Chapter 14 - § 14.2 • COVENANTS OF TITLE

JurisdictionColorado
§ 14.2 • COVENANTS OF TITLE

§ 14.2.1—In General

Covenants of title are provided for in C.R.S. § 38-30-113(2) as follows:

The words "warrant(s) the title" in a warranty deed . . . or in a mortgage . . . mean that the grantor covenants:
(a) That at the time of the making of such instrument he was lawfully seized [sic] of an indefeasible estate in fee simple in and to the property therein described and has good right and full power to convey the same;
(b) That the same was free and clear from all encumbrances, except as stated in the instrument; and
(c) That he warrants to the grantee and his heirs and assigns the quiet and peaceable possession of such property and will defend the title thereto against all persons who may lawfully claim the same.26

These covenants are binding upon a grantee and his or her heirs and personal representatives as fully as if written out at length in the instrument.27 The statute does not create implied covenants, and where there are express covenants in an instrument, other covenants will not be implied,28 except, in an appropriate case, the implied warranty of inhabitability.29

Thus, conveyance by general warranty deed is a promise from the grantor that, at the time of its execution, he or she was lawfully seised of the estate conveyed, that the estate was free from all encumbrances except as stated, and that the grantor warrants to the grantee the quiet and peaceful possession of the property and will defend against all persons who may lawfully claim title,30 and that he or she has the good right and full power to convey the same.31

Title covenants run with the land. C.R.S. § 38-30-121 provides, "Covenants of seisin, peaceable possession, freedom from encumbrances, and warranty contained in any conveyance of real estate, or any interest therein, shall run with the premises and inure to the benefit of all subsequent purchasers and encumbrancers."32

In Stone v. Rozich,33 the Colorado Supreme Court noted that whether this provision has the effect of changing the covenant of seisin from a covenant in praesenti to one in futuro, and if so, the effect of such change upon the time of the accrual of a cause of action, had never been directly determined. But subsequently, in Bernklau v. Stevens,34 the court stated that the purpose of this section is not to change the time of the accrual of the cause of action, but rather to extend the benefit of the covenants to subsequent purchasers and encumbrancers.35

Where land passes by subsequent conveyances through the hands of various covenantees, only the last covenantee, in whose possession the land is when the covenant is broken, can sue for its breach.36 But where a subsequent purchaser takes the property subject to a deed of trust given by a remote grantor, after the foreclosure of the deed of trust the subsequent purchaser cannot enforce the covenant against the remote grantor even though the subsequent purchaser succeeds to the interest of the purchaser at the foreclosure sale.37 A subsequent purchaser may enforce a covenant even though a quitclaim deed intervenes between the purchaser and the covenantor.38

Conveyance by special warranty deed covenants against defects in title that arise by, through, or under the actions of the grantor:

A deed executed according to the form in section 38-30-113 with the words "and warrant the title to the same" omitted therefrom shall have the same force and effect as a bargain and sale deed, without covenants of warranty, at common law and will pass the after-acquired title of the grantor; and the words "and warrant the title against all persons claiming under me" when included in such deed shall be a covenant that the grantor will warrant and defend the title to the grantee and his heirs and assigns against all persons claiming to hold title by, through, or under the grantor.39

Under a special warranty deed, the grantor is not liable for defects based on events that occurred while the property was in the hands of a prior holder.40

Limiting words following a series of title covenants have been held to apply to all covenants in the series.41

§ 14.2.2—Covenant of Seisin42

The covenant of seisin is regarded as a covenant of title as well as a covenant of possession.43 Therefore, it is not necessary for one claiming a breach of the covenant of seisin to prove an eviction.44 Possession by a third party that is not adverse does not constitute a breach of the covenant of seisin.45 The covenant of seisin is in praesenti, and is broken, if at all, when it is made46 by adverse possession, rightful or wrongful.47 Foreclosure of a purchase money mortgage is not a breach of the covenant of seisin.48

The measure of damages for the breach of a covenant of seisin is the value of the premises conveyed at the time of the sale, "to be estimated by the consideration money," together with interest to the time of trial; if title fails as to a part only of the premises, its proportional value is the measure.49

Breach of the covenant of seisin does not justify rescission unless there is fraud or, perhaps, insolvency of the grantor.50

§ 14.2.3—Covenant of Right to Convey

The covenant of right to convey is practically synonymous with the covenant of seisin.51 It is in praesenti, and is broken, if at all, when it is made.52

§ 14.2.4—Covenant Against Encumbrances

A covenant warranting that the property is free from encumbrances is an agreement to indemnify the purchaser from any loss to the value of the property due to an encumbrance's existence.53 A covenant against encumbrances is one in praesenti, and broken at the time of the execution of the deed if then there be an outstanding lien which the grantee is compelled to discharge.54

An encumbrance, within the meaning of the covenant, is a right or interest in the land which diminishes the value of, but is not inconsistent with the ability to convey, fee title. It includes any burden resting not only on the title, but also on the real estate itself which tends to lessen the value or interfere with its free enjoyment.55 An irrigating ditch is an encumbrance,56 as is a road,57 an unexpired lease,58 or a lien,59 including a tax lien,60 even though invalid.61 Although a grantee may take the property "subject to building and zoning regulations," an existing zoning violation is an encumbrance.62 An assessment which is a charge against property is an encumbrance, even though it is not yet payable.63 Environmental contamination is not an encumbrance.64 Lack of access is not an encumbrance.65

As a general rule, in an action for breach of warranty against encumbrances the knowledge of the encumbrance by the purchaser is not a defense.66 The very purpose of a covenant against encumbrances is to protect against defects in the title; to hold that the purchaser is protected only against unknown defects would rob the covenant of its value besides destroying its language.67 But this rule does not apply where the purchaser has taken the property subject to, and has agreed to remove, the encumbrance.68 It is only where the buyer demonstrates an intent to accept the encumbrance that it waives the right to claim a breach. This intent is most often found in the contract for sale or the deed, which may except an encumbrance from the covenant, but may also be demonstrated by the parties' conduct, such as where the existence of the encumbrance is factored into the purchase price.69

In the event of a breach of the covenant against encumbrances, where the purchaser has paid to remove an encumbrance or has the right to do so unilaterally, the proper measure of damages is the necessary reasonable expense to cure the defect (not exceeding the amount the purchaser paid for the covenantor for the property).70 But in the absence of such expense or the unilateral right to pay to extinguish the encumbrance, the measure of damages is the diminution in the property's fair market value caused by the encumbrance's existence (not to exceed the purchase price).71 Where the encumbrance at issue is a lease, the difference between the fair rental value and the rent under the lease, if any, may represent the diminution in the property's value where the lease is consistent with the highest and best use of the property. But where the existence of a lease precludes the development of the property for some more profitable use, this measure may not adequately compensate the buyer for the loss in value. In these cases, the loss in value will be the difference between the fair market value of the property with the encumbrance and the fair market value without it.72

Where there is no failure of title, the fee remaining in the grantee, but where the land or part thereof is subject to an easement that cannot be satisfied by the payment of money, the measure of damages is the difference in value of the land with and without the easement.73 A grantee who has not sustained, and because he or she has parted with title will not in the future sustain, damages from breach of a covenant against encumbrances cannot recover on the covenant.74

§ 14.2.5—Covenant of Warranty

The covenant of warranty, in an action for breach, is synonymous with the covenant of seisin.75 (Water rights may be...

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