The “Stranger to the Deed Rule” Does It Get Any Stranger Than This?
The “stranger to the deed” rule, a rule that the Supreme Court of Appeals of West Virginia explained “derives from feudal interpretations of deeds” survives in the State of West Virginia, at least for now, following the Supreme Court’s June 4, 2021 decision in Klein v. McCullough.
In Klein, Julia McCullough conveyed a parcel of land to her son, Benjamin F. McCullough, by a deed dated June 24, 1995. There was a “right of first refusal” clause in the deed which provided that “This conveyance is made subject to the provision that upon the subsequent conveyance, sale or devise of the said property, the said Benjamin F. McCullough, his heirs or assigns, shall offer a first right of refusal to . . . Lanna L. Klein[.]”
Benjamin McCullough died and his estate, including the property he had acquired from his mother, passed to his wife, Darlene McCullough. Darlene McCullough sold the property without first offering a right of first refusal to Lanna Klein. Lanna Klein then sued Darlene McCullough and the purchasers.
Darlene McCullough and the purchasers moved to dismiss Lanna Klein’s complaint, relying on the “stranger to the deed” rule. At common law, the “stranger to the deed” rule is that a “reservation or an exception in favor of a stranger to a conveyance does not serve to recognize or confirm a right.” Darlene and the purchasers argued that, because Lanna Klein was a stranger to the 1995 deed, she received no legally enforceable right of first refusal in the conveyance between Julia McCullough and Benjamin McCullough. The trial court agreed and dismissed Lanna Klein’s case. She then appealed to the Supreme Court of Appeals of West Virginia.
Lanna Klein contended that the trial court had erred when it held that the “stranger to the deed” rule applied. Consequently, the Supreme Court began its analysis by discussing the parameters of the rule.
The Supreme Court explained that “The rule presumes that deeds conveying land are between a grantor and a grantee, and views with distrust any attempt to use the deed to create a property interest in any other party – that is, a ‘stranger.’” “Strangers to the deed are those who are not parties to it,” the Court said. The Court noted that “The long-established rule in many jurisdictions is that, in a deed, a reservation in favor of a stranger to the instrument creates in that stranger no new right or interest in the property,” and that “The early rule, still strongly adhered to in most jurisdictions, is that in an instrument of conveyance a mere reservation in favor of a stranger to the deed is inoperative to create in him any right or interest in the property conveyed.” Prior West Virginia Supreme Court opinions established that West Virginia adhered to that majority view.
There was no dispute that Lanna Klein was not a party to the deed from Julia McCullough to her son and was thus a “stranger to the deed.” However, that did not end the inquiry because the stranger to the deed rule does not render all provisions in a deed inoperative, but only “reservations” and “exceptions.” Lanna Klein argued that a right of first refusal was neither.
Quoting from one of its earlier opinions, the Supreme Court said that:
An exception withdraws from the operation of the conveyance some part of the thing granted, which, but for the exception, would have passed to the grantee under the general description; while the reservation is the creation in behalf of the grantor of some new right issuing out of the thing granted,—that is to say, something which did not exist as an independent right.
The Court conceded that while “technically there is a distinction between an exception and a reservation, they are often regarded as synonymous.” The Court continued, “What is clear, though, is that our cases have described exceptions and reservations exclusively in relation to interests in real property being conveyed.”
A “right of first refusal,” on the other hand, “is effectively a contractual right (even if the right burdens real property).” It is a “pre-emptive right” that “involves the creation of the privilege to purchase [real property] only on the formulation of a desire on the part of the owner to sell; and the holder of the right must purchase for the price at which the owner is willing to sell to a third person.” Quoting prior opinions, the Court said that a right of first refusal “does not give the preemptioner the power to compel an unwilling owner to sell; it merely requires the owner, when and if he decides to sell, to offer the property first to the person entitled to the preemptive right at the stipulated price[.]”
Comparing the characteristics of reservations, exceptions, and rights of first refusal, the Supreme Court agreed with Lanna Klein that the right of first refusal was not rendered inoperative because it was not a reservation or exception. Consequently, the “stranger to the deed” rule did not apply and the trial court should not have dismissed her complaint. The Supreme Court reversed the trial court’s decision and remanded the case to the trial court for further proceedings.
After concluding that the “stranger to the deed rule” did not apply, the Supreme Court noted that Lanna Klein had asserted during oral argument that the Court should abandon the rule entirely. The Court noted that other jurisdictions have abandoned the rule as “an inapposite feudal shackle” and substituted the more “modern” rule that “the interpretation of deeds should be guided by the intent of the parties, not by ancient formulaic principles with no contemporary justification.” Under the correct circumstances, the Court said that it “might have been impelled to abolish the ‘stranger to the deed’ rule.” However, Lanna Klein had not argued for abolition of the rule in the trial court or even in her brief on appeal. Consequently, the issue was not properly before the Court.
Justice Armstead, joined by Justice Wooton, filed a concurring opinion in which they agreed with the conclusion that the “stranger to the deed” rule did not apply to the right of first refusal in the deed between Julia McCullough and her son. However, they disagreed with the statement that the Court might have been impelled to abandon the rule had the issue been presented properly. In the view of the concurring Justices, “promoting certainty in title to real property and providing protection to bona fide purchasers, would weigh heavily in favor of rejecting any argument that this Court should abandon our long-standing adherence to the ‘stranger to the deed’ rule.”
How much certainty the “stranger to the deed” rule promotes is debatable when whether the rule even applies depends on whether a deed provision is a “reservation,” and “exception,” or a “right of first refusal.” However, it remains the law in West Virginia. For now.