Real Property

Question 1

If an occupier initially has the true owner’s permission to enter the land, may she acquire title to the land by adverse possession?

A Yes, unless the occupier believes she is on her own land
B No, because the statute of limitations will not begin to run
C No, because an adverse possessor must lack the true owner’s permission to be on the land
D Yes, if the occupier communicates hostility

Answer 1

D Yes, if the occupier communicates hostility

Yes, an occupier who initially has the true owner’s permission to enter the land may acquire title to the land by adverse possession if the occupier communicates hostility and satisfies the other elements of adverse possession. To establish title by adverse possession, the occupier must show: (i) An actual entry giving exclusive possession that is (ii) Open and notorious, (iii) Adverse (hostile), and (iv) Continuous throughout the statutory period. If the occupier enters with the owner’s permission, her possession may become adverse only once she makes it clear to the owner that she is claiming hostilely. This can be done by explicit notification, by refusing to permit the true owner to come onto the land, or by other acts inconsistent with the original permission. The occupier’s state of mind is irrelevant to adverse possession, which means that it does not matter whether the occupier believes she is on her own land, knows she is trespassing on someone else’s land, or has no idea who owns the land. While it is true that an adverse possessor must lack the true owner’s permission to be on the land, a subsequent communication of hostility may cause initially permissive possession to become adverse, as explained above. The statute of limitations WILL begin to run if an occupier who initially had the true owner’s permission to enter the land communicates hostility, as explained above.

Question 2

Which of the following is a future covenant for title?

A Covenant of warranty
B Covenant against encumbrances
C Covenant of seisin
D Covenant of right to convey

Answer 2

A Covenant of warranty

The covenant of warranty is a future covenant for title. A general warranty deed contains covenants for title through which the grantor warrants against title defects created by herself and prior titleholders. The usual covenants for title include present covenants, which can be breached only at the time of conveyance; and future covenants, which can be breached only upon eviction (i.e., interference with the possession of the grantee or her successors by someone with better title). Through the covenant of warranty, the grantor agrees to defend the grantee’s title from any third party’s lawful or reasonable claims of title and to compensate the grantee for any related loss. Because this covenant cannot be breached until a third party interferes with possession, it is a future covenant. The covenant of seisin is a present covenant for title. Through it, the grantor warrants that she has the estate or interest she purports to convey (i.e., both title and possession) at the time of the grant. The covenant against encumbrances is a present covenant for title. Through it, the grantor warrants that there are no encumbrances (e.g., easements, profits, or mortgages) against the title or interest conveyed. The covenant of right to convey is a present covenant for title. Through it, the grantor warrants that she has the power and authority to make the grant (i.e., she has title or is the titleholder’s authorized agent).

Question 3

A deed generally must contain which of the following in order to be valid?

A The grantor’s acknowledgment.
B The grantor’s words of intent.
C The grantee’s signature.
D The metes and bounds of the land.

Answer 3

B The grantor’s words of intent.

A deed generally must contain the grantor’s words of intent in order to be valid. A deed must demonstrate that the grantor intends to transfer realty (e.g., by using the word “grant”). However, no particular technical phrasing is necessary. A deed generally need not contain the grantor’s acknowledgment in order to be valid. Before a deed can be recorded under most recording statutes, it must be acknowledged by the grantor before a notary public. However, the grantor’s signature, without an acknowledgement, is sufficient for the deed itself to be valid. A deed generally need not contain the metes and bounds of the land in order to be valid. While a deed must identify the land, a metes-and-bounds description is only one of many ways property may be described. A description is sufficient if it provides enough information to identify the property in question (e.g., a street address, or a reference to a lot in a recorded subdivision plat). A deed generally need not contain the grantee’s signature in order to be valid. Even if the deed contains covenants on the grantee’s part, her acceptance of the deed is sufficient to make those covenants enforceable.

