Daily Development for
Wednesday, February 3, 1999

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

DEEDS; WARRANTIES; BREACH: Grantee may enter into voluntary settlement of ejectment action and still recover on warranty claim against grantor.

Garcia v. Herrera, 959 P.2d 533 (N.M. Ct. App. 1998).

Grantee received title to certain real property by an unrecorded warranty deed from grantor in 1984. Grantor then conveyed the same parcel by a recorded quitclaim deed to plaintiff in 1989. Plaintiff also had a quitclaim deed from a cotenant of grantor's predecessor in interest. Plaintiff sued grantee for ejectment. Grantee asked grantor to defend the action, but grantor refused. Grantee then filed a thirdparty claim against grantor. At the trial, the trial court suggested that the parties settle by dividing the property in half, something that the trial court felt it had no jurisdiction to order, but which the parties felt was preferable to potentially losing their entire claim.

The grantor was present at the trial, and argued that such settlement waived any warranty claim, but the trial court ruled otherwise. The trial court thereafter concluded that grantor breached its warranty to grantee.

The New Mexico Court of Appeals held that a settlement of a claim for ejectment on superior title by the parties constitutes a breach of the grantor's warranty of good title. The trial court could and did evaluate the evidence of plaintiff's title and determined that the settlement was a reasonable one, based on the evidence. Therefore, the court rejected grantor's argument that plaintiff's title was never established as superior.

The court also dismissed grantor's claim that grantee had made no effort to defend the title, citing the fact that grantee had tendered the defense of the title to grantor, and that grantor might have petitioned the trial court to hold a hearing on the merits for purposes of resolution of the title issue, and failed to do so.

Comment: Deed warranty actions are rare today, in light of the prevalence of title insurance and the reluctance of title insurers to pursue subrogated warranty claims. But lawyers, of course, must be aware of the potential liability their clients face on such issues. Here the appeals court tiptoes around the difficult issue presented by the settlement by concluding that the trial court had the evidence before it to conclude that grantor's title had failed and made such a determination in granting damages for breach of warranty. But it appears that the trial court may have done nothing more than granted the warranty damages based upon the settlement, rather than an actual failure of title. Looking behind the holding, it appears that the trial court really was punishing the grantor for creating the problem for grantee and then ignoring it. It would be problematic, however, to hold that a grantee can simply settle up with parties who challenge grantee's title and then pursue a warranty claim, regardless of the validity of the challenger's claim. The appeals court's reconstruction of the facts in a legally correct posture saves the day.

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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