Daily Development for Monday, November 20, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

This is a complex case, with four separate rulings demarcated by four separate entries below, but the editor believes that there are lessons here that will reward careful study.

EASEMENTS; EXTINGUISHMENT; LACHES: Dominant owners' failure to raise a claim of an easement for ten years while servient owner built a house located within 100 feet of the easement does not result in laches where the easement itself is not blocked.

Clog Holdings, N.V. v. Bailey, 992 P.2d 69 (Hawaii 2000).

In 1976, the Baileys, owners of a parcel of ocean cliff property on the island of Maui, divided their property into three separate parcels numbered 12, 48 and 49. Prior to conveying any of the parcels, the owners created a tenfoot pedestrian easement across Parcel 49 for the benefit of Parcels 12 and 48. The Baileys held title to Parcels 12 and 48 in their individual names and held title to Parcel 49 in the name of a partnership in which they were the sole partners.

Thereafter, the Baileys sold Parcels 12 and 48. Each agreement of sale (similar to an installment land contract) provided that purchaser would have a perpetual, nonexclusive access to the beach across the tenfoot pedestrian easement on Parcel 49. This easement led toward a feature in the beachside cliff at the edge of Lot 49 called the Gulch an natural cut in the cliffside that permitted access down to the beach. The easement was intended to border the eastern border of the Baileys' property. In fact, however, the Bailey's property extended further east, to the center of the Gulch, not the western edge.

Several years later, Parcel 49 was the subject of a deposit, receipt, offer and acceptance ("DROA") which contained a specific exception to warranty of title for the 10foot pedestrian easement. However, the agreement of sale subsequently entered into pursuant to such DROA did not mention the existence of the easement, but instead warranted that title was free of encumbrances.

Because Parcel 49 was owned by a partnership and the easement had been granted by the individuals, the title search of Parcel 49 did not reveal the existence of the easement. The purchaser constructed a house on Parcel 49 which, at its closest point, was located approximately 100 feet from the easement. Subsequently the purchasers of Parcel 12 made their final payment under the agreement of sale and received a "Compliance Deed," which did not mention their right to use the easement. After litigation commenced, the Baileys recorded a "Correction Deed" which attempted to correct the Compliance Deed by granting the easement.

The owners of Parcel 49 filed suit against the Baileys seeking specific performance of their promise to convey Parcel 49 free of encumbrances. An action by the owners of Parcel 12 seeking the right to use the easement was consolidated with the first action, and the owners of Parcel 48 were added as thirdparty defendants. The trial court granted summary judgment in favor of the owners of Parcels 12 and 48 establishing the existence of the easement over Parcel 49 and changing the location of the easement to a location the court found more reasonable. The Appellate Court affirmed the summary judgment, establishing the existence of the easement.

The servient owners claimed on appeal that the dominant owners should be barred from asserting their easement by the doctrine of laches, due to the ten year delay between the conveyance of Parcel 49 and the claim of the easement.

The court affirmed the trial court's ruling that laches did not bar the dominant owner from asserting the easement. It noted that the construction of a home near the pedestrian easement was not a fact or circumstance that should have placed owners of the dominant estate on notice that their rights to use the easement were in jeopardy. Further, no prejudice resulted to owners of the servient estate from the delay in asserting rights to easement. It is true that the servient owner built a house rather near the easement area, but the court concluded that an improvement of the property in ignorance of an easement across the property is not the kind of reliance sufficient to give rise to a claim of laches.

Finally, the court concluded that the owners of lot 49 did not take free of any notice of the easement because of the language in the DROA. This equitable finding repeats the analysis that the servient owners also were not bona fide purchasers under the recording acts, a conclusion discussed under the heading: "Recording Acts; Bona Fide Purchaser; Transfers by Partnership."

EASEMENTS; CREATION; GRANT; TRANSFERS BY PARTNERSHIP: The transfer of an easement by the owners of a partnership that is the legal owner of the servient property constitutes the valid creation of an easement across that property because the partners have the power to create an easement across their equitable interest in the property arising from their ownership of the partnership, and this equitable transfer will bind the partnership's legal title.

Clog Holdings, N.V. v. Bailey, 992 P.2d 69 (Hawaii 2000).

The principal facts of this case are set forth under the heading: "Easements; Creation; Reservation; Installment Land Contracts." The facts concerning the partners' transfer are set forth under the heading: "Recording Acts; Bona Fide Purchaser; Transfers by Partnership."