Question 4

A recording act that provides: “Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded,” is a:

A race statute
B race-notice statute
C statute of frauds
D notice statute

Answer 4

D notice statute

A recording act that provides: “Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded,” is a notice statute. Under a notice statute, a later purchaser of land will prevail over an earlier grantee if she takes without actual or constructive (e.g., record) notice of the earlier grant. The above language is not a race-notice statute. An example of a race-notice statute is: “Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, whose conveyance is first recorded.” Under a race-notice statute, a later purchaser will prevail over an earlier grantee only if she takes without actual or constructive (e.g., record) notice of the earlier grant and records before he does. The above language is not a pure race statute. An example of a pure race statute is: “Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser whose conveyance is first recorded.” Under a race statute, notice is irrelevant. The first party to record, regardless of the date of her conveyance, wins. The Statute of Frauds is not a recording act. Every conveyance of an interest in land with a duration long enough to bring into play a particular state’s Statute of Frauds (typically one year) must be evidenced by a writing, signed by the party to be charged.

Question 5

In general, a party who fails to tender performance on the closing date:

A Is excused from performance
B Has no liability for even incidental damages
C Is in total breach and loses her right to enforce the contract
D Has a reasonable time after the closing date to tender performance

Answer 5

D Has a reasonable time after the closing date to tender performance

In general, a party who fails to tender performance on the closing date has a reasonable time after the closing date to tender performance and avoid breach. Generally, the time of performance stated in a land sale contract is not absolutely binding. A party, even though late in tendering her own performance, can still enforce the contract if she tenders within a reasonable time after the stated date. Courts presume that time is not of the essence. However, this presumption may be overcome if: (i) The contract states that time is of the essence; (ii) The circumstances indicate that the parties intended that time is of the essence; or (iii) One party notifies the other within a reasonable time before the closing date that time is of the essence. If time is of the essence, a party who fails to tender performance on the closing date is in total breach and loses her right to enforce the contract . However, even if time is not of the essence, a party who is late in tendering performance is NOT excused from performance absent repudiation or impossibility, and will be liable for incidental damages (e.g., additional mortgage interest or taxes).

Question 6

For which type of security interest in land does the debtor transfer title to a third party acting on behalf of the lender?

A Deed of trust
B Installment land contract
C Absolute deed
D Equitable mortgage

Answer 6

A Deed of trust

A deed of trust is a security interest in land by which the debtor (i.e., the trustor) transfers title to the land to a third party (i.e., the trustee), such as the lender’s lawyer or a title insurance company, acting on behalf of the lender (i.e., the beneficiary). In the event of default, the lender instructs the trustee to foreclose the deed of trust by selling the property. An equitable mortgage exists if a court concludes that a grantor transferred an absolute deed to serve as security for an obligation. If the court so determines, the grantee must foreclose by judicial action, as with any other mortgage. The court will consider: (i) The existence of a debt or promise of payment by the grantor; (ii) The grantee’s promise to return the land if the debt is paid; (iii) Whether the amount advanced to the grantor was much lower than the value of the property; (iv) The degree of the grantor’s financial distress; and (v) The parties’ prior negotiations. An installment land contract is a security interest in land in which the debtor (i.e., the buyer) contracts with the seller to pay for the land in regular installments until the full contract price has been paid, plus interest. Only then will the seller transfer legal title to the buyer. The contract may contain a forfeiture clause providing that the seller may cancel the contract upon default, retain all money paid, and retake possession of the land.

Question 7

What does it mean for a grantee to assume a mortgage?

A The grantee becomes a surety for the original mortgagor.
B The grantee becomes primarily liable to the lender.
C The grantee institutes foreclosure proceedings.
D The grantee takes out an additional mortgage on the property.

Answer 7

B The grantee becomes primarily liable to the lender.

For a grantee to assume a mortgage means the grantee becomes primarily liable to the lender. When a mortgagor conveys mortgaged property, the grantee takes the land subject to the mortgage. A grantee who signs an assumption agreement promises to pay the mortgage loan, thus becoming personally and primarily liable to the lender. The original mortgagor becomes secondarily liable as a surety. Assumption of a mortgage does not mean the grantee becomes a surety for the original mortgagor. The assuming grantee becomes primarily liable to the lender, and the original mortgagor becomes secondarily liable as a surety. Assumption of a mortgage does not mean the grantee institutes foreclosure proceedings. Foreclosure is a process that terminates the mortgagor’s interest in the property. Generally, the property is sold in a foreclosure sale to satisfy the mortgage debt. The grantee who assumes a mortgage promises to pay the mortgage loan; thus, if the grantee defaults, foreclosure proceedings may be brought against him. Assumption of a mortgage does not mean the grantee takes out an additional mortgage on the property. As explained above, a grantee who signs an assumption agreement promises to pay the original mortgage loan, thus becoming primarily liable to the lender.

