Davis, Judge,

delivered the opinion of the court:

In 1968, Keydata Corporation1 and the National Aeronautics and Space Administration (NASA) were both *471leasing space at 575 Technology Square, Cambridge, Massachusetts, an office building owned by the Wyman Street Trust. Early in that year NASA decided to expand its footage in the structure, and at the same time Keydata was seeking to move to larger quarters in another location. After negotiations in which NASA was represented by the General Services Administration (GSA), an agreement was reached as to NASA’s rental of Keydata’s 2,093 square foot computer room on the first floor (and also other rental space, not now involved). The agreement was embodied in two lease amendments, one between Keydata and Wyman, the other between the Government and Wyman.2 These modifications provided that Keydata would surrender possession of the computer room, and the Government would lease it (from Wyman), either on October 1,1968 or on a date mutually agreeable to Keydata and the Government (with advance notice to Wy-man) between August 1, 1968 and January 1, 1969.

The amendments also provided separately for the sale of certain fixtures. The Government promised to pay Wyman $39,000 for air conditioning equipment which Keydata had installed in the computer room, and Wyman obliged itself in the same amount in payment to Keydata.3 These improvements had been installed by Keydata with Wyman’s consent, and the tenant retained the right to remove the equipment so long as the premises were returned to their original condition.

*472The two lease amendments summarized above were executed on March 11,1968. Keydata and the Government later selected the January 1, 1969 move-in date, by using the mechanism set up in the lease-cum-amendments. There were subsequent exchanges between the parties concerning the move-in date; what was said is a matter of dispute, but it is not now necessary to examine that history.4 In any event, both parties agree that Keydata had not vacated by January 1,1969, and that on the next day GSA sent Keydata a letter informing it “that the Government hereby cancels the proposed acquisition of 2093 square feet on the first floor at 575 Technology Square, as hitherto provided for under Amendment No. 7 to the above referred to lease. This action is necessary because of the fact that the space above referred to was not available for Government occupancy on January 1, 1969 * * The Government did not pay the $39,000 due under the agreements for the computer room improvements.

When the Wyman Street Trust refused to take action to collect this sum from the Government, Keydata brought suit against the Trust and its trustees in the Superior Court of the County of Suffolk, Massachusetts. Tried on the pleadings and a stipulation of facts, that action resulted in an order requiring the Wyman Street Trust to assign its rights to the $39,000 under the lease amendment to Keydata, and such an assignment was executed on April 21, 1971. Keydata sues here in place of Wyman and as its assignee.5

This suit involves two causes of action. The theory of the first is that Wyman fully performed its obligations as landlord under Massachusetts and federal law, therefore the Government’s recission was illegal, and the United States now owes the $39,000. The second cause of action claims that in any case the conduct of the Government’s agents constituted a waiver of any obligation on the part of Keydata to vacate by January 1, and that the defendant is estopped from so contending. Both parties have moved for summary judgment, the plaintiff as to its first claim only.

*473I

Defendant asks for summary judgment on both claims, urging as one ground that Wyman’s assignment of its rights to Keydata violated the Assignment of Claims Act, 31 U.S.C. § 203 (1070), and is therefore void.6

Despite the broad language of the Act, and the courts’ tendency at an earlier time to read it as an all-inclusive prohibition, numerous classes of assignments, although literally within the statutory ambit, have been judicially exempted from its operation. The largest category of excised assignments are those which, in one form or another, occur by operation , of law. Various such assignments which are regularly held to be unaffected by the Act include the passage of claims to heirs and devisees (Erwin v. United States, 97 U.S. 392, 397 (1878)), transfers made incident to proceedings in bankruptcy or receivership (Segal v. Rochelle, 336 F. 2d 298, 302 (C.A. 5, 1964), aff'd 382 U.S. 375 (1966) ; Danielson v. United States, 416 F. 2d 408, 410 (C.A. 9, 1969) ; New Rawson Corp. v. United States, 55 F. Supp. 291, 293 (D. Mass. 1943)), transfers by the succession of one business entity for another (Consumers Ice Co. v. United States, 201 Ct. Cl. 116, 119, 475 F. 2d 1161, 1163 (1973)), assignments made by judicial sale or order (Price v. Forrest, 173 U.S. 410, 419-25 (1899); 36 Comp. Gen. 157, 158 (1956)), and assignments produced by operation of the law of sub-rogation (United States v. Aetna Casualty & Surety Co., 338 U.S. 366, 376 (1949)). These classes of assignments are all thought to be outside the statute’s scope because none of them threatens the dangers Congress sought to avoid by enacting the prohibition.

*474Within the past decade this court has once again explained the objectives of the Assignment of Claims Act:

The prohibitory language contained in the first paragraph of the statute above dates back in essentially its present form to 1853 (10 Stat. 170, Rev. Stat. § 3477 (1875)), and originally to an 1846 statute (9 Stat. 41). Over the years it has consistently been recognized by the courts to have two purposes — primarily, to_ prevent fraud; and secondarily, to avoid multiple litigation. More specifically, Congress is said to have had as its major objective the prohibiting of trafficking in claims against the Government such as by persons who would be in a position to exert political pressure or improper influence in prosecuting claims before the departments, the courts, or the legislature, [citations omitted] Secondarily, the courts have ascribed to Congress the motive of enabling the United States to deal exclusively with the original claimant instead of with several parties, thus obviating the necessity of having to inquire into the validity of specific transfers or assignments of the claim, minimizing subjection to successive litigation upon the same claim, and eliminating the risk of double payment or multiple liability, [citations omitted] Patterson v. United States, 173 Ct. Cl. 819, 822-23, 354 F. 2d 327, 329 (1965) [footnote omitted].

When an assignment, or class of assignments, has been found not to pose those risks, the Act has ordinarily been held inapplicable.

The first significant fact about the assignment of Wyman’s claim against the Government to Keydata is, of course, that it was done under order of the Superior Court of Massachusetts, as a result of an adversary proceeding.7 In that respect it is very close to the other classes set out above, which have been held not to transgress the Assignment of Claims Act. Like those exempted classes, recognition of the Wyman-Keydata assignment will not frustrate the Congressional objectives.

*475For one thing, the court-ordered assignment will not increase the number of parties with whom the Government must deal; as discussed more fully infra, Keydata, not Wy-man, is basically, if not technically, the real party in interest; Wyman is involved as a conduit more than anything else. Also, the case presents no real risk of double liability because the court-ordered assignment fully empowers Keydata to “give releases or discharges” on behalf of Wyman for all or any part of the $39,000 claim. If Keydata should recover on its claim here, it would be a small matter to condition payment of the judgment on the execution of a release binding against Wyman; we have imposed this condition to prevent double recovery. Cf. Carchia v. United States, 202 Ct. Cl. 723, 740, 485 F. 2d 622, 631 (1973).

The Government urges that, since the assignment was ordered as part of a suit instigated by Keydata “for the sole purpose of attempting to circumvent the provisions of the Assignment of Claims Act,” the normal exemption granted to judicially-compelled transfers should not be extended. It is said that the exception should be applied only where the assignment is involuntary, and that the Keydata-Wyman litigation was not defended with sufficient vigor.

The case law does not bear out the first distinction. Among the transfers found not to invoke the Act are those by devise or inheritance, and assignments from a defunct business organization to its substantially identical' successor (see supra). These categories have a considerable element of Volition, perhaps even more than in the situation before us.

As for the second point, we might be persuaded to regard with suspicion some assignments ordered as the product of collusive or sham litigation, but this is not such a case. The Government gives us no good reason to suspect the Keydata-Wyman suit. The mere fact that both parties joined in a stipulation of facts is not enough, especially where the dispute centers on the legal rights arising from essentially uncontested events. The answer filed by Wyman to Keydata’s. complaint seems- a bona fide adversary response in the context of Wyman’s interest in the controversy.

In any event even if the state action were somehow vulnerable, its only effect was to transfer the right to bring *476the claim to the basic party in interest. It is clear from the wording of the lease amendments, and the fact of their contemporaneous execution, that Wyman was merely a conduit through which GSA paid Keydata for the leasehold improvements. The tenant asked Wyman’s consent (as required by its lease) before adding the air conditioning equipment, and such consent was apparently given. A letter from Wyman to Keydata at the time it was vacating the computer room stated: “If you choose to remove [the air conditioning equipment with associated duct work, piping and electrical work] you are, of course, required to restore the premises to their original condition,” thus implying that the tenant had a right to carry away this equipment. The improvements clearly belonged to Keydata, and it was natural that Key-data would be the one to be compensated if the Government, as successor tenant, were to enjoy their use.

As we have said, such a court-ordered assignment, transferring the cause of action from the nominal owner to the beneficial owner, does not go counter to the legislative objectives of the Assignment of Claims Act. A transfer of that kind to the most intimately concerned claimant is unlikely to pose an added danger (and here does not) of fraud in prosecution of the claim,8 or of expanding the number of parties with whom the Government must deal, to its prejudice or consternation.

II

The Government raises another, related objection to the competency of Keydata to bring this suit. It is argued that Wyman was not liable to Keydata for the $39,000 if the Government did not in fact pay it that sum, and that therefore Wyman (in whose shoes Keydata now stands) was not injured by the refusal to pay the money. The contention springs *477from the wording of this part of the Keydata-Wyman lease amendment;

LESSON shall not be obligated to make * * * [payment of $39,000] unless and until LESSON receives such sums from the Government, nor shall LESSON be liable to LESSEE in any event whatsoever should the Government fail to deliver such sums to LESSON.

Defendant analogizes the legal situation created by this provision to that in Severin v. United States, 99 Ct. Cl. 435 (1943) cert. denied, 322 U.S. 733 (1944), holding that a prime contractor cannot sue for damage suffered by its subcontractor, if the prime contractor is in no way liable or responsible to the subcontractor for its loss.

This court has already dealt specifically, in considering the Severin doctrine, with limiting provisions comparable to that in the Wyman-Keydata arrangement. In Donovan Construction Co. v. United States, 138 Ct. Cl. 97, 99, 149 F. Supp. 898, 900, cert. denied, 355 U.S. 826 (1957), the prime was liable to the sub for extra work caused by the Government “as and when it is paid therefor by the Principal [Government].” It was held that this did not remove the prime’s obligation to proceed against the Government, administratively and by recourse to the courts, and Severin did not control (138 Ct. Cl. at 100, 149 F. Supp at 900). The same ruling was made in Barnard-Curtiss Co. v. United States, 157 Ct. Cl. 103, 111-12, 301 F. 2d 909, 913 (1962), where the subcontractor released the prime from all liability except as to a claim the latter was pursuing against the United States on behalf of the former; “[a]ny amount which [the prime] receives from the Government with respect to [the sub’s] claim is excepted from this release, and [the prime] agrees to forward such sums it may collect when received.”

The holding was reconfirmed in J. L. Simmons Co. v. United States, 158 Ct. Cl. 393, 304 F. 2d 886 (1962) ; there, the release given by the subcontractor provided that the prime would pursue the sub’s claim but that “[e]ither the disallowance of the [sub’s] claim by the court or the payment of the [sub] by [the prime] of the amount, if any, that *478may be recovered on said claim * * * shall completely extinguish all further obligation of [the prime] to [the sub] under the subcontract * * *, and shall operate as a full and complete release of any and all liability of [the prime] to the [sub] arising out of the performance by the [sub] of its work under said subcontract” (158 Ct. Cl. at 396, 304 F. 2d at 888).

The court stressed that (a) there was no express negation of the prime’s liability or responsibility on the claim in question, (b) the clauses simply set forth the manner in which the prime’s liability was to be extinguished, (c) the prime assumed the obligation of prosecuting the claim, and that duty would have to be fulfilled before the duty to reimburse the subcontractor for the damages allegedly caused by the Government could be extinguished, and (d) [i]t is apparent, then, that plaintiff is presently subject to liability on these claims and will continue to be so until liability is extinguished in accord with the method agreed to by the parties” (158 Ct. Cl. at 400, 304 F. 2d at 890). See also, Owens-Corning Fiberglas Corp. v. United States, 190 Ct. Cl. 211, 241-42, 419 F. 2d 439, 457 (1969).

The arrangement in the present case falls into this same category. Wyman was not absolved of all responsibilty or liability by its agreement with Keydata. As the Donovan opinion put it, there was an implied undertaking “to proceed against the Government” in administrative and judicial proceedings should defendant fail to pay without good cause.9 138 Ct. Cl. at 99-100, 149 F. Supp. at 900. Wyman would not be responsible if the defendant was absolved, or if collection could not be enforced,10 but the Donovan opinion *479recognized, that such conditional liability “as a practical matter is perhaps the best that a subcontractor could hope to obtain from the prime contractor.” Id at 99, 149 F. Supp. at 900. It does not seem realistic to expect the prime contractor (or here, Wyman) to become an insurer of the defendant’s performance for its subcontractor (here, lessee).

We conclude therefore that, taking plaintiff’s pleadings and supporting documents at face value, our prior decisions show that Wyman has suffered enough of a legal injury to bring suit, and Keydata, its assignee, may do so in its stead.

Ill

On the merits, there is one important legal issue which can now be resolved. Keydata’s motion for summary judgment asserts that the Government had no legal right to rescind its lease agreement with Wyman, despite plaintiff’s holding-over. The argument is that the lease amendment obligated Wyman to do no more than convey to the Government the right to take possession of the computer room, that Wyman did not explicitly promise to deliver actual possession, and that no such promise can be implied.

Keydata’s description of the lack of obligation of a landlord to secure his tenant in possession (in the absence of an express undertaking) is an accurate reflection of the present Massachusetts law. But there is a clear split among the states between the “American” and “English” rules on the liability of a landlord when the demised premises are occupied by a third party at the commencement of the lease term. See 49 Am. Jur. 2d, Landlord, and Tenant § 217 (1970). Under the so-called “American” rule, the landlord merely covenants that possession will not be withheld by himself or by one having paramount title. Ibid. This is the current rule in Massachusetts. Snider v. Deban, 249 Mass. 59, 144 N.E. 69 (1924). It is sometimes justified on the ground that, since the lessor has conveyed the sole and exclusive right of possession to the new lessee, he cannot maintain an action for possession in his own name. Snider v. Deban, supra, 249 Mass. at 66, 144 N.E. at 72.

*480The other doctrine, called the “English” rule, requires that, when the lease is silent on the point, the landlord deliver actual possession of the premises at the beginning of the term. 49 Am. Jur. 2d, Landlord and Tenant § 217, at 235 (1970). The lessee’s rights are based on breach of the lessor’s implied covenant that he has a right to lease the premises, or of the implied undertaking that the lessor will deliver possession to the lessee. 2 R. Powell, Real Property (Rohan ed. 1966) § 225 [1]. If the lessee cannot take possession because of a holdover tenant, or some other obstructing third person, the landlord is in breach of his obligation.

This division in view compels us to face the problems of whether we are bound to follow the Massachusetts rule because the real property is located there — and, if not, what standard to apply. It will prove simpler to reverse these questions and first take up the issue of what rule to adopt if we are free to choose on the merits of the competing principles. In such an area of free choice, we “should take account of the best in modem decision and discussion” Padbloc Co. v. United States, 161 Ct. Cl. 369, 377 (1963) ; Groves v. United States, 202 Ct. Cl. 660, 674 (1973).

The American Law Institute’s most recent formulation, accepting the “English” rule, seems to us to represent “the best in modern decision and discussion.” The Institute’s phrasing (Restatement of the Law, Second, Property, Landlord and Tenant, § 6.2, p. 137 (Tent. Draft No. 2, 1974) is this:

Except to the extent the parties to the lease validly agree otherwise, there is a breach of the 'landlord’s obligations if a third person is improperly in possession of the leased property on the date the tenant is entitled to possession and the landlord does not act promptly to remove such person and does not in fact remove him within a reasonable period of time. For such breach, the tenant may

(1) terminate the lease * * *

The Restatement gives persuasive reasons in support of this choice (Restatement op the Law, Second, Property, Landlord and Tenant, § 6.2, Comment a, p. 139 (Tent. Draft No. 2, 1974):

*481(1) The landlord knows, or should know, the status of the possession of the leased property better than the tenant in the period prior to the date the tenant is entitled to possession.

(2) The landlord knows, or should know, better than the tenant whether a person in possession of the leased property prior to the date the tenant is entitled to possession is properly or improperly on the leased property.

(3) Prior to the date the tenant is entitled to possession of the leased property, the landlord is the only one of the two who can evict a person improperly in possession of the leased property.

(4) In the situation where the person in possession of the leased property is entitled to be there until the date the tenant is entitled to possession, the case of the possible holdover prior tenant, the landlord is the only one of the two who had an opportunity to get some assurance that the prior tenant would not hold over.

(5) The tenant will have received less than he bargained for if he must go forward with the lease and bear the cost of legal proceedings to clear the way for his entry on the leased property.

This “English” rule conforms to the commonsense notion of what a lease is. The tenant is buying space — in a building or in the open- — and not merely the right to bring a lawsuit to try to get the space. The “American” (or Massachusetts) rule, on the other hand, rests on an abstruse technicality— the separation of legal title (which remains in the landlord) from the right to possession (which is conveyed to the new tenant) — and represents an unfortunate example of mechanical jurisprudence, grinding out a result without any regard for the true interests or policies involved.

Plaintiff objects that adoption for federal leases of the rule requiring the landlord to deliver actual possession places a Massachusetts lessor in a dilemma — he must deliver possession but cannot evict a third party or holdover tenant after the lease term has begun. See Snider v. Deban, supra, 249 Mass. at 66, 144 N.E. at 72. As the ALI comment suggests, this difficulty is not insuperable. First, a landlord is able to protect himself in the lease document by expressly limiting or disclaiming his obligation to deliver possession, or else by requiring security of a prior tenant in possession *482that he will not hold over. Second, the landlord may have a remedy in damages against a holdover tenant; such at least is the majority American rule. 49 Am. Jur. 2d, Landlord and Tenant, § 1123, at 1074 (1970). Third, the landlord is still in a better position to appraise, anticipate and bear the risk of this loss than a prospective tenant not yet in possession. The risk ought to be upon the owner, unless the prospective tenant expressly agrees to shoulder it.

Are we, however, free to elect the “English” rule as a uniform federal standard applicable to government leases in all domestic jurisdictions, including Massachusetts? The states have a considerable interest in the definition of the property interests within their borders, and some aspects of federal law do defer to that concern. See, e.g. Comm'r v. Stern, 357 U.S. 39, 44-45 (1958) ; United States v. Bess, 357 U.S. 51 (1958) ; United States v. Certain Property, 344 F. 2d 142 (C.A. 5, 1965). But though a lease may concern and convey a property interest, it is also very much a contract — and it is settled that the contracts of the Federal Government are normally governed, not by the particular law of the states where they are made or performed, but by a uniform federal law. Padbloc Co. v. United States, 161 Ct. Cl. 369, 377 (1963) ; United States v. Wegematic Corp., 360 F. 2d 674, 676 (C.A. 2, 1966); Groves v. United States, 202 Ct. Cl. 660, 674 (1973). Leases are not sufficiently different from other federal procurement contracts to call for a different policy across-the-board in the construction of their terms. At least in this case in which there is no question as to the content of the property interest transferred, but merely a delineation of one of the landlord’s collateral obligations, there is no adequate reason to subordinate federal to state law.11 It is true that in Security Life & Accident Ins. Co. v. United States, 357 F. 2d 145, 148-49 (C.A. 5, 1966), the court applied Alabama law to a federal lease, but it did so only after finding that, in that particular, Alabama law fully conformed to the “general rule” and “general contract law” which would *483normally apply against private citizens in the same circumstances ; in effect the court applied the accepted, general rule, not a special or unusual state doctrine.

The Federal Government’s need for a uniform rule is strong. It ought to know in advance what its rights are if the premises are not available on the due date. But there are many jurisdictions in which it is not yet firmly established whether the “American” or the “English” rule controls, and the Government would either have to litigate or take a substantial chance on its position. On the other hand, as we have already indicated, the interest of the state in the landlord’s obligation if the premises are unavailable seems to us minor, and relatively unconnected with its concern with the definition of property interests within its jurisdiction.

We hold, therefore, that we are free to disregard the Massachusetts rule, and we do so — for the reasons we have given — in favor of the “English” rule as set forth in the RestatemeNT, as the appropriate standard for government leases. Accordingly, we deny the plaintiff’s motion for summary judgment, grant on this ground the defendant’s motion as to the first cause of action, and dismiss that portion of the petition.

IV

This does not mean that the case can be disposed of now. There is a clear dispute, requiring resolution at the level of the trial division, as to whether the Government acquiesced in plaintiff’s delay in making the computer room available, or extended its time for moving out, so that the defendant is now estopped from saying that January 1st was the crucial date (this is plaintiff’s second cause of action). The Government seeks summary judgment on this point also, but is obviously not entitled to it in view of the clear factual conflict. With respect to this claim, the defendant’s motion is denied without prejudice and the case is remanded to the trial division to determine the facts.12

*484The result on the whole case is that the Government’s motion for summary judgment is granted as to the first claim but only on the ground that under the controlling rule the landlord was normally required to make the premises available to the Government on January 1st, and is otherwise denied as to both claims. The plaintiff’s motion for summary judgment on the first claim of the petition is denied and that claim is dismissed. The second claim is remanded to the trial division for further proceedings.

Opinion

BROUSSARD, J.

This case concerns the effect of a provision in a commercial lease1 that the lessee may not assign the lease or sublet the premises without the lessor’s prior written consent, The question we address is whether, in the absence of a provision that such consent will not be unreasonably withheld, a lessor may unreasonably and arbitrarily withhold his or her consent to an assignment.2 This is a question of first impression in this court.

*493I.