RECORDING ACTS; BONA FIDE PURCHASER; TRANSFERS BY PARTNERSHIP: Where owners of a partnership owning certain property grant and record an easement across the property in their individual names, a subsequent purchaser of the servient estate with notice that an easement exists is on inquiry notice to search the grantor/grantee index not only under the name of the partnership but also under the names of the individual grantees.

Clog Holdings, N.V. v. Bailey, 992 P.2d 69 (Hawaii 2000). The principal facts of this case are set forth under the heading: "Easements; Creation; Reservation; Installment Land Contracts."

The initial purchase agreement executed to the servient owners by the partnership stated that the property was subject to a ten foot pedestrian easement in favor of the two dominant parcels "to the ocean." It did not otherwise describe the easement or give recording information or the names of the grantors or grantees. In fact, as indicated in the original statement of facts, the grantees of the easement never held title to the servient property in their own name. They held title and sold title through a wholly owned partnership.

The appeals court first had to conclude that the transfer by the individual owners of the partnership indeed constituted the creation of an easement across the partnership property. It stated that the partners transferred an easement over their equitable rights in the partnership property, and this was sufficient to bind subsequent takers of the partnership's legal title who had constructive notice of the transfer.

The court then concluded that the successor servient owners were not bona fide purchasers, even though they could not have found the easement in the record under the name of their grantor the partnership. Because the deposit, receipt, offer and acceptance document specifically excepted the easement from the warranty of title, the fact that the subsequent installment land sale agreement did not mention the easement and the easement did not matter. The court concluded that because the failure to mention the easement in the subsequent contract resulted from mistake, there was no possibility of the merger by contract doctrine applying. In any event, it noted, the merger doctrine was of no consequence, since the easement at the time of the transfer of the servient land was already held by third parties and neither the partnership or the individual owners of the partnership.

Similarly, the fact that the owners of the property later granted a deed in conformance with the land sale agreement that did not mention the easement was of no consequence, and did not invoke the doctrine of merger by deed for the same reasons.

Comment: The facts present a close case, but the naked holding of the court, that a reference to the existence of an easement gives rise to an inquiry to discover the easement granted by parties who themselves never had record title to the property is difficult for the editor to accept.

It is true that the grantees might have inquired of their sellers as to the provenance of the easement, but their title search did not turn up an easement and the final land sale agreement, executed pursuant to the DROA, stated that title was free and clear of any easement. One would think that the purchasers at that point were free to conclude that the easement was on some other property, if it existed at all, and that the DROA, and not their own installment contract, contained an error, which had been rectified at the time of the installment contract.

EASEMENTS; SCOPE; MODIFICATION: Although a court may modify a metes and bounds described easement by extending it to carry out the original stated purpose it cannot relocate the easement out of the original metes and bounds boundaries, even though such boundaries render the easement less convenient to the dominant owners than the grantor probably intended.

Clog Holdings, N.V. v. Bailey, 992 P.2d 69 (Hawaii 2000). The principal facts of this case are set forth under the heading: "Easements; Creation; Reservation; Installment Land Contracts."

The trial court found that the original surveyor's description of the easement was not in accord with the Baileys' intent to create an easement over Parcel 49 because: (1) the last point on the Sherman Survey stopped approximately 35 feet short of the seaward boundary, thus failing to provide access to the Point; (2) at two points on the Sherman Survey, the path traversed two rocky outcrops or ledges which were difficult to pass on foot and which could be easily avoided by moving the easement; and (3) the easement was not as close to the Gulch as feasible. The circuit court also decided that by exercising its equitable power,, it could position the location of the easement and create a new easement closer to the Gulch, which avoided the two rocky outcrops. The servient owners appealed the circuit court's exercise of its equitable powers to relocate the easement.

The appeals court, although it agreed with the trial court on most other points, reversed this conclusion. It did say that the easement could be extended thirty five feet to the ocean, where the original grant stated specifically that the easement was "to the ocean." But it refused to allow other modification of the location of the easement to an area other than that described by the metes and bounds boundaries, even though this description was based upon an erroneous conclusion as to the location of the boundary of the grantors' property.

Where easement is described by mete and bounds description, it held, a court may not relocate the easement based on what the court considers to be necessary or reasonable.

Comment: Although the new Restatement of Servitude would support the power of a court to alter the boundaries of an easement, the editor disagrees with that conclusion and concurs with the court's ruling here. Whether or not the easement originally was granted at a mistaken location, there are new servient owners now, and at least they ought to be subject to no worse an easement than the record shows. Since the record easement stated specifically that it ran to the ocean, the metes and bounds can be extended, but it would be inappropriate to alter the clearly stated boundaries.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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