THE ORIGINS OF REAL COVENANTS: OLD LEGAL DOCTRINES DO NOT DIE THEY MERELY HIBERNATE

• Jurisdiction: United States

Midstream Oil & Gas from the Upstream Perspective
(Apr 2018)
CHAPTER 2A
THE ORIGINS OF REAL COVENANTS: OLD LEGAL DOCTRINES DO NOT DIE THEY MERELY HIBERNATE
Bruce M. Kramer
Maddox Professor of Law Emeritus
Texas Tech University School of Law
Thomson Visiting Professor of Law
Colorado University School of Law
Of Counsel
McGinnis Lochridge

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BRUCE M. KRAMER received his B.A. in International Relations from UCLA in 1968, his J.D. from the UCLA School of Law in 1972 and an LL.M. in Environmental and Natural Resources Law from the University of Illinois College of Law in 1975. From 1974 through his retirement at the end of 2006 he taught at the Texas Tech University School of Law. He is now the Maddox Professor of Law Emeritus. From 2007 through the present he is of counsel to the Texas-based law firm of McGinnis, Lochridge & Kilgore. He has taught at Colorado University School of Law since 2008 and is currently a Thomson Visiting Professor of Law. He is the co-author of several treatises including The Law of Pooling and Unitization, Williams & Meyers Oil and Gas Law (since 1996), Cases and Materials on Oil and Gas Law and International Petroleum Transactions. He is also the author of numerous law review articles in the field of oil and gas law. His works have been cited by numerous state and federal courts over the past 25 years. He is a honorary trustee of the Rocky Mountain Mineral Law Foundation, a member of the Executive Committee of the Institute for Energy Law of the Center for American and International Law and a trustee to the Energy and Mineral Law Foundation.

I. REALITY CHECK/DEFINITIONS

For the purposes of this paper when I refer to "real covenants" or "real covenant doctrine," I am referring to the body of law that has arisen that allows persons other than the original covenantee to enforce and imposes upon persons other than the original covenantor the duty or obligation to do or refrain from doing something. The covenantee is the party receiving the benefit of the covenant while the covenantor is the party being burdened by the covenant. More importantly, under real covenant doctrine, the benefited estate is the interest in land owned by the covenantee while the burdened estate is the interest in land owned by the covenantor. All covenants are personal in that they are created between two parties. But real covenants have this special quality which has been described as follows:

The covenants we here consider have the peculiar quality of "running" to persons who subsequently have certain connections with the same land or lands with which the covenantor or covenantee, or both were connected. . . . The covenantor's side is a duty to do or to refrain as promised. In the law of running covenants this is usually spoken of as the "burden" side. On the covenantee's side is the right to have this duty performed, usually spoken of in the law of running covenants as the "benefit" side. ¹

It is also important to note that the benefited and burdened estates can come under separate treatment for real covenant purposes.

When the Bankruptcy Court in the Southern District of New York applied a 500-year old doctrine that every law student who took a first-year Property course should know, some people reacted as if the world as we knew it had come to an end.² But only six weeks prior to this Special Institute, the United States Court of Appeals for the Tenth Circuit decided a case, in part, on the application of the doctrine of real covenants to an area of mutual interest agreement.³ Oil

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and gas law has always been inextricably intertwined with property law in general and real property law specifically. Thus, it should have come to no one's surprise that the real covenant doctrine would be relevant is resolving 21st century oil and gas disputes.

In fact, early oil and gas textwriters understood that real covenant doctrine was terribly relevant to oil and gas law matters. In one such treatise published in 1898, the author devotes several sections of the treatise to real covenant doctrine and its applicability to various types of oil and gas transactions, including the assignment of oil and gas leases.⁴ It is also not surprising that given the early judicial adoption of various implied covenants, that oil and gas treatise writers would be concerned about whether those implied covenants, or any express covenants were real or personal covenants that could bind, or be enforced, by parties other than the original covenantor and covenantee.⁵

