Court Opinion

ID: 9618705
Source: CourtListenerOpinion
Date Created: 2023-08-22 05:15:57.327221+00
Date Added: 2024-06-11T11:34:26.057747
License: Public Domain

PETERSON, J.,
specially concurring.
Looking at the law from the various states, it appears that there is a split of authority whether conditions which are visible, open and notorious constitute a breach of the covenant against encumbrances. Tiffany states:1
"* * * In some cases the fact that the grantee had notice, actual or constructive, of a highway upon the land, has been regarded as taking such incumbrance out of the operation of the covenant. In a few cases the fact that the existence of an incumbrance in favor of an individual was apparent upon an inspection of the land, and that consequently the grantee might be presumed to have known thereof, has been regarded as showing that it was not intended to be covered by the covenant, but these cases are exceptional. That the grantee’s knowledge of an existing incumbrance in no way relieves the grantor of liability under the covenant by reason thereof has been frequently decided, without any suggestion that such knowledge may be considered for the exclusive purpose of showing that the particular incumbrance was not intended to be covered by the covenant.”
According to 7 Thompson, Commentaries on the Modem Law of Real Property 283 (1962), the cases are divided "as to whether open and notorious easements *44are covered by the covenant against encumbrances.” Powell2 states:
"* * * A covenantee is not prevented from recovering by proof that he knew of the encumbrance when he accepted the deed; but, this statement must be qualified by excepting physical conditions of the land itself which were apparent on inspection and which are found to have been within the contemplation of the parties in agreeing on the purchase price.”
Maupin, in his book entitled Marketable Title to Real Estate, 3d ed (1921) states, at page 332:
"* * * In a recent well-considered case in Pennsylvania it was observed by the court that incumbrances are of two kinds, (1) Such as affect the title; and (2) Such as affect only the physical condition of the property. A mortgage or other lien is a fair illustration of the former; a public road or right of way of the latter. Where incumbrances of the former class exist, the covenant against incumbrances is broken the instant it is made, and it is of no importance that the grantee had notice of them when he took the title. Such incumbrances are usually of a temporary character and capable of removal; the very object of the covenant is to protect the vendee against them; hence, knowledge, actual or constructive, of their existence is no answer to an action for the breach of such a covenant. Where, however, there is a servitude imposed upon the land which is visible to the eye, and which affects not the title but the physical condition of the property, a different rule prevails. Thus it was held that where the owner had covenanted to convey certain lots free from all incumbrances, a public road which occupied a portion of the lots was not an incumbrance within the meaning of the covenant. This is not because of any right acquired by the public, but by reason of the fact that the road, although admittedly an incumbrance, and possibly an injury to the premises, was there when the purchaser bought, and he is presumed to have had knowledge of it. In such and similar cases there is the further presumption that if the incumbrance is really an injury, such injury was in the contemplation of the parties and that the price was regulated accordingly.
