920 N.W.2d 750
N.D.2018Background
- In 1997 Orville and Florence Hiepler created a fully revocable "Hiepler Family Trust" and conveyed most mineral interests to the Trust; the trust instrument reserved to the settlor the right to add or remove trust property without trustee action.
- On April 7, 2007 Orville and Florence (signed individually) executed a Mineral Deed conveying 150 net mineral acres to Bill Seerup; at that time Orville individually owned only ~7.36 acres—the remainder was held by the Trust. The deed contained warranty and "further assurances" clauses and made no reference to the Trust.
- Nine days later Seerup conveyed 135 acres to Hurley Oil; Seerup did not review record title before purchase and later sought to enforce the 2007 deed when the Trust and Hieplers subsequently leased the same minerals.
- Dale Exploration filed a separate quiet-title action; the district court ultimately found the Hieplers (as trustees) owned the minerals in fee, found a breach of the covenant of seizin, and awarded Seerup $20,147.96 in damages rather than specific performance.
- On appeal Hurley and Seerup argued the 2007 Mineral Deed was enforceable against Orville (as settlor/individual) and that specific performance (conveyance) was the appropriate remedy; the Supreme Court reversed, holding specific performance was required and the district court erred.
Issues
| Issue | Plaintiff's Argument (Seerup/Hurley) | Defendant's Argument (Hiepler) | Held |
|---|---|---|---|
| 1. Whether the Mineral Deed executed by Orville (individually) is enforceable to convey Trust-held minerals | Orville, as settlor of a fully revocable trust with unrestricted power to remove property, had equitable/title power to convey; deed is enforceable | Deed is ineffective because legal title rested in the Trust and trustees did not join; Orville lacked power to convey trust property as an individual | Held: Enforceable against Orville — settlor’s reserved power to remove trust property made the conveyance valid and specific performance available |
| 2. Whether specific performance is an available remedy for breach of the deed conveying real property | Specific performance is appropriate; N.D.C.C. § 32-04-09 creates a presumption that damages are inadequate for contracts to transfer real property | Damages for breach of covenant of seizin (N.D.C.C. § 32-03-11) are adequate; further assurances expense falls to buyer under N.D.C.C. § 47-10-04 | Held: District court erred; presumption of inadequacy under § 32-04-09 applies and specific performance should have been awarded |
| 3. Effect of constructive notice/recording on equitable relief | Even though record would have put Seerup on notice of the Trust, title examination would have disclosed settlor’s revocation/removal power, producing the same practical result; constructive notice does not bar specific performance here | Seerup failed to check records and bears risk; recording puts purchasers on notice and undermines his claim | Held: Constructive notice affects both parties; it does not preclude specific performance where settlor retained power to remove property and acted in privity with purchaser |
| 4. Scope of "further assurances" and warranty clauses when property is held in revocable trust | Further assurances obligate Orville to take required steps to perfect title (including removing property from Trust) because he retained unilateral power to do so | Hiepler argued he could not be compelled to transfer trust property without trustee action or trust formality | Held: Because trust reserved an unrestricted removal power to the settlor, the further assurances clause required Orville to effectuate the conveyance; he could not evade the agreement by relying on bare record title |
Key Cases Cited
- Service Oil, Inc. v. Gjestvang, 861 N.W.2d 490 (N.D. 2015) (standard of review for findings and conclusions)
- Landers v. Biwer, 714 N.W.2d 476 (N.D. 2006) (discretion and equitable principles governing specific performance)
- Brigham Oil and Gas, L.P. v. Lario Oil & Gas Co., 801 N.W.2d 677 (N.D. 2011) (record-title and purchaser’s duty to examine title)
- Larson v. Larson, 129 N.W.2d 566 (N.D. 1964) (specific performance may be proper despite existence of legal remedy)
- Jonmil, Inc. v. McMerty, 265 N.W.2d 257 (N.D. 1978) (treatment of adequacy of damages for real property agreements)
- Walgren v. Dolan, 226 Cal. App. 3d 572 (Cal. Ct. App. 1990) (beneficiary/settlor with power to control trust conveyances may be compelled to convey trust property)