It is widely accepted that the real covenant doctrine had its genesis in Spencer's Case.⁶ The facts of Spencer's Case are reasonably simple. Spencer leases some real property and in the lease the lessee covenants to build a wall for himself, "his executors and administrators."⁷ The lessee assigns the lease to the defendant, Clark. Clark refuses to build the wall. Queen's Bench, in a very short opinion sides with Clark and finds that the covenant to build a wall is not enforceable against the lessee's assignee. It is the dicta in Spencer's Case, however, that has lived on, while the court's reliance of the difference between promises in esse and not in esse have disappeared from the legal lexicon. The court first notes that if the lessee had promised to repair and existing wall than it would be enforceable against subsequent assignees, even if the word "assigns" was not included. Secondly the court said that a covenant will not run with the land if it is "merely collateral to the land and doth not touch or concern the thing demised in any sort."⁸ It is important to note that the notion of covenants "running" with the land probably was intended to mean "running" with estates in land, meaning the limited number of possessory estates that were recognized under the English common law. Furthermore, one cannot forget that at the time of the origin of the real covenant doctrine and for many years thereafter, most of the covenants involved the creation of leasehold estates and did not involve either covenants independent of a transaction involving the conveyance of an interest in real property or a

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transaction involving the conveyance of a fee simple absolute interest. Thus, it was the conclusion of a property scholar in 1950 that from Spencer's Case to modern times, real covenants were only enforced at law in leases and in no other transactions in England.⁹

One of the reasons why real covenants were not enforced at law in England was the development of an alternative legal theory or doctrine by which promises could be enforced by or against persons who did not make those promises. That theory was labeled equitable servitudes and was created in Tulk v. Moxhay.¹⁰ The facts in Tulk are simple. It involved a conveyance of a fee simple absolute whereby the grantee promised for himself, heirs and assigns to maintain a portion of the granted premises, Leicester Square as a garden for the benefit of the lots adjoining the Square. The grantee assigns the premises and the defendant expresses an intention to build homes in the Square. The defendant's deed does not contain the covenant but the defendant admits that he was aware of the original covenant. Clearly under real covenant doctrine, the promise is not enforceable as the Chancellor readily admitted since it was a fee simple absolute conveyance. Nonetheless, the Chancellor decided that while real covenant doctrine would not apply, that "an equity attached to the property" which would bind anyone who took with notice.¹¹

Because equitable servitudes are more easily enforceable by the covenantee or its successor in interest, equitable servitudes have largely replaced real covenants as the theory upon which such covenants are enforced.¹² But as we have seen in a raft of recent, and not so recent, cases, real covenant doctrine is still alive and well and operates in the oil and gas arena as a restraint on the potential enforceability of covenants contained in various oil and gas instruments.¹³

II. THE TRADITIONAL ELEMENTS OF REAL COVENANTS

Judge Clark some 75 years ago stated: "The essentials of a real covenant may be grouped under the following heads: (1) form, (2) intention of the parties, (3) nature of the promise (whether 'touching' or 'concerning' the land, (4) privity.¹⁴ In the sections that follow I will analyze each of the essential elements emphasizing the two that have created the most doctrinal difficulties, namely the touch and concern and privity requirements.

The following list is not meant to be exhaustive but points out cases in various

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jurisdictions that have followed this general approach to determine the validity of real covenants:

Federal: Net Realty Holding Trust v. Franconia Property, Inc., 544 F.Supp.759 (E.D. Va. 1982);

Arizona: City of Tucson v. Superior Court of Pima County, 116 Ariz. 322, 569 P.2d 264 (Ct. App. 1977);

California: Scaringe v. J.C.C. Enterprises, Inc., 205 Cal. App.3d 1536, 253 Cal. Rptr. 344 (1988);

Illinois: Streams Sports Club, Ltd. v. Richmond, 99 Ill.2d 182, 457 N.E.2d 1226 (1983);

Indiana: Rasp v. Hidden Valley Lake, Inc., 519 N.E.2d 153 (Ind. Ct. App. 1988);

Maryland: Mercantile-Safe Deposit & Trust Co. v. Baltimore, 308 Md. 627, 521 A.2d 734 (1987);

Massachusetts: Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 390 N.E.2d 243 (1979);

Michigan: Greenspan v. Rehberg, 56 Mich. App. 310, 224 N.W.2d 67 (1974);

New Hampshire: Traficante v. Pope, 115 N.H. 356, 341 A.2d 782 (1975);

New York: Eagle Enterprises, Inc. v. Gross, 39 N.Y.2d 505, 384 N.Y.S.2d 717, 349 N.E.2d 816 (1976);

North Carolina: Four Seasons Homeowners' Association v. Sellers, 62 N.C. App. 205, 302 S.E.2d 848 (1983);

Ohio: Peto v. Korach, 17 Ohio APp.2d 20, 244 N.E.2d 502 (1969);

Oregon: Ebbe v. Senior Estates Golf & Country Club, 61 Or. App. 398, 657 P.2d 696 (1983);

Texas: In wood North Homeowners Association, Inc. v. Harris, 736...