When 3 Rivers Advertising, Inc. (3 Rivers) decided it wanted a billboard on the bowling alley’s property, it entered into a somewhat unusual land-use agreement with the property owner. The agreement allowed 3 Rivers to install and maintain a billboard that it would rent out to advertisers. In return, 3 Rivers agreed to also erect a second billboard sign on the property promoting the bowling alley. The agreement stated, “This Contract shall be considered as an easement and therefore shall be transferred with and as part of any change of ownership to such property until such time that both parties agree to terminate this contract.”

Both billboards were erected but the agreement was never recorded. The bowling alley burned down.

The sale of the bowling alley property

In March 2008, a buyer began negotiations with the listing agent for the purchase of the bowling alley property. The buyer saw the billboard but did not closely inspect it due to deep snow. Only the back of the billboard was visible from the property, and it contained no markings. The buyer’s offer to purchase provided: “If Property is currently leased and lease(s) extend beyond closing, Seller shall assign Seller’s rights under said lease(s) and transfer all security deposits and prepaid rents thereunder to Buyer at closing. The terms of the (written) lease(s), if any, are to be disclosed and transferred to Buyers (Billboard).” When the owner countered to raise the price, the buyer asked the listing agent about who exactly owned the billboard. In response, the agent handwrote, “Seller represents that Billboard is part of property” on the counter-offer. At that time, the owner had not yet signed the counter-offer. The buyer initialed the handwritten statement and signed the counter-offer. The deal closed on schedule. Nothing in the title work revealed any third-party ownership or interests in the billboard. The buyer never spoke directly to the owner during the transaction; all discussions were with the listing agent.

After closing, the buyer examined the billboard that contained an advertisement for a car dealership and found a tag that read “Affordable Outdoor Advertising” and gave the name and telephone number of Roddy’s Signs, Inc. (Roddy) that was leasing the billboard from 3 Rivers. When the buyer called the car dealership, he learned that its lease payments were paid to Roddy, not to the prior owner of the bowling alley property. The phone number listed on the tag was for an office where the two related billboard companies, 3 Rivers and Roddy, were located. When it learned of the controversy, the dealership stopped making any lease payments.

3 Rivers sued the buyer, alleging tortious interference with contract and seeking a declaration that it had an easement interest in the billboard. The buyer denied these claims and counter-claimed, also alleging tortious interference with contract and seeking a declaration that he owned the billboard. The trial court dismissed both claims for tortious interference with contract and the billboard company’s claim for declaration of an easement. The only issues left for trial were who owned the billboard and how the lease payments should be allocated. After the trial, the court held that the buyer was a bona fide purchaser for value without notice because 3 Rivers did not record the easement with the register of deeds or take any other reasonable steps to protect its interest in the billboard. The leasing fees were awarded to the buyer as the owner of the billboard. 3 Rivers appealed to the Wisconsin Court of Appeals.

Under Wisconsin law, the court observed, a purchaser is under an obligation to seek out information regarding potential encumbrances on the real property he or she is seeking to obtain.

Bona fide purchaser analysis

Wis. Stat. § 706.08(1)(a) protects purchasers of real estate against adverse claims that are not properly recorded. It provides that “every conveyance that is not recorded as provided by law shall be void as against any subsequent purchaser, in good faith and for a valuable consideration, of the same real estate … whose conveyance is recorded first.” A purchaser in good faith is one who does not have actual or constructive notice of existing rights in the land.

No recording
It is undisputed that 3 Rivers did not record its land-use agreement with the county register of deeds and thus did not provide affirmative notice of its easement interest under the recording criterion of Wis. Stat. § 706.08(1)(a).

No affirmative notice
The buyer argued that:

1. The billboard contained no information indicating that 3 Rivers owned it. The billboard’s mere presence on the property, standing alone, was not an “actual, visible, open and notorious” use. Even if the buyer had seen the tag on the billboard sooner, nothing on the tag indicated a claim of ownership, and the 3 Rivers name did not appear anywhere on the billboard. While the billboard itself was obvious, it was not obvious from looking at it as to who owned it.
2. The buyer made a “due and diligent inquiry” into who owned the billboard by asking the listing agent who wrote in the offer that the billboard was part of the property, by asking in the offer for documentation of any leases that came with the property, and by having a title company conduct a title search to determine whether the property was subject to any easements, liens or encumbrances.

Under Wis. Stat. § 706.09(2)(a), a buyer has affirmative notice of a claim arising from the use or occupancy of the property by another person regardless of whether such use or occupancy is exclusive. The other person’s use or occupancy provides notice to the buyer only if “due and diligent inquiry of persons using or occupying” the property would, under the circumstances, have revealed the prior outstanding interest. In addition, the use or occupancy by the other person must be “actual, visible, open and notorious.”

Affirmative notice from the land
It was undisputed that the billboard was located on the property. 3 Rivers asserted that an advertisement was plainly on the billboard, it was readily apparent that the billboard was being maintained, and the company possessed an annual permit for the billboard. The billboard company argued that the buyer’s inquiry into the ownership of the billboard was insufficient to satisfy the “due and diligent” requirement of the statute. The buyer could have asked the car dealership or called the number on the sign before closing to learn who had interests in the billboard.

And which party had the winning arguments?
The answer was the buyer. The Court of Appeals concluded that the trial court properly determined that the buyer did not have sufficient notice of the billboard company’s interests and thus was a bona fide purchaser of the property, for value and without notice, including the ownership of the billboard.

Tortious interference with contract claim

3 Rivers argued that the trial court should not have dismissed its claim against the buyer for tortious interference with its advertising contract with the car dealership. The elements of a claim for tortious interference with a contract are:

1. the plaintiff had a contract or a prospective contractual relationship with a third party,
2. the defendant interfered with that relationship,
3. the interference by the defendant was intentional,
4. there was a causal connection between the interference and damages, and
5. the defendant was not justified or privileged to interfere.

The court’s discussion focused on the fifth element. 3 Rivers contended that the buyer was not justified or privileged to interfere with its advertising contract because they had provided affirmative notice of their ownership of the sign, and because the buyer’s inquiry was insufficient. The buyer argued that he was a bona fide purchaser for value and without notice and thus had every right to contact the car dealer regarding lease payment terms. The court once again agreed with the buyer.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.