Keeping Current Property

Keeping Current—Property offers a look at selected recent cases and literature. The editors of Probate & Property welcome suggestions and contributions from readers.

CASES

Architect’s design defect liability not subject to economic loss rule. The “economic loss rule,” which limits tort claims when contract damages are available, does not apply to a claim for an architect’s negligent design resulting in physical damages to property. Plaintiff’s pleadings and affidavits alleging physical harm to the common areas of a condominium that necessitated the expenditure of substantial sums of money to repair were sufficient to state a cause of action for tortious negligence that survived the economic loss rule. Aldrich v. Add Inc., 770 N.E.2d 447 (Mass. 2002).

Bona fide Purchaser at foreclosure sale obtains clear title. The foreclosed trust deed was based upon a grantor’s fraudulent claim of ownership, and clear title passed to the purchaser even though the trust deed beneficiary may have known of the fraud. Bonner v. Norwest Bank of Minnesota, 571 S.E.2d 387 (Ga. 2002).

BONA FIDE PURCHASER from possessor obtains clear title. The property possessor had no record title. The original patent from the U.S. government was erroneously recorded in Salt Lake County, the property being located in Utah County adjacent to the boundary with Salt Lake County. Salt Lake County was the record owner and finally corrected the mistaken recording in 1998, nine years after the quitclaim deed from the possessor to the bona fide purchaser was recorded, and according to the court, nine years too late. Salt Lake County v. Metro West Ready Mix, Inc., 53 P.3d 499 (Utah Ct. App. 2002).

BROKER’S COMMISSION held payable despite lease default. A leasing broker filed an action to collect on a promissory note executed by the lessors for the payment of the leasing broker’s commission. The lessee stopped making rent payments, and the lessor stopped making commission payments. In the absence of any explicit condition, the court found no implied commission payment condition requiring lessor’s actual receipt of the rent. Hildebrandt v. Anderson, 42 P.3d 355 (Or. Ct. App. 2002).

CONDEMNATION claim for monetary exactions rejected. A traffic impact fee is not subject to the Dolan test, because it is generally applicable according to a detailed legislatively enacted formula. There is no discretion in its application, and it thus avoids the improper leveraging of conditions against development approvals that was the main concern in the Dolan case. Rogers Machinery, Inc. v. Washington County, 45 P.3d 966 (Or. Ct. App. 2002).

Easement strictly construed. An easement allowing a neighboring lot owner to trim vegetation to maintain a view did not imply any restriction on structures in the easement area. The wording was held to be simply unambiguous. The court refused to add implied restrictions to cure the neighbor’s omission of adequate view protection restrictions. Olson v. Van Horn, 48 P.3d 860 (Or. Ct. App. 2002).

INSTALLMENT CONTRACT forfeiture subject to equitable right of redemption. In a case of first impression, South Carolina finds an equitable right of redemption applies to the forfeiture remedy on an installment land purchase contract. Lewis v. Premium Investment Corp., 568 S.E.2d 361 (S.C. 2002).

Landlord’s acceptance of tenant surrender upheld. The tenant attempted to revoke its offer to surrender its leased premises after oral acceptance by the landlord, but before receiving written notice of the landlord’s acceptance. The notice provision of the lease was held inapplicable to the surrender agreement, which meant the normal contract rule applied that acceptance was binding upon the date of mailing of the notice and not the date of its receipt. Morton’s of Chicago/Great Neck LLC v. Crab House, Inc., 746 N.Y.S.2d 317 (N.Y. App. Div. 2002).

LICENSE for roof top telecommunications equipment recharacterized as lease. Nextel signed a purported license agreement to install antennae on a building roof and to occupy 200 square feet of space in the building. Under the agreement, Nextel’s employees had unlimited access to the premises and the right to quiet enjoyment. The term of the agreement was for five years with five automatic renewal terms of five years each. In short, many provisions were typical of a lease. A license gives no interest in land and confers only the non-exclusive, revocable right to enter the land of the licensor to perform an act. The central distinguishing feature of a lease is the surrender of absolute possession and control of property to another party for an agreed-upon rental and term. The agreement was held to be a lease limiting the building owner to landlord/tenant remedies for its violation. Nextel of N.Y., Inc. v. Time Mgmt. Corp., 746 N.Y.S.2d 169 (N.Y. App. Div. 2002).

