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Wisconsin courts issue four real estate decisions

Roggensack

“The equities that drive the creation and the scope of an easement may vary, requiring the circuit court to weigh the burdens and benefits the easement would create.”

Hon. Patience D. Roggensack
Wisconsin Supreme Court

The Thanksgiving holiday may have resulted in a short final week of November, but the week nevertheless brought a cornucopia of decisions for real estate practitioners, with the Wisconsin Supreme Court deciding a real estate case, and the court of appeals deciding, and recommending for publication, three more.

Easement of Necessity

In the case of McCormick v. Schu-bring, the Wisconsin Supreme Court held that an easement of necessity does not arise as a matter of law, but through the exercise of a circuit court’s discretion, and that a property owner who stands in the shoes of a grantor who formerly had access to a public highway, but is now landlocked, may obtain such an easement.

At one time, Merritt Olk owned three contiguous 40-acre parcels of land in Langlade County. In 1946, the county took the easternmost parcel by tax deed, landlocking the remaining 80. A dirt road connected the landlocked parcels to a public highway.

In 1955, George Gresch purchased the eastern property from the county, and in 1983, sold it to Richard Schubring. Schubring did not realize that the property may be encumbered by an easement.

In 1996, R. Scott, Robert L., and Shane McCormick purchased the landlocked 80 acres. When Schubring decided the McCormicks could no longer use the road, they brought suit, seeking an easement of necessity.

Judge Robert A. Kennedy granted the easement, and after certification from the court of appeals, the Supreme Court affirmed in a unanimous decision by Justice Patience D. Roggensack. Justice Jon Wilcox did not participate.

The court acknowledged that some prior precedents suggest that an easement of necessity is created as a matter of law when there was common ownership at the time of severance creating the landlocked condition. However, other precedent suggests that creation of an easement is inherently equitable in nature.

Reconciling the decisions, the court held, “our decisions in regard to easements of necessity should not be read to imply that an easement of necessity always arises as a matter of law whenever the two required elements are proved because the equities that drive the creation and the scope of an easement may vary, requiring the circuit court to weigh the burdens and benefits the easement would create.”

As examples when easements may not be appropriate, notwithstanding that the elements have been met, the court noted a grantor who has participated in landlocking his own property. The court further noted, “a bona fide purchaser in the chain of title of a grantor who created a landlocked parcel may have a defense to an easement of necessity if he can show he had no knowledge or notice, actual or constructive, of either the way of access maintained across his property or the landlocked condition of the severed parcel.”

In this case, the court found that the traditional elements for an easement were met, and that the circuit court was within its discretion in granting an easement anyway. When the parcels were separated, Olk had owned both parcels; and the severance landlocked the McCormicks’ parcel.

Turning to other relevant factors favoring the grant of an easement, the court noted: (1) extremely limited use can be made of the landlocked property without an easement; (2) the land is wild, and used solely for hunting; (3) although the McCormicks stand in the shoes of a grantor, the creation of the landlock was due to Langlade County’s actions, not the voluntary act of the grantor; (4) since the seizure by the county, the owners have continuously used the dirt road for access; and (5) the McCormicks have improved the road, with Schubring’s consent.

Weighing against the grant of an easement were the following factors: (1) the McCormicks knew they had no legally enforceable right to use the road when they bought the property; (2) Schubring did not know of the road or an easement when he bought the land; (3) an easement may interfere with building on the Schubring property; and (4) Schubring’s property is less valuable with a legally enforceable easement across it.

Affirming the circuit court’s decision to grant an easement, the Supreme Court wrote, “because the McCormicks proved the elements preliminarily required for an easement of necessity
and the circuit court weighed the burdens and benefits to each party’s property from the proposed easement, we cannot conclude that it erroneously exercised its discretion in granting the easement.”

Bona Fide Purchasers

On Nov. 25, the day before the Supreme Court decision, the court of appeals issued a decision that also concerns easements, holding that an easement can be extinguished by the bona fide purchaser defense under sec. 706.09(1)(k).

In this case, there are four contiguous parcels that were once a single parcel. An easement was recorded in 1959 giving the eastern parcels an access over the western parcels.

The westernmost parcel was purchased in 1994 by Duane & Kathleen Turner. In 2000, they brought suit demanding a declaration of interest, eliminating the easement, citing sec. 706.09(1)(k), which provides that a purchaser for valuable consideration and without notice takes land free and clear of any interest not recorded in the prior 30 years.

The owners of the three eastern parcels (the Taylors and Lorkowskis) asserted sec. 893.33, the 40-year statute of limitations for commencing an action to enforce a recorded easement.

Rusk County Judge Norman L. Yackel ruled in favor of the defendants, but the court of appeals reversed in a decision by Judge Thomas Cane, holding that the 30-year defense and the 40-year statute of limitations can be reconciled, and the 30-year defense takes precedence in this case.

The court reasoned, “This is no different from other instances where the legislature establishes a time limit to commence an action but still permits the action to be subject to certain defenses. … The negligence statute of limitations, like the recorded easement statute of limitations, does nothing more than provide the time during which an action must be commenced. Once commenced, though, the action is not immune from defenses, and if defenses are raised and eventually carry the day, there simply is no conflict generated with the particular statute of limitations. Accordingly, Wis. Stat. sec. 893.33(6) remains unimpaired.”