This case arises on appeal from an order sustaining a demurrer without leave to amend.3 We review the allegations of the complaint applying the established principle that a demurrer “admits the truth of all material factual allegations in the complaint. ...” (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496 [86 Cal.Rptr. 88, 468 P.2d 216]; Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214 [197 Cal.Rptr. 783, 673 P.2d 660].)

The allegations of the complaint may be summarized as follows. The lease at issue is for 14,400 square feet of hangar space at the San Jose Municipal Airport. The City of San Jose, as owner of the property, leased it to Irving and Janice Perlitch, who in turn assigned their interest to respondent Ernest Pestaña, Inc.4 Prior to assigning their interest to respondent, the Perlitches entered into a 25-year sublease with one Robert Bixler commencing on January 1, 1970. The sublease covered an original five-year term plus four 5-year options to renew. The rental rate was to be increased every 10 years in the same proportion as rents increased on the master lease from the City of San Jose. The premises were to be used by Bixler for the purpose of conducting an airplane maintenance business.

Bixler conducted such a business under the name “Flight Services” until, in 1981, he agreed to sell the business to appellants Jack Kendall, Grady O’Hara and Vicki O’Hara. The proposed sale included the business and the equipment, inventory and improvements on the property, together with the existing lease. The proposed assignees had a stronger financial statement and greater net worth than the current lessee, Bixler, and they were willing to be bound by the terms of the lease.

The lease provided that written consent of the lessor was required before the lessee could assign his interest, and that failure to obtain such consent *494rendered the lease voidable at the option of the lessor.5 Accordingly, Bixler requested consent from the Perlitches’ successor-in-interest, respondent Ernest Pestaña, Inc. Respondent refused to consent to the assignment and maintained that it had an absolute right arbitrarily to refuse any such request. The complaint recites that respondent demanded “increased rent and other more onerous terms” as a condition of consenting to Bixler’s transfer of interest.

The proposed assignees brought suit for declaratory and injunctive relief and damages seeking, inter alia, a declaration “that the refusal of Ernest Pestaña, Inc. to consent to the assignment of the lease is unreasonable and is an unlawful restraint on the freedom of alienation. . . .”6 The trial court sustained a demurrer to the complaint without leave to amend and this appeal followed.

II.

The law generally favors free alienability of property, and California follows the common law rule that a leasehold interest is freely alienable. (See Kassan v. Stout (1973) 9 Cal.3d 39, 43 [106 Cal.Rptr. 783, 507 P.2d 87]; 49 Am.Jur.2d, Landlord and Tenant, § 398 (1980).) Contractual restrictions on the alienability of leasehold interests are, however, permitted. (See Kassan v. Stout, supra.) “Such restrictions are justified as reasonable protection of the interests of the lessor as to who shall possess and manage property in which he has a reversionary interest and from which he is deriving income.” (Schoshinski, American Law of Landlord and Tenant (1980) § 8:15, at pp. 578-579. See also 2 Powell on Real Property, ¶ 246[1], at p. 372.97.)

The common law’s hostility toward restraints on alienation has caused such restraints on leasehold interests to be strictly construed against the lessor. (See Schoshinski, supra, § 8.16, at pp. 583-588; 2 Powell, supra, t 246[1], at pp. 372.97, 372.100.) Thus, in Chapman v. Great Western *495Gypsum Co. (1932) 216 Cal. 420 [14 P.2d 758, 85 A.L.R. 917], where the lease contained a covenant against assignment without the consent of the lessor, this court stated: “It hardly needs citation of authority to the principle that covenants limiting the free alienation of property such as covenants against assignment are barely tolerated and must be strictly construed.” (Id., at p. 426.)7 This is particularly true where the restraint in question is a “forfeiture restraint,” under which the lessor has the option to terminate the lease if an assignment is made without his or her consent. (See Karbelnig v. Brothwell (1966) 244 Cal.App.2d 333, 341 [53 Cal.Rptr. 335]; Ser-Bye Corp. v. C.P. & G. Markets, supra, 78 Cal.App.2d at p. 919; Civ. Code, § 1442 [“A condition involving a forfeiture must be strictly interpreted against the party for whose benefit it is created.”]; 2 Powell, supra, ¶ 246[1], at pp. 372.100-372.101.)

Nevertheless, a majority of jurisdictions have long adhered to the rule that where a lease contains an approval clause (a clause stating that the lease cannot be assigned without the prior consent of the lessor), the lessor may arbitrarily refuse to approve a proposed assignee no matter how suitable the assignee appears to be and no matter how unreasonable the lessor’s objection. (See, e.g., B & R Oil Co., Inc. v. Ray’s Mobile Homes, Inc. (1980) 139 Vt. 122 [422 A.2d 1267]; Dress Shirt Sales, Inc. v. Hotel Martinique Associates (1963) 12 N.Y.2d 339 [236 N.Y.S.2d 613, 190 N.E.2d 10]; Jacobs v. Klawans (1961) 225 Md. 147 [169 A.2d 677]; Segre v. Ring (1961) 103 N.H. 278 [170 A.2d 265]; Gruman v. Investors Diversified Services (1956) 247 Minn. 502 [78 N.W.2d 377]; Annot., 31 A.L.R.2d 831 (1953); 51C C.J.S., § 36(1).) The harsh consequences of this rule have often been avoided through application of the doctrines of waiver and estoppel, under which the lessor may be found to have waived (or be estopped from asserting) the right to refuse consent to assignment.8

*496The traditional majority rule has come under steady attack in recent years. A growing minority of jurisdictions now hold that where a lease provides for assignment only with the prior consent of the lessor, such consent may be withheld only where the lessor has a commercially reasonable objection to the assignment, even in the absence of a provision in the lease stating that consent to assignment will not be unreasonably withheld. (See Boss Barbara, Inc. v. Newbill (1982) 97 N.M. 239 [638 P.2d 1084]; Jack Frost Sales v. Harris Trust & Sav. Bank (1982) 104 Ill.App.3d 933 [433 N.E.2d 941, 949]; Fernandez v. Vasquez (Fla.App. 1981) 397 So.2d 1171 [21 A.L.R.4th 181]; Warmack v. Merchants Nat. Bank of Fort Smith (1981) 272 Ark. 166 [612 S.W.2d 733]; Funk v. Funk (1981) 102 Idaho 521 [633 P.2d 586]; Hendrickson v. Freericks (Alaska 1980) 620 P.2d 205; Homa-Goff Interiors, Inc. v. Cowden (Ala. 1977) 350 So.2d 1035; Shaker Building Co. v. Federal Lime & Stone Co. (1971) 28 Ohio Misc. 246 [57 Ohio Ops.2d 486, 277 N.E.2d 584]; Rest.2d Property, § 15.2(2) (1977); Annot., 21 A.L.R.4th 188 (1983).)9

For the reasons discussed below, we conclude that the minority rule is the preferable position. Although this is an issue of first impression in this court, several decisions of the Court of Appeal have reflected the changing trend in the law on this question. In Richard v. Degen & Brody, Inc. (1960) 181 Cal.App.2d 289 [5 Cal.Rptr. 263], the court adopted the majority rule: “ ‘[W]here a subletting or assignment of the leased premises without the consent of the lessor is prohibited, he may withhold his assent arbitrarily and without regard to the qualifications of the proposed assignee, unless ... the lease provides that consent shall not be arbitrarily or unreasonably withheld. . . ” (Id., at p. 299, quoting 51 C.J.S., § 36.) Richard was not followed or cited on this point until the decision in Laguna Royale Owners Association v. Darger (1981) 119 Cal.App.3d 670 [174 Cal.Rptr. 136], which questioned the “continuing vitality” of the rule in Richard and then distinguished it on its facts. (Id., at p. 681.)10 The court in Laguna Royale *497rejected the contention that an approval clause confers an absolute right to withhold consent: “We hold that in exercising its power to approve or disapprove transfers or assignments Association must act reasonably, exercising its power in a fair and nondiscriminatory manner and withholding approval only for a reason or reasons rationally related to the protection, preservation and proper operation of the property and the purposes of Association as set forth in its governing instruments. ” (Id., at p. 680.)

Two years later, in Cohen v. Ratinoff (1983) 147 Cal.App.3d 321 [195 Cal.Rptr. 84], the same district of the Court of Appeal that had decided Richard (the Second District) directly confronted and rejected the rule of that case. The court held that “where, as here, the lease provides for assignment or subletting only with the prior consent of the lessor, a lessor may refuse consent only where he has a good faith reasonable objection to the assignment or sublease, even in the absence of a provision prohibiting the unreasonable or arbitrary withholding of consent to an assignment of a commercial lease. Examples of bases for such good faith reasonable objection would be inability to fulfill terms of the lease, financial irresponsibility or instability, suitability of premises for intended use, or intended unlawful or undesirable use of premises. No such bases were raised by the lessor.” (Id., at p. 330.)11

Shortly thereafter, the First District of the Court of Appeal followed suit in Schweiso v. Williams (1984) 150 Cal.App.3d 883 [198 Cal.Rptr. 238], adopting the rule set forth in Cohen. The court further noted that “denying consent solely on the basis of personal taste, convenience or sensibility or in order that the landlord may charge a higher rent than originally contracted for have been held arbitrary reasons failing the tests of good faith and reasonableness under commercial leases. (Chanslor-Western O. & D. Co. v. Metropolitan San. D. (1970) 131 Ill.App.2d 527 [266 N.E.2d 405]; citing Broad & Branford Place Corp. v. J.J. Hockenjos Co. (1944) 132 N.J.L. 229 [39 A.2d 80, 82].)” (Id., at p. 886, fn. omitted.)

Before the conflict among the Courts of Appeal reached this court for resolution, the United States Court of Appeals for the Ninth Circuit was forced to resolve the conflict in Prestin v. Mobil Oil Corp. (9th Cir: 1984) 741 F.2d 268 (applying California law). The Ninth Circuit reviewed the *498cases discussed above and stated: “[Richard has no support in later California cases,] having been rejected by the one court which has bothered to mention it [Laguna Royale].[12] We therefore find that the California Supreme Court would adopt the rule recently enunciated in Cohen v. Ratinoff, 147 Cal.App.3d at 330, 195 Cal.Rptr. 84, that a lessor . . . may refuse consent to an assignment or sublease only when the lessor has a good faith reasonable objection to it.” (Id., at p. 271.) We now adopt the rule tentatively ascribed to us by the Prestin court, and disapprove the holdings in Richard v. Degen & Brody, Inc., supra, 181 Cal.App.2d 289 and Hamilton v. Dixon, supra, 168 Cal.App.3d 1004.

III.

The impetus for change in the majority rule has come from two directions, reflecting the dual nature of a lease as a conveyance of a leasehold interest and a contract. (See Medico-Dental etc. Co. v. Horton & Converse (1942) 21 Cal.2d 411, 418 [132 P.2d 457].) The policy against restraints on alienation pertains to leases in their nature as conveyances. Numerous courts and commentators have recognized that “[i]n recent times the necessity of permitting reasonable alienation of commercial space has become paramount in our increasingly urban society.” (Schweiso v. Williams, supra, 150 Cal.App.3d at p. 887. See also Homa-Goff Interiors, Inc. v. Cowden, supra, 350 So.2d at 1037; Funk v. Funk, supra, 633 P.2d at 589; 2 Powell, supra, ¶ 246[1], at pp. 372.97-372.98; Comment, The Approval Clause in a Lease: Toward a Standard of Reasonableness (1983) 17 U.S.F. L.Rev. 681, 683, 689; Note, Landlord-Tenant—Lessor’s Rejection of Sublease Agreement, Pursuant to a Consent Clause, Must be Judged Under a Reasonable Commercial Standard (1978) 9 Cum. L.Rev. 309, 312.)

Civil Code section 711 provides: “Conditions restraining alienation, when repugnant to the interest created, are void.” It is well settled that this rule is not absolute in its application, but forbids only unreasonable restraints on alienation. (Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 948 [148 Cal.Rptr. 379, 582 P.2d 970]; Cohen v. Ratinoff, supra, 147 Cal.App.3d at p. 329; Laguna Royale Owners Assn. v. Darger, supra, 119 Cal.App.3d at p. 682.) Reasonableness is determined by comparing the justification for a particular restraint on alienation with the quantum of restraint actually imposed by it. “[T]he greater the quantum of restraint that results from enforcement of a given clause, the greater must be the justification for that enforcement. ” (Wellenkamp v. Bank of America, supra, 21 Cal.3d at *499p. 949.) In Cohen v. Ratinoff, supra, the court examined the reasonableness of the restraint created by an approval clause in a lease; “Because the lessor has an interest in the character of the proposed commercial assignee, we cannot say that an assignment provision requiring the lessor’s consent to an assignment is inherently repugnant to the leasehold interest created. We do conclude, however, that if such an assignment provision is implemented in such a manner that its underlying purpose is perverted by the arbitrary or unreasonable withholding of consent, an unreasonable restraint on alienation is established.” (Id., 147 Cal.App.3d at p. 329, italics added.)

One commentator explains as follows; “The common-law hostility to restraints on alienation had a large exception with respect to estates for years. A lessor could prohibit the lessee from transferring the estate for years to whatever extent he might desire. It was believed that the objectives served by allowing such restraints outweighed the social evils implicit in the restraints, in that they gave to the lessor a needed control over the person entrusted with the lessor’s property and to whom he must look for the performance of the covenants contained in the lease. Whether this reasoning retains full validity can well be doubted. Relationships between lessor and lessee have tended to become more and more impersonal. Courts have considerably lessened the effectiveness of restraint clauses by strict construction and liberal applications of the doctrine of waiver. With the shortage of housing and, in many places, of commercial space as well, the allowance of lease clauses forbidding assignments and subleases is beginning to be curtailed by statutes.” (2 Powell, supra, f 246[1], at pp. 372.97-372.98, fns. omitted.)13

The Restatement Second of Property adopts the minority rule on the validity of approval clauses in leases: “A restraint on alienation without the consent of the landlord of a tenant’s interest in leased property is valid, but the landlord’s consent to an alienation by the tenant cannot be withheld unreasonably, unless a freely negotiated provision in the lease gives the landlord an absolute right to withhold consent.” (Rest.2d Property, § 15.2(2) (1977), italics added.)14 A comment to the section explains: “The landlord may have an understandable concern about certain personal quali*500ties of a tenant, particularly his reputation for meeting his financial obligations. The preservation of the values that go into the personal selection of the tenant justifies upholding a provision in the lease that curtails the right of the tenant to put anyone else in his place by transferring his interest, but this justification does not go to the point of allowing the landlord arbitrarily and without reason to refuse to allow the tenant to transfer an interest in leased property.” (Id., com. a.) Under the Restatement rule, the lessor’s interest in the character of his or her tenant is protected by the lessor’s right to object'to a proposed assignee on reasonable commercial grounds. (See id., reporter’s note 7 at pp. 112-113.) The lessor’s interests are also protected by the fact that the original lessee remains liable to the lessor as a surety even if the lessor consents to the assignment and the assignee expressly assumes the obligations of the lease. (Peiser v. Mettler (1958) 50 Cal.2d 594, 602 [328 P.2d 953, 74 A.L.R.2d 1]; Samuels v. Ottinger (1915) 169 Cal. 209, 212 [146 P. 638].)

The second impetus for change in the majority rule comes from the nature of a lease as a contract. As the Court of Appeal observed in Cohen v. Ratinoff, supra, “[s]ince Richard v. Degen & Brody, Inc. [espousing the majority rule] was decided, . . . there has been an increased recognition of and emphasis on the duty of good faith and fair dealing inherent in every contract.” (Id., 147 Cal.App.3d at p. 329.) Thus, “[i]n every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. ...” (Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751, 771 [128 P.2d 665]. See also Bleecher v. Conte (1981) 29 Cal.3d 345, 350 [213 Cal.Rptr. 852, 698 P.2d 1154].) “[W]here a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.” (Cal. Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 484 [289 P.2d 785, 49 A.L.R.2d 496]. See also, Larwin-Southern California, Inc. v. JGB Investment Co. (1979) 101 Cal.App.3d 626, 640 [162 Cal.Rptr. 52].) Here the lessor retains the discretionary power to approve or disapprove an assignee proposed by the other party to the contract; this discretionary power should therefore be exercised in accordance with commercially reasonable standards. “Where a lessee is entitled to sublet under common law, but has agreed to limit that right by first acquiring the consent of the landlord, we believe the lessee has a right to expect that consent will not be unreasonably withheld.” (Fernandez v. Vasquez, supra, 397 So.2d at p. 1174; accord, Boss Barbara, Inc. v. Newbill, supra, 638 P.2d at p. 1086.)15

*501Under the minority rule, the determination whether a lessor’s refusal to consent was reasonable is a question of fact. Some of the factors that the trier of fact may properly consider in applying the standards of good faith and commercial reasonableness are: financial responsibility of the proposed assignee; suitability of the use for the particular property; legality of the proposed use; need for alteration of the premises; and nature of the occupancy, i.e., office, factory, clinic, etc. (See Fernandez v. Vasquez, supra, 397 So.2d at p. 1174; Cohen v. Ratinoff, supra, 147 Cal.App.3d at p. 330; Rest.2d Property, § 15.2, reporter’s note 7 at pp. 112-113; Annot., 54 A.L.R.3d 689 (1973); 1 Friedman on Leases (1974) § 7.304c.)

Denying consent solely on the basis of personal taste, convenience or sensibility is not commercially reasonable. (Broad & Branford Place Corp. v. J. J. Hockenjos Co., 132 N.J.L. 229 [39 A.2d 80, 82]; Fernandez v. Vasquez, supra, 397 So.2d at p. 1174; Rest.2d Property, § 15.2, reporter’s note 7 at pp. 112-113.) Nor is it reasonable to deny consent “in order that the landlord may charge a higher rent than originally contracted for.” (Schweiso v. Williams, supra, 150 Cal.App.3d at p. 886. See Bedford Inv. Co. v. Folb, supra, 79 Cal.App.2d 363; 1010 Potomac Assoc, v. Grocery Manufacturers (D.C.App. 1984) 485 A.2d 199, 208-210; Funk v. Funk, supra, 633 P.2d 586; Fernandez v. Vasquez, supra, 397 So.2d at p. 1174; Chanslor-Western O. & D. Co. v. Metropolitan San. D. (1970) 131 Ill.App.2d 527 [266 N.E.2d 405]; Ringwood Associates, Ltd. v. Jack’s of Route 23, Inc. (1977) 153 N.J.Super. 294 [379 A.2d 508].) This is because the lessor’s desire for a better bargain than contracted for has nothing to do with the permissible purposes of the restraint on alienation—to protect the lessor’s interest in the preservation of the property and the performance of the lease covenants. “ ‘[T]he clause is for the protection of the landlord in its ownership and operation of the particular property—not for its general economic protection.’” (Ringwood Associates v. Jack’s of Route 23, Inc., supra, 379 A.2d at p. 512, quoting Krieger v. Helmsley-Spear, Inc. (1973) 62 N.J. 423 [302 A.2d 129], italics added.)

In contrast to the policy reasons advanced in favor of the minority rule, the majority rule has traditionally been justified on three grounds. Respondent raises a fourth argument in its favor as well. None of these do we find compelling.

First, it is said that a lease is a conveyance of an interest in real property, and that the lessor, having exercised a personal choice in the selection of a *502tenant and provided that no substitute shall be acceptable without prior consent, is under no obligation to look to anyone but the lessee for the rent. (Gruman v. Investors Diversified Services, supra, 247 Minn. 502 [78 N.W.2d 377, 380]; see also, Funk v. Funk, supra, 102 Idaho 521 [633 P.2d 586, 591] (Bakes, C. J., dis.).) This argument is based on traditional rules of conveyancing and on concepts of freedom of ownership and control over one’s property. (Funk v. Funk, supra, 633 P.2d at p. 591 (Bakes, C. J., dis.).)

A lessor’s freedom at common law to look to no one but the lessee for the rent has, however, been undermined by the adoption in California of a rule that lessors—like all other contracting parties—have a duty to mitigate damages upon the lessee’s abandonment of the property by seeking a substitute lessee. (See Civ. Code, § 1951.2.) Furthermore, the values that go into the personal selection of a lessee are preserved under the minority rule in the lessor’s right to refuse consent to assignment on any commercially reasonable grounds. Such grounds include not only the obvious objections to an assignee’s financial stability or proposed use of the premises, but a variety of other commercially reasonable objections as well. (See, e.g., Arrington v. Walter E. Heller International Corp. (1975) 30 Ill.App.3d 631 [333 N.E.2d 50] [desire to have only one “lead tenant” in order to preserve “image of the building” as tenant’s international headquarters]; Warmack v. Merchants Nat. Bank of Fort Smith (1981) 272 Ark. 166 [612 S.W.2d 733] [desire for good “tenant mix” in shopping center]; List v. Dahnke (Colo.App. 1981) 638 P.2d 824 [lessor’s refusal to consent to assignment of lease by one restaurateur to another was reasonable where lessor believed proposed specialty restaurant would not succeed at that location].) The lessor’s interests are further protected by the fact that the original lessee remains a guarantor of the performance of the assignee. (See ante, p. 500.)

The second justification advanced in support of the majority rule is that an approval clause is an unambiguous reservation of absolute discretion in the lessor over assignments of the lease. The lessee could have bargained for the addition of a reasonableness clause to the lease (i.e., “consent to assignment will not be unreasonably withheld”). The lessee having failed to do so, the law should not rewrite the parties’ contract for them. (See Gruman v. Investors Diversified Services, supra, 78 N.W.2d at pp. 381-382; Funk v. Funk, supra, 633 P.2d at pp. 590, 592 (Bakes, C. J., dis.).)