MORTGAGE remedies survive time-barred note remedy. Vermont joins the majority in holding that a mortgage on the debtor’s property can be foreclosed even though the six-year statute of limitations applicable to the secured promissory notes had run, because the mortgage had a 15-year statute of limitations. The statute of limitation only terminated the note remedy as opposed to terminating the debt that was the basis for the continuing foreclosure remedy. Huntington v. McCarty, 807 A.2d 950 (Vt. 2002).

PURCHASE MONEY MORTGAGE held inferior to prior recorded lien. In the context of a “race-notice” recording statute, the purchase money mortgage doctrine was insufficient to defeat the priority of a prior recorded lien. The editor believes the holding is correct in that the subject lien had been recorded well before the purchase money loan transaction as opposed to a lien perfected simultaneously with the acquisition of the property such as a judgment lien or a lien given before the purchaser acquired title to the property. The editor expects that, if faced with the latter kinds of liens, the Michigan Supreme Court will find the purchase money mortgage doctrine applicable notwithstanding the recording statute. Graves v. Am. Acceptance Mortg. Corp., 652 N.W.2d 221 (Mich. 2002).

Sale agreement addendum ignored based upon integration clause. The purchaser signed a condominium unit sale agreement along with certain addenda intended to modify certain terms in the sale agreement. The seller refused to sign the addenda, which were not incorporated by reference into the primary document. The purchaser failed to give notice of termination within the allowed 15-day period, wrongly assuming there was no agreement to terminate. The court held the agreement was enforceable, because the integration clause negated the addenda. Although the editor is sympathetic with the dissent’s desire to bail out the unsophisticated buyer by viewing the addenda as part of the integrated agreement, the missing gap was any reference to the addenda in the primary agreement containing the integration clause. Ignoring that omission would render integration clauses rather toothless. Dimase v. Aquamar 176, Inc., No. 3D01-915, 2002 Fla. App. LEXIS 7390 (Fla. Dist. Ct. App. May 29, 2002).

Servitude liberally construed to protect residential livability. Certain residents obtained a preliminary injunction to prohibit a neighbor from using a subdivision lot solely for vehicular access to tracts of land outside of the subdivision. The neighbor’s use was held a clearviolation of the spirit of the subdivision’s covenants. Although adissenter argued against a violation based upon a strict construction of the residential use restriction, the editor applauds the majority’s liberal interpretation for fulfilling the legitimate expectations of the other residents. Wright v. Griggs, 821 So. 2d 787 (La. Ct. App. 2002).

TELECOMMUNICATIONS forced access regulation invalid. The regulation was a radical departure from the traditional definition of a utility as a company seeking to furnish the utility services as opposed to its recipient. The private building owners were not the class of persons the legislature authorized the telecommunications department to regulate as utilities and, thus, the regulation was ultra vires of the enabling legislation. Greater Boston Real Estate Bd. v. Department of Telcomms. & Energy, 779 N.E.2d 127 (Mass. 2002).

ZONING variance for cell tower granted. The residential opponents failed to provide expert testimony to rebut the applicant’s expert testimony that the variance criteria were satisfied for a height variance in an industrial zone. The local residents’ testimony of expected adverse effects was inherently insufficient to rebut the applicant’s expert testimony to the contrary. Cell S. of N.J. v. Zoning Bd. of Adjustment, 796 A.2d 247 (N.J. 2002).

ZONING vested rights rule modified. Delaware rejected the “permit plus” test for vested rights in favor of a “good faith pursuit of a permit under existing rules.” A subdivision applicant was subjected to greater set– back requirements because of an opponent’s successful creation of an agricultural preservation district after the application was filed. It was held inequitable to leave the applicant to the vagaries of the unanticipated actions of other governmental entities during the extended process required by local authorities before a permit would be issued. A facts and circumstances test was adopted, but the editor believes a better result for all concerned would have been the bright line rule of applying only the permit criteria in effect as of the date the application is complete. In re 244.5 Acres of Land v. Delaware Agric. Lands Found., 808 A.2d 753 (Del. 2002).

