Sale of Property

Statute of Frauds

• Essential terms

  • Names of parties

  • Price

  • Property description

• In writing

• Signature by party sought to be bound

Exceptions to SoF

• Partial performance (buyer takes possession, improvements begin, payments begin, etc)

• Estoppel:

  • Reasonable reliance (if you leapt without looking - that’s on you)

  • Substantial change in position (in many jx - part performance is necessary to indicate reliance)

  • Only way to avoid injustice

Marketable title

·         Marketable title

o   Reasonably free from doubt about its validity. - what a reasonably prudent person would accept on a title to be free of liabiltiy or injury arising from the title.

o   Unmarketable:

§  Seller’s property interest is less than one she is obligated to convey OR

§  Seller’s title is subject to encumbrance OR

§  There is reasonable doubt to either one.

Unmerchantable and encumberances

§  Private restrictions (encumbrances): DO, in absence of easement of record/waiver of restrictions count as encumbrances

§  Public restrictions (encumbrances): do NOT generally make title unmarketable bc would cause nearly all properties/titles impacted unmarketable.

§  Unmarketability application:

·         Unmarketable as encumbrance if title restriction exposes title holder to litigation

·         Defect MUST be substantial AND be able to cause injury to the holder.

·         Immaterial defects that do not diminish quality or value of title do not apply

§  Restrictions (set back rules, subdivision rules, city ordinances, etc):

·         If existing at the time of sale ARE technically encumbrances on the title, BUT probably are NOT ecnumberances such that the buyer can be released from the k on unmarketability grounds – BUT such restriction ARE encumbrances able to void sale when:

o   the condition of the property in conflict with those restrictions will expose the holder to substantial harm or legal action.

·         Easement of record: encumbrances/restrictions that are known and documented.

·         It is the violation of restrictions imposed by ordinances and the subdivision, NOT the existence of the restrictions that renders the title unmarketable.

  ***Majority rule - Implied condition of marketability: default rule that titles should be marketable, even without an express condition on that in the k.

Insurable and record title

• Insurable title

  • Bowers title would NOT have been insurable bc of the legal liabilities that created the issue.

  • One that a title insurance co would be wiling to insure at normal rates.

  • Insurers eval risk and therefore may ignore minor defects to title, so less protection than a marketable title standard.

• Record title: whatever is in the public records. Will not protect against forgeries or errors, however.

• Natural features such as flood zones are not encumberances on marketable title. Partial property or adverse possession would, however.

Equitable Conversion

• Precontract: Seller is legal and quit owner

• Exec phase: S is legal owner, Buyer is quitowner

• CLosing and post closing: B is both legal and quit owner

• Rule from Brush: if party is not in possession, than it is not equitable to make that party liable.

• Common law equitable conversion rule: sucks to suck, buyer

Duty to disclose

• Caveat emptor: buyer beware is almost all gone.

  • No duty on seller to disclose and buyer had complete duty to assess.

  • Seller only liable if affirmatively misrepresented the premises/conditions OR owed fidicuiary duty.

• Majority rule: seller obligation to disclose

  • Known defects that

    • Materially affect the value AND

    • are not readily known/discoverable by the buyer

  • Note: SHOULD have known by the seller is not the standard, seller must actually know

• Ghost case: where the adverse condition was created by the seller and/or seller was uniquely situated relative to buyer to know (example: placing the hosue on the haunted house register) duty is on the sller to disclose. Buyer not situated to be aware of reputational harms created by the seller.

Delivery of Deed

• Need actual delivery AND

• Intent

• Rosengrant: the grantors intended for the P to get the deed but only after they died. Constructive evidence contra to their other eivdence of donative intent - they kept using the property!

Breach and remedies

• Specific performance (not avail usually for seller)

  • Impossibility, adequacy of remedy, hardship

• Benefit of bargain (difference between purchase price and fair market price)

• Resitution

Assurance of title

• Title covenants (General Warranty Deed is strongest here)

• Title opinion (thorough and diligent search of chain of title)

• Title insurance (fall back for lapses above)

Present covenants

o   Covenant of Seisin: promise by grantor that he is “seized of estate the deed purports to convey”. The grantor owns the estate he says he is conveying to the grantee. (breached if you said you had a FSA and only had a life estate)

o   Covenant of right to convey: promise that grantor had legal right to convey the estate and title. (Example: breached by grantor is a trustee who lacks authority to make the transfer.)

o   Covenant against encumbrances: grantor promises there are no encumbrances on the land NOT expressly listed in the deed. (Example: breached if there are existing mortgages not disclosed on the property.)

Future Covenants

o   Covenant of quiet enjoyment:

§  Grantor promises grantee’s possession of property will not be disturbed by anyone holding superior title (implied in leases but must be express in deeds). Requires constructive eviction.

o   Covenant of warranty

§  Grantor warrants that the grantor will defend the title against claims of superior title.

o   Covenant of future assurances: grantor promise to take whatever steps are required in future to vest the grantee w/title deed purported to convey/cure defects existing at closing.

Types of Deeds

• General warranty

  • Assusrances in covenants on all defects before and after grantor had title

  • Most common

• Special warranty

  • Only defects arising after grantor had title (nothing before!)

• Quitclaim deed

  • Nothing but what the grantor has

Recording System

o   Bona Fide Purchaser:

§  Purchaser

§  Don’t have notice of somebody else’s interest

§  A BFP’s interest CAN cut off a prior unrecorded interest.

o   Race jx: purchaser who records first has priority (2 states). He who wins the race to record.

o   Notice jx (last BFP wins):  the subsequent BFP purchaser has priority IF he takes without notice of prior interests. Purchaser does NOT have to record to gain priority.

o   Race-notice jx (first BFP wins UNLESS): a race-notice statute protects the subsequent purchaser for value who BOTH:

§  Pays value AND

§  Takes without notice AND

§  Records first

o   NOTE: donee vs purchaser doesn’t matter UNLESS there’s a BFP competing with the donee for interest.

NOTE: a wild deed will cause the loss of place for previous BFPs in Race-Notice jx

Types of Notice

o   Actual: explicit, verbal.

§  Example: A plans to sell to B; A tells B that C has an easement on her land. B has actual notice of C’s interest.

o   Constructive (aka Record) Notice:

§  Properly recorded deed and search would have discovered the interest.

§  A plans to sell to B; if B searched the records he would find a deed by which A granted an easement

o   Inquiry (similar to constructive notice): something party that WOULD be discovered observe that should have triggered investifation for defects