Property Capstone Questions

Question 1

A homeowner lived next door to a vacant lot owned by another neighbor. From the time the homeowner purchased his own property, he told other people that he owned the vacant lot. The homeowner had an underground dog fence installed under the vacant lot without the neighbor’s knowledge. The homeowner also mowed the vacant lot regularly in the summer. When he had landscaping services performed on his own property, the landscapers dug up vegetation beds, which extended three feet into the neighbor’s lot. After the statutory period for bringing a trespass action had passed, the homeowner brought an action to quiet title, claiming ownership of the vacant lot.

Which of the following additional facts, if true, would be most helpful to the homeowner’s case?

A One of the people that the homeowner often told about owning the vacant lot was the neighbor herself.

B The neighbor occasionally saw the homeowner’s dog on the vacant lot, but never demanded that the homeowner keep the dog in the homeowner’s yard.

C The vegetation beds continued to exist with the same dimensions, and were regularly maintained by the homeowner, for the entire statutory period.

D When he told people that he owned the vacant lot, the homeowner believed that it was true.

Answer 1

A

Telling the neighbor about owning the lot would be most helpful to the homeowner. Establishing title by adverse possession requires the possessor to show (i) actual and exclusive possession that is (ii) open and notorious, (iii) adverse, and (iv) continuous for the statutory period. Mowing the vacant lot regularly would be an act consistent with open and notorious possession. That along with the homeowner’s communication of hostility-which means simply that the homeowner is possessing without the neighbor’s permission-ought to establish open and notorious adverse possession. (B) is incorrect. The placement of the underground dog fence without the neighbor’s knowledge means that the possession of the property is not open and notorious. That the homeowner’s dog occasionally went over into the vacant lot does not result in open and notorious possession by the homeowner. (C) is incorrect, because constructive possession of part of a tract of land is sufficient to obtain title to the whole only if there is reasonable proportion between the part actually possessed and the whole of the tract. Landscaping that crosses over a few feet into the vacant lot is not likely to rise to the level of possession of the whole. (D) is incorrect, because the state of mind of the homeowner is irrelevant in determining whether the possession is hostile. The only consideration is whether he was actually in possession without the true owner’s permission.

Question 2

An uncle executed a warranty deed granting a parcel of land to his nephew. The uncle placed the deed in his bedroom closet and told his friend to get the deed and give it to the nephew if the nephew survived the uncle. Several years later, the uncle conveyed the land by quitclaim deed to a purchaser for $20,000. The uncle told the purchaser about the earlier deed to the nephew, and he told the purchaser that he planned to tear it up, but the uncle never did so. The purchaser properly recorded her deed.

The uncle died the following year, leaving the nephew as his sole surviving heir. The friend thereupon delivered the uncle’s deed to the nephew, which was the first time the nephew knew of the deed. A statute of the jurisdiction in which the land is located provides: “No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice whose conveyance is first recorded according to law.”

Was the deed from the uncle to the purchaser effective?

A Yes, as a conveyance of title when delivered.

B Yes, on recordation, to cut off the nephew’s interest in the property.

C No, as against the nephew, because the purchaser knew of the deed from the uncle to the nephew when she became a grantee.

D No, as against the nephew, because the purchaser took by quitclaim deed and thus stands in the shoes of the uncle.

Answer 2

A

The purchaser’s deed was effective to convey title from the uncle to the purchaser immediately on delivery. A quitclaim deed transfers whatever right, title, or interest in the property the grantor has. Thus, when the purchaser took by quitclaim deed, she acquired the uncle’s interest in the land. Because the deed from the uncle to the nephew was never validly delivered, the conveyance is ineffective and the uncle was the sole owner of the property. If a grantor executes a deed but fails to deliver it during his lifetime, no conveyance of title has occurred. “Delivery” refers to the grantor’s intent; it is satisfied by words or conduct showing that the grantor intended that the deed have a present operative effect-i.e., that title pass immediately and irrevocably, even though the right of possessing the land may be postponed until some future time. To make an effective delivery, the grantor must relinquish control. Here, the uncle clearly did not intend to relinquish the land because he executed the deed but retained it, and merely told his friend to deliver it at his death to his nephew, provided that the nephew was still alive. Thus, because the uncle did not intend to relinquish control of the land until his death, there was no valid delivery of the deed. Note that the deed did not convey a future interest to the nephew. To convey a future interest (i.e., a present interest in the property, but where possession is postponed until some future time), there must also be a present intent to convey an interest. Here, the uncle showed no intent to presently convey an interest because he retained the deed. Generally, in cases where the grantor has retained the deed, the condition that title will not pass until the grantor’s death must be contained in the language of the deed itself for a future interest to be conveyed. Therefore, the purchaser took full title to the land. (B) is wrong because recordation of the purchaser’s deed is irrelevant. The nephew never had an interest that could be cut off (see above). Thus, the purchaser prevails because she acquired valid title from the uncle, rather than because of any priority in recording. Had the purchaser not recorded her deed, she would still have prevailed. (C) is wrong because it is irrelevant that the purchaser knew of the earlier deed to the nephew. The earlier deed to the nephew was not a valid conveyance of the property because there was no delivery. Because no interest passed to the nephew, the purchaser’s notice of the deed is meaningless. (D) is wrong because the fact that the conveyance was by quitclaim deed is not important; the purchaser is the full owner of the land. This choice implies that the purchaser’s quitclaim deed is somehow ineffective against the nephew’s warranty deed, but the fact that the purchaser took by quitclaim does not in any way lessen her interest in the land. A quitclaim deed effectively conveys all interest in the property the grantor has. In this case, the uncle had a fee simple absolute, and so that is what passed to the purchaser under the deed. The nephew’s warranty deed was never delivered, and thus it was worthless.

Question 3

A landowner embarked on an expedition into a remote jungle, leaving no means to communicate with him. Because property values suddenly began plummeting in the landowner’s neighborhood, his son believed that it was imperative to sell his father’s property before it became worthless. Having no way to speak to his father ahead of time, the son prepared a deed conveying the property to a buyer, but left the line for the buyer’s name blank. He then signed his father’s name on it as the grantor, and handed the deed to the buyer. The deed, however, did not include any language regarding the amount the father was to receive in exchange for the property. The buyer believed that the son was the owner of the property. When the father returned, he was happy that the property had been sold.

If the buyer changed his mind and now wishes to have the conveyance set aside, which of the following would be his best argument?

A The deed was not valid because the rapidly declining property values amounted to extreme duress.

B The deed was not valid because the buyer was not identified in the writing.

C The deed was not valid because the consideration for the deed was not contained in the writing.

D The deed was not valid because the son signed it.

Answer 3

D

The buyer’s best argument would be that the deed is void because the son signed it. A valid deed requires a writing containing a description of the land and parties, words of intent, and the grantor’s signature. Here, the signature on the deed was forged. A defective deed may be voidable, which means that it would be set aside only if the property had not been conveyed to a bona fide purchaser, or it could be void, meaning that the deed would be set aside regardless of the property having passed to a bona fide purchaser. Deeds obtained by means of, among other things, duress, undue influence, or mistake are considered voidable. Deeds that were forged, never delivered, or obtained by fraud in the factum are void. Here, although the father seems to have ratified the conveyance and the buyer was a bona fide purchaser, the deed is void because the signature was forged. (A) is incorrect. A deed obtained by duress would be merely voidable, and in any case, the pressure caused by rapidly dropping values is not the duress that is contemplated by the common law rule. Duress for voidability purposes means pressure that is brought by an individual or entity in order to procure the deed. (B) is incorrect. Although a deed must identify the parties, courts will presume that the person taking delivery is authorized to fill in the name of the grantee. In the absence of the son’s forgery-i.e., if the landowner had executed and handed the deed to the buyer-all the buyer would have had to do was fill in his name and the deed would be valid. (C) is incorrect because a recitation of the consideration for the conveyance is not required to make a deed valid.