"The rule that a purchaser, with notice of an easement affecting the premises, cannot complain thereof as a *45breach of the covenant against incumbrances unquestionably applies where the easement is obviously an appurtenance or incident of the estate. * * *
* * * *
"It is suggested, with diffidence, that it is immaterial, so far as the mere question of damages is concerned, whether a highway or other easement of which the purchaser had notice, shall be considered a technical incumbrance. If he bought, knowing that the easement was there, it will be presumed that the price he agreed to pay was the value of the land after allowing for the loss, inconvenience or injury occasioned by the easement. On the other hand, if it appears that the easement is a benefit instead of a burden to the premises, there is no loss or injury to the grantee. In either case it would seem that he could recover only nominal damages for the breach. * * *”
Huyck v. Andrews, 113 NY 81, 89-90, 20 NE 581, (1889) states a contrary conclusion:
"In Memmert v. McKeen it was held that encumbrances are of two kinds — first, such as affect the title; and, second, such as affect only the physical condition of the property; that where encumbrances of the former class exist, the covenant is broken the instant it is made, and it is of no importance that the grantee had notice of them when he took the title; that where, however, there is a servitude imposed upon the land which is visible to the eye, and which affects, not the title, but the physical condition of the property, it is presumed that the grantee took the property in contemplation of such condition and with reference thereto. We do not yield assent to these authorities. They have no sanction in any of the cases decided in this state, and have no adequate foundation in principle or reason. They open to litigation, upon parol evidence in every action for the breach of the covenant against encumbrances caused by the existence of an easement, the question whether the grantee knew of its existence; and in every such case the protection of written covenants can be absolutely taken away by disputed oral evidence. We think the safer rule is to hold that the covenants in a deed protect the grantee against every adverse right, interest, or dominion over the land, and that he may rely upon them for his security. If open, visible and notorious easements are to be excepted from the operation of covenants, it should be the duty of the grantor to except them, and the burden should not be cast upon the grantee to show that he *46was not aware of them. The security of titles demands that a grant made without fraud or mutual mistake shall bind the grantor according to its written terms. It should not be incumbent upon the grantee to take special and particular covenants against visible and apparent defects in the title, or encumbrances upon the land; but it should be incumbent upon the grantor, if he does not intend to covenant against such defects and encumbrances, to except them from the operation of his covenants.”
The editors of the American Law of Property have also addressed this question. In III American Law of Property 136-137, § 11.49, the following statement appears:
"As a general rule, a contract to convey a fee simple title is not complied with where there exists an easement upon the land, if the full enjoyment of the premises is thereby precluded. But easements which are essential to the full and proper enjoyment of the premises cannot be objected to as an encumbrance. Where, moreover, the easement is of a visible, open and notorious character, the purchaser is presumed to have taken such easement into account and to have contracted to accept the title subject thereto. Of the various types of easements, private rights of way, railroad rights of way and easements of light and air will render the title unmarketable.”
The editors of the American Law of Property cite Ford v. White, 179 Or 490, 172 P2d 822 (1946), for the proposition that if the easement is open, visible, and notorious, the purchaser' is presumed to have taken such easement into account and to have contracted to accept the title subject thereto.
My examination of Ford v. White leads to the same conclusion. At page 495 of the opinion, this statement appears:
"A covenant to convey real property free from incumbrances is not breached by the existence upon the property of an open, notorious, and visible physical incumbrance, as it is presumed that, in fixing the pinchase price, the existence of the incumbrance was taken into consideration. Barnum v. Lockhart, 75 Or. 528, 146 P. 975; 17 Am. Jur., Easements, section 130; Anno., 41 A. L. R., 1446; 74 A. L. R., 1250. Nor does such incumbrance render the title unmerchantable. Hornbeck v. Smith, 87 Or. 78, 168 P. 633.”
*47It appears to me that the rule stated in Ford v. White has long been the law of Oregon. See Hornbeck v. Smith, 87 Or 78, 83, 168 P 633, 168 P 419 (1917); Wetherby v. Griswold, 75 Or 468, 475, 147 P 388 (1915); Barnum v. Lockhart, 75 Or 528, 540, 146 P 975 (1915); Lombard v. Kies, 79 Or 355, 362, 154 P 757 (1916). In my opinion, the Oregon cases discussed above compel the conclusion that, until now, a covenant to convey real property free from encumbrances is not breached by the existence upon the property of an open, notorious and visible physical condition.
I cannot square the holding of the majority opinion (at page 40) with the holdings in Ford and Barnum. The majority states:
"* * * Our prior decisions, however, clearly state that a grantor’s covenant against encumbrances in a warranty deed protects the grantee against all encumbrances existing at the time of the delivery of the deed even if the grantee knew about the encumbrance. Western Grain Co. v. Beaver Land-Stock Co., supra 120 Or at 683; Estep v. Bailey, supra 94 Or at 65; Corbett v. Wrenn, 25 Or at 311. See also Powell, supra at ¶ 907; Tiffany, supra at 272, § 1008. In some jurisdictions, however, a different rule applies with respect to encumbrances that affect the physical condition of the real property and that are open, notorious and visible. * * *”
It seems clear that, in Oregon, a different rule has prevailed "with respect to encumbrances that affect the physical condition of the real property and that are open, notorious and visible.” The majority opinion overrules the Oregon cases cited above.
