Leach v. Gunnarson
1980 Ore. LEXIS 1150, 619 P.2d 263, 290 Or. 31 (1980)
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Rule of Law:
A grantor's covenant against encumbrances in a warranty deed is breached by any existing encumbrance not expressly excluded in the deed, regardless of whether the encumbrance is open, notorious, visible, or known to the grantee at the time of purchase.
Facts:
- Around 1954, defendant Wilma Leach and her husband owned a 20-acre parcel of land containing a spring.
- They sold an adjoining parcel to Henry and Betty Leach (the Leaches) and orally granted them the right to draw water from the spring on the 20-acre parcel.
- The Leaches constructed a concrete dam, installed a 370-gallon storage tank, and ran a 175-foot plastic pipe across the defendant's land to their own property.
- In May 1975, defendant and her husband sold the 20-acre parcel to plaintiffs Ove and Inga-Lill Gunnarson.
- Plaintiff Ove Gunnarson acknowledged he knew the Leaches were using the spring before the purchase.
- Defendant's husband assured Gunnarson that the Leaches had no legal right to use the spring.
- The warranty deed from the defendant to the plaintiffs covenanted that the property was "free and clear of all encumbrances" and did not mention the Leaches' license.
Procedural Posture:
- Henry and Betty Leach sued the plaintiffs, Ove and Inga-Lill Gunnarson, in the circuit court to establish their right to use the spring.
- The Gunnarsons filed a third-party complaint in the same action against their grantor, defendant Wilma Leach, for breach of the warranty against encumbrances.
- The circuit court first held a separate trial and decreed that the Leaches possessed an irrevocable license to use the spring.
- The court then held a jury trial on the Gunnarsons' third-party complaint against Wilma Leach.
- The jury found for the defendant, Wilma Leach, after being instructed that an open, notorious, and visible encumbrance is not a breach of warranty.
- The Gunnarsons, as appellants, appealed the resulting judgment to the Oregon Court of Appeals.
- The Court of Appeals affirmed the trial court's judgment in favor of Wilma Leach, the appellee.
- The Oregon Supreme Court granted the Gunnarsons' petition for review.
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Issue:
Does an irrevocable license to use a spring, which is an open, notorious, and visible physical encumbrance known to the grantee, constitute a breach of the grantor's covenant against encumbrances in a warranty deed that does not expressly exclude the license?
Opinions:
Majority - Howell, J.
Yes, an irrevocable license, even if open and known to the grantee, is a breach of the covenant against encumbrances if not expressly excluded in the deed. The court held that under Oregon statute ORS 93.850 and common law, a grantor who covenants against encumbrances must expressly list any exceptions in the deed itself. A grantee's knowledge of an encumbrance is irrelevant to the grantor's liability. The court distinguished this case from prior decisions like Ford v. White and Barnum v. Lockhart, which had carved out an exception for open and notorious physical encumbrances. The court narrowed that exception to apply only to major, permanent public servitudes like railroads and powerlines, holding that a private license to use a spring is not the type of palpable encumbrance that falls within that limited exception.
Concurring - Peterson, J.
Yes, but the majority's reasoning is problematic because it effectively overrules established Oregon precedent. Justice Peterson argued that cases like Ford and Barnum established a clear rule that a covenant against encumbrances is not breached by an open, notorious, and visible physical encumbrance, as the buyer is presumed to have factored it into the purchase price. He found the majority's attempt to distinguish this case unconvincing. He expressed concern that this holding could lead to unfair windfalls, where a grantee knowingly pays a reduced price for an encumbered property and then sues the grantor for damages based on that very encumbrance. He suggested that defenses like estoppel or reformation should still be available to grantors in such situations.
Analysis:
This decision significantly strengthens the protections for grantees under a warranty deed by reinforcing the primacy of the written covenants over parol evidence or the grantee's knowledge. It places a stringent duty on grantors to conduct thorough due diligence and expressly exclude all known encumbrances in the deed. The ruling narrows the 'open, notorious, and visible' exception, making it a much less reliable defense for sellers. The case serves as a clear warning to grantors that they cannot rely on a buyer's awareness of a physical condition to escape liability for a breach of the covenant against encumbrances.