Numerous authorities have taken a different view of the meaning and effect of an approval clause in a lease, indicating that the clause is not “clear and unambiguous,” as respondent suggests. As early as 1940, the court in Granite Trust Bldg. Corp. v. Great Atlantic & Pac. T. Co., supra, 36 *503F.Supp. 77, examined a standard approval clause and stated: “It would seem to be the better law that when a lease restricts a lessee’s rights by requiring consent before these rights can be exercised, it must have been in the contemplation of the parties that the lessor be required to give some reason for withholding consent.” (Id., at p. 78, italics added.) The same view was expressed by commentators in the 1950’s. (See Note, Landlord and Tenant—Right of Lessor to Refuse Any Settlement When Lease Prohibits Transfer Without Consent (1957) 41 Minn. L.Rev. 355, 358-359; Note, Real Property—Landlord and Tenant—Lessor’s Arbitrary Withholding of Consent to Sublease (1957) 55 Mich. L.Rev. 1029, 1031; 2 Powell, supra, § 229, fn. 79 (1950).) Again in 1963, the court in Gamble v. New Orleans Housing Mart, Inc. (La.App. 1963) 154 So.2d 625, stated: “Here the lessee is simply not permitted to sublet without the written consent of the lessor. This does not prohibit or interdict subleasing. To the contrary, it permits subleasing provided only that the lessee first obtain the written consent of the lessor. It suggests or connotes that, when the lessee obtains a subtenant acceptable or satisfactory to the lessor, he may sublet. . . . Otherwise the provision simply would prohibit subleasing.” (Id., at p. 627, final italics added.) In Shaker Building Co. v. Federal Lime & Stone Co., supra, 28 Ohio Misc. 246 [277 N.E.2d 584], the court expressed the same view: “While the lease before the court clearly states that no assignment may take place without prior consent, inherent, however, in that provision is the representation that an assignment is possible. This court is of the opinion that equally inherent in that provision is the representation that such prior consent will not be withheld under any and all circumstances, reasonable or unreasonable.” (Id., 277 N.E.2d at p. 587, italics added.)16

In light of the interpretations given to approval clauses in the cases cited above, and in light of the increasing number of jurisdictions that have adopted the minority rule in the last 15 years, the assertion that an approval clause “clearly and unambiguously” grants the lessor absolute discretion over assignments is untenable. It is not a rewriting of a contract, as respondent suggests, to recognize the obligations imposed by the duty of good faith and fair dealing, which duty is implied by law in every contract.

The third justification advanced in support of the majority rule is essentially based on the doctrine of stare decisis. It is argued that the courts *504should not depart from the common law majority rule because “many leases now in effect covering a substantial amount of real property and creating valuable property rights were carefully prepared by competent counsel in reliance upon the majority viewpoint.” (Gruman v. Investors Diversified Services, supra, 78 N.W.2d at p. 381; accord, Funk v. Funk, supra, 633 P.2d at p. 592 (Bakes, C. J., dis.); Hamilton v. Dixon, supra, 168 Cal.App.3d at p. 1008.) As pointed out above, however, the majority viewpoint has been far from universally held and has never been adopted by this court. Moreover, the trend in favor of the minority rule should come as no surprise to observers of the changing state of real property law in the 20th century. The minority rule is part of an increasing recognition of the contractual nature of leases and the implications in terms of contractual duties that flow therefrom. (See Green v. Superior Court (1974) 10 Cal.3d 616, 624 [111 Cal.Rptr. 704, 517 P.2d 1168].) We would be remiss in our duty if we declined to question a view held by the majority of jurisdictions simply because it is held by a majority. As we stated in Rodriguez v. Bethlehem Steel Corp. (1974) 12 Cal.3d 382 [115 Cal.Rptr. 765, 525 P.2d 669], the “vitality [of the common law] can flourish only so long as the courts remain alert to their obligation and opportunity to change the common law when reason and equity demand it.” (Id., at p. 394.)

A final argument in favor of the majority rule is advanced by respondent and stated as follows: “Both tradition and sound public policy dictate that the lessor has a right, under circumstances such as these, to realize the increased value of his property.” Respondent essentially argues that any increase in the market value of real property during the term of a lease properly belongs to the lessor, not the lessee. We reject this assertion. One California commentator has written: “[W]hen the lessee executed the lease he acquired the contractual right for the exclusive use of the premises, and all of the benefits and detriment attendant to possession, for the term of the contract. He took the downside risk that he would be paying too much rent if there should be a depression in the rental market. . . . Why should he be deprived of the contractual benefits of the lease because of the fortuitous inflation in the marketplace^] By reaping the benefits he does not deprive the landlord of anything to which the landlord was otherwise entitled. The landlord agreed to dispose of possession for the limited term and he could not reasonably anticipate any more than what was given to him by the terms of the lease. His reversionary estate will benefit from the increased value from the inflation in any event, at least upon the expiration of the lease.” (4 Miller & Starr, Current Law of Cal. Real Estate (1977) 1984 supp., § 27:92 at p. 321.)

Respondent here is trying to get more than it bargained for in the lease. A lessor is free to build periodic rent increases into a lease, as the lessor *505did here. (See ante, p. 493.) Any increased value of the property beyond this “belongs” to the lessor only in the sense, as explained above, that the lessor’s reversionary estate will benefit from it upon the expiration of the lease. We must therefore reject respondent’s argument in this regard.17

A different argument in favor of the majority rule is suggested by the Court of Appeal in its opinion in this case, though the point was never raised by the parties. The Court of Appeal drew an inference from Civil Code section 1951.4 that the Legislature, when it adopted that section in 1970, considered and rejected the minority rule on approval clauses.

Section 1951.4 provides, in essence, that a lessor can avoid the statutory duty to mitigate damages (see Civ. Code, § 1951.2) by contracting to shift that duty onto the lessee.18 Absent such a shifting, the lessor could only *506recover, in the event of the lessee’s breach, that amount of damages which the lessor could not reasonably avoid by reletting the premises. Since the statutory scheme would be frustrated if the lessor could first contract to shift the duty of mitigation onto the lessee and then block the lessee’s attempts to assign or sublease, the statute provides that where consent to assignment is required, the lease must expressly state that such consent will not be unreasonably withheld. (Civ. Code, § 1951.4, subd. (b)(3).)

It is true that section 1951.4 impliedly recognizes that absent a “reasonableness” clause, a lessor might believe that he or she had a common law right arbitrarily to withhold consent to assignment, and thus frustrate the statutory scheme. However, implicit recognition in a statute of an existing common law rule that is not the subject of the statute does not constitute a codification of that rule, and certainly does not prevent a court from reexamining it. We cannot agree with the Court of Appeal’s speculation that the Legislature, when it adopted section 1951.4 in 1970, considered and rejected the minority position on the interpretation of an approval clause in a lease.

IV.

In conclusion, both the policy against restraints on alienation and the implied contractual duty of good faith and fair dealing militate in favor of adoption of the rule that where a commercial lease provides for assignment only with the prior consent of the lessor, such consent may be withheld only where the lessor has a commercially reasonable objection to the as*507signee or the proposed use. Under this rule, appellants have stated a cause of action against respondent Ernest Pestaña, Inc.

The order sustaining the demurrer to the complaint, which we have deemed to incorporate a judgment of dismissal,19 is reversed.

Bird, C. J., Reynoso, J., Grodin, J., and Kaus, J.,* * concurred.

LUCAS, J.

I respectfully dissent. In my view we should follow the weight of authority which, as acknowledged by the majority herein, allows the commercial lessor to withhold his consent to an assignment or sublease arbitrarily or without reasonable cause. The majority’s contrary ruling, requiring a “commercially reasonable objection” to the assignment, can only result in a proliferation of unnecessary litigation.

The correct analysis is contained in the opinion of Justice Carl Anderson for the Court of Appeal in this case. I adopt the following portion of his opinion as my dissent:

“This case is strikingly similar to a recent case this court decided— Schweiso v. Williams (1984) 150 Cal.App.3d 883, ... In Schweiso, we decided to follow the case of Cohen v. Ratinoff (1983) 147 Cal.App.3d 321 [195 Cal.Rptr. 84], which held that where ‘the lease provides for assignment or subletting only with the prior consent of the lessor, a lessor may refuse consent only where he has a good faith reasonable objection to the assignment or sublease, even in the absence of a provision prohibiting the unreasonable or arbitrary withholding of consent to an assignment of a commercial lease.’ (Id., at p. 330.)

“Both Schweiso and Cohen recognize that they are themselves departures from the long-established rule in California that such a lease proviso had heretofore meant that the lessor may, indeed, refuse consent arbitrarily and even without a good faith reasonable objection. The lease in question herein was written long before Schweiso and Cohen, and was interpreted by the trial court four months before the first of these decisions was filed. For reasons which follow, we believe both Schweiso and Cohen were wrongly decided, now decline to follow them, and affirm the decision of the trial court sustaining the demurrer herein.

“The plain language of the lease provides that the lessee shall not assign the lease ‘without written consent of Lessor first had and obtained .... *508Any such assignment or subletting without this consent shall be void, and shall, at the option of Lessor, terminate this lease.’ The lease does not require that ‘consent may not unreasonably be withheld’; the lease does not provide that ‘the lessor may refuse consent only where he has a good faith reasonable objection to the assignment.’ Neither have the parties so contracted, nor has the Legislature so required. Absent such legislative direction, the parties should be free to contract as they see fit.

“Appellant urges this court to rewrite the contract by adding a limitation on the lessor’s withholding of consent—‘that such consent may not be unreasonably withheld.’ He urges that such must be implied in the term ‘without written consent of lessor first had and obtained’; and he places the burden on the lessor to add language to negate that, if such be his intent-language such as ‘such consent may be arbitrarily, capriciously and/or unreasonably withheld.’

“However, it is obvious that the attorney for the lessor agreeing to such a term was entitled to rely upon the state of the law then existing in California. And at such time (Dec. 12, 1969), it is clear that California followed the ‘weight of authority’ in these United States and allowed such consent to be arbitrarily or unreasonably withheld absent a provision to the contrary. (Richard v. Degen & Brody, Inc. (1960) 181 Cal.App.2d 289 [5 Cal.Rptr. 263].) The Richard v. Degen & Brody court clearly held that the weight of authority as expressed in 51 Corpus luris Secundum section 36 was the law of California: ‘ “. . . where a subletting or assignment of the leased premises without the consent of the lessor is prohibited, he [lessor] may withhold his assent arbitrarily and without regard to the qualifications of the proposed assignee, unless ... the lease provides that consent shall not be arbitrarily or unreasonably withheld, and in granting his assent may impose such conditions as he sees fit.”’ (Id., at p. 299.)

“Even those few jurisdictions and authorities which have rejected the ‘arbitrary and capricious’ rule have forthrightly recognized that in doing so, they depart from the majority: ‘The general rule throughout the country has been that when a lease contains an approval clause, the landlord may arbitrarily and capriciously reject proposed subtenants.’ (Homa-Goff Interiors, Inc. v. Cowden (Ala. 1977) 350 So.2d 1035, 1037.) See also the reporters’ note to the Restatement Second of Property, section 15.2, at page 111, which proposes the very result advanced by appellants: ‘The rule adopted in subsection (2) of this section that the landlord may not unreasonably withhold his consent to a transfer by the tenant is contrary to the established common-law rule that if the lease mandates the consent of the landlord to validate a transfer, and the lease does not provide for the landlord to give *509consent if the transferee is reasonably suitable, such consent may be withheld arbitrarily by the landlord. ’ [Fn. omitted.]

“Those jurisdictions adopting the Restatement’s proposed departure from the settled common law appear to do so upon the shaky public policy rationale that the consent of a lessor should not be withheld unreasonably and that to hold otherwise is to violate the principle that restraints on alienation should be narrowly construed. (See Fernandez v. Vasquez (Fla. 1981) 397 So.2d 1171; Funk v. Funk (1981) 102 Idaho 521 [633 P.2d 586]; Shaker Building Co. v. Federal Lime & Stone Co. (1971) 28 Ohio Misc. 246 [277 N.E.2d 584]; Arrington v. Walter E. Heller International Corp. (1975) 30 Ill.App.3d 631 [333 N.E.2d 50].) Some even cite ‘moral needs’ (Homa-Goff Interiors, Inc. v. Cowden, supra, 350 So.2d at p. 1038) or the ‘increased recognition of and emphasis on the duty of good faith and fair dealing inherent in every contract’ (Cohen v. Ratinoff, supra, 147 Cal.App.3d 321, 330), or the egregious motive in enforcing the clause seeking ‘additional amounts of “blood” money from the appellants as a condition of consent to the assignments’ (Schweiso v. Williams, supra, 150 Cal.App.3d 883, 887 . . .).

“Some jurisdictions have overruled the common law, at least as to residential leases, by legislative action. (See Alaska Stat., § 34.03.060 (1975); Delaware Code Ann., tit. 25, § 5512, subd. (b) (1915); Hawaii Rev. Stat., § 516-63 (Supp. 1975).) This would appear to be the wisest procedure, if only to effect the repeal prospectively and thereby give force to those contracts entered into when the common law prevailed. See Justice Blood-worth’s dissent in Homa-Goff Interiors, Inc. v. Cowden, supra, 350 So.2d at page 1039: ‘To overturn a century and a quarter of existing real estate law without giving contracting parties “fair notice” is my principal complaint with the majority’s opinion. At the very least, I think the majority ought to make the rule they have adopted “prospective.” ’

“However, those jurisdictions which reject the temptation to follow what the minority call ‘the trend’ (see Fernandez v. Vasquez, supra, 397 So.2d at p. 1173) do so because they simply refuse to rewrite unambiguous language within a lease. (B & R Oil Company, Inc. v. Ray’s Mobile Homes, Inc. (1980) 139 Vt. 122 [422 A.2d 1267].) They so refuse in order to uphold the integrity of the contract and the inalienable rights of citizens to seek and obtain enforcement thereof by the courts. For those the motives and reasons for exercise of rights fairly contracted for are simply irrelevant: ‘This commercial lease expressly provided that it could not be assigned without the landlord’s consent; there was no limitation in the lease that such consent should not be unreasonably withheld. ... In the circumstances, the landlord was merely exercising its legal contractual rights in refusing to consent to *510an assignment of the lease unless the lease was modified to increase the rent. Such an exercise of the landlord’s legal rights does not constitute economic duress so as to entitle the tenant to damages. [Citation.]’ (Herlou Card Shop, Inc. v. Prudential Insurance Co. of America (1979) 73 App.Div.2d 562 [422 N.Y.S.2d 708] [reversing a $55,000 award to tenant].)

“Further persuading us that Cohen and Schweiso were wrongly decided is the failure of either case to discuss the history of what action the California Legislature has taken and, perhaps more importantly, not taken. For if the Legislature has considered adopting appellant’s position as the law of California and, having so considered, has rejected such a change, that refusal to act certainly implies legislative recognition and approval of current law. And this appears to be precisely the case in California. For in 1970 the Legislature added section 1951.4 to the Civil Code (elf. July 1, 1971) to permit landlords to recover rent due under the lease when the lessee breaches and abandons if the lease permits the lessee to ‘[s]ublet the property, assign his interest in the lease, or both, with the consent of the lessor, and the lease provides that such consent shall not unreasonably be withheld'. ’ (Civ. Code, § 1951.4, subd. (b)(3), italics added.) If the lease does not so provide then section 1951.2 of the Civil Code places upon the lessor the burden of retaking the premises and reletting the property in order to minimize damages.

“The Law Revision Commission comment on this addition makes clear the advantage to lessors in agreeing not to withhold consent unreasonably: ‘Where the lease complies with this section, the lessor may recover the rent as it becomes due under the terms of the lease and at the same time has no obligation to retake possession and relet the property in the event the lessee abandons the property. This allocation of the burden of minimizing the loss is most useful where the lessor does not have the desire, facilities, or ability to manage the property and to acquire a suitable tenant and for this reason desires to avoid the burden that Section 1951.2 places on the lessor to mitigate the damages by reletting the property.’ (Cal. Law Revision Com., com. § 1951.4.)

“Thus, the California Legislature has considered the situation of lessors contracting for the right (and then exercising it) of unreasonably withholding consent to an assignment. That it has provided an increased measure of damages (and thus an incentive) to those who forego this right is a clear recognition that the contractual right does exist.

“While we harbor great reverence for the doctrine of stare decisis and do not lightly reject the holdings in Cohen and Schweiso, we respectfully suggest that it is not for this court either in Cohen or Schweiso or the case at *511bar to imply a requirement of reasonableness when the Legislature specifically refused to do so 14 years earlier. [Fn. omitted.]

“To rewrite this contract (as appellant would have us do) for the benefit of one who was not an original party thereto, and to the detriment of one who stands in privity with one who was, and to hold that there is a triable issue of fact concerning whether respondents unreasonably withheld their consent when they had already contracted for that right, creates only mischief by breeding further uncertainty in the interpretation of otherwise unambiguously written contracts. To so hold only encourages needless future litigation.

“We respectfully suggest that if California is to adopt the minority rule and reject the majority rule which recognizes the current proviso as valid, unambiguous and enforceable, that it do so by clear affirmative legislative action. To so defer to the legislative branch, protects not only this contract but ‘those tens of thousands of landlords, tenants and lawyers who have relied on our unbroken line of judicial precedent. ’ (Homa-Goff Interiors, Inc. v. Cowden, supra, 350 So.2d at p. 1041.)”

I would affirm the judgment.

Mosk, L, concurred.

In July of 1983 petitioner landlord commenced the within summary nonpayment proceeding against respondents Randolph and Kikuchi, tenants of a loft space on the fourth floor of petitioner’s building on West 20th Street in Manhattan, alleging nonpayment of rent since July 1981. The tenants’ answer set forth as affirmative defenses that because they were unable to use two thirds of the loft space due to the landlord’s renovations and other conditions, they were entitled to an abatement of two thirds of the rent, and that as to the remaining one-third space, they were entitled to a further rent abatement due to the landlord’s failure to supply essential services. The tenants also counterclaimed for breach of *246warranty of habitability, seeking both actual and punitive damages and attorney’s fees.

A trial was held in Civil Court before Justice Saxe in November of 1983. It was stipulated that rent was due and owing from October 1981 through November 1983 in the amount of $12,787 ($200 due for Oct. 1981, $450 due each month from Nov. 1981 through Dec. 1982, and $567 per month since Jan. 1983).

Respondents commenced residency of the loft space in 1976 pursuant to a commercial lease. Petitioner offered a commercial lease even though at the time of the signing of the lease the building was used predominantly for residential purposes and the respondents had informed petitioner that they would use the loft as their residence. The loft space measures 1,700 square feet, approximately two thirds of which is used as a music studio for Mr. Kikuchi, where he composes, rehearses and stores his very expensive electronic equipment and musical instruments. The remainder of the space is used as the tenants’ residence.

Late in 1977, the fifth-floor tenant began to operate a health spa equipment business which included the display of fully working Jacuzzis, bathtubs, and saunas. The Jacuzzis and bathtubs were filled to capacity with water. From November 1977 through February 1982, respondents suffered at least 40 separate water leaks from the fifth floor. At times the water literally poured into the bedroom and bedroom closets of respondents’ loft, ruining their clothes and other items. Water leaked as well into the kitchen, the bathroom and onto Mr. Kikuchi’s grand piano and other musical instruments. Respondents’ complaints to petitioner went unheeded.

In January of 1978 the fifth-floor tenant began to sandblast the walls, causing sand to seep through openings around pipes and cracks in the ceiling and into respondent’s loft. The sand, which continued to fall into the loft even as the parties went to trial, got into respondents’ clothes, bed, food and even their eyes.

In September of 1981, the landlord commenced construction work in the building to convert the building into a class A multiple building. To convert the freight elevator into a passenger elevator, petitioner had the elevator shaft on respondent’s side of the building removed. The workers threw debris down the elevator shaft, raising "huge clouds of dust” which came pouring into the loft and settled everywhere, on respondents’ clothes, bed, food, toothbrushes and musical *247equipment. The musical equipment had to be covered at all times to protect it from the dust. Respondents began to suffer from eye and sinus problems, nausea, and soreness in their throats from the inhalation of the dust. Respondents attempted to shield themselves somewhat from the dust by putting up plastic sheets, only to have the workmen rip them down.

To demonstrate the hazardous nature of some of the construction work, respondents introduced evidence that as the landlord’s workers were demolishing the stairs from the seventh floor down, no warning signs were posted, causing one visitor to come perilously close to falling through a hole in the stairs. The workers jackhammered a new entrance to the loft, permitting the debris to fall directly onto the floor of respondents’ loft. The workmen would mix cement right on respondents’ floor. A new entrance door to the loft was sloppily installed without a door sill, and loose bricks were left around the frame. A day later, brick fragments and concrete fell on tenant Randolph’s head as she closed the door.

The record contains many more examples of dangerous construction and other conduct interfering with respondents’ ability to use and enjoy possession of their loft. From 1981 until the time of trial, Kikuchi was completely unable to use the music studio portion of the loft. His musical instruments had been kept covered and protected against the sand and later the dust since 1978.

The jury rendered a verdict awarding respondents a rent abatement of 80% for July 1981 through November 1983, as compensatory damages on the theory of constructive eviction from the music studio portion of the loft; a 40% rent abatement for January 1981 through November 1983, on the remainder of the rent due for the residential portion of the premises, on a theory of breach of warranty of habitability; a 10% rent abatement on the rent attributable to the residential portion of the premises for all of 1979, on a breach of warranty of habitability theory; and punitive damages in the amount of $20,000. After trial the court granted respondents’ motion made pursuant to Real Property Law § 234 for reasonable attorney’s fees, awarding respondents $5,000. The court also granted petitioner’s motion to set aside the verdict and for other relief, only to the extent of reducing the award for punitive damages to $5,000. Final judgment was entered on March 23,1984.

