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Real Property

Developer acquired a large tract of undeveloped land, subdivided the tract into 10 lots, and advertised the lots for sale as “Secure, Gated Luxury Home Sites.” Developer then entered into a 10-year, written contract with Ace Security, Inc. (“ASI”) to provide security for the subdivision in return for an annual fee of $6,000. Developer sold the first lot to Cora and quickly sold the remaining nine. Developer had inserted the following clause in each deed: Purchaser(s) hereby covenant and agree on their own behalf and on behalf of their heirs, successors, and assigns to pay an annual fee of $600 for 10 years to Ace Security, Inc. for the maintenance of security within the subdivision. Developer promptly and properly recorded all 10 deeds. One year later, ASI assigned all its rights and obligations under the security contract with Developer to Modern Protection, Inc. (“MPI”), another security service. About the same time, Cora’s next-door neighbor, Seller, sold the property to Buyer. Seller’s deed to Buyer did not contain the above-quoted clause. Buyer steadfastly refuses to pay any fee to MPI. MPI threatens to suspend its security services to the entire subdivision unless it receives assurance that it will be paid the full $6,000 each year for the balance of the contract. Cora wants to ensure that she will not be required to pay more than $600 a year. On what theories might Cora reasonably sue Buyer for his refusal to pay the annual $600 fee to MPI, what defenses might Buyer reasonably assert, and what is the likely outcome on each of Cora’s theories and Buyer’s defenses? Discuss.