Question 4

A testator executed a will, devising his land “to my son and my daughter, share and share alike.” Shortly thereafter, the daughter died intestate, leaving a child as her only heir. The next year, the testator and his son were involved in a car accident. The testator died immediately. The son died six days later, leaving a will that bequeathed his entire estate to his wife. The jurisdiction has the following statute: “If a devisee, including a devisee of a class gift, who is a grandparent or a lineal descendant of a grandparent of the testator is dead at the time of execution of the will or fails to survive the testator, the issue of such deceased devisee shall take the deceased’s share under the will.”

Who owns the land?

A The daughter’s child owns all of the land in fee simple.

B The son’s wife owns all of the land in fee simple.

C The daughter’s child and the son’s wife each own an undivided one-half interest in the land.

D The daughter’s child and the son’s wife each own one-half of the land.

Answer 4

C

The daughter’s child and the son’s wife each own an undivided one-half interest in the land. At common law, if a will beneficiary died before the testator, the gift to the beneficiary was void. However, this jurisdiction has an anti-lapse statute, which saves the gift for the predeceasing beneficiary’s descendants if the beneficiary herself is a descendant of the testator. Here, when the daughter died, her one-half interest in the land passed to her child under the anti-lapse statute. When the son died, his one-half interest in the land, to which he was entitled on the father’s death when the father’s will took effect, passed through the son’s estate (not the anti-lapse statute) to his wife. Moreover, a conveyance to two or more persons is presumed to create a tenancy in common rather than a joint tenancy unless an intention to create a right of survivorship is clearly expressed. Each co-tenant has the right to possess all portions of the property; no co-tenant has the right to exclusive possession of any part. Therefore, the daughter’s child and the son’s wife each own an undivided one-half interest in the land as tenants in common. (A) and (B) are wrong because neither the child nor the wife owns all of the land in fee simple. (D) is wrong because the child and the wife each own an undivided one-half interest, which is a one-half interest as to the entire tract, as opposed to one-half of the land, which would be all interest in a one-half part of the tract.

Question 5

A landowner owned a large tract of land containing numerous coal mines. To finance the renovation of some of the buildings on the land, the landowner obtained a $50,000 mortgage from a bank. Shortly thereafter, the landowner, without notifying anyone of the bank’s interest, sold the surface of the land to his sister and the mineral rights to a utility company. The bank recorded its mortgage the next day; the day after that, the utility company recorded its deed; the following day, the sister recorded her deed. None of the parties dealing with the landowner had any knowledge of the others at the time of their transactions.

The jurisdiction in which the land is located has the following statute: “No conveyance or mortgage of an interest in land is valid against any subsequent purchaser for value without notice thereof whose conveyance is first recorded.”

If the sister brings an action to quiet title to the land, what would be the most likely result?

A The sister would have only a reversionary interest.

B The sister would have a fee simple absolute free of the interests of the bank and the utility company.

C The sister would have a fee simple absolute subject only to the payment of the mortgage held by the bank.

D The sister would have a fee simple ownership of the land subject to the bank’s mortgage interest and the utility company’s mineral interest

Answer 5

D

The sister’s fee simple ownership of the land would be subject to the bank’s mortgage interest and the utility company’s mineral interest. Under a race-notice statute, which the jurisdiction in this question has, a subsequent bona fide purchaser (i.e., one who takes for value and without notice) is protected only if she records before the prior grantee. Notice is measured at the time of the conveyance, not at the time of recording. The rationale of this type of statute is that the best evidence of which interest was created first is to determine who recorded first. As an inducement to record promptly, race-notice statutes impose on the bona fide purchaser the additional requirement that she record first. Because the bank was the first to receive a conveyance, the bank could not be held to have knowledge of any other conveyance, and when the bank recorded its conveyance first, the bank won out over the sister and the utility company under the statute. The utility company can enforce its mineral interest in coal on the land because it recorded before the sister. (A) is incorrect because the sister has a present ownership interest in the land, but it is subject to the bank’s mortgage and the utility company’s mineral interest. (B) is incorrect because the sister takes subject to the bank’s and utility’s interests. As noted above, a subsequent bona fide purchaser is protected under a race-notice statute only if she records before a prior grantee. Although the sister took without notice, she was the last to record, and thus the bank’s and utility’s interests prevail. (C) is incorrect because, as discussed above, the sister does not have a fee simple absolute; the utility company owns the mineral interest.

Question 6

A rancher entered into a written contract to buy a farm from a farmer for $100,000. The contract stipulated for closing on September 30. In addition, the contract contained the following provision: “The taxes shall be prorated as agreed to by the parties at a later date.” Upon the signing of the contract, the rancher gave the farmer a check for $10,000 as a down payment.

On September 28, the rancher notified the farmer that he would not be able to close on the farm until October 2, because the closing on his current home, the proceeds from which were to be applied to his purchase of the farm, was unavoidably delayed due to his buyer’s illness. Meanwhile, the farmer had difficulty finding a home she liked as well as the farm. She decided that she would rather not sell the farm and wished to avoid the contract with the rancher. On October 2, the rancher showed up at the closing with the $90,000 to tender to the farmer. The farmer did not show up. The rancher sues for specific performance.

In whose favor will the court most likely rule?

A The farmer, because the tax provision is an essential term of the contract, and it is not specific enough to satisfy the Statute of Frauds.

B The farmer, because the rancher materially breached by not tendering performance on September 30.

C The rancher, because of the operation of the doctrine of equitable conversion.

D The rancher, because time was not of the essence.

Answer 6

D

The rancher will prevail because there is no evidence that time was of the essence. In general, courts presume that time is not of the essence in real estate contracts. Thus, the closing date stated in the contract is not absolutely binding in equity, and a party, even though late in tendering his own performance, can still enforce the contract if he tenders within a reasonable time. (One to two months is usually considered reasonable.) Time will be considered of the essence only if: (i) the contract so states, (ii) the circumstances indicate it was the parties’ intention, or (iii) one party gives the other notice that he desires to make time of the essence. The contract in this case made no mention that time was of the essence. The facts do not indicate any circumstances, such as rapidly fluctuating prices or the need for the money to close another critical transaction, that would indicate that the rancher and the farmer intended time to be of the essence. The farmer did not give the rancher reasonable notice before September 30 that she wanted to make time of the essence. Thus, the court will not find that time is of the essence here. Because time is not of the essence, the rancher is not in material breach and is entitled to specific performance. (A) is wrong because the Statute of Frauds is not violated here. Contracts for the sale of land must be in writing to be enforceable. The essential terms for purposes of the Statute of Frauds are: the description of the property, the identification of the parties, and the price. The tax provision is not an essential term. It is an incidental matter, which need not appear in writing or even be agreed upon. (B) is wrong because, as discussed above, the rancher is not in material breach. Time was not of the essence, so the fact that the rancher did not tender his performance on September 30 did not constitute a breach of the land sale contract. (C) is wrong because the doctrine of equitable conversion will not affect the rights of the parties in this situation. The doctrine of equitable conversion holds that once an enforceable contract of sale is signed, the purchaser’s interest is real property, and the seller’s interest (the right to proceeds) is personal property. This is important with respect to which party bears the risk of loss if the property is damaged before the date set for closing or if one of the parties dies prior to closing. It has no effect in situations like this one where the question in issue is the enforceability of the contract itself.