On appeal to the Appellate Term that court reversed the judgment. Holding that the doctrine of constructive eviction *248could not provide a defense to this nonpayment proceeding, because tenants had not abandoned possession of the demised premises, the court reversed the jury’s award as to the 80% rent abatement predicated on the constructive eviction theory. The court ordered a new trial on the counterclaim for breach of warranty of habitability, concluding it likely that the jury’s consideration of the constructive eviction claim impacted on the breach of warranty of habitability claim. The court also struck down the award of punitive damages, concluding that, even if punitive damages could properly be awarded in habitability cases, the facts herein did not support a finding of "high moral culpability” or "criminal indifference to civil obligations”, as required by Walker v Sheldon (10 NY2d 401, 405), so as to warrant punitive damages. We reverse and hold that the tenants were entitled to avail themselves of the doctrine of constructive eviction based on their abandonment of a portion of the premises and that the award for punitive damages was permissible and warranted by these facts.

We agree with the holding and reasoning of East Haven Assocs. v Gurian (64 Misc 2d 276) that a tenant may assert as a defense to the nonpayment of rent the doctrine of constructive eviction, even if he or she has abandoned only a portion of the demised premises due to the landlord’s acts in making that portion of the premises unusable by the tenant. The rule of Edgerton v Page (20 NY 281) the first decision to establish the requirement of abandonment of premises as a condition to asserting the defense of constructive eviction, is not undermined by our acknowledgement of a defense for partial constructive eviction. Edgerton v Page (supra, at 285) emphasized that the tenant’s obligation to pay rent continues as long as "the tenant remains in possession of the entire premises demised” (emphasis added). It is not contrary to this rule nor against any established precedent to hold that when the tenant is constructively evicted from a portion of the premises by the landlord’s actions, he should not be obligated to pay the full amount of the rent. (East Haven Assocs. v Gurian, supra, 64 Misc 2d, at 279-280.) Indeed "compelling considerations of social policy and fairness” dictate such a result. (Supra, at 277.) None of the cases cited by the landlord reaches or warrants a contrary conclusion. (See, Barash v Pennsylvania Term. Real Estate Corp., 26 NY2d 77, 83; Two Rector St. Corp. v Bein, 226 App Div 73, 76; 300 W. 56th St. Corp. v Kelly, 153 NYS2d 978.)

As for petitioner’s argument on appeal that the tenants never abandoned any portion of the premises and, in fact, *249continued to use the entire loft even up until the day of trial, we note that this assertion is unaccompanied by any citation to the record. This was no mere inadvertent error, for there is absolutely nothing in the record to support such a claim. The evidence at trial fully supported a finding that respondents were compelled to abandon the music studio portion of the loft due to "the landlord’s wrongful acts [which] substantially and materially deprive[d] the tenantfs] of the beneficial use and enjoyment” of that portion of the loft. (Barash v Pennsylvania Term. Real Estate Corp., supra, 26 NY2d, at 83.)

Petitioner does, however, correctly point out that as the constructive eviction claim was asserted as a defense to the nonpayment of rent and respondents did not request an abatement for any months other than those in which they did not pay rent, the jury’s award of an 80% rent abatement as to the months July, August, September and half of October of 1981 must be stricken.

The award for punitive damages, as reduced by the Civil Court to $5,000, should be reinstated as well. Although no exception to the court’s charge permitting the jury to award punitive damages was made,. we discuss the issue of the propriety of submitting this issue to the jury in light of petitioner’s argument that the award subjects it to a liability for which there is no support in the law and in light of Appellate Term’s inconclusive comment on whether or not punitive damages could, as a matter of law, be awarded in habitability cases.

Although generally in breach of contract claims the damages to be awarded are compensatory, in certain instances punitive damages may be awarded when to do so would "deter morally culpable conduct”. (Halpin v Prudential Ins. Co., 48 NY2d 906, 907; Williamson, Picket, Gross v Hirschfeld, 92 AD2d 289, 295 [punitive damages for conduct involving bad faith].) The determining factor is " 'not the form of the action * * * but the moral culpability of the defendant’ ” and whether the conduct implies a "criminal indifference to civil obligations.” (Walker v Sheldon, supra, 10 NY2d, at 404-405.)

With respect to this State’s strict housing code standards and statutes, made enforceable through civil and criminal sanctions and other statutory remedies, it is within the public interest to deter conduct which undermines those standards when that conduct rises to the level of high moral culpability or indifference to a landlord’s civil obligations. Therefore, it has been recognized that punitive damages may be awarded in breach of warranty of habitability cases where the landlord’s *250actions or inactions were intentional and malicious. (See, e.g., Pleasant E. Assocs. v Cabrera, 125 Misc 2d 877, 883-884; Century Apts. v Yalkowsky, 106 Misc 2d 762, 766; Davis v Williams, 92 Misc 2d 1051, 1054-1055; Kipsborough Realty Corp. v Goldbetter, 81 Misc 2d 1054, 1058-1060.)

Accordingly, the issue of punitive damages was properly submitted to the jury, and we are satisfied that this record supports the jury’s finding of morally culpable conduct in light of the dangerous and offensive manner in which the landlord permitted the construction work to be performed, the landlord’s indifference to the health and safety of others, and its disregard for the rights of others, so as to imply even a criminal indifference to civil obligations. (See, Walker v Sheldon, supra, 10 NY2d, at 405.) One particularly egregious example of the landlord’s wanton disregard for the safety of others was the way in which the stair demolition was performed: steps were removed and no warning sign even posted. The landlord’s indifference and lack of response to the tenants’ repeated complaints of dust, sand and water leak problems demonstrated a complete indifference to their health and safety and a lack of concern for the damage these conditions could cause to the tenants’ valuable personal property. Such indifference must be viewed as rising to the level of high moral culpability. Accordingly, the award of punitive damages is sustained.

We likewise reject petitioner’s argument that respondents cannot rely on their lease in order to recover attorney’s fees pursuant to the provisions of Real Property Law § 234. This statute has the effect, inter alia, of implying into a lease for residential property which contains a provision permitting the landlord to recover attorney’s fees in a summary proceeding brought pursuant to the lease a similarly binding covenant by the landlord to pay the tenant’s reasonable attorney’s fees incurred in the successful defense of a summary proceeding commenced by the landlord arising out of the lease. We find totally without merit petitioner’s interpretation of the decision of another Civil Court Judge, holding that the landlord could not take advantage of the waiver of jury trial lease provision, as meaning that respondents cannot now rely on the lease at all in seeking an award of attorney’s fees. This is an action under the lease and this lease has not been voided. Furthermore, residential occupants of lofts are afforded the same protections available to other residential tenants under the Real Property Law (see, Multiple Dwelling Law § 286 [11]). Thus, the award for attorney’s fees was proper.

*251Except to eliminate any rent abatement for July through mid-October of 1981, the Civil Court judgment should be reinstated. Concur — Sandler, J. P., Carro, Asch and Ellerin, JJ.

J. SKELLY WRIGHT, Circuit Judge:

These cases present the question whether housing code1 violations which arise during the term of a lease have any effect upon the tenant’s obligation to pay rent. The Landlord and Tenant Branch of the District of Columbia Court of General Sessions ruled proof of such violations inadmissible when proffered as a defense to an eviction action for nonpayment of rent. The District of Columbia Court of Appeals upheld this ruling. Saunders v. First National Realty Corp., 245 A.2d 836 (1968).

Because of the importance of the question presented, we granted appeallants’ petitions for leave to appeal. We now reverse and hold that a warranty of habitability, measured by the standards set out in the Housing Regulations for the District of Columbia, is implied by *1073operation of law into leases of urban dwelling units covered by those Regulations and that breach of this warranty gives rise to the usual remedies for breach of contract.

I

The facts revealed by the record are simple. By separate written leases,2 each of the appellants rented an apartment in a three-building apartment complex in Northwest Washington known as Clifton Terrace. The landlord, First National Realty Corporation, filed separate actions in the Landlord and Tenant Branch of the Court of General Sessions on April 8, 1986, seeking possession on the ground that each of the appellants had defaulted in the payment of rent due for the month of April. The tenants, appellants here, admitted that they had not paid the landlord any rent for April. However, they alleged numerous violations of the Housing Regulations as “an equitable defense or [a] claim by way of recoupment or set-off in an amount equal to the rent claim,” as provided in the rules of the Court of General Sessions.3 They offered to prove

“[t]hat there are approximately 1500 violations of the Housing Regulations of the District of Columbia in the building at Clifton Terrace, where Defendant resides some affecting the premises of this Defendant directly, others indirectly, and all tending to establish a course of conduct of violation of the Housing Regulations to the damage of Defendants * * *.”

Settled Statement of Proceedings and Evidence, p. 2 (1966). Appellants conceded at trial, however, that this offer of proof reached only violations which had arisen since the term of the lease had commenced. The Court of General Sessions refused appellants’ offer of proof4 and entered judgment for the landlord. The District of Columbia Court of Appeals affirmed, rejecting the argument made by appellants that the landlord was under a contractual duty to maintain the premises in compliance with the Housing Regulations. Saunders v. First National Realty Corp., supra, 245 A.2d at 838.5

*1074II

Since, in traditional analysis, a lease was the conveyance of an interest in land, courts have usually utilized the special rules governing real property transactions to resolve controversies involving leases. However, as the Supreme Court has noted in another context, “the body of private property law * * *, more than almost any other branch of law, has been shaped by distinctions whose validity is largely historical.” 6 Courts have a duty to reappraise old doctrines in the light of the facts and values of contemporary life — particularly old common law doctrines which the courts themselves created and developed.7 As we have said before, “[T]he continued vitality of the common law * * * depends upon its ability to reflect contemporary community values and ethics.” 8

The assumption of landlord-tenant law, derived from feudal property law, that a lease primarily conveyed to the tenant an interest in land may have been ..reasonable in a rural, agrarian society; it may continue to be reasonable in some leases involving farming or commercial land. In these cases, the value of the lease to the tenant is the land itself. But in the case of the modern apartment dweller, the value of the lease is that it gives him a place to live. The city dweller who seeks to lease an apartment on the third floor of a tenement has little interest in the land 80 or 40 feet below, or even in the bare right to possession within the four walls of his apartment. When American city dwellers, both rich and poor, seek “shelter” /today, they seek a well known package of goods and services 9 — a package which includes not merely walls and ceilings, but also adequate heat, light and ventilation, serviceable plumbing facilities, secure windows and doors, proper sanitation, and proper maintenance.

Professor Powell summarizes the present state of the law:

“ * * * The complexities of city life, and the proliferated problems of modern society in general, have created new problems for lessors and lessees and these have been commonly handled by specific clauses inserted in leases. This growth in the number and detail of specific lease covenants has reintroduced into the law of estates for years a predominantly contractual ingredient. In practice, the law today concerning estates for years consists chiefly of rules determining the construction and effect of lease covenants. * * * ” 10

Ironically, however, the rules governing the construction and interpretation of “predominantly contractual” obligations in leases have too often remained rooted in old property law.

Some courts have realized that certain of the old rules of property law *1075governing leases are inappropriate for today’s transactions. In order to reach results more in accord with the legitimate expectations of the parties and the standards of the community, courts have been gradually introducing more modern precepts of contract law in interpreting leases.11 Proceeding piecemeal has, however, led to confusion where “decisions are frequently conflicting, not because of a healthy disagreement on social policy, but because of the lingering impact of rules whose policies are long since dead.”12

In our judgment the trend toward treating leases as contracts is wise and well considered. Our holding in this /case reflects a belief that leases of url ban dwelling units should be interpreted 'and construed like any other contract.13

Ill

Modem contract law has recognized that the buyer of goods and services in an industrialized society must rely upon the skill and honesty of the supplier to assure that goods and services purchased are of adequate quality.14 In interpreting most contracts, courts have sought to protect the legitimate expectations of the buyer and have steadily widened the seller’s responsibility for the quality of goods and services through implied warranties of fitness and" merchantability.15 Thus without any special agreement a merchant will be held to warrant that his goods are fit for the ordinary purposes for which such goods are used and that they are at least of reasonably average quality. Moreover, if the supplier has been notified that goods are required for a specific purpose, he will be held to warrant that any goods sold are fit for that purpose. These implied warranties have become widely accepted and well established features of the common law, supported by the overwhelming body of case law.16 Today most states as well as the District of Columbia17 have codified and enacted these warranties into statute, as to the sale of goods, in the Uniform Commercial Code.

Implied warranties of quality have not been limited to cases involving sales. The consumer renting a chattel, paying for services, or buying a combination of goods and services must rely upon the skill and honesty of the supplier to at least the same extent as a purchaser of goods. Courts have not hesitated to find implied warranties of fitness and mer*1076chantability in such situations.18 In most areas product liability law has moved far beyond “mere” implied warranties running between two parties in privity with each other.19

The rigid doctrines of real property law have tended to inhibit the application of implied warranties to transactions involving real estate.20 Now, however, courts have begun to hold sellers and developers of real property responsible for the quality of their product.21 For example, builders of new homes have recently been held liable to purchasers for improper construction on the ground that the builders had breached an implied warranty of fitness.22 In other cases courts have held builders of new homes liable for breach of an implied warranty that all local building regulations had been complied with.23 And following the developments in other areas, very recent decisions24 and commentary 25 suggest the possible extension of liability to parties other than the immediate seller for improper construction of residential real estate.

Despite this trend in the sale of real estate, many courts have been unwilling to imply warranties of quality, specifically a warranty of habitability, into leases of apartments. Recent decisions have offered no convincing explanation for their refusal26; rather they have relied without discussion upon the old common law rule that the lessor is not obligated to repair unless he covenants to do so in the written lease contract.27 However, the Supreme Courts of at least two states, in recent and well reasoned opinions, have held landlords to implied warranties of quality in housing leases. Lemle v. Breeden, S.Ct.Hawaii, 462 P.2d 470 (1969); Reste Realty Corp. v. Cooper, 53 N.J. 444, 251 A.2d 268 (1969). See also Pines v. Perssion, 14 Wis.2d 590, 111 N.W.2d 409 (1961). In our judgment, the old no-repair rule can*1077not coexist with the obligations imposed on the landlord by a typical modern housing code, and must be abandoned28 in favor of an implied warranty of habitability.29 In the District of Columbia, the standards of this warranty are set out in the Housing Regulations.

IV

A. In our judgment the common law itself must recognize the landlord’s obligation to keep his premises in a habitable condition. This conclusion is compelled by three separate considerations. First, we believe that the old rule was based on certain factual assumptions which are no longer true; on its own terms, it can no longer be justified. Second, we believe that the consumer protection cases discussed above require that the old rule be abandoned in order to bring residential landlord-tenant law into harmony with the principles on which those cases rest. Third, we think that the nature of today’s urban housing market also dictates abandonment of the old rule.

The common law rule absolving the lessor of all obligation to repair originated in the early Middle Ages.30 Such a rule was perhaps well suited to an agrarian economy; the land was more important31 than whatever small living structure was included in the leasehold, and the tenant farmer was fully capable of making repairs himself.32 These historical facts were the basis on which the common law constructed its rule; they also provided the necessary prerequisites for its application.33

Court decisions in the late 1800’s began to recognize that the factual assumptions of the common law were no longer accurate in some cases. For example, the common law, since it assumed that the land was the most important part of the leasehold, required a tenant to pay rent even if any building on the land *1078was destroyed.34 Faced with such a rule i and the ludicrous results it produced, in _1863 the New York Court of Appeals declined to hold that an upper story tenant was obliged to continue paying rent after his apartment building burned down.35 The court simply pointed out that the urban tenant had no interest in the land, only in the attached building.

Another line of cases created an exception to the no-repair rule for short term leases of furnished dwellings.36 The Massachusetts Supreme Judicial Court, a court not known for its willingness to depart from the common law, supported this exception, pointing out:

“ * * * [A] different rule should apply to one who hires a furnished room, or a furnished Louse, for a few days, or a few weeks or months. Its fitness for immediate use of a particular kind, as indicated by its appointments, is a far more important element entering into the contract than when there is a mere lease of real estate. One who lets for a short term a house provided with all furnishings and appointments for immediate residence may be supposed to contract in reference to a well-understood purpose of the hirer to use it as a habitation. * * * It would be unreasonable to hold, under such circumstances, that the landlord does not impliedly agree that what he is letting is a house suitable for occupation in its condition at the time. * * * "37

These as well as other similar cases 38 demonstrate that some courts began some time ago to question the common law’s assumptions that the land was the most important feature of a leasehold and that the tenant could feasibly make any necessary repairs himself. Where those asjsumptions no longer reflect contempo|rary housing patterns, the courts have Icreated exceptions to the general rule that landlords have no duty to keep their premises in repair.

' It is overdue for courts to admit that these assumptions are no longer true with regard to all urban housing. Today’s (urban39 tenants, the vast majority of ¡whom live in multiple dwelling houses, ‘are interested, not in the land, but solely in “a house suitable for occupation.” Furthermore, today’s city dweller usually has a single, specialized skill unrelated to maintenance work; he is unable to make repairs like the “jack-of-all-trades” farmer who was the common law’s model of the lessee.40 Further, unlike his agrarian predecessor who often remained on one piece of land for his entire life, urban tenants today are more mobile than ever before. A tenant’s tenure in a specific apartment will often not be sufficient to justify efforts at repairs. -In addition, the increasing complexity of today’s dwellings renders them much more difficult to repair than the structures of earlier times. In a multiple dwelling repair may require access to equipment and areas in the control of the landlord. Low and middle income tenants, even if they were interested in *1079making repairs, would be unable to obtain any financing for major repairs since they have no long-term interest in the property.

Our approach to the common law of landlord and tenant ought to be aided by principles derived from the consumer protection cases referred to above.41 In a lease contract, a tenant seeks to purchase from his landlord shelter for a specified period of time. The landlord sells housing as a commercial businessman and has much greater opportunity, incentive and capacity to inspect and maintain the condition of his building. Moreover, the tenant must rely upon the skill and bona, fides of his landlord at least as much as a car buyer must rely upon the ear manufacturer. In dealing with major problems, such as heating, plumbing, electrical or structural defects, the tenant’s position corresponds precisely with “the ordinary consumer who cannot be expected to have the knowledge or capacity or even the opportunity to make adequate inspection of mechanical instrumentalities, like automobiles, and to decide for himself whether they are reasonably fit for the designed purpose.” Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 375, 161 A.2d 69, 78 (1960).42

Since a lease contract specifies a particular period of time during which the tenant has a right to use his apartment for shelter, he may legitimately expect that the apartment will be fit for habitation for the time period for which it is rented. We point out that in the present cases there is no allegation that appellants’ apartments were in poor condition or in violation of the housing code at the commencement of the leases.43 Since the lessees continue to pay the same rent, they were entitled to expect that the landlord would continue to keep the premises in their beginning condition during the lease term. It is precisely such expectations that the law now recognizes as deserving of formal, legal protection.

Even beyond the rationale of traditional products liability law, the relationship of landlord and tenant suggests further compelling reasons for the law’s protection of the tenants’ legitimate expectations of quality. The inequality in bargaining power between landlord and tenant has been well documented.44 Tenants have very little leverage to enforce demands for better housing. Various impediments to competition in the rental housing market, such as racial and class discrimination45 and standardized form leases,46 mean that landlords place tenants in a take it or leave it situation. The increasingly severe shortage47 of adequate housing further increases the landlord’s bargaining power and escalates the need for maintaining and improving the existing stock. Finally, the findings by various studies of the social impact of bad housing has led to the realization that poor housing is detrimental to the whole society, not mere*1080ly to the unlucky ones who must suffer the daily indignity of living in a slum.48

Thus we are led by our inspection of the relevant legal principles and precedents to the conclusion that the old common law rule imposing an obligation _upon the lessee to repair during the lease term was really never intended to apply to residential urban leaseholds. Contract principles established-in other areas of the law provide a more rational framework for the apportionment of landlord-tenant responsibilities; they strongly suggest that a warranty of habitability be implied into all contracts49 for urban dwellings.

B. We believe, in any event, that the District’s housing code requires that a warranty of habitability be implied in the leases of all housing that it covers. The housing code — formally designated the Housing Regulations of the District of Columbia — was established and authorized by the Commissioners of the District of Columbia on August 11, 1955.50 Since that time, the code has been updated by numerous orders of the Commissioners.. The 75 pages of the Regulations provide a comprehensive regulatory scheme setting forth in some detail: (a) the standards which housing in the District of Columbia must meet; 51 (b) which party, the lessor or the lessee, must meet each standard; and (c) a system of inspections, notifications and criminal penalties. The Regulations themselves are silent on the question of private remedies.

