet enjoyment and a covenant of warranty, no facts suggest that these have been breached here, as the buyer has not been evicted.]>

Question 14

ISSUE: Did the buyer take subject to an underground sewer-line easement created before the adverse possession began? ANSWER: Yes. The buyer cannot compel the company to remove the sewer line from under the garden because he took subject to the sewer-line easement and probably did not interfere with that easement.

Answer 14

Where an adverse possessor acquires title by adverse possession, the nature of the acquired title is no greater than the title of the holder of the cause of action who was barred by the running of the statute of limitations. Here, the owner’s title was subject to the properly recorded sewer-line easement at the time the man wrongfully entered the land.
The man, his sister, and the buyer cannot claim to have adversely possessed the easement unless their possession interfered with the rights of the sewer company, giving it a cause of action against the man, the sister, and the buyer while they were in possession. There is nothing in the facts, however, suggesting that planting and maintaining a garden interfered with the sewer company’s access to the sewer line. In the absence of such interference, the company has no cause of action against the possessors, in which case the buyer acquired the owner’s title only – a title subject to the sewer-line easement.
Examinees who make a plausible argument that possession of the garden did interfere with the easement should conclude that the buyer could compel the sewer company to remove the sewer line. In that case, its failure to do so within the 10-year statutory period would result in the buyer acquiring a title that is superior to both the owner and the sewer company

Question 15

ISSUE: Which present title covenants, if any, did the developer breach? ANSWER: The developer breached the covenant against encumbrances.

Answer 15

A warranty deed contains six title covenants, three present covenants and three future covenants. The three present covenants are
1. covenant of seisin, a covenant that the grantor owns the land that the deed purports to convey to the grantee;
2. covenant of right to convey, a covenant that the grantor has a right to convey the land; and
3. covenant against encumbrances, a covenant that there is no outstanding right or interest in a third party which does not totally negate the title the grantor purports to convey.
[NOTE: A warranty deed also contains three future covenants. These are (1) the covenant of warranty, (2) the covenant of quiet enjoyment, and (3) the covenant of further assurances. The calls of the question, however, only relate to the present covenants, and examinees should receive no credit for addressing the future covenants.]
These warranties of title apply to all easements on the land except to the extent that they have been excepted by the terms of the deed. The fact that the contract between the developer and the man provided for a warranty deed with easements excepted is irrelevant to whether a breach has occurred because, as a result of the so-called merger doctrine, contractual promises relating to title do not survive the closing and the delivery of the deed. In other words, the only promises relating to title that survive the closing are those in the deed.
Here the deed warranted that there were no encumbrances on the land. An encumbrance is “some outstanding right or interest in a third party which does not totally negate the title which the deed purports to convey.” An easement is such an encumbrance. Thus, the covenant against encumbrances was breached by the existence of the utility easements on the land.
The developer may claim that the omission from the deed of the exception in the contract for easements and covenants of record was a mutual mistake, perhaps due to a scrivener’s error. Modern courts often apply merger only when use of the doctrine carries out the parties’ probable intent. If a court accepts this argument, there would be no breach of any title covenant, in effect resulting in a reformation of the deed to conform to the parties’ intent.
[NOTE: There is plainly no breach of the other two present covenants. The man received title to the land along with possession, so there is no breach of the covenant of seisin. Nor is there a breach of the covenant of the right to convey. Nothing indicates that the developer lacked the right to convey title to the man.]

Question 16

ISSUE: Is the man entitled to damages for breach of the covenant against encumbrances because of the existence of the utility easement, which was plain and obvious? ANSWER: No. The law is unclear whether the man can recover damages for breach of the covenant against encumbrances where, as here, the easement was plain, obvious, or known to the man.

Answer 16

damages. Courts are divided on the propriety of damages where the easement is plain or obvious or is known to the plaintiff.
The man might argue that, because the developer contracted to exclude the easement from the covenant but then granted the covenant without exclusion in the deed, the developer had knowledge of a change in circumstances that no longer made it necessary to preserve in the deed the exception stated in the contract and therefore willingly gave the warranty.
The developer would likely argue that the man had notice of the easements. Although the underground utilities were not visible, the man had constructive notice of the easements given that they had been recorded, and furthermore, their presence would also have been established through a home inspection prior to the closing, and this would constitute actual notice of their existence. The developer might also argue that, because utilities are essential to use of any house as a typical home, the man must have wanted the benefit of the easements.
Here, the developer has the stronger arguments; the man did have constructive notice of the easements (and possibly actual notice). It would also be unreasonable for a home buyer to recover damages for breach of a warranty for an easement the buyer would have wanted the benefit for the home. By denying damages to the man, a court would, effectively, recognize that the failure to exclude the easements from the warranty in the deed was a mistake and that damages would provide the man with a windfall.
Even if the court were to find that the man is entitled to damages, he could recover them only to the extent that he could prove the easements reduced the value of the land. This measure is the value of the land not subject to the easements, minus the value of the land as restricted by the easements. Because utility easements are so commonly used in residential building subdivisions, it is possible that the man will not be able to prove any significant decline in value. This may depend on whether the easements are standard and are located along the perimeter of the lot, so as not to interfere with reasonable present or future residential uses of the land.

Question 17

ISSUE: Can the man force the utility company to remove the sewer lines from the land? ANSWER: No. The man cannot compel the utility company to remove the sewer lines from the land.

Answer 17

Resolution of a dispute between the man and the holder of the sewer line easement is not dependent on or controlled by the fact that the man received a warranty deed from the developer. Rather, the question is whether the man had knowledge of the easements when he purchased the land. The facts state that the utility easements had been promptly and properly recorded prior to the delivery of the deed to the man. Therefore, regardless of the type of notice statute the jurisdiction has (notice, race-notice, or race), the man, even if he had no actual notice of the easements, was on record (or constructive) notice of the easements. Thus, he takes subject to the easements, and he cannot force the utility company to remove the sewer lines from the land.

Question 18

ISSUE: Is the man entitled to recover $5,000 from the developer for water damage to his home? ANSWER: Yes. The man can recover damages from the developer for breach of the implied warranty that applies to new home construction.

Answer 18

At common law, the rule of caveat emptor applied, and as a result the seller did not make any implied promises to the buyer relating to the condition of the premises. Today, it is generally true that a builder of a new home impliedly warrants to the buyer that the home is habitable and fit for its intended purposes. This implied warranty allows a buyer to recover damages for losses resulting from defective construction or construction that was not done in a workmanlike manner.
The warranty applies to defects that are discovered within a reasonable period of time, are due to the builder’s negligence or failure to do the work in a workmanlike manner, and cannot be attributable to later changes in the structure or to normal deterioration. Courts vary in characterizing the warranty as based in contract or in tort law.
Here, the defect in the foundation clearly breaches the warranty. Thus, the man should be able to recover all damages for losses resulting from the developer’s breach of the warranty.

Question 19

ISSUE: Does an implied warranty against latent defects protect a remote grantee? ANSWER: Yes. In many, but not all, jurisdictions the home builder’s warranty against latent defects extends to a remote grantee like the man.