ZONING violation not an encumbrance on title. A zoning violation is not within the statutory definition of an encumbrance as a right, interest, or hostile title relating to the land. The buyer apparently was trying to find a way to avoid the knowledge limitation in the warranty against zoning violations contained in the sale agreement. Hoffer v. Callister, 47 P.3d 1261 (Idaho 2002).

Literature

Baseball. Foxes and hounds have little to do with real estate, but they are the subjects of much discussion in first-year property courses. It seems only fair to update the issues with more familiar facts, even if the new scenario is every bit as unrelated to real estate as the animals were. Barry Bonds hit his 500th career home run on April 18, 2001, and the ball was promptly recovered from San Francisco Bay by a fan waiting in a boat for the inevitable Bonds’s power shot. In Fugitive Baseballs and Abandoned Property: Who Owns the Home Run Ball?, 23 Cardozo L. Rev. 1609 (2002), Paul Finkelman ponders whether the fan, Bonds, the San Francisco Giants, or some other party should be deemed the owner. Finkleman’s analysis seems prescient, given the fight over a baseball among several fans during the 2002 post-season. Finkelman first suggests that the ball might be deemedconstructively abandoned when hit outside the park; parks and teams do not demonstrate any expectation that balls will be returned. Finkelman also constructs what he terms “the common law of baseball.” Teams actually encourage the policy of catching and taking home balls. (He notes that the common law of football runs counter; fans are expected to return footballs to the officials.) But most on point, Finkelman looks to basic property law and suggests that errant baseballs are analogousto wild animals (ferae naturae) and are therefore subject to the rule ofcapture. This has its implications. When Bonds hit his 73rd home run at the end of the 2001 season, two fans scuffled for the ball. One caught the ball, but the other left the field with the trophy. Relying on Post v. Pierson, Finkelman argues that the first fan, who had actually caught (and therefore captured) the ball, should be the rightful owner, rather than the second, who forced the ball from the former’s glove. One wonders then: if, instead, a fan caught the ball, only to drop it back onto the field, has the ball, like a fox, “escaped to its natural habitat”? Recently, the court adjudicating the dispute over the Bonds’s 73d home run ball decided to take a more Solomonic approach. The judge awarded each claimant half ownership.

Electronic Real Estate Transactions. Trial lawyers see a dramatic change on their horizon: briefs, motions, and case opinions are, or will be, filed electronically. Can similar changes be far behind for transactional lawyers? Derek Witte touches on this issue in his Comment, Avoiding the Un-Real Estate Deal: Has the Uniform Electronic Transactions Act Gone Too Far?, 35 J. Marshall L. Rev. 311 (2002). Witte compares traditional real estate transactions to so-called “paperless” transactions now advocated by some in the real estate bar. He focuses in particular on the interaction of the traditional statute of frauds requirement of a “writing” for enforceable land transactions and the ability of parties to transactions to provide electronic signatures. Witte evaluates the Uniform Electronic Transactions Act. As he notes, the UETA was modified just before its completionto cover real estate transactions. Witte concludes that a true paperless transaction is not presently possible and that buyers and sellers should refuse to participate in transactions that appear to forgo the normal documentation process. According to Witte, the use of paper documentation prevents fraud in the creation and delivery of deeds and other documents, as well as in recordation. One notes that Witte is at the beginning of his legal career. His concerns aside, he will likely find, before the end of his deal-making days, that technology has changed the way real estate transactions are done in myriad and unanticipated ways.  

Free Speech. To what extent do individuals have a right to exercise their freedom to speak as they choose on another person’s property? This is a question that regularly troubles owners of commercial property, including shopping centers and office buildings, as well as the managers of residential and gated communities. The Supreme Court has addressed this issue, most notably in the 1980 case of PruneYard Shopping Center v. Robins. In her short article, Comparison of Federal Courts’ and the New Jersey Supreme Court’s Treatments of Free Speech on Private Property: Where Won’t We Have the Freedom to Speak Next?, 33 Rutgers L. J. 589 (2002), Jennifer A. Klear explains that the PruneYard opinion left open a host of state constitutional issues. According to Klear, PruneYard gave state supreme courts a “green light” to define the boundaries of speech rights under state constitutional provisions. Klear’s viewpoint is evident from the title to her piece and in its substance: that the New Jersey Supreme Court ought to lead the way in expanding the speech rights of individuals on private property. She looks at the rights of residents of gated communities to distribute political leaflets, the right of residents of health care facilities to receive information and express their views and of nonresidents to enter to disseminate information, as well as the rights of persons not engaging in business to enter commercial property for the purposes of exercising their speech rights. Although taking a strongly pro-speech view, this article will nevertheless be helpful as background reading for attorneys representing property owners.  