Two previous decisions of this court, however, have held that the Housing Regulations create legal rights and duties enforceable in tort by private parties. In Whetzel v. Jess Fisher Management Co., 108 U.S.App.D.C. 385, 282 F.2d 943 (1960), we followed the leading ease of Altz v. Lieberson, 233 N.Y. 16, 134 N.E. 703 (1922), in holding (1) that the housing code altered the common law rule and imposed a duty to repair upon the landlord, and (2) that a right of action accrued to a tenant injured by the landlord’s breach of this duty. As Judge Cardozo wrote in Lieberson:

“ * * * We may be sure that the framers of this statute, when regulating tenement life, had uppermost in thought the care of those who are unable to care for themselves. The Legislature must have known that unless repairs in the rooms of the poor were made by the landlord, they would not be made by any one. The duty imposed became commensurate with the need. The right to seek redress is not limited to the city or its officers. The right extends to all whom there was a purpose to protect. * * * ”

134 N.E. at 704. Recently, in Kanelos v. Kettler, 132 U.S.App.D.C. 133, 135, 406 F.2d 951, 953 (1968), we reaffirmed our position in Whetzel, holding that “the Housing Regulations did impose maintenance obligations upon appellee [landlord] which he was not free to ignore.”52

The District of Columbia Court of Appeals gave further effect to the Housing Regulations in Brown v. Southall Realty Co., 237 A.2d 834 (1968). There the landlord knew at the time the lease was signed that housing code violations existed which rendered the apartment “unsafe and unsanitary.” Viewing the lease as a contract, the District of Columbia Court of Appeals held that the premises were let in violation of Sections *10812304 53 and 2501 54 of the Regulations and that the lease, therefore, was void as an illegal contract. In the light of Brown, it is clear not only that the housing code creates privately enforceable duties as held in Whetzel, but that the basic validity of every housing contract depends upon substantial compliance with the housing code at the beginning of the lease term. The Brown court relied particularly upon Section 2501 of the Regulations which provides:

“Every premises accommodating one or more habitations shall be maintained and kept in repair so as to provide decent living accommodations for the occupants. This part of this Code contemplates more than mere basic repairs and maintenance to keep out the elements; its purpose is to include repairs and maintenance designed to make a premises or neighborhood healthy and safe.”

By its terms, this section applies to maintenance and repair during the lease term. Under the Brown holding, serious failure to comply with this section before the lease term begins renders the contract void. We think it untenable to find that this section has no effect on the contract after it has been signed. To the contrary, by signing the lease the landlord has undertaken a continuing obligation to the tenant to maintain the premises in accordance with all applicable law.

This principle of implied warranty is well established. Courts often imply relevant law into contracts to provide a remedy for any damage caused by one party’s illegal conduct.55 In a case closely analogous to the present ones, the Illinois Supreme Court held that a builder who constructed a house in violation of the Chicago building code had breached his contract with the buyer:

“ * * * [T]he law existing at the time and place of the making of the contract is deemed a part of the contract, as though expressly referred to or incorporated in it. * * *

“The rationale for this rule is that the parties to the contract would have expressed that which the law implies ‘had they not supposed that it was unnecessary to speak of it because the law provided for it.’ * * * Consequently, the courts, in construing the existing law as part of the express contract, are not reading into the contract provisions different from those expressed and intended by the parties, as defendants contend, but are merely construing the contract in accordance with the intent of the parties.”56

We follow the Illinois court in holding that the housing code must be read into housing contracts — a holding also required by the purposes and the structure of the code itself.57 The duties imposed by the Housing Regulations may *1082not be waived or shifted by agreement if the Regulations specifically place the duty upon the lessor.58 Criminal penalties are provided if these duties are ignored. This regulatory structure was established by the Commissioners because, in their judgment, the grave conditions in the housing market required serious action. Yet official enforcement of the housing code has been far from uniformly effective.59 Innumerable studies have documented the desperate condition of rental housing in the District of Columbia and in the nation. In view of these circumstances, we think the conclusion reached by the Supreme Court of Wisconsin as to the effect of a housing code on the old common law rule cannot be avoided:

“* * * [T]he legislature has made a policy judgment — that it is socially (and politically) desirable to impose these duties on a property owner — which has rendered the old common law rule obsolete. To follow the old rule of no implied warranty of habitability in leases would, in our opinion, be inconsistent with the current legislative policy concerning housing standards. * * * ”60

We therefore hold that the Housing Regulations imply a warranty of habitability, measured by the standards which they set out, into leases of all housing that they cover.

V

In the present cases, the landlord sued for possession for nonpayment of rent. Under contract principles,61 however, the tenant's obligation to pay rent is dependent upon the landlord’s performance of his obligations, including his warranty to maintain the premises in habitable condition. In order to determine whether any rent is owed to the landlord, the tenants must be given an opportunity to prove the housing code violations alleged as breach of the landlord’s warranty.62

At trial, finder of fact must make two findings: (1) whether the alleged violations 63 existed during the period for which past due rent is claimed, and (2) what portion, if any or all, of *1083the tenant’s obligation to pay rent was suspended by the landlord’s breach. If no part of the tenant’s rental obligation is found to have been suspended, then a judgment for possession may issue forthwith. On the other hand, if the jury determines that the entire rental obligation has been extinguished by the landlord’s total breach, then the action for possession on the ground of nonpayment must fail.64

The jury may find that part of the tenant’s rental obligation has been suspended but that part of the unpaid back rent is indeed owed to the landlord.65 In these circumstances, no judgment for possession should issue if the tenant agrees to pay the partial rent found to be due.66 If the tenant refuses to pay the partial amount, a judgment for possession may then be entered.

The judgment of the District of Columbia Court of Appeals is reversed and the cases are remanded for further proceedings consistent with this opinion.67

So ordered.

Circuit Judge ROBB concurs in the result and in Parts IV-B and V of the opinion.

The opinion of the court was delivered by

Parker, J:

This action originated in the district court of Lyon county when plaintiff filed a petition seeking to rescind a contract in which he had agreed to purchase certain real estate on the ground title tendered by the defendants was unmerchantable. The defendants Bower and Bower, husband and wife, answered contesting plaintiff’s right to rescind and by cross-petition asked specific performance of the contract. The defendant Newcomer answered, stating he was an escrow agent under terms of the agreement, that he had no interest in the action except in that capacity and that he would abide and be governed by whatever decision was rendered by the court. The case was tried upon the pleadings and stipulated facts by the trial court which rendered judgment for the defendants generally and decreed specific performance of the contract. The plaintiff appeals from that judgment.

The pleadings are of little consequence and can be summarized by brief reference to salient features thereof.

Plaintiff’s petition alleges execution of the contract whereby he agreed to purchase Lot 37 in Berkley Hills Addition in the city of Emporia and makes such contract a part of that pleading. It avers that after execution of the agreement it came to his attention that the house on the real estate therein described had been placed there in violation of Section 5-224 of the Ordinances of the city of Emporia in that the house was located within approximately 18 inches of the north line of such lot in violation of the ordinance providing that no frame building should be erected within 3 feet of a side or rear lot line. It further avers that after execution of the agreement it came to plaintiff’s knowledge the dedication of the Berkeley Hills Addition requires that only a two story house should be erected on the lot described in the contract whereas the house located thereon *444is a one story house. It then states the violations of the city ordi-. nance and the dedication restrictions were unknown to the plaintiff when he entered into the contract and that he would not have entered into such agreement if he had known thereof. It next alleges that after becoming aware of such violations plaintiff notified the defendants in writing thereof, demanded that he be released from his contract and that defendants refused such demand. Finally it charges that such violations made the title unmerchantable and asks that the agreement be canceled and set aside and that all moneys paid by plaintiff under its terms be refunded.

The answer of defendants Bower and Bower admits execution of the contract and denies generally all allegations of the petition. It specifically denies the house on Lot 37 violates Ordinance 5-224 or the restrictions contained in the dedication of the Berkley Hills Addition and alleges the restrictions in such dedication are of no force and effect because they were extinguished by sale of the property for taxes and that such ordinance is of no force and effect because it was repealed by one ordinance of such city, describing it, and conflicts with the provisions of another ordinance which is also described. Their cross-petition alleges performance of the contract, that plaintiff is in the possession of the property but has refused to pay the balance due on the purchase price, and that they are entitled to judgment for specific performance of the contract with directions to defendant Newcomer to pay them all sums paid him by plaintiff as escrow agent under its terms.

The contents of defendant Newcomer’s answer have been heretofore referred to and require no further attention.

Further pleadings disclosed by the record are in the form of general denials and consist of a reply to the answer, an answer to the cross-petition, and a reply to plaintiff’s answer to the cross-petition.

Pertinent provisions of the contract, entered into between the parties, essential to disposition of the issues raised by the pleadings, read:

“Witnesseth, That in consideration of the stipulations herein contained, and the payments to be made by the second party as hereinafter specified, the first party hereby agrees to sell unto the second party the following described real estate, situated in the County of Lyon, State of Kansas, to-wit:

Lot numbered Thirty-seven (37) on Berkley Road in Berkley Hills Addition to the City of Emporia, according to the recorded plat thereof.

and to convey the above described real estate to the second party by Warranty Deed with an abstract of title, certified to date showing good merchantable *445title or an Owners Policy of Title Insurance in the amount of the sale price, guaranteeing said title to party of the second part, free and clear of all encumbrances except special taxes subject, however, to all restrictions and easements of record applying to this property, it being understood that the first party shall have sufficient time to bring said abstract to date or obtain Report for Title Insurance and to correct any imperfections in the title if there be such imperfections.

“That the deed and/or other papers of transfer are to be executed at once by the first party and placed in escrow with Newcomer Agency, to be held by said Newcomer Agency together with the earnest money until the transaction is completed according to this agreement, and that all further payments are to he made through Newcomer Agency.

“That if the first party cannot deliver title as agreed, the earnest money paid by the second party shall be returned to said second party and this contract cancelled.”

Heretofore we have indicated that by agreement the cause was submitted to the trial court upon the pleadings and a stipulation of facts. Having summarized the pleadings it now becomes necessary to direct attention to the stipulation. That instrument is lengthy and we hesitate to quote it in toto. However, since, where the facts are agreed upon and in writing, this court is in the same position to weigh them as the court below (See City of Wichita v. Boles, 156 Kan. 619, 135 P. 2d 542), we have decided that should be done. It reads:

“In ibis stipulation whenever the term defendants is used, it applies only to defendants Carl A. Bower, and Anne S. Bower.

“It is hereby stipulated between the parties hereto that defendants acquired title to the real property in controversy from Alonzo Walls and Lucy Walls, his wife, by warranty deed dated August 19, 1946; that said Alonzo Walls took title to said property by Sheriff’s Deed, dated October 1, 1942, which deed was issued pursuant to the tax foreclosure laws of Kansas, Chapter 375, 1941 Session Laws, Kansas.

“That the real property in controversy is Lot No. 37 on Berkley Road in Berkley Hills Addition, which lot is 50 feet in width and fronts west on the east side of Berkley Road; that defendants procured a permit from the Fire Chief of the City of Emporia, on August 21, 1946, to move a house which had been built elsewhere on to said lot, and pursuant to said permit, did move the house on said lot during August of 1946; that during said year defendants made improvements on said house, which did not include structural alterations.

“The above mentioned house is a frame house and is located on the lot, 41 feet back from the sidewalk. The south wall of the house is 9 feet from the South line of the lot. The north wall of the house is 18 inches from the north line of the lot. The walls of the house are 10 feet 11 inches in height, from the ground to eaves, and the ridge of the roof is 21 feet, 2 inches, from the *446ground. The chimney extends 2 feet and 6 inches above the ridge of the roof. Two dormer windows face the front. The sills of these windows are more than 10 feet 11 inches above the ground. The portion of the house above the first or ground floor is immediately under the roof; is unfinished and the only means of access thereto is through a square hole cut through the ceiling of a storeroom closet off the hallway.

“It is further stipulated that defendants had their abstract of title recertified and delivered to said escrow holder, Ted Newcomer, for delivery to plaintiff, which he did, and the following correspondence ensued.

“Emporia, Kansas

June 13, 1949.

Dr. L. K. Lohmeyer,

Emporia, Kansas.

Dear Dr. Lohmeyer:

You have handed me abstract of title to Lot No. 37, Berkley Hills Addition to the City of Emporia, for examination. ,

Before examining this abstract I wish to call your attention to one matter. It is my information that the dwelling house located on the above described property extends to within 17 or 18 inches of the North line of the lot. There is nothing in the abstract bearing on this question, and I suggest that before further considering this abstract, you ascertain the location of the dwelling house with reference to the property line, in view of the fact that Section 5-224 of the Ordinances of the City of Emporia, provides as follows:

“In no case shall a frame building be erected within three feet of the side or rear lot line, nor within six feet of another building, unless the space between the studs on such side shall be filled solidly with not less than 2K inches of brick work or other equivalent incombustible material.”

In view of the foregoing Ordinance, you would be subject to having to remove that portion of your building extending beyond the three foot restricted space, in the event the owner of the adjoining property or any subsequent owner, or the City should take exception to the encroachment. The passing of time, commonly referred to as the Statute of Limitations, does not cure such a defect. If your investigation discloses that the building on the above lot complies with the foregoing Ordinance, then I will proceed with the examination of the title.

Very truly yours,

(Signed) Roscoe W. Graves.”

RWG/hs

“Emporia, Kansas

June 16, 1949

Ted Newcomer,

Newcomer Agency,

Emporia State Bank Bldg.,

Emporia, Kansas.

Dear Sir:

A copy of the letter written to me by Roscoe Graves, Lawyer, dated June 13, 1949, and delivered to you the same date is called to your attention.

The opinion drawn by this letter makes the title to the property, Lot number *447thirty-seven (37) on Berkley Road, non-merchantable, as per agreement date May 19, 1949.

E'or this reason I am asking the return of my payments totaling thirty-eight hundred dollars ($3800.00).

Sincerely yours,

(Signed) K. L. Lohmeyer, M. D.”

“No further legal opinion, other than above, nor information with reference to title requirements have been delivered to defendants or their attorneys.

"That plaintiff is now living in said house and has been in possession thereof since June 1, 1949.

“That defendants offered to purchase and convey to plaintiff two feet along the entire north side of the lot in controversy without charge and plaintiff refused such offer.

“It is further stipulated and agreed that the following paragraphs are the portion of the Declaration of Restrictions affecting Berkley Hills Addition to the City of Emporia and that the property in controversy herein is a part of said Addition.

“Declaration of Restrictions Affecting Berkley Hills Addition to Emporia, Kansas

Calvin H. Lambert and wife to the Public:

Filed July 6, 1926,

Register of Deeds

Lyon County, Kansas.

“Persons Bound By These Restrictions.

“All persons who now own or who shall hereafter acquire any interest in any of the lots in Berkley Hills, shall be taken and held to agree and covenant with the owner of the lots shown on said plat, and with his successors and assigns, to conform to and observe the following covenants, restrictions and stipulations as to the use therof, and the construction of residences and improvements thereon, for a period of 25 years from May 15, 1926, provided however, that each of said restrictions shall be renewable in the manner hereinafter set forth.

“Sec. II Required Cost and Height of Residence.

“Any residence erected wholly or partially on any of the following lots or part or parts therof as indicated in this section shall cost not less than the sum herein below set forth, and shall be of the height designated as follows:

“On lots 30, 31, 32, 33, 34, 35, 36, 37, 39, 40, 56, 57, 58, 59, 60, 61, 62 and 63, two-story residences, $7000.

' “Section 9. Duration of Restrictions:

“Each of the restrictions above set forth shall be binding upon Calvin H. Lambert and his successors and assigns for a period of 25 years from May 15. 1926, and shall automatically be continued thereafter for successive periods of 25 years each.

“Section 10. Right to Enforce:

“The restrictions herein set forth shall run with the land and bind the present owner, his successor and assigns and all parties claiming by, through and under him. The section further provides that the owner or owners of any of the above land shall have the right to sue for and obtain an injunction, prohibitory or *448mandatory, to prevent the breach of or enforce the provisions of the restrictions above set forth, in addition to the ordinary legal action for damages, and the failure of Calvin H. Lambert or the owner or owners of any other lot or lots in this addition, to enforce any of the restrictions herein set forth at the time of its violation shall in no event be deemed to be a waiver of the right to do so thereafter.

“Tender of Possession.

“The plaintiff does hereby tender the possession of the involved property to the defendants at such time as the payments he has made under the contract of sale have been repaid to him by the escrow party.

“Ordinances of City of Emporia.

“Sec. 5-224. Frame Buildings.

“In no case shall a frame building be erected within three feet of the side or rear lot line, nor within six feet of another building, unless the space between the studs on such side be filled solidly with not less than 2K inches of brickwork or other equivalent incombustable material.

“1946 Revised Ordinances of City of Emporia.

“Article XXVI. Conflicting Ordinances Repealed.

“Sec. 1. Any ordinances or parts of ordinances and particularly any parts of Ordinance 1314 as Amended, in conflict herewith are hereby repealed.

“Revised Zoning Ordinance,

No. 1674, January, 1949.

“Article V. ‘A’ Single Family District Regulations.

“Sec. 4. (2) a. Except as hereinafter provided in the following paragraph and in Article XVI, there shall be a side yard on each side of a buliding, having a width of not less than five (5) feet.

“b. Whenever a lot of record existing.

“2. Side Yard.

“(a) Except as hereinafter provided in the following paragraph and in Article XVI, there shall be a side yard on each side of a building, having a width of not less than five (5) feet.

“(b) Whenever a lot of record existing at the time of the passage of this ordinance has a width of less than fifty (50) feet, the side yard on each side of a building may be reduced to a width of not less than ten (10) per cent of the width of the lot, but in no instance shall it be less than three (3) feet.

“Revised Zoning Ordinance,

No. 1674, January, 1949.”

From what has been heretofore related, since resort to the contract makes it clear appellees agreed to convey the involved property with an abstract of title showing good merchantable title, free and clear of all encumbrances, it becomes apparent the all decisive issue presented by the pleadings and the stipulation is whether such property is subject to encumbrances or other burdens making the title unmerchantable and if so whether they are such as are excepted by the provision of the contract which reads “subject however, to all restrictions and easements of record applying to this property.”

*449Decision of the foregoing issue can be simplified by directing attention early to the appellant’s position. Conceding he purchased the property subject to all restrictions of record he makes no complaint of the restrictions contained in the declaration forming a part of the dedication of Berkley Hills Addition nor of the ordinance restricting the building location on the lot but bases his right to rescission of the contract solely upon presently existing violations thereof. This, we may add, limited to restrictions imposed by terms of the ordinance relating to the use of land or the location and character of buildings that may be located thereon, even in the absence of provisions in the contract excepting them, must necessarily be his position for we are convinced, although it must be conceded there are some decisions to the contrary, the rule supported by the better reasoned decisions, indeed if not by the great weight of authority, is that municipal restrictions of such character, existing at the time of the execution of a contract for the sale of real estate, are not such encumbrances or burdens on title as may be availed of by a vendee to avoid his agreement to purchase on the ground they render his title unmerchantable. For authorities upholding this conclusion see Hall v. Risley & Heikkila, 188 Or. 69, 213 P. 2d 818; Miller v. Milwaukee Odd Fellows Temple, 206 Wis., 547, 240 NW 193; Wheeler v. Sullivan, 90 Fla. 711, 106 So. 876; Lincoln Trust Co. v. Williams Bldg. Corp., 229 NY 313, 128 NE 209; Maupin on Marketable Title to Real Estate, (3rd Ed.) 384 § 143; 175 A. L. R. anno. 1056 § 2; 57 A. L. R. anno. 1424 § 11 (c); 55 Am. Jur. 705 § 250; 66 C. J. 860, 911 § § 531, 591.

On the other hand there can be no question the rule respecting restrictions upon the use of land or the location and type of buildings that may be erected thereon fixed by covenants or other private restrictive agreements, including those contained in the declaration forming a part of the dedication of Berkley Hills Addition, is directly contrary to the one to which we have just referred. Such restrictions, under all the authorities, constitute encumbrances rendering the title to land unmerchantable. See the authorities above cited, also decisions to be found in American Digest System, Vendor and Purchaser, § 134 (4); 66 C. J. 588 § 909; 55 Am. Jur. 702 § 246 and Maupin on Marketable Title to Real Estate (3rd Ed.) 323 § 106; 57 A. L. R. Anno 1414 §11 (a).

In the instant case assuming the mere existence of the restrictions imposed by the provisions of section 5-224 of the ordinances of the *450city of Emporia do not constitute an encumbrance or burden and that the dedication restrictions fall within the exception clause of the contract providing Lot 37 was to be conveyed subject to all restrictions and easements of record applying thereto there still remains the question whether, under the stipulated facts, the restrictions imposed by such ordinance and/or the dedication declaration have been violated and if so whether those violations make the title to such property unmerchantable.

As we turn to the stipulation of facts upon which our decision as to whether the record discloses violations of the dedication declaration or the ordinance must depend we shall first dispose of contentions advanced by appellees regarding the construction to be given that instrument.

The first of these contentions is to the effect the phrase, “any residence erected wholly or partially on any of the following lots . . . ”, to be found in section 2 of the declaration is to be construed as limited to residences actually constructed thereon and that hence the moving of the house now located on Lot 37, long after it had been constructed, even though it was not of the height required by its terms did not result in a violation. We do not agree. The word “erected” as used in section of the declaration in question, in our opinion, is so comprehensive that it must be construed as including houses moved upon the restricted area. Next it is argued that even though such house was a one story dwelling the stipulated facts show that between its foundation and the top of the chimney there was sufficient room to make it into a two story dwelling and therefore it did not violate the restrictive covenant of section 2 providing it should be of the height of a two story residence. Here again we believe appellees have placed too narrow a construction upon this section which contemplates that houses constructed within the restricted area must be two story residences. Finally it is urged the dedication restrictions insofar as they apply to Lot 37 have no force and effect because they were extinguished by the tax foreclosure proceeding referred to in the second paragraph of the stipulation. We know of no Kansas decision sustaining appellees’ position on this point. It is true, as they suggest, a sheriff’s deed to this property was executed in 1942 and that the statute then in force and effect (G. S. 1941 Supp. 79-2803) contained no provision requiring the district court to render judgment subject to valid covenants running with the land and to valid easements of record or in *451use. They insist the fact the section just mentioned was amended in 1943 (see L. 1943 Ch. 302 [2]) and still later in 1945 (L. 1945 Ch. 362[3]) so that it now contains an express provision that tax foreclosure judgments are to be rendered subject to such covenants and easements indicates that legislative intent under the 1941 statute was to extinguish all such covenants and easements by judgment. Our view is the subsequent amendments are indicative of an intention directly to the contrary. However, we need not pass upon that question. The right to enforce the dedication restrictions, which are conceded to have been of record, was vested in all persons owning property in the area covered by the declaration and the common grantor. Before we could say their rights to enforce such restrictions were extinguished by the judgment affecting Lot 37 it must be established they were parties defendant to the action in which such judgment was rendered. That does not appear from the stipulation of facts, indeed no one contends they were.