Question 8

Under which theory can the mortgagee take possession of the mortgaged property upon the mortgagor’s default?

A The title theory only
B Either the lien theory or the intermediate theory
C The lien theory only
D Either the title theory or the intermediate theory

Answer 8

D Either the title theory or the intermediate theory

Under either the title theory or the intermediate theory, the mortgagee may take possession of the mortgaged property upon the mortgagor’s default. Under the title theory, followed in a minority of states, legal title is in the mortgagee until the mortgage has been satisfied or foreclosed. Thus, the mortgagee is entitled to possession upon demand at any time, which means the mortgagee can take possession as soon as the mortgagor defaults. The same is true in the few states that follow the intermediate theory, under which legal title transfers from the mortgagor to the mortgagee on default. Under the lien theory, followed in a majority of the states, the mortgagee is deemed to hold a security interest in the land and the mortgagor is considered the owner until foreclosure. Thus, the mortgagee may not take possession of the land before foreclosure.

Question 9

In most states, the reservation of an annual rent, payable monthly, in a lease with no set termination date creates a:

A Tenancy at will
B Tenancy for years
C Year-to-year periodic tenancy
D Month-to-month periodic tenancy

Answer 9

C Year-to-year periodic tenancy

In most states, the reservation of an annual rent, payable monthly, in a lease with no set termination date creates a year-to-year periodic tenancy . A periodic tenancy is a tenancy that continues from period to period until terminated by proper notice by either the landlord or the tenant. It may be created by implication if a lease with no set termination date provides for the payment of periodic rent. The majority view is that a lease at an annual rent, payable monthly, creates a periodic tenancy from year to year, and not a month-to-month periodic tenancy. A tenancy at will is a tenancy that continues only until the landlord or the tenant gives notice and time to quit. Although a tenancy at will can arise when a lease has no set termination date, a provision requiring annual rent payments will convert it to a periodic tenancy. A tenancy for years is a tenancy that continues for a fixed period of time and then ends automatically on its termination date. A lease with no stated duration is not a tenancy for years.

Question 10

A fee simple subject to an executory interest is an estate that:

A Continues after the happening of a stated event until the grantor exercises her power of termination
B Continues after the happening of a stated event until the third party exercises his power of termination
C Automatically divests in favor of a third party on the happening of a stated event
D Automatically terminates on the happening of a stated event and reverts to the grantor

Answer 10

C Automatically divests in favor of a third party on the happening of a stated event

A fee simple subject to an executory interest is an estate that automatically divests in favor of a third party (rather than the grantor) on the happening of a stated event. It is created by the same language used to create a fee simple determinable (e.g., “for so long as,” “while,” “during,” or “until”) or a fee simple subject to a condition subsequent ( e.g., “upon condition that,” “provided that,” “but if,” or “if it happens that”), but rather than automatically reverting to the grantor on the happening of a stated event (fee simple determinable) or continuing after the happening of a stated event until the grantor exercises her power of termination (fee simple subject to a condition subsequent), it automatically divests in favor of a third party on the happening of a stated event. A fee simple subject to an executory interest is not an estate that continues after the happening of a stated event until the third party exercises his power of termination. An estate that continues on the happening of a stated event until the grantor exercises her power of termination (right of entry) is a fee simple subject to a condition subsequent. A right of entry can be created only in favor of the grantor and her heirs. If a similar interest is created in favor of a third party, it is called an executory interest. However, unlike a right of entry, the third party need not “exercise” his executory interest; on the happening of the stated event, the estate automatically divests in his favor. The common law did not recognize a future interest created in a third party that would vest in possession only upon the discretionary exercise of a right or power by the third party. A fee simple subject to an executory interest is not an estate that automatically terminates on the happening of a stated event and reverts to the grantor. As explained above, such an estate is a fee simple determinable. A fee simple subject to an executory interest is not an estate that continues after the happening of a stated event until the grantor exercises her power of termination. As explained above, such an estate is a fee simple subject to a condition subsequent.

