In the Matter of the Petition of Barry Walther for the removal of Easement Document No. 3785 from Lincoln County, MN Certificate of Title No. 1422.

In the Matter of the Petition of Barry Walther for the removal of Easement Document No. 3785 from Lincoln County, MN Certificate of Title No. 1422. A05-1113, Court of Appeals Unpublished, December 20, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-1113

 

In the Matter of the Petition of Barry Walther for the removal of

Easement Document No. 3785 from Lincoln County,

MN Certificate of Title No. 1422

 

Filed December 20, 2005

Affirmed

Stoneburner, Judge

 

Lincoln County District Court

File No. C30456

 

Arvid Wendland, Wendland Law Office, 825 East Second Street, Blue Earth, MN 56013 (for appellant Karen Hays)

 

Paul E. Stoneberg, Stoneberg, Giles & Stroup, P.A., 300 O'Connell Street, Marshall, MN 56258 (for respondent Barry Walther)

 

            Considered and decided by Klaphake, Presiding Judge; Stoneburner, Judge; and Wright, Judge.

U N P U B L I S H E D  O P I N I O N

 

STONEBURNER, Judge

 

In this action to remove memorialization of an easement from a certificate of title, appellant challenges the district court's order granting the relief requested, arguing that respondent had actual notice of the easement.  Because the easement was not memorialized on the certificate of title when respondent purchased the property and the record supports the district court's finding that respondent did not have actual knowledge that the easement existed, we affirm.

FACTS

 

            This case involves an action under Minn. Stat. § 508.71, subd. 2 (2004), to remove memorialization of an easement that the registrar of titles erroneously omitted from respondent's predecessor's certificate of title and later added to respondent's certificate of title.  The underlying facts are not in dispute, and the case was submitted to the district court on depositions, affidavits, and documentary exhibits. 

            In 1996, appellant Karen Hays sold part of a 400-acre parcel to Rachel and Larry Clausen, reserving an easement over the property she sold (the servient property) for ingress/egress to the land that she retained (the dominant property) and for maintenance of a drainage tile on the servient property.  This easement was created by a written document that Hays and the Clausens signed.  The document was registered in the county registrar's office as Easement No. 3785.  The easement was memorialized on the Clausens' certificate of title, and a similar notation was entered on Hays's residual certificate issued after the closing documents were registered.  When the Clausens later sold the servient property to Jerry and Joan Jagt, however, the county recorder, due to "human error" failed to memorialize the easement on the Jagts' certificate of title. 

            The Jagts owned the property for about a year but never lived on it.  The Jagts both testified in depositions that they were given a copy of the written easement agreement when they purchased the property.  They also testified that during the time they owned the property, they were aware that Hays, or Hays's tenants, who farmed the dominant property, were accessing the property based on easement rights.  When the Jagts sold the servient property to respondent Barry Walther, they did not disclose or show the copy of the easement to Walther or to anyone else involved in the sale.

            Walther and his girlfriend had possession of the servient property as renters for a short time prior to Walther's purchase of the property from the Jagts.  The district court found that although Walther was given walking tours of the land by Jerry Jagt and the Jagts' real-estate agent, neither Jagt nor the agent mentioned an easement during these tours.  This finding is supported by the agent's affidavit stating that he did not mention an easement because the Jagts had not informed him of an easement.  The finding is also not inconsistent with Jerry Jagt's deposition testimony that he could not recall if he mentioned an easement and Walther's testimony that neither man told him of an easement during the walking tour(s). 

            The district court also found that, shortly before Walther closed on the purchase of the servient property, Walther's girlfriend saw Hays's tenant drive a truck over the servient property.  She spoke with the tenant, who stated that he was allowed to do so because of an "agreement" between Hays and the previous owners.  The district court also found that around this time:

Mrs. Joan Jagt . . . had a telephone conversation with [Walther's girlfriend] . . . about the level of privacy the Jagts enjoyed . . . as it related to . . . Hays' tenants coming on to the [servient] property to access the [dominant] property.  Mrs. Jagt . . . assumed . . . Hays used the property for such a purpose because of some inquiries . . . Hays had made of her, in the past.  Mrs. Jagt could not recall[ ] . . . using the word ‘easement' or referring [the girlfriend] to any instrument that defined a memorialized agreement.