Other contentions advanced by appellees relate to the force and effect to be given portions of the stipulation relative to violation of section 5-224 of the ordinance. They first insist the word “erected”, as used in such section, does not include the building moved upon the lot in question. Heretofore we have indicated the same word as used in the dedication declaration includes buildings moved upon such lots. We believe it is entitled to the same construction in the ordinance. Next it is claimed section 5-224 is of no force and effect because it had been repealed by other ordinances of the city of Emporia. If so we fail to find anything in the stipulation warranting that conclusion. Lastly it is argued that because the stipulation discloses appellees procured a permit from the Fire Chief of the city of Emporia to move the involved house on Lot 37 the provisions of such ordinance had no application and hence were not violated. We find nothing in the stipulation to indicate, let alone warrant a conclusion, that this permit authorized the appellees to move the house within 18 inches of the rear lot line in violation of the terms of such ordinance. Moreover, it should perhaps be added, that even if it had, in the absence of anything in the stipulation to show its existence, we would not be justified in concluding the Fire Chief or any other official of the city had authority to take action resulting in the nullification of its express terms.

With contentions advanced by appellees with respect to the force and effect to be given certain portions of the stipulation disposed of *452it can now be stated we are convinced a fair construction of its terms compels the conclusion that on the date of the execution of the contract the house on the real estate in controversy was a one story frame dwelling which had been moved there in violation of section 2 of the dedication restrictions providing that any residence erected on Lot 37 should be of the height of a two story residence and that it had been placed within 18 inches of the side or rear lot line of such lot in violation of section 5-224, supra, prohibiting the erection of such building within three feet of such line.

There can be no doubt regarding what constitutes a marketable or merchantable title in this jurisdiction. This court has been called on to pass upon that question on numerous occasions. See our recent decision in Peatling v. Baird, 168 Kan. 528, 213 P. 2d 1015, and cases there cited, wherein we held:

“A marketable title to real estate is one which is free from reasonable doubt, and a title is doubtful and unmarketable if it exposes the party holding it to the hazard of litigation.

“To render the title to real estate unmarketable, the defect of which the purchaser complains must be of a substantial character and one from which he may suffer injury. Mere immaterial defects which do not diminish in quantity, quality or value the property contracted for, constitute no ground upon which the purchaser may reject the title. Facts must be known at the time which fairly raise a reasonable doubt as to the title; a mere possibility or conjecture that such a state of facts may be developed at some future time is not sufficient." (Syl. 1T1F1, 2)

Under the rule just stated, and in the face of facts such as are here involved, we have little difficulty in concluding that the violation of section 5-224 of the ordinances of the city of Emporia as well as the violation of the restrictions imposed by the dedication declaration so encumber the title to Lot 37 as to expose the party holding it to the hazard of litigation and make such title doubtful and unmarketable. It follows, since, as we have indicated, the appellees had contracted to convey such real estate to appellant by warranty deed with an abstract of title showing good merchantable title, free and clear of all encumbrances, that they cannot convey the title contracted for and that the trial court should have rendered judgment rescinding the contract. This, we may add is so, notwithstanding the contract provides the conveyance was to be made subject to all restrictions and easements of record for, as we have seen, it is the violation of the restrictions imposed by both the ordinance and the dedication declaration, not the existence of those restrictions, that renders the title unmarketable. The decision just an*453nounced is not without precedent or unsupported by sound authority.

In Moyer v. DeVincentis Con. Co., 107 Pa. Super. 588, 164 A. 111, involving facts, circumstances, and issues almost identical to those here involved, so far as violation of the ordinance is concerned, the plaintiff (vendee) sued to recover money advanced on the purchase price pursuant to the agreement on the ground that violation of a zoning ordinance had made title to the property involved under its terms unmarketable. The court upheld the plaintiff’s position and in the opinion said:

“We are of the opinion that a proper construction of the agreement of sale supports the position of appellant, the vendee in the agreement. The vendor agreed to furnish a good and marketable title free from liens and incumbrances, excepting existing restrictions and easements, if any. As applied to the facts of the case in hand, vendee agreed to purchase the premises subject to the zoning ordinance, but not to purchase the premises, when the house was built in violation of the terms of that ordinance.

“The facts lend weight to the force of this construction. It appears from the pleadings that the premises to be conveyed embraced not only the bare land, but an entire parcel of real estate which included a semidetached dwelling. The description is not by metes and bounds but by house number. The vendee could not take possession without immediately becoming a violator of the law and subject to suit, with a penalty of $25 for every day the building remained in position overlapping the protected area.

“The title was not marketable, not because of an existing zoning ordinance, but because a building had been constructed upon the lot in violation of that ordinance . . .” (p. 592).

To the same effect is 66 C. J. 912 § 592, where the following statement appears:

“Existing violations of building restrictions imposed by law warrant rejection of title by a purchaser contracting for a conveyance free of encumbrances. The fact that the premises to be conveyed violate! tenement house regulations is ground for rejection of title where the contract of sale expressly provided against the existence of such violations, . . .”

See, also Moran v. Borrello, 4 N. J. Misc., 344, 132 A. 510.

With respect to covenants and restrictions similar to those involved in the dedication declaration, notwithstanding the agreement —as here — excepted restrictions of record, see Chesebro v. Moers, 233 N. Y. 75, 134 N. E. 842, 21 A. L. R. 1270, holding that the violation by a property owner of covenants restricting the distance from front and rear lines within which buildings may be placed renders the title to such property unmarketable.

*454See, also, Hebb v. Severson, 32 Wash. (2) 159, 201 P. 2d 156, which holds, that where a contract provided that building and use restrictions general to the district should not be deemed restrictions, the purchaser’s knowledge of such restriction did not estop him from rescinding the contract of purchase on subsequent discovery that the position of the house on the lot involved violated such restrictions. At page 172 of the opinion in that case it is said:

“Finally, the fact that the contract contains a provision that protective restrictions shall not be deemed encumbrances cannot aid the respondents. It is not the existence of protective restrictions, as shown by the record, that constitutes the encumbrances alleged by the appellants; but, rather, it is the presently existing violation of one of these restrictions that constitutes such encumbrances, in and of itself. The authorities so hold, on the rationale, to which we subscribe, that to force a vendee to accept property which in its present state violates a building restriction without a showing that the restriction is unenforcible, would in effect compel the vendee to buy a lawsuit. 66 C. J. 911, Vendor and Purchaser, § 590; Dichter v. Isaacson, 132 A. 481, 138 A. 920, 4. N. J. Misc., 297; Chesebro v. Moers, 233 N. Y. 75, 134 N. E. 842, 21 A. L. R. 1270.” (p. 172.)

Finally appellees point to the contract which, it must be conceded, provides they shall have time to correct imperfections in the title and contend that even if it be held the restrictions and the ordinance have been violated they are entitled to time in which to correct those imperfections. Assuming, without deciding, they might remedy the violation of the ordinance by buying additional ground the short and simple answer to their contention with respect to the violation of the restrictions imposed by the dedication declaration is that any changes in the house would compel the purchaser to take something that he did not contract to buy.

Conclusions heretofore announced require reversal of the judgment with directions to the trial court to cancel and set aside the contract and render such judgment as may be equitable and proper under the issues raised .by the pleadings.

It is so ordered.

BOYDSTON, Judge.

This is an appeal by J. W. (Jay) Rosen-grant from the trial court’s decision to cancel and set aside a warranty deed which attempted to vest title in him to certain property owned by his aunt and uncle, Mildred and Harold Rosengrant. The trial court held the deed was invalid for want of legal delivery. We affirm that decision.

Harold and Mildred were a retired couple living on a farm southeast of -Tecumseh, Oklahoma. They had no children of their own but had six nieces and nephews through Harold’s deceased brother. One of these nephews was Jay Rosengrant. He and his wife lived a short distance from Harold and Mildred and helped the elderly couple from time to time with their chores.

In 1971, it was discovered that Mildred had cancer. In July, 1972 Mildred and Harold went to Mexico to obtain laetrile treatments accompanied by Jay’s wife. Jay remained behind to care for the farm.

Shortly before this trip, on June 23,1972, Mildred had called Jay and asked him to meet her and Harold at Farmers and Merchants Bank in Tecumseh. Upon arriving at the bank, Harold introduced Jay to his banker J. E. Vanlandengham who presented Harold and Mildred with a deed to their farm which he had prepared according to their instructions. Both Harold and Mildred signed the deed and informed Jay that they were going to give him “the place,” but that they wanted Jay to leave the deed at the bank with Mr. Vanlandengham and when “something happened” to them,1 he was to take it to Shawnee and record it and “it” would be theirs. Harold personally handed the deed to Jay to “make this legal.” Jay accepted the deed and then handed it back to the banker who told him he would put it in an envelope and keep it in the vault until he called for it.

In July, 1974, when Mildred’s death was imminent, Jay and Harold conferred with an attorney concerning the legality of the transaction. The attorney advised them it should be sufficient but if Harold anticipated problems he should draw up a will.

In 1976, Harold discovered he had lung cancer. In August and December 1977, Harold put $10,000 into two certificates of deposit in joint tenancy with Jay.

Harold died January 28,1978. On February 2, Jay and his wife went to the bank to inventory the contents of the safety deposit box. They also requested the envelope containing the deed which was retrieved from the collection file of the bank.

Jay went to Shawnee the next day and recorded the deed.

The petition to cancel and set aside the deed was filed February 22, 1978, alleging that the deed was void in that it was never legally delivered and alternatively that since it was to be operative only upon recor-dation after the death of the grantors it was a testamentary instrument and was void for failure to comply with the Statute of Wills.

The trial court found the deed was null and void for failure of legal delivery. The dispositive issue raised on appeal is whether the trial court erred in so ruling. We hold it did not and affirm the judgment.

The facts surrounding the transaction which took place at the bank were uncon-troverted. It is the interpretation of the meaning and legal result of the transaction which is the issue to be determined by this court on appeal.

In cases involving attempted transfers such as this, it is the grantor’s intent at the time the deed is delivered which is of primary and controlling importance. It is the function of this court to weigh the evidence presented at trial as to grantor’s intent and unless the trial court’s decision is clearly against the weight of the evidence, to uphold that finding.2

*803The grantor and banker were both dead at the time of trial. Consequently, the only testimony regarding the transaction was supplied by the grantee, Jay. The pertinent part of his testimony is as follows:

A. [A]nd was going to hand it back to Mr. Vanlandingham [sic], and he wouldn’t take it.

Q. What did Mr. Vanlandingham [sic] say?

A. Well, he laughed then and said that “We got to make this legal,” or something like that. And said, “You’ll have to give it to Jay and let Jay give it back to me.”

Q. And what did Harold do with the document?

A. He gave it to me.

Q. Did you hold it?

A. Yes.

Q. Then what did you do with it?

A. Mr. Vanlandingham [sic], I believe, told me I ought to look at it.

Q. And you looked at it?

A. Yes.

Q. And then what did you do with it?

A. I handed it to Mr. Vanlandingham [sic],

Q. And what did he do with the document?

A. He had it in his hand, I believe, when we left.

Q. Do you recall seeing the envelope at any time during this transaction?

A. I never saw the envelope. But Mr. Vanlandingham [sic] told me when I handed it to him, said, “Jay, I’ll put this in an envelope and keep it in a vault for you until you call for it.”

* * * * * *

A. Well, Harold told me while Mildred was signing the deed that they were going to deed me the farm, but they wanted me to leave the deed at the bank with Van, and that when something happened to them that I would go to the bank and pick it up and take it to Shawnee to the court house and record it, and it would be mine. (emphasis added)

When the deed was retrieved, it was contained in an envelope on which was typed: “J. W. Rosengrant- or Harold H. Rosen-grant.”

The import of the writing on the envelope is clear. It creates an inescapable conclusion that the deed was, in fact, retrievable at any time by Harold before his death. The bank teller’s testimony as to the custom and usage of the bank leaves no other conclusion but that at any time Harold was free to retrieve the deed. There was, if not an expressed, an implied agreement between the banker and Harold that the grant was not to take effect until two conditions occurred — the death of both grantors and the recordation of the deed.

In support of this conclusion conduct relative to the property is significant and was correctly considered by the court. Evidence was presented to show that after the deed was filed Harold continued to farm, use and control the property. Further, he continued to pay taxes on it until his death and claimed it as his homestead.

Grantee confuses the issues involved herein by relying upon grantors’ goodwill toward him and his wife as if it were a controlling factor. From a fair review of the record it is apparent Jay and his wife were very attentive, kind and helpful to this elderly couple. The donative intent on the part of grantors is undeniable. We believe they fully intended to reward Jay and his wife for their kindness. Nevertheless, where a grantor delivers a deed under which he reserves a right of retrieval and attaches to that delivery the condition that the deed is to become operative only after the death of grantors and further continues to use the property as if no transfer had occurred grantor’s actions are nothing more than an attempt to employ the deed as if it were a will. Under Oklahoma law this cannot be done. The ritualistic “delivery of the deed” to the grantee and his redelivery of it to the third party for safe keeping created under these circumstances only a *804symbolic delivery. It amounted to a pro forma attempt to comply with the legal aspects of delivery. Based on all the facts and circumstances the true intent of the parties is expressed by the notation on the envelope and by the later conduct of the parties in relation to the land. Legal delivery is not just a symbolic gesture. It necessarily carries all the force and consequence of absolute, outright ownership at the time of delivery or it is no delivery at all.3

The trial court interpreted the envelope literally. The clear implication is that grantor intended to continue to exercise control and that the grant was not to take effect until such time as both he and his wife had died and the deed had been recorded. From a complete review of the record and weighing of the evidence we find the trial court’s judgment is not clearly against the weight of the evidence. Costs of appeal are taxed to appellant.

BACON, P. J., concurs and BRIGHT-MIRE, J., concurs specially.

BRIGHTMIRE, Judge,

concurring specially.

In a dispute of this kind dealing with the issue of whether an unrecorded deed placed in the custody of a third party is a valid conveyance to the named grantee at that time or is deposited for some other reason, such as in trust or for a testamentary purpose, the fact finder often has a particularly tough job trying to determine what the true facts are.

The law, on the other hand, is relatively clear. A valid in praesenti conveyance requires two things: (1) actual or constructive delivery of the deed to the grantee or to a third party; and (2) an intention by the grantor to divest himself of the conveyed interest. Here the trial judge found there was no delivery despite the testimony of Jay Rosengrant to the contrary that one of the grantors handed the deed to him at the suggestion of banker J. E. Vanlandengham.

So the question is, was the trial court bound to find the fact to be as Rosengrant stated? In my opinion he was not for several reasons. Of the four persons present at the bank meeting in question only Rosen-grant survives which, when coupled with the self-serving nature of the nephew’s statements, served to cast a suspicious cloud over his testimony. And this, when considered along with other circumstances detailed in the majority opinion, would have justified the fact finder in disbelieving it. I personally have trouble with the delivery testimony in spite of the apparent “corroboration” of the lawyer, Jeff Diamond. The only reason I can see for Vanlandengham suggesting such a physical delivery would be to assure the accomplishment of a valid conveyance of the property at that time. But if the grantors intended that then why did • they simply give it to the named grantee and tell him to record it? Why did they go through the delivery motion in the presence of Vanlandengham and then give the deed to the banker? Why did the banker write on the envelope containing the deed that it was to be given to either the grantee “or” a grantor? The fact that the grantors continued to occupy the land, paid taxes on it, offered to sell it once and otherwise treated it as their own justifies an inference that they did not make an actual delivery of the deed to the named grantee. Or, if they did, they directed that it be left in the custody of the banker with the intent of reserving a de facto life estate or of retaining a power of revocation by instructing the banker to return it to them if they requested it during their lifetimes or to give it to the named grantee upon their deaths. In either case, the deed failed as a valid conveyance.

*805I therefore join in affirming the trial court’s judgment.

BOYD, Justice.

This cause is before the Court on petition for certiorari to review the decision of the court below, Love v. Elliott, 350 So.2d 93 (Fla.lst DCA 1977), on the ground that it is in conflict with a decision of another district court of appeal. We have jurisdiction. Art. V, § 3(b)(3), Fla.Const.

*648Mary V. Nowling Elliott, now deceased, brought an action seeking the cancellation of a deed. The trial court found that Mrs. Elliott, a simple, elderly woman who could neither read nor write, owned an undivided one-fifth interest in the minerals underlying a seventy-five acre tract of land. In January 1972 B. G. Russell offered to buy her entire interest, but she refused. She orally agreed to sell Mr. Russell two of the thirteen to fifteen mineral acres she owned for $3300.00. The trial court found further:

Defendant Russell prepared the mineral deed, and instead of the two acres of minerals agreed upon, fraudulently substituted the clause: “one-fifth (Vs) interest in and to all the oil, gas, and other minerals” and then inserted the legal description of the 75 acres. Obviously, one-fifth of 75 acres is 15 acres — a deal that the Plaintiff had consistently refused to make.

Mrs. Elliott lived with her daughter, who could read, write, and understand simple things. The daughter looked over the instrument Russell had prepared. Although she did not understand the deed, she advised Mrs. Elliott that she guessed it was all right.

Several days later, Russell contacted Mrs. Elliott and told her that he had made a mistake in drawing up the deed. He offered to pay her $15,000 for the interest that had been conveyed. She refused and insisted on a reconveyance of that portion of the interest which she had not intended to sell. “[0]n February 16, 1972, Russell and his wife purported to reconvey to Plaintiff the thirteen seventy-fifths (13/reths) interest of which she had been defrauded.” On February 11,1972, however, Russell conveyed a substantial portion of the same mineral rights to C. P. McClelland, who later conveyed to respondents Messrs. Love, Harris, and Carpenter. Mrs. Elliott remained ignorant of the Russell-McClelland and subsequent transactions until October 1973 when she wanted to sell more of her mineral rights and a title search revealed them. She sued for cancellation of the deed. The trial court held in her favor, concluding:

By trick and fraud the Plaintiff was induced to sign a conveyance other than the one she intended to sign. Therefore, there was no lawful delivery of such instrument. The instrument is void. In light of her lack of education and attained age, the Court finds she was free of any negligence or inattention.

On appeal, the district court reversed. The court characterized the central question as being whether a deed procured by such fraud as was found in this case is void at law, as the trial court held, or merely voidable in equity on petition of the defrauded grantor. If the deed was void, then no legal title passed to the grantee. If the deed was only voidable in equity, then the equitable defenses of laches and of a bona fide purchaser are available. See Holley v. May, 75 So.2d 696 (Fla.1954); Bryson v. Bridges, 51 Fla. 395, 41 So. 28 (1906).

A bona fide purchaser has the right to rely on the record title of his grant- or, but this protection extends only to those purchasing a legal title. Myers v. Van Buskirk, 96 Fla. 704, 119 So. 123 (1928). The recording of a void or forged deed is legally insufficient to create a legal title, and affords no protection to those claiming under it. Reed v. Fain, 145 So.2d 858 (Fla.1962); Wright v. Blocker, 144 Fla. 428, 198 So. 88 (1940). (The question of whether a void or forged deed can constitute the root of title under the operation of the Marketable Record Titles law, chapter 712, Florida Statutes (1977), is not at issue in this case.)

The district court implicitly held that the deed in the instant case was voidable, as is indicated by the court’s discussion of the applicability of the defenses of purchaser-without-notice and laches. In so doing it created conflict with Houston v. Mentelos, 318 So.2d 427 (Fla.3d DCA 1975).

The trial court cited Houston v. Mentelos in support of its holding that the deed was void. In that case, the plaintiff had orally agreed to lease her land. She signed two documents prepared by the purported lessee. One was a contract for sale and the other a warranty deed. The trial court *649found “that plaintiffs signature on the ‘Warranty Deed’ was obtained through the fraud of the defendant Thomas E. Mentelos who misrepresented that the documents which plaintiff signed embodied the oral lease agreement.” 318 So.2d at 430. Also, the contract for sale was altered subsequent to its execution “by the addition of language which made the document to read like a contract to convey the subject real property rather than a lease agreement.” Id. at 428. Mentelos, the fraudulent grantee, then executed a mortgage in favor of a mortgagee for value who had no notice of the fraud. Based on the trial court’s conclusions that there was fraud and that there was no negligence on the part of the grantor, the district court held that the deed was void. We disapprove the holding of Houston v. Mentelos, 318 So.2d 427 (Fla.3d DCA 1975), to the extent that it held that a deed, the execution of which is procured by fraud, is void ab initio.

In Houston v. Mentelos, the court relied on the cases of Houston v. Adams, 85 Fla. 291, 95 So. 859 (1923) and Houston v. Forman, 92 Fla. 1,109 So. 297 (1926). The rule enunciated in those cases was that where a grantor executes a deed and then places it in escrow, subject to conditions agreed to in a contract for sale, and the grantee gets possession of the deed through fraud, the deed is void, there is no conveyance, and a bona fide purchaser from the grantee will not be protected.

Delivery is an essential requisite of the execution of a deed conveying valid legal title. Without delivery, nothing passes to the grantee. Bould v. Coe, 63 So.2d 273 (Fla.1953); Lance v. Smith, 123 Fla. 461, 167 So. 366 (1936); Parken v. Jafford, 48 Fla. 290, 37 So. 567 (1904); Ellis v. Clark, 39 Fla. 714, 23 So. 410 (1897). The rule of Houston v. Adams that a deed procured by fraud is void is limited to situations where the fraud in the execution is such that it can be said there was a complete failure of delivery.

