Daily Development for
Tuesday, February 17

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

DEEDS; WARRANTIES OF TITLE; "SPECIAL WARRANTY:" A deed covenant provding that grantor warrants that the grantor did not do or "suffer" anything whereby the property had been encumbered in any way whatever, should be construed broadly so that actual knowledge of an encumbrance is not necessary to result in the breach of the covenant contained in the deed.

Greenberg v. Sutter, 661 N.Y.S.2d 933 (S. Ct. 1997).

In this interesting third party action to a main action involving a claim for adverse possession, the third party defendant sought a construction of the meaning of a term that is standard in almost all New York deeds.

In New York, conveyances are most often made pursuant to a deed known as a Deed With Covenant Against Grantor's Acts. This deed states that the grantor covenants that it has not "done or suffered anything whereby the said premises have been encumbered in any way whatever, except as [set forth in the deed]." Such a deed does not contain a covenant against encumbrances per se, only a covenant that the grantor has not done anything. The issue then was whether the phrase "or suffered" required actual knowledge by the grantor of the possession by the plaintiff in the main action regarding the adverse possession claim.

New York has a statute, Real Property Law 250, which provides some guidance on the meaning of covenants contained in deeds. This statute says that a covenant that the grantor has not done or suffered anything whereby the premises have been encumbered, is construed as meaning that the grantor has not "made, done, committed, executed or suffered any acts, thing or things, whatsoever, whereby or by means whereof, the above mentioned and described premises, or any part or parcel thereof, now are, or at any time hereafter shall or may be impeached, charged or encumbered in any manner or way whatsoever."

The court determined that this explanation requires a broad reading of the words "or suffered" and that actual knowledge of the adverse possessor's claim is not necessary.

Of course, adverse possession requires that the possession in question be "open and notorious." The court stated that the term "open and notorious" in New York means, in effect, that the owner against whom the possession runs have imputed knowledge of that possession. It refused to grant summary judgment in favor of the defendant until the court below determined whether indeed the possession was open and notorious. If it was, however, and adverse possession ran, then the defendant has liability on her deed covenant.

Comment 1: If, as the New York court rules here, a special warranty deed grantor is liable for defects of which the grantor did not know, then, in the typical case, there really is not much difference between the special warranty and general warranty liability. Most old title problems "fade into the sunset," either through adverse possession, laches, or simple ignorance of claim. The real issues often are those of recent vintage. Except where a grantor has held the ground for a relatively short period of time, the special warranty deed that renders grantor liable for unknown defects arising during that grantor's ownership is likely to create liability that as a practical matter is the same as a general warranty deed would impose.

Comment 2: Having said the above, it still is incumbent on counsel, where local custom permits, to attempt to limit the client's exposure to a special warranty. In fact, in light of the New York case, there may now be transactions in which the grantor's counsel attempts to further delimit covenant exposure to defects that actually are attributable to the grantor's knowing acts. As grantee's counsel, the editor would be inclined to stand fast at the traditional special warranty, to the extent that there is bargaining power to insist.

Comment 3: Many lawyers view the entire warranty issue as moot, except to the extent that they will not take a quitclaim deed. They are looking to title insurance as their primary protection, and they know that title insurers classically do not require actionable deed covenants as a condition to insurance. Title insurers are subrogated to warranty claims in deed covenants, but usually do not pursue them. Their primary concern is to avoid fraud and to insure that they get a deed that carries after acquired title and bona fide purchaser status.

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