Accordingly, the court reversed the lower court holding, which barred assertion of the bona fide purchaser defense, and remanded with instructions to determine whether the Turners in fact were bona fide purchasers, or whether they had notice of the easement before purchasing it.

Right of First Refusal

A third case decided last week also concerns the partition of a larger parcel into smaller ones.

Robert Ahrndt owned a 180-acre farm in Caledonia, and Wilber Lime Products, Inc., held a right of first refusal on 25 of the acres, as part of a mineral lease, effective until July 3, 2002. Ahrndt died in 1994, and his daughter, Renee, purchased the entire farm from the estate. Lime received no notice of the transaction.

After expiration of the right of first refusal, Lime discovered that Renee had purchased the property at a time the right was still in effect. Lime brought suit, and Trempealeau County Circuit Court Judge John Damon held that Lime was entitled to specific performance.

The court of appeals affirmed in a decision by Judge Gregory A. Peterson, and set forth the means by which price would be determined on remand.

Finding that the remedy for selling a large parcel of land, when there is a right of first refusal on a smaller portion within the parcel, is an issue of first impression in Wisconsin, the court looked to other jurisdictions for guidance.

The court found three approaches: (1) the holder of the right of first refusal is entitled to buy the land for a pro rata price determined by multiplying the ratio of the smaller portion to the entire portion, and the purchase price; (2) the sale of the larger parcel does not trigger the right of first refusal, but its holder can enjoin the sale; and (3) the holder of the right is entitled to buy the smaller portion, but at fair market value, determined by appraisal, rather than a simple pro rata formula.

The court of appeals adopted the third approach, holding as follows: “we recognize the possibility that the acres being sold are not all of equal value. We conclude that the most equitable resolution is to determine the fair market value of the twenty-five acres. This protects the landowner from being forced to sell the twenty-five acres at a price lower than its fair market value and therefore lower than the owner would accept if the twenty-five acres were sold alone. It also prevents Wilber Lime from receiving a windfall of being able to purchase the land at a price lower than its value. This approach best fulfills the intentions of parties when they entered into the agreement granting Wilber Lime the right of first refusal.”

Accordingly, the court affirmed, and remanded for determination of fair market value.

Release of All Claims

The final case decided by the court of appeals concerned misrepresentations in the sale of a residence. The seller sold a home, listing no relevant defects in the Condition Report.

After the buyers discovered defective electrical work that had been performed without a permit, they brought suit against the sellers. That claim was settled for $8,500, and the parties signed a document entitled “Release of All Claims.”

Later, an addition to the house, which had also been built without valid permits, broke away from the rest of the house, resulting in damage in excess of $100,000. The condition report stated that no additions had been built on the property.

The buyers again sued, and the sellers asserted the release as a defense. Ozaukee County Circuit Court Judge Thomas R. Wolfgram granted summary judgment in favor of the sellers, but the court of appeals reversed in a decision by Judge Neal P. Nettesheim.

The court acknowledged that portions of the release suggest the parties intended it to apply to all claims, known and unknown. For example, at one point the release states, “[buyer] hereby releases and forever discharges [sellers] of and from any and all claims … which [buyer] now has or may hereafter have against the [sellers] in any shape arising out of, under, on account of, with respect to, in connection with, or by reason of any matter, cause, thing, action or nonaction whatsoever, which has occurred or accrued prior to or on the date of execution of this Release, and which has any connection whatsoever to the sale of [the property] by the [sellers] to [buyers]…”

However, the same passage concludes with “and the claims set forth in the civil action in which [buyer] is the plaintiff and the [sellers] are defendants, now pending in Milwaukee County Circuit Court, Case No 91-CV-007371.”

Another passage that seemingly waives all possible claims the buyers could have against the sellers is also followed by limiting language that refers to claims “which are related to, or arise out of, the above-described litigation.”

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Case Analysis

The court further noted the disparity between the amount paid for the release ($8,500) and the damages claimed from the house breaking apart ($100,000), and noted that the sellers drafted the release, and ambiguities should be construed against them.

Therefore, the court held that the release is ambiguous on the question of whether the parties intended a global release or a release limited to the buyers’ claims in the prior litigation. Accordingly, the court reversed, and remanded for a trial on the issue of the parties’ intent.

The court also held that the evidence raises a material question of fact on the buyers’ claim of fraud. On the condition report, the sellers stated that they had never constructed any remodeling or additions that changed the original floor plan of the dwelling. However, they did make additions, and did so without obtaining building permits.

Finally, the court held that a material question of fact was present as to whether there was “fraud in the inducement” that would permit damages in tort, as well as contract, citing Digicorp, Inc., v. Ameritech Corp., 2003 WI 54, 262 Wis.2d 32, 662 N.W.2d 652.

Cases: McCormick v. Schubring, No. 02-1004; Turner v. Taylor, No. 03-0705; Wilber Lime Products, Inc. v. Ahrndt, No. 03-0838-FT; Gielow v. Napiorkowski, No. 03-0500.

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David Ziemer can be reached by email.

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