Section Review

Dalessio v. Baggia and the status of the estoppel by deed doctrine in Massachusetts

Murray
Michael Murray is an associate with Goodwin Procter LLP in Boston, where he focuses on products liability and land use and zoning litigation
Introduction

Many of us learned about the doctrine of estoppel by deed in law school, but have given it little thought since then. Some may have given the doctrine more consideration since the Appeals Court decision in Zayka v. Giambro, 32 Mass. App. Ct. 748 (1992), which applied the doctrine to a quitclaim deed where the only affected parties were all family members.

The doctrine, which has its roots in equity, seems reasonable enough: where a grantor deeds property he does not own and subsequently obtains title to the property, he and those taking under him are estopped from claiming title against the grantee and those taking under him. The effect of the estoppel is to vest the grantee, his heirs and assigns with the property interests that the grantor had purported to convey in the first place. But this basic equitable principle has the potential for working an injustice - and challenging the integrity of the recording system - where innocent third-party purchasers become involved. More than a century ago, in Ayer v. Philadelphia & Boston Face Brick Co., 159 Mass. 84 (1893), the Supreme Judicial Court purported to apply the doctrine to defeat the interest of a good-faith purchaser who lacked notice of the estoppel deed (a general warranty deed). In doing so, Justice Holmes, speaking for the SJC, lamented that the doctrine was a "bad rule," but stated that it "had been too long established and acted on in Massachusetts to be changed, except by legislation." Id. at 88.

By purporting to apply the doctrine against a good-faith purchaser, Ayer placed Massachusetts in the minority of jurisdictions. However, the estoppel by deed doctrine was construed by most practitioners to apply only to general warranty deeds, and nothing in the case law disabused them of this notion. Because the vast majority of deeds in the commonwealth have been quitclaim deeds, the potential impact of the estoppel by deed doctrine was minimized, and the doctrine amounted to little more than a legal oddity that was largely confined to law school discussions and treatment in scholarly articles.

Zayka placed the estoppel by deed doctrine back on the radar screen in the early 1990s. In Zayka, the Appeals Court applied the doctrine to a quitclaim deed, albeit in a unique set of factual circumstances. Zayka nonetheless raised some red flags in the minds of the cautious, and left some practitioners wondering what, if anything, they could do to protect their clients from its potentially adverse effects.

Dalessio v. Baggia, 783 N.E.2d 890 (Mass. App. Ct. 2003), does not fully answer all of the questions that a prudent practitioner may ask about the doctrine. It does, however, strongly suggest that the doctrine will not be applied to divest a good-faith purchaser, who lacks actual or constructive notice of the purported estoppel deed, of his property interests. Dalessio also substantially bolsters the integrity of the recording system by reaffirming that purchasers may rely on properly conducted title examinations.

A quick legal history of the estoppel by deed doctrine in the commonwealth

The doctrine of estoppel by deed in Massachusetts has its roots in the 19th century, where a handful of cases applied it. While most of those cases involved general warranty deeds, one of them - Whitman, Petitioner, reported in Charles T. Davis, Massachusetts Land Court Decisions 9 (1899) and decided more than a century ago - involved a quitclaim deed. In that case, however, no good-faith purchaser ever entered the chain of title. There is no direct legal authority in those early cases for the proposition that the estoppel by deed doctrine may apply to a quitclaim deed so as to divest the interests of a good faith purchaser. Indeed, at least one commentator has argued that, notwithstanding the language in Ayer, there is no direct Massachusetts authority for the proposition that the estoppel by deed doctrine may apply - even to a general warranty deed - to divest the interests of good-faith purchasers. See Stanley M. Johanson, "Estoppel by Deed and the Recording System: The 'Ayer Rule' Reexamined," 43 B.U.L. Rev. 441 (1963).

For the most part, commentators and practicing lawyers assumed the estoppel by deed doctrine, where it applied at all, applied only to general warranty deeds, and that the doctrine certainly did not apply to good-faith purchasers who failed to uncover a purported estoppel quitclaim deed upon the performance of a standard title examination. Substantial support for the latter position is found in Morse v. Curtis, 140 Mass. 112, 115 (1885), which states that "if a purchaser, upon examining the registry, finds a conveyance from the owner of the land to his grantor, which gives him a perfect record title . . . he is entitled to rely upon such record title, and is not obliged to search the record afterwards."