In Houston v. Adams, the grantor had attempted to condition the delivery through an escrow agreement. The grant- or thus had given up actual possession of the deed but attempted to place conditions on its delivery. The grantor did not participate in the events leading to the grantee’s obtaining possession of the deed. No act of his made the fraud possible. The court likened the grantor’s passivity in this matter to the situation where a safe is broken into and an undelivered deed stolen. We hold that the rule applied there is not appropriate to this case. Here, the execution of the deed, including delivery, was complete in all its legal requisites. The trial court’s findings of fact that the grantee committed fraud and that the grantor was not negligent do not compel the conclusion that there was such a substitution of documents as to constitute failure of delivery or such an alteration of documents as to be the equivalent of a forgery. The grantor knew that she was executing and delivering a deed of mineral rights. The law charged her with the responsibility of informing herself as to the legal effect of the document she was signing. See Lewison v. Frumkes, 64 So.2d 321 (Fla.1952); Ross v. Richter, 187 So.2d 653 (Fla.2d DCA 1966).

Where all the essential legal requisites of a deed are present, it conveys legal title. Fraud in the inducement renders such a legally effective deed voidable in equity. Anders v. Anders, 143 Fla. 721, 197 So. 451 (1940). We hold that the district court was correct in holding that the deed was merely voidable, and that it conveyed a legal title to the grantee.

Because of its holding that the deed was void, the trial court granted summary judgment in favor of the plaintiff. Therefore there were no findings of fact on the issue of the good faith of the purchasers from McClelland. While the district court was correct in holding the deed voidable rather than void, there was no basis for it to conclude from the record that the defendants were bona fide purchasers. The case should be remanded for trial of this factual issue.

The decision of the district court, insofar as it held the deed voidable, is approved. It *650decision holding for the respondents is quashed with directions that the cause be remanded to the trial court for further proceedings consistent with this opinion.

It is so ordered.

ENGLAND, C. J., SUNDBERG and ALDERMAN, JJ., concur.

OVERTON, J., dissents with an opinion, with which ADKINS, J., concurs.

OVERTON, Justice,

dissenting.

I dissent. The decision of the trial court was correct. I would hold the deed void under the factual circumstances of this case, which I find consistent with our holding in Houston v. Adams, 85 Fla. 291, 95 So. 859 (1923).

ADKINS, J., concurs.

OPINION OF THE COURT

Joan B. Lefkowitz, J.

Does a prior recorded mortgage that is improperly indexed by name of the mortgagor lose priority to a subsequent mortgage properly recorded and indexed where the subsequent mortgagee lacks actual knowledge of the prior mortgage *9at the time of making the subsequent one? This interesting issue is presented herein by the subsequent mortgagee’s motion addressed to the merits of the claim of the first mortgage.

In an action to foreclose a mortgage defendant Chemical Bank moves for an order dismissing the complaint as to it and, further, for declaratory relief. A nonparty moves by counsel for an order authorizing submission of an affirmation in opposition as amicus curiae.

In September 1983 the mortgagor, Susan Levine-Rodriguez, executed a mortgage to Intercounty Mortgagee Corp. in the sum of $68,700. Intercounty assigned the mortgage to plaintiff. The mortgage was recorded in Rockland County on September 23, 1983. The deed into Levine-Rodriguez had no hyphen and was indexed under the letter "R”. However, the mortgage used the hyphen and was indexed by the County Clerk under the letter "L”.

On May 1, 1989 Mr. and Mrs. Levine-Rodriguez executed a mortgage in favor of Chemical Bank in the sum of $70,000. A title search located a prior mortgage of $20,000 dated April 3, 1986 under the name Rodriguez. The mortgagors’ attorney certified that Chemical Bank would have second lien on the property when the mortgage was recorded. The title search did not pick up the plaintiff’s mortgage as it was indexed under "L” and not "R”. Since Rockland County uses an alphabetical mortgagor-mortgagee filing system, Chemical Bank could properly rely on the information to it at the time of closing. Chemical Bank’s mortgage was recorded on October 22, 1990.

Priority of Mortgages

For Chemical Bank to prevail herein it must establish that it was a subsequent mortgagee without notice of the rights of the plaintiff. (Metrobank for Sav. v Bergman, NYLJ, May 15, 1991, at 25, col 2 [Sup Ct, Rockland County].) Usually priority of mortgage is determined by date of recordation. (Real Property Law § 291.) A mortgage is deemed recorded at the time of delivery to the recording officer (Real Property Law § 317). An index of mortgagors and mortgagees forms part of the record of the mortgage recorded (Real Property Law § 316).

Prior to the amendment of section 316 of the Real Property Law in 1924 (L 1924, ch 582) indexes were not part of the record and a mistake regarding the index did not affect the priority of a mortgage. (Mutual Life Ins. Co. v Dake, 87 NY *10257 [1881].) The "mistake” in Dake was the total failure of the Clerk to index the mortgage. The relevant statutes at the time required the Clerk to maintain an index but there was no statutory requirement that the index form part of the record. In an action to foreclose a mortgage the Court of Appeals held that the first mortgage delivered to the Clerk’s office for recording had priority over a subsequent mortgage that was recorded before the first mortgage was properly indexed. The Court of Appeals viewed indexing as a convenience for title searches. However, it did observe (87 NY, at 264-265): "It may be that the index, both for convenience and safety, should be made part of the record; but until it is so made by the legislature, we can but pronounce the law as it is.”

In the absence of a statute mandating maintenance of an index, no such requirement exists on government officials. (Matter of D’Alessandro v Unemployment Ins. Appeal Bd., 56 AD2d 762 [1st Dept 1977].) However, such a duty does exist in the real property field. What is indexing with regard to real property instruments? One learned treatise has said (66 Am Jur 2d, Records and Recording Laws, § 89, at 395): "An index is one of the facilities to be used in making a search for a record; its object is to point out the book and page in which a particular record may be found, and its utility and practical necessity are unquestioned.” Another authority has said (76 CJS, Records, § 16 [a], at 121): "If there is no index of an instrument in the book, one who has searched is entitled to assume that no such instrument is on file or record.”

There is a sharp conflict in the cases in other jurisdictions as to whether the index is part of the record for recordation purposes (66 Am Jur 2d, op. cit, §§ 90-92, 130; 76 CJS, op. cit., § 16 [b]; Annotation, Records of Title — Improper Indexing, 63 ALR 1057 [1929]; 2 Merrill, Notice §§ 1066-1072 [1952]; Cross, The Record "Chain of Title” Hypocrisy, 57 Colum L Rev 787 [1957]; Osborne, Mortgages § 203 [2d 1970]; Thompson, Real Property § 4306 [1963 ed]; 4 American Law of Property § 17.31). Professor Merrill, writing in his 1952 treatise, found the majority’s view, to which New York subscribed, to be that the recorder’s mistakes on indexing do not defeat constructive notice of the record (2 Merrill, op. cit., § 1070), whereas a substantial minority view concluded otherwise (id., § 1070). Other secondary authority made similar observations. (Annotation, op. cit., 63 ALR 1057, §§ II, III; 66 Am Jur 2d, op. cit., §§ 89, 90; Cross, op. cit., 57 Colum L Rev, at 790-791, 797.) Professor Osborne, in the most recent statement on the sub*11ject, appears to find that a majority of jurisdictions place the burden on the party who presents the instrument for recordation to see to it that it is properly indexed or else suffer the consequences. (Osborne, Mortgages, §203 [2d ed 1970]; see, Hochstein v Romero, 219 Cal App 3d 447, 268 Cal Rptr 202 [4th Dist 1990] [where document improperly indexed and not locatable by a proper search, mere recordation is insufficient to charge a subsequent purchaser with notice].)

Many jurisdictions place the burden on the grantee to insure that full recordation occurs properly on the theory that where one of two innocent persons must suffer a loss the onus should be on the one who was in the best position to correct the situation. (66 Am Jur 2d, op. cit., § 130.) In the cited treatise it is said (at 421): "A cogent reason underlying the rule which places upon the grantee of a deed or other instrument the responsibility for seeing that the record made of the instrument is accurate is that one who files a paper for recording] always has it in his power to examine the records and satisfy himself that his paper has been duly and accurately recorded, while it is impossible for a prospective purchaser or creditor to anticipate and inquire about and ascertain the innumerable forms which the negligence or mistakes of the [recording] officer may assume.”

Professor Merrill, in turn, postulates similar arguments in discussing which view (majority or minority in 1952) is better. (2 Merrill, Notice, § 1071 [1952].) He boils it down to whose ox is being gored because the Recording Acts are designed to protect both prior and subsequent encumbrancers and concludes that it is best for the Legislatures to decide among competing interests which are too "nicely balanced” since, whichever rule is adopted, "some innocent people are going to be hurt” (id., at 702). Professor Cross in his law review article on the subject reached a similar conclusion but specifically called for statutes that make proper indexing a part of the record, the burden of which is on the party filing the document (Cross, op. cit., 57 Colum L Rev, at 799). He also called for mandatory tract indexing, such as block and lot, which exists in certain counties in New York (Andy Assocs. v Bankers Trust Co., 49 NY2d 13 [1979]) but not in Rockland County.

Mutual Life Ins. Co. v Dake (87 NY 257, supra) placed New York among those States which hold that the filer of the mortgage instrument need not stand by or later investigate to see if the document was properly recorded, since delivery of the document to the recorder is itself sufficient. (Antoneli v *12City of Mt. Vernon, 234 NYS2d 550 [Sup Ct, Westchester County 1962]; Real Property Law § 317.) Prior thereto, in Frost v Beekman (1 Johns Ch 288 [1814], revd on other grounds 18 Johns 544 [Ct of Errors 1820]), it was held that a subsequent purchaser "is not bound to attend to the correctness of the registry. It is the business of the mortgagee, and if a mistake occurs to his prejudice, the consequences of it lie between him and clerk, and not between him and the bona fide purchaser” (1 Johns Ch, at 298).

As will be seen from the following discussion, New York law on the issue presented is somewhat tortured. In 1924 section 316 of the Real Property Law, which prior thereto back to the time antecedent to Dake (supra), required the recording officer to maintain an alphabetical index, was amended (L 1924, ch 582) to add the following language as it appears today: "Such indexes shall form a part of the record of each instrument hereafter recorded.” (See, 4A Warren’s Weed, NY Real Property, Recording, § 3.06.)

In Chittick v Thompson Hill Dev. Corp. (230 App Div 410 [2d Dept 1930], affd 259 NY 233 [1932]) the court overlooked the 1924 amendment and applied the rule that priority is not affected by a mistake in indexing. In denying reargument on the ground of loches the court acknowledged the existence of the amendment and modified its decision, but not its result (232 App Div 818 [2d Dept 1931]).

Thereafter, in O’Neill v Lola Realty Corp. (264 App Div 60, 63 [2d Dept 1942]) it was held that a mistake in indexing, caused by the mortgagee, rendered the mortgage void as against subsequent purchasers for value in good faith.

In Baccari v De Santi (70 AD2d 198 [2d Dept 1979]) a prior mortgage was improperly indexed in the wrong municipality. The property was later sold and a title search failed to disclose the second mortgage. The sale was financed by the purchaser by way of proceeds loaned by a creditor to whom a new mortgage was given and was recorded. The prior mortgagee sued to declare the rights of the parties and to impose liability on the County Clerk’s office. The Appellate Division rejected the argument that an improperly indexed mortgage still constitutes constructive notice (as previously held in Mutual Life Ins. Co. v Dake, 87 NY 257, supra), at least in cases of alleged Clerk misfeasance as distinguished from nonfeasance (such as failure to record) (70 AD2d, at 202) and relied on Frost v Beekman (1 Johns Ch 288, supra) as author*13ity. Parenthetically, it should be noted that all prior authorities of primary importance were argued by the defendants (see, defendants-appellants’ brief, pt III, at 9-12, Record on Appeal No. 10940, 2d Dept, as maintained by the White Plains Sup Ct Library).

The court observed that, as here, the prior mortgage was recorded but not properly indexed and, therefore, the recording did not constitute constructive notice of the prior mortgage. As to actual notice or the lack thereof, the court noted that the complaint did not frame the issue but, in any event, summary judgment was not proper at that time because the attorney who handled the prior mortgage transaction also participated at the closing on the sale by the mortgagor to the current mortgagor and may have mentioned the improperly indexed mortgage at the closing. That is, the court believed that a question of fact existed on the issue of actual notice, which affected priority of the mortgages and potential liability of the County Clerk.

It is noteworthy that the court in Baccari (supra) uneqivocally held the County Clerk liable for misfeasance in misindexing the prior mortgage if it was to be established that the subsequent mortgagee lacked actual knowledge of the existence of the prior mortgage (70 AD2d, at 203).

Baccari (supra) was decided in September 1979. Eight months earlier a decision was rendered in Camfield v Luther Forest Corp. (98 Misc 2d 903 [Sup Ct, Saratoga County 1979]). The full opinion may be found in Record on Appeal No. 3674, Third Department, pages 10a-23a, as maintained by the Supreme Court Library in White Plains. While truly an adverse possession case, the court also dealt with the question of priority of deeds where an earlier deed was not properly indexed. Justice Ford referred to a document in the Bill Jacket to the 1924 amendment to section 316 of the Real Property Law, the holdings in Chittick v Thompson Hill Dev. Corp. (230 App Div 410, 232 App Div 818, supra) concluded Mutual Life Ins. Co. v Dake (87 NY 257, supra) was no longer controlling, held that the index was a part of the record and, where, as there, a mistake was made in indexing the prior deed (it simply was not indexed until 48 years after it was recorded), the prior deed did not constitute notice (98 Misc 2d, at 905-906; see also, Real Property Law § 316-a [8] [once error in indexing is corrected the instrument shall constitute constructive notice "only from the time when the same shall be properly indexed”]). In the unpublished portion of the opinion *14the court held that the evidence established title by adverse possession in the defendant.

The Appellate Division, Third Department, affirmed nisi prius, holding that its determination on adverse possession was correct. (Camfield v Luther Forest Corp., 75 AD2d 671 [3d Dept 1980].) However, the appellate court in dicta addressed the recording question and, in apparent ignorance of Baccari (supra, which was not called to its attention in the briefs) and in contravention of seemingly direct precedent in point by way of analogy (Greene v Foremost Locations, 7 AD2d 780 [3d Dept 1958] [failure to index restrictive covenants in deed of common grantor means that said deed is not constructive notice]), held that the first recorded deed retained priority even though indexes are part of the record (75 AD2d, at 672). The court relied on Bake (supra), that the first grantee need not see to it that the deed was properly recorded, mere delivery to the recording officer being sufficient.

Interestingly, the respondent had argued (defendant-respondent’s brief, pt I, at 2-11, Record on Appeal No. 3674) that the trial court’s reliance on the Bill Jacket contents to the 1924 amendment to section 316 of the Real Property Law was misplaced because the document referred to therein was really ambiguous, not authored by a sponsor and did not discuss the significance or effect of the proposed amendment to make indexes part of the record. Respondent’s counsel opined that the purpose behind the amendment was to require recording officers to be "more careful” regarding indexing. (Respondent’s brief, supra, at 9.) These arguments were not discussed by the appeals court. However, Camfield (supra) may be reconciled with Baccari (supra) as holding that the first recorded document constitutes constructive notice where the recording officer is guilty of nonfeasance for failing to index the document at all.

Thereafter, in Henrietta Bldg. Supplies v Rogers (117 Misc 2d 843 [Sup Ct, Monroe County 1983]), Justice Tillman snythesized the legal principles discussed above and held that neither the first opinion in Chittick (230 App Div 410, supra) nor Camfield (75 AD2d 671, supra) were to be followed, as section 316 of the Real Property Law since 1924 means that an improperly indexed mortgage is not constructive notice that a recorded mortgage exists. The court further held that where, as there, conflicting affidavits raised a question of actual notice, the complaint would not be dismissed.

*15The court quoted from letters in the Bill Jacket pertaining to the 1924 amendment to section 316 of the Real Property Law and held (117 Misc 2d, supra, at 845): "Clearly, the amendment to section 316 in 1924 (L 1924, ch 582) was intended to enact that an error in indexing prevents the record from constituting constructive notice of the filed instrument. Until this amendment, the law had been governed by the Court of Appeals case, Mutual Life Ins. Co. of N. Y. v Dake (87 NY 256, 264), but wherein the court clearly indicated that it thought the law should be amended.”1

From this discussion it may be said that the state of the law regarding improper indexing of mortgages and priority rights is tortured and evolving. (See, 4A Warren’s Weed, New York Real Property, Recording, fl 4.04; 77 NY Jur 2d, Mortgages, §§ 110, 112; 92 NY Jur 2d, Records and Recording, § 81.) That the distinct principles of law uttered in the various cases has led to confusion is demonstrated by the following passage in 3A Warren’s Weed, New York Real Property (Mortgages, ¶ 8.03 [b], at 129): "An improper indexing by a clerk of a mortgage properly delivered did not impart constructive notice to subsequent mortgagors. As a result of the loss of priority, the first mortgage was subordinated to the second mortgage in time. It has been held that improper indexing by the clerk of a mortgage or assignment does not deprive the mortgagee or assignee of his or her priorities.” Clearly, a tension exists between the posits quoted above.

Other commentators on New York law in the real property and mortgage field appear to agree that indexing must be accurate or else the record does not constitute constructive notice. (2 Harvey, Real Property and Title Closing § 680; 1 Drussel and Foran, Mortgages & Mortgage Foreclosure in New York §§ 8.4, 8.5 [rev ed] [esp 1991 Cum Supp, at 165].) Of course, a mistake in indexing not induced by the mortgagee (O’Neill v Lola Realty Corp., 264 App Div 60, supra) does not invalidate the instrument but results in rendering the recorder liable for any loss the first to file mortgagee suffers on loss of priority. (Baccari v De Santi, 70 AD2d 198, supra; 66 Am Jur 2d, Records & Recording Laws, § 89.) This court believes that is the implicit intent behind the 1924 amendment to section 316 of the Real Property Law. (2 Merrill, *16Notice, § 1072 [1952].) Errors in indexing involving the name of the mortgagor are sufficient to vitiate constructive notice of record. (Id.; Note, Recording and Registry Laws, 52 Harv L Rev 170 [1938].) Thus, the court is of the opinion that the harm, if any, in cases of this kind vis-á-vis competing mortgagees must be borne by the party who presents the instrument for recording for, as it has been noted, that is the one party who can readily ascertain if the instrument was properly indexed as part of recording. As a practical matter, the court is aware of the fact that it is accepted practice for a representative of the title insurer (assuming one is used) to cause the instruments to be delivered to the public officials and the reality is that the title insurer for diverse reasons may be called upon to pay its client for the loss of priority or improper indexing. Better practice may now dictate that shortly after presentation of the document the title company (or filer) run an additional search as of the date of recordation to establish proper indexing. (Cf., Peoples Natl. Bank v Weiner, 129 AD2d 782, 785 [2d Dept 1987] [imposing similar duty on filer of UCC financing statements "to insure that those documents had indeed been received and recorded”].) In any event, if the mistake occurred through the fault of the recording official, ultimate liability lies there.

At bar, a vice-president of Chemical Bank has stated by sworn affidavit that the bank had no notice, actual or constructive, of the plaintiffs mortgage until the commencement of this litigation. Plaintiff offers no opposition to the motions and, it seems, that the issues must be resolved in Chemical’s favor.

Amicus Curiae

[The court denied leave to plaintiffs assignor’s title insurer to appear as amicus.]

Conclusion

While the court is persuaded that the 1924 amendment to section 316 of the Real Property Law overruled the rule of law pronounced in Mutual Life Ins. Co. v Dake (87 NY 257, supra) and its progeny (Henrietta Bldg. Supplies v Rogers, 117 Misc 2d 843, supra), even if the Dake principle has vitality today on a recording officer’s nonfeasance (Baccari v De Santi, 70 AD2d *17198, supra), a distinction without a difference in my opinion,2 this case involves misfeasance and, therefore, the plaintiff’s mortgage as improperly indexed does not constitute constructive notice. No triable issues of fact have been advanced or exist on this record regarding the question of actual notice of the existence of the plaintiff’s mortgage by Chemical Bank.

Accordingly, the complaint must be dismissed against Chemical Bank and the rights of the parties declared that Chemical’s subsequent mortgage has priority over plaintiff’s mortgage.

MARTINEZ, Justice.

In this case we consider whether an interest in the property' of homeowners, acquired through a fraudulent scheme, properly passed to purchasers without actual or constructive notice of the fraud. We examine the doctrine of inquiry notice, particularly notice of the rights of persons in exclusive possession of real property and of rights acquired by quitclaim deed. Because we find inquiry notice in the factual circumstances of *1203this case, we reverse the decision of the court of appeals. Martinez v. Affordable Hous. Network, Inc., 109 P.3d 983 (Colo.App.2005).

I. Facts and Proceedings Below

In the early fall of 1999, Affordable Housing Network, Inc. (AHN) sent a mail solicitation to Marvin and JoRene Martinez (collectively “Martinez”). The solicitation targeted homeowners who had fallen behind on their mortgage payments and were in need of financial assistance. AHN advertised financial counseling services, assistance with refinancing homes, assistance .with avoiding foreclosure, and other similar services. After contacting AHN, Martinez met several times with Tom Skaggs and E.W. Brossman, representatives of AHN. Skaggs and Brossman falsely claimed that AHN was a nonprofit, volunteer organization qualifying under section 501(e)(3) of the Internal Revenue Code. Skaggs and Brossman also falsely represented' to Martinez that AHN was part of a HUD-approved program affiliated with Fannie Mae. They offered to help Martinez refinance the home and, if that failed, help Martinez sell the property and purchase a new home with the remaining equity.