This answer provided by Emerson’s Tutorial Bar Review, 415-864-4122, www.emersonstutorialbarreview.com. Cora can reasonably sue Buyer based on theories of Contract, Quasi-Contract, Covenants and Implied Reciprocal Servitude. CONTRACT THEORY Cora’s cause of action against Buyer, if any, derives from her rights against Seller. To establish her contract rights against Seller, Cora would claim that the deed from Developer to Seller is also a contract between them. In this contract, Seller promised to pay $600 per year for 10 years. Developer promised to provide secure homes. Developer’s promise to provide secure homes is not written in the deed. It is in the advertisements, and perhaps oral statements of Developer. But this is not a serious problem. A contract can be partly written and partly oral. Statute of Frauds Defense: Buyer may contend that the contract between Developer and Seller is not enforceable because it violates the statute of frauds. It is a contract which cannot be performed within one year. It must be signed by Seller to be enforceable against Seller. Here, Seller’s promise is in writing, in the grant deed, but the grantee does not ordinarily sign the deed. Thus, Buyer may contend the contract was not enforceable against Seller, and therefore, Seller had no contract duties to delegate to Buyer. Reliance is an exception to the statute of frauds. Here, Seller adopted the contract, and induced the other nine members of the subdivision to rely on Seller’s promise to pay the $600 per year towards the cost of security. This defense would fail. Third-Party Beneficiary Contract: Cora is a third-party beneficiary of the Developer-Seller contract because a primary purpose of this contract was to provide a benefit (security) to Cora. The contract provides that it is “for the maintenance of security within the subdivision.” Cora was already a member of the subdivision when Seller made this contract with Developer. Therefore, a primary purpose of the contract was to benefit Cora. As a third-party beneficiary of this contract, Cora could have sued the promissor (Seller) for breach of contract. Thus, Cora could have enforced Seller’s promise to pay Modern Protection, Inc. (MPI) the $600 per year for 10 years, if Seller had been the breaching party. Delegation of Duties by Seller: However, Cora’s problem is with Buyer, not Seller. Seller sold her lot to Buyer, and it is Buyer who refuses to pay. Cora will have contract rights against Buyer only if Seller delegated the contract duty to pay the $600 per year to Buyer, and Buyer assumed the duty, and Buyer’s promise was supported by consideration. Seller’s Duty Was Not Delegated: Cora has the burden of proving that Seller delegated the duty to pay to Buyer, and that Buyer assumed these duties. Here, the facts do not show a delegation, nor an assumption of the duty to pay. Because of this, Cora will lose her breach of contract claim against Buyer. Delegation of Duties by ASI: Buyer might defend on the grounds that nothing is owed to MPI because the contract to provide security is not assignable from Ace Security, Inc. (ASI) to MPI. However, this defense will fail because a corporate obligation to provide security services is not so personal as to not be delegatable. QUASI-CONTRACT THEORY Cora could seek relief based on Q-K, which seeks to prevent unjust enrichment. It is unjust enrichment to knowingly keep benefits which were knowingly given with expectation of pay. Here, it is very unlikely that a purchaser of a unit in a small subdivision would not learn of the security arrangements. It was probably touted by the Seller as a selling point; and in any case it is referred to in the Developer-Seller deed, which Buyer most likely read when Buyer checked Seller’s Title. For the same reasons, Buyer also probably knew that other members of the subdivision were paying for security This is so because, for real property purposes, but not for contract purposes, Buyer is presumed to have read the other deeds from a common grantor (Developer). Thus, Buyer would be unjustly enriched if allowed to receive these benefits without paying. Cora would win this suit, and would be entitled to a judgment for any part of the $600 she paid to MPI. Cora should seek to recover for the remaining nine years at $600 per year in one law suit. Otherwise, there will be a multiplicity of suits, one for each year. The multiplicity of suits will not entitle Cora to specific performance, because the remedy at law is adequate since she can sue for the remaining nine years in one law suit. COVENANT THEORY Cora may claim that Seller’s promise to pay money, found in the deed from Developer to Seller, is a covenant. If this were true, Seller would be the covenator and Developer the covenatee. Cora would then contend that the burden imposed on Seller, to pay money, ran with the land to Buyer. Covenant Theory Will Fail: This argument will fail because Developer did not own Cora’s lot at the time Seller made the promise to Developer to pay $600 per year for 10 years. This is because Cora was the first person to purchase a lot from Developer. As a consequence, Cora’s land never received the benefit of Seller’s promise to Developer, and therefore Cora cannot enforce the promise. IMPLIED RECIPROCAL SERVITUDE THEORY Under this theory, Cora could assert that the conveyance from Developer to Cora contained two promises: one by Cora, and one by Developer. Cora’s Promise to Developer: Cora promised to pay money. Cora’s promise qualifies as a real covenant, enforceable in the law courts, because it is express, rather than implied, and is in writing, which satisfies the statute of frauds. However, Cora’s promise to pay is a burden on Cora. We are looking for a benefit to Cora, so Cora can sue. Developer’s Implied Promise to Cora: In the Developer-Cora conveyance, Developer impliedly promised that in reciprocation for Cora’s above-mentioned covenant to pay, it would covenant that its remaining nine lots would pay its part of the cost of security. This implied promise by Developer does not qualify as a real covenant because it is not in a writing signed by Developer, and also it is implied, not express. The implied promise is an equitable servitude, burdening all nine of Developer’s retained lots, if the burden touches and concerns the land. Where the burden on the land is an obligation to pay money, the burden is usually held to touch and concern the land if the burdened land is itself benefited by the obligation. Here, the obligation to pay money is for the benefit of the burdened land, because the burdened land receives security in exchange for payments. The court would probably hold that the obligation touches and concerns the land. Creating the Implied Reciprocal Servitude: These reciprocal promises of Developer and Cora are called implied reciprocal servitudes, even though Cora’s promise is actually not a servitude, but a real covenant, enforceable at law. Did the Burden of the Servitude Run: The particular lot, owned by Developer, which was later sold to Seller, became burdened with this servitude when Developer made the implied promise to pay for a part of the security. This implied promise was made by Developer to Cora, at the time Cora purchased her lot from Developer, and while Developer still owned the remaining nine lots, one of which Seller purchased at a later time. The key question is whether the burden of this obligation to pay money, imposed on this particular lot, ran with the land to Seller, when Developer conveyed this lot to Seller? Running From Developer to Seller: Intent: The covenator and covenatee, Developer and Cora, must have intended for the burden to run to successive assignees, etc. Here, they are presumed to have intended for the burden to run because the purpose of the covenant, to provide for security, cannot be achieved unless the burden runs to successive assignees. Touch and Concern: Yes, in most jurisdictions, as discussed above. Notice: Seller received notice of the burden because it is in Seller’s deed, and we shall assume Seller read her deed before accepting it. Privity: Not required for servitudes to run. Thus, the burden of the servitude to pay $600 per year for 10 years ran with the land from Developer to Seller. Therefore, Cora could have enforced the servitude against Seller because Cora had the benefit of the implied promise, and Seller had the burden. Running From Seller to Buyer: Seller then conveyed to Buyer. Seller’s burden ran with the land from Seller to Buyer, based on the identical analysis as the running from Developer to Seller, with the exception of the notice requirement. Buyer Had Notice: Buyer had record notice of the equitable servitude because Developer promptly recorded the deed from Developer to Seller. This deed is in Buyer’s chain of title. Buyer is presumed to have checked the record. Thus, Cora can sue Buyer for violation of this servitude Buyer’s Defenses to Covenant and Servitude Claims: Buyer will defend the real property claims on the grounds that Cora cannot prevail in the equity or law courts. If Cora wants money damages, she must sue in the law courts. But she cannot prevail in the law courts because the burden on Buyer’s land is not a covenant, only a servitude. If Cora sues in the equity courts to enforce the servitude, she is entitled to an injunction, but not money damages. Here, she does not wish to enjoin conduct. She wants money, up to $600 per year. Thus, Cora will not prevail on either of the real property theories. Cora’s Best Suit: Cora’s best chance for success is to sue on a quasi-contract theory, to prevent Buyer’s unjust enrichment.

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