Daily Development for
Friday, February 5, 1999

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

VENDOR/PURCHASER; MISREPRESENTATION; EASEMENTS: Where property is sold "subject to easements of record," and there is a recorded oil pipeline easement, seller is not liable for failing to disclose that in the past the oil company benefitted by the easement had required seller to remove structures placed on the easement so that oil company could maintain pipes, and that subsequently seller had replaced the structures on concrete foundations.

Stevenson v. Baum, 75 Cal. Rptr. 2d 904 (Cal. App. 1998).

The subject property was a mobile home park. The sale contract stated that the property was sold "subject to easements of record," and indeed buyers received a title report, which they did not review until the closing, that indicated a easement "for ingress and egress" held by an oil company. The actual recorded easement made clear that the easement was for pipeline purposes and the established law is that such easements include the right to clear access to such pipelines for maintenance purposes.

In the contract, seller represented to buyer that the park had "44 approved mobile home spaces." In fact, however, nine years before the sale, the oil company had required the seller to remove mobile homes placed over the easement area so that it could perform work on the pipeline. Thereafter, the seller not only moved the homes back over the pipeline but constructed concrete foundations for them. Seller did not disclose any of these facts to buyer.

Thirteen years after the sale, the oil company demanded of buyers that they remove the encroachments over its pipeline. (The court does not indicate whether the oil company now was requiring permanent removal, or only temporary removal but presumably the removal would involve destruction of the concrete foundations.) The buyer sued the seller for damages based upon misrepresentation and fraud at the time of sale.

The trial court granted summary judgment for seller.

On appeal: held: Affirmed. The seller had not committed affirmative fraud, and the information withheld was available to the buyers through inspection of public records.

The court ruled that the statement that there were "44 approved spaces" referred to public zoning approvals, and was a correct statement. Although the information concerning the oil company's right to demand removal of the mobile homes certainly would have been useful information to buyers, the court ruled that such information was available to them, at least inferentially, had they read the easements of record.

The court acknowledged that constructive knowledge of record information is no defense to a claim of affirmative fraud in California, but noted that there were no affirmative misrepresentations here.

Comment 1: Note that the California statutory disclosure requirements do not apply to commercial property, such as that involved here.

Comment 2: Is it appropriate for the seller to hide behind the position that the representation that the park contained "44 approved spaces" related only to the public approvals? Very close call, in the editor's view. Ultimately, however, the editor agrees with the court, because to hold otherwise would have made this representation into a warranty that there were 44 spaces that were completely usable. It should be up to the buyer to make sufficient investigations to conclude that the property it purchases conforms to its needs.

Comment 3: The title report had only indicated that there was an easement for "ingress and egress," and the buyers claimed that they believed that this meant only that the oil company could drive across their property. Does a title company have a duty of care to make clear the exact terms of encumbrances it discloses? In the editor's view, the title company should have such duty unless it informs the recipient of the report that it can obtain actual copies of the encumbrance documents and that the company is not liable for discrepancies between its description of them and their actual contents.

Comment 4: In any event, this is one more reaffirmation of a lesson that the editor drills into his students obtain and read the exception documents. The corollary lesson is that both sides should recognize that the production and review of such documents may take some time, and the various time allowances in the title review section of a sale contract should reflect this reality.

The editor takes care in his contracts to make sure that the time to review and respond to title matters does not begin to run until all exception documents have been delivered. As a practical matter, if seller and title company are careless in providing such documents, such a provision often extends the time to raise objections to title until shortly before the closing long ater the seller would have thought that the time had run.

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