The majority distinguishes Barnum and Ford, saying (at 42):
"It is unnecessary for us to decide whether the decisions in Barnum and Ford are correct today, especially in light of ORS 93.850, because we hold that the Leaches’ use of the spring on plaintiffs’ property is not the type of encumbrance to which the Barnum and Ford decisions apply.”
I am not sure what is meant by the phrase "the Leaches’ use of the spring on plaintiffs’ property is not the type of encumbrance to which the Barnum and Ford decisions apply.” Unquestionably, there is a factual difference *48between the condition involved in this case and the conditions involved in Barnum and Ford, but I am not convinced that the difference is other than one of degree. I am not convinced that the difference is such that we can depart from the rule adopted in the cases cited above without overruling them.
The majority also concludes, however, that the trial court properly denied the plaintiffs’ motion for directed verdict, on the theory that if the jury found that plaintiffs had sustained no damages, the jury should find for the defendant.3 Perhaps my difference with the majority is more apparent than real, but a final word of protestation is in order. As I read the majority opinion, if the parties agreed upon a reduced sales price in contemplation of the physical condition which is now claimed to constitute an encumbrance — that is, that the very condition at issue was within the consideration of the parties in agreeing on the purchase price — then there would be no difference between the agreed-upon sales price and the market value of the property. If the proper measure of damages is the difference between the sales price and the fair market value of the property, with the condition, no unfairness would result, for the difference would be zero. However, an extremely unfair result may ensue, depending upon the measure of damages which applies. For example, the trial court, in the case at bar, instructed the jury:
"* * * The measure of damages is to be — if you reach that point, is to be determined by you as follows:
"If you find that Defendant has breached the covenant contained in the warranty deed wherein Defendant *49conveyed real property free from encumbrances, then you are to award to Plaintiffs the amount of money that is equal to the difference between the fair market value which that real property would have had if it had not been encumbered with the irrevocable licenses and the fair market value of the real property with such encumbrances.”
Under that instruction, the jury might award grantee windfall damages. Let me illustrate. Suppose that the fair market value of the subject property, without the dam, storage tank and pipeline, was $100,000 and that the fair market value of the property, subject to these conditions, was $90,000. Suppose that the parties agreed to a sales price of $90,000 because of the existence of the condition. The majority holds (at 42) that it is no defense "that [grantee] knew of the [grantor’s] irrevocable license.” Under the instruction, the grantee would receive $10,000 in damages, even if the grantee knew of the condition and the purchase price was reduced by $10,000 because of the condition.
No issue concerning the proper measure of damages is before this court. If, however, the trial court’s instruction to the jury is correct, and if the parties to the contract agreed on a reduced purchase price in light of the condition upon the land, it is patently unfair to permit the grantee to recover damages from the grantor, simply because the grantor neglected to convey subject to the condition.4
As I read the majority opinion, the grantor’s remedy of reformation, if it can be established, would still be available. Nor does the majority opinion appear to foreclose a defense in the nature of estoppel against the grantee, under which a grantor could assert that the encumbrance was known to the grantee, the purchase price was based in part upon the existence of encumbrance and that the grantee is thus estopped to claim that any damages were sustained by reason of the encumbrance.