In short, the estoppel by deed doctrine, while having the potential to wreak havoc with the recording system, took a long, Rip Van Winkle-like nap throughout most of the 20th century in Massachusetts, thanks in large part to the general understanding that the doctrine applied only to general warranty deeds and the fact that most deeds in the commonwealth followed the quitclaim form.

Zayka, however, nudged - if it did not awaken - the sleeping ogre. The estopped grantor in Zayka ("Senior," who was the father of all relevant parties) had conveyed the locus at issue to his wife in 1942. Senior's wife died intestate in 1962, leaving him with an undivided one-third interest in the property and each of his 11 children with a 2/33 undivided interest. In May 1968, forgetting that he had transferred the property to his wife and thinking he had a complete ownership interest in it, Senior transferred part of it to one of his sons, Junior. From that point forward, Junior occupied the property and made several improvements on it. In July 1968, during the administration of the estate of Senior's wife, the children learned of their mother's interest and conveyed to Senior the interest that they had received through intestacy. Senior then conveyed the remainder of the property to Junior. Senior passed away in 1983, and one of Junior's sisters (who had earlier assigned her property interests to the father), claimed an interest in the property through intestacy.

The court held that the estoppel by deed doctrine applied, and that it precluded Senior's daughter from contesting the property interest of those taking under Senior. No third party was involved in the case. No non-family member was involved in the case. The integrity of the recording system was not challenged in any way by the holding. Indeed, the Appeals Court went out of its way to express concern with the impact that the estoppel by deed doctrine could have on the recording system, noting that "[g]enerally . . . application of the doctrine of estoppel by deed is limited to warranty deeds" and that the authorities, including the Massachusetts Conveyancers' Handbook, "reflect unease about extending estoppel to other than warranty deeds." Id. at 752. The court explained that the reason for this is "[p]ossibly because of some nervousness about the Herculean labor which would be involved in running back grantors in a registry of deeds search to see if they had made a conveyance before acquiring title of record." Id. at 750. And, the Appeals Court took pains to note that while application of the doctrine "is particularly compelling where . . . the claim against the title is made by someone who bases her claim on direct descent by blood from the grantor[,] . . . [t]he case might stand differently had there been an intervening bona fide purchaser who had no notice of the purported conveyance of the locus." Id. at 753.

Zayka, therefore, could be read as applying garden-variety estoppel principles, and not effectuating a sea change in the estoppel by deed doctrine - i.e., Senior's daughter, who had earlier conveyed whatever interests she had in the property to help effectuate Senior's wishes, should not be permitted to take a contrary position thereafter, particularly where Senior's intent was so clear and all impacted people were family members. Nonetheless, because Zayka purported to apply the estoppel by deed doctrine to a quitclaim deed, it begs the question as to whether Zayka is confined to its unique and likely unrepeatable facts, or whether it instead signaled the Appeals Court's receptivity to extending the doctrine beyond its prior confines. The Dalessio decision helps answer this question.

The Dalessio facts

In Dalessio, Honey Trust, a mortgagee, traced its chain of title to a quitclaim deed, dated Nov. 21, 1980, ("first deed"), from Edward J. Baggia, trustee of Baggia Development Realty Trust ("BDR Trust"), to Edward J. Baggia and Maureen B. Baggia as tenants by the entirety. That deed was properly recorded. The first deed conveys "Lot H," which was shown on the plan referenced therein.

Dalessio traced her chain of title to a subsequent quitclaim deed ("second deed" and "out-of-chain deed"), which was executed on or about June 4, 1981. In the second deed, Edward Baggia, in his capacity as trustee of BDR Trust, purported to grant "Lot I" ("locus") to a person whose name has been blacked out from the deed and substituted with the name Patricia LaVoie. The locus was one part of Lot H. At the time of this purported conveyance, a standard title examination would have revealed that Baggia, as trustee, had no interest in the locus to convey as trustee of BDR Trust, because he had conveyed that interest to himself and his wife as tenants by the entirety via the first deed.

