Horizontal and Vertical Privity of Estate

Question 3-30-05

Because contract benefits are not traditionally transferable, privity of estate is necessary to assign benefits and burdens of covenants to future purchasers. There are two types of privity of estate: horizontal and vertical. Horizontal privity of estate refers to the original grantor and grantee of the promise. Where A and B own Whiteacre and Blackacre, respectively, and A promises not to build a factory on Blackacre in return for a payment by B, no privity of estate is formed. Instead, this is only privity of contract. If the jurisdiction requires horizontal privity of estate for real covenants to run, future purchasers of Whiteacre would not be bound by As promise. However, if As promise was found in a conveyance from B to A of Whiteacre, horizontal privity of estate would be present. If the jurisdiction does not require horizontal privity of estate, privity of contract is sufficient to allow a covenant to run.  

Regarding vertical privity of estate, all jurisdictions require it allow a covenant to run with the land. My question here is whether a covenant has to be in the deed to future purchasers for the covenant to run. Is it sufficient that A and B created an enforceable covenant, or does the covenant need to be asserted by A when he sells Whiteacre to C?

Karjala Response 3-30-05

    Your statements concerning horizontal privity seem to me to be correct.  The last sentence is particularly important, in that the Third Restatement now takes the position that horizontal privity of estate is not required for a covenant to run at law (although the cases are still somewhat in disarray).  See pp. 862-63 of the text.
 
    I believe it is still true, at least in general, that vertical privity is required for a covenant to run at law (although the Third Restatement abandons vertical privity as well - see pp. 863-64).  The second part of your question is really one of notice.  Notice is a notion that arises out of equity, and covenants that run with the land at law are theoretically enforceable regardless of whether a subsequent purchaser has notice.  However, with the merger of law and equity in this country, I would be shocked to find any court that would not require notice for a real covenant, just as it would for an equitable servitude.  Moreover, both covenants and equitable servitudes are interests in land and are subject to the recording acts.  Therefore, if a covenant or an equitable servitude is outside a BFP's chain of title, or is not recorded at all, the BFP would take free of the burden of the covenant.