Answer 19

Not all courts have extended the implied warranty of latent defects to remote grantees. Courts that apply a privity bar have typically done so on the ground that the warranty is contractual in nature and thus should only run in favor of parties in privity with each other. Other courts, perhaps influenced by the foreseeability standards of tort law, but also relying on the equal vulnerability of both initial and remote grantees, have extended the warranty to subsequent purchasers. For example, in Redarowicz v. Ohlendorf, the Illinois Supreme Court stated:
The warranty of habitability is a creature of public policy. It is a judicial innovation that has evolved to protect purchasers of new houses upon discovery of latent defects in their homes. While the warranty of habitability has roots in the execution of the contract for sale, we emphasize that it exists independently. Privity of contract is not required. Like the initial purchaser, the subsequent purchaser has little opportunity to inspect the construction methods used in building the home. Like the initial purchaser, the subsequent purchaser is usually not knowledgeable in construction practices and must, to a substantial degree, rely upon the expertise of the person who built the home. If construction of a new house is defective, its repair costs should be borne by the responsible builder-vendor who created the latent defect. The compelling public policies underlying the implied warranty of habitability should not be frustrated because of the short intervening ownership of the first purchaser; in these circumstances the implied warranty of habitability survives a change of hands in the ownership.
Whether the man, as a remote grantee, is protected by the warranty running from the builder to the woman depends upon which approach governs.

Question 20

ISSUE: Is a buyer who purchases real property from a mortgagor personally liable on the mortgage debt even if the buyer has not expressly assumed the mortgage obligation? ANSWER: No. In most, but not all, jurisdictions the man is not liable on the woman’s mortgage obligation because he did not expressly assume that mortgage obligation. In some jurisdictions, the man could be held liable on the woman’s mortgage obligation on the theory that he implicitly assumed this obligation

Answer 20

Because the woman’s mortgage obligation to the bank was recorded, the man took the home subject to the mortgage, and the bank’s interest had priority over the man’s. Because the bank has priority, it can foreclose on the home if the mortgage is in default. However, the recording of a mortgage does not make the mortgagor’s grantee personally liable for the mortgagor’s obligation.
The predominant rule in the United States is that if a remote grantee takes subject to a mortgage which the grantee does not assume, the remote grantee is not personally liable on the debt. Of course, that does not mean that the remote grantee will not want to voluntarily make payments on the mortgage in order to prevent the mortgagee from foreclosing on the debt. But it does mean that if the mortgagee forecloses on the property, it cannot hold the remote grantee personally liable on the debt or liable for any deficiency resulting from a mortgage foreclosure. Following this approach, the man would be personally liable on the woman’s mortgage obligation if the man assumed (i.e., made a commitment to pay) the mortgage. There is no evidence of an express assumption agreement here. The deed from the woman to the man made no mention of the woman’s mortgage, and the facts do not describe any express agreement.
In some jurisdictions, a remote grantee who did not expressly assume a mortgage may be deemed to have impliedly assumed it where, as here, the remote grantee paid the seller only the difference between what the house was worth and the outstanding balance on the mortgage obligation. The rationale for this approach is that “the grantee’s retention of the vendor’s money for the payment of the mortgage imposes upon him the duty of protecting the vendor against the mortgage debt. This must be so for it would seem to be almost intolerably unjust to permit him to keep back the (money he would have otherwise paid the vendor to purchase the property).” Seven states follow this approach.
Here, the man was clearly aware of the mortgage; the mortgage was recorded, and the man paid the woman only $160,000, considerably less than the house was worth ($360,000). Moreover, the man began making mortgage payments immediately after buying the house and continued making payments to the bank for a year.
Thus, in a jurisdiction that follows the implied assumption approach, the man may be liable to the bank. In a jurisdiction that requires express assumption of a mortgage obligation, the man would not be liable because there is no evidence that he expressly assumed the mortgage.
[NOTE: If the man is deemed to have impliedly assumed the mortgage, then the woman is merely a surety and would be liable for any deficiency not paid by the man. ]

Question 21

ISSUE: What are the obligations of a grantor who has conveyed title to real property with a quitclaim deed? ANSWER: If the bank successfully forecloses on the man’s home, he cannot recover his loss from the woman because she gave the man a quitclaim deed and quitclaim deeds contain no warranties of title on which a buyer can sue.

Answer 21

If a seller conveys land on which there is an unsatisfied encumbrance such as a mortgage, and that encumbrance has priority against the buyer, the seller is liable to the buyer for any loss borne by the buyer only if the seller warranted that there was no such encumbrance against the property. Had the woman conveyed the land to the man by a warranty deed, that deed would have impliedly included a covenant against encumbrances, and the woman would have been liable to the man for a breach of this covenant.
Here, however, the woman conveyed the home to the man by a quitclaim deed. A quitclaim deed contains no warranties of title, and the buyer taking under a quitclaim deed has no claim against the seller for damages resulting from encumbrances against the property having a priority over the buyer’s interest. Here the bank has priority over the man’s interest because its mortgage was recorded prior to the quitclaim deed to the man, and thus the man had notice of the mortgage from the record. The man also had actual notice of the mortgage as evidenced by his making of mortgage payments to the bank. Thus, the man is not entitled to any damages from the woman for the loss he sustained as a result of the foreclosure.
[NOTE: If the examinee concludes that the man is liable for any deficiency, the man would have a claim against the woman to recover that deficiency on the ground that he was her surety to guarantee payment of the deficiency.]

Question 22

ISSUE: Does the tenant have a defense to the landlord’s action for unpaid rent based on constructive eviction? ANSWER: No. The tenant was not constructively evicted, because the landlord had no duty to repair the commercial premises that were the subject of the lease.

Answer 22

The landlord and the tenant entered into a term-of-years lease because the lease specified both a beginning and an ending date. Although a term-of-years lease normally cannot be terminated by the tenant prior to the end of the term, a tenant may terminate a term-of-years lease if the tenant is constructively evicted. Typically, as here, a claim of constructive eviction is made as a defense to a landlord’s action for damages or unpaid rent.
In order to establish a constructive eviction, the tenant must prove that the landlord breached a duty to the tenant, such as a duty to repair, and that the landlord’s breach caused a loss of the substantial use and enjoyment of the premises. The tenant must also show that he gave the landlord notice adequate to permit the landlord to meet his duty to the tenant and that the tenant vacated the leased premises.
Under the common law, there was no implied duty on the part of a landlord to repair leased premises; such a duty arose only if expressly set forth in the lease. Here, the written lease contained no term requiring the landlord to repair the air-conditioning. Even if the conversation created a lease term that the building had air-conditioning, that itself should not create a duty for the landlord to repair it.
Over the past several decades, courts have generally implied a duty to repair in residential leases either as part of a revised constructive eviction doctrine or based on an implied warranty of habitability. This shift has been justified based on the economic disparity between the typical landlord and tenant as well as the fact that residential tenants generally lack both the authority to authorize repairs to common areas of a building and the incentive to make repairs that will ultimately benefit the landlord.
However, courts have been more reluctant to imply a duty to repair in commercial leases, a context in which the tenant is often a valuable business and in a better position to assess and make repairs than is the landlord. When courts have implied a duty to repair in a commercial lease, it is typically when the repair has been mandated by public authorities and involves work so substantial that it would not ordinarily fall within the tenant’s common law repair duty and/or the value of the repair would primarily inure to the landlord’s reversionary interest. Some courts have also permitted constructive eviction claims by commercial tenants of office buildings based on repairs required in common areas of the building.
Here, the tenant is the owner of a valuable manufacturing operation and is the exclusive occupant of the building, the repair has not been mandated by public authorities, and the repair is not structural. To the contrary, the repair involves a feature of the building of unusual importance in the tenant’s manufacturing operation, and the tenant is likely far more knowledgeable than the landlord about the air-conditioning specifications necessary for the manufacture of the tenant’s product.
Based on these facts, it is unlikely that a court will find that the tenant in this case was constructively evicted. Although the tenant can show that he gave adequate notice to the landlord of the air-conditioning malfunction and vacated the premises, the lease was commercial, and it did not contain any promises or covenants by the landlord except a covenant of quiet enjoyment; a covenant of quiet enjoyment does not entail any repair obligations.