 

            The district court further found that, at the closing, Walther asked about an encumbrance on the property and his attorney advised him that any encumbrance not memorialized on the certificate of title was per se invalid because the land was registered.  The court also found that, at the closing, Jerry Jagt stated something about an "easement in favor of Karen Hays."  The court found that several people present at the closing, including the mortgage-company representative and the real-estate agent for the Jagts, stated that there was no further discussion at the closing about the mentioned "easement," such as what rights it granted or when or how it was created.

            Several months after the closing, Walther saw Hays's tenant using the servient property to access Hays's property and asked him to stop.  Shortly thereafter Walther received a call from Hays's land manager informing him that Walther's property was subject to an access easement.  Walther then spoke with the registrar of titles, who told him the easement had been registered and memorialized previously and stated her belief that it was her clerical error that led to the easement's omission from his predecessors' certificate of title.  The registrar of titles then memorialized the easement on Walther's certificate of title.

            Walther brought this action to remove the easement from his certificate of title.  The district court ruled in his favor, concluding that: 1) Hays had not demonstrated by a preponderance of the evidence that Walther had actual notice of the easement when he acquired the property and 2) Walther had no obligation to inquire beyond the face of his predecessors' certificate of title to discover the existence of the easement.  The district court ordered that memorialization of the easement be removed from Walther's certificate of title, and this appeal followed. 

D E C I S I O N

 

            The parties do not argue that any of the court's findings of underlying facts are clearly erroneous.  They dispute whether, under these facts, the district court erred by concluding that Walther did not have actual notice or knowledge of the existence of the easement despite its omission from the Jagts' certificate of title.  In a case involving issues of whether "actual and constructive notice" existed with regard to Torrens land, where the underlying facts were not in dispute, this court stated that it would give "no deference to the district court's legal conclusions."  In re Petition of Alchemedes/Brookwood Ltd. P'ship, 546 N.W.2d 41, 42 (Minn. App. 1996), review denied (Minn. June 7, 1996) (Alchemedes).    

Hays argues that the district court clearly erred in finding that she did not prove that Walther had "actual notice" of her easement prior to purchasing the servient land because the district court relied on distinguishable cases and applied an overly stringent standard as to what constitutes "actual notice."

The Torrens act provides that

[e]very person receiving a certificate of title pursuant to a decree of registration and every subsequent purchaser of registered land who receives a certificate of title in good faith and for a valuable consideration shall hold it free from all encumbrances and adverse claims, excepting only the estates, mortgages, liens, charges, and interests as may be noted in the last certificate of title in the office of the registrar . . . .

 

Minn. Stat. § 508.25 (2004).  This provision also enumerates seven specific interests in land that cannot be avoided by subsequent good-faith purchasers, even though not registered and noted on the certificate of title.  Id.  An easement is not among these exceptions.  "Under the Torrens system, a party holding a certificate of title for property generally holds title free of all encumbrances except those memorialized on the certificate."  Alchemedes, 546 N.W.2d at 42.  "This is to ensure that, [other than] the few statutory exceptions in Minn. Stat. § 508.25, a person dealing with registered property ‘need look no further than the certificate of title for any transactions that might affect the land.'" Id. (quoting Mill City Heating & Air Cond. v. Nelson, 351 N.W.2d 362, 364-65 (Minn. 1984)). 

            In addition to the exceptions listed in the statute, the supreme court has recognized that "actual notice" of an interest in registered land also creates an exception to the general rule that purchasers of registered land are not bound by any interest not listed on the certificate of title issued to their predecessor.  "The Torrens Act ‘abrogates the doctrine of constructive notice except as to matters noted on the certificate of title. . . .[I]t does not do away with the effect of actual notice, although it undoubtedly imposes the burden of proving such notice upon the one asserting it.'"  In re the Petition of Willmus, 568 N.W.2d 722, 725 (Minn. App. 1997) (Willmus) (quoting In re Juran, 178 Minn. 55, 60, 226 N.W. 201, 202 (1929)), review denied (Minn. Oct. 21, 1997).  "[T]he actual notice exception in Juran does not apply where notice is imputed by law, but rather requires that a party actually know the interest in the land exists."  Id. at 726 (rejecting the argument that mere registration of an instrument that affects title to registered land imputes actual notice).