*50Another point remains, and that is the effect of ORS 93.850 upon this case. What is now 93.850 was enacted by the Oregon Legislature in 1973, as section 1 of chapter 194, Oregon Laws 1973. An examination of the Oregon State Bar Committee Reports for 1972 reveals that this legislation was recommended by the Real Property Committee of the Oregon State Bar. On page 226 of the 1972 Oregon State Bar Committee Reports, these statements appear:
"At the present time Oregon has no statutory form of deed. The Committee concluded that the present state of the law was inadequate in that the archaic language in the printed forms generally available is confusing. Other arguments advanced were: (a) the language would be briefer and more understandable, especially to the public in general; (b) it would encourage the use of simpler forms which many lawyers and others are reluctant to use; (c) a codification of the existing law with respect to the various forms of most deeds would remove any uncertainty the parties might now face as to the effectiveness of the form selected; (d) the statute would provide a reference and explanation of the differences among the different forms of deeds.
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"The proposed legislation would add a set of statutory forms to the existing forms of deed and would provide an alternative means of conveyance by reference to a statutory form. Statutory deed forms are intended to be more meaningful to the lay public, but would not invalidate any of the existing forms of conveyance. With respect to quitclaim deeds, the legislation is intended to permit one who takes by a quitclaim deed to attain the status of a good faith purchaser for value.
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I confess to some difficulty in explaining the meaning of the straightforward words in ORS 93.850(2)(b) that "the grantor * * * shall be forever estopped from asserting that the grantor had, at the date of the deed, an estate or interest in the land less than that * * * which the deed purported to convey. * * *” An analysis of the Committee Reports reveals no intent that the rules set forth in the cases discussed above would, in any way, be changed. Moreover, it seems to me that the very distinction made by Maupin between encumbrances (1) which affect the title and (2) which affect the physical condition of the *51property are clearly reflected in the previous decisions of our court which are cited above. In effect, such conditions do not constitute an encumbrance within the meaning of the covenant. I confess that this explanation is not entirely satisfactory, but in view of the holdings in Barnum and Ford, that conclusion seems to be compelled.
In Barnum v. Lockhart, supra, Justice McBride stated (75 Or at 541):
"* * * Without reference to authority it seems reasonable that where the existence of so palpable a physical easement as a railroad is urged as an objection to the title, the burden of pleading and proof should be upon the purchaser to show that he was in fact ignorant of its existence. * * *”
I favor a rule that a grantee may not recover for breach of an encumbrance which arises from an open, notorious and visible condition on the land if (1) the grantee knew of the condition when the deed was delivered, and (2) the condition was within the contemplation of the parties in fixing the purchase price. Contrary to the suggestion of Justice McBride, I would impose the burden of pleading and proving that the purchaser had such knowledge upon the grantor.

 4 Tiffany, The Law of Real Property 272, § 1008.

 6A Powell, Law of Real Property 81-129, § 898.

 The majority holds:
"Plaintiffs contend that the trial court erred in not granting their motion for directed verdict. They argue that, because the Ford and Bamum decisions do not apply to this case, the only issue properly presented for resolution by the jury was the amount of damages to be awarded. We disagree. In an action for damages for breach of a warranty against encumbrances, an issue is whether or not the encumbrance diminished the value of the land. As previously mentioned, defendant properly raised the issue for the jury as to whether the Leaches’ irrevocable license resulted in a diminution of the value of the land and thereby constituted an encumbrance. The trial court instructed the jury that if they found the plaintiff had not sustained any damages they should find for defendant. The trial court therefore properly denied plaintiffs’ motion for directed verdict.”

 On the question of the measure of damages for breach of the covenant against encumbrances, see Western Grain Co. v. Beaver Land-Stock Co., 120 Or 678, 230 P 103, 253 P 539 (1927); Winn v. Taylor, 98 Or 556, 190 P 342, 194 P 857 (1921); and Corbett v. Wren, 25 Or 305, 35 P 658 (1894). None of these cases involve a situation in which the outstanding encumbrance arises from a condition upon the land. See also, 4 Tiffany, The Law of Real Property 303, § 1018, and 7 Thompson, Real Property 326, § 3188.