Question 23

ISSUE: Does the tenant have a defense to the landlord’s action for unpaid rent based on the tenant’s surrender of the premises? ANSWER: The landlord did not accept the tenant’s surrender of the lease.

Answer 23

When a tenant wrongfully moves from leased premises with the intent to terminate the lease, the landlord may either accept the tenant’s surrender of the premises and terminate the lease or hold the tenant to the terms of the lease. Here, the tenant’s only basis for the claim that the landlord accepted his surrender is the landlord’s retention of the keys. Many courts have considered whether a landlord’s retention of keys delivered by a tenant constitutes acceptance of surrender. The weight of the case law holds that retention of the keys alone does not constitute acceptance of surrender without other evidence showing that the landlord intended to accept the surrender.
Here, the landlord’s note, saying “I repeat, the air-conditioning is not my problem. You have leased the building, and you should fix it,” strongly suggests that the landlord did not intend to accept the tenant’s surrender. The tenant might argue that the landlord’s failure to make a similar statement when the keys were sent to her a second time and she retained them evidences a change of heart. However, it is likely that a court would find that the landlord’s retention of the keys represented a decision to safeguard the keys, not to accept the tenant’s surrender.

Question 24

ISSUE: What, if anything, may the landlord recover from the tenant for the period after the tenant vacated the building? ANSWER: Under the common law, the landlord had no duty to mitigate damages. Additionally, a landlord was not entitled to recover unpaid rents due in the future but was only entitled to recover rents in arrears at the time of the commencement of the suit. Applying the common law here, the landlord could recover $5,000, the amount of rents due at the commencement of the suit ($2,500 for September and the same for October). Today, some courts allow the landlord, under certain circumstances, to sue the tenant for damages (not rent) equal to the difference, if any, between the unpaid promised rent for the balance of the term (here $175,000) and the property’s fair rental value for the balance of the term.

Answer 24

Under the common law, because a lease was viewed as a conveyance instead of a contract, a landlord had no duty to mitigate damages resulting from a tenant’s wrongful termination of a lease. A landlord could thus recover the full value of rents that were due and unpaid at the time of the suit. However, under the common law, a landlord could not sue a tenant for rents due in the future because there was always a possibility that the tenant might pay the rent when it was due. Thus, using the common law approach, on November 1, the landlord could only recover the full value of the two months’ rent actually due and unpaid, i.e., $5,000 for September and October.
Some courts have rejected the no-mitigation-of-damages rule based on efficiency concerns and society’s interest in assuring that resources remain in the stream of commerce rather than lying vacant, and allow landlords to sue tenants who have wrongfully terminated a lease for damages equal to the difference between the unpaid rent due under the lease and the property’s fair market rental value. Other courts have abandoned the no-recovery-for-future-rent rule. These courts, responding to the fact that a tenant may well disappear or be judgment-proof by the time a lease term is concluded, have allowed a landlord to collect damages equal to the value of rent over the entire lease term minus the property’s fair rental value when a tenant has wrongfully terminated a lease and unequivocally shown an intention not to return to the premises or pay future rent. Under this approach, a landlord receives approximately the same amount he would have received were there a duty to mitigate damages.
Here, because the tenant returned the keys to the landlord and said, “I will not be returning to the building or making further rent payments,” the landlord could establish abandonment and an intention not to return. It is thus possible that the landlord might recover damages in the amount of $5,000 (for the months of September and October) plus the present value of $175,000 minus the fair market rental value of the property over the remaining months of the lease.

Question 25

ISSUE: Was Sue’s easement over Blackacre that she had acquired from Tom extinguished when she purchased Blackacre from Tom? ANSWER: Yes. The easement Sue acquired from Tom was extinguished by merger when Sue bought Blackacre from Tom. Thus, immediately prior to her sale of Whiteacre to Dan, Sue had no easement over Blackacre.

Answer 25

Sue purchased from Tom an easement for a right-of-way over Blackacre to be used in connection with her ownership of Whiteacre. This easement, an appurtenant easement of which Whiteacre was the dominant estate and Blackacre was the servient estate, was promptly and properly recorded. When the owner of the dominant estate (Sue) acquired the servient estate (Blackacre), however, the easement was extinguished by merger. This result follows from the fact that because of the post-sale unity of ownership of the two estates, Sue could enforce the easement only against herself, and lawsuits against one’s self are impermissible.

Question 26

ISSUE: Did Dan acquire an easement implied from prior use over Blackacre when he purchased Whiteacre from Sue? ANSWER: Yes. Upon the conveyance of Whiteacre, Dan acquired an easement implied from prior use with respect to use of the private gravel road traversing Blackacre.

Answer 26

An easement implied from prior use arises in favor of a grantee when (1) two parcels of land are in common ownership; (2) one of the parcels is conveyed to a grantee; (3) the parcel conveyed had been receiving a benefit from the parcel retained prior to the conveyance to the grantee, i.e., there was a use over the retained parcel in favor of the conveyed parcel which could have been the subject of an express easement appurtenant; (4) the usage is reasonably necessary or convenient; and (5) the usage is apparent.
Here, the first three criteria are clearly met: Sue owned both Blackacre and Whiteacre; she conveyed one parcel (Whiteacre) to Dan; and Whiteacre, the parcel conveyed, had been receiving a benefit from the parcel retained, i.e., use of the private gravel road traversing Blackacre, which could have been – indeed, was, before its extinction by merger – the subject of an express easement appurtenant.
Sue’s use of Blackacre also appears to satisfy the “reasonably necessary” and “apparent” requirements. “The principle underlying the creation of an easement by implication is that it is so evidently necessary to the reasonable enjoyment of the granted premises, so continuous in its nature, so plain, visible and open, so manifest from the situation and relation of the two tracts that the law will give effect to the grant according to the presumed intent of the parties.”
Most courts interpret the “reasonably necessary” requirement “to mean that the easement must be important to the enjoyment of the” conveyed land or “highly convenient.” Courts are likely to find that an easement is implied from prior use where access to the transferred land is “extremely difficult by other routes” and to find that an easement is not implied when the transferred land has “easy access to public roads in another direction.” Sue’s use of Blackacre for the benefit of Whiteacre meets this test; the facts specify that the private gravel road provided significantly better access to the four-lane highway than did the county road abutting Whiteacre.
Most courts have found that the “apparent” requirement is met when the usage is visible. Here, the private gravel road was open and obvious; indeed, the facts state that Dan was aware that Sue had used that road to more easily access the four-lane highway.
Thus, upon Sue’s conveyance of Whiteacre to Dan, she conveyed to Dan an easement implied from prior use.
[NOTE: Dan did not acquire an easement by necessity over Blackacre, because Whiteacre is not landlocked, and he has access to it from the county road. An easement by necessity arises only when there has been a conveyance of a portion of the grantor’s land, the grantor retains the remaining portion, and, after severance of the grantor’s land, it is necessary for the grantee to pass over the grantor’s retained portion to reach a public street or highway. Landlocked land clearly satisfies the necessity test, and a few courts have found an easement where there is merely “reasonable” necessity. Additionally, this is not a case for easement by estoppel. An easement by estoppel arises when A gives B permission to use A’s land and the licensee, here B, invests substantial funds in that land reasonably relying on the permission. The facts here do not support the conclusion that there is an easement by estoppel.]

