Court of Appeals of Colorado, Div. 1, No. 13CA2204, February 26, 2015: Land Trust keeps conservation easement despite error naming grantor.
The Land Trust accepted and recorded a deed of conservation easement (“Conservation Deed”) from one Craig J. Walker, an individual who, as it turned out, had overlooked that he had previously granted and recorded a deed of the Conservation Deed property to an LLC of which he, Walker, was the sole manager and ninety-nine percent membership owner (the “Walker LLC”). Neither Walker nor the Land Trust was aware of the error. Subsequently Walker, on the Walker LLC’s behalf, conveyed the land to Ranch O LLC (Rancho). Walker had told Ranch O’s principal of the Conservation Deed and the deed to Rancho gave notice of the easement in bold type and all block capital letters.
Rancho then asked a trial court for a declaratory judgment that the Conservation Deed was invalid and had no force and effect because of the error in naming Walker individually as grantor, not Walker LLC. The trial court refused and ordered reformation of the Conservation Deed to reflect the true grantor, Walker LLC. The trial court also held that the reformation was not contrary to intent of section 38-35-109, C.R.S. 2014, the “race notice” portion of Colorado’s conveyancing law. That statute requires that unrecorded instruments about real estate are generally not valid against persons with rights in that real estate who first record an instrument creating their rights (those who win the “race” to the land records office). Walker had no problem with the trial court summary judgment, but Rancho appealed. The court of appeals upheld the trial court, ordering reformation of the Conservation Deed so the Land Trust ends up with good title to it.
Reformation of the Conservation Deed was ordered based on the finding that there had been a mutual mistake between grantor and grantee. The court cited a Colorado Supreme Court decision stating that a mutual mistake requires that both parties must “labor under the same erroneous conception in respect to the terms and conditions of the instrument.” The court found that standard was met here. The court rejected Ranch O’s argument that reformation would prejudice it, finding that Ranch O had actual notice of the Conservation Deed and bought the property subject to it.
The court also upheld the trial court’s decision that reformation of the Conservation Deed was not contrary to the intent of the race-notice statute. The court noted that the race-notice statute makes an exception to the effect that unrecorded instruments are valid against a party if that party, like Ranch O, had notice of the unrecorded instrument prior to the acquisition of its rights.
Decision available at http://www.cobar.org/opinions/opinion.cfm?opinionid=9681&courtid=1.