Question 7

A landowner owned a large piece of property containing an inn and a bakery. She entered into a contract to sell the property to a purchaser for $1 million. The contract was recorded. The purchaser gave the landowner $200,000 as earnest money. The closing date was set for September 10, two months after the signing of the contract.

On August 10, an arsonist set fire to the inn, which burned to the ground. On September 10, the landowner appeared at the closing and tendered the deed to the property. The buyer refused to tender the remaining $800,000 of the purchase price and demanded the return of his earnest money. The landowner sued the buyer for specific performance of the contract. The buyer countersued for the return of his earnest money. Both parties stipulate that the value of the property without the inn is $600,000, that insurance on the property had lapsed, and that the common law, unmodified by statute, applies.

What is the most likely result at trial?

A The landowner will not prevail on the issue of specific performance, but will be allowed to keep the earnest money.

B The landowner will not prevail on the issue of specific performance and will be ordered to return the earnest money.

C The landowner will prevail on the issue of specific performance, but the price will be abated to $600,000.

D The landowner will prevail on the issue of specific performance for the full contract price.

Answer 7

D

The landowner will succeed in her suit for specific performance at the full contract price. Where property subject to a contract for sale is destroyed without the fault of either party before the date set for closing, the rule in the absence of a statute is that the risk of loss is on the buyer. Thus, the buyer must pay the contract price despite a loss due to fire, unless the contract provides otherwise. Here, the inn was destroyed by fire after the landowner and the buyer entered into their contract for the sale of the property, but before the closing date. The contract apparently was silent regarding the risk of loss and there is no applicable statute. Thus, under the common law rule, the risk of loss is on the buyer. As a result, the landowner is entitled to receive specific performance of the contract, meaning that the buyer must pay the full contract price. (A) and (B) are incorrect because they conclude that the landowner is not entitled to specific performance. As explained above, the landowner is entitled to specific performance because the risk of loss is on the buyer. (B) is also incorrect because it states that the landowner must refund the earnest money. The landowner is entitled to the full contract price; thus, there is no reason for her to return the earnest money. (C) is incorrect because it allows the buyer to tender less than the full contract price. With the buyer bearing the risk of loss, he must pay the $1 million contract price despite the decrease in the property’s value due to the fire.

Question 8

On April 15, a seller entered into a valid written agreement to sell her home to a buyer for $175,000. The provisions of the agreement provided that closing would be at the buyer’s attorney’s office on May 15, and that the seller would deliver to the buyer marketable title, free and clear of all encumbrances.

On the date of closing, the seller offered to the buyer the deed to the house, but the buyer refused to go ahead with the purchase because his attorney told him that a contractor who had done work on the house had recorded a lis pendens on May 1 against the property regarding a $10,000 contract dispute he had with the seller. The seller indicated that she was unaware of the lien, but that she was willing to go ahead with the sale and set aside funds from the purchase price to cover the contractor’s claim until the dispute was resolved. The buyer still refused to proceed, stating that the seller had breached the contract.

If the seller brings an action against the buyer for specific performance, what is the probable result?

A The buyer prevails, because the title to the property was not marketable as of the date of closing.

B The buyer prevails, because an encumbrance was on the title as of the date of closing that was subject to litigation.

C The seller prevails, because under the doctrine of equitable conversion, the buyer was the owner of the property when the lis pendens was recorded, and therefore it was invalid.

D The seller prevails, because an implied term of their contract was that she could use the proceeds to clear any encumbrance on the title.

Answer 8

D

The seller will likely prevail because she is entitled to clear the encumbrance with the proceeds of the sale. In a contract for the sale of real property, the seller of the land is entitled to use the proceeds of the sale to clear title if she can ensure that the purchaser will be protected. The seller’s offer to escrow the funds in this case should act as such guarantee. Thus, (A) is incorrect. (B) is incorrect because, although there will be litigation over the contract dispute, the litigation will not affect the title to the land because the contractor is claiming only money damages and not an interest in the property. (C) is incorrect because the doctrine of equitable conversion is only applicable as against the seller and the buyer, and does not affect the right of some third party with regard to attaching property held in the name of a debtor.

Question 9

A developer and an investor had been in the real estate business for many years. Because of their long-standing relationship, the developer and the investor, neither of whom was an attorney, often dispensed with certain legal formalities when dealing with each other, thus saving the costs of lawyers’ fees and other attendant expenses. The investor owned a parcel of land that the developer was interested in. At lunch one day, the developer offered to buy the parcel from the investor for $50,000. The investor accepted the developer’s offer, and the parties agreed on June 15 as the closing date. The developer wrote out and handed the investor a check for $2,500 with “earnest money” written in the memo, and they shook hands on their deal.

A few weeks before closing, the developer called the investor and told him she had changed her mind about purchasing the land because of a sudden economic downturn in the area. The investor appeared at the developer’s office on June 15 with the deed to the land in his hand. The developer refused to tender the balance due, and the investor sued the developer for specific performance.

Will the investor prevail?

A No, because the agreement does not comply with the Statute of Frauds and is, therefore, unenforceable.

B No, but the court will allow the investor to keep the $2,500 earnest money as damages.

C Yes, because the $2,500 payment constituted part performance of the contract.

D Yes, because the developer and the investor had established a course of dealing.

Answer 9

A

The investor will not succeed in a suit for specific performance because the agreement is unenforceable under the Statute of Frauds. Under the Statute of Frauds, a land sale contract is unenforceable unless it is in writing and signed by the party to be charged. The Statute of Frauds requires the writing to contain all essential terms of the contract, which are: (i) a description of the property, (ii) identification of the parties to the contract, (iii) the price, and (iv) the signature of the party to be charged. Here, the agreement between the investor and the developer concerns the sale of land; thus, the agreement must be evidenced by a writing to comply with the Statute of Frauds. The only writing mentioned in the facts is the check given to the investor by the developer. This check contains neither a description of the property that is the subject of the agreement nor the price. Thus, the check is not a writing sufficient to satisfy the Statute of Frauds. Consequently, the agreement is unenforceable, and the investor will not prevail. (B) is incorrect because, if there is no enforceable agreement, there can be no “breach” of the agreement, for which breach the investor would be entitled to damages. Therefore, the investor may not keep the earnest money as damages. (C) is incorrect. The doctrine of part performance generally requires two of the following: possession, improvements, and full or partial payment of the purchase price. A few states will grant specific performance of a contract despite the absence of a writing if there has been payment of the purchase price. Even under this view, however, the developer’s payment of $2,500 out of a total price of $50,000 will not constitute sufficient performance to remove this agreement from the purview of the Statute of Frauds. (D) is incorrect because “course of dealing” (i.e., a sequence of previous conduct between the parties that may be regarded as establishing a common basis of their understanding) may be used to explain or supplement the terms of a written contract under the Uniform Commercial Code (“UCC”). This question does not involve the sale of goods, so the UCC is inapplicable. Furthermore, here there is no written agreement, the terms of which can be explained or supplemented by showing a course of dealing between the developer and the investor. Although the developer and the investor often dispensed with legal formalities as a cost-saving measure, this “course of dealing” will not confer validity on their oral agreement for the sale of land.