Question 27

ISSUE: How should the proceeds from the sale of Whiteacre be distributed? ANSWER: The proceeds from the foreclosure sale should be paid entirely to Bank because Bank gave Dan a future-advances mortgage.

Answer 27

The typical construction loan provides that the lender will advance funds to the borrower over a fixed time period. The lender secures a mortgage on the property for the entire amount of the money it has agreed to lend, including future advances. Such “future advances” mortgages may provide for obligatory advances, or they may provide for advances that are optional.
Whether the future-advances mortgage payments are obligatory or optional is critical to the rights of a junior lender. If payments under a future-advances mortgage are obligatory, then the junior lender’s lien is junior both to amounts loaned to the debtor before the junior lien was recorded and to amounts loaned after the junior lien is recorded. If the payments under a future-advances mortgage are optional, the junior lender has a priority over amounts transferred to the debtor by the senior lender after the junior lender transfers funds to the debtor and records its mortgage. The rationale for this rule is that in the case of an obligatory loan, the junior lender can ascertain from public land records the maximum amount of the senior lender’s claim before loaning money to the creditor, while with an optional loan, the junior lender cannot know whether subsequent advances will be made and the senior lender can protect itself against junior lenders by searching the land records before making additional advances.
Here, Bank’s loan commitment to Dan was secured by an obligatory future-advances mortgage, and Bank both recorded its mortgage and loaned Dan money before Finance Company did so. Thus, Bank is the senior lender in the amount of $1,500,000, the full value of its loan commitment to Dan, and it is entitled to all of the foreclosure sales proceeds. Finance Company is entitled to nothing.
 

Question 28

ISSUE: Has Railroad abandoned its interest? ANSWER: No. Railroad’s easement was not abandoned unless Railroad had an intent to abandon it.

Answer 28

Easements may be terminated in a variety of ways, such as by their express terms, written release, merger of the dominant and servient tenements, prescription, estoppel, condemnation, and abandonment. The only method of termination potentially applicable under these facts is abandonment. If a court were to find that either Daughter or Purchaser acquired a fee simple title subject to Railroad’s interest, either may argue that Railroad’s easement was extinguished by abandonment because Railroad has not used the easement since 2000.
An abandonment theory is unlikely to succeed, however, because mere non-use of an easement is insufficient to establish abandonment. Instead, there must be a cessation of use coupled with evidence of the user’s intent to abandon the easement. Here, there is insufficient evidence of Railroad’s intent to abandon its easement. Notably, Railroad has not removed its tracks and there are no other facts to suggest that Railroad has voluntarily relinquished its interest. In the absence of such evidence, a court is likely to find that Railroad has not abandoned its easement.

Question 29

ISSUE: In the absence of a state recording act, as between Daughter and Purchaser, who owns the land? ANSWER: Under the common law first-in-time, first-in-right principle, Daughter, and not Purchaser, owns the land, unless the state’s recording act mandates a contrary result.

Answer 29

Under the common law, a grantor can convey only those rights in land that the grantor had at the time of the conveyance. Thus, under the common law, priority among successive transfers is dictated by priority of time – the so-called “first-in-time, first-in-right” principle.
Here, Oscar’s conveyance to Sam in 1980 takes priority over the subsequent transfer by the executor of Oscar’s estate to Purchaser. Once Oscar conveyed the land to Sam, neither Oscar nor his estate at his later death had a title left to convey to anyone, including Purchaser. Rather, title was then in Sam. Sam’s conveyance of legal title to Daughter would prevail over the later conveyance by Oscar’s executor to Purchaser. However, if the state recording act protects Purchaser, then Purchaser rather than Daughter would own the land.

Question 30

ISSUE: Was Purchaser on constructive notice of the interests of Railroad and Daughter and thus not a bona fide purchaser for value? ANSWER: No. While the state has rejected the common law first-in-time, first-in-right principle by enacting a notice-type statute with a grantor-grantee index, Purchaser was not on constructive notice of the interest of either Daughter or Railroad. Although the deeds to Daughter and Railroad were recorded, they were not properly indexed and, thus, not discoverable, because the deed to their predecessor in title – Sam – was never recorded.

Answer 30

All states have recording statutes that, when applicable, overturn the results of the common law “first-in-time, first-in-right” principle. The recording statute here is a notice-type statute providing that unrecorded conveyances are not valid against a “subsequent purchaser for value and without notice” of the conveyance. Under a notice-type recording statute, Purchaser can prevail against either of or both Daughter and Railroad only if (1) the prior conveyances were unrecorded, (2) Purchaser paid value for the land, and (3) Purchaser took without either actual, constructive, or inquiry notice of the prior conveyances.
The facts clearly state that Purchaser paid value, so payment of value is not an issue here. Furthermore, no facts suggest that Purchaser had actual notice of the conveyances of the easement and fee to Railroad and Daughter, respectively. But there are two other possible ways for a subsequent purchaser to have notice. One is constructive; the other is inquiry.
Constructive notice arises through the recording system. A purchaser is placed on constructive notice of all information that is properly recorded on the public land records whether he sees it or not. While both Railroad and Daughter recorded their interests, Sam (from whom they both claimed) did not. Because Sam’s deed from Oscar was not recorded, both the deed from Sam to Railroad conveying an easement and the later deed from Sam to Daughter conveying to her a fee are so-called “wild deeds,” meaning they were recorded outside the chain of title. As such, they are undiscoverable by a reasonable search of the grantor-grantee indexes. A search of the public land records by Purchaser would have shown that as a matter of public record his seller, Oscar, had not conveyed the property to anyone because the Oscar to Sam deed was not recorded. As a result, a title searcher could not have discovered Sam’s later conveyances to Railroad and Daughter even though they were recorded. Courts have uniformly held that a wild deed is not “properly recorded” and, therefore, imports no constructive notice to a subsequent purchaser. Accordingly, Purchaser is not on constructive notice of the interests of Daughter and Railroad and his interest would appear to have priority to theirs.