Question 11

Which of the following interests in property are subject to the Rule Against Perpetuities?

A	Contingent remainders, executory interests, and vested remainders subject to open
B	Reversions, options, and class gifts
C	Executory interests, rights of entry, and powers of appointment
D	Contingent remainders, possibilities of reverter, and rights of first refusal

Answer 11

A Contingent remainders, executory interests, and vested remainders subject to open

Contingent remainders, executory interests, and vested remainders subject to open are subject to the Rule Against Perpetuities. The Rule Against Perpetuities provides that certain interests in property are void if there is any possibility, however remote, that they may vest more than 21 years after some life in being at the creation of the interest. The Rule applies to the following interests in property: (i) contingent remainders; (ii) executory interests; (iii) class gifts (even if vested remainders); (iv) options and rights of first refusal; and (v) powers of appointment. Future interests in the grantor (i.e., reversions, possibilities of reverter, and rights of entry) are not subject to the Rule Against Perpetuities. Thus, contingent remainder, possibilities of reverter, and rights of first refusal is incorrect because it includes possibilities of reverter. Executory interests, rights of entry, and powers of appointment is incorrect because it includes rights of entry. Reversions, options, and class gifts is incorrect because it includes reversions.

Question 12

Horizontal privity exists between:

A A party burdened under a real covenant and any party seeking to enforce the covenant
B An original party to a real covenant and her successor in interest
C Parties to a real covenant who shared an independent interest in the land at the time they entered the covenant
D The original parties to a real covenant, regardless of their relationship

Answer 12

C Parties to a real covenant who shared an independent interest in the land at the time they entered the covenant

Horizontal privity exists between parties to a real covenant who shared an independent interest in the land at the time they entered the covenant. A real covenant is a written promise to do or not do something on the land. The burden of the covenant will run with the land if: 1. The covenanting parties intended that successors in interest be bound by the covenant; 2. The successor in interest has notice of the covenant; 3. There is horizontal privity between the original covenanting parties; 4. There is vertical privity between the covenantor and her successor in interest; and 5. The covenant touches and concerns the land. Horizontal privity requires that the original covenanting parties shared some interest in the land independent of the covenant at the time they entered the covenant (e.g., as grantor and grantee). Thus, it does NOT exist between the original parties to a real covenant absent such a relationship, nor does it exist generally between a party burdened under a real covenant and any party seeking to enforce the covenant. In contrast with horizontal privity, vertical privity refers to the relationship between an original party to a real covenant and her successor in interest. For the burden of a covenant to run, this element is satisfied if the successor holds the entire durational interest held by the covenantor at the time she made the covenant.

Question 13

Which of the following is NOT a nonpossessory interest in land?

A Easement
B Real covenant
C License
D Profit

Answer 13

C License

A license is not a nonpossessory interest in land. A license is merely a privilege to go upon another’s land; it is not an interest in land. An easement is a nonpossessory interest in land. The holder of an easement has the right to use another’s land, but has no right to possess and enjoy the land. A profit is a nonpossessory interest in land. The holder of a profit has the right to go upon another’s land and take the soil or a substance of the soil (e.g., minerals, timber), but has no right to possess and enjoy the land. A real covenant is a nonpossessory interest in land. A real covenant is a written promise to use or not to use land in a certain manner, and does not confer a right to possess the land on the covenantee.

Question 14

Which of the following acts will terminate an easement?

A Condemnation of the servient estate.
B Use of the easement beyond its legal scope.
C Nonuse of the easement for the statutory period.
D Voluntary destruction of the servient estate.

Answer 14

A Condemnation of the servient estate.