Question 10

A homeowner borrowed $50,000 from a bank, secured by a mortgage on his home. Shortly thereafter, the homeowner sold his home to a buyer for $70,000 by a deed containing a recital signed by both parties that title passed “subject to” the bank’s mortgage, “which obligation grantee expressly assumes.” The buyer paid the homeowner $20,000, took possession of the house, and began making monthly payments of principal and interest to the bank. A few years later, a chemical manufacturing firm built a huge sulfur processing plant just down the road from the home, which caused the house to immediately decline in value to $35,000. Subsequently, the buyer stopped making the monthly payments to the bank. The bank exercised its contractual right of nonjudicial foreclosure and sold the house at a public auction for $34,000. The bank then brought suit against the homeowner and the buyer for $14,000, the difference between the proceeds of the foreclosure sale and the $48,000 principal remaining due on the original loan to the homeowner. The jurisdiction does not bar deficiency judgments.

Against whom should the bank be granted a judgment for $14,000?

A Both the homeowner and the buyer.

B Only the homeowner.

C Only the buyer.

D No one.

Answer 10

A

Both the homeowner and the buyer are liable for the deficiency. If a sale of foreclosed property does not bring enough to satisfy the mortgage debt, the mortgagee/lender can bring a personal action against the mortgagor/debtor for the deficiency (as long as the jurisdiction does not bar deficiency judgments). When the mortgagor sells the mortgaged property and gives a deed, the grantee takes subject to the mortgage, which remains on the land. If the grantee does not sign an agreement to assume the mortgage, he does not become personally liable on the loan, and the original mortgagor remains personally liable. If the grantee does sign an assumption agreement, however, the lender is considered a third-party beneficiary of the agreement, and hence may recover from the assuming grantee, who is primarily liable, or the original mortgagor, who is secondarily liable. Here, the buyer signed the recital providing for the assumption, so she will be personally liable on the loan. Therefore, (A) is correct, and (B) is incorrect. (C) is incorrect because the homeowner, the original mortgagor, did not extinguish his own personal liability on the loan by obtaining the assumption agreement from the buyer. He remains secondarily liable as a surety. Thus, the bank may sue the homeowner on the original mortgage agreement. (Note that while the bank may obtain a judgment against both of them, its maximum recovery will be the $14,000 deficiency.) (D) is incorrect because the facts indicate that the jurisdiction does not bar deficiency judgments.

Question 11

A buyer bought a home from a real estate developer for $700,000. The buyer paid $100,000 of the purchase price herself. The buyer’s employer provided $100,000 of the purchase price by giving the buyer a loan and taking a mortgage. The developer loaned $500,000 to the buyer to finance the remainder of the purchase price, and in return took a mortgage on the property. One week later, a bank obtained a judgment against the buyer for a delinquent credit card balance. The bank properly recorded its judgment as a lien against the property. Another month after that, the buyer incurred some extraordinary medical expenses, and asked the employer for another $100,000, which the employer provided and added onto the principal balance the buyer owed on the loan. Finally, six months later, the buyer asked the developer to change the terms of the loan, so that the buyer would have more time to pay. The developer and the buyer agreed that the buyer could have an additional five years to pay the balance of the loan in exchange for an increase in the principal of the loan. Shortly thereafter, the buyer lost his job and defaulted on all of his payments. The employer brought an action to foreclose its mortgage. All mortgages and liens were promptly and properly recorded.

Regarding the distribution of the proceeds of an eventual sheriff’s sale of the property, which of the following statements is true?

A The bank is paid in full before the developer is paid in full.

B The employer is paid in full before the bank receives any proceeds.

C The developer is paid in full before the employer receives any proceeds.

D The developer is paid in full before the employer is paid in full.

Answer 11

A

The bank will be paid in full before the developer is paid in full. Generally, the priority of mortgages is chronological. A number of other factors, however, may affect priority. Where a seller of property receives a mortgage as part of the purchase price, a purchase money mortgage results. Purchase money mortgages may also arise when a third party lends money to the buyer for the purchase of property and takes a mortgage on the property in return. In general, the seller’s purchase money mortgage will take priority over the third-party purchase money mortgage. Purchase money mortgages, however, are subject to later liens by virtue of recording acts. In the case where a mortgage is modified by agreement between the parties, any increase in the debt resulting from the modification will be subject to a junior lien, even if the original mortgage itself had priority over the junior lien. In the same way, an optional (as opposed to an obligatory) advance that is made after the junior lien will have a lower priority than the junior lien. Again, this is the case even if the original mortgage is first in priority. Therefore, the distribution of sale proceeds in this case would be: (i) the original amount of the employer’s purchase money mortgage, (ii) the bank’s judgment, (iii) the $100,000 advance by the employer, and finally, (iv) the amount of the increase in the debt to the developer due to the agreed modification of the principal of the original loan. The original unmodified purchase money mortgage of the developer would remain on the land because it was senior to the mortgage being foreclosed (the employer’s). (B) is incorrect because the employer would not be paid in full before the bank received payment. (C) is incorrect because the developer would initially receive only the increased amount of the debt according to the modified loan terms. Also, the developer would have to wait until the bank judgment was satisfied and the employer was paid in full before the developer’s claim for the modification amount could be paid. (D) is incorrect because the developer would not be paid in full-its original purchase money mortgage would remain on the property after the foreclosure.

Question 12

A father purchased a tract of land, financing a large part of the purchase price by a loan from a bank that was secured by a mortgage on the land. A provision in the mortgage agreement, which had an acceleration clause, provided that a defaulting borrower waives his right to redeem once foreclosure proceedings have started. The bank properly recorded its mortgage. Several years later, the father needed money to send his twin daughters to college, so he obtained a loan from a credit union, also secured by a mortgage on the land. The credit union properly recorded its mortgage.

The following year, the father became ill and was unable to make payments to either the bank or the credit union due to his high medical bills. The balance on the loan from the bank was $75,000, and the balance on the credit union loan was $25,000. The bank instituted foreclosure proceedings in a jurisdiction that provides a statutory right of redemption. The day before the judicial sale, the father inherited $100,000 from his aunt. He quickly contacted the bank and offered to pay off both loans in full. The bank refused because it was hoping to buy the now valuable property at the judicial sale.

If the father seeks to force the bank to accept his offer, will he likely prevail?

A Yes, because the jurisdiction has a statutory right of redemption.

B Yes, because equity requires a creditor to accept such an offer.

C No, because his agreement with the bank waived his right to redeem once foreclosure proceedings started.

D No, because he lost all of his rights in the property when he defaulted on the loan.

Answer 12

B

The father will win because he is exercising his equity of redemption rights. The equity of redemption gives the borrower the right to free the land of the mortgage by paying off the amount due, plus any accrued interest, at any time prior to the foreclosure sale. If the borrower has defaulted on a mortgage with an acceleration clause, he must pay the full balance in order to redeem. Here, the father’s offer to pay both the bank’s and the credit union’s loans is adequate to redeem the land. (A) is incorrect because a statutory right of redemption, recognized in about half the states, gives the borrower a right to redeem for the foreclosure price after the foreclosure sale. (C) is incorrect because this right to redeem cannot be waived in the agreement establishing the security interest. This would be “clogging the equity of redemption.” However, the right can be waived later for consideration. (D) is similarly incorrect because a defaulting debtor does not lose the equity of redemption.