Question 31

ISSUE: Was Purchaser on inquiry notice of the interests of Railroad and Daughter and thus not a bona fide purchaser for value? ANSWER: Yes. Purchaser is not a bona fide purchaser for value under the state’s notice-type recording statute because he had inquiry notice of Railroad’s interest and, likely, of Daughter’s interest as well.

Answer 31

Although Purchaser did not have constructive notice, the law also imputes knowledge to a subsequent purchaser in another way, namely through an obligation of inquiry. Here there is a strong argument that Purchaser had inquiry notice of Railroad’s interest and, therefore, also that he had inquiry notice of Daughter’s interest.
Inquiry notice exists when knowledge is imputed to a buyer from facts and circumstances suggesting the existence of a prior conveyance. Some courts have held that a purchaser who takes by quitclaim deed, as Purchaser did, is presumed to take with notice of any interests that could have been discovered by reasonable diligence. This perspective is based upon the theory that the title is suspicious if a grantor refuses to give covenants of title. The majority of courts, however, reject this rule because there are many legitimate reasons for a grantor to convey by quitclaim deed, particularly in an environment where title insurance is common. Accordingly, in most states, Purchaser would not have inquiry notice from the quitclaim deed alone.
The better argument is that inquiry notice arose from the possibility of a visual inspection of the property. Inquiry notice exists when someone other than the record owner is in possession or use of the property. Here, a visual inspection would have revealed the existence of railroad tracks on otherwise undeveloped land. Exercising reasonable diligence, Purchaser would have discovered the tracks, and then should have engaged in further inquiry to ascertain the interest of whoever put the tracks there. Accordingly, a court is most likely to find that even though Railroad’s easement was recorded outside the chain of title, Purchaser had inquiry notice of Railroad’s interest based upon the visible improvements on the land.

Question 32

ISSUE: Did Bob take the land subject to a power-line easement when the easement was not recorded but the power lines were visible? ANSWER: Yes. Both Abe and Bob acquired the land subject to the unrecorded power-line easement. Because the power lines were visible, Abe and Bob were on inquiry notice of the easement.

Answer 32

purchases said real property in good faith and for valuable consideration.” Notice may be actual, constructive, or inquiry. Constructive notice comes from information that is on the public land records; inquiry notice arises from facts discernible through visual inspection of the premises or the applicable recorded instruments. Some jurisdictions and authors equate constructive and inquiry notice.
Here, because Abe paid Owen for the land, he is a subsequent purchaser for value. Abe did not have actual notice of the power-line easement and, because that easement was never recorded, he did not have constructive notice of it based on the recorded instruments. However, because the power lines were discernible from visual inspection, Abe had inquiry notice of the power-line easement. Therefore, under the relevant statute, Abe took subject to the power-line easement.
The same analysis applies to Bob, who also takes subject to the power-line easement.

Question 33

ISSUE: Did Bob take the land subject to a gas-line easement when the easement was not recorded and the gas line was not visible but Bob had actual knowledge of the gas-line easement? ANSWER: No. Abe did not take the land subject to the unrecorded and invisible gas-line easement because he had no actual, constructive, or inquiry notice of it. While Bob had actual knowledge of the gas-line easement, because of the shelter doctrine, he takes free and clear of that easement.

Answer 33

The gas-line easement was never recorded. Thus neither Abe nor Bob acquired constructive notice of this easement from the land records. Abe had no actual notice of it, either. In contrast to the power-line easement, the gas-line easement was not discernible through visual inspection; the gas lines were underground, and the surface of the land had been restored to its pre-installation condition. Therefore, Abe had no inquiry notice of the gas-line easement. Thus, under the state recording statute, Abe took free of the gas-line easement.
At first blush, it would appear that Bob took the land subject to the gas-line easement because, in contrast to Abe, he had actual notice of it. However, under the “shelter doctrine,” when a bona fide purchaser (here, Abe) acquires title free of a prior encumbrance, he can convey that title to a subsequent purchaser (here, Bob) free of that encumbrance. In order to ensure that the bona fide purchaser has an unlimited right to alienate his land in the future, the shelter doctrine applies even when the subsequent purchaser has actual notice of the prior, unrecorded encumbrance

Question 34

ISSUE: If Bob took the land subject to the power-line easement, may he obtain damages from Owen based on the Owen-to-Abe warranty deed’s covenant against encumbrances? ANSWER: Bob cannot obtain damages from Owen for breach of the covenant against encumbrances because Bob is a remote grantee. However, some jurisdictions do not follow the common law rule. In those jurisdictions, a remote grantee may sue on the covenant against encumbrances.

Answer 34

Owen conveyed the land to Abe with a full covenant and warranty deed that made no mention of encumbrances. A full-covenant deed includes a covenant against encumbrances, i.e., a warranty that, at the time of conveyance, there are no outstanding third-party rights that negate the title the grantor purports to convey. That covenant is inconsistent with the fact that Abe and later Bob took subject to the power-line easement. Abe clearly had a cause of action against Owen for breach of the covenant against encumbrances. The issue is whether Bob may also sue Owen.
Under the common law, the covenant against encumbrances is a “present covenant,” breached, if at all, if there is an encumbrance at the time of the conveyance to Abe. Furthermore, the covenant does not run with the land. Therefore, it cannot benefit a remote grantee like Bob.
Some jurisdictions do not follow the common law rule. In those jurisdictions, a remote grantee may sue on the covenant against encumbrances. Even in those jurisdictions, a remote grantee with notice of the easement may not sue on the theory that with such notice the grantee (1) never relied on the covenant or (2) bargained for a reduction in the purchase price to take account of the easement. Courts are divided on whether the covenant against encumbrances is breached when an unrecorded easement is ascertainable through visual inspection. Some courts say yes; others disagree, arguing that the grantee can sue even though the easement is visible because, if the warranty is in the deed, the grantee can reasonably assume that an easement is no longer valid when the grantor makes no exception for it when conveying title.
 

Question 35

ISSUE: What interest did School acquire in Blackacre and what interest did Owner retain? ANSWER: The terms of the conveyance to School were ambiguous. In construing an ambiguous instrument, courts typically adopt a preference for the fee simple on condition subsequent. If so construed, it is unclear what interest, if any, Owner retained. It is either no interest or a right of entry for condition broken (also called a “power of termination”). If, on the other hand, School acquired a fee simple determinable in Blackacre, then Owner retained a possibility of reverter.