            Appellant argues that two cases that the district court relied on, Comstock & Davis, Inc. v. G.D.S. & Assocs., 481 N.W.2d 82 (Minn. App. 1992),and Levine v. Bradley Real Estate Trust, 457 N.W.2d 237 (Minn. App. 1990), review denied (Minn. Aug. 7, 1990), are inapposite because they "relate to non-registered property and for purposes of this discussion are not applicable."  But the district court cited those cases for the proposition that "actual notice" requires "actual knowledge," a proposition that is clearly applicable to registered property as stated in Willmus.  568 N.W.2d at 726.  And this court has previously relied on Comstock for the requirement of "actual notice" when discussing Torrens property and the Juran case.  See Alchemedes, 546 N.W.2d at 42 (citing Comstock, 481 N.W.2d at 85, for the proposition that "actual notice requires knowledge of [an] enforceable agreement").  Comstock in turn relied on Levine for the proposition that "actual notice . . . requires conveying knowledge of a signed, enforceable agreement."  481 N.W.2d at 85.             

            Appellant also contends that the district court applied a stricter "actual notice" standard in this case than was applied in Juran.  In Juran, the supreme court held that, prior to his registration of a judgment lien on Torrens land, a claimant had "notice" of a conveyance that created adverse claims to the land based on the judgment-debtor's oral statement to the claimant's attorney that the judgment-debtor had sold the land five years earlier.  178 Minn. at 60-61, 226 N.W. at 202-03.  The court determined that the claimant's lien, which was registered after claimant's attorney received this notice, was subordinate to prior, unrecorded interests.  Id. at 60-61, 226 N.W. at 202-03. 

            Appellant argues that under the reasoning in Juran,Joan Jagt's conversation with Walther's live-in girlfriend about Hays's tenant using the driveway and the reference to an easement by Jerry Jagt at closing constituted sufficient notice to require Walther to inquire about the existence of an easement, and that the district court erred by limiting actual notice to either the instrument itself or an articulation of the rights the instrument encompassed such as uses permitted, location, or duration.  But an easement created by express grant generally requires a signed writing to be enforceable.  See Minn. Stat.         § 513.04 (2004); Berg v. Carlstrom, 347 N.W.2d 809, 812-13 (Minn. 1984) (statute of frauds applies to grants of easements).  And, under the Torrens system, interests in registered land such as an easement cannot be acquired by prescription.  Minn. Stat.         § 508.02 (2004). 

            Furthermore, the Torrens law explicitly requires that an interest in land less than an estate in fee simple (such as an easement) "shall be registered by filing with the registrar the instrument which creates, transfers, or claims the interest, and by brief memorandum or memorial of it made and signed by the registrar upon the certificate of title."  Minn. Stat. § 508.49 (2004).  In Alchemedes, this court reversed a district court's holding that a mortgagor's knowledge of unrecorded short-term leases constituted actual notice of unrecorded long-term leases, because leases of registered property for three years or more must be noted on the certificate under Minn. Stat. § 508.60 (1994), and the Torrens law provides that neither the reference in a registered instrument to an unregistered instrument or interest nor the joinder in a registered instrument by a party or parties with no registered interest constitutes notice of an unregistered interest under Minn. Stat. § 508.48 (1994).  Alchemedes, 546 N.W.2d at 42-43.  Alchemedes states that actual notice requires knowledge of an enforceable agreement.  Id.at 42 (citing Comstock,481 N.W.2d at 85).  In this case, no information was provided to Walther that an enforceable, registered easement existed.  The district court did not clearly err in finding that, in the absence of such knowledge, Walther lacked actual notice of the easement and did not have an obligation to look beyond the Jagts' certificate of title.