Question 13

To buy a house, an investor secured a $10,000 mortgage from a bank. The bank promptly and properly recorded its mortgage. Subsequently, the investor financed certain improvements to the house with a $2,000 mortgage on the land from a finance company. The finance company promptly and properly recorded its mortgage. Before the investor made a payment on either mortgage, the federal government announced that it would begin storing nuclear waste products in the area. The value of property, including the investor’s house, plummeted. The investor did not pay either the bank or the finance company, and the bank brought a proper action to foreclose, notifying both the investor and the finance company. A buyer bought the house at the foreclosure sale for $6,000, which was its fair market value. There are no special statutes in the jurisdiction regarding deficiency judgments.

What does the investor owe?

A $5,000 to the bank and $1,000 to the finance company.

B $4,000 to the bank and $2,000 to the finance company.

C Nothing to the bank and $2,000 to the finance company.

D $4,000 to the bank and nothing to the finance company.

Answer 13

B

Absent any anti-deficiency statutes, the investor remains personally liable to pay for any shortfall arising from the foreclosure sale. Proceeds from the sale are used to satisfy the loan that was foreclosed first. Hence, all of the proceeds ($6,000) went to the bank. Thus, the investor must pay the balance still due the bank ($4,000) and the entire amount of the finance company’s mortgage ($2,000), which is terminated by the foreclosure of the senior mortgage. (A) is wrong because foreclosure sales are not allotted proportionally between senior and junior interests. (C) is wrong because foreclosure does not extinguish the underlying debt. (D) is wrong because the finance company’s mortgage does not remain on the land after foreclosure of the senior mortgage; hence, the investor is liable for that debt as well.

Question 14

A tenant agreed in writing to lease a retail site in a shopping mall from the owner of the property. The term of the tenancy was two years, and rent was payable in monthly installments at the beginning of each month. At the end of the second year, there had been no discussions between the tenant and the owner regarding renewal or termination. The tenant did not vacate the premises at the end of the term; instead, she sent a check for the next month’s rent to the owner. The owner cashed the check and then informed the tenant that he was holding her to a new tenancy and a rent increase of 10%.

What is the status of the tenancy that the owner created?

A A month-to-month tenancy for the original rent amount.

B A year-to-year tenancy for the original rent amount.

C A month-to-month tenancy for the increased rent amount.

D A tenancy at will, terminable at any time, for the increased rent amount.

Answer 14

B

The owner can hold the tenant to a year-to-year tenancy for the original amount. When a tenant continues in possession after the termination of her right to possession, the landlord has two choices of action: He may treat the hold-over tenant as a trespasser and evict her under an unlawful detainer statute, or he may, in his sole discretion, bind the tenant to a new periodic tenancy, in which case the terms and conditions of the expired tenancy apply to the new tenancy. Unless a residential lease is involved, a year-to-year tenancy results from holding over if the original lease term was for a year or more. The new tenancy has the same terms as the original tenancy unless the landlord notified the tenant before termination of the original tenancy that occupancy after termination will be at an increased rent. Here, the original lease was a commercial lease for a two-year term, so the owner’s decision to hold the tenant to a new tenancy makes it a year-to-year tenancy. However, because the owner did not notify the tenant of the rent increase prior to the end of the term, the new tenancy is at the original amount of rent. (A) is wrong because the lease here is not a residential lease; thus, the periodic tenancy created is a year-to-year tenancy rather than a month-to-month tenancy. (C) is wrong for the same reason that (A) is wrong and also because the new tenancy is at the original amount of rent, as discussed above. (D) is wrong because when a landlord elects to bind a hold-over tenant to a new tenancy, it will be a periodic tenancy rather than a tenancy at will.

Question 15

A property owner owned a tract of land that he leased to a baker for 27 years. The baker built a large bakery on the property. The baker then sold the bakery building to a buyer, assigning the lease with the property owner’s approval. The buyer has failed to make a rent payment for several months and has also failed to build the cafe that the baker had agreed to build in the original lease.

Who can the landlord of the property hold liable?

A The buyer for the rent only, because the rent covenant runs with the land.

B The buyer for the rent and the cafe, but only if the buyer expressly assumed performance of all covenants.

C The buyer and the baker for both the rent and the cafe.

D The buyer for the rent only, and the baker for the cafe only.

Answer 15

C

The landlord can hold both the buyer and the baker liable for both the rent and the cafe. An assignment does not release the tenant from his contractual obligations to the landlord; thus, the baker is still liable for all of the lease provisions. Thus, (D) is incorrect. An assignee is in privity of estate with the landlord and is liable on all covenants in the lease that run with the land. His assumption of these duties is implied; it need not be expressed in the assignment. Covenants to pay money run with the land, as do covenants to perform physical acts on the property. Therefore, the buyer is liable for both the rent and the cafe even if it did not expressly assume performance of the covenants. Thus, (A) and (B) are incorrect.

Question 16

A wealthy philanthropist owned a mansion built to his exact specifications, featuring a pipe organ built into the wall of the music room. The organ was impressive, with beautiful hand-carved wood scrollwork. The accompanying bench was made from the same wood as the organ and was carved to match the patterns on the organ. The bench was fully movable and could be slid into a niche beside the organ when not in use, although the philanthropist usually left the bench in front of the organ for its matching effect, even when the organ was not being played.

The philanthropist died, and his will left all of his personal property to his daughter and all of his real property to a local charity. After the will was admitted to probate, the daughter removed all of the furniture and other movables from the mansion, including the organ bench. The daughter refused the charity’s request to return the bench to the mansion.

If the charity brings suit against the daughter to replevy the bench, who will prevail?

A The daughter, because the bench is personalty since it was not bolted to the floor.

B The daughter, because removing the bench does not damage the real property.

C The charity, because the bench is integrally connected to the organ.

D The charity, because removal of the bench reduces the value of the devise to the charity.

Answer 16

C

The charity will win because the organ is a fixture and the bench is integrally connected to the organ. Under the concept of fixtures, a chattel that has been annexed to real property is converted from personalty to realty. As an accessory to the land, it passes with ownership of the land rather than with a transfer of the personal property of an estate. The manifest intent of the annexor determines whether the chattel becomes a fixture. The factors for evaluating the annexor’s intent are: (i) the relationship between the annexor and the premises, (ii) the degree of annexation, and (iii) the nature and use of the chattel. Under this analysis, the organ itself is clearly a fixture: (i) the philanthropist was the fee owner of the mansion and had the organ built to his specifications when the mansion was constructed; (ii) the organ was built into the wall of the mansion and could not be easily removed; and (iii) the appearance of the organ and how it complemented the rest of the mansion probably were more important to the philanthropist than its function. Constructive annexation occurs when an article of personal property (an “accession”) becomes an integral part of the property, even though it is not physically annexed to the property, in the same sense that a fixture becomes an integral part of the realty. The doctrine is fully applicable in this case even though the accession goes with an item of property that is itself converted from personalty to realty, as the organ was here. The bench is an accession because it was created as an integral part of the organ and significantly contributes to an important aspect of the organ: its overall appearance. Removing the bench and replacing it with a bench made of different wood or carvings would damage the aesthetic value of the organ. Thus, the charity will succeed in obtaining the bench because it is not severable from the organ. (A) is incorrect because the fact that the bench was not bolted to the floor is not determinative. The bolting goes to whether the bench alone is a fixture. This is irrelevant because it is an accession to (and thus a part of) the organ, which is clearly a fixture. (B) is incorrect because the fact that removing the bench does not damage the building itself does not give the daughter the right to remove it. Removing the bench will damage the organ because the bench is an accession to the organ. The organ, as a fixture, is part of the real property; thus, removal of the bench will damage the property. (D) is incorrect because harm to the parties is not an issue in determining whether an item is a fixture. The relevant question is whether removal damages the real property. If the bench were found to be personalty, the fact that its removal would reduce the value of the charity’s gift would have no impact on the daughter’s right to remove it.