Landlord Remedies, Pennsylvania Law. Ronald G. Backer takes a thorough look at Pennsylvania landlord remedies in Pennsylvania Landlord Remedies: An Update, 107 Dick. L. Rev. 75 (2002). This article is an update of Backer’s article in the same journal in 1984. Backer explains “the last eighteen years have seen a limitation on most of landlord’s speedy remedies, such as distraint, self-help repossession and confession of judgment.” Landlords are more often forced in front of Pennsylvania district judges in search of evictions, a process Backer finds reasonable, given the more “expedited” process created by 1995 amendments to the Pennsylvania Landlord Tenant Code. Backer looks at a number of the more interesting issues. The Pennsylvania high court “defied commentator’s expectations” by holding that a commercial landlord is not required to mitigate damages when the tenant breaches its lease agreement and moves out of its space before the end of the term. The court declined to take the normal contract approach necessitating mitigation despite the fact that the same court had previously determined that leases are to be governed by the principles of contract law. In another development, earlier cases outlawing self-help repossessions by the landlord were extended to the commercial arena by at least one lower court opinion.  

Takings. Matthew P. Harrington is one of the latest scholars to visit the subject of takings and the meaning of the public use limitation in the Fifth Amendment Takings Clause in “Public Use” and the Original Understanding of the So-Called “Takings” Clause, 53 Hastings L.J. 1245 (2002). As the title suggests, Harrington engages in a historical analysis to locate what he believes to be the original meaning of the phrase, as understood by the drafters of the Takings Clause. Harrington suggests that the members of Congress who added this amendment drew upon English practice, which reserved the right to expropriate property to the Parliament and not to the Crown. The drafters similarly desired to limit the American executive’s right to take property from private citizens; this task was left specifically in the hands of the legislature. Harrington argues that the “idea that courts had the power to supervise legislative expropriations would have been unfamiliar” to the drafters of the Fifth Amendment. According to Harrington, the application of the public use language in the Fifth Amendment to substantively limit the takings power is a “contrivance of relatively recent origin,” and he asserts that this is a “misreading” of the Constitution. Even were Harrington correct in his history and analysis, this alleged contrivance has coalesced in numerous U.S. Supreme Court and state supreme court opinions. Is this “relatively recent” view of the public use limitation so new that today’s courts can dismiss it?  

Virginia Real Estate Law. John V. Cogbill III and D. Brennen Keene survey a year’s worth of Virginia Supreme Court property opinions in Real Estate and Land Use Law, 37 U. Rich. L. Rev. 271 (2002). Their article also addresses significant changes to the Virginia Code. Real estate lawyers will likely be most interested in real estate contract questions addressed by the Virginia high court. For example, the court upheld a purchaser’s right of first refusal to purchase property when some arguably key terms were missing from the document. These terms included “information about notification” and “provisions about how and when the holder must exercise the right.” The court also addressed basic property law issues, such as the effect of a property owner’s failure to rebut the presumption of a prescriptive easement when the trespasser can show the prima facie elements of the easement. According to the court, a property owner must show by “positive evidence” that an agreement existed with the trespasser for the use of the property in question to defeat the prescriptive easement. The court also addressed disputes involving tortious interference with contract, attorney fees, condemnation, leasing, and equitable subrogation. One of the more interesting (and certainly morbid) cases involved cemeteries and the “sanctity of the sepulchre.” Virginia courts recognize that descendants and spouses of a buried person have a limited property right in designating an individual’s final resting place. Apparently, however, this right does not extend to an ex-husband who seeks to have his deceased ex-wife disinterred and reburied in a plot he had purchased during the time the two had been living together.    

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Keeping Current—Property Editor: Eugene L. Grant, 1211 S.W. 5th Ave., Ste. 1600, Portland, OR 97204-3795, egrant@schwabe.com. Contributing editor: Daniel Bogart.