Daily Development for Thursday, October 26, 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

RESTRAINTS ON ALIENATION; USE RESTRICTIONS: New Mexico court upholds 65 year old forfeiture condition on sale of alcohol; use restraints do not amount to direct restraints on alienation.

Prieskorn v. Maloof, 991 P.2d 511 (N.M. 1999).

Plaintiff 's parcel was located in a larger tract was subject to a provision in a 1935 deed that no building erected on the land shall at any time be used for immoral purposes or for the manufacture and sale of any intoxicating liquors and that, if said condition would be broken, the land, right, title and interest of the land will revert to the grantor, his successors and assigns.

The land covered by the reversionary clause had been subdivided and developed. Plaintiff had taken title to her parcel with notice of the reversionary clause. Part of her land was vacant and part was occupied by a trailer park. Residential subdivisions occupied other parts of the original tract.  Plaintiff claimed that she was unable to obtain title insurance on her property due to the reversionary clause and that therefore the value of her land had been adversely affected.

The trial court denied Plaintiff's request for a decree quieting title, ruling that the reversionary clause did not constitute a restraint on alienation, but was simply a restraint on the use that may be made of the land. It further held that the circumstances surrounding the property had not changed to such a degree that it would be inequitable to enforce the reversionary clause.

The New Mexico Supreme Court affirmed. It found that there was no indication that the use restriction made the property any less alienable than any other property and that a lower sales price in and of itself does not make the restraint on the property one of alienation rather that use.

The court commented that it made no difference whether the estate was regarded as a fee simple determinable or a fee on condition subsequent (the language was ambiguous and ambiguity usually leads to the condition subsequent construction). Regardless of the type of future interest involved or the method for invoking it, there clearly was a property right in the holders of the grantor's interest that remained viable.

As to the trial court's consideration of whether changed circumstances warranted avoidance of the condition, the court commented that there was considerable doubt as to whether the "changed circumstances" doctrine, sometimes applied to use restrictions in servitudes, had any function in the case of conditional estates. But in any event, the court concluded that there was substantial evidence to support trial court's conclusion that there was no showing that the burden of the restriction operating inequitably or that benefits of the covenant could not be realized. Other parcels of the restricted tract had been sold and developed in the past, and most of the uses of the land within the tract were residential in character, a use which not only was not inconsistent with the restriction but which might benefit from it.

Comment 1: Here's the text of the restraint:

     "[T]his conveyance is hereby made and the land conveyed under   the following conditions: That no building now on said premises   or to be erected on said land shall at any time be used for immoral   purposes, or for the manufacture and/or sale of any intoxicating   liquors by the grantee, its succe[s]sors, heirs, and assigns, and   that in the event of said condition being broken, then this deed   shall become null, void, and of no effect, and all right, title, and   interest of, in and to the premises of said above described land   hereby conveyed, shall revert to the grantor, his successors and   assigns."

 Comment 2: Many of the nation's cities are loaded with "ticking time bombs" in the nature of these forfeiture conditions relating to the sale of alcohol. Usually, courts find ways to defuse the bombs and clear the title. This case is noteworthy because the court refuses to do so, and leaves the landowner in real jeopardy. In fact, the lawsuit creates a greater concern than before, because now people will have to take the restraint seriously.

The editor owns land in California subject to a similar restraint, with an executory interest over to the city in the event of a breach. The title company took the position that forfeiture restraints of this nature would not be enforceable in California, and insured over the issue, although the editor had to go high up in the company before he got the coverage.

Comment 3: The immoral conduct restriction is even more troublesome. Of course, the first difficulty is the vagueness of the term. The second issue is that, although the restraint language appears to limit the restriction on the sale of intoxicating liquors to the landowner only, and not to tenants, the language concerning immoral conduct, if we take the grammatical construction seriously, applies to any person using buildings on the land. Consider what happens, for instance, if a resident of plaintiff's trailer park starts operating a pornography website. Would this be "immoral" conduct justifying a forfeiture?  Of course, the plaintiff could recover damages from the tenant, but would the trailer park tenant really be in a position to pay?

 

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

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a source that is readily accessible by members of the general public, and should take that fact into account in evaluating confidentiality issues.

ABOUT DIRT:

DIRT is an Internet discussion group for serious real estate professionals. Message volume varies, but commonly runs 5 ‑ 10 messages per workday.

Daily Developments are posted every workday.

To subscribe to Dirt, send an e-mail to:

To:

ListServ@listserv.umkc.edu

Subject:

[Does not matter]

Text in body of message

Subscribe Dirt [your name]

To cancel your subscription to Dirt, send an e-mail to:

To:

ListServ@listserv.umkc.edu

Subject:

[Does not matter]

Text in body of message

Signoff Dirt

For information on other commands, send the message Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only commercial and general real estate matters but also focuses specifically upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named “Brokerdirt.” But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to Brokerdirt, it is not necessary also to subscribe to DIRT, as Brokerdirt carries all DIRT traffic in addition to the residential discussions.

To subscribe to Brokerdirt, send an e-mail to:

To:

ListServ@listserv.umkc.edu

Subject:

[Does not matter]

Text in body of message

Subscribe Brokerdirt [your name]

To cancel your subscription to Brokerdirt, send an e-mail to:

To:

ListServ@listserv.umkc.edu

Subject:

[Does not matter]

Text in body of message

Signoff Brokerdirt

DIRT is a service of the American Bar Association Section on Real Property, Probate & Trust Law and the University of Missouri, Kansas City, School of Law. Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of Law, UMKC School of Law, but Professor Randolph grants permission for copying or distribution of Daily Developments for educational purposes, including professional continuing education, provided that no charge is imposed for such distribution and that appropriate credit is given to Professor Randolph, DIRT, and its sponsors.

DIRT has a WebPage at: http://www.umkc.edu/dirt/