Question 17

A landowner died, validly devising her land “to my son for life, then to my brother and sister in fee simple.” Without obtaining the brother and sister’s consent, the son borrowed $20,000 from a bank, secured by a mortgage on the land, to make improvements to the land. Five years later, the son died. The brother and sister took possession of the land, but failed to make any mortgage payments.

If the bank sues to recover the delinquent payments, for whom should the court render judgment?

A The bank, because a life tenant is obligated to make repairs.

B The bank, because the remaindermen are obligated to pay the principal of a debt.

C The brother and sister, because the son committed ameliorative waste.

D The brother and sister, because the mortgage does not encumber the fee simple.

Answer 17

D

The court should render judgment for the brother and sister because the mortgage does not encumber the fee simple. A life tenant is entitled to all the ordinary uses and profits of the land, which includes encumbering his own interest, but he cannot lawfully do any act that would injure the interests of the remaindermen. Here, because the son did not obtain the consent or joinder of the remainderman when he mortgaged the land, the mortgage attaches only to the life estate. Thus, the remaindermen (the brother and sister) are not liable for the mortgage payments. (A) is incorrect because the son made improvements rather than repairs to the land. Although a life tenant is obligated to preserve the land and structures in a reasonable state of repair, he is under no obligation to make permanent improvements on the land. (B) is incorrect because remaindermen are obligated to pay the principal of a debt only if the debt encumbers the entire fee simple estate. Here, only the life estate is encumbered. (C) is incorrect because ameliorative waste, which occurs when the use of the property is substantially changed but the change increases the value of the property, may have been an appropriate cause of action for the brother and sister to bring against the son for the improvements, but it does not affect the bank’s rights.

Question 18

A landowner conveyed his land to his wife, son, and daughter “as joint tenants with right of survivorship.” The daughter then conveyed her interest to a friend. The wife subsequently executed a will devising her interest to the daughter. Then the son mortgaged his interest to a lender, who promptly and properly recorded the mortgage. The wife died, then the daughter’s friend died, leaving a will that bequeathed her entire estate to the daughter. The daughter and the son survived.

If the jurisdiction follows the title theory, who owns what interest in the land?

A The lender owns the fee simple.

B The lender and the daughter own unequal shares as tenants in common.

C The son and the daughter own unequal shares as tenants in common.

D The son and the daughter own equal shares as joint tenants.

Answer 18

B

The lender and the daughter own unequal shares as tenants in common. Creation of a joint tenancy requires four unities: (i) time (interests must vest at the same time); (ii) title (interests must be acquired by the same instrument); (iii) interest (interests must be of the same type and duration); and (iv) possession (interests must give identical rights to enjoyment). When property is held in joint tenancy by three or more joint tenants, a conveyance by one of them destroys the joint tenancy only as to the conveyor’s interest. The other joint tenants continue to hold in joint tenancy as between themselves, while the grantee holds her interest as a tenant in common with them, because she does not share the unities of time or title with the joint tenants (i.e., her interest vested at a different time and was acquired by a different instrument). Here, the wife, the son, and the daughter owned the property as joint tenants. When the daughter conveyed her interest to the friend, the joint tenancy was severed as to the daughter’s interest. At that point, the wife and the son each held one-third interests as joint tenants because, as between themselves, the four unities were preserved. The friend did not share the unities of time or title with the wife and the son. Thus, the friend took a one-third interest as a tenant in common rather than as a joint tenant. Because this jurisdiction follows the title theory, the son’s mortgage also severed the joint tenancy. The minority of states following the title theory regard a mortgage as an actual transfer of title to the property. Thus, a mortgage by one joint tenant transfers the legal title of the joint tenant to the mortgagee (the lender). This action destroys the unity of title and severs the joint tenancy. On the other hand, in a lien theory state (majority), a mortgage is considered a lien on title-one joint tenant’s execution of a mortgage on his interest does not, by itself, sever a joint tenancy until default and foreclosure proceedings have been completed. Here, when the son executed the mortgage, title was transferred to the lender, severing the joint tenancy again. At that point, the wife, the lender, and the friend each held one-third interests as tenants in common because each interest was acquired at a different time and by a different title. An interest in a tenancy in common is freely alienable by inter vivos and testamentary transfer, is inheritable, and is subject to claims of the tenant’s creditors. The only “unity” involved is possession: Each tenant is entitled to possession of the whole estate. Thus, when the wife died, her interest passed under her will to the daughter. Likewise, when the friend died, her interest passed to the daughter. Thus, the lender holds a one-third interest as a tenant in common with the daughter, who holds the remaining two-thirds interest. (A) is incorrect because the daughter also has an interest in the property (see above). When one joint tenant dies, the right of survivorship operates to free the property of her interest; the surviving joint tenants retain an undivided right in the property. Although a will is inoperative as to joint tenancy property because the decedent’s rights in the property evaporate at the instant of death, a will may effectively dispose of an interest held in a tenancy in common, as discussed above. Here, although the wife executed her will while the property was still held in joint tenancy, a will is ambulatory (effective only at death), and at her death the wife held her interest as a tenant in common. Thus, it passed to the daughter under the will. (C) and (D) are incorrect because, as explained above, the son has no interest.

Question 19

A grantor executed and delivered a deed to his son conveying his land as follows: “To my son for life, but if my son dies survived by his spouse and children, then to my son’s spouse for life, with the remainder in fee simple to my son’s children.”

A year later, the son died survived by his spouse and two offspring, a girl and a boy. The boy died intestate two days after the son, leaving one child as his only heir.

The common law Rule Against Perpetuities is unmodified in the jurisdiction.

What are the respective interests of the spouse, the girl, and the child in the land?
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A The spouse has a life estate, the girl has an absolutely vested remainder, and the child has nothing.

B The spouse has fee simple ownership of the land, and the girl and the child have nothing.

C The spouse has a life estate, and the girl and the child have absolutely vested remainders.

D The spouse has a life estate, and the girl has a vested remainder subject to open.

Answer 19

C

The spouse has a life estate, the girl has an absolutely vested remainder, and the child, by intestate succession, will inherit the boy’s absolutely vested remainder. The remainder to the son’s children was vested subject to open upon the birth of his first child. Because the son cannot have any more children after his death, all members of the class are ascertained at that time and the remainder becomes indefeasibly vested. Because the grant was to the son’s “children” rather than “issue” or “descendants,” there is no unborn child problem. (A) is wrong because the boy’s vested remainder is inheritable by the child. (B) is wrong because the spouse has only a life estate-not a fee simple absolute-and the girl and the child have absolutely vested remainders. (D) is wrong because the class gift in the limitation “with the remainder in fee simple to my son’s children” closes on the son’s death; no children thereafter can be born to him, which precludes the remainder’s being “subject to open.”