Answer 35

If the Owner-to-School deed conveyed a fee simple determinable to School, then Owner retained a possibility of reverter, which became possessory immediately upon the happening of the event designated in the instrument. If, instead, the Owner-to-School deed conveyed a fee simple on condition subsequent, Owner may or may not have a power of termination or right of entry for condition broken, depending on whether the court would be willing to imply a forfeiture provision when none was expressly set forth in the deed.
Here, Owner conveyed Blackacre to School “if School uses Blackacre only to teach children aged 5 to 13.” The language of the deed does not conform to the paradigms for creating either a fee simple determinable or a fee simple on condition subsequent. To create a fee simple determinable, the typical formulation would be “to School, so long as it uses Blackacre only to teach children aged 5 to 13.” To create a fee simple on condition subsequent, the typical formulation would be “to School, but if School does not use Blackacre only to teach children 5 to 13, then the grantor may reenter and reclaim Blackacre.”
In this case, the deed language is ambiguous. The word “if” in the deed expresses the language of condition and suggests an intent to create a fee simple on condition subsequent, but the deed’s lack of an express, retained power of termination suggests the intention to instead create a fee simple determinable. On the other hand, the deed’s failure to use the typical formulation for creating a fee simple determinable, coupled with the absence of any language suggesting that Owner intended to retain a possibility of reverter (e.g., “Blackacre shall revert”), suggests that Owner did not intend to convey a fee simple determinable, but instead a fee simple on condition subsequent.
Where the terms of a conveyance are ambiguous, courts construe the instrument to effectuate the grantor’s intentions. In construing an ambiguous instrument, courts typically adopt a preference for the fee simple on condition subsequent.
Here, it doesn’t matter whether the court finds that the Owner-to-School deed created a fee simple determinable or fee simple on condition subsequent if, in the latter case, it also implies a forfeiture provision. Either construction would allow Owner to regain possession of Blackacre if School ceased using Blackacre only to teach children aged 5 to 13. The only practical difference that flows from these two constructions is that the fee simple on condition subsequent would require Owner (or his successors) to first make a demand, and the fee simple determinable would not because it becomes possessory immediately upon the happening of the limitation. In either case, the holder might have to sue the School to enforce her rights if Blackacre is not vacated voluntarily by School.
If, however, the court construes the deed as creating a fee simple on condition subsequent and does not imply a power of termination, then School has what amounts to a fee simple absolute because no one has the power of termination or right of entry for condition broken. In this case, School’s decision to discontinue use of Blackacre for teaching children aged 5 to 13 has no effect on School’s interest in Blackacre.

Question 36

ISSUE: Did School breach the condition or limitation in the deed from Owner when it stopped using the building erected on Blackacre to teach students and began using it for administrative purposes? ANSWER: Yes. School has likely ceased using Blackacre “only to teach children aged 5 to 13.” If Owner is treated as having either a possibility of reverter or a right of entry for condition broken (power of termination), then School’s interest can come to an end and, Blackacre passes to the successors of Owner’s estate. Otherwise, School continues to own Blackacre.

Answer 36

There is a factual question as to whether ceasing to only teach children aged 5 to 13 in the building on Blackacre and then using that building for administrative purposes is inconsistent with language in the deed from Owner to School. Here again applicants can make an argument either way, but the stronger argument appears to be that the terminating event occurred. No teaching appears to be going on in the building; rather, it is being used for administrative purposes, and that use seems to be beyond the intended purpose set forth in the Owner-School deed.

Question 37

ISSUE: If Owner retained a future interest in Blackacre, did the statute of limitations run on that interest? ANSWER: No. If Owner’s successors have an interest in Blackacre, the statute of limitations has not run on that interest.

Answer 37

Whether Owner conveyed to School a fee simple determinable or a fee simple on condition subsequent, the state statute of limitations applicable to actions for possession permits actions within “10 years after the cause of action accrues.”
Because School ceased using Blackacre for the permitted purposes only three years ago, the period in which an action for possession may be brought has not yet expired.

Question 38

ISSUE: What interests, if any, do Ann and Mary have in Blackacre? ANSWER: Ann has an interest in Blackacre if Owner retained either a possibility of reverter or a power of termination. In some jurisdictions, Mary (Bill’s widow) would also have such an interest. If Owner retained only a power of termination, Ann will have to assert that right by exercising the power because possession will not automatically inure to her as it would have if Owner had retained a possibility of reverter.

Answer 38

If Owner retained a future interest in Blackacre, that interest passed to Daughter upon Owner’s death because state law provides that such an interest is devisable. Upon Daughter’s death, Daughter’s devisable interest passed to Husband for life, with the remainder to “my surviving children.”
Although Daughter was survived by two children, one of them, Bill, predeceased Husband. According to the Restatement of Property, which expresses what appears to be the current majority view, a survivorship contingency like that contained in Daughter’s will applies at the termination of the interests that precede distribution of the remainder. Thus, under the Restatement approach, Mary has no interest in Blackacre because Bill, having predeceased Husband, had no interest in Blackacre to devise to Mary. This approach is typically justified on the ground that a testator would want an interest in property to pass only to children who could take possession.
There is another view that interprets a survivorship contingency to require surviving only the testator (here, Daughter) and not the life tenant (here, Husband). This view is typically justified by a preference for early vesting of estates. If it applies, then Bill’s interest passed to Mary.
If Owner bequeathed a possibility of reverter in Blackacre, instead of a power of termination, then Ann (and Mary, in a state that follows the non-Restatement view) is entitled to immediate possession of Blackacre. If Owner retained and bequeathed only a power of termination, then Ann’s (and, in a non-Restatement jurisdiction, Mary’s) interest would not become possessory until and unless the power of termination was exercised.
 

Question 39

ISSUE: Does a deed conveying property “jointly in fee” to two daughters “equally, to share and share alike” create a tenancy in common or a joint tenancy with right of survivorship in the daughters? ANSWER: Parent’s deed of gift to Jessica and Karen created a tenancy in common unless the language in the deed overcame the statutory presumption that a conveyance to two or more persons creates a tenancy in common. Whether or not it does here is a close question. While the word “jointly” itself may not overcome the presumption, when used in conjunction with the phrase “share and share alike,” it might.

Answer 39

A deed to two or more grantees may create a joint tenancy or a tenancy in common. To create a joint tenancy, the common law traditionally required the existence of four unities (time, title, interest, and possession). Under the four-unities test, a joint tenancy presumptively is created by a conveyance to two or more persons if they acquire their interest at the same time, acquire their interest under the same instrument, acquire an equal interest in the property, and acquire the right to possession of the property.
The four unities are satisfied by Parent’s deed to the daughters, so at common law they clearly took title as joint tenants with right of survivorship. With a joint tenancy, each joint tenant has the right of survivorship.
Today, in most states, there is a statutory presumption that a conveyance to two or more persons creates a tenancy in common rather than a joint tenancy. Thus, if the presumption is not rebutted, Jessica and Karen took as tenants in common. Tenants in common have no right of survivorship.
The standard way to overcome the presumption favoring a tenancy in common is for the deed to use the term “joint tenancy” or “joint tenants,” usually also adding an express reference to “survivorship” or “survivors,” and it can be argued that where such language is absent the statutory presumption is not rebutted.
Although survivorship language is missing in Parent’s deed to Jessica and Karen, the language of the deed could still be construed to overcome the statutory presumption favoring a tenancy in common. For example, some cases hold that the word “jointly” standing alone rebuts the presumption favoring a tenancy in common, although there are contrary cases holding that a grantor who uses the word “jointly” in the deed may intend that the grantees “own together” rather than that they own as joint tenants with the right of survivorship. Here, however, Parent’s deed not only used the word “jointly” but added the phrase “equally, to share and share alike.” This phrase, in common with the word “jointly,” may point toward a joint tenancy as it evidences an intent by Parent to give each daughter an equal interest in the farm, another hallmark of a joint tenancy but not essential for a tenancy in common. This additional phrase also reflects the historic conception that joint tenants hold as a unit rather than as separate individuals.
[NOTE: This is a close question, and applicants should receive equal credit for reasoned analyses that consider the possibilities, whether they conclude that the deed creates a tenancy in common or a joint tenancy. However, an applicant’s conclusion should not affect the rest of the analysis because the remaining calls assume Jessica and Karen took from Parent as joint tenants with right of survivorship.]
Lastly, a deed is effective between the parties even if it is not recorded. Thus, the daughters acquired a tenancy in common or a joint tenancy, notwithstanding their failure to record their deed of gift.