"The purpose of the Torrens system of land registration is to ensure that a person dealing with registered property ‘need look no further than the certificate of title for any transactions that might affect the land.'"  Willmus, 568 N.W.2d at 725 (quoting Mill City Heating & Air Cond. v. Nelson, 351 N.W.2d 362, 364-65 (Minn. 1984)).  Willmus involved, among other arguments, a claim that purchasers of allegedly servient land had actual knowledge of an easement because the easement was created in a registered-land survey that was noted on their certificate of title to the allegedly servient land.  568 N.W.2d at 724.  This court reasoned:

In Kane [v. State, 237 Minn. 261, 55 N.W.2d 333 (1952)], the supreme court analyzed facts and an argument similar to those here and ruled that the Torrens Act protects a good faith purchaser for value from those encumbrances mentioned in a descriptive document, but not explicitly noted on the certificate of title.  In Kane, a restrictive covenant was noted on a recorded plat and the certificate of title referred to the plat.  The supreme court determined that because the land was registered and, thus, governed by the Torrens Act, the subsequent good faith purchaser for value was not required to go to the plat to ascertain whether encumbrances were noted thereon.  Here, while [the registered-land survey] was mentioned on the certificate of title, the easement was not. Therefore, under Kane, the mere mention of [the registered-land survey] on the certificate of title did not "note" the easement on the certificate of title for purposes of the Torrens Act.  We conclude the trial court did not err by recognizing that no duty on the part of the [purchasers] existed to research [the registered-land survey] to discover the easement.

 

Id. at 725 (footnote and citations omitted).

Hays argues that "actual notice" is a common-law concept not expressly defined in the Torrens law and then suggests that the statements at the closing should have prompted Walther to make further inquiry into the existence of an easement.  Hays is correct that in cases involving nonregistered land, a doctrine of "implied notice" has been applied to hold that certain purchasers or claimants lacked good-faith purchaser status and therefore were not protected by the recording system, even if they did not have actual or constructive knowledge.  See Miller v. Hennen, 438 N.W.2d 366, 369 (Minn. 1989) (a "purchaser in good faith" is one who gives consideration without actual, implied, or constructive notice of any inconsistent, outstanding rights of others.)  A finding of implied notice is based on the person's actual knowledge of facts that should reasonably put them on further inquiry.  Id. at 370; Comstock, 481 N.W.2d at 85.  A person charged with implied notice is held to have "notice of all facts a reasonable inquiry would have disclosed."  Levine, 457 N.W.2d at 240 (a case involving non-Torrens property).

But, as discussed above, cases involving Torrens property require actual notice and specifically reject the concept of constructive or implied notice.  See In re Juran, 178 Minn. at 60, 226 N.W. at 202 (stating that the Torrens act "abrogates the doctrine of constructive notice except as to matters noted on the certificate of title").  The concept of "inquiry notice" does not apply to Torrens property.

Hays also argues that the district court erred by not granting her relief based on C.S. McCrossan, Inc. v. Builders Finance Co., 304 Minn. 538, 232 N.W.2d 15 (1975).  In McCrossan, a registrar failed to memorialize an existing mortgage on some new title certificates that were created when a certificate with the mortgage memorialized was canceled and split into multiple certificates.  Id.at 540, 232 N.W.2d at 17.  The mortgage was nonetheless given priority over a mechanics lien that was later memorialized on the certificates.  Id.at 544, 232 N.W.2d at 19.  McCrossan stated, "[t]o hold that the clerical error of failing to memorialize a registered and filed mortgage has the same effect as never having registered or filed at all would create an unwarranted burden upon the holder of a mortgage against registered land to continually inspect the state of his interest."  Id. at 543, 232 N.W.2d at 18-19.  Although McCrossan involved clerical error jeopardizing a properly registered interest, as does this case, the supreme court in McCrossan noted that its holding is "of strictly limited application."  The supreme court held that

a mortgage properly registered and memorialized under the Torrens Act . . . retains its priority over the instant mechanic's lien, where [omission of the memorial on a subsequent certificate of title] occurred subsequent to the furnishing of the first and last items of labor and materials by the lienholder, who did not rely on the record title in furnishing such labor prior to the date the omission occurred.

 

Id. at 544, 232 N.W.2d at 19.  McCrossan is therefore distinguishable from this case and does not support Hays's assertion that the district court erroneously ordered removal of the easement from Walther's certificate of title.  We are sympathetic to the fact that Hays, an innocent owner of the dominant property, will be deprived of a valuable property interest, but this harsh result is dictated by the Torrens law.

Affirmed.