Question 20

A landowner and his neighbor purchased adjoining undeveloped lots. After both built homes on their respective lots, the landowner suggested to the neighbor that a common driveway be built where the two lots joined. The neighbor agreed. The landowner and the neighbor split the cost of constructing the driveway and entered into a written agreement to equally share the costs of its upkeep and maintenance. The agreement was recorded in the county recorder’s office.

Two years later, the neighbor built a new driveway located entirely on his lot. The common driveway, which the landowner continued to use but which the neighbor no longer used, began to deteriorate. The landowner asked the neighbor for money to maintain the common driveway, but the neighbor refused to contribute. Three years later, the neighbor conveyed his lot to a friend. The friend entered into possession and used only the driveway built by the neighbor. By this time, the common driveway had deteriorated badly and contained numerous potholes. The landowner asked the friend to pay half of what it would take to repair the common driveway. The friend refused. The landowner repaired the driveway and sued the friend for 50% of the cost of repairs.

Will the landowner prevail?

A Yes, because easements run with the land.

B Yes, because the agreement between the landowner and the neighbor was recorded.

C No, because the neighbor abandoned use of the easement.

D No, because the landowner is not in privity of contract with the friend.

Answer 20

B

The landowner will prevail because recording the agreement gave the friend constructive notice, thus preventing her from claiming the protection of the recording act as a defense to enforcement of the covenant. A covenant at law will run with the land and be enforceable against subsequent grantees if: (i) the contracting parties intended it to run; (ii) there is privity of estate between the original promisor and promisee (horizontal privity), as well as between the promisor and his successor (vertical privity); (iii) the covenant touches and concerns the property; and (iv) the burdened party has notice of the covenant. If common driveway owners agree to be mutually responsible for maintaining the driveway, the burdens and benefits of these covenants will run to successive owners of each parcel. The implied cross-easements for support satisfy the horizontal privity requirement because they are mutual interests in the same property. Each promise touches and concerns the adjoining parcel. So here, where the friend is in vertical privity with the neighbor (holding the same interest he held) and has constructive notice, she will be bound by the agreement to maintain the driveway. Although easements appurtenant, such as those involved in these facts, pass with the transfer of the estates involved, (A) is wrong because the easements are not at issue here. The easements involved are implied cross-easements for support and allow each party the right to enter the other’s property when using the driveway. The issue here is the accompanying covenant to pay for the maintenance of the driveway. (C) is wrong for the same reason. Whether the easement has been abandoned does not affect the enforceability of the separate covenant. (D) is wrong because privity of estate, not privity of contract, is required for the burden of the covenant to run.

Question 21

All of the deeds for the lots on a city block contained a restrictive covenant requiring that all houses built on the lots be set back a minimum of 50 feet from the sidewalk. Local zoning regulations required that all homes on the block be set back a minimum of 35 feet from the sidewalk. A man purchased a lot on the block on which it would be possible to build a home with a 50-foot setback. However, the man applied to the city zoning commission for a variance reducing the setback to 30 feet from the sidewalk. In his petition, the man cited the unusual shape of the lot and asserted that it would cause hardship for him to build in compliance with the 35-foot setback required by the zoning regulations. The zoning commission granted the man the variance. A woman whose home was located on the block noticed surveyors putting up ropes 30 feet from the sidewalk on the man’s lot, and she discovered that the man planned to build a home with only a 30-foot setback. The woman brings suit to enjoin the man from building a residence with a setback of less than 50 feet.

Who will prevail?

A The man, because zoning regulations take precedence over restrictive covenants as a matter of public policy.

B The man, because equity will not impose a hardship.

C The woman, because the man will be unjustly enriched if he is permitted to build a 30-foot setback.

D The woman, because a zoning variance does not affect the enforcement of a restrictive covenant.

Answer 21

D

The woman will be able to enforce the restrictive covenant as an equitable servitude. Zoning regulations and restrictive covenants in private deeds are completely separate concepts. Both must be complied with, and neither provides any excuse for violating the other. Thus, a variance from the government regulation does not prevent enforcement of the private covenant. The court will enforce the covenant as an equitable servitude because the woman is seeking an injunction. An equitable servitude is a covenant that, regardless of whether it runs with the land at law, equity will enforce against the assignees of the burdened land who have notice of the covenant. Here, all of the deeds contained the restrictive covenant. There is no indication that the man did not have notice of the restriction, and it is both possible and reasonable for him to comply with the restriction at this stage. Privity of estate is not required because the majority of courts enforce the servitude as an equitable interest in the land itself. Hence, the woman will obtain the injunction. (A) is incorrect because, as noted above, zoning regulations and covenants in deeds are completely separate; thus, the zoning regulation would not take precedence over the covenant. The only time a zoning regulation might prevent enforcement of such a covenant is where enforcement would result in a zoning violation (e.g., covenant calls for single family residential housing only, while the land is zoned strictly commercial). (B) is an incorrect statement of law. Equity will impose a hardship, although it will try to balance the hardships between the parties. Here, the hardship on the man is not unreasonable because it is possible for him to build a house that complies with the setback restriction and he has not yet dug the foundation for the house he was planning. (C) is incorrect because nothing in the facts indicates that the man will be unjustly enriched by building his home in violation of the covenant; e.g., there is no indication that his home or property will be worth more simply because it has a 30-foot setback rather than a 50-foot setback.

Question 22

The owner of a large parcel of land subdivided it into 20 separate lots. He sold lots 1-19, retaining lot 20 for himself to live on. The deeds for each of the 19 lots sold by the owner contained the following restriction: “All lots within the subdivision shall be used for residential purposes only.” The purchasers of lots 1-19 each built residences on their property. The owner lived on lot 20 until his death, when it was sold without any restrictions to a buyer. Subsequently, the buyer sold lot 20 to a grocer, furnishing him with an abstract of title and assuring him that the land was unrestricted. The abstract of title showed that lot 20 was not restricted. The following year, the grocer decided to build a grocery store on lot 20. A homeowner who owned adjoining property in the subdivision informed the grocer of the restriction and told him that he would be unable to build the grocery store.

If the homeowner brings suit seeking an injunction against the grocer’s building of the grocery store, will she prevail?
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A No, because the grocer had neither actual nor constructive notice of the restriction.

B No, because the grocer relied on the abstract of title and the buyer’s representation in good faith.

C Yes, because the property owners in the subdivision have a right to keep the subdivision in the condition that they want it.

D Yes, because the grocer will be charged with notice as a result of the residential character of the subdivision.

Answer 22

D

The homeowner will prevail because the grocer will be charged with notice as a result of the residential character of the subdivision. When a developer subdivides land into several parcels and some of the deeds contain negative covenants but some do not, negative equitable servitudes binding all the parcels in the subdivision may be implied if: (i) there exists a common scheme for development, and (ii) the grantee has notice of the covenant. The requisite notice may be acquired through actual notice (direct knowledge of the covenants in the prior deeds), inquiry notice (the neighborhood appears to conform to common restrictions), or record notice (if the prior deeds are in the grantee’s chain of title he will, under the recording acts, have constructive notice of their contents). Here, the owner’s common scheme is evidenced by the general pattern of prior restrictions: lots 1-19 were restricted to residential use. Because the facts state that the other purchasers of lots 1-19 each built residences on their property, the grocer would at least be charged with inquiry notice of the restriction. Thus, (A) is incorrect. (B) is incorrect because the grocer’s reliance on the abstract of title and the buyer’s representation would not negate the inquiry notice. (C)’s reasoning would not be sufficient to bind the grocer to the covenant.