By quitclaim deed dated Dec. 2, 1985, which was properly recorded, Edward J. Baggia and Maureen B. Baggia conveyed Lot H to Edward J. Baggia, as trustee of the BDR Trust. The principal amount secured by the Honey Trust mortgages on the locus aggregated $450,000, and the full amount of such principal was outstanding and unpaid.

Beginning with an instrument executed and recorded on Dec. 4, 1985, Edward J. Baggia, as trustee of BDR Trust, conveyed several mortgages to Honey Trust on Lot H. At the time that these mortgages were conveyed, Honey Trust had its attorneys conduct title examinations, but did not learn of the out-of-chain deed.

At the time Honey Trust conducted its title examinations, a standard title search would have revealed (and did reveal) the following chain of title for the locus:

•  11/21/80E. Baggia, as trustee of BDR, to E. and M. Baggia, as tenants by the entirety

•  12/2/85E. and M. Baggia, to E. Baggia, as trustee of BDR trust.

A standard title search would not have revealed (and did not reveal) the out-of-chain deed.

On or about Sept. 6, 1986, Ms. LaVoie (whose name had been written into the out-of-chain deed) purported to convey the locus, by quitclaim deed, to Kenneth J. Crosby, as trustee of the R.R. Realty Trust. That deed was recorded. By deed dated Aug. 30, 1988, which was recorded, Kenneth Crosby, as trustee of the R.R. Realty Trust, purported to convey the locus to Dalessio. At the time of this purported conveyance, a standard title examination would have uncovered (1) the second deed and the first deed; and (2) four of the seven mortgages that Honey Trust had on the locus.

In 1998, Dalessio filed a complaint for declaratory relief, seeking, inter alia, an order invalidating the mortgages that Honey Trust held on the locus. The parties cross-moved for summary judgment. Prior to a decision on the summary judgment motions, Dalessio filed with the Land Court a "confirmatory deed" dated Sept. 7, 1999, in which Lilla Morris, devisee under the will of Paul M. Morris (whose name had been blacked out from the second deed), purported to convey her interest in the locus to Dalessio.

The Land Court found in Honey Trust's favor, granting Honey Trust's motion for summary judgment and denying plaintiff's motion. The Land Court ruled that the estoppel by deed doctrine did not apply to the out-of-chain deed in a manner that would divest Honey Trust of its mortgage interests because, among other things, Dalessio had constructive notice of the first deed, Honey Trust lacked actual or constructive notice of the out-of-chain deed and Honey Trust had otherwise acted as a good-faith purchaser for value in obtaining its mortgages with respect to the locus.

After the Land Court entered judgment, Dalessio filed a motion for relief from judgment arguing, among other things, that Title Standard 18 of the Massachusetts Conveyancers Association required Honey Trust to check the grantor index for conveyances made from the grantor for up to four years after the conveyance to which Honey Trust traced its interests. Dalessio contended that if Honey Trust had performed such a search, it would have learned about the purported estoppel deed. The Land Court denied plaintiff's motion, and the appeal followed.

The Appeals Court decision in Dalessio

In Dalessio, the Appeals Court held as follows:

We affirm, agreeing with the judge that the doctrine of estoppel by deed should not be applied to a quitclaim deed to defeat the interests of a bona fide mortgagee for value who followed good conveyancing standards.

Dalessio, 783 N.E.2d at 891.

In explaining this holding, the court emphasized that the Zayka holding was confined to its unique facts, and that Zayka included the following "cautionary dictum, '[t]he case might stand differently had there been an intervening bona fide purchaser who had no notice of the purported conveyance of the locus by Senior to Junior.'" Id. at 892.

Dalessio can reasonably be construed to suggest that the estoppel by deed doctrine should not ever be applied to defeat the interests of a good-faith purchaser who lacked actual or constructive notice (based on a standard title search) of the purported estoppel deed, even if the estoppel deed is a general warranty deed. For instance, the court noted that the "Ayer rule has long attracted strong criticism," the basis of which is that "it is unjust to give priority to the interests of someone who negligently failed to examine records that would have shown that the grantor did not have title, over the interests of a subsequent purchaser in good faith who, after reasonable investigation, relied upon the title as it appeared in the record." Id. at 893. The court further noted that the estoppel by deed doctrine historically had been limited to warranty deeds, which "had been a source of some comfort to the conveyancers troubled by the uncertainties that the doctrine of estoppel by deed interjects into the recording system." Id. at 892, n. 3. The court observed that the primary difference between the statutory short form warranty deed and the quitclaim deed is that the latter "do[es] not guarantee full and paramount title, but do[es] guarantee that the grantor is conveying whatever title he has and that he has done nothing to impair or encumber that title." Id. at 892 n. 4. The court, however, gave no indication that the differences in these warranties played a role in its decision

