Covenants For Title and Estoppel by Deed

D.    COVENANTS FOR TITLE AND ESTOPPEL BY DEED

There are three types of deeds characteristically used to convey property interests other than leaseholds: the general warranty deed, the special warranty deed (usually statutory), and the quitclaim deed. The major difference between these deeds is the scope of assurances (covenants for title) they give to the grantee and the grantee’s successors regarding the title being conveyed. The general warranty deed normally contains six covenants for title (see 1.a.1) – 6), infra). The special warranty deed contains fewer and more limited assurances. The quitclaim deed contains no assurances; it releases to the grantee whatever interest the grantor happens to own. Covenants for title must be distinguished from covenants for other than title (i.e., covenants running with the land used for private land regulation). “Covenants for title” is a self-contained topic.

1.    Covenants for Title in a General Warranty Deed

In this day of recording acts and title insurance, covenants for title are not much relied upon for title assurance. A general warranty deed is one in which the grantor covenants against title defects created both by himself and by all prior titleholders. In a special warranty deed, however, the grantor covenants only that he himself did not create title defects; he represents nothing about what prior owners might have done. General warranty deeds are a rarity in a number of states where many conveyances are made with statutory form special warranty deeds.

a.    Usual Covenants

A grantor may give any or all of the following covenants, which are classified as the “usual covenants for title.” A deed containing such covenants is called a “general warranty deed.”

1)    Covenant of Seisin

The covenant of seisin is a covenant that the grantor has the estate or interest that she purports to convey. Both title and possession at the time of the grant are necessary to satisfy the covenant.

2)    Covenant of Right to Convey

The covenant of the right to convey is a covenant that the grantor has the power and authority to make the grant. Title alone will ordinarily satisfy this covenant, as will proof that the grantor was acting as the authorized agent of the titleholder.

3)    Covenant Against Encumbrances

The covenant against encumbrances is a covenant assuring that there are neither visible encumbrances (easements, profits, etc.) nor invisible encumbrances (mortgages, etc.) against the title or interest conveyed.

4)    Covenant for Quiet Enjoyment

The covenant for quiet enjoyment is a covenant that the grantee will not be disturbed in her possession or enjoyment of the property by a third party’s lawful claim of title.

5)    Covenant of Warranty

The covenant of warranty is a covenant wherein the grantor agrees to defend on behalf of the grantee any lawful or reasonable claims of title by a third party, and to compensate the grantee for any loss sustained by the claim of superior title. This covenant is generally considered to be similar to the covenant for quiet enjoyment.

6)    Covenant for Further Assurances

The covenant for further assurances is a covenant to perform whatever acts are reasonably necessary to perfect the title conveyed if it turns out to be imperfect.

7)    No Implied Warranties or Covenants

In the absence of a statute, no covenants of title are implied in deeds. Moreover, the implied (or express) covenant of marketable title found in contracts of sale of real estate is no longer assertable once a deed has been delivered, unless fraud or mistake is shown.

b.    Breach of Covenants

Three of the covenants (seisin, right to convey, against encumbrances) are present covenants and are breached, if at all, at the time of conveyance. Quiet enjoyment, warranty, and further assurances are future covenants and are breached only upon interference with the possession of the grantee or her successors. This distinction is important in that it determines when the statute of limitations begins running and whether a remote grantee of the covenantor can sue.

1)    Covenants of Seisin and Right to Convey

The covenants of seisin and right to convey are breached at the time of conveyance if the grantor is not the owner of the interest she purports to convey (or has not been authorized to so convey). If there is a breach, the grantee has a cause of action against which the statute of limitations begins to run at the time of conveyance. If the grantee reconveys, the general rule is that the subsequent grantee has no right of action against the covenantor. In a few jurisdictions, it is implied that the original grantee assigned the cause of action to the subsequent grantee, thus permitting suit against the original grantor-covenantor. (The latter is probably the better rule because the subsequent grantee most likely paid the original grantee the market value.)

Example:       O conveys Blackacre to A by a deed containing a covenant of seisin. O purports to convey a fee simple, but in fact X was the owner of Blackacre. Soon thereafter, A conveys to B. Under the usual view, A, but not B, may recover from O. In a few jurisdictions, it is implied that A assigned her cause of action to B.

2)    Covenant Against Encumbrances

The covenant against encumbrances is breached and a cause of action arises at the time of conveyance if the property is encumbered. Most jurisdictions hold that the covenant is breached even if the grantee knew of the encumbrance, whether it be an encumbrance on title (e.g., a mortgage) or a physical encumbrance (e.g., an easement or servitude), but others hold there is no breach if the grantee knew of a physical encumbrance.

These jurisdictions charge grantees with constructive notice of visible physical encumbrances (e.g., right-of-way). Several cases go so far as to hold that a covenant against encumbrances is not breached where the encumbrance (“visible” or not) is a benefit to the land involved (e.g., an easement for a sewer or for an adjacent street). As with the covenants of seisin and right to convey, this covenant cannot be enforced by a remote grantee in the majority of states.

3)    Covenants for Quiet Enjoyment, Warranty, and Further Assurances

Covenants for quiet enjoyment, warranty, and further assurances are not breached until a third party interferes with the possession of the grantee or her successors. (But note: A covenant for quiet enjoyment or of warranty is not breached by the covenantor’s refusal to defend title against a wrongful claim or eviction by a third party.)

a)    Covenant Runs to Successive Grantees

These covenants are viewed as “continuous”; i.e., they can be breached a number of times. Their benefit “runs” with the grantee’s estate (unlike the present covenants discussed above).

Example:       O conveys to A by a deed containing a covenant of warranty. A thereafter conveys to B and B to C, and then C is evicted by a third party with title that was paramount when O conveyed to A. C can successfully sue O.

b)    Requirement of Notice

The covenantor is not liable on her covenant of warranty or of further assurances unless the party seeking to hold her liable gives her notice of the claim against the title she conveyed.

c)    Any Disturbance of Possession

Most courts hold that any disturbance of possession suffices to constitute a breach. Thus, if the covenantee cannot obtain complete possession or pays off an adverse, paramount claim in order to retain possession, this is a sufficient disturbance of possession. Compare: A disturbance of the covenantee’s possession is not required as a prerequisite to recovery for breach of covenants of seisin, right to convey, or against encumbrances.

c.    Damages and Remote Grantees

Suppose successive conveyances from O to A to B to C, each conveyance containing full covenants. C is evicted by X, who was the true owner when O conveyed to A. C may sue O, A, or B because each gave a covenant of warranty the benefit of which “ran” with the land. But what is the measure of C’s recovery? Is it the consideration the defendant (i.e., O, A, or B) received? Is it the consideration C paid (an indemnity theory) so that if C was a donee, she gets nothing?

Many states permit C to recover to the extent of the consideration received by the defendant-covenantor (even though it exceeds the consideration paid by C). Under this view, defendant-shopping is advisable (to sue whomever received most). The defendant who is held liable then has a cause of action against any prior covenantor, until ultimately O is held liable. In other states, C can recover only the actual consideration she paid (but not to exceed the amount received by the defendant-covenantor).

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