Daily Development for Tuesday, July 17, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

SERVITUDES; COVENANTS; LIABILITY:   Absent clear language in the servitude itself, a successor-in-interest is only liable for those obligations imposed by an equitable servitude during the time the successor holds title.

Clark v. Mead Realty Group, Inc., 854 N.E.2d 972 (Mass.App. 2006). 

Clarks agreed to sell a portion of their subdivided land (“Parcel A”), together with a small parcel providing an access to Parcel A (“Parcel B-1”), to Ampad Corporation in 1984.  In the deed to Parcel B-1, the Clarks granted Ampad an option to acquire the remainder of their land (“Parcel B”) anytime prior to January 10, 1990.  The deed provided that if Ampad did not exercise its option prior to January 10, 1990, Ampad was to reconvey Parcel B-1 to the Clarks, subject to Ampad’s right to continue to use the road and utilities installed on Parcel B-1, and Ampad was to construct a road and water line across Parcel B.  The deed language stated specifically that the property was subject tot he terms of the option agreement. 

The Clarks filed a complaint against Ampad in 1992 for breach of contract, waste, trespass and for specific performance under the option agreement for failure to perform.  The Clarks received a temporary order enjoining Ampad from conveying Parcel B-1 but the motions lapsed in 1998. 

Later in 1992, Ampad conveyed a portion of Parcel A and all of Parcel B-1 to Mead. 

The Superior Court dismissed the complaints against Ampad for a declaration that Ampad had exercised its option or that Ampad should be estopped from denying its exercise. 

After Ampad filed for bankruptcy in 2000, the Clarks filed a complaint against Mead for declaratory and injunctive relief based upon the following claims: (1) Mead was bound by the earlier agreement under an equitable servitude; (2) Mead was in breach of contract for failure to reconvey Parcel B-1 or construct the improvements on Parcel B; (3) alleged trespass or nuisance for discharge of water onto Parcel B-1; (4) de facto exercise of the option agreement; (5) declaration of constructive trust for the value of Parcel B-1 and an accounting of all financial benefits; (6) unfair and deceptive trade practices under Massachusetts General Laws, Chapter 93A (“Chapter 93A”); and (7) civil conspiracy with the city in the city’s taking of Parcel B-1 and a portion of Parcel A. 

Mead won summary judgment with regard to the breach of contract, de facto exercise of option and civil conspiracy claims.  A jury trial found for Mead regarding the trespass and nuisance claim, and after dismissing the jury, the trial judge found for Mead on the declaratory and injunctive relief and constructive trust claims.  The Clarks appealed. 

With regard to the equitable servitude argument, the trial judge found that the deed to Ampad from the Clarks burdened Parcel B-1 by using the language “subject to” the agreement.  Because the deed did not state that it was to bind successors in interest, the court applied what it characterized as the “default property rules” set forth in the Restatement of Servitudes, Section 4.4(1).  This rule states that, unless the covenant clearly so states,  a successor is only liable for obligations that accrue when that party holds title.  Ampad’s obligations arose two years prior to Mead acquiring the interest in the property, and therefore Mead was.not liable. 

The court also rejected Clark’s other arguments that would have imposed liability on Mead.  With respect to the claim on the Unfair Business Practices Act, the Appeals Court found the Clarks’ claim was time barred as it was more than four years after the alleged wrong.  The ongoing injuries are not sufficient to extend the statute of limitations.  In any even, the court said, Mead had no liability, as described above.  . 

Comment 1: Plaintiff’s argued that it was obvious that the purpose of the covenant was to bind whoever was in title to the property to reconvey the property if the option was not exercised.  Otherwise, the covenant could easily be circumvented by transfer of title, as happened here.  It is not crystal clear from the opinion, but Mead may in fact have owned all the stock in the Ampac at the time of the transfer to Mead, thus making more telling the charge that this was all a conspiracy to strip Clarks of their rights.  Clarks delay in eight years in pressing their claims, particularly after letting a preliminary injunction lapse, likely did not put them in as strong an equitable position as they would have liked on these issues.

Nevertheless, can it be doubted that any party taking with knowledge of Clarks rights to demand a reconveyance was not equitably bound to carry out that reconveyance?  Apparently the court could doubt it, and did.

Was this the result that the Restatement had in mind?  It does say that the parties must make their intentions clear if they wish to bind subsequent takers to perform covenants already breached when the transfer to such takers occurs.  But why doesn’t the language that the “land was subject to the agreement” sufficiently make clear that intent, at least when the equities seem to militate for such result? 

Comment 2: On the other side of the argument, there is the notion that clear rules and clear default notions are in fact good for land transactions, as the parties have a rule book so that they know what to say and when to say it.  The downside is that parties not fully familiar with the rules can get hung, as here, on a technicality. 

Comment 3: Certainly Massachusetts lawyers should be fully aware today that their courts were going to take the Restatement of Servitudes seriously.  But would this have been true in 1992?   As the Restatement in fact is not really a restatement, but rather a new set of policy based rules in many respects, perhaps the courts should be more careful in imposing its technical requirements on transactions entered into before the Restatement was a reality.   

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