The Dalessio court stated that regardless of "[w]hether or not the Ayer rule is an entrenched part of Massachusetts real estate law when the estoppel deed is a warranty deed, we are unwilling to apply it in the circumstances presented here. As we indicated in Zayka, estoppel by deed will not always be applied to defeat the claims of subsequent grantees in situations involving quitclaim deeds if to do so would conflict with the underlying equitable purpose of the doctrine." Id. at 892. This language strongly suggests that the doctrine, to the extent it remains viable, will never be applied mechanistically and that any court considering its application must first consider the harm that the doctrine would cause to innocent third party purchasers.

In discussing the facts that made application of the doctrine inappropriate, the court noted that (1) Honey Trust was a good faith purchaser that had loaned a substantial amount of money in exchange for the mortgages plaintiff sought to invalidate and was not a participant in reestablishing the grantor's title (as was the estopped party in Zayka); (2) Honey Trust did not have notice of the purported estoppel deed nor of any facts suggesting a competing claim (unlike the estopped party in Zayka); and (3) Honey Trust had submitted an unchallenged affidavit reflecting that standard title examination practices would have disclosed to Dalessio and her predecessors the defect in their chain of title but would not have revealed (and did not reveal) to Honey Trust the out-of-chain deed to Dalessio's predecessor. The court further stated that "to have discovered the subsequent deed to [Dalessio's predecessor], Honey Trust would have had to perform a detailed, forward-looking examination of the grantor index that went beyond established practice." Id. at 893 (citing Morse).

The court also addressed plaintiff's argument regarding Title Standard 18 of the Massachusetts Conveyancers Association. The court stated that the standard "recommends running the owner in the grantor index for the four-year period following the recording of a conveyance to check for liens for unpaid real estate taxes," but that such a search is "not at all comparable to the burdensome investigation that would have been necessary to uncover the problem here. It is one thing for an examiner to scan the grantee column of the index for municipal liens, but quite another to do a follow-up investigation of all of the other entries to determine whether the grantor may have reconveyed some or all of a previously conveyed parcel. Indeed, the nine pages of the grantor index submitted by the plaintiff as an exhibit to her motion for relief from judgment illustrate the problem. It appears that there were more than 200 conveyances of property between 1981 and 1987 by Baggia Trust or Edward Baggia individually or as trustee. To have checked each one in the manner suggested by plaintiff would have been a daunting task. It has been well established that the only persons who should be affected by constructive notice are those who can obtain actual notice, or even full knowledge, by means of a search conducted in the conventional method." Id. at 894 (internal quotation marks omitted).

The estoppel by deed doctrine after Dalessio

The Dalessio decision does leave some questions open going forward. For instance, if, in the future, a party seeking to invoke the estoppel by deed doctrine has constructive notice that the deed to which she traces title was an out-of-chain conveyance and the party sought to be estopped has notice of the conveyance, would the estoppel by deed doctrine have any applicability? In other words, who would prevail as between equally blameworthy parties? And, is the doctrine still relevant with respect to general warranty deeds when good-faith purchasers who lack actual or constructive notice (based on standard title examinations) enter the picture?

Despite these questions, Dalessio sends a strong signal that equity is the critical component of the estoppel by deed doctrine (notwithstanding the way many construed Ayer) and that the doctrine should not be applied under circumstances that would harm innocent third parties or diminish the integrity of the recording system. Dalessio further makes it clear that the Zayka decision is indeed confined to its unique facts. Dalessio, therefore, takes a decisive step towards minimizing the applicability of the estoppel by deed doctrine in the commonwealth and the potentially devastating impact it could have on the integrity of the recording system. The doctrine may not be officially relegated to the scrap heap of arcane and irrelevant legal doctrines, but Dalessio sends it walking in that direction.

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