Gates Rubber Co. v. Ulman

Brief Fact Summary.

Plaintiff leased the property in question from Louis Lesser Enterprises, Inc.  for 20 years with an option to purchase the property during the twentieth year of the lease.  When Plaintiff chose to exercise his option, Defendant, administrator and executor of Charles Ulman’s estate, the current owner, refused to convey the property because there was no evidence that Charles was ever aware of the purchase option when he purchased the property in 1969. Plaintiff sued Defendant to seek specific performance of the option, declaratory relief, and damages. The trial court ruled in favor of Defendant, holding that Plaintiff’s possession of the property, while open, notorious, and exclusive, was insufficient to impose on Charles a duty of inquiry because Plaintiff’s possession was wholly consistent with the recorded title and lease. Plaintiff appealed.

Synopsis of Rule of Law.

A tenant’s possession of property that is open, notorious, exclusive, and not consistent with the record title imposes upon prospective purchasers a duty to investigate any unrecorded rights of the tenant.

Facts.

In 1963, Gates Rubber Co. (Plaintiff) leased the property in question from Louis Lesser Enterprises, Inc. (Lesser) for 20 years. The unrecorded lease contained four successive options to extend the terms for five years each an option to purchase the property during the twentieth year of the lease. Plaintiff and Gates did record a short-form lease, which stated the basic terms of the agreement and referenced the long-form lease, stating that it was the sole agreement of the lease between the parties. However, it did not mention the purchase option. The lease required Lesser to build an office and warehouse building on Plaintiff’s behalf. In 1969, Charles Ulman took present ownership of the property through a series of conveyances starting from Lesser. None of these deeds referred to the option agreement. In 1983, Plaintiff exercised its option to purchase, but Harry Ulman (Defendant), administrator and executor of Charles Ulman’s estate, refused to convey the property because there was no evidence that Charles was ever aware of the purchase option when he purchased the property in 1969.

Issue.

Whether a tenant’s possession of property imposes upon prospective purchasers a duty to investigate any unrecorded rights of the tenant only if such possession is open, notorious, exclusive, and not consistent with the record title.

Held.

Yes. The trial court’s ruling is affirmed. A tenant’s possession of property that is open, notorious, exclusive, and not consistent with the record title imposes upon prospective purchasers a duty to investigate any unrecorded rights of the tenant.

Discussion.

The recording of an instrument imputes upon prospective purchasers knowledge of its contents and of any unrecorded documents referred therein. Therefore, if a tenant’s possession is consistent with a recorded lease and that lease does not refer to an additional, unrecorded right of the tenant, and there are no circumstances indicating that the tenant has additional rights, the purchaser does not have a duty to inquire of the tenant regarding those additional rights. However, a prior interest may be implied from mere possession of the property. Here, there was nothing about Lesser’s or his successors’ possession that was inconsistent with their rights as a lessee. Neither the recorded short-form lease nor the long-form lease mentioned Plaintiff’s purchase option. Even if Defendant had inquired about Plaintiff’s rights under the unrecorded long-form lease, it would not have given him notice of the purchase option.