Condemnation of the servient estate will terminate an easement. The easement holder may be entitled to compensation for the value lost. Use of the easement beyond its legal scope will not terminate an easement. Instead, the easement is surcharged, and the servient owner may sue to enjoin the use. Nonuse of the easement for the statutory period will not terminate an easement. An easement can be extinguished by the easement holder’s physical act of abandonment (e.g., erection of a permanent structure over the easement). However, mere nonuse, even for a long period of time, is insufficient to constitute an abandonment of the easement. To terminate the easement, the nonuse must be combined with other evidence of intent to abandon it. Voluntary destruction of the servient estate (e.g., tearing down a building to erect a new one) will not terminate an easement. On the other hand, involuntary destruction of the servient estate (e.g., by fire or flood) will extinguish the easement.

Question 15

A person whose interest in land gives him the right to use someone else’s land independent of his ownership or possession of his own tract holds:

A An easement appurtenant
B An easement in gross
C A license
D A servient tenement

Answer 15

B An easement in gross

A person whose interest in land gives him the right to use someone else’s land independent of his ownership or possession of his own tract holds an easement in gross. An easement gives the holder the right to use a tract of land but no right to possess it. The land burdened by the easement right is called the servient tenement. An easement appurtenant, by contrast, benefits its holder in his physical use or enjoyment of his own tract of land. The land benefitted by the easement is called the dominant tenement. Unlike an easement, a license is not an interest in land, but is merely a privilege to go upon another’s land.

Question 16

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 16

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

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 17

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 17

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

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 18

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.

The landlord of the property has a cause of action against:

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 18

C The buyer and the baker 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 19

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, and she offered to buy it from him for $50,000. The investor accepted the developer’s offer, and the parties agreed on June 15 as the closing date. The developer 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 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 19

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

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 manner of payment, 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 in 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 and manner of payment. 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. Under the doctrine of part performance adopted by some states, a court may 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 (“U.C.C.”). This question does not involve the sale of goods, so the U.C.C. 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 20

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 20

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

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 21

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 21

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

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 acounting firm’s property.

Question 22

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?

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 22

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

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 23

A buyer contracted to purchase a home from a real estate developer for $700,000, and made a down payment on the purchase in the amount of $100,000. The buyer’s employer provided $100,000 of the purchase price, by giving the buyer a loan and taking a mortgage. Because of the down payment, the employer agreed to an additional loan provision, whereby the buyer could receive up to $100,000 in future financing, subject to the same terms as the first $100,000, if the buyer needed extra cash. 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. Both mortgages were recorded the day after closing. One week later, a bank obtained a judgment against the buyer for a delinquent credit card balance. The bank recorded its judgment lien the next day. 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, but the interest rate would increase by an extra percentage point. Shortly thereafter, the buyer lost his job and defaulted on all of his payments. The employer brought an action to foreclose its mortgage.

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 23

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

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 interest rate on 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 amount of the debt according to the original loan terms. 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 for the same reason, in spite of the general rule that a seller’s purchase money mortgages have priority over third-party purchase money mortgages.

Question 24

A recording act that provides: “Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded.”

Answer 24

Notice Statute.

Under a notice statute, a later purchaser of land will prevail over an earlier grantee if she takes without actual or constructive (e.g., record) notice of the earlier grant.

Question 25

“Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, whose conveyance is first recorded.”

Answer 25

Race-Notice Statute.

Under a race-notice statute, a later purchaser will prevail over an earlier grantee only if she takes without actual or constructive (e.g., record) notice of the earlier grant and records before he does.

Question 26

“Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser whose conveyance is first recorded.”

Answer 26

Race Statute.

Under a race statute, notice is irrelevant. The first party to record, regardless of the date of her conveyance, wins.

Question 27

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.”

The deed from the uncle to the purchaser was:

A Effective as a conveyance of title when delivered.
B Effective on recordation, to cut off the nephew’s interest in the property.
C Ineffective as against the nephew, because the purchaser knew of the deed from the uncle to the nephew when she became a grantee.
D Ineffective as against the nephew, because the purchaser took by quitclaim deed and thus stands in the shoes of the uncle.

Answer 27

A Effective as a conveyance of title when delivered.

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.