Question 23

A landowner owned a tract known as Section 35. He subdivided Section 35, and sold a lot to a neighbor. The warranty deed that conveyed the property included the following language:

COVENANTS

Purchaser shall have a privilege to hunt and fish on all lands owned by Seller in Section 35.

These covenants shall run with the land.
Years later, the landowner sold the remaining land in Section 35 to a builder. Shortly thereafter, the neighbor died, leaving the lot to her granddaughter. The builder posted “no trespassing” signs on his land. The granddaughter brought an action for declaratory judgment against the builder to enforce the granddaughter’s ability to hunt and fish on the builder’s land.

What would be the likely result?

A The granddaughter will win, because the warranty deed granted her an easement.

B The granddaughter will win, because the warranty deed granted her an irrevocable license.

C The granddaughter will win, because the warranty deed granted her a profit.

D The builder will win, because the warranty deed granted a revocable license.

Answer 23

C

The granddaughter will win because she has a profit. A profit is a nonpossessory interest in land, allowing the grantee to enter on the land and remove resources of the land, in this case, fish and game. Moreover, the profit can be conveyed from the original grantee to a third party, as it was here from the neighbor to her granddaughter. A profit can be terminated in one of several ways, such as by abandonment or misuse, but the facts here do not indicate that termination has occurred. (D) is incorrect. Although the warranty deed used the word “privilege” to describe the interest that was being conveyed, the additional use of the words “covenant” and “shall run with the land” evidences an intent on the part of the original landowner to create more than a bare license to hunt and fish. Otherwise, such a license would have been revocable at the will of the landowner, and would have been extinguished once the neighbor conveyed her lot to her granddaughter. (A) is not as good an answer as (C). Although easements and profits are similar, an easement is an interest allowing the holder to use the land, while a profit specifically allows the holder to remove resources. An easement would not have included the right to hunt and fish on the builder’s land. (B) is incorrect, because an irrevocable license requires the holder to have a privilege, in reliance on which she has invested substantial moneys or labor. That is not the situation under these facts.

Question 24

An investor owned an office building and an apartment building, which were connected to each other. There was no access to the second floor of the apartment building other than a common stairway located entirely within the office building. The investor conveyed the apartment building to a landlord. The landlord, her tenants, and their guests continued to use the common stairway. Subsequently, the investor conveyed the office building to an accounting firm. There was no mention of the stairway in the accounting firm’s deed. Both the landlord’s deed and the accounting firm’s deed were properly recorded.

A few years later, the stairway had become dilapidated. The landlord was concerned about the stairway’s condition of disrepair, which she felt reduced the value of the apartment building and posed a risk of injury to her tenants and their guests using the stairs. The landlord approached the accounting firm about repairing the stairs, and even offered to pay for half the cost. The firm refused. After getting an estimate from a reputable construction company, the landlord told the accounting firm she was willing to pay the entire cost of fixing the stairs. The firm again refused.

If the landlord files suit against the accounting firm, can she compel it to allow her to repair the stairs?

A Yes, because the landlord has an easement, which implies the power to repair.

B Yes, because the landlord may protect herself from the possibility of tort suits from her tenants and their guests.

C No, because the landlord’s interest in the stairs is only for the reasonable lifetime of the structure.

D No, because the landlord has no right to enter the firm’s property.

Answer 24

A

The landlord has a right to repair the stairs because she has an easement. An easement by implication is created by operation of law rather than by written instrument. It is an exception to the Statute of Frauds. An easement is implied if, prior to the time the property is divided, a use exists on the “servient part” that is reasonably necessary for the enjoyment of the “dominant part,” and the parties intended the use to continue after division of the property. The use must be continuous and apparent at the time the property is divided. Reasonable necessity is determined by many factors, including the cost and difficulty of alternatives, and whether the price paid reflects the expected continued use. The use of the stairs was continuous, apparent, and reasonably necessary to the use of the apartment building when the investor conveyed it to the landlord. Although the facts do not give enough information to determine whether the accounting firm’s purchase price reflected the continued use of the stairs, it seems clear that the alternatives would be very costly. Because there was no change in the use after the landlord bought the apartment building and the investor was still in possession of the office building, it appears that they intended the use to continue. Thus, the implied easement from existing use arose when the investor conveyed the apartment building to the landlord. The burden of that easement passes with the transfer of the servient tenement, the office building. The holder of an easement has a right, even a duty, to make repairs. Therefore, the landlord has a right to repair the stairs in the office building. (B) is wrong because no such right exists apart from the rights of an easement holder. Absent an easement, the landlord would not have any right to enter the accounting firm’s property regardless of whether she would be subject to liability for injuries. (C) is wrong because easements are of perpetual duration, unless limited by the terms of a writing. Here there is no writing, so the landlord’s easement is perpetual. (D) is wrong because, as explained above, the landlord has an easement implied from existing use. An easement gives the landlord the right to enter the accounting firm’s property.

Question 25

A landowner granted to his adjoining neighbor a written easement in a driveway that crosses the southwest corner of the landowner’s property. The easement was not recorded. A statute of the jurisdiction in which the landowner’s and neighbor’s properties are located provides: “No unrecorded interest in real property shall be good against subsequent purchasers for value without notice unless the conveyance is recorded.”

In which of the following cases has the neighbor’s easement been terminated?

A The neighbor constructs her own driveway and ceases to use the one across the landowner’s property.

B The landowner sells his property to a purchaser for value who is unaware of the easement.

C The neighbor begins to hold pottery classes in her home, resulting in increased traffic over the driveway.

D The neighbor tells the landowner that she will no longer be using the driveway, and the landowner thereafter builds a garage over the driveway.

Answer 25

D

If the neighbor tells the landowner that she will no longer be using the driveway, and the landowner thereafter builds a garage over the driveway, the easement has been terminated by estoppel. Although an oral release is ineffective because it does not comply with the Statute of Frauds, it may become effective by estoppel. For an easement to be extinguished by estoppel, there must be (i) some conduct or assertion by the owner of the easement, (ii) a reasonable reliance by the owner of the servient tenement, coupled with (iii) a change of position. Here, even though the neighbor’s release of the easement was oral, the landowner changed his position in reliance on that release in building the garage over the driveway. Thus, the easement has been terminated. (A) is incorrect because mere nonuse of an easement will not result in its extinguishment. An easement can be extinguished where the holder demonstrates by a physical action that she intends to permanently abandon the easement. However, nonuse of the easement, without more, will not constitute a manifestation of an intent never to make use of the easement again. (B) is incorrect because, just as the benefit of an easement appurtenant passes with a transfer of the benefited land (regardless of whether the easement is mentioned in the conveyance), so also does the burden of an easement appurtenant pass with the servient land when transferred. Note that a subsequent purchaser without actual or constructive notice of an easement may take free of the easement by virtue of the recording act. In this case, however, the notice statute will not aid a purchaser. The mere existence of the driveway across the landowner’s property to the neighbor’s property puts any purchaser on inquiry notice of an easement. Thus, even if the landowner’s property is sold to a purchaser for value who is unaware of the easement, the burden of the driveway easement passes with the transfer of the servient land. (C) is incorrect because, if a court were to find that there is now an unreasonably excessive use of the easement, the proper remedy would be to enter an order conforming use of the easement to a proper scope. Excessive use would not, however, result in the extinguishing of the easement.