Question 40

ISSUE: Assuming a joint tenancy with right of survivorship was created in the two daughters, was it severed when one of the two joint tenants granted a mortgage on, and entered into a contract for the sale of, the farm? ANSWER: If the deed of gift created a joint tenancy, Jessica’s mortgage severed that joint tenancy as to her one-half interest if the state follows the “title theory” instead of the “lien theory” of mortgages. In any event, Jessica’s contract of sale severed the joint tenancy. Therefore, Karen had no right of survivorship and the deed from the executor to Buyer caused Karen and Buyer to acquire a title to the farm as tenants in common.

Answer 40

When property is held by two persons in joint tenancy, a conveyance by one joint tenant of her entire ownership interest severs the joint tenancy as to the conveyed share. This is because the conveyance severs at least the unities of time and title between the remaining co-tenant and the new co-tenant.
When, as here, a joint tenant transfers a lesser interest, such as a mortgage, a severance of the joint tenancy may also occur. Courts usually resolve the issue by trying to decide whether the transfer destroyed any of the four unities.
In the case of mortgages, some states follow the “title theory,” which says that the mortgagee takes title to the property for the duration of the mortgage. In “title theory” states, a mortgage granted by one joint tenant severs the joint tenancy as to the conveyed share. This would convert the joint tenancy into a tenancy in common. Other states follow the “lien theory” of mortgages, which says that the mortgagor retains title and the mortgagee takes only a lien on the property. This would leave the four unities intact, and thus Jessica would remain a joint tenant with her sister.
If Jessica’s grant of the mortgage did not sever the joint tenancy, her contract to sell her interest in the farm to Buyer almost certainly had that effect. Although Jessica retained legal title until the contract closed, under the four unities analysis she no longer had the same interest as her sister. This follows from the doctrine of equitable conversion because her interest (but not Karen’s interest) is now subject to Buyer’s equitable interest or title. Because the joint tenancy was severed, Karen had no right of survivorship and, therefore, did not become the sole owner of the farm at Jessica’s death.
[NOTE: Many applicants may not address the distinction between the title- and lien-theory jurisdictions and should not be penalized for failing to do so. What is important is that applicants recognize the legal issue and come to a resolution. Furthermore, without regard to the mortgage, applicants should address the effect of the contract with Buyer. Also, if a jurisdiction does not recognize the doctrine of equitable conversion, the execution of the contract would not sever the joint tenancy.]
Since the joint tenancy was severed, the deed from the executor to Buyer caused Karen and Buyer to hold the farm as tenants in common.

Question 41

ISSUE: Is a buyer subject to a prior recorded mortgage when the buyer has no actual notice of the mortgage and the previous deed in the chain of title to the seller was unrecorded? ANSWER: Yes. Buyer cannot qualify as a bona fide purchaser because Buyer had constructive notice of Credit Union’s recorded mortgage. The failure to record the deed of gift from Parent to Jessica and Karen should not impair the mortgage because the non-recording of that deed would not interfere with Buyer’s ability to find the mortgage during a title search. Thus, Buyer takes the farm subject to Credit Union’s interest.

Answer 41

Assuming Buyer acquired an interest from Jessica, Buyer may claim to be a bona fide purchaser, who should take free of Credit Union’s mortgage. To qualify as a bona fide purchaser, a person must (i) pay value for an interest and (ii) not have actual, inquiry, or constructive notice of the competing prior-in-time interest.
Although Buyer paid value, and lacked actual notice of the mortgage, Buyer had constructive notice of the mortgage because the mortgage was properly recorded before Buyer entered into the contract to buy Jessica’s interest. Had Buyer made a proper title search by looking in the grantor-grantee index for all of Jessica’s transactions as a grantor, the mortgage would have been discovered. Therefore, Buyer takes subject to Credit Union’s interest.
[NOTE: The mortgage is not a “wild deed” that could be deemed unrecorded because it is outside of the buyer’s chain of title or recorded out of sequence (too early or too late). Since the facts state that the grantor-grantee index operates in this jurisdiction, if Buyer had searched under Jessica’s name as grantor, Buyer would have found her mortgage to Credit Union. In the typical wild deed case, the prior interest outside of the chain of title is created by someone other than the buyer’s grantor.]

[NOTE: As an aside, Buyer’s search would also reveal the fact that Jessica and her sister lacked record title because they never recorded the deed of gift from Parent. However, here that would not be a title objection because Buyer agreed to accept a title that was not marketable.]

Question 42

ISSUE: Does a deceased seller’s interest in the proceeds of sale due under an executory real estate contract pass to the beneficiary of the real or personal property under the deceased seller’s will? ANSWER: When Jessica entered into the contract of sale, the doctrine of equitable conversion transformed her interest into personalty. As a result, Devisee acquired no interest in the farm under Jessica’s will. Rather, the sales proceeds pass to Legatee.

Answer 42

The doctrine of equitable conversion splits title to the property when a real estate contract is signed. Buyer obtained equitable title, and Jessica as seller retained legal title as trustee to secure payment of the remainder of the purchase price. Equitable conversion only applies to a contract that is specifically enforceable; here there are no facts suggesting that Jessica or Buyer would be unable to obtain specific performance. Buyer cannot reject title because of the outstanding mortgage as Buyer agreed to accept a title without any warranties and regardless of its marketability. When equitable conversion applies, the seller’s legal title is considered personal property, and the buyer’s equitable title is considered real property. When Jessica died, her share passed to Legatee, who took personal property under Jessica’s will.
[NOTE: The preceding analysis depends upon Jessica’s share prior to her death being classified as a tenancy in common because (1) the mortgage severed Jessica’s joint tenancy share, or (2) the contract of sale to Buyer severed Jessica’s joint tenancy share. If, on the other hand, Jessica died still owning a one-half interest as joint tenant, no part of the farm or its proceeds passed to Legatee or Devisee under Jessica’s will. Rather, by right of survivorship, Karen owned the entire farm free and clear of the rights of Credit Union and Buyer because their interests, being wholly derivative from Jessica, would also expire at Jessica’s death.]

Question 43

ISSUE: What type of tenancy did the oral lease between Landlord and Tenant create? ANSWER: The oral five-year lease between Landlord and Tenant violated the Statute of Frauds. Because Tenant took possession two years ago and Landlord accepted monthly rent payments from Tenant throughout that time, a periodic month-to-month tenancy was created.

