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Recording Makes All The Difference

November 29, 2016

 

 Petersen Financial LLC v. Twin Creeks, LLC, which was decided by the Michigan Court of Appeals on November 22, 2016, underscores how important it is to record interests in land if they are to be enforceable. Twin Creeks Development, LLC owned a multi-parcel residential development located in Kent County. In 2002, Twin Creeks conveyed one of the lots in the development to a buyer, who in 2011 lost the property because of a tax lien. The plaintiff, Petersen Financial LLC, purchased the lot at the tax foreclosure sale. When Petersen Financial listed the property for sale, one of the other property owners in the development contacted the listing real estate agent and advised that the property was subject to a deed restriction that the defendant and others in the development intended to enforce it. The neighbors also told prospective buyers of the deed restriction, with the result that those buyers lost interest in purchasing the property. Petersen Financial sued the defendants alleging claims of slander of title, tortious interference with a business expectancy, and quiet title. The Kent County Circuit Court dismissed Petersen Financial’s slander of title and tortious interference claims, but ruled in its favor on the quiet title claim. Petersen Financial appealed the dismissal of the slander of title claim, and two of the defendants appealed the ruling on the quiet title claim.

 

On appeal, the Michigan Court of Appeals affirmed both trial court rulings. On the slander of title claim, the Court of Appeals agreed with the trial court’s conclusion that the neighbor’s act of telling Petersen Financial’s listing agent about the deed restriction could not support slander of title because it did not satisfy an element of the claim, i.e., publication to a third party. The Court of Appeals agreed that, in this context, telling the listing agent was the equivalent of telling Petersen Financial. The trial court and the Court of Appeals relied on Delval v. PPG Indus., Inc., a 1992 Indiana appellate court opinion, to reach this conclusion.

 

As for the quiet title claim, the Court of Appeals noted that the title history did not support a finding that Petersen Financial’s lot was encumbered by the deed restriction mainly because, as the trial court found, it was not recorded until 2006, four years after Twin Creek first conveyed the lot Petersen Financial acquired, and more importantly was not in the title history for that parcel. The trial court also rejected the defendants’ argument that the deed restrictions were enforceable negative restrictive easements because there was no proof that a common owner of conveyed other lots with the express restriction before the conveying the lot at issue.

 

On appeal, the defendants argued that the restrictions were enforceable because the lot’s prior owner had either acquiesced to the deed restriction or waived any right to object to its imposition, the doctrine of laches barred the quiet title claim, and, finally, that all owners had agreed to the deed restrictions.

 

The Court of Appeals rejected the acquiescence and waiver arguments because they involved actions by the prior owner that Petersen Financial would have had no basis to know of. It rejected the laches argument finding the three years that passed between the time Petersen Financial bought the property and filed suit was not an undue delay. Regarding the last argument, that all owners had agreed to the deed restrictions, the Court of Appeals again pointed to the lack of record evidence showing that a prior owner had imposed or agreed to the restrictions and that document had been filed in the chain of title for the property. In other words, for the deed restrictions, which were first executed in 2002, to have been effective either Twin Peaks or the prior owner should have recorded them in the chain of title for the property before it was purchased by Petersen Financial. The failure to do so meant that Petersen Financial was not subject to the same requirements that applied to other owners in the development, a significant win for its efforts to sell the lot.

 

While the recording and negative restrictive easement issues in this case are fairly clear, the Court of Appeals’ decision raises an interesting question about agency. Relying on the Delval case, the court concluded that the slander of title claim failed because the defendant made the statements to Petersen Financial’s real estate agent, who was acting on its behalf. Petersen Financial argued Delval contradicted an 1884 ruling of the Michigan Supreme in Bacon v Michigan C. R. Co. that a libel claim can be made out where the defendant publishes allegedly libelous statements to his own agent. The Petersen Financial court did not agree that Bacon applied, distinguishing between publication to the plaintiff’s agent and publication to the defendant’s agent. In the former, the court believed that the agent and the principal were one and the same. In the latter, however, the court left in place the potential that slander can be made out, apparently on the belief that the defendant’s agent is not the same as the defendant. The distinction here means, at least in some situations, that a plaintiff cannot sue for slander or libel if the defendant’s statements were made to the plaintiff’s agent, but not if those same statements were made to the defendant’s agent, who would then be a witness against his principal. A fairer result would seem to be to protect the principal-agent relationship in both instances or not at all. But as this issue was not decided in Petersen Financial, we will have to wait for the issue to see if the conflict is ever resolved.

 

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