Based upon these representations, Martinez entered into an option agreement with AHN on October 2, 1999. Under the agreement, AHN had an option to purchase the property for an option fee equivalent to the amount needed to cure the mortgage deficiency. AHN could purchase the home under certain conditions, including that AHN cure the default within ten days arid place the deed into escrow with Rocky Mountain Title.1 The deed could be removed from escrow only after receiving written instructions from AHN and with proof that the two mortgages had been paid in full or would be satisfied at closing.

On October 7, 1999, Skaggs and Brossman met with Marvin and JoRene Martinez and asked them to sign a quitclaim deed to their home. Skaggs and Brossman told Martinez that the quitclaim deed was for AHN’s “protection” should the homeowners abandon the property once AHN cured the mortgage default.

On October 28, 1999, twenty-six days after the option agreement was executed, AHN cured the mortgage deficiency with a payment of $9,020.00 and subsequently put the property up for sale. Among the terms of the option agreement, AHN was to pay the arrears within ten days, declare in writing to the homeowners the intent to exercise the option, and deliver the deed into escrow. Although AHN failed to cure the mortgage default within the specified ten-day limit, Martinez never objected to the late payment.

For the next six months, Martinez cooperated with AHN’s efforts to sell the property. Martinez became increasingly dissatisfied with AHN’s lack of communication, lack of effort to refinance the home, and failure to show the couple comparable homes for purchase in the event their home sold. Martinez began receiving solicitations to refinance the home and, ultimately, Martinez decided to keep the home, refinance, and reimburse AHN the $9,020.00 for the deficiency.

Martinez testified that on May 2, 2000, a real estate agent telephoned the Martinez home because she wished to bring a potential buyer over to see the property. JoRene Martinez told the agent that she and her husband were no longer interested in selling their home and intended to refinance and pay the money owed to AHN for the deficiency.

The real estate agent “got silent on the plione” and the parties ended the call. The agent then contacted Brossman who in turn phoned JoRene Martinez and insisted that she allow the real estate agent to show the house.

When the real estate agent arrived at the Martinez residence, JoRene Martinez confronted the agent at her doorstep. JoRene Martinez again stated that she did not wish to sell the home and told the agent not to enter the home. The real estate agent ignored JoRene Martinez’ protests, pushed her way into the home, and proceeded to show the home to Overton, a Troco, Inc. investor. *1204Although Overton arrived with the real estate agent and was “right behind her” as she entered the home, Overton testified that he had no knowledge of JoRene Martinez’ statements to the agent or JoRene Martinez’ objection to their viewing of the property. Overton also claimed to be unaware of any fraudulent conduct on the part of AHN; however, none of the Troco investors — including Overton — sought any additional assurances from AHN, conducted a title search, or acquired title insurance before purchasing AHN’s interest in the property.

Several days after the real estate agent showed the property to Overton, the agent phoned the Martinez home and again spoke with JoRene Martinez. JoRene Martinez insisted that the real estate agent remove the sale sign from the yard and remove the lockbox for the realtor keys from outside the home. The real estate agent went to the Martinez home and removed the sign and lockbox that day.

Within the week, however, the Respondents, Troco, Inc. and Strong (collectively “Troco”), agreed to purchase AHN’s interest in the property for $25,000.00. Martinez was not informed of this agreement by AHN, the real estate agent, or Troco. On May 8, 2000, AHN completed and recorded the Martinez quitclaim deed.

Prior to recording the deed, AHN did not place the deed into escrow, did not inform Martinez of any arrangement to sell the property, and did not pay the balance of the two home mortgages or provide any proof that the mortgages would be satisfied at closing.

The next day, on May 9, 2000, AHN quit-claimed the property to Troco. The deed was recorded that same day. The mortgages were not paid.

The parties do not dispute that placing the deed into escrow was part of the agreement between AHN and Martinez. The parties also stipulate that AHN breached the terms of the agreement and AHN did not deliver the deed to Rocky Mountain Title to hold in escrow. Instead, AHN recorded the deed and conveyed its interest to Troco without the knowledge or consent of Martinez.

Troco purchased the home with the understanding that its interest was subject to the balance of the two mortgages totaling $112,646.00. However, the liens on the home were never assigned to AHN or Troco, and Martinez remained personally liable for the balance of the two mortgages. While Troco averred that it intended to pay the balance of the mortgages with the sale of the home, Troco assumed no actual obligation to do so. The profits from the sale to Troco were retained by AHN and distributed in part to Skaggs and the real estate agent. At no point did AHN offer to return the skimmed equity to Martinez.

On May 10, 2000, Martinez received a letter from AHN indicating that the home had been sold to Troco. In a letter dated May 18, 2000, Martinez was informed by Overton that Martinez had the option of repurchasing the home for $150,000.00 or vacating it by June 15, 2000. Martinez then filed suit.2 Pursuant to a court order, Martinez has remained in the home and has continued to make all mortgage payments on the home. As part of the order, the mortgage payments are said to be the equivalent of rent. Martinez contributes to the equity in the home in exchange for physical occupation of the home and the reduction of Martinez’ personal liability on the two mortgages.

At the close of. Martinez’ evidence, Troco moved for a directed verdict on the rescission claim. The trial court found that Martinez had abandoned the claim for rescission by failing to restore to AHN the option price that would have put AHN in the position it would have been in but for the contract. The court further reasoned that Troco was a bona fide purchaser entitled to rely upon the deed recorded by AHN. Based on these findings, *1205the trial court quieted title with Troco and dismissed the Martinez’ claims against them. A jury returned verdicts for Martinez and against the other defendants on all of the remaining claims.

Martinez raised a number of issues on appeal, the majority of which were appropriately resolved by the lower courts and will not be disturbed here. We address only those issues raised with respect to Martinez’ quiet title claim. In the argument to the appellate court, Martinez asserted that the trial court erred in quieting title with Troco on three grounds: 1) the property should have been returned to Martinez under Colorado’s stolen property statute, section 18-4-405, C.R.S. (2003)3; 2) the trial court improperly dismissed the Martinez’ rescission claim; and 3) the purchasers had notice of Martinez’ interests.

The court of appeals found that the stolen property statute was not applicable. The court went on to agree with the trial court that the rescission claim had been abandoned and that the purchasers received good title as bona fide purchasers for value. In reaching this result, the court found that the trial record supported the conclusion that the purchasers paid value, in good faith, and took title without actual or constructive notice of any defect.

We granted certiorari to determine whether the two quitclaim deeds resulted in valid title passing to bona fide purchasers.4

II. Analysis

Martinez argues that the deed to AHN is void because the deed was never delivered into escrow and, consequently, the conditions precedent to the release of the deed from escrow were never satisfied. In response, Troco asserts that Martinez was fraudulently induced to quitclaim the deed to AHN and fraudulent inducement renders the deed merely voidable. Therefore, Troco asserts, it is protected as a subsequent bona fide purchaser for value, notwithstanding the agreement between Martinez and AHN to hold the deed in escrow.

In Part A, we begin with a review of the determinations made by the courts below with particular focus on the courts’ treatment of whether Troco qualifies as a bona fide purchaser. In Part B, we address whether inquiry notice was triggered by the circumstances of this case. In that latter part of our analysis, we look closely at the factual circumstances of the ease to determine whether the knowledge of AHN’s fraud may be correctly imputed to Troco, thereby defeating Troco’s bona fide purchaser status.

A.

In its order quieting title with Troco, the trial court found that Martinez had abandoned the claim for rescission and that Troco was a bona fide purchaser entitled to rely upon the deed recorded by AHN. The court of appeals affirmed the trial court on both issues.

In its analysis of the rescission issue, the court of appeals correctly determined that Martinez signed the deed and that material changes to the deed were insufficient to render the deed a forgery. Thus, the deed was not void and the burden was on Martinez to rescind the fraudulently procured deed prior to its conveyance to a subsequent bona fide purchaser. The court correctly determined that Martinez’ failure to tender to AHN the $9,020.00 resulted in the abandonment of Martinez’ right to rescind. However, because a deed voidable for fraud only protects a subsequent purchaser if the subsequent purchaser took the property for value and without notice of any defect in title, see Upson v. Goodland State Bank & Trust Co., 823 P.2d 704, 705-06 (Colo.1992), the disposition of this case turns upon whether Troco was a bona fide purchaser.

*1206In the quiet title order, the trial court found that Troco was a bona fide purchaser of the property. The court of appeals subsequently affirmed, finding that Troco qualified as a bona fide purchaser because Troco paid value, in good faith, without any notice of defect in title. Martinez, 109 P.3d at 988-89. Upon examination of the record, we find no error with the determination that Troco paid value in good faith. A closer examination of whether Troco took the property without notice of a defect in title, however, is warranted.

We have traditionally recognized three forms of notice: actual notice, constructive notice, and inquiry notice. Franklin Bank, N.A. v. Bowling, 74 P.3d 308, 313 (Colo.2003). Actual notice occurs when a party has actual knowledge of a title defect. Id. While both “constructive and inquiry notice operate to impute knowledge to a party under certain specific conditions,” we recognize them as separate inquiries. Id. at 313 n. 11. Constructive notice arises where a search of the title records would have revealed a defect. See id. at 313. “Inquiry notice arises when a party becomes aware or should have become aware of certain facts which, if investigated, would reveal the claim of another.” Id. However, notice will not be “imputed to a purchaser if a reasonable search would prove, or would have proven, futile.” Littlefield v. Bamberger, 32 P.3d 615, 619 (Colo.App.2001).

From the record below, it is clear that Troco did not have actual notice of a defect in title. It is also clear that constructive knowledge of a defect in title cannot be imputed from the record title at the time of Troco’s purchase. The record title would have revealed that title was recorded in Martinez’ name, but it would not have revealed a defect in the then unrecorded quitclaim deed held by AHN, or the underlying fraud used to procure said deed.

The trial court addressed inquiry notice only briefly during the court’s oral order at trial:

This claim against them is really on the weakest thread, which is — is that at the time they went over to the house and Ms. Martinez expressed some regret about showing the house or about wanting to go through with it, that this should have put them on notice .... The law is not intended to ask bona fide purchasers to inquire into whether or not a manifestation of some outward response is ... buyer’s remorse.

At this stage of the trial, the court properly considered the facts in the light most favorable to Martinez by assuming that Troco had knowledge of the conversation between the real estate agent and JoRene Martinez. The court then found that this knowledge was not enough to give rise to a duty of inquiry.

The court of appeals largely adopted the trial court’s conclusion that inquiry notice had not been triggered. Martinez, 109 P.3d at 988-89. The court of appeals further held that even if a reasonable inquiry had been conducted, it “would have shown that AHN possessed legitimate title pursuant to the terms of an executed option agreement and that [Martinez’] possession of the property was in accordance with this agreement.” Id. at 989.

Both the trial court and the court of appeals concluded that even if an appropriate inquiry were conducted, such an inquiry would have led to the discovery of the option agreement, but would not have revealed the fraud of the underlying transaction. In its suggestion that an inquiry would have merely revealed “buyer’s remorse,” the trial court implicitly acknowledged the sales arrangement that was embodied in the option agreement. The court of appeals explicitly recognized that an inquiry would have led to the option agreement:

[T]he evidence at trial indicates that a reasonable investigation would not have revealed the fraud perpetrated by AHN. Instead, a reasonable inquiry would have shown that AHN possessed legitimate title pursuant to the terms of an executed option agreement and that [Martinez’] possession of the property was in accordance with this agreement.

Id.

We do not find any error with the analysis of the lower courts recognizing that the option agreement would have been discovered *1207upon reasonable inquiry. However, for reasons discussed below, we reject the conclusion of the lower courts that the facts of this ease did not require reasonable inquiry that would have revealed the underlying fraud.

B.

Because the court of appeals determined that an inquiry would not have revealed that the deed was voidable due to the underlying fraud, the court never fully addressed whether inquiry notice was triggered by the circumstances of this case. Mindful of the procedural posture of this case, we now examine the evidence presented at trial to resolve this issue before returning to the conclusion of the lower courts that a reasonable inquiry would have been futile.

Inquiry notice imputes knowledge where the circumstances are such that they would have aroused the suspicions of an ordinary purchaser. See Littlefield, 32 P.3d at 618-19. And, once there is a duty to inquire, the purchaser “will be charged with all knowledge that a reasonable investigation would have revealed.” Franklin Bank, N.A., 74 P.3d at 313; see also Burman v. Richmond Homes Ltd., 821 P.2d 913, 919 (Colo. App.1991).

It is well settled in Colorado that, with certain exceptions inapplicable here, possession of real estate is sufficient to put an interested person on inquiry notice of any legal or equitable claim the person or persons in open, notorious, and exclusive possession of the property may have. See Hitchens v. Milner Land, Coal & Townsite Co., 66 Colo. 597, 601, 178 P. 575, 576 (1919); Colburn v. Gilcrest, 60 Colo. 92, 94, 151 P. 909, 910 (1915); Yates v. Hurd, 8 Colo. 343, 344, 8 P. 575, 576 (1885); Tiger v. Anderson, 976 P.2d 308, 310 (Colo.App.1998).

This court has found that the rule applies where “the party having and alleging possession is the plaintiff in a suit to reform an instrument which purports to vest title to the land, so possessed, in another.” Hitchens, 65 Colo. at 601, 178 P. at 577. Further, where the party in possession is the sole tenant and lessee, certain circumstances may give rise to a duty to inquire as to their rights as tenants beyond mere possessory rights. See Cohen v. Thomas & Son Transfer Line, Inc., 196 Colo. 386, 388, 586 P.2d 39, 41 (1978).

In Cohen, we rejected the assertion that a prospective purchaser with constructive notice of the lessee’s tenancy has only the limited duty to inquire about the possessory rights of the tenant. Id. The party in possession of the property in Cohen was the lessee of a commercial property which had been conveyed from the lessor/grantor to a third-party grantee. Id. at 387, 586 P.2d at 40. The lessee sought specific performance of a right of first refusal contained in the lease. Id. The lease was never recorded, and the lease term had actually expired at the time of the sale. Id. Although the purchasers were aware of the existence of the expired lease, they never asked to see the lease, nor did they question the lessee. Cohen, 196 Colo. at 387-88, 586 P.2d at 40. Under those circumstances, we concluded that a “reasonable inquiry would have included inquiry of the lessee who was the sole tenant in possession.” Id. at 388, 586 P.2d at 41.

The present case is not dissimilar on the facts. Troco was aware that Martinez was in physical possession of the property. Troco also had a duty to inquire as to Martinez’ rights as a lessee, and is deemed to have constructive notice of those rights. Id. at 388, 586 P.2d at 40. See also Cook v. Hargis, 164 Colo. 368, 376, 435 P.2d 385, 390 (1967). Here, the lease agreement was contained within the option agreement. Thus, Troco was on inquiry notice of Martinez’ rights as contained in the option agreement. As in Cohen, the lessee had both tenancy and possessory rights contained in an agreement of which the purchaser had inquiry notice. Consequently, Troco had a duty under the circumstances to inquire as to both the Martinez’ possessory and tenancy rights.

In determining that the circumstances of this transaction were sufficient to put Troco on inquiry notice, we also consider that these conveyances were made by quitclaim deeds.

Colorado has rejected the now disfavored notion that a quitclaim deed is enough, in itself, to put a purchaser on notice of a defect *1208in title. Franklin Bank, N.A., 74 P.3d at 313 n. 12. Although it is true that a quitclaim deed does not convey title but only that interest that the grantor has to convey, we do not find this limitation so unusual that a purchaser should, on this basis alone, be wary of the validity of this type of conveyance. However, while a conveyance by quitclaim should not automatically raise suspicion, it should not shield a transaction from scrutiny either. When a grantor chooses to convey property by quitclaim, an element of risk is imposed upon the buyer that would not otherwise be present if the conveyance were by warranty deed. Thus, although by no means dispositive, a conveyance by quitclaim is a significant factor to be considered when assessing inquiry notice. See id.

Here, there were two back-to-back quitclaim conveyances. Troco purchased the second quitclaim deed from AHN without conducting a title search or making any further inquiry into the transaction. Troco also purchased the property fully aware that the Martinez’ two recorded mortgages had not been satisfied. It does not appear that Troco made any inquiry as to why the property remained subject to these liens. From the buyer’s standpoint, this is an unusual transaction to simply accept at face value.

Pursuant to two back-to-back quitclaim conveyances — neither of which satisfied the attendant mortgages prior to sale — Troco purchased the property from AHN fully aware that Martinez was in physical possession of the property. We find that an ordinary purchaser in Troco’s position would have been suspicious of the circumstances surrounding this transaction and should have inquired further. A reasonable inquiry would have included both an inquiry into Martinez’ tenancy rights as well as into Martinez’ possessory rights. Moreover, a reasonable inquiry into the tenant’s rights in this case would have led, without further inquiry, to the possessory interests precisely because the lease was contained in the fraudulent option agreement.

Although it was not necessary for the trial court to resolve the issue of whether Troco was aware of the conversation between JoR-ene Martinez and the real estate agent in a mid-trial order, it is a circumstance relevant to inquiry notice. If Overton was aware of JoRene Martinez’ statements to the real estate agent (i.e., her statements that they did not wish to sell their home, planned to repay AHN, and remain in the home), her statements would have put Troco on notice that there was a potential problem with the quitclaim conveyance to AHN. JoRene Martinez’ statements, described by the trial court as “buyer’s remorse,” indicated a conflict in the ownership of the property.

Contrary to the trial court’s legal conclusion, it is not too much to ask that a buyer make further inquiries when made aware that the person in physical possession of the property believes they are in fact the true owner of the property. When a reasonable person is made aware that someone in physical possession of property claims ownership, the prudent course of action is to make further investigations.

Whether Troco was aware of JoRene Martinez’ statements is a relatively minor consideration in our- analysis of inquiry notice in this case. That Troco knew Martinez was living in the home, especially when considered together with the quitclaim deeds and unsatisfied mortgages, created a duty on the part of Troco to inquire further.

As noted in Part A and in our discussion of tenancy rights, a reasonable inquiry would have led to the option agreement between Martinez and AHN. The lower courts concluded that the discovery of the option agreement would not have revealed the underlying fraud. Martinez, 109 P.3d at 989. However, upon review of the agreement, we find this conclusion in error.

By its express terms, the option agreement would have plainly revealed that AHN had not purchased the quitclaim deed according to the option terms. This conclusion may be drawn from Troco’s averment that they took the quitclaim deed subject to the mortgages, in conjunction with the plain language of the option agreement that required that the two mortgages be satisfied as a condition precedent to the release of the deed from escrow. Given that Martinez remained liable on the mortgages and the property remained subject to the liens when Troco purchased the property, it would have been apparent that *1209the conditions of the contract were breached byAHN.

In sum, a reasonable investigation would have revealed the option agreement and the underlying fraud. Hence, because Troco had a duty to inquire, we impute the knowledge of the contract breach and resultant defect in delivery of the deed to Troco. Therefore, Troco is not protected as against Martinez’ claim, because Troco was on inquiry notice that the deed was fraudulently procured.

III. Conclusion

We conclude that the trial court erred when it found at mid-trial that Troco was a bona fide purchaser without notice. Accordingly, we reverse the decision of the court of appeals affirming the trial court’s quiet title order. We remand for further proceedings consistent with this opinion.

“Under New York’s Recording Act (Real Property Law § 291), a mortgage loses its priority to a subsequent mortgage where the subsequent mortgagee is a good-faith lender for value, and records its mortgage first without actual or constructive knowledge of the prior mortgage” (Washington Mut. Bank, FA v Peak Health Club, Inc., 48 AD3d 793, 797 [2008]). Here, at the time *681the plaintiff, Lend-Mor Mortgage Bankers Corp. (hereinafter Lend-Mor), received a mortgage on the subject property for the sum of $244,000, a prior mortgage in favor of the defendant Ameriquest Mortgage Company (hereinafter Ameriquest) was unrecorded and did not appear in the chain of title. On its motion for summary judgment, Lend-Mor demonstrated its prima facie entitlement to judgment as a matter of law (see Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]) by establishing that its mortgage was valid and superior in priority to Ameriquest’s mortgage. Lend-Mor provided evidence establishing that it gave valuable consideration for its recorded mortgage, and that it did not have actual knowledge of Ameriquest’s unrecorded mortgage or knowledge of facts that would have put it on “inquiry notice” of that mortgage (see Real Property Law § 291; Washington Mut. Bank, FA v Peak Health Club, Inc., 48 AD3d at 797). Lend-Mor obtained a title search which did not contain any indication that the subject property was encumbered by the Ameriquest mortgage. To the contrary, both the mortgage application and a credit report indicated that the Ameriquest mortgage at issue encumbered a different property. Since, in opposition, Ameriquest failed to raise a triable issue of fact, the Supreme Court correctly granted that branch of Lend-Mor’s motion which was for summary judgment declaring that the mortgage held by it was superior in priority to the mortgage held by Ameriquest (see Alvarez v Prospect Hosp., 68 NY2d at 324). Moreover, the court properly denied that branch of Ameriquest’s cross motion which was for summary judgment declaring, inter alia, that the mortgage held by it was superior in priority to the mortgage held by Lend-Mor.

We do not reach Ameriquest’s contention concerning that branch of its cross motion which was to compel Lend-Mor to respond to certain discovery demands. That branch of the cross motion was not addressed by the Supreme Court in the order appealed from and remains pending and undecided (see Mobarak v Mowad, 55 AD3d 693, 694 [2008]; Magriples v Tekelch, 53 AD3d 532 [2008]; Moncrief v DiChiaro, 52 AD3d 789, 790 [2008]; Katz v Katz, 68 AD2d 536, 543 [1979]). Rivera, J.P., Miller, Dickerson and Roman, JJ., concur.