Answer 43

Most states have enacted a Statute of Frauds that requires leases of more than one year (in some states, three years) to be in writing. A lease subject to the Statute of Frauds is voidable until the tenant takes possession and the landlord accepts rent from the tenant. If the tenant takes possession and the landlord accepts rent, an at-will or periodic tenancy is created because there has been partial performance.
Here, Tenant took possession of the office and Landlord accepted rent. Thus, a periodic or at-will tenancy was created.
An at-will tenancy may be terminated without notice; a periodic tenancy requires notice for a period at least equal to the rent-payment term. Where, as here, rent has been paid for a substantial period of time, the tenancy is generally classified as periodic because payment over time evidences a commitment to the arrangement and creates expectations that justify notice of termination. Assuming that a periodic tenancy was created, most likely it was a month-to-month tenancy because the lease provided for monthly payments of rent.

Question 44

ISSUE: Did Tenant properly terminate the tenancy? ANSWER: No. A periodic month-to-month tenancy is terminable by notice given at least one month prior to the termination date. Here, the tenancy was not properly terminated because Tenant gave Landlord only two weeks’ notice.

Answer 44

A periodic month-to-month tenancy can be terminated by either party with a one-month notice of termination. At common law, an oral notice was sufficient. Today, many states require written notice of termination. For example, California requires written notice minimum of 30 days before the date specified in notice.
Here, Tenant gave Landlord a two-week notice of termination instead of the required one-month notice. Thus the notice to terminate was ineffective to terminate the month-to-month tenancy as of the beginning of the next month even if Tenant’s oral notice of termination was acceptable under state law.

Question 45

ISSUE: Is Landlord entitled to collect $800 from Tenant? ANSWER: No. Because the lease did not prohibit an assignment, Tenant was free to assign the lease to Friend. Because Friend properly took an assignment of the office lease from Tenant and timely paid the $800 rent to Landlord, Landlord has no claim against Tenant for unpaid rent.

Answer 45

Where a periodic tenancy arises, the terms of the unwritten lease, except the provision relating to the lease term, are enforceable. In the absence of a contrary provision in a lease, a tenant’s interest, like other property interests, is assignable. The assignee of a month-to-month tenant takes a month-to-month tenancy.
When a tenant assigns his interest in a lease, privity of estate arises between the assignee and the landlord. Privity of contract continues to exist between the landlord and the tenant. The tenant is still contractually bound to pay rent, and thus serves as a surety for unpaid rent; if the assignee fails to pay the rent, the tenant is liable to the landlord. Here, because the assignee, Friend, paid the rent to Landlord when Friend sent Landlord the $800 check, no additional rent was due and Tenant is not liable to Landlord for $800.

Question 46

ISSUE: Did Owen convey a fee simple absolute to Abe by the Owen-to-Abe deed? ANSWER: No. Abe did not acquire title to Whiteacre by deed from Owen because that deed failed to specify the name of the grantee.

Answer 46

To be valid, a deed must identify the buyer and the seller, describe the land subject to the conveyance, contain words denoting a present intent to convey, and be signed by the grantor. Here, the deed from Owen to Abe read in its entirety: “Owen hereby conveys to the grantee by a general warranty deed that parcel of vacant land in State B known as Whiteacre. Signature of Owen.” The Owen-to-Abe deed names the seller, describes the land, sets forth a present intent to convey to a grantee, and contains the grantor’s signature, but it does not contain the name of the grantee. Therefore Owen did not effectively convey the land to Abe. Although some courts have upheld deeds when the grantee’s name is missing, these cases involve deeds containing language providing a method for ascertaining the grantee’s identity, such as “to the grantor’s son” or to the “trustee of a trust.” No such language appears here.
[NOTE: If an applicant does not know the rule that a deed must name the grantee, the applicant should conclude the Owen-to-Abe deed is valid. If the applicant wrongly concludes that the deed is valid, then the applicant might either completely skip Point Two, or, in discussing Point Two, conclude that Abe did not acquire a title by adverse possession because Abe’s possession was not hostile.]

Question 47

ISSUE: Did Abe acquire title to Whiteacre by adverse possession? ANSWER: Yes. Abe may succeed in establishing that he acquired title to Whiteacre by adverse possession.

Answer 47

An individual may acquire title to land by adverse possession. To do so, the claimant must show that he entered the land and remained in actual possession that was open, continuous, exclusive, and under claim of right during the entire period in which the record owner (here, Owen) had a cause of action for possession. In State B, a cause of action for possession is available for ten years after a possessor’s entry.
Whether the possessor has acquired title by adverse possession can only be conclusively determined by a judicial proceeding, and the sufficiency of particular acts of possession is not always clear. In most states, it is not necessary that the possessor have paid taxes. In a few states, a possessor cannot claim title by adverse possession without paying taxes. The possessor need not possess the land to its highest and best use; the possession must be consistent with how a true owner would have possessed the land.
Abe has a strong case for adverse possession. His acts of possession were open in the sense that they were observable by anyone who looked. They continued for eleven years. His grants to others of permission to use the land suggest exclusivity. He paid taxes, although in most states this is not essential to establish a title by adverse possession. Lastly, his claim of right or hostility is evidenced by his entry under an invalid deed. It is irrelevant that he thought he was there rightfully under a valid deed because, in fact, the deed was invalid, and Owen could have ejected him at any time during the 10-year statutory period. Abe’s acts of possession endured for eleven years, one year more than required to acquire a title by adverse possession in State B. His possession was also more active than Owen’s, supporting the claim that it was consistent with how a true owner would have possessed the land. The fact that Abe did not build structures on the land, fence it, or post no-trespassing signs should not adversely affect his claim given that Owen, the previous owner, appears to have acted in the same way.
[NOTE: An applicant’s conclusion is less important than his or her demonstrated mastery of the relevant legal principles and ability to utilize the facts.]

Question 48

ISSUE: Did Buyer acquire title from Doris that was superior to Abe’s title? ANSWER: If Abe acquired title to Whiteacre by adverse possession, his claim to possession is good against a subsequent purchaser for value like Buyer despite his failure to record his interest. If Abe did not acquire title by adverse possession, Buyer’s deed is controlling because Buyer had neither actual nor constructive notice of Abe’s interest in Whiteacre when he purchased the property.

Answer 48

If Abe acquired title by adverse possession, that title is as good as a title traceable to a prior record owner; it is not lost because he allowed the property to go unoccupied. Thus if Abe acquired title by adverse possession, he is entitled to recover possession from Buyer.
The State B recording statute does not alter this result. Under the statute, a subsequent bona fide purchaser prevails against a prior donee or purchaser if the purchaser acquired the property without knowledge of the interest of the prior donee or purchaser. Statutes like this aim to protect subsequent purchasers against interest holders who could – but have failed to – record the documents describing their interests in the local land records office. In such a case, equity clearly favors the subsequent purchaser who took without notice of the prior interest. However, in the case of title acquired by adverse possession, there is no document that the interest holder could record. Courts have thus held that title acquired by adverse possession cannot be defeated by a later conveyance from the prior record title owner even if the land is vacant at the time the buyer purchases the land.
If Abe did not acquire title by adverse possession, then Buyer acquired title to the property from Doris, Owen’s successor-in-interest. In that case, Buyer is entitled to possession because, given Abe’s absence at the time Buyer purchased the property, Buyer had no actual or constructive notice of Abe’s interest in the land.